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Loan Sanction, Classification and Recovery Processes of AB Bank Ltd

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					1.1 INTRODUCTION


Bank is the lifeblood of an economy to keep the wheels moving forward and to play the
pivotal role in the economic development of the country. The present economic state of
Bangladesh demands immediate development of the financial institutions. Banking sector has
lot of areas to improve upon. One of the measures to improve this condition is to introduce
tailor made professional programs that are designed to develop the managerial efficiency.

As fulfillment of the BBA program well arranged by Department of Accounting &
Information Systems, Faculty of Business Studies, University of Dhaka I had to undergo a
three months internship program which is a practical orientation stage and will definitely
guide to employ the potentials to build up a successful professional career.

After participating in the internship program conducted on AB Bank Limited I am assigned to
submit a report on “Loan Sanction, Classification and Recovery Processes of AB Bank Ltd. “
The report helps significantly to build a perception about day to day affairs of the bank. This
report attempts to describe the functions of a branch of commercial bank and some
recommendation for improvement and efficiency of some of those functions.

The prime objective of the study is to find out empirically how a commercial bank carries out
the functions of Credit Management.


1.2 ORIGIN OF THE REPORT


The report is an attempt to provide an orientation to real life scenario in which one can
observe and evaluate the use and applicability of theoretical concepts that were taught in
BBA program. During the internship program, I was assigned to AB Bank Limited (ABBL),
Loans & Advance department at Rokeya Sharani Branch, Dhaka to observe practical
applications of my theoretical knowledge. Finally a report with proper analysis and possible
solution of the organization needs to be submitted to Assistant Professor Rumana Ahmed,
supervisor of internship program, University of Dhaka.

1.3 BACKGROUND OF THE STUDY


Academic knowledge is far away from the practical knowledge. It is quite impossible practice
all the academic assets in the venality. Sometimes institution is very much effective for
managerial decision and also to continue with the ongoing global business trend rather than
theoretical aspects, which are learnt in the institutions. On the other hand as the world is
becoming abridged with the passes of time due to alarming innovation of modem technology
and at the same time people are getting radically danged for sociality and business reasons, it
is quit impossible to deal with day-to-day transaction without the extending help of banking
sector.




                                               1
Bank plays an important role in the business sectors and in the industrialization of a country.
Basically the banks take deposits from the customers against interest and lend it to borrowers
against interest for a cessation period. Under these circumstances of bank offers different
interest rates and other options are very common among all the banks, but only the customer
services and other facilities vary from bank to bank. In our country there are 4 types of bank
there are central bank, nationalized bank, private commercial bank (Islamic and traditional)
and foreign commercial bank (Islamic and traditional). Here we make an assessment on the
general banking and credit work of a nationalized commercial bank called National Bank
Limited and lastly a regression line has been developed along with correlation to have an
objected oriented output in future.

1.4 RATIONAL OF THE STUDY

Due to the increased competition of the increased number of the commercial banks and the
growing economy the expectations of the customers have also increased than ever before.
Realizing the present condition banks specially the commercial banks are trying to elevate
their loan giving service as much as reachable they can to their protective and potential
customers. , the most serious difficulty facing the financial sector is the high level of interest
rates. With lending rates at the level of 15 per cent to 17.5 per cent and inflation rate at 8 per
cent the real interest rate is about 10 per cent. The high interest rate for bank loans drive
down the return to capital and leads to reduced investment. So it is the duty of the top
management of the commercial banks to work with the situation and it ease to the customer
to test the loan achieving experience.

1.5 OBJECTIVES OF THE STUDY


The primary objectives to submit a report, for the fulfillment of my BBA program, and to
find out the Loan & Advance Banking operation by AB BANK LIMETED.

Secondary objectives are to gather comprehensive knowledge on total banking functions &
the expectations of the customer regarding the service level of the bank , to identify the
factors contributing to the attractive & operative performance of the local branch of the bank,
to make a study of the facts in order to arrive at certain conclusion about Export Import
banking operation & foreign exchange system, and critically analyze the functions & the
operations of each level of the organization of the AB BANK LTD. are also its secondary
objectives.


> To trace out the origin of the ABBL
> To evaluate the affairs and activities of the bank.
> Evaluation of the present performance of the bank.
> To assess the strengths and weaknesses.
> To gain knowledge about the deposit and credit management strategies of the Banking
sector and to evaluate how well bank is doing in its Deposit and Credit Scheme.
> To identify the limitations and possible weak points of successful/effective credit
management system.
> To analyze the disbursement and recovery performance of loan and advances.
> To understand the needs and objectives of Credit management.
> To find out the satisfaction level of the clients with the financial products and deposit


                                                2
schemes provided by the bank.
> Market feasibility of different schemes and financial products offered by the ABBL

> To suggest general and specific guideline for the total improvement of credit services of
ABBL
> To investigate empirically the overall aspects and every possible reason through
multivariate methodology.


1.6 COVERAGE OF THE STUDY


This report is based on my observation & studies during my internship period in Credit
department of ABBL at Rokeya Sharani Branch. The study covers the bank‟s Loans &
Advances Department of AB Bank Ltd.

1.7 METHODOLOGY & SOURCES OF THE DATA

It is tried, in the study, to identify the policy scenario and recommendations of loans &
Advances of ABBL. Some existing reports, working papers, websites are also surveyed. In
order to make the study meaningful and presentable, both primary and secondary sources of
data have been used.

Primary sources of data are collected through face-to-face conservation with respective banks
officers, staffs and clients.

Secondary sources consist of several reading materials such as circulars, brochures, annual
reports, internet and branch report.

The required data and information to prepare the assignment have been collected from the
followings sources:

a. Procedure means published by the ABBL, Head office.
b. Files and documents of the branch.
c. Personal interview with branch officials and Executives.
d. Circulars issued by the ABBL and Bangladesh Bank.
e. Practical experience gained by visiting and working different desks during the internship
period.

This assignment has been prepared on the basis of experience gathered during the period of
12 weeks pre-internship. To make any repot or statistical survey the more data I take under
consideration the more it will reflect actual situation. But due to various limitations I could
not provided enough data.




                                                3
1.8 LIMITATION OF THE STUDY

This Internship Report is my first assignment outside of our course curriculum in the practical
life. I, the student of Dept. of Accounting & information systems, just have completed our
formal educational stage. After completing the institutional experience, practical performance
in the formal stages becomes difficult. So in performing this report our Jack of proper
knowledge greatly influenced in this performance. Besides, I have to face some other
limitations which are:

Time Limitation:

       The time for the study was short to make and in-depth report.

Non availability of adequate data:

       It was very tough to collect data for making a comparative study on the performance
& the different banks credit schemes. So I was not able to gather all banks data for preparing
a more in depth presentation.

Lack of experience:

        Experience makes a man efficient. I am not experience enough to complete the study
because I am a person of new hand on such study. That is why inexperience creates obstacles
to follow the systemic approach and logical research methodology.

Lack of combination:

       Improper combination among various departments

Lack of Up-to-date Information:

       Up-to-date information was not available.

Lack of records:

      Sufficient books, Publications, Fats and Figures are not available. These constrict
narrowed the scope of accurate analysis. If these limitations were not been there, the report
would have been more useful and attractive.




                                               4
2.1 CORPORATE INFORMATION OF AB BANK LIMITED


Name of the Company
AB Bank Ltd
Legal Form: A public limited company incorporated on 31st December, 1981 under the
Companies Act, 1913 and listed in the Dhaka Stock Exchange Ltd and Chittagong Stock
Exchange Ltd.

Commencement of Business
27th February 1982




2.2 BACKGROUND OF AB BANK LIMITED

AB Bank Limited has its prosperous past, glorious present, prospective future. AB Bank
Limited, the first private sector bank under Joint Venture with Dubai Bank Limited, UAE
incorporated in Bangladesh on 31st December 1981 and started its operation with effect from
April 12, 1982.

Dubai Bank Limited (name subsequently changed to Union Bank of the Middleast Limited)
decided to off-load their investment in AB Bank Limited with a view to concentrate their
activities in the UAE in early part of 1987 and in terms of Articles 23A and 23B of the
Articles of Association of the Company and with the necessary approval of the relevant
authorities, the shares held by them in the Bank were sold and transferred to Group "A"
Shareholders, i.e. Bangladeshi Sponsor Shareholders.

As of December 31, 2007; the Authorized Capital and the Equity (Paid up Capital and
Reserve) of the Bank are BDT 2000 million and BDT 4511.59 million respectively.
Authorized Capital of the Bank has been increased to BDT 3000 million in the Extra
Ordinary General Meeting held on July 16, 2008.

Since beginning, the bank acquired confidence and trust of the public and business houses by
rendering high quality services in different areas of banking operations, professional
competence and employment of the state of art technology.

During the last 26 years, AB Bank Limited has opened 73 Branches in different Business
Centers of the country, one foreign Branch in Mumbai, India and also established a wholly
owned Subsidiary Finance Company in Hong Kong in the name of AB International Finance
Limited. To facilitate cross border trade and payment related services, the Bank has
correspondent relationship with over 220 international banks of repute across 58 countries of
the World.




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AB Bank Limited, the premier sector bank of the country is making headway with a mark of
sustainable growth. The overall performance indicates mark of improvement with Deposit
reaching BDT 53375.35 million, which is precisely 26.85% higher than the preceding year.
On the Advance side, the Bank has been able to achieve 30.76% increase, thereby raising a
total portfolio to BDT 40915.35 million, which places the Bank in the top tier of private
sector commercial banks of the country.

On account of Foreign Trade, the Bank made a significant headway in respect of import,
export and inflow of foreign exchange remittances from abroad.



2.3 VISION OF AB BANK LIMITED

"To be the trendsetter for innovative banking with excellence & perfection"



2.4 MISSION OF AB BANK LIMITED

"To be the best performing bank in the country"



2.5 OBJECTIVES OF ABBL

       Bringing modern Banking facility to the doorstep of general public through
       diversification of Banking services, thereby arousing saving propensity among the
       people.
       Foreign a cordial, deep-rooted and firm banker-customer relationship by dispensing
       prompt and improved client‟s service.
       Taking part in the development if the national economy through productive
       deployment of the Bank‟s resources as well as patronizing different social activities.
       Connecting clients to modern banking practice by the best application of improved
       information technology, so that they get encouraged to continue and feel proud of
       banking with ABBL.
       Ensuring highest use of the professional workforce through enhancement of their
       aptitude and competency.
       Responding to the need of the time by participating in syndicated large loan financing
       with likeminded Bank‟s of the country, thereby expanding the area of investment of
       the Bank.
       Elevating the image of the Bank at home and abroad by sustained expansion of its
       activities.
       Ensuring maintenance of capital adequacy, comfortable liquidity, asset quality and
       highest profit through successful implementation of the Management Core Risk
       program.




                                              6
2.6 BUSINESS IDEOLOGY:

Alongside providing best service to the clients, patronizing and taking part in social
development activities as well as making due contribution to growth of the national economy.


2.7 BUSINESS STRATEGY:

The strategy of ABBL is to create and attitude toward savings by giving various multi-
banking services at the door of the clients. It can increase its branches even in Upazila level.
Another strategy may be to create deeper and cordial relation between bank and clients
through quick, prompt and developed client services. Bank can participate in financial and
social programs through investment. To facilitate the clients by use of advance “Information
Technology”.

2.8 BRANCHES OF ABBL:

ABBL started its journey through its first branch at, 102 Kazi Nazrul Islam Avenue, BSEC
Bhaban, Karwan Bazar, Dhaka 1215, on April 12, 1982, as a first Joint Venture Bank in
Bnagladesh. The Bank is now at 27 years of age and meanwhile it has established as many as
73 branches throughout the country and made a smooth and comprehensive network inside
the country as well as around the globe.

At present area wise Branches of the Bank around the country is presented below:

Region                                              Number of Branches
Dhaka Division                                      28
Chittagong Division                                 23
Khulna Division                                     6
Rajshahi Division                                   7
Sylhet Division                                     8
Barisal Division                                    1


2.9 BOARD OF DIRECTORS:

AB Bank Ltd. the Board of Directors has been conceived as the sources of all headed by its
chairman. It is a legislative body of the Bank. Board can delegate its power and authority to
professional but cannot delegate relinquish or avoid their responsibilities.

2.10 MANAGEMENT COMMITTEE:

The board delegates its functional responsibilities of the professional management team
headed by Managing Director. He is an ex-officio of the Board of Director and has to take the
full load of carrying out the guidelines, rules and regulations. He has to provide all vital
information to the Board of Director time to time for their knowledge and effective decision
making.



                                                7
2.11 DIVISION OF ABBL

The Bank has strict control over its all organizational activities. The Bangladesh Bank
directives indicate some control measures. The central bank conducts credit inspection by a
team. The AB Bank Ltd has audit and inspection department to take controlling measures in
internal operations. Audits and inspection team send to the branches now and then is
responsible for preparing report that will be submitted to the Chief Administration to take
necessary actions. Name of the divisions of ABBL are as follows:

                     Human Resource Division.
                     General Banking Division.
                     Audit and Inspection Division.
                     Credit Card Division.
                     Finance and Administration Division.
                     Marketing Division.
                     CRM Division
                     Retail Banking Division
                     IT Division
                     Reconciliation Division
                     Dispatch.
                     Accounts Division.
                     Remittance.
                     Public Relation.
                     Law and Recovery Division.
                     Foreign Exchange Division.
                     Merchant Banking Division.

Two Special Divisions:

    Special Audit Division.
    Tax Department.




                                             8
2.12 HIGHLIGHTING ROKEYA SHARANI BRANCH OF AB BANK LTD.

AB Bank, Rokeya Sharani Branch (RKYS) is of larger branch of ABBL is located at
Shewarapara, Mirpur, Dhaka. Different types of business organization is doing their business
in this area. But there were few financial institutions for assisting the business organization in
that area. The Board of Director decides that they established the branch of AB Bank Ltd. at
Shewrapara, Rokeya Sharani, Mirpur, Dhaka.

Rokeya Sharani Branch of ABBL was established in the 2002 with a view to contribute in the
expansion of small and medium industries and commercial activities by giving short, medium
and long term loan or advance to the entrepreneurs in the commercial area of Mirpur.



2.13 MANAGEMENT HIERARCHY OF AB BANK (ROKEYA SHARANI BRANCH)

From the top to the bottom Management body of can be divided into four levels

       Top level Management
       Executive level Management
       Mid level Management
       Junior level Management




                                                9
              HIERARCHY OF AB BANK (ROKEYA SHARANI BRANCH)




                    Relationship
                    Manager &                                                              Credit Admin in
                    Head of Branch                                                         charge 1E


  Relationship       Relationship           Relationship
  Officer            Officer (SME) -        Officer (Retail)
                                                                                Credit             Credit
  (Corporate)-0E     2E                     -1E
                                                                                Monitoring -0E     Recovery- 0E



                                                               Operation
                                                               Manager




       General Banking       Priority            Customer                  Foreign Trade         Concurrent
       In charge -1E         Banking -0E         Service Desk -1E          In Charge -0E         Auditor-0E




Cash In       Acc Opening,           Local Remittance &        Foreign               FCD -1E     GSD & IT
Charge-1E     Cheque book-2E         Clearing -4E              Remittance -0E                    -1E



Cash
Handling-7E


  * E = Employee.




                                                   10
2.14 ABBL PRODUCTS AND SERVICES


 2.14.1 RETAIL BANKING


 Unsecured Loans

 Product Name       Personal Loan

 Target Customer Employees of reputed Local Corporate, MNCs, NGOs, Airlines,
                 Private Universities, Schools and Colleges, International Aid
                 Agencies and UN bodies, Government Employees, Self-employed
                 Professionals (Doctors, Engineers, Chartered Accountants,
                 Architects, Consultants), Businessmen.

 Purpose            Marriages in the family, Purchase of office equipment / accessories,
                    Purchase of miscellaneous household appliances, Purchase of
                    Personal Computers, Purchase of audio-video equipment, Purchase of
                    furniture.

 Loan Amount        Minimum Tk. 25,000.00
                    Maximum Tk. 5,00,000.00

 Charges            Application fee: Tk. 500.00
                    Processing fee: 1% on the approved loan amount or Tk. 2000.00
                    whichever is higher

 Tenor              Min 12 months
                    Max 36 months

 Rate of Interest   14.50% p.a. - 17.50% p.a.

 Security           Hypothecation of the product to be purchased. Two personal
                    guarantees (as per our list of eligible guarantors)



 Product Name       Auto Loan

 Target Customer Employees of reputed Local Corporate, MNCs, NGOs, Airlines,
                 Private Universities, Schools and Colleges, International Aid
                 Agencies and UN bodies, Government Employees, Self-employed
                 Professionals (Doctors, Engineers, Chartered Accountants,




                                           11
                   Architects, Consultants), Businessmen

Purpose            To purchase Brand new vehicle, non-registered reconditioned vehicle

Loan Amount        70% for the brand new car
                   60% for the reconditioned car but must not exceed BDT 10,00,000.00

Charges            Application fee: Tk. 500.00
                   Processing fee: 1% on the approved loan amount or Tk. 5000.00
                   whichever is higher

Tenor              For Reconditioned Car: Max 36 months
                   For Brand new Car: Max 60 months

Rate of Interest   14.50% p.a. - 17.50% p.a.

Security           Hypothecation of the vehicle to be purchased. Two personal
                   guarantees (as per our list of eligible guarantors)



Product Name       Easy Loan (For Executives)

Target Customer The loan is specially designed for salaried people who are employed
                in different reputed companies

Purpose            Marriages in the family, Purchase of office equipment / accessories,
                   Purchase of miscellaneous household appliances, Purchase of
                   Personal Computers, Purchase of audio-video equipment, Purchase of
                   furniture, Advance rental payment, Trips abroad,
                   Admission/Education fee of Children etc.

Loan Amount        Minimum Tk. 50,000.00
                   Maximum Tk. 3,00,000.00

Charges            Application fee: Tk. 500.00
                   Processing fee: 1% on the approved loan amount or Tk. 1000.00
                   whichever is higher

Tenor              Min 12 months
                   Max 36 months




                                          12
Rate of Interest   16.00% p.a.

Security           Letter of confirmation from the employer. One personal guarantee (as
                   per our list of eligible guarantors)



Product Name       Gold Grace - Jewellery Loan

Target Customer Both female & male employees may apply viz. employees of reputed
                Banks & Leasing companies, reputed Local Corporate, MNCs,
                NGOs, Airlines, Private Universities, Schools and Colleges,
                International Aid Agencies and UN bodies. Government Employees.
                Self-employed Professionals (Doctors, Engineers, Chartered
                Accountants, Architects, Consultants). Businessmen with a reliable
                regular source of income.

Purpose            To purchase ornaments/Jewellery for personal use

Loan Amount        Minimum Tk. 50,000.00
                   Maximum Tk. 3,00,000.00

Charges            Application fee: Tk. 500.00
                   Processing fee: 1% on the approved loan amount or Tk. 1000.00
                   whichever is higher

Tenor              Min 12 months
                   Max 36 months

Rate of Interest   16.00% p.a.

Security           Letter of confirmation from the employer. Personal guarantee from
                   the parents and spouse (if married)



Product Name       House/Office Furnishing/Renovation Loan

Target Customer Expatriate Bangladeshi nationals who are in business or service
                holders. Employees of reputed Banks & Leasing companies, reputed
                Local Corporate, MNCs, NGOs, Airlines, Private Universities,
                Schools and Colleges, International Aid Agencies and UN bodies.
                Government Employees. Self-employed Professionals (Doctors,



                                          13
                   Engineers, Chartered Accountants, Architects, Consultants). Reputed
                   and highly respectable Businessmen with a reliable source of income

Purpose            House/Office Furnishing/ Renovation, For interior decoration / Titles
                   Stones, Electrical fittings, wooden cabinets / Overall furnishing and
                   all types of House/Office Renovation, purchase/furnishing of
                   apartments etc.

Loan Amount        Minimum Tk. 1,00,000.00
                   Maximum Tk. 10,00,000.00

Charges            Application fee: Tk. 500.00
                   Processing fee: 1% on the approved loan amount or Tk. 2000.00
                   whichever is higher

Tenor              Min 12 months
                   Max 48 months

Rate of Interest   16.50% p.a.

Security           Title deed of the House/Office to be furnished/renovated along with
                   memorandum of deposit of title deed duly supported by a notarized
                   power of attorney to be kept by the bank as a matter of comfort. Two
                   personal guarantees (as per our list of eligible guarantors). Registered
                   mortgaged of the property if the loan amount is more than Tk. 5.00
                   lac



Product Name       Staff Loan

Target Customer All permanent employees of ABBL

Purpose            Marriages in the family, Purchase of office equipment / accessories,
                   Purchase of miscellaneous household appliances, Purchase of
                   Personal Computers, Purchase of audio-video equipment, Purchase of
                   furniture

Loan Amount        According to the debt burden ration and other criteria

Charges            Processing fee: 1% on the approved loan amount




                                            14
Tenor              Min 12 months
                   Max 36 months

Rate of Interest   15.50% p.a.

Security           Hypothecation of the product to be purchased



Product Name       Education Loan

Target Customer Students Criteria:
                 • Students of reputed Educational Institutes, such as Public &
                Private Universities, Medical Colleges & Engineering Institute.
                 • Undergraduate & Post graduate Level
                 • Professionals degrees (Chartered Accountants (CA), Cost &
                management Accountants (CMA), Marine, MBM, MBA)
                 • Doctorate degree (PhD), FCPS etc.
                 • Occupation: Student
                 • Minimum Age: 17 years
                 • Maximum Age: 40 years
                 • Educational Qualification: Minimum HSC/A-Level Pass.
                Parents Criteria:
                 Service Holder:
                   • Individuals with ranks equivalent to Senior Assistant Secretary
                or higher would qualify guarantor
                   • Bank officials (Equivalent to Senior Principal Officer of NCBs,
                AVP / Branch Manager of Local and Foreign banks) and Department
                Head of Multinational Company or established Local Corporate.
                Guarantors must be accepted by the Branch Manager / Head Office.
                 Businessman:
                   • Well reputed and widely respected Self-employed professionals

Purpose            To Financially Assist The Parents: Admission/Education Fees,
                   Semester Fees, Study abroad

Loan Amount        Minimum Tk. 50,000.00
                   Maximum Tk. 3,00,000.00

Charges            Application fee: Tk. 500.00
                   Processing fee: 1% on the approved loan amount or Tk. 1000.00




                                          15
                   whichever is higher

Tenor              Min 12 months
                   Max 36 months

Rate of Interest   14.50% p.a. - 16.00% p.a.

Security           One personal guarantees (as per our list of eligible guarantors)


Secured Loans

Product Name       Personal Loan

Target Customer All Clients of ABBL

Purpose            To meet personal requirement of fund

Loan Amount        Maximum 95% of the present value of the security

Charges            Processing fee: Tk. 1000.00

Tenor              Min 12 months
                   Max 36 months

Rate of Interest   13.50% p.a. - 16.50% p.a. (subject to type of the security). 2% spread
                   must be maintained in case of own bank FDR

Security           Lien over FDR, BSP, ICB Unit Certificate, RFCD, NFCD, CD
                   account(s) etc. One personal guarantee in case of third party cash
                   collateral (as per our list of eligible guarantors)



Product Name       Personal Overdraft

Target Customer All Clients of ABBL

Purpose            To meet personal requirement of fund

Loan Amount        Maximum 95% of the present value of the security




                                            16
Charges            Processing fee: Tk. 1000.00

Tenor              Revolving with annual review

Rate of Interest   13.50% p.a. - 16.50% p.a. (subject to type of the security). 2% spread
                   must be maintained in case of own bank FDR

Security           Lien over FDR, BSP, ICB Unit Certificate, RFCD, NFCD, CD
                   account(s) etc. One personal guarantee in case of third party cash
                   collateral (as per our list of eligible guarantors)




2.14.2 CORPORATE BANKING


At AB Bank provides complete range of solutions to meet Corporate Customers'
requirement. ABBL Corporate Banking solutions include a broad spectrum of products
and services backed by proven, modern technologies.

CORPORATE LENDING

ABBL specialist teams offer a comprehensive service providing finance to large and
medium-sized businesses based in Bangladesh.

STRUCTURED FINANCE


AB Bank Ltd. have a specialist Structured Finance Team who arrange and underwrite
finance solutions including Debt and Equity Syndication for financial sponsors,
management teams and corporate. Also ABBL provide corporate advisory services.

ABBL aim to provide tailored financing solutions with a dedicated team who can rapidly
respond to client needs.

Following are some of the products and financial tools of Corporate Banking:

       Project Finance
       Working Capital Finance
       Trade Finance
       Cash Management
       Syndicated Finance, both onshore & off-shore
       Equity Finance, both onshore & off-shore
       Corporate Advisory Services




                                           17
2.14.3 SME BANKING


SME LOAN

Considering the volume, role and contribution of the SMEs, in the last two decades AB
Bank has been patronizing this sector by extending credit facilities of different types and
tenor. As of now 54% of the bank‟s total loan portfolio is segmented to the SMEs which
deserve all out attention in Bank‟s plans, projections and forecasting.

As such the bank has emphasized on the following issues:

          To provide the best services to the SME sector
          To increase the SME portfolio of ABBL significantly
          To improve the quality of ABBL‟s portfolio

SME Sectors in which AB Bank has participated so far:

          Agro machinery
          Poultry
          Animal Feed
          Dairy Product
          Fruit Preservation
          Hotel & Restaurants
          Garments Accessories
          Leather products
          Plastic product
          Furniture : Wooden & Metal
          Ink
          Paint
          Printing & Packaging
          Wire & Cable
          Aluminum
          Cement and Lime Plaster
          Clinics and Hospitals
          Engineering & Scientific Instruments


 2.14.4 LARGE LOAN & PROJECT FINANCE


           In order to cater the demand of client AB Bank has segmented its portfolio in
            terms of loan size. As per this segmentation any loan over Tk. 10.00 Crore
            falls under the purview of Large Loan Unit.

           In AB Bank, there is also a separate Project Finance unit who evaluate the




                                               18
    business. The unit is entrusted to handle the portfolio in a focused manner.
    AB Bank is always in fore front to support establishment of new projects of
    diverse nature which will help to broaden the manufacturing arena vis-à-vis to
    generate to employment.

   At the moment AB Bank „s exposure in Large Loan & Project Finance
    portfolio is distributed in the following sectors:

           SL Sector                               ABBL
                                                   Exposure
                                                   (Limit)
                                                   (Fig. in Lac
                                                   Tk.)

           1    Agro- Business                     12,717.56

           2    Cement Power, Glass                38,691.92

           3    Consumer Products                  21,855.00

           4    Edible Oil                         36,057.53

           5    Engineering & Construction         18,106.42

           6    Financial Institution              1,414.70

           7    Food & Beverage                    27,044.24

           8    Hotel                              2,505.26

           9    Health Care                        3,928.62

           10 Printing & Packaging                 11,867.61

           11 Real Estate                          10,451.49

           12 Micro-finance                        5,763.15

           13 Export                               9,441.63

           14 RMG & Backward Linkage               94,826.13




                                        19
               15 Ship Breaking                        18,029.20

               16 Steel                                42,824.97

               17 Telecom & Computer                   11,479.89
                  Accessories

               18 Trading                              77,579.89

                   Total ( including syndicated        444,585.21
                   exposure)

                   Less Syndicated Exposure            51,560.29

                   Total Large Loan & Project          3930,24.92
                   Finance portfolio without
                   syndicated exposure




2.14.6 LOAN SYNDICATION


     Syndication or club financing is a growing concept in Banking Arena of
      Bangladesh. Syndicated finance diversifies the risk of one bank on a single
      borrower and increases the quality of loan through consensus or cumulative
      judgment and monitoring of different banks / financial institutions.

     AB Bank, the first bank in the private sector also took initiative to adapt to this
      growing concept.

     In 1997, AB Bank for the first time arranged a club financing with Dhaka Bank
      Ltd to raise Tk. 6700 lac - out of which ABBL financed Tk. 5700 Lac and Dhaka
      bank financed Tk. 1000 Lac.

     In 1999, AB Bank arranged its second syndicated credit facility with IPDC to
      raise Tk 3563 Lac.

     Since then AB Bank did not look back.

     Since 1997 to 2007 (till date), AB Bank has raised total Tk. 25989.56 Lac as
      Lead Arranger. The following banks from time to time have been ABBL‟s
      partners in these syndications : Dhaka Bank, IPDC, EXIM Bank, Bank Asia,




                                           20
    Oriental Bank, NCC Bank, The City Bank, Trust Bank, Bank Asia.

   AB Bank has also participated in different syndications arranged by other Banks,
    out of which till date 6 (six) syndication has successfully been completed. AB
    Bank exposure in these completed syndications was Tk. 4700 Lac.

   At the moment AB has participation in 19 (nineteen) syndicated facilities. AB
    Bank‟s exposure in the ongoing syndication is Tk. 51560.29 Lac which is
    diversified in the following ten sectors:

                 SL Sector               ABBL Participation
                                         (Fig. in Lac Tk.)

                 1   Textile             9,533.57

                 2   Micro-finance       3,000.00

                 3   Cement              7,990.00

                 4   Energy & Power      11,997.00

                 5   Telephone (PSTN) 5,500.00

                 6   Glass               900.00

                 7   Sugar               900.00

                 8   Steel Mills         9081.72

                 9   Paper               1158.00

                 10 Chemical             1,500.00

                     Total               51,560.29




                                        21
 2.14.7 NON-RESIDENT BANGLADESHI (NRB) BANKING


 FACILITIES OFFERED TO NRBS

 Opening of Foreign Currency A/C:

 ABBL open Foreign Currency Account in USD/GBP/EUR/JPY for NRBs. Foreign
 Currency can be remitted by the Nationals of Bangladesh living Abroad earned by them as
 wage earners or from other sources. The deposit amount can also be used for remittance to
 other countries as per their requirement. Nominee of Account holder can also able to
 operate this Account.

 NFCD:

 ABBL issued Foreign Currency Fixed Term Deposit in USD/GBP/EUR with different
 tenure. Interest is paid in respective Foreign Currency. Rates of Interest are published in
 ABBL‟s daily Exchange Rate.

 Wage Earners Development Bond:

 These Bonds can be issued from the balance of the FC account with tenure for five years.
 Rate of interest is 12% p.a. in BDT.

 USD Premium Bond:

 These Bonds can be issued from the balance of the FC account with a tenure for Three
 years. Rate of interest is 7.5% p.a. in BDT.

 USD Investment Bond:

 These Bonds can be issued from the balance of the FC account with a tenure for Three
 years. Rate of interest is 6.5% p.a. in USD.

 In addition to the above, ABBL also have Drawing Arrangements with 14 (Fourteen)
 Exchange/Money Transfer Remittance Houses all over the globe to facilitate fast, reliable
 and hassle-free inward remittance to the expatriate Bangladeshis around the world. ABBL
 also have special arrangements to credit Beneficiary's account maintained with us on the
 same day through ABBL‟s extensive real time on-line network.

 List of Exchange / Money Transfer Remittance Houses are as follows:




2.14.8 FOREIGN REMITTANCE THROUGH EXCHANGE HOUSE

For Inward Remittance, AB Bank established extensive drawing arrangement network with
Banks and Exchange Companies located in the important countries of the world.


                                               22
2.14.9 MONEY TRANSFER


                      Western Union
                      a fast, reliable and convenient way to send a money transfer


                      Western Union Financial Services Inc. U.S.A. is the number one
                      and reliable money transfer company in the world. This modern
                      Electronic Technology based money transfer company has earned
                      worldwide reputation in transferring money from one country to
                      another country within the shortest possible time.

                      AB Bank Limited has set up a Representation Agreement with
                      Western Union Financial Services Inc. U.S.A. Millions of people
                      have confidence on Western Union for sending money to their
                      friends and family. Through Western Union Money Transfer
                      Service, Bangladeshi Wage Earners can send and receive money
                      quickly from over 280,000 Western Union Agent Locations in
                      over 200 countries and territories worldwide- the world‟s largest
                      network of its kind, only by visiting any branches of AB Bank
                      Limited in Bangladesh.


2.14.10 ISLAMI BANKING


To provide the Islamic banking services in accordance with the principles of Islamic
Shariah, AB Bank has established Islamic Banking Wing and started its functioning by
opening full-fledged Islamic banking branch on 23.12.2004. The branch is known as AB
Bank Islami Banking Branch, Kakrail, and is situated at 82, Kakrail, Ramna, Dhaka.
Prominent Islami Banker Mr. M. Azizul Huq has joined the Bank as its Islamic Banking
Consultant. A dedicated team of experienced Islamic bankers is working under his active
guidance both at head office and branch level. A competent Shariah Council consisting
of Islamic scholars, Ulema, Fukaha and Islamic bankers headed by Mr. Shah Abdul
Hannan, a prominent Islamic scholar and former Secretary, Government of Bangladesh
has also been formed to guide the Islamic banking affairs. Board of directors as well as
management of the bank are very much interested to promote Islamic banking system in
the bank aiming at opening more Islamic branches in the near future. AB Bank has
already obtained membership of Islamic Banks Consultative Forum (IBCF) and Central
Shariah Board for Islamic Banks of Bangladesh.




                                           23
2.14.11 INVESTMENT BANKING


ABBL generally do four types of Investment Banking service. They are-

Merchant Banking
Custodial Service
Brokerage Service
Future Products

2.14.11.1 MERCHANT BANKING WING (MBW)


AB Bank Limited is the first Private Sector Joint Venture Bank in Bangladesh, which is
now fully owned by the Bangladeshis. To expand its horizon, ABBL launched its
Merchant Banking operations in the year 2003. As a fully fledged merchant banker,
ABBL provide the following services:

   1.   Portfolio Management
   2.   Issue Management
   3.   Underwriting
   4.   Corporate Advisory
   5.   Bankers to the Issue
   6.   Private Placement

The Merchant Banking Wing (MBW) of ABBL has made notable progress and is
presently equipped to serve customers‟ needs by offering a comprehensive range of
financial solutions. ABBL has also launched Custodial Services with a view to provide
one-stop Capital Market services to ABBL‟s valued clients.

ABBL understand an entrepreneur‟s need for stability, trust, innovation and creativity
required for the consolidation and growth of investments and endeavors to prosper. The
professionals in ABBL MBW with its state of the art integrated computerized system,
are always there to provide their vision, knowledge and service for client‟s success.
Why?

 Because, we at ABBL, measure our success by the number of satisfied customer
                            within a time frame.




                                           24
2.14.11.2 CUSTODIAL SERVICE


Customers:
Investors Who Are Interested to Invest In the Bangladesh Capital Market
  • Non Resident Bangladeshi (NRBs)
  • Foreign Institutional and individual clients
  • Local Institutions
  • Sponsors' group and High net worth client

Services:
  • Safe custody of client securities
  • Foreign Trade Execution and Settlement
  • Share transfer in the name of client
  • Complete the Dematerialization process as per client request
  • IPO, Private Placement & Right share subscription as per client instruction with
deposit
  • All types of corporate action that includes cash dividend, bonus share and right share
collection
  • Open BO account
  • Instant information regarding client securities position as per their request
  • Quarterly reporting to the client by Custodial Department



2.14.11.3 BROKERAGE SERVICE


To introduce a Brokerage Service for the customer AB Bank limited (ABBL) has formed
a subsidiary company named AB Bank Foundation (ABBF) and about 99.60% shares of
the ABBF hold by ABBL. The company was first established under the trust deed
constituted and registered on the 14th day of May 2002.

Services:

   1. Brokerage Services
      AB Bank's subsidiary, AB Bank Foundation, which has corporate memberships
      on the Dhaka and Chittagong Stock Exchanges, can act as brokers on behalf of
      local and foreign individual and institutional client to trade in the local capital
      market. AB Bank's Sales & Trading Department will also support brokerage
      service for offloading shares through direct listing.

   2. CDBL Services as full service Depository Participant (DP)
      As a full service depository participant, AB Bank Foundation provides following
      services,
      a) BO (Beneficial Owner) accounts opening and maintenance.
      b) Dematerialization & c) Rematerialization
      c) Freeze (freeze request and release request) and suspensions
      d) Pledging, unpledging and confiscation



                                             25
        e) BO ISIN balances and master maintenance enquiry


 2.14.11.4 FUTURE PRODUCTS


 EXPANSION

 To extend Merchant Banking services of the Bank across the country, MBW has already
 launched its operation in Agrabad (Chittagong). ABBL are going to open 3 new service
 networks in Mohakhali (Dhaka), Uttara (Dhaka) and Sylhet soon.

 NEW BUSINESS

 In addition, AB Bank will also expand its operations in the investment banking in the
 following areas:

 Business Area                               Status

 Islamic Capital Market Products             Processing

 Derivatives Products                        Supporting infrastructure going to be
                                             prepared

 Asset Management / Mutual Fund              AB Bank Ltd. are planning to launch and
                                             manage Mutual Fund in future.




2.14.12 CARD

 In the present context of banking business in the world, Card is the future of any bank.
 Electronic payment system is now ruling the world and some days from now cash
 transactions system will turn into a history found only in the text book.

 AB Bank Limited is one of the leading first generation private sector commercial banks
 with Branch Network all over the country. The Bank started issuing VISA Credit Cards
 from the end of year 2004 as a principal member of VISA International.




                                             26
2.15 FINANCIAL PERFORMANCE OF ABBL AT A GLANCE



                                 Amount in million Taka

SL          Particulars               2007          2006        2005        2004
 1     Authorized Capital             2000          2000        2000        2000
 2       Paid up Capital             743.26        571.74      519.76      495.01
 3        Reserve Fund              1,356.91       772.87      650.20      556.31
 4           Deposits              53,375.35     42,077.00   27,361.44   28,299.23
 5   Loans, Advances & Bills       40,915.35     31,289.25   21,384.63   17,008.50
 6         Investments              8,884.60      6,301.29    4,060.95    6,738.15
 7      Import Business            48,289.73     42,860.24   23,150.85   19,266.00
 8      Export Business            20,676.43     17,876.15   12,595.20   10,100.00
 9      Operating Income            4,656.58      2,650.17    1,577.50    1,460.36
10    Operating Expenditure         1,331.29      1,939.48     822.47     1,100.29
11   Net Profit Before Taxes        2,817.99       532.19      407.45      190.07
12    Net Profit after Taxes        1,903.49       532.19      162.45       90.07
13    Fixed Assets & Other          7015.82       5361.22     4753.77     4424.94
              Assets
14        Total Assets             63,549.86     47,989.34   33,065.40   32,508.63




2.16 KEY FINANCIAL RATIO




SL           Particulars              2007           2006      2005        2004
 1    Loan to Deposit Ratio         74.90%         72.92%    76.02%      58.11%
 2       Return on Assets            5.05%          1.31%     1.24%       0.58%
 3    Risk Weighted Capital         10.74%          9.23%     9.17%       9.09%
          Adequacy Ratio
4    Net Loans & Advances To        62.91%         63.94%    62.91%      50.58%
            Total Assets
5    Efficiency Ratio (Cost of      28.59%         73.18%    52.14%      75.34%
              Income)
6       Net Interest Margin          3.84%          2.27%     3.49%       2.72%
7        Liquid asset ratio         22.79%         22.72%    20.98%      36.88%
8         Net NPL Ratio               2.07           2.13      5.63        8.32




                                           27
2.17 ABBL AT A GLANCE: YEAR 2006

                                                     Million Taka

December 31                                         2006        2005 % Change


Gross Interest Income                            3,378.34    2,262.95    49.29

Net Interest Income                               615.50      691.41    (10.98)

Operating Profit (PBP & T)                        710.69      755.03     (5.87)

Net Operating Profit (PBT)                        532.19      407.45     30.61

Profit after Tax (PAT)                            532.19      162.45    227.60

Deposit                                         42,077.00   27,361.44    53.78

Loans & Advances                                31,289.25   21,384.63    46.32

Total Assets                                    47,989.34   33,065.40    45.13

Shareholders' Equity                             2,582.76    1,526.88    69.15

NIM %                                              18.22       30.55

Non Interest Income to Operating Income ( %)       76.78       56.17

Cost Income Ratio                                  73.18       76.02

Return on Equity (%)                               20.61       10.64

Return on Assets (%)                                 1.11       0.50

Advance Deposit Ratio                              74.36       78.16

CAR (%)                                              9.23        9.17

NPL (%)                                              4.02        8.21

EPS (Tk.)                                          93.08       31.26




                                           28
29
2.18 SECTOWISE LOANS AND ADVANCES




                                                                   Figure in '000'
Industrial sector           ISIC Code     Limit     Outstanding         A/C
Agreculture/Mining                1000    3884893       3868704                355
Manufacturing                     2000   14434476      10190359               1254
Trading                           3000    8158211       6476195               2686
Services                          4000    6486794       5773392                162
Contractual work                  5000    2063059       1847324                236
Power                             6000      17020          16242                  6
Others                            7000    6830536       3217720                455
100% secured Loan                 8000    1344885       1221408                516
Special Scheme Loans              9000    2365697       2450427                186
Total LDOs of all sectors                45585571      35061771               5856




                                         30
2.19 PROFITABILITY RATIO



2.19.1 RETURN ON ASSETS

From Retune on Asset ratio of ABBL, it is found that from 2004-2006 the return ratio is not
fluctuate very much, which was 0.58 in 2004, 1.24 in 2005 and 1.31 in 2006. The ratio here
was in increasing trend. But in the year 2007 Return on Asset ratio was increased a lot which
were 5.05.

  6

  5                                                                 5.05

  4

  3
  2
                                    1.24           1.31
  1
                   0.58
  0
            2004             2005           2006             2007


Trend analysis of return on assets.




                                             31
2.19.2 RETURN ON EQUITY

Return on Equity (ROE) ratio shows us the return against equity capital. Here, ABBL‟s ROE
in 2004 was 15.97%, which increased in 2005 and reached at 29.41%. But in 2006 ROE
decreased, which was 25.90%. In 2007 ROE increased by an huge percentage, which was
79.44%.

  90.00%
  80.00%                                                                        79.44%
  70.00%
  60.00%
  50.00%
  40.00%
  30.00%                                  29.41%              25.90%
  20.00%
                       15.97%
  10.00%
   0.00%
                2004               2005                2006              2007


Trend analysis of return on equity.



2.20 CAPITAL AND RESERVE FUND

The authorized capital of the Bank remain unchanged till 2007 which was Tk. 2000 million
but in 2008 an Extra Ordinary General Meeting held to increase the authorized capital of the
Bank which is now Tk. 3000 million. Issued and paid up capital increased per year till 2007
and remain same in as per unaudited financial statement of 2008. Besides this the amount of
reserve fund increase per year.


     3000
     2500
     2000
     1500
     1000
      500
        0
               2004             2005           2006            2007        2008

                          A.Capital       Paid up Capital      Reserve




                                                      32
2.21 DEPOSITS

Total deposit of the Bank stood out Tk. 53,375.35 million in 2007 which is much higher than
2006, which was Tk. 42,077.00 million. But now in 2008 the deposit of the Bank raise on Tk.
62,340.57 million. The rate of growth is about 20%.


     70000
     60000
     50000
     40000
     30000
     20000
     10000
         0
                2004        2005         2006         2007       2008

                          Deposit    Advance     Investment




2.22 LOANS & ADVANCES

The total volume of advances extended by the Bank stood at Tk. 51,908.38 million at the end
of June 30, 2008 and at the end of 31 December 2007 it was TK. 40,915.35 million, which is
much higher than June, 2008. That means Bank has been able to make a high volume of
advance to customers during last six month, which is Tk. 10,993.03 million higher than 2007.
It gives us a clear idea that Bank will make a huge volume of loans and advances prior to
previous year. The loan amount in 2006 was Tk. 31,289.25 million and in 2005 it was Tk.
21,384.63 million. The rate of growth is about 23.52%.

By adopting a time befitting policy in credit management and applying modern techniques of
loan risk analysis, the Bank may be able to bring down the amount of bad loan to a tolerable
level. In line with the Government industrial policy and in the light of Bangladesh Bank‟s
policy, guidelines, alongside priority sectors, the Bank may extend loan facility to different
import sectors , such as information technology, agro based industry, textiles industry, lease
financing, housing industry and other traditional and nontraditional industry.
Export financing by ABBL in 2007 was Tk. 2236.60 million with a growth rate of 156.9%.
The Bank finance 5.70% of its total funding in this sector.




                                                33
   18000
   16000
   14000                                                               Agriculture

   12000                                                               Large & Medium Scale Industry

   10000                                                               Working Capital

    8000                                                               Export

    6000                                                               Commercial lending

    4000                                                               Small & Cottage Industry

    2000                                                               Others

          0
                2005              2006                 2007


                           Sector wise Loans & Advances of ABBL



2.23 BANKS PROFIT

ABBL‟s profit before provision and tax in 2007 was Tk. 3325.29 million and in 2006 it was
Tk. 710.69 million and after tax profit in 2007 was Tk. 1903.49 million and in 2006 Tk.
532.19 million. A profit curve trends shown below


                                Operating Profit
   2000
                                                                                1903.49
   1800
   1600
   1400
   1200
   1000
    800
    600
                                                              532.19
    400
    200                                  162.45
                   90.07
      0
                2004               2005                  2006            2007




                                                  34
2.24 SWOT ANALYSIS OF ABBL

Every organization is composed of some internal strengths and weaknesses and also has
some external opportunities and threats in its whole life cycle.

STRENGTHS

      ABBL provides its customer excellent and consistent quality in every service.

      ABBL is a financially sound company.

      ABBL utilizes state-of-the art technology to ensure consistent quality and operation.

      ABBL provides its works force an excellent place to work.

      ABBL already achieved a good will among the clients.

      ABBL has research division.


WEAKNESSES

      ABBL lacks well-trained human resource in some area.

      ABBL lacks aggressive advertising.

      The procedure of credit facility is to long compare to other banks.

      Employees are not motivated in some areas.

OPPORTUNITIES

      Emergence of E-banking will open more scope for ABBL.

      ABBL can introduce more innovative and modern customer service.

      Many branches can be open in remote location.

      ABBL can recruit experienced, efficient and knowledgeable work as it offers good
       working environment.

THREATS

      The worldwide tend of mergers and acquisition in financial institutions is causing
       problem.

      Frequent taka devaluation and foreign exchange rate fluctuation is causing problem.

      Lots of new banks are coming in the scenario with new service.

      Local competitors can capture huge market share by offering similar products.


                                              35
3. CREDIT FACILITIES OF AB BANK LTD. (ROKEYA SHARANI BRANCH)


Loans and advances termed as „credit facility‟ may either be funded (i.e. creation of funded
loan) and funded (i.e. undertakes/indemnities) on behalf of the client to settle the liability of
the client in case of his/their failure to perform certain contractual obligation. In the
Bangladeshi commercial bank they have various types of the credit facilities are generally the
following types of credit allowed by the commercial bank in our country to the individuals,
partnership firms, companies and corporations and others, either on demand, time or self
liquidating basis and are carried on Bank‟s General Ledger. So the classification is huge and
the discussion on these various types of loans by the commercial bank in Bangladesh has
discussed below-

3.1.1 LOANS


   a) Demand Loans.
   b) Time Loans.
   c) Term Loans (more than one year)

3.1.2 OVERDRAFTS


   a) Against pledge of goods/stocks
   b) Against hypothecation of goods/stock
   c) Against any other permissible securities


3.1.3 FUNDED CREDIT FACILITIES


   a)   Cash credit (cc)
   b)   Cash credit (pledge)
   c)   BLC
   d)   Packing Credit
   e)   LIM ( Loan Against Imported Merchandise)
   f)   LTR ( Loan Against Trust Receipts)
   g)   Local Documentary Bills Purchased (LDBP)
   h)   Loan Against Other Securities (LOAS)
   i)   Loan Against Work Order
   j)   Advance Against FDR
   k)   Special Credit Scheme
   l)   Consumer Credit Scheme

3.1.4 SME LOANS

   a)   Gati
   b)   Proshar
   c)   Digun
   d)   Sathi


                                               36
   e) Chhoto Puji
   f) Uddog
   g) Awparajtta

BESIDE THEABOVE MEWTIONED FACILITIES THERE ARE SOME NON-
FUNDED FACILITIES


3.1.5 NON-FUNDED CREDIT FACILITIES


       a) Letter of credit
       b) Letter of guarantee


Now I am going to discuss elaborately about these various types of credit facilities given by
AB Bank Ltd.


3.1.1 LOANS


3.1.1.1 DEMAND LOAN:


Demand loan is used as one of the import finances of the commercial bank in Bangladesh.
Under SEM (Secondary Exchange Market) L/C client has to provide the full L/C amount in
foreign exchange to the bank. To purchase this foreign exchange, bank extends demand loan
to the client at stipulated margin. No specific repayment date is fixed. However, as soon as
the L/C documents arrive, bank request (demand) the client to adjust their loan and retire the
L/C documents.

3.1.1.2 TIME LOAN:


Time loan is generally provided to the client where finance is required for a specific business
deal for example bank may provide time loan to client to procure particular machinery
required for his industry. The loan is disbursed in one or two installments as per specific
repayment dates. Hypothecation of marketable goods and equitable mortgage of properties
generally secure time loan.

3.1.1.3 TERM LOAN:


Term loan is only provided in selective cases in most of the commercial banks in Bangladesh.
The basic characteristics of the loan are almost the same as time loan except that the
repayment period is more than one year.




                                              37
3.1.2 OVERDRAFT FACILITIES


This is a credit facility extended to the clients as working capital finance for trading and
manufacturing and also for finance against work order. Specific limitation is covering the
sanctioned loan amount. Client is allowed to overdraw and maintain regular transaction up to
this limit in his current account. The extent of which client can overdraw depends upon
sanctioned amount and margin stipulation. Specific repayment dates are given within the
client has to adjust his or her overdrawn amount.

a) Against pledge of goods/stocks


Under this arrangement, the credit facility is granted to the borrower against the security of
ledge of goods/product in the form of raw material or finished products subject to
credit/margin restrictions.

b) Against hypothecation of goods/stock


Under this method, facilities are extended to borrower on his signing a letter of
hypothecation, creating a charge against the goods/produce, plant and possession as well as
the ownership of the hypothecated goods/produce etc. is retain by the borrower but binding
himself to surrender possession of the foods of the bank as and when call upon to do so.


c) Against any other permissible securities

“Under these criteria there are several types of other loans”


3.1.3 FUNDED CREDIT FACILITIES


3.1.3.1 CASH CREDIT (CC)


Cash credit is a credit facility offered by a bank against security of goods plus collateral
immovable property. Collateral security is taken because it helps the banks to minimize its
risk at the same time it allows the party to avail a higher limit from the goods he puts as
security. The security also helps the party to enhance (extend) the limit in future. In most of
the commercial banks in Bangladesh the CC is allowed for one year i.e. within one year the
party has to adjust the money, he withdrawn from this account. If the party applies for
enhancement of the limit or enhancement of the period by renewal, considering the security
and credit need if bank thinks it logical to allow that opportunity the respective branch after
getting sanction from head office extend the limit or renews the limit as the party applied for.
Cash credit is a favorite mode of borrowing by traders, industrialists etc. for meeting their
working capital requirement. It is operated like overdraft account. Depending on the needs of
the business, the borrower can draw on his cash credit account at different time and when he



                                               38
gets money can adjust the liability. Depending on charging security there are two forms of
cash credit:

       CASH CREDIT (PLEDGE):


       It is a short-term arrangement by which a customer is allowed to borrow money up to
       a certain limit sanctioned by the bank for a certain time. Under the condition the
       borrower is required to submit the stock fortnightly in the bank specimen form. It is
       allowed to maximum a period of one year.

       CASH CREDIT (HYPOTHECATION):


       It is also a continuous loan allowed against pledge of goods as primary securities fall
       under this head of advance. To avail cash credit (hypo) facility in the commercial
       banks the prospective borrower has to mortgage goods. The goods are not delivered to
       bank they are just showed to respective banker. Here some extra security is also taken
       from the party.


3.1.3.3 BLC:


Advances against import bills are originally from the lodgment of shipping document
received from foreign correspondents against letter of credit established by the bank on
behalf of its customers. In other words, this loan is created for settlement of payment of
import documents.

3.1.3.4 PACKING CREDIT:


Packing credit is provided against confirmed export orders covering tip to 90% of the value
of the order. This type of loan is provided to procure and process materials for making
finished goods for export purpose. The packing credit is adjusted through the export
proceeds.


3.1.3.5 (LOAN AGAINST IMPORTED MERCHANDISE) LIM


Advances allowed for retirement of shopping documents and release of goods imported
through L/C taking effective control over the goods by pledge fall under this type of advance,
when the importer failed to pay the amount payable the exporter against import L/C, then
banks gives loan against imported merchandise to the importer. The importer will bear all the
expenses i.e. warehouse charges, insurance fees, etc. and the ownership of the goods is retain
to the bank. This is also a temporary advance connected with import, which is known as post
import finance.




                                              39
3.1.3.6 (LOAN AGAINST TRUST RECEIPTS) LTR


Advance allowed for retirement of shipping documents and release of goods imported
through L/C falls under this head. The goods are handed over to the importer under trust with
the arrangement that sale proceeds should be deposited to liquidate the advances within a
given period. This is post import finance by the banks.

3.1.3.7 (LOCAL DOCUMENTARY BILLS PURCHASED) LDBP


Payment made against documents representing sell of goods to local export oriented
industries which are deemed as exports and which are denominated in Local currency!
foreign currency falls under this head. The bill of exchange is held as the primary security.
The client submits the bill and the bank discounts it. This temporary liability is adjustable
from the proceeds of the bills.

3.1.3.8 (LOAN AGAINST OTHER SECURITIES) LAOS


Loan Against Other Securities is a 100% secured advance, which requires no sanction from
the Head Office. Marking lien on FDR, ICB Unit Certificate etc. bank sanction it.

3.1.3.9 LOAN AGAINST WORK ORDER


Many commercials branches allow contractors loan against their work order. Here the
following procedures are undertaken

    First a contractor submits his work order to the bank mentioning his required amount
     of money in the application and stating his consent that his employer will send every
     payment in this branch and after deducting necessary margin the bank will transfer the
     rest of the money to borrowers account.

    After receiving the application the respective official of the banks will scrutinize the
     work order.



3.1.3.10 ADVANCE AGAINST FDR


Advance is granted to a client against the security of fixed deposit receipt and advance is
allowed to the person to whom the instrument belongs. The instrument is to be discharged
duly the holder (or all of them if they are more than one) on appropriate revenue.




                                             40
3.1.3.11 SPECIAL CREDIT SCHEME

In most of the commercial banks in Bangladesh they have some kind of special credit
scheme. They classify it in various terms like the

    House/building renovation loan.

    Small business loan.

    Personal credit scheme.

    Consumer credit scheme.



3.1.4 SME LOANS

The main theme of SME financing is to provide loan to the small, medium and cottage
industries in order to help the overall economic development of the country. For that AB
Bank Ltd. also introduce some SME products to finance the small and medium industries in
Bangladesh. The products are

   a)   Gati
   b)   Proshar
   c)   Digun
   d)   Sathi
   e)   Chhoto Puji
   f)   Uddog
   g)   Awparajtta

Each product have its own unique characteristics. All the SME loans have a tenor of
maximum three years and maximum amount of facility is of Tk. 50.00 Lac.

3.1.4.1 GATI

A loan facility for meeting regular as well as additional requirements of businesses; i.e. it
will be part of working capital of the business.

3.1.4.2 PROSHAR

 It is long term finance for infrastructure development /capacity building etc.; i.e. Term Loan
for expansion & BMRE.

3.1.4.3 DIGUN

Double amount of loan against value of the savings instrument (ABBL FDR, DDS etc.) to
meet any type of business requirement.




                                               41
3.1.4.4 SATHI

 Term loan for CNG Refueling conversion/Light Engineering/project finance (Package Deal
including non-funded).

3.1.4.5 CHHOTO PUJI

Mortgage free Term Loan for working capital/fixed investment requirement.

3.1.4.6 UDDOG

 Loan for New entrepreneur/business. (For working capital as well as fixed capital
investment.)

3.1.4.7 AWPARAJTTA

A loan facility for meeting working capital requirement as well as fixed investment in
businesses for women entrepreneurs.


3.1.5 NON-FUNDED CREDIT FACILITIES


       BACK TO BACK LETTER OF CREDIT


       Letter of credit is a commitment by the bank to pay an agreed sum to the seller of
       goods on behalf of the buyer (clients) under precisely defined condition. This is a
       non-fund facility provided to the client for import of goods from abroad or in some
       cases to procure them locally. The liability is adjusted from export proceeds.

       LETRER OF GUARANTEE


       Bank guarantee is also a non-funded facility provided to the client bank on behalf of
       the client undertakes to pay agreed amount of money at certain time of client fails due
       performance. Bank guarantee is generally provided in line of earnest money for
       bidding in tender by the client or as guarantee for due performance of any contractual
       obligation (performance Guarantee).




                                              42
4.1 PROCEDURE OF SANCTIONING OF LOANS & ADVANCES BY ABBL


                               Customer




                           Prayer for Loan



                    Branch Manager sent the
                    application to Credit Officer



                   Submit all required document to
                      the branch credit division


                     Fill up the application form
                   (Bank format) by the customer



                 Analyze and evaluate the proposal &
                     security by the credit officer


                     Is the loan limit is within the
                       delegation of the branch?




                                 Yes/                  No   Sent the loan proposal to
                                 No                                Head office



                    Sanction by the Branch Credit           Sanction by Head Office
                   Division and approved by Branch              Credit Division
                               Manager




                           Disburse the loan


                      Flow chart of loan sanctioning



                                        43
4.2 LENDING PROCESS OF AB BANK LTD. (ROKEYA SHARANI BRANCH)


Most of the bank loans to individuals arise from a direct request from a customer who
approaches a member of the bank‟s staff and asks to fill out a loan application. Business loan
requests on the other hand, often arise from contacts the bank‟s loan officers and sales
representatives make as they solicit new accounts from firms operating in the ban‟s market
area. Sometimes loan officers will call on the some business firm for months before the
customers finally aggress to the bank a try by filling out al loan application or requesting
other services. Most bank personnel will fill out customers contact report similar to the place
customer‟s place of business. This report in updated after each subsequent visit, giving the
next loan officer crucial information about a prospective client before any other personal
contacts is made.

Once a customer decides to request a loan, an interview with a loan officer usually follows
right away, giving the customer the opportunity to explain his or her credit needs. If the
customer appears to lack sincerity in acknowledging the necessary of adhering to the terms of
loan, this must be recorded as a strong negative factor weighing against approval of the loan
request.

If a business or mortgage loan is applied for a site visit usually will be made by an officer of
the bank to assess the customer‟s location and the condition of the properly and to ask
clarifying question. The loan officer will contact other creditors who have previously loaned
money to this customer to see what their experience has been. The customer‟s previous
payment record often reveals much about his or her character, sincerity of purpose and sense
of responsibility in making use of bank credit.

If all is favorable to this point, the customer is asked to submit several crucial documents
needed by the bank to hilly evaluate the loan request, including director‟s resolution
authoring the negotiation of a loan with the bank. Once all documents are on file the Credit
Analysis Division of the bank conducts a through financial analysis of those documents
aimed at determining whether the customer has sufficient cash flow and back up assets to
repay the loan. The Credit Analysis Division hence prepares a brief summary and
recommendation which goes to the loan committee for approval Members of the credit
Analysis Division will on larger loans, give an oral presentation and discussion will issue
between staff analysis arid the loan committee over the strong and weak points of a loan
request.

If the loan committee approves the customer‟s request the loan officer or the credit committee
usually will check on the property or other assets to be pledged as collateral in order to ensure
that the bank gas immediate access to the collateral in defaulted. This is often referred to as
perfecting the committee to satisfy that both the loan and the proposed collateral are sound
the note and other documents that make up a loan agreement are prepared and signed by all
parties to the agreement.

The new agreement must be monitored continuously to ensure that the terms of the loan are
being followed and that all required payments of principal and or interest are being made as
promised. For large commercial credits the loan officer will visit the customer‟s business
periodically to check on the firms progress and to see what other services the customers need
(usually a loan officer of other staff member will place information about a new loan


                                               44
customer in a computer file known as a bank customer profile. This file shows what bank
services the customer is currently using and contains other information required by bank
management to monitor a customer‟s progress and financial service needs). If the customer
dose encounters serious problems in repaying of loan, a workout portion of its committee
funds as possible. Come banks vest such responsibility on the officer that handled the loan in
the first place. Other prefers that procedure brings more objectivity to the loan recovery
process.



4.3 CREDIT ASSESSMENT & RISK GRADING

After getting loan application from the client loan disbursement process started. And for this
credit assessment and risk grading analysis is must.

4.3.1 CREDIT ASSESSMENT


A thorough credit and risk assessment should be conducted prior to the granting of a facility,
and at least annually thereafter for all facilities. The results of this assessment should be
presented in a Credit Application that originates from the relationship manager/account
officer (“RM”), and is reviewed by Credit Risk Management (CRM) for identification and
probable mitigation of risks. The RM should be the owner of the customer relationship, and
must be held responsible to ensure the accuracy of the entire credit application submitted for
approval. RMs must be familiar with the Fl‟s Lending Guidelines and should conduct due
diligence on new borrowers, principals, and guarantors. It is essential that RMs know their
customers and conduct due diligence on new borrowers, principals, and guarantors to ensure
such parties are in fact who they represent themselves to be. All Banks‟ should have
established Know Your Customer (KYC) and Money Laundering guidelines which should be
adhered to at all times. Credit Applications should summaries the results of the RMs risk
assessment and include, as a minimum, the following details:


1. Amount and type of facility(s) proposed
2. Purpose of facilities
3. Facility Structure (Tenor, Covenants, Repayment Schedule, Interest)
4. Security Arrangements
5.       Government and Regulatory Policies
6. Economic Risks




                                              45
INADDITION, THE FOLLOWING RISK ARE AS SHOULD BE ADDRESSED:

• Borrower Analysis:


The majority shareholders, management team and group or affiliate companies should be
assessed. Any issues regarding lack of management depth, complicated ownership structures
or inter-group transactions should be addressed, and risks mitigated.

• Industry Analysis:


The key risk factors of the borrower‟s industry should be assessed. Any issues regarding the
borrower‟s position in the industry, overall industry concerns or competitive forces should be
addressed and the strengths and weaknesses of the borrower relative to its competition should
be identified.

• Supplier/Buyer Analysis:


Any customer or supplier concentration should be addressed, as these could have a significant
impact on the future viability of the borrower.

• Historical Financial Analysis:


Preferably an analysis of a minimum of 3 years historical financial statements of the borrower
should be presented. Where reliance is placed on a corporate guarantor, guarantor financial
statements should also be analyzed. The analysis should address the quality and sustainability
of earnings, cash flow and the strength of the borrower‟s balance sheet. Specifically, cash
flow, leverage and profitability must be analyzed.

• Projected Financial Performance:


Where term facilities (tenor> 1 year) are being proposed, a projection of the borrower‟s
future financial performance should be provided, indicating an analysis of the sufficiency of
cash flow to service debt repayments. Facilities should not be granted if projected cash flow
is insufficient to repay debt.

• Credit Background:


Credit application should clearly state the status of the borrower in the CIB (Credit
Information Bureau) report. The application should also contain liability status with other
Banks and Fl‟s and also should obtain their opinion of past credit behavior.
• Account Conduct. For existing borrowers, the historic performance in meeting repayment
obligations (trade payments, cheques, interest and principal.


                                              46
• Adherence to Lending Guidelines:


Credit Applications should clearly state whether or not the proposed application is in
compliance with the Ft‟s Lending Guidelines. The Fl‟s Head of Credit or Managing
Director/CEO or Board should approve Credit Applications that do not adhere to the Fl‟s
Lending Guidelines.

• Mitigating Factors:


Mitigating factors for risks identified in the credit assessment should be identified. Possible
risks include, but are not limited to:

margin sustainability and/or volatility, high debt load (leverage/gearing), overstocking or
debtor issues; rapid growth, acquisition or expansion; new business line/product expansion;
management changes or succession issues; customer or supplier concentrations; and lack of
transparency or industry issues.

• Facility Structure:


The amounts and tenors of financing proposed should be justified based on the projected
repayment ability and facility purpose. Excessive tenor or amount relative to business needs
increases the risk of fund diversion and may adversely impact the borrower‟s repayment
ability.


• Purpose of Credit:


Bank have to make sure that the credit is used for the purpose it was borrowed. Where the
obligor has utilized hinds for purposes not shown in the original proposal, Bank should take
steps to determine the implications on creditworthiness. In case of corporate facilities where
borrower own group of companies such diligence becomes more important. Bank should
classify such connected companies and conduct credit assessment on consolidated/group
basis.

• Project Implementation:


In case of a large expansion, which constitutes investment of more than 30% of total capital
of a company or for a green field project, project implementation risk should be thoroughly
assessed. Project implementation risk may involve construction risk (Gestation period,
regulatory and technical clearances, technology to be adopted, availability of infrastructure
facilities) funding risk, and post project business, financial, and management risk.




                                              47
• Foreign Currency Fluctuation:

Credit application should clearly state the assessment of foreign currency risk of the applicant
and identify the mitigating.

• Security:


A current valuation of collateral should be obtained and the quality and priority of security
being proposed should be assessed internally and preferably by a third party valuer. Facilities
should not be granted based solely on security. Adequacy and the extent of the insurance
coverage should be assessed.

• Type of Control on Cash Flow:


The credit application should contain and assess if there is any control on the borrowers cash
flow for securing the repayment. This may include payment assignment from export precede,
payment assignment form.

• Exit Option:


Credit application should clearly state the exit option from the borrower in case of early
identification of deterioration of grading of the borrower.

• Name Lending:


Credit proposals should not be unduly influenced by an over reliance on the sponsoring
principal‟s reputation, reported independent means, or their perceived willingness to inject
funds into various business enterprises in case of need. These situations should be
discouraged and treated with great caution. Rather, credit proposals and the granting of
facilities should be based on sound fundamentals, supported by a thorough financial and risk
analysis.



4.3.2 RISK GRADING


When the loan officer prepares a loan proposal than he/she must have to prepare the Credit
Risk Grading (CRG) is must. CRG is a collective definition based on the pre-specified scale
and reflects the underlying credit-risk for a given exposure. A Credit Risk Grading deploys a
number/ alphabet/ symbol as a primary summary indicator of risks associated with a credit
exposure. Credit Risk Grading is the basic module for developing a Credit Risk Management
system. Credit risk grading is an important tool for credit risk management as it helps the
Financial Institutions to understand various dimensions of risk involved in different credit


                                               48
transactions. The aggregation of such grading across the borrowers, activities and the lines of
business can provide better assessment of the quality of credit portfolio.

The credit risk grading system is vital to take decisions both at the pre-sanction stage as well
as post-sanction.

At the pre-sanction stage, credit grading helps the sanctioning authority to decide whether to
lend or not to lend, what should be the lending price, what should be the extent of exposure,
what should be the appropriate credit facility, what are the various facilities, what are the
various risk mitigation tools to put a cap on the risk level. At the post- sanction stage, the
Bank can decide about the depth of the review or renewal, frequency of review, periodicity of
the grading, and other precautions to be taken. Risk grading should be assigned at the
inception of lending, and updated at least annually. Bank should, however, review grading as
and when adverse events occur. A separate function independent of facility origination
should review risk grading. As part of portfolio monitoring, Bank should generate reports on
credit exposure by risk grade. Adequate trend and migration analysis should also be
conducted to identify any deterioration in credit quality. Bank may establish limits for risk
grades to highlight concentration in particular grading bands. It is important that the
consistency and accuracy of grading is examined periodically by a function such as an
independent credit review group.



4.3.2.1 RISK RATING FOR CONSUMER LENDING


For consumer lending, Bank may adopt credit-scoring models for processing facility
applications and monitoring credit quality. Bank should apply the above principles in the
management of scoring models. Where the model is relatively new, Bank should continue to
subject credit applications to rigorous review until the model has stabilized.

4.3.2.2 RATINGS REVIEW

The rating review can be two-fold:


•Continuous monitoring by those who assigned the grading. The Relationship Managers
(RMs) generally have a close contact with the borrower and are expected to keep an eye on
the financial stability of the borrower. In the event of any deterioration the grading are
immediately revised /reviewed.

• Normally CRG should be reviewed at least once in a year. For risk grades starting from 5 to
8, CRG should be reviewed in every six months.

• Secondly the risk review functions of the financial intuitions or business lines also conduct
periodical review of grading at the time of risk review of credit portfolio.




                                               49
4.4 APPROVAL AUTHORITY OF LOAN


After preparing the loan proposal, credit officer assessed it by all necessary documents and
all the papers is approved by the Relationship Manager/ Branch Manager along with the
credit in charge with the concern credit officer. Then the loan proposal is placed to CRM
division for approval. The CRM officer assess the proposal whether the proposal is prepared
correctly or not and also check the documents in order to find out that all the necessary
documents are being collected by branch credit officer and sent it to Head Office. After that
the proposal is placed for approval by the concern authority. In this stage Head of SME and
DMD (Business) look after it and give their opinion if any and signed the proposal for
approval and sent it to Directors, Members of approval committee and Managing Director of
Bank‟s for approval. All the process is for SME and all types of business loan.

Beside this Consumer Loan is approved by the Retail Banking Division of the Bank‟s Head
Office which is prepared by the concern credit officer and approved by Relationship
Manager/ Branch Manager and sent it to Head Office retail Banking Division for approval of
loan.

On the other hand, Branch Manager only can approve the fully secured loan that is loan
against FDR up to 80% but if the loan amount is greater than 80% of the FDR value than it
should take permission from the Head Office.

After completing all the formalities Head Office send a sanction letter that the loan can be
disburse in favor of the client. And by getting the proposal Branch have to complete some
formalities before disbursement of the facility. After completing all the formalities Branch
issues a sanction letter for the client mentioning all the terms and condition that have to be
maintain by the client and the tenor and interest rate of the funded, non funded and contingent
facilities.

4.5 CHECK LIST FOR LOAN SANCTIONING

Required Management Information

• Sponsors‟ background
• Shareholding structure of the company
• Sponsors‟ related businesses
• Performance of the business concerns
• Details of the management personnel


Required Market Information:

1. Product

• A full description of the product including size and packaging.
• Brand name.
• Brief description of the raw material of the product.


                                              50
• Proposed production program for the first 5 years.
• Samples, catalogues and/or photographs of the product.

2. Supply

• Current sources of supply of the proposed product to the local market.
• Capacity of supplying companies, their product range and estimated market share.
• Names and addresses of the local manufacturers/agents/distributors.

3. Demand

• Demand is assumed to be the summation of sales from local supply plus imports less
exports.
• Sales history of the sponsors.
• Sales in the country and other markets have to be covered.
• The history of demand over the previous 5 years, where possible show the break down
according to the major regions of the country.
• Estimation of the future market size of the period covered by the feasibility study.

4. Marketing Strategy

• A brief statement of the sponsors‟ rationale for the project including definition of target
markets, perceived strengths and principal competitive advantages.

5. Pricing

• Prevailing market prices per unit (retail and wholesale prices).
• Sponsors‟ proposed prices and pricing strategy.

6. Projected Sales & Market Share

• Projected Annual Sales Volume until the project reaches its full installed capacity.
• Estimated project‟s market shares year by year.

7. Competition

• Competitive brands, their prices and market shares.
• Strengths and weaknesses of individual competitors.

8. Distribution

• Proposed distribution channels (transportation methods, storage and warehousing facilities).

9. Marketing Organization

• Structure of marketing and sales department including staff numbers, qualifications,
experiences and job descriptions.




                                                51
10. Sales Promotion/Marketing Support

• Detailed plans for advertising and other sales promotion activities.

11. Marketing Agreements

• Any marketing agreements (including agency, representation, trade mark, distribution).

Required Technical Information:

1. Land

• Situation of the land
• Location Advantages
• Valuation of Land price
• Land condition
• Progress of land development

2. Product

• The product and its function.
• Technical description of each product accompanied with sketches, photographs of each
type, size or sample if possible.
• Is the product completely finished and ready to use when leaving the factory?
• Any local or international standards that the product must comply to? Give details of them.

3. Process

• A description of each operation in the process from raw material to finished product. This
should specify the function of each piece of equipment needed.
• A flow diagram showing the route of each piece of raw material through its various
processes.
• A scaled and dimensioned layout of equipment and machines within the factory showing
storage areas for raw materials, work in progress, finished products, maintenance workshop,
laboratory etc.
• Special equipment for waste treatment.
• Special internal factory environment control that is vital to the process.

4. Installed Capacity

• Installed capacity of the machinery.
• Proposed working hours per day and days per year.

5. Machinery & Equipment

• A detailed list of machinery and equipment.
• Competitive quotations for the machinery and equipment and reason for the selection of a
particular quotation.




                                               52
6. Building

• A location plan of the site.
• Details of the building.
• Quotations of civil works and buildings.

7. Transportation

• Required transport vehicles including distribution and delivery trucks, employee cars, labor
buses etc.

8. Labor

• Information about the laborers.

9. Raw Materials

• A list of different type of raw and packaging materials and their alternative sources.
• Quotations of raw and packaging materials.
• A detailed calculation of raw and packaging materials for each single unit of the product.

10. Utilities

• Details of utilities.

11. Licensing Agreement

• A copy of any technical or licensing agreement between the sponsor and another company,
if any.


Required Financial Information:

1. Summary of the total project cost.
2. Sources of funding of the project cost.
3. Projected Balance Sheet, Income Statement and Cash Flow Statement should cover the
tenure of the loan.
4. Financial Ratios, Break Even Analysis, Internal Rate of Return.
5. All assumptions should be spelled out.




                                              53
4.6 REQUIREMENTS FOR PREPARING PROPOSAL BUSINESS AND SME LOAN


• An application with photo which includes name of the loan, amount, purpose, validity,
security
• CIB (Credit information Bureau) Report from Bangladesh Bank.
• Credit appraisal report.
• Personal Summary.
• Personal Net-Worth Statement.
• Party‟s Declaration from

Securities:

1. Hypo, pledge of stock of goods duly insured with bank clause covering the risk of fire, R
& SD, Flood & Cyclone with maximum voluntary access.
2. Registered mortgage of land and building.
3. Registered irrevocable power of attorney shall be executed by the mortgagor in favor of
bank enabling the bank to sell the property without intervention of the curt in case of failure
to pay the bank dues by the borrower.
3. Work order (main copy).

Securities for Limited Company:

• Hypo of stock of raw materials and finished goods duty incurred under bank clause.
• First charge on the fixed and floating assets of the company with the registrar of Joint Stock
Company.
• Personal guarantee of the all directors of the company.
• Corporate counter guarantee is to be submitted.

Charge Documents:

• Demand promissory Note / DY. Note.
• Letter of arrangement
• Letter of Hypothecation.
• Personal Guarantee of (for Limited company) all directors and their spouses, (for
partnership) all partners, (for proprietorship) owner shall be obtained. Personal guarantee of
owner of the property shall be obtained.
• Letter of Continuity/Disbursement.


These are the papers, securities against loan from the individuals and limited company for
business and SME loans.




                                               54
4.7 CCS (CONSUMER CREDIT SCHEME)


This type of loan is issued for purchasing goods which are used in our domestic life. Such as
TV, PC, AC, refrigerator, car etc.

Requirements & Practices:

• A SB Account in Bank
• Fill up the application of “Consumer Credit Scheme”.
• Two copies of photographs and visiting card.
• Fill up “Guarantee Bond” by two persons and their TIN and Trade license (business), Salary
Certificate (service holder) and visiting card.
o Guarantee Bond given by spouse
o Guarantee Bond given by any socially reputed person such as ward commissioner doctor,
engineer, advocate etc.: Requires stamp of TK. 150
• Price Quotation: Letter against which pay order will be issued.
• Bank will verify whether the GB (Guarantee Bond) is genuine.
• Office Note including particulars.
• Client issues 24 advance cheques signed.
• 17.50% interest rate and 1% service charge.

Charged Documents:

• Demand promissory Note / DY. Note.
• Letter of arrangement
• Letter of Hypothecation.
• Personal Guarantee of (for Limited company) all directors and their spouses, (for
partnership) all partners, (for proprietorship) owner shall be obtained. Personal guarantee of
owner of the property shall be obtained.
• Letter of Continuity/Disbursement.

These are the steps for sanctioning CCS loan.




                                                55
5.1 PROCEDURE OF LOAN CLASSIFICATION


5.1.1 CLASSIFICATION OF LOANS


In order to strengthen credit discipline and improve the recovery position of loans and
advances by the banks it has been decided to introduce a new system covering loan
classification, the suspension of interest due and the making of provisions against potential
loan loss. For those banks for which this circular applies this circular replaces and supersedes
the instructions in BCD Circular No.41 of 24-12-1985 and ACD Circular No.3 of 09-02-
1984. For banks not covered by this circular those two circulars will continue to apply. In
pursuance of above policy the following broad outlines are issued for immediate and strict
compliance.


5.1.2 GENERAL PRINCIPLES


Responsibility: Each scheduled bank except 13KB, RAKUB and BSB will be responsible
for its own loan classification according to this circular. The three specialized bank are not
covered in this reclassification and are not required to implement this circular at this time.

Inspection: The Department of Banking Inspection and the Agricultural Credit
Inspedt5 ion Department, Bangladesh Bank will inspect the classification, interest suspense
and provisioning carried out by the banks. Banks will maintain adequate records to enable the
inspection departments to verify the classifications, interest suspense calculations and
provisioning calculations on a loan by loan basis. Where the inspecting departments differ
from the bands, the interpretation of DBI or ACID will hold.

Branch level action: Classification. Interest suspense calculations and provisioning
calculations should be done so that the results are available at both the head quarters and the
branch level on a loan by loan basis. Provisions at the branch will also include the general
provisions prescribed herein.

Importance: The implementation of these classification procedures is of the utmost
importance and all banks must comply with this Circular promptly as set out below:

Schedule: This description has been taken without any change from “Guidelines for Foreign
Exchange Transactions, Volume-0l (1996)” published by FEPD, Bangladesh Bank.

Initial classification: The initial classification and provision calculations will be completed
by 31-8-90 for the advances as of 31-12-89. These results will be incorporated in the balance
sheets of the banks at a time and in a manner that will be prescribed by Bangladesh Bank.
The classification will begin after the closing of the books for 1989 and will be based on the
loan condition as of 31-12-1989.

Second Classification: The second classification and provision calculation will be conducted
on advances as of3l-12-90 and will be completed by 31-12-91. The new rules on treatment of
unrealized interest will be applied during the year 1990 on loans classified as of 3 1-12-89 as


                                               56
well as the classification as of 31-12- 90. Therefore, if a loan is classified as substandard,
doubtful or bad on 31 -12-89 or on 3 1-12-90 all interest due during 1990 should be
suspended and not taken as income. The second classification can begin on 1-12- 90 to
expedite the closing but the calculations of provisions and interest suspense will be based on
the balance outstanding as of 3 1-12-90.

Continuing classifications: Subsequently classification, provision estimates and treatment of
unrealized interest will be carried out on advances as of December31 each year and will be
completed within three months of that date. Classification for use at closing may begin on
December 01. However banks may classification loans more frequently of them so wish.

Reference date: The reference date is the date is the date on which the loan‟s condition is
used to classi1‟ if as to determine the provisions and treatment of interest. For the first
classification the reference date is 3 1-12-89. the loan will be classified based on its condition
on that date. The loan will be calculated based on its balance outstanding on that date. For
subsequent classifications the reference date is December, 31 (and at such dates as an
individual Bank may specify for this own purposes). The loan will be classified as of its
condition on that date: the bank may commence classification on December 01 but should
assume for the purpose of classification on payments are made during December. If payments
are received then the classification must be reviewed.

Significance: Bangladesh Bank instructs that classification of a loan does in no way lessen
the borrower‟s responsibility to pay the 11111 amount due, including any suspended interest
whether or not entered on the loan ledger. In any court action in which a claim is made of
reduced liability due to classification and provisioning, this circular should be presented to
the court as evidence that the monetary authorities instruct the banks that such responsibility
is not diminished by loan classification, the making of provisions, or the suspension of
interest.

Administration of first classification: The first classification will be carried out under the
general supervision of Bangladesh Bank. Details of this process will be issued by Bangladesh
Bank in the near future. Subsequently the classification will be entirely done by the banks
with Bangladesh Bank only inspecting the results.

5.1.3 BASIS OF CLASSIFICATION


Qualitative criteria: The loan should be classified by the lending bank whenever the bank
has reason to believe the loaner may not be able to repay the loan due to a change in the
circumstances under which the loan was originally sanctioned i.e., on the basis of qualitative
factors. The reasons for classification based on judgment include all criteria previously used
by the inspecting departments of Bangladesh Bank in classifying loans. Ml of which should
continue to be applied as previously. These criteria include but are not limited to: More than a
normal risk due to adverse financial condition (arising from loss of a part borrower‟s capital),
poor financial performance of the borrower (Borrower‟s cash flow is insufficient to service
debt requirements), or due to insufficiency of security (value of security is less than the
amount of he loan outstanding) or other unfavorable factors. This judgment can be made
regardless of whether the loan is overdue or not. Banks are responsible for formulating
specific condition for classification on qualitative basis and informing their branches of these
conditions.


                                                57
Overdue criteria: Loans which are overdue by one year or more must be classified
according to the rules set sown in this circular.

• Special conditions: There are certain special conditions set out in this circular which require
classification even though a loan may not be overdue.

Inspecting Departments intimations: Regardless of the above, Bangladesh Bank‟s
inspecting departments may change the banks‟ classification of any loan.



5.1.4 DEFINITION OF OVERDUE

a. Advances of continuing nature

       If the advance has not been renewed, that is the expiration date is passed, the loan
       becomes overdue on the “date of expiration. The length of overdue equals the
       difference between the reference date for classification and the expiration date. For
       example, if the advance expired on 3 1-12-89 the advance is 21 months overdue.

       However, for loans to public sector enterprises the loan becomes overdue six months
       after the expiration date. In the above example if the advance were to a public sector
       enterprise the advance would be overdue for 15 months.

       For a loan to private enterprises for which the branch has applied to the Regional,
       Zonal or Head Office for renewal, but such renewal has not yet been received, then a
       grace period of three months is allowed before the loan becomes overdue for the first
       classification, two months for second classification, one month thereafter. If decision
       is not received by the end of this grace period of loan is considered overdue as of the
       date of expiration and the length of overdue is measured from the expiration date of
       the credit agreement.

       If the loan has not been renewed, and renewal is within the authority of the Branch
       Manager, he should make the necessary decision on renewal so as to permit
       classification to take place. If he does not make a decision, this will be interpreted that
       the credit has expired. The length of overdue is as defined above, the loan being
       considered overdue from the date of expiration of the credit agreement.

       Exception: The advance need not be treated as overdue if the following two
       conditions are met: All interest on the advance has been paid as due; and

       The bank has eligible security equal or in excess of the amount due.

b. Fixed term loans including short, medium and long term loans with fixed repayment
schedules.




                                               58
5.1.5 A LOAN IS CLASSIFIED AS SUBSTANDARD IF ANY ONE OF THE
FOLLOWING CONDITIONS IS FULFILLED


       If an advance or any portion of an advance or interest thereon remains overdue for
       one year or more but less than three years then the advance is classified as
       substandard.

       For an advance of a continuing nature, even if the loan is not overdue as much as one
       year, but the limit stands overdrawn by more than 50% for a period of45 continuous
       days preceding the reference date for the classification. Then it is classified as
       substandard.

       If a loan has been renewed or rescheduled at least three times but is not overdue, and
       any of the required payments (see definitions below) have not made when they fall
       due, then the loan is classified as substandard.



5.1.6 DEFINITION OF REQUIRED PERIOD



12 months prior to the reference date or the time between the date of renewal or rescheduling
and the reference date whichever is less.

       For fixed term loans required payments are defined as the amount specified in the
       rescheduled agreement over the required period.

       For continuing credits the required payments are defined by a condition: the credit
       summation of the advance account during the required period, converted to an annual
       rate must be equals to or greater than the maximum balance outstanding over the
       required period. For example, if the required period is seven months (i. e. it is seven
       months since renewal), the credit summation is 1.7 lac taka and the maximum balance
       outstanding is 4.5 lac taka then the credit summation at annual rate is 2.9 lac
       (12/7*1.7). This is less than the maximum balance outstanding and so the loan is
       considered substandard.



5.1.7 QUALITATIVE CRITERIA BASE ON JUDGMENT


5.1.7.1 CLASSIFICATION AS DOUBTFUL:

A loan is classified as doubtful if any one of the following conditions is fulfilled:

       The advance or any portion of the advance or interest thereon remains overdue for
       three years or more but less than five years.




                                                59
       A loan classified as substandard per clause 6(b) above has remained substandard for
       two years or more.

       A loan classified as substandard per clause 5(c) above has remained substandard for
       two years or more.

       Legal action has been initiated.

       Qualitative criteria based on judgment.



5.1.7.2 CLASSIFICATION AS BAD


A loan is classified as bad if any one of the following conditions is fulfill:

       The advance or any portion of an advance or interest thereon remains overdue for five
       years or more.

       A loan classified as doubtful as per clause 6(b) above has remained doubtful for two
       years or more.

       A loan classified as doubtful per clause 6(c) above has remained doubtful for two
       years or more.

       If legal action has been initiated and been initiated and no court decision has been
       obtained within five years of initiation of action then the loan is classified as bad.

       Qualitative criteria based on judgment.



5.1.8 PROVISIONS

The base of provisions on substandard loans is the balance outstanding in the loan ledger for
the loan less any interest taken in an interest suspense account which is also included in the
loan ledger, less the value of eligible securities (defined below). The base for provisions for
doubtful and bad loans is the balance outstanding less any interest suspense account.
(Assuming eligible securities are realizable within the control of the bank, such securities
should be realized before a loan becomes three years overdue and so are excluded from the
base for doubtful or bad loans).


5.1.9 ELIGIBLE SECURITIES


The eligible securities are

    Goods with a ready market that are physically held in the control of the bank in its
     godown/ warehouse and goods are physically under the control of this borrower in its


                                                60
       warehouse may also be treated as selling subject to the conditions that the bank could
       hold the full authority of those goods.

    Gold/gold ornaments physically held by the bank.

    Fixed and other deposit which lien is marked. Government bonds or certificates of
     deposit held by the bank.

    Guarantees/counter guarantees given directly and formally, by either the Government
     of Bangladesh or the Bangladesh Bank to repay a loan or advance if the borrower
     defaults. A guarantee by a public sector corporation is not deemed a direct
     Government guarantee must not an eligible security. To be eligible the guarantee must
     not have expired.

    Rates of provision: The rates to be applied to the base are:
     o Substandard
     o Doubtful
     o Bad

    Agricultural loan [medium and long term loans which are treated according to 8(b)]
     o i. all bad agricultural loans
     o ii. all other agricultural loans (unclassified, substandard, doubtful)

    General provision: 1% provision will be taken on the balance outstanding of all loans
     less(l) loans classified as substandard, doubtful, or bad and (2) short term agricultural
     loans.

    The banks will maintain adequate records to permit Bangladesh Bank to audit the
     calculation of provisions.



5.1.10 UNREALIZED INTEREST


This paragraph sets out the procedures to be followed in treatment to unrealized interest.


    Existing situation: At present unrealized interest (including service charges and
     penalty fees) is partly entered in the loan ledgers and partly maintained off the ledger.
     These off the ledger debits are only written back into the ledger when a legal case is
     initiated. Some of the amounts of unrealized interest carried in the loan ledgers are
     offset by a contra entry in an interest suspense account.

    Closing of the books on 31-12-89: At the closing of the books on 3 142-89 all of the
     ledger dues will be entered on the ledger. All such entries will be balanced with an
     entry into interest suspense. The taking of interest charged during 1989 into income
     for 1989 will follow the rules existing prior to this Circular, any unrealized interest for
     1989 not taken to income will be kept in the loan ledger and balanced with an entry
     interest suspense. Thus for 1989 all loan ledgers will be comprehensive. An interest



                                               61
     suspense account will contain all interest in the ledgers which has not been charged to
     income.

   Beginning 1 * 1-90 all unpaid due or overdue interest should be suspended (i.e.
    booked into interest suspense account) on all loans that are classified (where legal suit
    is pending interest will be treated according to existing law). Unpaid interest should
    be suspended for the full accounting year for loans that are classified as of the start of
    the accounting year i.e. 31-12-89 for the first classification. If a loan is classified and
    subsequently declassified, any unpaid interest accrued during the period of
    classification must remain suspended.

   In treatment of interest suspense the following is the order of application of recovered
    funds.

     o To interest in suspense;
     o To interest currently due or overdue, oldest amounts first;
     o To overdue principal, oldest amounts first;
     o To principal currently due.
     That is, in any given period for a classified loan, repayments are first applied against
     existing amount of interest in suspense. If‟ repayments cover all such suspended
     interest and so forth through the order given in IX (d) above.

   The banks will maintain adequate records showing the total interest in suspense for
    each loan and the changes of interest in suspense, with the exception of short term
    agricultural loans for which the treatment is outlined in IX (fl below.
    For short term agricultural loans all interest is treated as at present, i.e. interest will be
    suspended against all balances two or more years overdue in accord with standing
    instructions.


5.2 RECLASSIFICATION


     For loans classified on a qualitative basis, if the conditions change, then the loans may
     be reclassified appropriately.

     For fixed term loans the classification will change with change in the overdue period
     as defined above. Also if a loan has been rescheduled three or more tunes and has
     been classified and subsequently meets in repayment schedule as due without delay
     for 12 months if it considered standard.

     For continuing advances, a classification of substandard based on being 50% over the
     limit for 45 days will be withdrawn when that condition is corrected for a period of
     more than 30 days. If the classification is based on being renewed three times or more
     and the turnover being less than IOO% of the maximum outstanding the classification
     will be withdrawn whenever that condition is met Finally, loans of a continuing nature
     which are overdue cannot be reclassified except by being renewed and meeting the
     turnover criterion as given in this circular. Reclassification requires that the turnover
     criterion of 5(c) be met regardless of the number of previous renewals.




                                               62
5.2.1 PROVISIONS AND INTEREST SUSPENSION FOR RECLASSIFIED LOANS


    Interest suspense is treated as described above. If the loan is reclassified to a lesser
     overdue category, then suspense of interest suspense ceases but the application of
     payments must follow the above schedule. As payments are credited against
     suspended interest 9(d) (1) it will have the effect of writing back that portion of
     suspended interest to income.

    Provisions are adjusted to the change in provisions required to meet the rules of this
     Circular.

Clarification:

If any clarification regarding the above instructions is required banks may bring such issues
to the notice of the Bangladesh Bank. BCD Circular No. 20


5.2.2 REVISED POLICY ON LOAN CLASSIFICATION AND PROVISIONING

In order to strengthen credit discipline and bring classification and provisioning regulation i
line with international standard, this circular makes certain adjustments to our circular makes
certain adjustments to our circular referred to above. These adjustments will be implemented
in 5 phases as under

5.2.2.1 First phase:


       Phase 01. Reference date for loan classification will be 3 1-12-94 at phase 01.

       At phase 01, if an advance or any portion of an advance or interest thereon remains
       overdue for 48 months or more, then the advance will be classification as Bad/loss.
       Existing policy regarding classification as substandard or doubtfi.il on the basis of
       length of overdue will remain unchanged.

5.2.2.2 Second phase:

       Reference date for loan classification will be 3l-12-95at phase 02.

       At phase 02, if an advance or any portion of an advance or interest thereon remains
       overdue for 9 months or more but less than 24 months it will be classified
       Substandard. If the length of overdue is 24 months or more but less than 36 months it
       will be Doubtfhl while it will be treated as Bad/loss if the length of overdue is 36
       months or more.

       Henceforth Banks will carry out classification exercise on half-yearly basis (that is on
       30 June and 3 1 December).




                                              63
5.2.2.3 Third Phase:


       Reference date for loan classification will be 3l-12-96at phase 03

       Like Phase 02, also at phase 03, if an advance or any portion of an advance or interest
       thereon remains overdue for 9 months or more but less than 24 months the advance
       will be classified as Substandard. If the length of overdue is 24 months or more but
       less than 36 months it will be Doubtful while it will be treated as Bad/loss if the
       length of overdue is 36 months or more.

       If a loan has been renewed or rescheduled at last two times but is not overdue on the
       reference date, and any of the REQUIRED PAYMENTS for the REQUIRED
       PERIOD have been made when they fall due, then the loan will be classified.

       The rate of provision in phase 03 on loans classified as Substandard will be 15%. Rate
       of provision on doubtful and loss will be as before.

5.2.2.4 Fourth Phase:


       Reference date for phase 04 will be 31-12-97.

       At phase 04, if an advance or any portion of an advance or interest thereon remains
       overdue for 6 months or more but less than 12 months the advance will be classified
       as Substandard, If the length of overdue is 12 months or more but less than 24 months
       and less if the length of overdue is 24 months or more.

       From Phase 04, banks will carry out classification exercise on quarterly basis (that is
       on 31 March, 30 June, 30 September and 31 December).

5.2.2.5 Fifth Phase:


       Reference date for the last and fifth phase is 31-12-96.

       At phase 05, if an advance or any portion of an advance or interest thereon remains
       overdue for 3 months or more but less than 6 months the advance will be classified as
       Substandard. If the length of overdue is 6 months .or more but less than 12 months
       and less if the length of overdue is 12 months or more.

       Rate of provision against Substandard loans will be 20%.

5.2.3 ELIGIBLE SECURITIES

Henceforth Land & Buildings will be treated as Eligible Securities subject to maximum of
50% of market values of such securities.




                                              64
5.2.4 BASE FOR PROVISION


Henceforth same rule will be applied for calculation of Base for provision of Substandard,
Doubtful and Bad/loss classified loans. In other words, base for provision in respect of
Doubtful and Bad/loss loan will be calculated net of interest suspense and value of eligible
securities.

Banks will have to complete classification exercise within two months after the reference
date and inform Bangladesh Bank accordingly.

All other instructions as contained in our BCD Circular No. 34 of November 16, 1989 will,
however, remain unchanged.




                                             65
5.3 LOAN CLASSIFICATION AND PROVISIONING PHASE WISE ROGRAMMED



Classification   PHASE 01        PHASE 02           PHASE 03      PHASE 04        PHASE 05
Status
                 Length of       Length of          Length of     Length of       Length of
                 Overdue         Overdue            Overdue       Overdue         Overdue

Unclassified     Less than 12    Less than 9        Less than 9   Less than 6     Less than 3
                 months          months             months        months          months

Substandard      12 months or    9 months or        9 months or   6 months or     3 months or
                 more but less   more but           more but      more but less   more but
                 than 36         less               less          than 12         less
                 months          than               than          months          than 6
                                 24months           24months                      months

Doubtful         36 months or    24 months          24 months     12 months or    6 months or
                 more but less   or more but        or more but   more but less   more but
                 than 48         less               less          24than          less
                 months          36 than            3óthan        months          than 12
                                 months             months                        months

Bad/Loss         48 months or    36 months          36 months     24 months or    12 months
                 more            or more            or more       more            or more

Provision
Requirements

Unclassified     1%              1%                 1%            1%              1%

Substandard      10%             20%                15%           10%             20%

Doubtful         50%             50%                50%           50%             50%

Bad/Loss         100%            100%               100%          100%            100%

Frequency        Annual          Half-yearly        Half-yearly   Quarterly       Quarterly
of
classification




                                               66
5.4 CLASSIFIED LOAN STATUS OF ABBL

                                                                                 Million Taka

  Loan              2007                         2006                             2005
             Amount % of           % of  Amou     %           % of     Amou        %      % of
                      CL           Total   nt      of         Total     nt         of     Total
                                   Loan*          CL          Loan*                CL     Loan*
  Total      40,915.4                    31,289.                       21,384.
  Loan                                      3                             6
Outstandi
    ng
Classified    1,762.6              4.31%    1,256.5           4.02%    1,756.0            6.21%
  Loan
  (CL)
   Sub         200.6      11.4%                56.5    4.5             109.3       6.2
Standard                                               %                           %
  (SS)
Doubtful       231.1      13.1%                81.5     4.5             97.4      5.1.
  (DF)                                                  %                         5%
 Bad &        1,330.9     75.1.5            1,120.6    89.0            1,549.2    86.2
Loss (BL)                   %                           %                          %


* Percentage of Gross NPL (Non Performing Loan)

Graphical representation of Classified Loans


   45000

   40000

   35000

   30000                                                                                 TO

   25000                                                                                 CL
                                                                                         SS
   20000
                                                                                         DF
   15000
                                                                                         BL
   10000

    5000

       0
                   2005                    2006                 2007




                                                  67
5.5 CLASSIFIED LOAN STATUS OF ABBL ROKEYA SHARANI BRANCH

                                                                Taka („000)

                              Loan                       2008
                     Total Loan Outstanding            339784.67
                      Classified Loan (CL)               3296
                        Sub Standard (SS)                2420

                          Doubtful (DF)
                        Bad & Loss (BL)                 30544



Classified Loan Status of ABBL Rokeya Sharani Branch of 31 December, 2008




                              Loan Status
                        SS    BD
                       1%     8%
                      CL
                      1%




                                          Total Loan
                                             90%




                                            68
6.0 CREDIT RECOVERY PROCESS OF AB BANK LIMITED


6.1 RECOVERY & FOLLOW UP OF CREDIT


Loans and Advances in whatever form granted by the bank to its clients are repayable either
on demand or at expire of fixed period or as per repayment schedule agreed upon while
granting the facilities if a loan is repayable on installment Managers should, therefore, keep a
close and constant watch on all their loans and advances to ensure that timely action is
initiated in each case for adjustment of the account or it renewal, if it is decided to continue
the facility for this purpose each branch should maintain a diary I card in prescribed format in
which the due date of expiry of credit facility, to sent the borrower reminding him of the due
date of repayment and making a formal demand for repayment / renewal as the case may be.
Follow -up action should thereafter be taken by issuing repeated reminders and putting
pressures on the borrower personally calling on him however, if in spite of vigorous
persuasion the borrower fails to adjust the liability within the date of expiry of the facility, the
liability should be transferred to past Due A/C to facilitate monitoring and further follow-up.
The branches should however. Still make construct efforts to recover the advances if
necessary, with threat of legal action. If the threat of litigation does not yield the desired
result. The Head office may then consider filing a suit against the borrower for recovery of
the advance.

In order to facilitate, follow-up and recovery of past due loans, overdrafts etc. the branch
manager should review all the past due loan. Incorporating and prepare a fact sheet including
a report on the past due loan to incorporating their comments regarding the prospects and
measures taken for recovery. On this basis of this report each branch should prepare a
monthly statement of past due loans and advances as per prescribed formats as at so as to
reach the credit Division with 10th of the following month. The reports of the past due loans
and advances are reviewed in the Credit Committee Meeting at Head Office and guidelines
are provided to the branches for recovery.

6.2 RENEWAL AND STATUS VERIFICATION


On expire of facility, the borrower may come forward with a proposal either for renewal of
the facility for a further period of time or for enhancement of the existing facilities. He may
also agree to offer additional stocks / securities or even furnish a guarantor. The Branch
Manager should vary carefully examine all such proposals and if he is thoroughly satisfied
regarding the honesty of purpose of the borrower and his financial status and position at that
time vis- a- vis the security offered the proposals should be placed / sent to sanctioning
Authority for consideration and processing duly supported by the MI down credit analysis
including report of verification of stocks / collateral securities act. As is done in case of fresh
proposals. The Head office in turn will process the renewal/ enhancement proposals verifying
the following factors.

a)Justification for renewal,
b)Reasons for non- payment I adjustment of loan,
c)Security aspect in term of outstanding loan,
d)Credit worthiness of the client.


                                                 69
6.3 LEGAL ACTION


Legal proceedings are lengthy and time consuming as such every effort must be made to
settle a defaulter‟s outstanding out of court. However, if situation compels the Bank to take
legal action for recovery of stuck up loans and advance, the bank should be done with prior
approval of Head office. The Banks legal Retainer should conduct all legal process. If
necessary in consultation with Banks legal Advisor.



6.4 SECURITY AGAINST ADVANCES


6.4.1 COLLATERAL SECURITIES


The tangible securities pledged / assigned by the borrower to the Bank and additionally held
by the Bank to secure a loan is called COLLATERAL SECURITTTES or simply collateral.
In case of advances against pledge / hypothecation of goods, Bank may insist in immovable
properties as collateral.

6.4.2 MARGIN


The difference between the market value / assessed value of the collateral pledged
hypothecated to secure a loan / advance and the amount of the loan / advance (normally the
drawing power) is known as “MARGIN” The rate of margin to be obtained for types of
loans/ advances and against the forms of collateral is normally regulated under the credit
restrictions imposed by Bangladesh Bank.

6.4.3 DOCUMENTATION AGAINST CREDIT


Document is a written statement of facts and a proof or evidence of existence of a particular
transaction between parties involved there to be answerable / liable on placement before a
count of law , for satisfaction of the charges created there in while allowing credit facilities to
any borrower, it should be ensured that each and every loan and advance is fully documented
and each document is properly executed in consultation with legal Adviser / Retainer before
disbursement of the loan, to safeguard the future interest of the Bank.




                                                70
6.5 MORTGAGE OF IMMOVABLE PROPERTY DOCUMENTS TO BE RODUCED


6.5.1 EQUITABLE MORTGAGE


Obtain the following documents:


1) Original Title Deed of Property: If the original deed has not been received from the
Registration office then the certified copy with duly discharged original delivery
receipt may be accepted in lieu of original deed. Close watch should be kept through regular
follow-up with the Registration office for collecting the original deed / documents etc. in due
time as these are destroyed / burnt away generally after expiry of two years in the cases of
lease hold land prior permission of leasing authority should be obtained if such clauses are
stipulated in the lease Deed.

2) Memorandum of Deposit of Title Deed must be properly executed Name, address (both
present and permanent), and father‟s/ Husband‟s name must be stated in the memorandum
Name, address and signature of two witnesses must be taken.

3) Latest R.S, C.S, and S.A preferably i.e. records of right and land Revenue / Tax payment
receipt.

4) Non- encumbrance certificate preferably issued by the office of the District Registrar / sub-
Registrar etc. In the alternative, certificate from a registered searcher may be accepted.

5) Valuation certificate from a reputed Architect / Engineer supported by Branch Manager /
Credit officer‟s own valuation regarding adequacy of the value of the collateral for recovery
of Bank dues in case of adverse situation. The inspection reports on real estate to be prepared.

6) Lawyers Certificate on verification and scrutiny of title deed etc.

7) Registered irrevocable Power of Attorney executed by the property in case of default.

8) Mutation certificate


Note:

Equitable mortgage of rural property may be avoided (Equitable mortgage can only be
created in a Municipal town).




                                               71
6.5.2 LEGAL MORTGAGE


Obtain following documents:


1) Mortgage Deed drafted by Bank‟s approved Lawyer / Retainer and registered with the
concerned Registrar‟s office with proper stamp duly.

2) All other documents as required in case of equitable mortgage except (a) Memorandum of
deposit of Title Deed and (b) Registered Irrevocable power of Attorney.

6.6 POWER OF ATTORNEY


i. Must be taken on proper tamp paper.

ii. Relating to immovable property, generally it should be registered. if not, must be duly
notarized by vetted by Legal Adviser / Retainer.

iii. If the Bank is authorized by any power of attorney to realize bills payments etc. from any
authority / Person, then the borrower must produce evidence that they have
accepted the said power of Attorney. in most cases such authority / persons denies their
responsibilities unless prior acceptance is received from them.

6.7 TRIPARTITE AGTEEMENT

a) Must be sealed and signed by all parties including the Bank.
b) Witnesses must also sign.


6.8 DISBURSEMENT OF LOAN


No loan should be disbursed before completion of documentation In exceptional and very
urgent cases disbursement may be made if the officer concerned is sure that he can get the
documents completed in due course.



6.9 SET OF DOCUMENTS TO BE OBTAINED AGAINST DIFFERENT TYPES OF
CREDIT

The following three documents are common for each type of Loans and Advances.

(a) Documents common to all Advances.

i. D.P Note signed to all Advances.
ii. Letter of Agreement.
iii. Acceptances of the terms and conditions of sanction advice on duplicate.


                                              72
(b) General Documents

i. D.P Note.
ii. Letter of Agreement.
iii Letter of continuity.

Other documents are to be obtained according to the types of advance nature of securities
offered and status of the borrower as classified below, in consultation with the Legal
Adviser i Retainer.

(a) In case of Limited Company

i. Personal guarantee of all directors.
ii. Board‟s resolution covering corporate borrowing power. Authorizing the Director(s) to
execute the security documents Resolutions must be duly certified.
iii. Memorandum and Articles of Association of the company duly certified by the register of
the joint stock companies.

(b) In case of partnership Firms.

i. Photocopy of Registered partnership Deed duly certified by notary public.
ii. An undertaking in the prescribed for in case of firms not registered with Registrar of finns.
iii. Photocopy of Registrar Certificate duly certified by” NOTARY PUBLIC” in case of
firms registered with Registrar of firms.

iv. Personal Guarantee of all the partners.

v. Resolution of the partners for taking loan(s) and authorizing partner(s) to execute
security documents.

Note:

a) Loan to partnership at will should not be entertained.

b) Inquiry should be made about income tax liability. Preferably their GIR number should be
obtained.

c) In case of proprietorship:

i. Municipal Trade License to prove the ownership of the concern.
ii. GIR number to ascertain whether he is an income tax assessor or not.


6.10 GUARANTEE/INDEMNITY

Guarantee or indemnity is also playing a very vital role in recovery of loan in ABBL.




                                                73
6.11 RECOVERY POSITION OF ABBL


Recover position of ABBL has improved a lot and it can be said that it is in satisfactory level.
From the following table we can understand the situation:

                          NPL (Non Performing Loan) Movement

            Particulars                   2007            2006           2005          2004

Opening Balance of NPLs                 1,258.52        1,755.19       1,932.54      3,934.38

Less : Cash recovery                     182.36          374.98         202.43        205.77

Less : written off                        19.31          107.28         235.87       2,216.52

Less : Up                                 73.31          219.80         187.36        307.80
gradation/rescheduling

Add : Inc. generation                    779.10          205.39         448.30        728.25

Closing balance – Gross NPLs            1,762.64        1,258.52       1,755.19      1,932.54

Fresh NPL Generation rate                61.91%          11.70%         23.20%        18.51%
(Gross) against CL

Fresh NPL Generation rate                1.90%            0.66%         2.10%         4.28%
Gr.)against Loan outstanding

NPL recovery %                           14.49%          21.36%         10.47%        5.23%




AB Bank‟s net NPL stood at BDT 827.31 million7 in 2007 as against BDT 652.96 million in
2006. As a result, net NPL as a percentage of net loans & advances improved to 2.07% from
2.13% in the same period on account of provisions & interest suspense accounts. Basically if
NPL ratio increases, side by side, net NPL ratio also increases. However, here in 2007, Gross
NPL ratio increased but Net NPL ratio decreased because of good amount of provision
against classified loans & advances maintained. During 2006, where BDT 35 million specific
provisions were kept by the Bank, in 2007 it rose up to BDT 245.80 million.

In 2007, Bank‟s NPL recovery rate was 14.49% compared to 21.36% of the last year with the
decrease in the amount of cash recovery of BDT 182.36 million over the year 2007 from
BDT 374.98 million in 2006. The Bank wrote off huge amount of bad loan in 2004
amounting BDT 2,216.52 million which helped to reduce its NPL at this level. Although,
only 1.90% NPL was newly generated in 2007 from total outstanding loans and advances,
such fresh NPL amount increased to BDT 779.10 million from BDT 205.39 million. Analysis
of top 50 fresh NPLs in 2007 shows that 22 contracts fell into Bad loan category. Low
rescheduling amount with high new NPL generations was liable for the increase the gross
NPL in 2007, which should be concern by the Bank management.


                                               74
                                 Gross NPL Ratio
  30.00%

  25.00%         24.73%

  20.00%                     19.25%

  15.00%
                                                                                   Gross NPL
                                         11.37%
  10.00%
                                                     8.21%
   5.00%                                                                   4.31%
                                                                4.02%

   0.00%
             2002         2003        2004        2005       2006       2007




Here, from the graph it is said that the recovery position of ABBL is satisfactory. Because
here Gross Non Performing Loan (NPL) percentage is in decreasing trend from 2003 to 2006,
which was 19.25% in 2003, 11.37% in 2004, 8.21% in 2005 and 4.02% in 2006. That shows
that the classified loan amount decreased, which means that the recovery position increases a
lot.

In 2007, AB Bank‟s NPL slightly increased to 4.31% from 4.02% in 2006. However, the
Bank showed great improvement in reducing its non performing loans in the recent years.
During 2002 to 2007, ABBL‟s NPL reduced from 24.74% to 4.31%.

To minimize the credit losses Bank starts effective monitoring on a regular basis and it is
done to detect early indication of the deteriorating financial health of a borrower. Constant
monitoring is the key element in Risk Management and timely identification of accounts that
have risks, monitoring, supervision, or close attention by management called Early Alert
Accounts and minimize subsequent risks to a large extent. Timely corrective actions are taken
to address findings of any internal, external or regulator inspections. Because of efficient
credit risk management of ABBL, percentage of bad loan to total loans and advance reduced
year by year; cash recovery, recovery from write-off loans increases.




                                                   75
6.12 LENDING RATES


                                                          Interest rate Band W.E.F.
                   Products                    Mid Rate
                                                             01 November, 2007

1) Agriculture

i) Loan to Primary producer                    13.25%         11.75% - 14.75%

ii) Loan to Agricultural Input                 13.75%        12.25% - 15.1.25%

2) Large & Medium Scale Industry

i) Large and Medium Scale Industry
                                               14.75%         13.25% - 16.25%
  (Term Loan below Tk.10.00 Crore)

ii) Large & Medium Scale Industry
                                               14.75%         13.25% - 16.25%
  (Term Loan Tk.10.00 Crore & above)

3) Working Capital

i) Small & Medium (upto Tk. 10 Crore)          14.50%         13.00% - 16.00%

ii) Large (above Tk.10 Crore)                  14.50%         13.00% - 16.00%

4) Exports

i) Jute & Jute Goods Export                     7.00%              7.00%

ii) Other Export                                7.00%              7.00%

5) Commercial Lending

i) Commercial Lending (General)                15.1.50%       14.00% - 17.00%

ii) Commercial Lending (Large)                 15.1.00%       13.50% - 16.50%

6) Small & Cottage Industry (Term Loan)        14.75%         13.25% - 16.25%

7) Consumer Credit

i) Customer Unsecred                           16.00%         14.50% - 17.50%




                                          76
ii) Staff Unsecred                                 15.1.50%          14.00% - 17.00%

8) Debit Card Overdraft (Staff)                    16.95%                 16.95%

9) Credit Card                                2.00% per month        2.00% per month

10) Urban housing

i) Real Estate (Commercial)                        15.1.00%          13.50% - 16.50%

ii) House Building (Non-Commercial)                15.1.25%          13.75% - 16.75%

11) Others

i) Cash Collateral - ABBL FDR

                          Time Loan for 3m         13.50%           12.00% - 15.1.00%

                          Time Loan for 6m         14.00%           12.50% - 15.1.50%

                                         OD        14.50%            13.00% - 16.00%

ii) Cash Collateral - Other Banks FDR/WDB

                          Time Loan for 3m         14.00%           12.50% - 15.1.50%

                          Time Loan for 6m         14.50%            13.00% - 16.00%

                                         OD        15.1.00%          13.50% - 16.50%


Notes:

   1. Interest rate on overdraft (OD) under Working Capital & Commercial Lending
      categories will be higher by 0.50% than that of other funded limits availed by same
      customer.
   2. For lending against ABBL FDR, the rate is 2.00% above the rate of the instrument
      subject to minimum 13.00%.
   3. Exposure under cash collateral of other banks requires clearance from Financial
      Institutions.




                                              77
                                   CONCLUDING PART


7. PROBLEMS AND RECOMMENDATIONS


7.1 PROBLEMS AND LIMITATION OF ABBL

During collection of information and data from ABBL for this project report the following
problems have been found:


       Decision making process is very lengthy and sometimes it creates problems, which is
       unexpected to the customers. Head office controls the decision-making and it is
       centralized.

       The total number of employees in comparison with needed is very short. This is
       hampering the daily operation of the bank.

       The system of loan recover aid supervision is not scientific and modern. Lack of
       proper explanation of records and document records keeping system is not modern
       and scientific.

       ABBL is lacking of modern scientific tools to collect and disseminate the banking
       related information in time and proper way.

       There is hardly any arrangement for training of lower level employees.

       Numbers of branches are not enough to serve the people of all places of the Country.

       The salary structure of the bank is not impartial. There is wide gap between the
       officers and of the staffs.

       Loan recovery system is not fully unbiased.

       Lacks of post credit sanction assistance.

       Credit failed to reach the grass root level of the society.




                                                78
7.2 RECOMMENDATIONS

1. Decision-making:

Decision making power is preserved by head office Branch manager has to wait for decision
from center. This system should be changed.

2. Number of Employees:

A handsome number of staffs and officers are necessary to be appointed very soon for
maintaining the normal flow of
work.

3. Loan recovery system and supervision:

Loans & Advances require regular follow-up and frequent supervision. Bank should maintain
due date diary showing details information of the clients. This diary should be renewed daily.
The loan officers maintain all information about the clients business and he should update the
same.

4. Records keeping system:

Filing and records keeping system of the bank should be modernized. At present operation
system is partially computerized but management should computerize all of its function.

5. Effective information system:

Effectiveness of credit policy largely depends on Bank‟s branch, divisional & national level
information system.

6. Development of manpower:

Effective implementation of credit policy and recovery rate depends on higher educated,
trained and skilled personnel. Bank should procure and develop such types of employees for
its credit wings.

7. Expansion of Branches:

People from different corners of Bangladesh need modern banking services and credit
facilities for total economic uplift of the country. So ABBL should consider this matter from
a realistic point of view and set up new branches.

8. The bank should give loan in more needful sectors.




                                              79
CONCLUSION



AB Bank Limited, the pioneer private bank of the country has created a sense of mass
participation through its diversified activities over the last 26 years. Their numbers of client‟s
service recovers and supporters have been increased rapidly. For its diversified banking
service, it has got a wide range of publicity and created a special image m the banking area in
the country. ABBL has started making profit from 1985 to still now.


The report is aimed at the credit analysis and recovery system. The project is to design to
serve the purpose. At the concluding stage of the report, it may be on the basis of the
discussion in the project. The recovery rate of the bank is at not satisfactory level compared
to previous year. Now at the end of 2007 the total classified loan of ABBL was Tk. 1762.63
million in which Tk. 1330.89 in Bad & Loss category and at the end of 2006 the total
classified loan was Tk. 1258.51 million in which Tk. 1120.58 million in Bad & Loss
category, but position of 2005 was Tk. 1755.95 million in classified loan and Tk. 1549.17
million in Bad and Loss category. So, compare between says that loan recovery position was
not satisfactory in 2007 not only that the improved recovery situation of 2006 was recovered
by Bad loans rather than good one.

So, the managers of the entire branches should try to recover the bad debt because it hampers
the flow of banking. The total credit earning and the profit of the bank will reach to a sizeable
and moderate amount I the near future if appropriate measures a s suggested are taken to
overcome the problems and thus ABBL will contribute heavily to the economic development
of the country. The earlier it can be done the better of the bank.




                                                80
BIBLIOGRAPHY




   Basudevan, S.V., Theories of Commercial Banking, Reading Materials on Theory &
    Practices of Banking, Bangladesh Institute of Banking Management.
   http://www. abbank.com.bd
   http://www.bangladesh-bank.org
   Financial Statements of AB Bank Ltd.




                                        81

				
DOCUMENT INFO
Description: Banking industry in Bangladesh is visualized as a very competitive and highly synchronized sector. A number of banks in business make the market increasingly more competitive. This report attempts to explore our theoretical knowledge about the real phenomena of advance, Loans and Credit policy and conditions of AB Bank Limited at Rokeya Sharani Branch guided by internship supervisor Assistant Professor Rumana Ahmed, Department of Accounting and Information Systems, University of Dhaka. Financial soundness of any financial institution is the prime concern for its survival in the competitive and changing business environment. This is more important in case of the banking institution. In this study “Advance, loan and credit policy and conditions of ABBL” have been described. Data from the period of 2004 to June, 2008 have been used in this study. During the study it was found that the total loans and advances of AB Bank Ltd. in the period of 2004 was Tk. 17,008.50 million, Tk. 21,384.63 million in 2005, Tk. 31,289.35 million in 2006, Tk. 40,915.35 million in 2007, Tk. 51,908.38 million up to June, 2008. It is continuously increasing year by year. The loans and advance in the year 2004 was 60.10%, in the year 2005 was 78.15%, in the year 2006 was 74.36%, in the year 2007 was 76.65%, in the 2008 it was 83.27% of the total deposit. AB Bank Ltd. Rokeya Sharani Branch plays an important role in the ABBL’s total loans and advances. As on 30.12.2008 the profit of the Rokeya Sharani Branch of ABBL stood at Tk. 2.54 crore, deposits of Tk. 89.72 crore and advances of Tk. 33.97 crore. The procedure and terms and conditions of loans and advances of the bank are very strict and complex. Many customers cannot understand the related papers but the credit officer make it easy for the customers to prepare the necessary papers for their loan. Besides this the top executives should monitor the customers’ service and should take necessary action.