Credit Risk Policy Analysis of United Leasing Company Limited
Objectives of the report
· To analyze the Credit Risk Management policies of ULC.
· To compare the policies with the guideline given by the central bank and check their compliance with the guidelines.
· To analyze the process through ULC evaluates the credit for corporate clients and even SMEs.
Scope of the report
The study will focus on the Credit Evaluation process of ULC and its compliance with the guidelines of Bangladesh Bank. The other financial functions of the company will not be considered in the study.
The information for theGuidelines part of the report was collected from secondary sources like books, publications, WebPages, and Guidelines (Bangladesh Bank, 2005) and other central banks of different nations. The information for theproject “Credit Risk Policy Analysis of United Leasing Company Limited” have been collected from primary and secondary sources.
Information collected to furnish this report is both from primary and secondary in nature. The primary sources are:
· Practical Deskwork.
· Face to face conversation with different officials.
· Analyzing various implementations of the policies.
The secondary sources are:
· Different Manuals published.
· Guidelines of CRM Policy of ULC
· Guidelines of Bangladesh Bank.
· Publications obtained from different libraries and from internet.
· Library research.
· Guidelines of other central banks of different nations.
The major limitations faced during the preparation of this report are as follows –
· Such a short internship period is not sufficient to collect and understand the insights of an extensive process of Credit Risk Management.
· Some policy does not permit to disclose various data and information related to their management policy.
An Introduction to ULC
Leasing Company Limited is a Non-Bank Financial Institution engaged mainly in lease finance business and bills discounting. It was incorporated on 27 April 1989 as a public limited company under the companies act 1994 with an authorized capital of BDT 1,000 million. From the beginning, ULC managed to grow rapidly with an average operational growth of above 30%. In April, 1994 the company issued 10.71% of its shares for public subscription at 50% premium and was oversubscribed. Now it is listed on the Dhaka Stock Exchange (DSE) and from the date of listing, its shares are enjoying high price. Foreign sponsors of the company are Asian Development Bank (ADB), Commonwealth Development Corporation and Lawrie Group Plc of the UK. Sponsors in Bangladesh are Duncan Brothers (Bangladesh) Ltd, Shaw Wallace Bangladesh Ltd, National Brokers Limited, Octavius Steel & Co. of Bangladesh Limited and the United Insurance Company Limited.
|§ Incorporation of the Company||April 27, 1989|
|§ Commencement of operation||September 12, 1989|
|§ Public Issue of shares||March 28, 1994|
|§ Trading of shares on Dhaka Stock Exchange||June 23, 1994|
|§ First dividend declared||April 20, 1995|
|§ Authorized capital increased||May 18, 2000|
|§ Launch of Fixed Investment Products||September 2005|
|§ Commencement of Factoring Operation||October 03, 2005|
|§ Commencement of Extended Head Office (Noor Tower)||June 13, 2008|
|§ Commencement of Training Centre (Northern S.R.Tower)||May 15, 2010|
1.1.2 Branches Opened
ULC has opened eight branches so far. The name of the branch offices of ULC with their opening date is given below:
|§ Chittagong Branch||June 16, 1994|
|§ Jessore Branch||December 26, 2005|
|§ Gazipur Branch||February 19, 2006|
|§ Bogra Branch||June 19, 2006|
|§ Sylhet Branch||February 27, 2010|
|§ Rangpur Branch||November 23, 2010|
|§ Chudanga Branch||December 14, 2010|
|§ Bongshal Branch||January 23,2011|
|§ Feni Branch|
|§ Barishal Branch|
|Chairman||: Nominated by|
|Mr. Imran Ahmed||: Lawrie Group Plc of the U.K.|
|Mr. Peter John Field||: Lawrie Group Plc of the U.K.|
|Mr. A. Rouf||: Macalms Bangladesh Trust|
|Mr. S. Aziz Ahmad||: Surmah Valley Tea Company Limited|
|Mr. M. M. Alam||: The Allynugger Tea Company Limited|
|Mr. M. A. Azim||: The Chandpore Tea Company Limited|
|Mr. M. Moyeedul Islam||: United Insurance Company Limited|
ULC was formed by reputed foreign and local institutions in collaboration with International Development Agencies. It was granted license under the Financial Institutions Act, 1993.
|Authorized Capital||1000 million|
|Paid-up Capital||528 million|
Shareholdings of Associated companies and other related parties:
|Name of Shareholders||No of Shares||Shareholding|
|United Insurance Co. Ltd.||544,845||20.64%|
|Lawrie Group Plc, U.K.||528,000||20.00%|
|Surmah Valley Tea Co. Ltd.||218,425||8.27%|
|Duncan Brothers (Bangladesh) Ltd.||26,400||1.00%|
|Macalms Bangladesh Trust||25,453||0.96%|
|Octavius Steel & Co. of BD Ltd.||18,857||0.71%|
|The Lungla (Sylhet) Tea Co. Ltd.||15,313||0.58%|
|Camellia Duncan Foundation||3,019||0.11%|
|The Chandpore Tea Co. Ltd.||1,846||0.07%|
|The Allynugger Tea Co. Ltd.||1,570||0.06%|
|Amo Tea Co. Ltd.||1,620||0.06%|
|Chittagong Warehouses Ltd.||1,572||0.06%|
|The Mazdehee Tea Co. Ltd.||1,569||0.06%|
|Duncan Products Ltd.||1,568||0.06%|
To be the leading financial institution in the markets we serve.
Small and medium scale companies who are at the same time low profile good performers and potential performers as well are the target market of the ULC. The low profile good performers are those who perform very well in business due to sincerity and devotion of the sponsors though they lack proper management structure, and professional financial reporting. The potential performers are the companies which have no proven record but have identified themselves as good projects and are sincere in approach to exploit the business. In a nutshell the main targeted customers of ULC are those companies who have potentiality, sincerity and devotion, but are in a position, that are not favorable to overcome the rigid procedures for loan financing but badly in need of investment in equipment to grow. Since the large, well performing companies enjoy lower business and financial risk, they are persuade by all financial organizations and they have the opportunity to shop around for cheaper credit package. So leasing is not attractive to them. But due to low credit risk, they may be offered lower rate lease package for their pursual. Among these blue chips, those who want to finance equipment without straining the existing credit line may become within the focus of ULC. Also the sister concerns of well reputed large companies, even though they are green fields may come forward for the services of ULC.
Product strategy: At present, ULC offers only financial equipment leases. But to maintain its present growth and to grow further in increased competition from other financial institutions, it has a plan to diversify and enlarge the product package i.e. introducing Consumer Hire Purchases, Asset Credit Scheme, and Syndicate Leasing etc.
Pricing Strategy: Lease pricing comprises of (a) Cost of Fund. (b) Administrative Cost. (c) Risk Premium and (d) Targeted Profit. Out of these, the Principal component is the cost of fund, followed by administrative cost. ULC is in continuous search for low cost of funds to reduce the lease package price by reducing cost of fund, prudent borrowing, and efficient fund management. The management is starving for increased local bank credit and call-loan facilities, in conjunction with maintaining low administrative cost efficiently.
Portfolio Strategy: Now the lease portfolio of ULC concentrates in the textile and export oriented garment sector. This position is also true for the competitor of ULC, except the competitor’s portfolio extends to some other prospective sectors like chemicals and pharmaceuticals, leather and ceramic etc. The portfolio strategy of ULC focuses on the philosophy of profitable diversification and appropriate weight age according to the performance of potential. Management is always trying to find and explore the possibilities of new and potential sectors.
1. Operational Area Strategy: Chittagong branch’s activities helped ULC to expand its area of operations. ULC, like its competitor, operates only in two major metropolitan cities. Rajshahi and Khulna are still out of focus due to a few existence of economy of operation. But ULC is following the track of economy and development to explore the area of operation. Construction of the Jamuna Bridge may open up new opportunities for its operation which will connect the country’s Northern part and Southern part. To find the now area of operations, ULC executives are maintaining continuous touch with the businessmen of the unexplored areas.
2. Promotional strategy: ULC’s Marketing activities are to attract right clients only and avoid wrong ones by establishing a corporate identity and increase client awareness.
Advertising: Good adverting always attracts people but not always the right people. That is why ULC uses advertising is a limited way. However, ULC is continuing its advertising in selected business publications to make entrepreneurs aware of the availability of this new mode of finance.
Promotional Campaign: ULC and IDLC jointly organized a seminar on leasing in October, 1993 which attracted good attention and they have plans to organize more of these in future.
(a) Direct selling: This includes identification of prospective clients, and calling upon them directly. This may sometimes result brusque repudiation but most of lease agreement resulted from this strategy. ULC emphasizes on maximum practice of this strategy by making 2 or 3 visits a day with proper record to follow-up. It is the most effective strategy for marketing promotion so far adopted by ULC.
The regional business manager acts as the regional business chief of ULC in his territory and provides all kinds of services to its customers.
The main responsibility of the corporate finance department is to design and offer diversified products and services to the corporate clients. The corporate clients as a market have different financing needs. The services and facilities offered to the corporate clients are different in many aspects from those offered to the small and medium clients. Most of the corporate clients are renowned business conglomerate of the country. So understanding the financing needs of the corporate clients requires understanding the business of clients as well. Since the performance of the corporate clients is affected by the business cycle, understanding the activities requires profound knowledge of the overall economy. The size of funds disbursed to the corporate clients is significantly big compared to the funds disbursed to the other clients. That is why corporate financing activities require greater effort in the risk assessment and risk mitigation process. The services provided by the corporate financing department fall into two major categories which are financial lease and term loan.
ULC has always diversified its product basket in order to serve the market in a more proficient way. In this regard factoring department has been established to provide customers factoring product. Factoring of Accounts Receivable is a mode of financing receivables arising out of supply of goods or delivery of services on credit. This revolving short term financing facility enables the suppliers/ service providers to realize the maximum portion of the payment soon after the delivery is made to the buyer. Particular job requirements of factoring department are as follows:
· Provides detailed reports on the sales ledger to clients or suppliers in order facilitate them in making prudent management decision.
· Following up collection in a structured process and ensures physical collection of payment from Buyers located at different geographical locations.
· Assisting the Client by making suggestion about the credit rating of a Buyer and thus enabling the Client to fix proper credit limit for each Buyer.
ULC in order to serve the corporate clients in a better way participates in syndicated financing. ULC participates in such financing either by acting as the lead arranger or as a common participant. As a lead arranger ULC finds the right consortium partners and negotiate acceptable terms and conditions for all concerned parties. The particular job responsibilities of the department are as follows:
· Conducting due diligence of the client
· Preparation of Information Memorandum
· Distributing IM to the targeted financial institutions
· Preparing legal documents and coordinating disbursement
The Investment marketing department is mainly engaged in the act of deposit marketing. The depositing marketing activities involve selling different deposit products to individuals and thus maintaining a sustainable source of funds for the organization. Since the authorized capital of the NBFIs are restricted to BDT 500 million by the regulation, for funds ULC has to rely on banks or other financial institutions. The long term borrowing from the financial institutions was never a sustainable source of funding. With the introduction of deposit marketing a significant portion of the funds can be now collected from the depositors with relatively low cost of capital. The fund collected from the depositors reduces the overall cost of funding for ULC and dependence on the source of funds. With the change in the economic conditions the need for fund also changes. So the deposit marketing department has to adapt their activities to the changing economic conditions. There are different deposit products that allow depositors to deposit their savings for different time spans with varied return.Term Deposit, Earner Scheme, InsuredDepositsScheme are the major products marketed by the Investment Marketing Department.
The organization and operation of the small enterprise is different from those of the large enterprises. So it was inconvenient for the corporate financing department to provide services to both the large and small enterprises from the same platform. The Small enterprise financing department works to cater the unique financing needs of the small enterprises. The operations of the small enterprises are unique in many aspects. The do not follow all the standard business practices properly. In many cases it is hard to find necessary documents required for the disbursement of funds. So, financing small enterprise clients requires more judgmental analysis than quantitative or structured analysis. It is also important to maintain strong relationship with the proprietor of small enterprises in order to collect the due amounts from them. Most of the small businesses do not have any regular or secured stream of cash flow. The unique need for fund has been identified and met through different funds and schemes. The rate of credit default is high in the small enterprise sector but at the same time the margin is also high in this type of financing. Also to cater the need of the clients ULC offers diversified and innovative products depending on the business type, requirements of the clients. The major products that small enterprise financing department offers are Agrani, Briddhi, Mousumee, Nokshi, Bunon, Sristi, Dhara which are explicitly designed to meet the demand of different types of clients.
In order to provide smooth and efficient service to its small credit clients ULC segregated and established regional small credit departments in different branches all over the country. The task was previously performed from the main branch but now the clients can avail the service from regional branches. The decentralization of credit department is aimed to facilitate better and efficient services to its small credit clients who live outside Dhaka.
Risk management department 1 was established in order to mitigate potential losses resulting from failure of clients to meet their obligation. In this regard the department tries to mitigate future risk of investment exposure by analyzing the current market situation, analyzing client’s market specific and business specific risks. The department also applies various risk assessment analysis and appropriate risk management tools in order to assess and find the level of client’s exposure to different type’s risk, vulnerability of the client to various businesses specific and market specific risk and client’s capability to successfully withstand those kinds of risks.
The Market Department analyzes the current market situation, conducts industry analysis in order to find out industry specific risks and prospect of different types of industry in probable macro economic conditions. The department conducts following activities:
Industry Analysis and Industry Scoring
Industry Analysis is a marketing tool used to analyze several aspects of the industry to determine if the company can make a profit in the market. Analyzing economic factors, supply and demand, competitors, future conditions and government regulations help management decide whether to enter an industry or invest money elsewhere. Markets department prepare the Industry Analysis for different industries. This department also assigns a Industry Score on different industries depending on the factors mentioned before.
Industry Benchmarking is the process of comparing one’s business processes and performance metrics to industry bests and/or best practices from other industries. Industry benchmarking process is now under construction under the markets department of the company.
Risk Review Matrix (RRM)
Markets department uses Risk Review Matrix as a tool in the risk assessment process. The company management concludes about the risk of financing a firm from RRM. The department finds different information under different categories which is important and influential in the financing decisions and assigns weight to them according to their importance. The point that the individual firm gets under each category is multiplied by the weight assigned to it. The total risk is the sum of the individual risks.
Credit department mainly comprises of two different departments, Credit – Corporate, Enterprise financing & Channel financing (CEC) and Small Enterprise Credit (SEC). Credit (CEC) works in order to ensure that at the time of credit origination, risks are acknowledged and mitigated so that credit losses and collection costs are minimized.
It also recommends appropriate methodologies in order to minimize lending risk for the quantifiable financial risks. It also ensures effective exercise of all credit principals and adherence to all regulatory requirement and company policies in all lending activities. On the other hand credit (SEC) ensures effective execution of credit principles are in place and exercised while maintaining best credit approval processing time for all small enterprise clients at the time of credit origination so that risks are acknowledged and mitigated to minimize credit losses and collection costs.
Credit (CEC) conducts reviews of all credit applications or items of Corporate, Enterprise Financing & Channel Financing to be considered for approval/reviewed by the Credit Committee/Managing Director/Executive Committee. It also executes annual review of recurring clients and updates lending guidelines/credit policies as and when required. Credit (CEC) also conducts Credit Committee (CC) meeting when called. Credit (SEC) deals with small clients and that is why their job responsibility also differs from credit (CEC). This team visits all prospective clients before preparing the credit appraisal report and prepare credit assessment report and inform RM as well as SE Head about the risk factor identified during the visit. They are also responsible for preparation of credit appraisal report of all proposals which are submitted to the management for approval. They also raise credit issues to the RM and continue correspond with branches for solving the issue. The team updates and circulates in hand proposal’s status to the Dept Head and Head of SE. Credit (SEC) is also the custodian of credit assessment report of small enterprise and quotation file.
Basically the departmental control department is in charge of ensuring the compliance by other departments in every step of the credit approval process .it is the responsibility of the departmental control to make sure that all the concerned departments has followed each of the standard procedures in the process of the credit approval. Apart from monitoring the compliance process departmental control is also responsible for smoothening of the credit approval process. One major responsibility of departmental control is to reduce the bureaucratic lingering that is caused in the name of control. So Departmental Control deals with a very tough task that calls for a balance between control and coherence.
The product development department is in the charge of designing and developing new products and services after studying the market. The process of product development calls for extensive analysis of the economy, market, industry and needs of the client. Strategically product development is a very important department for ULC since it is responsible for ensuring the strong presence of the organization in all the important segments of the market. This department introduces new products so that the organization can cope up with the changing market needs and is always on the right track.
Risk management 2 department deals with the operational matters needed for execution of disbursements and facilitates all kinds of operational activity which are needed to be done to mitigate any kind potential risks.
The operation department conducts all the required documents prior to the disbursement. Necessary documents include application from the clients, quotation/ bill/ delivery challan/ Bill of entry, relevant organizational papers from the clients and approved credit appraisal. The operation department also sanctions related documents for disbursement and thereby officially executes disbursement order.
The operation department is also liable for import related required works.
The department inspects the particular leased asset in order to find out whether the asset complies perfectly with the documents and ensures the asset quality and appropriateness.
Operation department also maintains various kinds of related documents i.e. master, credit and security documents in order. Operation department also releases security documents against respective lease or loan sanctions.
Collection process mainly works for managing Post Dated Check (collected from the operation department) & collecting the respective rent. The structure of collection department is shown as follows:
Team 1: Lodgment:
- The lodgment team collects PDC from operation department, acknowledges the clients of the receipt and ensures the maintenance of all the PDC in the system for future reference.
- The team executes cheque lodgment in respective bank account and also send acknowledgement about the execution to respective department or person.
- Executes necessary steps against dishonored cheques and updates the system accordingly.
- It also responds to all queries regarding PDC and provides operation department required information regarding PDC.
- Receives cash or cash deposit slip and prepares daily cash statement.
Team 2: Chaser:
- The team maintains follow up with the clients in order to collect overdue amount for dishonored cheques.
- Upon failure to meet disbursement obligation on the part of the client the lodgement team instructs team 2 to follow up with the default client.
- The chaser team then takes necessary steps for collection
- Maintain collection document against Late payment Charge (LPC) and updates the system and concerned person with collection information.
- In case of failure to collect overdue amount from the clients after certain period depending on the judgment of respective follow up officer (usually overdue position 1-3) the task is delegated to team 3 or follow up team.
Team 3: Follow up:
- Team 3 follows up default clients after being delegated by the team 2. They follow up the default clients extensively for a certain period (usually from overdue position 3-6)
- Tries to regularize the clients by improving their default status.
- The team prepares weekly and monthly overdue report and updates the collection account if required.
- In case of failure to collect overdue amount from the clients within specified period the team delegates the responsibility to team 4.
Team 4: Litigation:
- Team 4 or litigation team follows up the clients which are most difficult tract or most crucial clients with minimal level of compliance.
- The team tries to follow up the clients and in case of failure to collect against the LPC the team launches punitive measures.
- They execute all necessary legal steps against the clients and conduct law suit.
- The team also takes appropriate steps to recover the leased asset and sell recovered asset through auction notice.
- The team also conducts lease/ loan agreement termination process with the defaulted clients.
- Litigation team maintains database of lawsuits against the clients, updates the database and acknowledge the respective committees by preparing overdue, EC and MANCOM report.
The administration department is primarily responsible for all kinds of administrative activities needed to ensure sound operational environment. The major activities of the department are as follows:
- Maintenance of all office vehicles and requisition related activities of those vehicles.
- Conduct all types of procurement (except IT equipments).
- Checking and verifying the car loan process.
- Maintenance of corporate mobile SIM and set and telephone connection (including PABX, Intercom), and insurance for the same.
- Maintenance of all office equipments & store.
- Administrate the maintenance stuff (peon & drivers).
- Maintenance of all fixed assets and arrange the disposal of fixed asset, expired documents/files, and other materials.
- Arrange day to day miscellaneous fund requirements.
- Branch offices Maintenance, branch office Petty cash bill check and arrange disbursement.
- Brand Management.
- Looking after ULC zonal office rental matter, making agreement, preparing possession paper, payment of monthly rent, development and decoration work, repairing and renovation work etc.
- Maintenance of payroll and deposit associates information (joining, resignation, increment, bank account) update and prepare their salary and commission information.
- Recruitment of security service, making agreement, maintaining and ensuring their services.
- Maintenance of all employees’ leave management and attendance record.
The department analyzes the overall loan and lease portfolio of the organization retrospectively and then tries to construe future potential default probability. The main objective of the department is to mitigate credit risk by analyzing the portfolio and there by forecast about the future effectively. The department also works in order to develop appropriate risk management tools and structured analyzing procedure needed for better understanding of the client’s risk exposure. The department’s major sub-departments and job objectives are as follows:
MIS is the centralized reporting department in ULC. The main objective of this department is to provide reliable information in the system. They also organize, analyze and interpret data to produce external reports for different regulatory bodies and internal reports for the management. Internal reports are made monthly and external as per schedule. Ad-hoc reports are also made when required.
External reports are submitted to external bodies such as Bangladesh bank, IFC, CBSF, BLFCA, BOI, SEDF etc on monthly, quarterly, half yearly and yearly basis. The reports are Highest Interest Rate Differential Financial Institutions, Statement of Doubtful and Unusual Transactions, Monthly Statement of Business Performance, Cash Reserve Requirement, Statutory Liquidity Reserve, Statement of Reschedule, Statement of Net Asset, Statement of Write off, Statement of Classification of Leases and Loans, Statement of Capital and Liability, Industrial Loan in Government and Private Sector, Report for Credit Information Bureau (CIB) Database, Quarterly Statement of Lease & Other Finance to Non-bank co’s Director, Quarterly Statement of Lease & Other Finance to Bank co’s Director, NBDC (Non-banking Depository Corporation) return, Statement of Shareholding and Particulars the Directors, Statement of Foreign Direct Investment.
Internal reports are made from the verified generated data for internal use only. These are prepared on monthly basis. Major reports include Business Performance, Contract and Disbursement, Overdue, Group Exposure, New Customers, Portfolio, Deposit Mobilization, Collection, Quarterly Management Report etc.
The portfolio management team works in order to mitigate the overall credit risk by efficiently analyzing the total portfolio and then effectively predicting the potential credit default probability. Major job responsibilities of the team are as follows:
- The team manages the grading model developed to assess different types of risks of clients’ i.e. financial risk, management risk, business risk, credit risk, market risk etc. The grading model management and ensuring the most efficient use of the grading model is another responsibility of the portfolio review team.
- In order to ensure compliance on the part of the regional manager the team evaluates the credit appraisal reports supplied by the RM and grades the RM in accordance with their compliance with the grading model. The team also prepares grading of the regional managers’ in accordance to their compliance with the risk evaluation process of the respective clients.
- The team is also responsible for conducting early alert report. By analyzing the individual clients’ credit appraisal report the team tries to assess all kinds of risks and also finds the potential vulnerable clients for whom potential of failure to meet credit obligation is high. Through early alert report the team acknowledges the top management about the clients who possess high probability of default and also notify and prepare the respective RM of the client to take necessary evasive action against any kind of potential credit default.
- The team maintains Portfolio Matrix which shows portfolio condition over the period of time and transition of portfolio in relation with time. The activity facilitates time series analysis or trend analysis of the total portfolio of the company in order to evaluate the performance of the total portfolio over the analyzed period and thereby assists the top management in reaching decision regarding the credit approval policy.
The major responsibility of the internal control department is to ensure the adherence to regulations by conducting audit on all the department and branches of the company. It generates audit report and provides the report to the top management in order to acknowledge about various departments’ compliance with standard practice and good governance processes. The department evaluates and assesses the effectiveness of internal control process, risk management procedures, and the quality of performance in carrying out assigned responsibilities. So, the internal audit team facilitates the audit committee by conducting audit related operations on different departments.
The accounts department is controlled by Chief Financial officer (CFO). The job responsibilities of accounts department are to Prepare Monthly, quarterly and annual statements, which are required to facilitate smooth transaction process internally and externally. It also performs supervisory duties in order to maintain error free transaction. It also prepares various reports to meet the requirements of various stakeholders like internal audit, shareholders, Bangladesh Bank. The department is also responsible for preparing annual report, Kreditanstalt fur Wiederaufblan (KFW) fund and other transaction related schedules. Accounts department also prepare of daily treasury transaction related letters, Bangladesh Bank lodgments.
ULC treasury is controlled by Chief financial officer. The duties and responsibilities of this department include preservation of Credit line including OD facility without long term liability.
· Call market review and fund utilization.
· Asset/Liability management and reporting
· Profit generation from precise fund management
· Banking network enhancement.
The HR department of ULC basically controls the most important asset of the organization which is its employees. The team manages the overall work force of the organization and aligns HR management with the strategy of the organization. The HR department of ULC mainly does four most important tasks which are given below.
Recruitment refers to the process of attracting, screening, and selecting qualified people for a job. For some components of the recruitment process, mid- and large-size organizations often retain professional recruiters or outsource some of the process to recruitment agencies. The stages in recruitment of ULC include sourcing candidates by advertising or other methods, screening potential candidates using tests and/or interviews, selecting candidates based the results of the tests and/or interviews, and on-boarding to ensure the candidate is able to fulfill their new role effectively.
In the field of human resource management, training and development is the field concerned with organizational activity aimed at bettering the performance of individuals and groups in organizational settings. The HR department conducts following activities :
· Training: This activity is both focused upon, and evaluated against, the job that an individual currently holds
- Education: This activity focuses upon the jobs that an individual may potentially hold in the future, and is evaluated against those jobs
- Development: This activity focuses upon the activities that the organization employing the individual, or that the individual is part of, may partake in the future, and is almost impossible to evaluate.
The “stakeholders” in training and development are categorized into several classes. The sponsors of training and development are senior managers. The clients of training and development are business planners. Line managers are responsible for coaching, resources, and performance. The participants are those who actually undergo the processes. The facilitators are Human Resource Management staff. And the providers are specialists in the field. Each of these groups has its own agenda and motivations, which sometimes conflict with the agendas and motivations of the others.
Performance appraisal, employee appraisal, performance review, or career development discussionis regularly conducted by the HR department in order to assess the job performance of employees. The evaluation is usually done (generally in terms of quality, quantity, cost, and time) by the corresponding manager or supervisor. A performance appraisal is a part of guiding and managing career development. It is the process of obtaining, analyzing, and recording information about the relative worth of an employee to the organization. ULC has always focused on development of employees by evaluating not only on performance rather on all the necessary aspects for enhancement the quality and productivity of the employees. The HR department regularly conducts training and other performance enhancing activities to bring the best out of its employees.
HR also fixes the compensation package of employees of ULC where salary and other benefit include. They also set up the salary structure for different positions.
Information & communication department provides all the necessary communication platforms needed for effective exchange of information to make the organization dynamic and efficient. Major job responsibilities ensues:
- Implement infrastructure inclusive of latest LAN components, Hardware and Software, communication equipments for our users to ensure maximum benefit from the network environment.
- Implement and upgrade the programs, software and processes that result in efficiency of users’ performance.
- Implement and upgrade security components like Antivirus software, security and monitoring software, administrative features and firewalls to protect company data to the maximum degree.
- Maintain close contact with branches and HO personnel to determine their requirements and provide them support with appropriate problem and change management procedure.
- Maintain IT inventory that includes systems information, hardware, software, LAN and communication equipments to determine status of IT components at any point of time.
- Manage vendor relationships, search for alternative vendor and continuous follow up with them to ensure minimum downtime in case of systems (hardware, software, LAN etc) unavailability.
- In house software development
- Arrange training programs for our users and IT personnel to help them perform better in their respective area.
The resource strength of ULC comprises of following three major catagories:
1. General Management
2. Mid Management
3. Support Stuff.
The total human resource in ULC is 150 employees where 58 of them in the management and mid management level. Rest of them is contractual and support stuff mainly working in the sales department.
The asset liability committee mainly deals with risks that are mainly related to the balance sheet of the company. The Alco is in charge of the issues that arises from and better defined by the liquidity and interest rate risks. Addressing these risks require the assessment and analysis of the timing and duration of the cash flows that are related to the profitability of the organization as well. The major responsibilities of the committee include:
· Scrutinizing asset – liability or other balance sheet component and determine if the position is favorable for the company in terms of liquidity and interest rate.
· Taking all the actions required to mitigate the risk arises from the asset liability position of the balance sheet.
· Working on preparation and implementation of policies regarding the efficient management of asset, liability and other balance sheet component.
This committee is formed and operated according to the guidelines of the central bank. The main concern of the committee is to supervise the formulation and implementation of the anti money-laundering guidelines to prevent from any incident of money laundering being taken place from a client account in ULC. The major activities of the committee are to:
· Constructing a policy that will help the company to prevent the incidents of money laundering
· Develop a system that will help to identify the suspicious transaction in client accounts.
· Properly submit the report on the suspicious transaction to the anti money laundering department of Bangladesh Bank on a regular basis
· Conduct training and other knowledge development program to keep the employees updated with the most recent cases of money laundering
The basic responsibility of the management committee is to review the initial credit proposals before submitting them to the Executive Committee of the board of directors for approval. It also scrutinizes the asset liability position of the company to make sure that maturity of asset matches the maturity of the liability and there is sufficient fund available for investment. The management committee includes the members from the both the finance and operations department of the company.
Ensures credit risk associated with credit applications are properly understood and evaluated before the loans are approved. The credit committee is liable for follo
- Review all credit proposals of Corporate, EF & Channel Financing prior to credit approval.
- Prepare credit assessment report for all credit proposals and inform the Management about the risk factor prior to credit approval.
- Prepare review report of recurring clients for limit sanction.
- Prepare review report of recurring client for review only.
- Must visit client before preparing review report. Also visit prospective & financed clients as and when required basis.
- Help in developing new guideline and documents when required.
- Custodian of credit assessment report, credit committee report, visit log & camera.
The Audit Committee operates with a view to assist the board of directors to perform its responsibilities concerning the financial and other related issues. The key objectives of the committee are to:
· Keep an eye on all the internal and external audit and the Inspection Program of the central bank
· Scrutinize any financial issues related to the operation of ULC
· Scrutinize if the accounting policies are in line with statutory and regulatory requirements
· Review the internal control system
· Review any internal or external audit report
· Scrutinize the financial statements in the annual reports and other interim statements before submitting to the Board of Directors
· Supervise the financial reporting system to ensure the reliability and timeliness of the information provided to the Board.
Sanchay scheme allows an individual to deposit on monthly basis and at the maturity he will get a substantial amount of return with interest. It is a safe investment with high return. Any Individual or Firm or Corporate Houses are eligible to participate in the Deposit Scheme of ULC. Sanchay scheme is flexible and diversified product which is tailored to one’s needs and require no incidental costs. Premature encashment is allowed after completion of minimum duration.
There are three types of Sanchay schemes:
|Sanchay Scheme (monthly)|
|Easy Millionaire Scheme|
Monthly sanchay scheme does not require initial deposit. Millionaire scheme requires initial deposit and minimum duration is 3 years.
Under this scheme, an individual’s money is deposited for a fixed period of time and interest is capitalized with the principal at each year. The term deposit cannot be encashed before 1 year. The profit is subject to deduction of AIT accordance to the prevailing govt. rules and regulations. Senior citizens (individuals aged 57+) will get 0.25% higher profit rate under all the deposit schemes other than fixed term investment schemes (Double money, Sanchay and Millionaire schemes.)
ULC offers following term deposits:
Annual Profit Term Deposit
It is a fixed return investment that allows an investor to withdraw or reinvest profit or principal at maturity.
Earn Ahead Term Deposit
This scheme offers anyone interested to invest an opportunity to benefit from his investment at the time of opening account. Also allows him to reinvest withdrawal amount for further benefit.
Cumulative Term Deposit
Under this scheme profit from anyone’s invested amount has been capitalized at the end of each year (after AIT deduction), creating a new principal. Profit for next year is then being calculated on the full amount.
Double money return
Due to attractive profit, investors’ investment becomes double at maturity.
An investor will receive a fixed monthly or quarterly return against your deposit. This is an ideal scheme for senior citizens who wish to preserve their retirement funds and at the same time want to earn interest to meet recurring expenses. Minimum deposit amount for quarterly and monthly earner deposit scheme is Tk 50,000. Earner scheme is available for both individual and institutional customers and term of the scheme is 12 months. Like Sanchay scheme it is also a safe investment with high return and require no incidental costs. Premature encashment is allowed after completion of minimum duration.
There are two types of earner schemes:
§ Monthly earner deposit
§ Quarterly earner deposit
It is an unique monthly savings scheme that gives the depositor an opportunity to save money for the future as well as obtain peace of mind that the scheme benefit will be paid even in case of sudden demise of the depositor.
The monthly installments have built-in life insurance coverage that assures the receipt of the maturity value of the deposit by the nominee of the depositor, in case of depositor’s death due to any cause (excluding pre-existing illness/disability, AIDS, suicide, murder or assault, war or warlike operations etc. details of which will be available in the original Group Insurance Policy Contract).
IDS has some terms and conditions like multiple deposit schemes are allowed, but cumulative monthly deposit shall not exceed Tk. 10,000. Installment must be deposited through Cheque/Cash within 25th day of each month at the bank nominated by ULC. Initial deposit must be made by cheque only in favor of ULC. The scheme will be closed if three consecutive monthly installments are not paid within stipulated time and there can be more than one beneficiary for a single IDS Scheme. If share of Multiple Beneficiaries are not specified, all beneficiaries will share equally.
In order to meet someone’s unexpected requirement ULC provides quick loan against his deposit amount with ULC. Quick loan can be availed up to 80% on the investment amount but loan interest rate will be 2% higher than the deposit rate.
ULC provides lease financing facilities to all market segment of customers, Small & Medium Enterprises, Commercial Houses, Large Corporate organizations. Under this facility ULC provides industrial machinery and motor vehicles at concessionary term, machinery and furniture for hospital use, truck or bus for transportation and equipment or furniture for official use.
ULC provides 80%-100% lease financing for a period of 3-5 years. Thereby, one can avoid capital investment and utilize fund elsewhere. Lease financing at ULC are customized into number of facilities like, lease local, sale & lease back and lease foreign. That allows anyone to lease new or existing asset from local or foreign vendor. As ULC is providing capital or financial lease, at the termination of contracts he will have the opportunity to renew the lease or purchase the asset with a minimum transfer price. Construction of repayment schedule using this method allows one to pay lower interest as principal payments are gradually adjusted with receivables.
Term finance is designed for the longer term business purposes where main theme is to meet up the purpose of working capital finance, generate profitability and consolidation of the customer’s expansion objectives. ULC provides minimum loan amount of Tk1 lakh for new and existing client. A client’s installments can be structured as monthly, quarterly, semi-annually or annually to match with his cash flow generation. One can prepay and adjust full or partial amount with the loan account only after adjustment of first six loan installments.
Small enterprises play an important role in the economic and social development of our country. They create millions of jobs and increase the competitiveness of our economy. To meet their requirement ULC further customize it’s facility into small loan facility as follows:
Nokshi isa business loan scheme for women entrepreneurs, at a modest rate, for the purpose of working capital finance to the small and medium sized enterprises. It provides a loan amount up to 500,000 BDT.
Agrani isa business loan scheme for the purpose of working capital finance to the small and medium sized enterprises. Agrani provides a loan amount up to 600,000 BDT.
Mousumee is also a scheme for working capital finance to the small and medium sized agro-based manufacturing industries (agricultural equipment and spare parts). It allows a loan amount up to 500,000 BDT.
Briddhi allows a loan amount up to BDT 1200,000.
ULC offers home loans for purchase/construction of house/apartments, renovation/extension of existing house/apartments, construction/purchase of commercial building, construction of commercially viable project like school, hotel, hospital etc. and construction of industrial building like factory, godown, warehouse etc. Maximum loan amount is Tk 50 lacs or 70% of the purchase price/cost, whichever is lower and the repayment term for 15 years for normal facility and 20 years in case of Bangladesh Bank refinancing scheme, but not beyond the 60th birthday of the applicant. Repayment term for commercial loan is maximum 7 years.
For project requiring large-scale investment, ULC brings other financial institutions to raise funds through syndication where ULC acts as the lead arranger for the financing. ULC’s job in this area is to find the right consortium partners and negotiate acceptable terms and conditions for a customer. The entire process is usually completed within 3-6 months. However, this may vary based on the complexity of the deal. These service requires conducting due diligence of the client, preparing Information Memorandum (IM), distributing IM to the targeted financial institutions and preparing legal documents and coordinating disbursement.
ULC provides loan facility up to certain limits. Channel financing refrain a customer from further credit to pay off suppliers, as funds are directed to Channel partners. Suppliers or Customers will receive payments right after the delivery of goods or services. Therefore funds are no longer tied up in receivables. Release of funds from the Balance Sheet results in improvement in financial Ratios.
Under this arrangement STF is provided against a client’s Work Order, helping him in receiving a significant portion of order amount before the delivery of goods or services. Thereby ensures schedule implementation of his project. Work-order facility is available to all industries that provides services or deliver products to corporate entities i.e. institutional buyer/ debtor.
Factoring of Accounts Receivable is a mode of financing receivables arising out of supply of goods or delivery of services on credit. This revolving short term financing facility enables the suppliers/ service providers to realize the maximum portion of the payment soon after the delivery is made to the buyer.
This arrangement ensures better flexibility through sales expansion or sales retention without trade credit facility. Also allows a client to impose limits on cash discount, bad-debt losses, and opportunity costs.
2. Risk Management at ULC
Credit reviews all credit appraisals before submitting it to the approving authority. Credit review ensures following risk areas of a prospective borrower.
The majority shareholders, management teams and group or affiliate companies need to be assessed. Any issues regarding lack of management depth, complicated ownership structures or inter-group transactions to be addressed, and risks to be mitigated. The following questions are asked to assess the Management Risk:
a. Who is the borrower? Does any particular/specific characteristic of borrower need particular attention? For example, if the borrower is a Trust, this calls for examination of the Trust Deed.
b. Are there adequate abilities and experience in senior management?
c. Is there adequate depth and succession planning?
d. Is there any conflict amongst owners/senior managers that could have serious implications?
e. Is the credit Officer satisfied about the borrower?
The key risk factors of the borrower’s industry need be assessed. Any issues regarding the borrower’s position in the industry, overall industry concerns or competitive forces (demand and supply gap) to be addressed and the strengths and weaknesses (SWOT Analysis) of the borrower relative to its competition to be identified. For the above purpose the Credit Officers can collect data from statistical year book / economic trends of Bangladesh Bank/ public report/ newspaper, journals etc. The following questions are asked to assess the Business and Industry Risk:
a. Are there any significant concentrations of sales (by customer, industry, country, and region)?
b. How does the borrower rate with its competitors in items of market share?
c. Can increased direct production costs be passed on to customers?
d. Does the borrower deal in any specific product that may be subject to obsolescence?
e. Is the purpose of borrowing consistent with the objectives of the company?
f. Is the purpose legal? Does it contravene any rules and laws of the country and any instruction issued by the Bangladesh Bank/ Head Office?
Any customer or supplier concentration needs to be addressed, as these could have a significant impact on the future viability of the borrower.
The sufficient marker data is to be obtained to identify client’s market share in the industry/demand-supply gap in the market.
The product that is manufactured needs to be technologically viable i.e. whether the technology applied is updated. The product’s stage in its life cycle needs to be understood. Technical aspects of the products must be addressed. The Credit Officer must be satisfied with the mitigating factors of technical risks, associated with the product.
An analysis of a minimum of 3 years historical financial statements of the borrower need to be presented. Where reliance is place on a corporate guarantor, guarantor’s financial statement to be analyzed. The analysis addresses the duality and sustainability of earnings, cash flow and the strength of the balance sheet. Specifically, cash flow, leverage and profitability ratios are analyzed. In this regard CO looks into the status of the audit firm.
A projection of the borrower’s future financial performance is provided, indicating an analysis of the sufficiency of cash flow to service debt repayments. Loan is not granted if projected cash flow is insufficient to repay debts. The following questions are asked to assess the Financial Risk:
a. Does the borrower produce financial statements on time?
b. Is working capital adequate?
c. Has the customer actual title to stock?
d. Have financial covenants been met?
e. Has there been any major sale of shares by directors?
f. Any significant change in asset conversion cycle?
For existing borrowers, the historic performance in meeting repayment obligations (trade payments, cheque, interest and principal payments, etc.) need to be assessed. In this regard the Credit Officer looks into account turnover like debt summation/ credit situation/ highest debit balance/ highest credit balance (or lowest debit balance), no. of debit entries/ no. of credit entries for the last three years.
The Credit Application/ Appraisals need to be prepared in line with the Company’s guidelines. It must be clearly stated