AB Bank Credit Management Policy | The Lawyers & Jurists

EXECUTIVE SUMMARY

Bank Credit Is An Important
Catalyst For Bringing About Economic Development In A Country. Without Adequate
Finance There Can Be No Growth Or Maintenance Of A Stable Economy. AB Bank being
One Of The Largest Private Commercial Bank Of The Country Has Some Prejudice To
Finance Directly On Priority Bases To Agriculture Industry And Commerce Sector For Strengthening The
Economy Base Of The Country Hence It Is Very Clear That AB Bank Plays An
Important Role To Move The Economic Wheel Of The Country Providing Different
Sorts Of Credit And Scheme Role Like Loan Against Imported Merchandise (Lm)
Industry Loan, Flexi Loan, Auto Loan Are
The Main Spring Of The Credit Department

TABLE
OF CONTENTS

CHAPTER\SECTION

CONTENT

PAGE
NO.

ABSTRACT

EXECUTIVE
SUMMARY

PART-
ONE
INTRODUCTION

1.1

BACKGROUND

1.2

ORIGIN
OF THE REPORT

1.3

OBJECTIVE
OF THE STUDY

1.4

SCOPE

1.5

DATA
SOURCES

1.6

LIMITATIONS
OF THE STUDY

1.7

METHODOLOGY

PART-
TWO Banking
in Bangladesh

2.1

Bangladesh’s
New Banking System

2.2

Number
and Types of Banks

INTRODUCTION:

Risk
is inherent in all aspects of a commercial operation, however for Banks and financial
institutions, credit risk is an essential factor that needs to be managed.
Credit risk is the possibility that a borrower or counter party will fail to
meet its obligations in accordance with agreed terms. Credit risk, therefore,
arises from the bank’s dealings with or lending to corporate, individuals, and
other banks or financial institutions.

Credit
risk management needs to be a robust process that enables banks to proactively
manage loan portfolios in order to minimize losses and earn an acceptable level
of return for shareholders. Central to this is a Comprehensive IT system,
which should have the ability to capture all key customer data, risk management
and transaction information including trade & Forex. Given the fast
changing, dynamic global economy and the increasing pressure of globalization,
liberalization, consolidation and dis- intermediation, it is essential that
banks have robust credit risk management policies and procedures that are
sensitive and responsive to these changes.

The
purpose of this document is to provide directional guidelines to the banking
sector that will improve the risk management culture, establish minimum
standards for segregation of duties and

ORIGINS OF THE
REPORT:

The Report Titled “Credit
Management Policy” A Case Study On AB Bank Is A Partial Requirement Of The BBA
Program. The Internship Program Was Carried Out In Commercial Credit Division
Main Branch Of AB Bank Under The Supervisor. During The Internship The Student
Are Required To Prepare A Report On The Organization Where He Has Been
Attached.

Assigned by the Guide Teacher
This Report Is Prepared as Partial fulfillment Of BBA Requirement

OBJECTIVE OF THE
REPORT

The
Principal Intent Of This Report Is To Examine Credit Policy 0f Ab Bankltd. In
Particular The Objectives Are Follows:

1
To Have A Glance At The Commercial Banking System In Bangladesh.

2
To Examine The Present Banking System In Bangladesh.

3
To Get Acquainted With The Loan Structure Size Profile Of Sector Wise
Outstanding Position Of Loans And System Of Loan Classification Of AB Bank.

4
To Know The Deposit Behavior Of NCBs FCBs PCBs And AB Bank And To Cross Examine
Any Structural Changes Regarding Deposit Behavior.

5
To R\Examine The Credit Operations By Our Commercial Banking System

6
To Explain The Procedures Systems Of Credit Management And Appraisal Of Ab
Bank.

7
To Find out The Nature And Size Of Problem Loans In Ab Bank

8
To Find out The Causes Of Problem Loan

9
To Analyze The Effects Of Problems Loan On Income Of Ab Bank.

10
To Evaluate The Various Loans Programs Of Ab Bank This Includes Industrial
Trade And Commerce Transport Etc.

11
To Inspect The Recovery Of Loans Of AB Bank

12
To Examine Whether The Attributes Of Gook Performance Are Observed In AB Bank.

SCOPE OF THE STUDY

AB Bank Ltd. Is one of the
leading and first commercial Bank in Bangladesh. The scope of the study is
limited to the Board Bazar Branch-Gazipur only. The report covers the
organizational structure, background, functions and the performance of the bank

LIMITATIONS OF THE
STUDY

The following limitations are
apparent in the report:

·
Deficiencies
in data required for the study.

·
Inaccurate
or contradictory information.

·
Field
practice varies with the standard practice that also created problem.

METHODOLOGY

To prepare the report following
methodology is adopted: For
the procedure of different banking operations I had observed the operations and
worked with the officers at the same time I had interviewed the

AB bank officials for getting more information. For the analysis part data have
been collected from

·
Different
statement and the annual reports of the bank.

·
Various
files and documents of credit and industrial credit division of AB bank Ltd.

Bangladesh’s
New Banking System

After the liberation, the banking
system in Bangladesh was put back to life through presidential Order No.26
titled Bangladesh Banks Nationalization Order,1972. At the same time another
order known as Bangladesh Bank Order,1972 was promulgated to create the
country’s central Bank-Bangladesh Bank- to take over the assets, liabilities
and responsibilities of the erstwhile State Bank of Pakistan.

In the early 1980s began the
dream run of the private sector that had long been waiting in the wing to
emulate their pre-liberation counterparts to get into the lucrative business of
Banking. However, the first of the commercial banks set up in the private
sector was Arab Bangladesh Bank Ltd on a jpint venture basis in 1981-82.

This was followed by three rounds
of bank licensing creating the so called three generations of commercial banks
each corresponding to the period of rule of three main political parties. As
expected, political patronages weighted heavily in the grant of licenses

Number
and Types of Banks

The financial system of
Bangladesh consists of Bangladesh Bank (BB) as the central bank, 4 State
Owned Commercial Banks (SCB), 5 government owned specialized banks, 30
domestic private banks, 9 foreign banks and 29 non-bank financial institutions.
Moreover, MRA has given license to 298 Micro-credit Organizations. The
financial system also embraces insurance companies, stock exchanges and
co-operative banks.

Central Bank

Bangladesh Bank

Pursuant to Bangladesh Bank Order,
1972 the Government of Bangladesh reorganized the Dhaka branch of the State
Bank of Pakistan as the central bank of the country, and named it Bangladesh Bank
with retrospective effect from 16 December 1971.

State-owned Commercial Banks

The banking system of Bangladesh is
dominated by the 4 Nationalized Commercial Banks , which together controlled
more than 54% of deposits and operated 3388 branches (54% of the total) as of
December 31, 2004^[1]. The
nationalized commercial banks are:

Specialized Bank of Bangladesh:

Private Commercial Banks

Private banks are the highest growth
sector due to the dismal performances of government banks (above). They tend to
offer better service and products.

Foreign Commercial Banks

Specialized Development Banks

Out of the specialized banks, two
(Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank) were created to meet
the credit needs of the agricultural sector while the other two ( Bangladesh
Shilpa Bank (BSB) & Bangladesh Shilpa Rin Sangtha (BSRS) are for extending
term loans to the industrial sector^[1].
The Specialized banks are:

Grameen Bank
The Dhaka Mercantile
Co-operative Bank ltd
Bangladesh Krishi Bank
Bangladesh Development Bank Ltd
Rajshahi Krishi Unnayan Bank
Basic Bank Ltd (Bank of Small Industries and
Commerce)
Bangladesh Somobay Bank Limited(Cooperative
Bank)
Ansar
VDP Unnyan Bank

BACKGROUND OF AB BANK
LIMITED

AB Bank Limited, the
first private sector bank was incorporated in Bangladesh on 31st December 1981
as Arab Bangladesh Bank Limited and started its operation with effect from
April 12, 1982.

AB Bank is known as one of leading bank of the country since its commencement
28 years ago. It continues to remain updated with the latest products and
services, considering consumer and client perspectives. AB Bank has thus been
able to keep their consumer’s and client’s trust while upholding their
reliability, across time.

During the last 28 years, AB Bank Limited has opened 77 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.

In spite of adverse market conditions, AB Bank Limited which turned 28 this
year, concluded the 2008 financial year with good results. The Bank’s
consolidated profit after taxes amounted to Taka 230 cr which is 21% higher
than that of 2007. The asset base of AB grew by 32% from 2007 to stand at over
Tk 8,400 cr as at the end of 2008.

The Bank showed strong growth in loans and deposits. Deposit of the Bank rose
by Tk. 1518 cr ie., 28.45% while the diversified Loan Portfolio grew by over
30% during the year and recorded a Tk 1579 cr increase. Foreign Trade Business
handled was Tk 9,898 cr indicating a growth of over 40% in 2008.

The Bank maintained its sound credit rating in 2008 to that of the previous
year. The Credit Rating Agency of Bangladesh Limited (CRAB) awarded the Bank an
A1 rating in the long term and ST-2 rating in the short Term.

AB Bank believes in modernization. The bank took a conscious decision to
rejuvenate its past identity – an identity that the bank carried as Arab
Bangladesh Bank Limited for twenty five long years. As a result of this
decision, the bank chose to rename itself as AB Bank Limited and the Bangladesh
Bank put its affirmative stamp on November 14, 2007.

The Bank decided to change its traditional color and logo to bring about a
fresh approach in the financial world; an approach, which like its new logo is
based on bonding, and trust. The bank has developed its logo considering the
contemporary time. The new logo represents our cultural “Sheetal pati” as it
reflects the bonding with its clientele and fulfilling their every need. Thus
the new spirit of AB is “Bonding”. The Logo of the bank is primarily “red”, as
red represents velocity of speed and purity. Our new logo innovates, bonding of
affiliates that generate changes considering its customer demand. AB Bank
launched the new Logo on its 25th Anniversary year.

AB Bank commits to nation to take a lead in the Banking sector through not only
its strong financial position, but also through innovation of products and
services. It also ensures creating higher value for its respected customers and
shareholders. The bank has focused to bring services at the doorstep of its
customers, and to bring millions into banking channels those who are outside
the mainstream banking arena. Innovative products and services were introduced
in the field of Small and Medium Enterprise (SME) credit, Women’s Entrepreneur,
Consumer Loans, Debit and Credit Cards (Local & International), ATMs,
Internet and SMS Banking, Remittance Services, Treasury Products and Services,
Structured Finance for Corporate, strengthening and expanding its Islamic Banking
activities, Investment Banking, specialized products and services for NRBs,
Priority Banking, and Customer Care. The Bank has successfully completed its
automation project in mid 2008. It envisages enabling customers to get banking
services within the comfort of their homes and offices.

AB Bank has continuously
invests into its biggest asset, the human resource to drive forward with its
mission “to be the best performing bank in the country.” The bank has
introduced Dress Code for its employees. Male employees wear designed ties and
females wear Sharee or Salwar Kamiz, all the dresses are consisted with the
unique AB Bank logo.

AB is recognized as the people’s choice, catering to the satisfaction of its
cliental. Their satisfaction is AB’s success.

Vision
& Mission

Vision Statement

“To be the trendsetter for innovative banking with
excellence & perfection”

Mission Statement

“To be the best performing bank in the country”

Management
Committee

Kaiser A. Chowdhury

President & Managing Director

Fazlur Rahman

Additional Managing Director

Majedur Rahman

Additional Managing Director

Faruq M Ahmed

Deputy Managing Director

Shamim Ahmed Chaudhury

Deputy Managing Director

Badrul H. Khan

Chief Finance Officer

CORPORATE
INFORMATION OF AB BANK

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

Registered Office

BCIC Bhaban, 30-31, Dilkusha C/A

Dhaka 1000, Bangladesh.

Tel:+88-02-9560312 +88-02-9560312

Fax: +88-02-9564122, 23

SWIFT: ABBLBDDH

E-mail: info@abbank.com.bd

Web: www.abbank.com.bd

Auditors

S.F. Ahmed & Co.

Chartered Accountants

Tax Consultant

K.M. Hassan & Co.

Chartered Accountants

Legal Retainer

A. Rouf & Associates

Chittagong Regional Office

Spensers Building, 26 Agrabad C/A, Chittagong

Tel: 713381-83,713385-86(031)

Fax: 713384 (031)

E-mail: agrmg@abbank.com.bd

Sylhet Regional Office

Biswa Road, Shahjalal Uposhohor Point, Sylhet 3100

Tel: (0821)725042 (0821)725042, 815085

Fax: 725042

E-mail: gdntmg@abbank.com.bd

Khulna Regional Office

Mollick Shopping Complex Limited, 99 Khan A Sabur Road, Khulna

Tel: (041) 720311 (041)720311, 723062, 724090

Mobile: 01199-660075

Fax: (041) 720311

E-mail: khlnmg@abban

Rajshahi Regional Office

102-103 Shaheb Bazar, Rajshahi

Tel: 773261, 774283 (0721) Fax: 773261 (0721)

Merchant Banking Wing
(MBW)

BCIC Bhaban (7th Floor)

30-31, Dilkusha C/A, Dhaka 1000

Tel: +88-02-9566688 +88-02-9566688

Fax: +88-02-956688

E-mail: mbw@abbank.com.bd

AB Bank Foundation (ABBF)

BCIC Bhaban (7th Floor)

30-31, Dilkusha C/A, Dhaka 1000

Tel: +88-02-9553939
+88-02-9553939

Fax: +88-02-9553773

E-mail: abbf@abbank.com.bd

AB Bank Limited, Islami Banking Branch

82, Kakrail, Ramna, Dhaka

Tel: +88-02-8332235 +88-02-8332235, 37, 38

Fax: +88-02-8332236

E-mail: ibb@abbank.com.bd

Overseas Branch

Mumbai Branch

Liberty Building

41-42, Sir Vithaldas, Thackerse Marg

New Marine Lines, Mumbai 400-020, India

Tel: 2005392-3 (0091)

SWIFT: ABBLINBB

E-mail: mumbai@abbank.com.bd

Subsidiary Company

AB International Finance Ltd

Hongkong

Unit 1201-B, 12/F, Admiralty Centre

Tower One, 18 Harcourt Road, Hongkong

Tel: 2866 8094 (00852)

SWIFT: ABFLNKHH

E-mail: aomrashed@abbank.com.bd

Operating Performance

Board of Directors of AB
Bank Limited (ABBL) takes immense pleasure in presenting the 25th Annual
Report of the Bank to you. It is also the privilege of the Board to present
the audited accounts of the Bank for the year ended 31st December, 2006 and
the Auditors’ Report thereon.

Your Bank reached a milestone on 12th of April, 2010 when AB reached
28 years of its journey which started with a single Branch operation at
Karwan Bazar, Dhaka way back in 1982. AB being the pioneer in private sector
banking in Bangladesh will be the first to achieve this milestone. Over the
years, your Bank has contributed in many ways towards development of the
private sector banking in the country. Many of the big industries in
different fields of the economy has AB’s name attached and your Bank remains
a proud development partner of these industrial houses over the years. AB
thrived on customer service and relationship banking which brought new
dimensions to this particular service sector and many more new entrants to
banking sector followed AB.

AB’s Sponsors set a vision for the Bank which reads: “To be the
Trendsetter for innovative banking with excellence and perfection”.
Throughout these 28 years your Bank raised the bar for itself through
services, initiatives, products, customer support and performance towards
that visionary path.

At the beginning of the year 2005, Board took the mission for the year as
“a year of consolidation and growth”. In line with that, year
2006 was identified to be the year of “financial re-structuring and
growth”. Sponsors of the Bank remain committed to take AB into next
higher level of banking on a strong financial footing and with appropriate
systems and processes in place

Being a financial institution, your Bank is exposed to the entire gamut of
economic developments and activities both within and outside the country.
Hence to start with, we will throw some brief insights in to the economic
scenario of the year 2006

Global Economy

World economic growth
strengthened in the year 2006 as the global gross domestic product (GDP)
registered a growth of 3.9 percent compared to 3.5 percent in 2005. Despite
rising oil prices (that topped $75 a barrel during the course of the year),
rising short-term interest rates, and a bout of volatility of financial
market, the global growth accelerated in the overall. This strong global
performance was driven by very rapid expansion in developing economies, which
grew by 7 percent – more than twice as fast as high income countries (3.1
percent). In the overall, 38 percent of the increase in global output
originated in developing countries which far exceeded these economies 22
percent share in world GDP.

Although broadly based, strong performance by China (10.4 percent growth)
played a significant role in the recent expansion of developing economies
which grew by 7 percent. It is of significance that excluding China and India
(8.7 percent growth), developing countries grew by 5.5 percent thereby
playing important roles in the global economic performance.

Fast growth of developing countries over the past five years has been fueled
by low interest rates and abundant global liquidity. This has led to rising
commodity prices and over-heating in some high-income and developing
countries. This, in turn, has provoked a tightening of monetary policy that
is in part is responsible for slowdown at the global level towards the later
part of the year. However, in most countries strong productivity growth, due
in part to the absorption of China and the former Eastern Block countries
into the global economy, has checked inflationary pressures.

In the United States, the acceleration of industrial output began at a torrid
pace of 5.6 percent during the year. As a result US GDP had a positive growth
in 2006. However, responding to higher short-term interest rates, spending in
the housing sector declined and also had a moderating effect on the consumer
demand. This resulted in the slowing down of the economy to 1.6 percent
annualized growth rate in the third quarter of 2006. However, profit, foreign
investment and consumption remained robust while inflation and unemployment
remained low. Consequent upon all these factors, US economy is expected to
grow by 3.2 percent as a whole

European economy also experienced growth in 2006 after several years of
weakness. Growth accelerated in the first half of the year as GDP expanded by
about 3.3 percent over that period. This is mostly driven by private
consumption and increased investment spending. However, slower growth in the
third quarter for France had an impact on the overall growth but the full
year GDP growth in Europe is estimated to be 2.5 percent

In Japan, the GDP was estimated to have expanded by 2.9 percent in 2006. A
slowdown in exports contributed to weaker growth in the second quarter of the
year, but growth rebounded in the third quarter led by a surge in investment
spending

High oil prices and the rapid pace of global growth have contributed to a
gradual increase in inflation among developing countries. These countries
experienced rising inflation in response to higher oil prices, but it has
since declined, reflecting both solid productivity growth and the impact of
more credible monetary policies. In contrast, in high-income economies
inflation rose to about 2.7 percent from 1.3 percent before falling towards
the end of the year matching with the falling oil prices.

In the overall, limited inflationary pressures and high savings among oil
exporters and in Europe are expected to keep long term interest rates low.
Moreover, improved fundamentals have boosted growth rates in many developing
countries. All these factors cumulatively suggest the continuation of robust
economic performance in 2007 barring unanticipated reversals.

South Asian Economy

South Asian region experienced 8.2 percent growth during the year 2006. This
marked the fourth year of consecutive GDP growth of over 7.5 percent for the
region. Private sector – led growth backed-up by improved macro management
and greater integration in the economy were the contributing factors. Loose
monetary and fiscal policies and strong remittance inflows also played a
role, providing a boost to domestic demand.

India the largest economy in the region, led the way with a GDP growth of 8.7
percent during the year. Elsewhere in the region, growth was less rapid
compared to India but nevertheless robust at 6.5 percent. In Pakistan
industrial output was up by 12 percent partly reflecting improved sale of
textiles and clothing.

In Bangladesh, growth rebounded owing to stronger remittance inflows and by
vibrant services and manufacturing sector output. In Sri Lanka growth picked
up to an estimated 7 percent due to a good harvest and recovery after
tsunami. Other smaller economies like Bhutan and Maldives also experienced
growth while in Nepal economic activity slowed due to political conflict.

Throughout much of the region, supply was unable to keep up with demand,
resulting in rising inflation and rapidly growing imports. During the year,
import volumes increased by 24 percent exceeding the export growth of 22
percent for the region. At the same time, despite rapidly rising tax revenues,
fiscal deficits remained elevated at 7.1 percent of GDP in the region because
of increased implicit subsidization of energy costs and major public sector
investment programs and reconstruction expenditures. Inflation in the region
has risen from 3.8 percent in 2003 to 7.8 percent in the last quarter of
2006. Real GDP in South Asia is expected to slow down gradually from 8.2
percent to still robust 7 percent. Weaker external demand, tighter domestic
monetary and fiscal policies, and tighter international markets are all
factors contributing to the expected slowdown. Prospects for individual
countries will be affected by weather, political developments, rising oil
prices among others.

Bangladesh Economy

Bangladesh economy continued on the growth path in 2006 and achieved a higher
growth compared to the year 2005 mainly driven by a strong post-flood
agriculture recovery. Growth was also fuelled by notable expansion of the
manufacturing sector. Economic growth was also aided by strong growth of
exports and remittances from abroad. This is a noteworthy performance in the
face of rising oil price, rise in import costs and also the phase out of the
Multi -Fiber Arrangement (MFA). GDP growth was registered at 6.7 percent in
the year 2006.

Growth performance of the economy was led by the post-flood recovery of the
agriculture sector which was 4.5 percent in 2006 compared to 2.2 percent in
the year before. Strong growth in crops, horticulture and fishing were mainly
responsible for such growth. At the same time, industrial sector attained 9.6
percent growth during the year which is way above the previous year’s growth
of 8.3 percent. This higher growth rate was sustained through strong
performances in the manufacturing arena facilitated by strong and sustained growth
in export oriented manufacturing activities and expansion of domestic
demands. In the overall, service sector of the economy grew by 6.5 percent.
The growth was fairly spread in different sub-sectors which in turn were
related to increase in industrial output and increase in trade related
activities.

Structural transformation of economy was aimed at through giving new focus on
the development of the Small & Medium Enterprises (SMEs) sector. A credit
line was established in the Bangladesh Bank with the support of the Asian
Development Bank (ADB) and the World Bank (WB), respectively. In the year
2006, SME sector experienced sizeable growth in the field of rice mills,
dairy products, knitwear, leather products, paper and paper products, light
engineering, etc.

Country’s foreign exchange reserve crossed the US $ 4.0 billion mark for the
first time in the history at the beginning of the year 2007. Present level of
reserves covers for over three months of imports of the country. Exports and
remittances from the Non-resident Bangladeshis (NRBs) continued to achieve
strong growth in the year 2006 while import growth slowed down to a
sustainable level. Exports grew 21.6 percent to US$ 10,422 million over the
previous year. At the same time, remittances by the NRBs grew by 24.8 percent
at US$ 4,802 million. While, total import was registered at US$ 13,301
million showing a growth of 12.1 percent during the year.

Export earnings achieved more than expected growth in the post MFA situation
due to higher export demand in the US and the European markets. Impressive
growth of 35.4 percent was achieved in the knitwear sector driven by a volume
growth of 37.4 percent. Country’s export of raw Jute also experienced
significant growth of 54 percent over the year 2005. More significantly,
country is gradually shifting towards a diversified export base. Bangladesh
has been included in the “next eleven” a group of nations having
economic growth potential by Goldman Sachs.

Relative slowdown of total import was mainly attributable to the reduced
import of food grains, milk products, spices and most other edible products.
However, import of industrial raw materials and capital machineries increased
signifying the dynamism in investment activities in the country. The
commodities whose import payments, however, increased significantly include
crude petroleum and POL reflecting the volatile international market for
those.

The overall balance of payments recorded a significant surplus of US$ 365
million (US$67 million in 2005) at the end of the year 2006 reflecting a
notable improvement in the current account balance and a larger surplus in
the capital account. Despite noteworthy performance of the external sector,
the foreign exchange market experienced substantial pressure in the year
2006. Pressures on Taka-US Dollar exchange rate generated by continued price
hike for import of petroleum and many other major commodities coupled with
higher growth of lending to the private sector (18.3 percent) created all
such pressure situation. In 2006, the nominal Taka-US Dollar exchange rate
depreciated by 8.6 percent in the overall. However, the real effective
exchange rate of Taka depreciated by 5.3 percent providing a boost to the
country’s external competitiveness.

Inflation in the economy showed upward trend in 2006. Pressures on consumer
prices emerged mainly through rising import prices of fuel, food items, other
consumer items and production inputs feeding into domestic prices.
Depreciation of Taka further contributed to rising consumer prices. The
annual average inflation increased to 7.2 percent in June, 2006.

Bangladesh Bank continued to pursue a restrained monetary policy stance with
a view to curb excess demand from inflationary expectations while supporting
the sustainable real GDP growth. During the year, the Cash Reserve
Requirement (CRR) and the Statutory Liquidity Ratio (SLR) were raised from
4.5 and 16.0 percent respectively to 5.0 and 18.0 percent towards slowing
down of the growth of domestic credit. Besides, repo and reverse repo
interest rates and treasury bills / bond yield rates were kept at an uptrend
towards slowing down the credit growth rate.

Broad money (M2) grew by 19.3 percent during the year which was much higher
than 2005 growth of 16.7 percent and far exceeded the projection of 14.3
percent growth. Public sector credit grew substantially by 30.6 percent
mainly to finance higher cost of imports of fuel. Total domestic credit grew
by 21.1 percent, while credit to private sector grew by 18.3 percent
reflecting acceleration of economic activities. The declining trend of
interest rates that persisted over a period till year 2005 reversed in 2006
keeping pace with the tightened monetary policy. Country’s revenue collection
scenario through the National Board of Revenue (NBR) remains much lower than
the projection. Among other factors low tariff rates on many importable
items, lower import volume due to political crisis were mainly responsible
for such a situation.

Despite stronger growth of some macroeconomic indicators, Bangladesh economy
faced some challenges originating from price hike of oil, some imported
commodities in the international market causing fluctuations in real sector
and foreign exchange market. As a result, the financial market was volatile
during the year. The call money market was also volatile for a period of time
due to increase of Government borrowing from the banking system for financing
higher priced imports. Till December 2006, Government borrowing stood at Taka
63.50 billion. Due to such a development, banks and financial institutions
were forced to mobilize deposit at a higher rate resulting in higher pricing
on credit and forcing restrains, at times.

Overall Banking Sector

Financial sector reforms to strengthen the regulatory and supervisory framework
for banks made headway in 2006 although at a slower than expected pace.
Overall health of the banking system showed improvement since 2002 as the
gross Non-performing Loans (NPL) declined from 28 percent to 14 percent while
net NPL (less Provision) reduced to 8 percent from 21 percent. This led
significant improvement in the profitability ratios. Although the Private
Commercial Banks (PCB) NPL ratio registered a record low of 6 percent, the
four Nationalized Commercial Banks (NCB) position are still weak and showed
very high NPL at 25 percent. The NCBs have large capital shortfalls with a
risk-weighted capital asset ratio of just 0.5 percent (June 2006) as against
the required 9 percent. For the PCBs risk-weighted capital asset ratio stood
at 10 percent.

Bangladesh Bank issued a good number of prudential guidelines during the year
2006 and the first quarter of 2007 which among others relate to (i)
rationalization of prudential norms for loan classification and provisioning,
(ii) policy for rescheduling of loans, (iii) designing and enforcing an
“integrated credit risk grading manual”, (iv) credit rating of the
banks, and (v) revisions to the make-up of Tier-2 capital.

Besides, recent decision of the Government to corporatize the remaining three
NCBs along with the initiative to sale the Rupali Bank are bound to usher in
changes in the banking sector competitiveness aspect. Bangladesh Bank has
also taken up the task of implementing the Basel II capital accord. Further,
the recent enactment of the Micro-credit Regulatory Authority Act (MRAA) for
the regulation of the Micro Finance Institutions (MFI) has been a major
development in the year 2006.

Since 1998 CAMEL rating of banks gradually improved and in 2006 Bangladesh
Bank updated this rating model by incorporating the market risk and the new
model is known as CAMELS.

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, 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
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, 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
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 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
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)

Corporate Banking

At AB Bank we provide
complete range of solutions to meet Corporate Customers’ requirement. Our
Corporate Banking solutions include a broad spectrum of products and services
backed by proven, modern technologies.

Corporate Lending

Our specialist teams offer a comprehensive service providing finance to large
and medium-sized businesses based in Bangladesh. For more information as to
how we might best meet your corporate debt needs, please contact us at our
Corporate Head Office.

Structured Finance

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

We 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

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 our 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

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 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
15	Ship Breaking	18,029.20
16	Steel	42,824.97
17	Telecom & Computer Accessories	11,479.89
18	Trading	77,579.89
	Total ( including syndicated exposure)	444,585.21
	Less Syndicated Exposure	51,560.29
	Total Large Loan & Project Finance portfolio without syndicated exposure

Balance sheet

AB Bank Limited & its Subsidiary

Consolidated Balance Sheet

As at 31 December 2009

31.12.2009

31.12.2008

Notes

Taka

PROPERTY AND ASSETS

3(a)

5,354,881,576

4,096,044,155

Cash

3.1(a)

489,993,012

679,556,149

In hand (including foreign currencies)

3.2(a)

4,864,888,564

3,416,488,006

Balance with Bangladesh Bank and its
agent bank(s)

(including foreign currencies)

2,494,371,843

1,482,603,346

Balance with other banks and financial
institutions

4.1(a)

1,111,711,079

993,310,234

In Bangladesh

4.2(a)

1,382,660,764

489,293,112

Outside Bangladesh

5(a)

600,000,000

1,190,607,400

Money at call and on short notice

6(a)

16,369,303,226

11,395,936,062

Investments

6.1(a)

9,675,466,462

7,159,183,261

Government

6.2(a)

6,693,836,764

4,236,752,801

Others

72,063,263,259

57,661,463,707

Loans and advances

7(a)

69,732,552,194

54,412,358,249

Loans, cash credits, overdrafts, etc

8(a)

2,330,711,064

3,249,105,458

Bills purchased and discounted

9(a)

2,441,036,589

2,444,761,466

Fixed assets including premises,
furniture and fixtures

10(a)

7,770,150,692

5,919,474,791

Other assets

–

Non-banking assets

107,093,007,184

84,190,890,928

Total Assets

LIABILITIES AND CAPITAL

Liabilities

11(a)

6,136,287,306

3,193,343,038

Borrowings from other banks, financial
institutions and agents

12(a)

83,082,628,680

68,558,989,354

Deposits and other accounts

6,475,485,033

5,061,936,107

Current deposits

2,514,211,354

2,523,379,991

Demand deposits

1,289,857,131

1,176,651,056

Bills payable

11,900,897,489

9,726,178,008

Savings bank deposits

15,782,398,929

5,089,676,621

Short-term deposits

39,696,851,192

40,732,652,292

Fixed deposits

130,325,000

Bearer certificates of deposit

5,292,602,552

4,118,190,280

Other deposits

13(a)

7,653,307,477

5,621,252,945

Other liabilities

96,872,223,464

77,373,585,336

Total Liabilities

Capital/Shareholders’ Equity

Total Shareholders’ Equity

10,220,783,720

6,817,305,592

2,564,253,200

2,229,785,400

Paid-up capital

3,101,206,092

2,066,121,258

Statutory reserve

16(a)

915,794,061

673,528,809

Other reserve

17(a)

3,639,530,366

1,847,870,125

Retained earnings

107,093,007,184

84,190,890,928

Total Liabilities and Shareholders’
Equity

Profit
and loss account

AB Bank Limited & its Subsidiary

Consolidated Profit and Loss Account

For the year ended 31 December 2009

2009

2008

Notes

Taka

OPERATING INCOME

Interest income

20(a)

9,111,374,896

7,368,464,534

Interest paid on deposits and
borrowings, etc.

21(a)

(6,147,007,707)

(5,347,854,381)

Net interest income

2,964,367,189

2,020,610,154

Investment income

22(a)

2,923,537,225

2,152,888,463

Commission, exchange and brokerage

23(a)

2,282,732,477

1,820,010,163

Other operating income

24(a)

203,640,150

224,080,645

5,409,909,852

4,196,979,270

Total operating income (a)

8,374,277,041

6,217,589,424

OPERATING EXPENSES

Salary and allowances

25(a)

1,218,368,066

1,028,859,386

Rent, taxes, insurance, electricity,
etc.

26(a)

240,745,272

178,544,409

Legal expenses

27(a)

4,049,492

4,597,546

Postage, stamps, telecommunication,
etc.

28(a)

90,017,259

62,409,532

Stationery, printing, advertisement,
etc.

29(a)

120,877,254

65,255,938

Chief executive’s salary and fees

8,484,960

7,341,452

Directors’ fees

30(a)

2,374,492

2,378,949

Auditors’ fees

31(a)

2,396,811

1,739,946

Charges on loan losses

–

Depreciation and repairs of Bank’s
assets

32(a)

203,429,372

155,634,865

Other expenses

33(a)

613,908,448

380,720,539

Total operating expenses (b)

2,504,651,426

1,887,482,560

Profit before provision (c = a-b)

5,869,625,615

4,330,106,863

Provision against loans and advances

34(a)

436,600,000

281,266,515

Provision for diminution in value of
investments

35(a)

–

117,153,000

Other provisions

36(a)

162,419,861

299,347,000

Total provision (d)

599,019,861

697,766,515

Profit before taxation (c-d)

5,270,605,753

3,632,340,348

Provision for taxation

1,853,420,642

1,300,000,000

Current tax

1,725,296,976

1,381,655,684

Deferred tax

128,123,666

(81,655,684)

Net profit after taxation

3,417,185,111

2,332,340,348

Appropriations

Statutory reserve

1,031,118,234

726,468,070

General reserve

–

Dividends, etc

–

1,031,118,234

726,468,070

Retained surplus

2,386,066,877

1,605,872,279

Earnings Per Share (EPS)

38(a)

133.26

90.96

Cash
flow statement

AB Bank Limited & its Subsidiary

Consolidated Cash Flow Statement

For the year ended 31 December 2009

2009

2008

Notes

Taka

Cash Flows from Operating Activities

Interest receipts

9,047,170,150

7,368,464,534

Interest payments

(6,144,951,652)

(5,347,854,381)

Dividend receipts

122,671,920

140,634,071

Fee and commission receipts

1,860,530,448

1,820,010,163

Recoveries on loans previously written
off

43,203,720

63,229,802

Payments to employees

(1,226,853,026)

(1,028,859,386)

Payments to suppliers

(123,087,216)

(256,798,574)

Income taxes paid

(1,330,452,291)

(896,758,330)

Receipts from other operating
activities

39(a)

3,445,645,368

2,518,909,953

Payments for other operating
activities

40(a)

(978,414,900)

(642,835,747)

Operating profit before changes in
operating assets & liabilities

4,715,462,521

3,738,142,105

Increase/decrease in operating assets
and liabilities

Loans and advances to customers

(14,401,799,551)

(16,473,950,662)

Other assets

41(a)

(1,469,815,516)

(502,638,763)

Deposits from other banks

(5,061,482,546)

3,119,680,194

Deposits from customers

19,583,636,903

12,065,445,738

Trading liabilities (short-term
borrowings)

2,835,940,291

1,129,199,203

Other liabilities

42(a)

850,330,083

320,343,330

2,336,809,664

(341,920,959)

Net cash flow from operating
activities (a)

7,052,272,185

3,396,221,146

Cash Flows from Investing Activities

(Purchase)/ sale of government
securities

(2,517,553,101)

(1,114,457,700)

(Purchase)/ sale of trading
securities, shares, bonds, etc.

(2,457,083,963)

(1,207,421,131)

(Purchase)/ sale of property, plant
and equipment

(90,771,297)

(181,621,991)

Net cash used in investing activities
(b)

(5,065,408,361)

(2,503,500,822)

Cash Flows from Financing Activities

Increase/(decrease) of long-term
borrowings

26,332,604

191,960,407

Dividend paid

(334,467,810)

–

Net cash (used in)/flow from financing
activities (c)

(308,135,206)

191,960,407

Net increase in cash (a+b+c)

1,678,728,618

1,084,680,731

Effects of exchange rate changes on
cash and cash equivalents

–

Cash and cash equivalents at beginning
of the year

6,773,235,501

5,688,554,770

Cash and cash equivalents at end of
the year (*)

8,451,964,119

6,773,235,501

(*) Cash and cash equivalents:

Cash

489,993,012

679,556,149

Prize bonds

2,710,700

3,980,600

Money at call and on short notice

600,000,000

1,190,607,400

Balance with Bangladesh Bank and its
agent bank(s)

4,864,888,564

3,416,488,006

Balance with other banks and financial
institutions

2,494,371,843

1,482,603,346

8,451,964,119

6,773,235,501

The annexed notes form an integral part
of the Consolidated Cash Flow Statement.

This is the Consolidated Cash Flow
Statement referred to in our report of even date.

Dhaka,

29 April 2010

1. POLICY GUIDELINES

This section details fundamental
credit risk management policies that are recommended for adoption by all banks
in Bangladesh. The guidelines contained herein outline general principles that
are designed to govern the implementation of more detailed lending procedures
and risk grading systems within individual banks.

Lending Guidelines

All banks should have established
Credit Policies (“Lending Guidelines”) that clearly outline the senior
management’s view of business development priorities and the terms and
conditions that should be adhered to in order for loans to be approved. The
Lending Guidelines should be updated at least annually to reflect changes in
the economic out look and the evolution of the bank’s loan portfolio, and be
distributed to

all lending/marketing officers.
The Lending Guidelines should be approved by the Managing Director/CEO & Board
of Directors of the bank based on the endorsement of the bank’s Head of Credit
Risk Management and the Head of Corporate/Commercial Banking. (Section 2.1
of these guidelines refers)

Any departure or deviation from
the Lending Guidelines should be explicitly identified in credit applications
and a justification for approval provided. Approval of loans that do not comply
with Lending Guidelines should be restricted to the bank’s Head of Credit or
Managing Director/CEO & Board of Directors. The Lending Guidelines should
provide the key foundations for account officers/relationship managers (RM) to
formulate their recommendations for approval, and should include the following:

Industry and Business Segment Focus

The Lending Guidelines should
clearly identify the business/industry sectors that should constitute the
majority of the bank’s loan portfolio. For each sector, a clear indication of
the bank’s appetite for growth should be indicated (as an example, Textiles:
Grow, Cement: Maintain, Construction: Shrink). This will provide necessary
direction to the bank’s marketing staff.

Types of Loan Facilities

The type of loans that are
permitted should be clearly indicated, such as Working Capital, Trade Finance,
Term Loan, etc.

Single Borrower/Group Limits/Syndication

Details of the bank’s Single
Borrower/Group limits should be included as per Bangladesh Bank guidelines.
Banks may wish to establish more conservative criteria in this regard.
Appendix-3.4.3 provides brief description of financing under syndicated
arrangement.

Lending Caps

Banks should establish a specific
industry sector exposure cap to avoid over concentration in any one industry
sector.

Discouraged Business Types

Banks should outline industries
or lending activities that are discouraged. As a minimum, the following should
be discouraged:

·
Military
Equipment/Weapons Finance

·
Highly
Leveraged Transactions

·
Finance
of Speculative Investments

·
Logging,
Mineral Extraction/Mining, or other activity that is

·
Ethically
or Environmentally Sensitive

·
Lending
to companies listed on CIB black list or known defaulters

·
Counterparties
in countries subject to UN sanctions

·
Share
Lending

·
Taking
an Equity Stake in Borrowers

·
Lending
to Holding Companies

·
Bridge
Loans relying on equity/debt issuance as a source of repayment.

Loan Facility Parameters

Facility parameters (e.g.,
maximum size, maximum tenor, and covenant and security requirements) should be
clearly stated. As a minimum, the following parameters should be adopted:

·
Banks
should not grant facilities where the bank’s security position is inferior to
that of any other financial institution.

·
Assets
pledged as security should be properly insured.

·
Valuations
of property taken as security should be performed prior to loans being granted.
A recognized 3rd party professional valuation firm should be appointed to
conduct valuations.

Cross Border Risk

Risk associated with cross border
lending. Borrowers of a particular country may be unable or unwilling to
fulfill principle and/or interest obligations. Distinguished from ordinary
credit risk because the difficulty arises from a political event, such as
suspension of external

payments

·
Synonymous
with political & sovereign risk

·
Third
world debt crisis

For example, export documents
negotiated for countries like Nigeria.

Credit Assessment
& Risk Grading

Credit Assessment

A thorough credit and
risk assessment should be conducted prior to the granting of loans, 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 approved by Credit Risk
Management (CRM). 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 bank’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:

– Amount and type of
loan(s) proposed.

– Purpose of loans.

– Loan Structure
(Tenor, Covenants, Repayment Schedule, Interest)

– Security Arrangements

In addition, the
following risk areas 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 intergroup 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. 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. Loans should
not be granted if projected cash flow is insufficient to repay debts.

– Account Conduct. For existing borrowers, the historic performance in meeting
repayment obligations (trade payments, cheques, interest and principal
payments, etc) should be assessed.

– Adherence to Lending Guidelines. Credit Applications
should clearly state whether or not the proposed application is in compliance
with the bank’s Lending Guidelines. The Bank’s Head of Credit or Managing
Director/CEO should approve Credit Applications that do not adhere to the
bank’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.

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

– Security. A current valuation of collateral should be obtained and the
quality and priority of security being proposed should be assessed. Loans
should not be granted based solely on security. Adequacy and the extent of the
insurance coverage should be assessed.

– 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 loans should
be based on sound fundamentals, supported by a thorough financial and risk
analysis.

Risk Grading

All Banks should
adopt a credit risk grading system. The system should define the risk profile
of borrower’s to ensure that account management, structure and pricing are
commensurate with the risk involved. Risk grading is a key measurement of a
Bank’s asset quality, and as such, it is essential that grading is a robust
process. All facilities should be assigned a risk grade. Where deterioration in
risk is noted, the Risk Grade assigned to a borrower and its facilities should be
immediately changed. Borrower Risk Grades should be clearly stated on Credit
Applications. The following Risk Grade Matrix is provided as an example. The
more conservative risk grade

(higher) should be
applied if there is a difference between the personal judgment and the Risk
Grade Scorecard results. It is recognized that the banks may have more or less
Risk Grades; however, monitoring standards and account management must be
appropriate given the assigned Risk Grade:

Risk Rating

Grade

Definition

Superior – Low Risk

Facilities are fully secured by
cash deposits, government bonds or a counter guarantee from a top tier
international bank. All security documentation should be in place.

Good – Satisfactory Risk

The repayment capacity of the
borrower is strong. The borrower should have excellent liquidity and low
leverage. The company should demonstrate consistently strong earnings and
cash flow and have an unblemished track record. All security documentation
should be in place. Aggregate Score of 95 or greater based on the Risk Grade
Scorecard.

Acceptable – Fair Risk

Adequate financial condition
though may not be able to sustain any major or continued setbacks. These
borrowers are not as strong as Grade 2 borrowers, but should still
demonstrate consistent earnings, cash flow and have a good track record.

A borrower should not be graded
better than 3 if realistic audited financial statements are not received.
These assets would normally be secured by acceptable collateral (1st charge
over stocks / debtors / equipment / property). Borrowers should

have adequate liquidity, cash
flow and earnings. An Aggregate Score of 75-94 based on the Risk Grade
Scorecard.

Marginal – Watch

Grade 4 assets warrant greater
attention due to conditions affecting the borrower, the industry or the
economic environment. These borrowers have an above average risk due to
strained liquidity, higher than normal leverage, thin cash flow and/or
inconsistent earnings. Facilities should be downgraded to 4 if the borrower
incurs a loss, loan payments routinely fall past due, account conduct is
poor, or other untoward factors are present. An Aggregate Score of 65-74
based on the Risk Grade

Scorecard.

Special Mention

Grade 5 assets have potential
weaknesses that deserve management’s close attention. If left uncorrected,
these weaknesses may result in a deterioration of the repayment prospects of
the borrower. Facilities should be downgraded to 5 if sustained deterioration
in financial condition is noted (consecutive losses, negative net worth,
excessive leverage), if loan payments remain past due for 30-60 days, or if a
significant petition or claim is lodged against the borrower. Full repayment
of facilities is still expected and interest can still be taken into profits.
An Aggregate Score of 55-64 based on the Risk Grade Scorecard.

Substandard

Financial condition
is weak and capacity or inclination to repay is in doubt. These weaknesses
jeopardize the full settlement of loans. Loans should be downgraded to 6 if
loan payments remain

past due for 60-90
days, if the customer intends to create a lender group for debt restructuring

purposes, the
operation has ceased trading or any indication suggesting the winding up or
closure of the borrower is discovered. Not yet considered non-performing as
the correction of the deficiencies may result in an improved condition, and
interest can still be taken into profits. An Aggregate Score of 45-54 based
on the Risk Grade Scorecard.

Doubtful and Bad

(non-performing)

Full repayment of principal and
interest is unlikely and the possibility of loss is extremely high. However,
due to specifically identifiable pending factors, such as litigation,
liquidation procedures or capital injection, the asset is not yet classified
as Loss. Assets should be downgraded to 7 if loan

payments remain past due in
excess of 90 days, and interest income should be taken into suspense
(nonaccrual). Loan loss provisions must be raised against the estimated unrealizable
amount of all facilities. The adequacy of provisions must be

reviewed at least quarterly on
all non-performing loans, and the bank should pursue legal options to enforce
security to obtain repayment or negotiate an appropriate loan rescheduling.
In all cases, the requirements of Bangladesh Bank in CIB reporting,

loan rescheduling and
provisioning must be followed. An Aggregate Score of 35-44 based on the Risk
Grade Scorecard

Loss

(non-performing)

Assets graded 8 are long
outstanding with no progress in obtaining repayment (in excess of 180 days
past due) or in the late stages of wind up/liquidation. The prospect of
recovery is poor and legal options have been pursued. The proceeds expected
from the liquidation or realization of security may be awaited. The
continuance of the loan as a bankable asset is not warranted, and the
anticipated loss should have been provided for. This classification reflects
that it is not practical or desirable to defer writing off this basically
worthless asset even though partial recovery may be effected in the future. Bangladesh
Bank guidelines for timely write off of bad loans must be adhered to.

An Aggregate Score of 35 or
less based on the Risk Grade Scorecard

At least top twenty
five clients/obligors of the Bank may preferably be rated by an outside

credit rating agency.
The Early Alert Report should be completed in a timely manner by the RM and
forwarded to CRM for approval to affect any downgrade. After approval, the
report should be forwarded to Credit Administration, who is responsible to
ensure the correct facility/borrower Risk Grades are updated on the system. The
downgrading of an account should be done immediately when adverse information
is noted, and should not be postponed until the annual review process.

Approval Authority

The authority to sanction/approve
loans must be clearly delegated to senior credit executives by the Managing
Director/CEO & Board based on the executive’s knowledge and experience.
Approval authority should be delegated to individual executives and not to
committees to ensure accountability in the approval process. The following
guidelines should apply in the approval/sanctioning of loans:

·
Credit
approval authority must be delegated in writing from the MD/CEO & Board (as
appropriate), acknowledged by recipients, and records of all delegation
retained in CRM.

·
Delegated
approval authorities must be reviewed annually by MD/CEO/Board.

·
The
credit approval function should be separate from the marketing/relationship
management (RM) function.

·
The
role of Credit Committee may be restricted to only review of proposals i.e.
recommendations or review of bank’s loan portfolios.

·
Approvals
must be evidenced in writing, or by electronic signature. Approval records must
be kept on file with the Credit Applications.

·
All
credit risks must be authorized by executives within the authority limit
delegated to them by the MD/CEO. The “pooling” or combining of authority limits
should not be permitted.

·
Credit
approval should be centralized within the CRM function. Regional credit centers
may be established, however, all large loans must be approved by the Head of
Credit and Risk Management or Managing Director/CEO/Board or delegated Head
Office credit executive.

·
The
aggregate exposure to any borrower or borrowing group must be used to determine
the approval authority required.

·
Any
credit proposal that does not comply with Lending Guidelines, regardless of
amount, should be referred to Head Office for Approval

·
MD/Head
of Credit Risk Management must approve and monitor any cross border exposure
risk.

·
Any
breaches of lending authority should be reported to MD/CEO, Head of Internal
Control, and Head of CRM.

It is essential that executives charged with
approving loans have relevant training and experience to carry out their
responsibilities effectively. As a minimum, approving executives should have:

·
At least 5 years experience
working in corporate/commercial banking as a relationship manager or account executive.

·
Training and experience in
financial statement, cash flow and risk analysis.

·
A thorough working knowledge of
Accounting.

·
A good understanding of the local
industry/market dynamics.

·
Successfully completed an
assessment test demonstrating adequate

Knowledge of the following areas:

·
Introduction
of accrual accounting.

·
Industry
/ Business Risk Analysis

·
Borrowing
Causes

·
Financial
reporting and full disclosure

·
Financial
Statement Analysis

·
The
Asset Conversion/Trade Cycle

·
Cash
Flow Analysis

·
Projections

·
Loan
Structure and Documentation

·
Loan
Management.

·
A monthly summary of all new facilities approved, renewed, enhanced, and
a

list of proposals declined
stating reasons thereof should be reported by CRM

to the CEO/MD.

Segregation of Duties

Banks should aim to segregate the
following lending functions:

–
Credit Approval/Risk Management

–
Relationship Management/Marketing

–
Credit Administration

The purpose of the segregation is
to improve the knowledge levels and expertise in each department, to impose
controls over the disbursement of authorized loan facilities and obtain an
objective and independent judgment of credit proposals.

Internal Audit

Banks should have a segregated
internal audit/control department charged with conducting audits of all
departments. Audits should be carried out annually, and should ensure
compliance with regulatory guidelines, internal procedures, Lending Guidelines
and Bangladesh Bank requirements.

PREFERRED ORGANISATIONAL
STRUCTURE & RESPONSIBILITIES

The appropriate organizational
structure must be in place to support the adoption of the policies detailed in
Section 1 of these guidelines. The key feature is the segregation of the

Marketing/Relationship Management
function from Approval/Risk Management/Administration functions.

Credit approval should be centralized within
the CRM function. Regional credit centers may be established, however, all
applications must be approved by the Head of Credit and Risk Management or
Managing Director/CEO/Board or delegated Head Office credit executive.

Preferred Organizational Structure

The following chart represents
the preferred management structure:

MANAGING
DIRECTOR/CEO

Key Responsibilities

The key responsibilities of the
above functions are as follows. Please also refer to

Credit Risk Management (CRM)

·
Oversight of the bank’s credit policies,
procedures and controls relating to all credit risks arising from
corporate/commercial/institutional banking, personal banking, & treasury
operations.

·
Oversight of the bank’s asset quality.

·
Directly manage all Substandard, Doubtful
& Bad and Loss accounts to maximize recovery and ensure that appropriate
and timely loan loss provisions have been made.

·
To approve (or decline), within delegated
authority, Credit Applications recommended by RM. Where aggregate borrower
exposure is in excess of approval limits, to provide recommendation to MD/CEO
for approval.

·
To
provide advice/assistance regarding all credit matters to line management/RMs.

·
To
ensure that lending executives have adequate experience and/or training in
order to carry out job duties effectively.

Credit Administration

·
To
ensure that all security documentation complies with the terms of approval and
is enforceable.

·
To monitor insurance coverage to ensure
appropriate coverage is in place over assets pledged as collateral, and is
properly assigned to the bank.

·
To
control loan disbursements only after all terms and conditions of approval have
been met, and all security documentation is in place.

·
To
maintain control over all security documentation.

·
To monitor borrower’s compliance with
covenants and agreed terms and conditions, and general monitoring of account conduct/performance.

PROCEDURAL GUIDELINES

This section outlines of the main
procedures that are needed to ensure compliance with the policies contained in
Section 1.0 of these guidelines.

Approval Process

The approval process must
reinforce the segregation of Relationship Management/Marketing from the
approving authority. The responsibility for preparing the Credit Application
should rest with the RM within the corporate/commercial banking department.
Credit Applications should be recommended for approval by the RM team and
forwarded to the approval team within CRM and approved by individual
executives. Banks may wish to establish various thresholds, above which, the
recommendation of the Head of Corporate/Commercial Banking is required prior to
onward recommendation to CRM for approval. In addition, banks may wish to
establish regional credit centers within the approval team to handle routine
approvals. Executives in head office CRM should approve all large loans. The
recommending or approving executives should take responsibility for and be held
accountable for their recommendations or approval. Delegation of approval
limits should be such that all proposals where the facilities are up to 15% of
the bank’s capital should be approved at the CRM level, facilities up to 25% of
capital should be approved by CEO/MD, with proposals in excess of 25% of
capital to be approved by the EC/Board only after recommendation of CRM,
Corporate Banking and MD/CEO.

The
following diagram illustrates the preferred approval process:

Credit
Application

Recommended
By RM / Marketing

Zonal
Credit Officer

(ZCO)

Head
of Credit (HOC) &

Head
of Corporate Banking (HOCB)

Managing
Director

Executive
Committee/Board

1 2

3 4

5 6

1.
Application
forwarded to Zonal Office for approved/decline

2.
Advise
the decision as per delegated authority (approved /decline) to recommending
branches. A monthly summary of ZCO approvals should be sent to HOC and HOCB to
report the previous months approvals sanctioned at the Zonal Offices. The HOC
should review 10% of ZCO approvals to ensure adherence to Lending Guidelines
and Bank policies.

3.
ZCO
supports & forwarded to Head of Corporate Banking (HOCB) or delegate for
endorsement, and Head of Credit (HOC) for approval or onward recommendation.

4.
HOC
advises the decision as per delegated authority to ZCO

5.
HOC
& HOCB supports & forwarded to Managing Director

6.
Managing
Director advises the decision as per delegated authority to HOC & HOCB.

7.
Managing
Director presents the proposal to EC/Board

8.
EC/Board
advises the decision to HOC & HOCB

** Regardless of the delegated
authority HOC to advise the decision (approval/decline) to marketing department
through ZCO

Recommended Delegated Approval
Authority Levels

HOC/CRM Executives Up to 15% of Capital

Managing Director/CEO Up to 25% of Capital

EC/Board all exceed 25% of Capital

Appeal Process

Any declined credit may be
re-presented to the next higher authority for reassessment/approval. However,
there should be no appeal process beyond the Managing Director.

Credit Administration

The Credit Administration
function is critical in ensuring that proper documentation and approvals are in
place prior to the disbursement of loan facilities. For this reason, it is
essential that the functions of Credit Administration be strictly segregated
from Relationship Management/Marketing in order to avoid the possibility of
controls being compromised or issues not being highlighted at the appropriate
level. Credit Administration procedures should be in place to ensure the following:

Disbursement:

Security
documents are prepared in accordance with approval terms and are legally
enforceable. Standard loan facility documentation that has been reviewed by
legal counsel should be used in all cases. Exceptions should be referred to
legal counsel for advice based on authorization from an appropriate executive
in CRM.

Disbursements
under loan facilities are only be made when all security documentation is in
place. CIB report should reflect/include the name of all the lenders with
facility, limit & outstanding. All formalities regarding large loans &
loans to Directors should be guided by Bangladesh Bank circulars & related
section of Banking Companies Act. All Credit Approval terms have been met.

Custodial Duties:

·
Loan disbursements and the preparation and
storage of security documents should be centralized in the regional credit centers.

·
Appropriate insurance coverage is maintained
(and renewed on a timely basis) on assets pledged as collateral.

·
Security documentation is held under strict
control, preferably in locked fireproof storage.

Compliance Requirements:

·
All required Bangladesh Bank returns are
submitted in the correct format in a timely manner.

·
Bangladesh Bank circulars/regulations are
maintained centrally, and advised to all relevant departments to ensure
compliance.

·
All third party service providers (valuers,
lawyers, insurers, CPAs etc.) are approved and performance reviewed on an
annual basis. Banks are referred to Bangladesh Bank circular outlining approved
external audit firms that are acceptable.

Credit Monitoring

To minimize credit
losses, monitoring procedures and systems should be in places that provide an
early indication of the deteriorating financial health of a borrower. At a
minimum, systems should be in place to report the following exceptions to
relevant executives in CRM and RM team:

·
Past due principal or interest payments, past due trade bills,
account excesses, and breach of loan covenants;

·
Loan terms and conditions
are monitored, financial statements are received on a regular basis, and any
covenant breaches or exceptions are referred to CRM and the RM team for timely
follow-up.

·
Timely corrective action is
taken to address findings of any internal, external or regulator
inspection/audit.

·
All borrower
relationships/loan facilities are reviewed and approved through the submission
of a Credit Application at least annually.

Computer systems must be able to
produce the above information for central/head office as well as local review.
Where automated systems are not available, a manual process should have the
capability to produce accurate exception reports. Exceptions should be followed
up on and corrective action taken in a timely manner before the account
deteriorates further.

Credit Administration Flowchart

PART- FIVE

CREDIT POLICY, ANALYSIS AND
MANAGEMENT OF AB BANK

PROCEDURE
FOR GRANTING DIFFERENT TYPES OF ADVANCES

A.
LOAN AGAINST HYPOTHECATION OF CARS,
BUSES,

TRUCKS, SCOOTERS
AND WATER – CRAFTS:

1.
While
allowing loan against hypothecation of Cars, Buses, Trucks, Scooters or
Water-Crafts, the following points should be taken into consideration subject
to credit restriction imposed from time to time, by Bangladesh Bank.

a.
The
trustworthiness of the borrower.

b.
The
value of the vehicle.

c.
Whether
it is a brand new vehicle.

d.
While
importing vehicles, the total landed cost to be determined and import bill
retirement arrangement to be made beforehand.

e.
Whether
the repayment capacity of the borrower is satisfactory.

f.
The
title of the borrower in respect of vehicle is absolute.

2.
DOCUMENTATION
AND CONTROL:

a.
Sales
receipt should be drawn in the joint name of ABBL and the client. Delivery of
the vehicles to be taken under supervision of an officer of the Branch.

b.
Vehicles
are to be registered under the supervision of an officer of the Branch in the
Joint name of ABBL and the client.

c.
Comprehensive
Insurance Policy to be obtained at client’s cost in the Joint name of ABBL and
the client.

d.
Agreement
of Hypothecation to be executed on Non-Judicial Stamp paper duly filled in the
blanks before execution as per format Annex – “A”. Execution of the
document to be vetted by Legal Adviser/Retainer to suit in each case.

e.
All
taxes in respect of the vehicles are to be paid by the client.

f.
A
photocopy of the Blue Book duly attested by an officer of the Branch evidencing
Joint Registration is to be obtained.

3.
CHARGE
DOCUMENTS TO BE OBTAINED:

a.
Demand
Promissory Note (D. P. Note).

b.
Letter
of Agreement.

c.
Letter
of Continuity/Disbursement.

d.
Letter
of Revival.

e.
In
case of Partnership Firms:

i)
Photocopy
of Registered Partnership Deed duly certified by Notary Public.

ii)
An
undertaking in the prescribed form in case of firms not registered with
Registrar of firms. (Annexure – “C”).

iii)
Photocopy
of Registration Certificate duly certified by “NOTARY PUBLIC” in case
of firms registered with Registrar of firms.

iv)
Individual
Personal Guarantee of all the Partners.

f.
Certified
copy of Resolution of the Board of Directors in accordance with corporate
Borrowing Power laid down in the Memorandum and Articles of Association of the
Company, in case of Limited concern and resolution of the Board along with a
copy of charter in case of corporation, to be vetted by Legal Adviser/Retainer.

g.
Individual
Personal Guarantee of all the Directors in case of a Limited Company.

h.
Charge
to be created with the Registrar of Joint Stock Companies for hypothecation in
case of Limited concerns.

i.
Agreement
of hypothecation to be obtained as per format (Annexure – “A”) vetted
by Legal Adviser/Retainer.

B.
LOAN
AGAINST IMPORTED MERCHANDISE (L.I.M.):

1.
Loan
against the security of merchandise imported through the Bank may be allowed
against pledge of goods, retaining margin prescribed on their Landed Cost,
depending on their categories and credit restrictions imposed by the Bangladesh
bank. Branches shall also obtain letter of undertaking and indemnity from the
clients, before getting goods cleared through LIM account.

2.
Clearance
of the goods should be taken through Approved Clearing Agent of the Bank.

3.
The
following points must be taken into consideration while allowing advance
against the security of imported goods:

a.
That
the landed cost of the merchandise is properly worked out before the goods are
delivered to the customer against proportionate payments. The landed cost of
the goods subject to the credit restrictions imposed by Bangladesh Bank is
arrived at by taking into account:

i)
The
invoice value of the merchandise including freight.

ii)
Customs
Duty.

iii)
Sales
Tax.

iv)
Wharf
age.

v)
Clearing
Agent’s charges.

vi)
Railway
Freight etc.

vii)
Insurance
premium.

viii)
Demurrage.

ix)
Other
charge, if any.

b.
The
landed cost of each item should be separately worked out that goods are
delivered to the customers against proportionate payment made for each item.
While making part delivery, it must be ensured that slow moving items are also
taken delivery simultaneously. Valuable and less valuable items should not be
averaged together.

c.
While
creating forced LIM Branch manager should satisfy that forced sale value will
cover the outstanding LIM, if not, arrangement should be made to recover the
liabilities through sale of documents. Prior approval of Head Office to be
obtained for creating forced LIM.

4.
CHARGE
DOCUMENTS:

a)
Demand
Promissory Note (D. P. Note).

b)
Letter
of Agreement.

c)
Letter
of Pledge.

d)
Merchandise
to be duly insured with specific risk clauses alongwith Bank’s mortgage clause.

e)
Letter
of disclaimer to be obtained from the owner of go down in case of rented go
down.

A.
ADVANCE AGAINST SHARES (LOANS &
OVERDRAFTS):

1.
Advance
may be allowed against share of various Companies approved by Head Office from
time to time, quoted on the Stock Exchange against required margin subject to
credit restriction imposed by Bangladesh Bank, & prior permission from Head
Office.

2.
Before
allowing the advance, obtain the delivery of the shares and their Transfer Deed
forms duly signed by the share holders and verified by the company’s authority
and thoroughly scrutinize them with regard to the following:

a)
They
are original share scripts and bear the seal of the Company.

b)
The
shares are fully paid up. Do not allow advance against partly paid up shares,
unless approved by the Head Office.

c)
The
shares are accompanied with blank Transfer Deed duly signed by the person in
whose name those shares stand and witnessed by somebody who is easily
traceable.

d)
The
transferor’s signature on the Transfer Deed is verified by the Company
concerned under its stamp.

e)
The
Transfer Deeds are undated.

f)
A
fresh set of Transfer Deeds signed by the borrower, and witnessed by somebody
who is easily traceable is obtained and retained with the branch, for all such
shares which are to be sent to various companies for registration in his name,
before the closure of their books, if so requested by him.

g)
These
shares are lodged with the companies concerned for registration with their
original Transfer Deeds, duly completed in all respects, under a covering
letter from the branch, requesting them to return the shares to the branch, as
the Bank has its lien on them. The Transfer Deeds attached with the shares are
completed and signed by the borrower as transferee, before these are dispatched
to the companies.

h)
A
receipt is obtained from the companies and retained with branch, duly
discharged by the share-holder, for exchange with the share certificates, when
ready for delivery.

i)
The
borrower’s signatures on the fresh set of Transfer Deeds are verified by the
companies concerned and retained with branch along with their respective share
certificate when received back from them after registration.

j)
The
branch should obtain a letter of lien from the borrower in respect of all such
shares which stand in his name, or which have been sent to the various companies
for registration, in his name. Where advance has been allowed to the borrower
at the specific request of a third party against shares owned by them the
letter of lien shall be obtained from third party, in its own name.

k)
The
branch shall not generally resort to transferring the shares registered in the
name of the borrower or any third party, in its own name.

l)
In
the event of transferring the shares in the name of the Bank with the approval
of the Head Office, branches shall take specific notice of any declaration of
Dividends, Bonus Shares or any offer of Right Shares made by the companies
concerned. They shall also ensure that all such Dividends and Bonus Shares are
duly received by them.

i)
The
dividend is credited to the account of the borrowers and the bonus shares are
kept along with other shares of the borrower.

ii)
In
case of an offer of Right Shares, branches shall send an intimation to the
borrowers concerned enquiring from them if they were interested to acquire them
for the value mentioned on the letter of Right which should immediately be
deposited by them with the Bank.

iii)
If
the borrowers do not deposit the money from their own resources or make any
alternate arrangement in that behalf, the letter of rights may be renounced
with the permission of the Head Office and sold, and the sale proceeds should
be credited to the borrower’s account under intimation to him.

3.
CALCULATION
OF DRAWING POWER:

If the branch manager
is satisfied with the security offered, he will calculate the drawing power of
the borrower as per guidelines given by Bangladesh Bank/Head Office from time
to time.

4.
RESTRICTION:

In terms of Section 27(1)a of the
Banking Companies Act. 1991, no banking company shall make loans and advances
against the security of its own shares.

5.
CHARGE
DOCUMENTS:

Allow the advance on obtaining
the following charge documents duly stamped:

a)
Demand
Promissory Note.

b)
Letter
of lien or in case of advance to a third party, Letter of Agreement.

c)
In
case of Partnership Firms:

i)
Photocopy
of Registered Partnership Deed duly certified by Notary Public.

ii)
An
undertaking in the prescribed form in case of firms not registered with
Registrar of firms. (Annexure – “C”).

iii)
Photocopy
of Registration Certificate duly certified by “NOTARY PUBLIC” in case
of firms registered with Registrar of firms.

iv)
Individual
Personal Guarantee of all the Partners.

d)
Certified
copy of Resolution of the Board of Directors in accordance with corporate
Borrowing Power laid down in the Memorandum and Articles of Association of the
Company, in case of Limited concern and resolution of the Board along with a
copy of charter in case of corporation, to be vetted by Legal Adviser/Retainer.

e)
Letter
of Ownership.

f)
Transfer
Deeds duly signed and verified.

g)
Personal
Guarantee of Directors (excepting nominated Directors by Govt. /Corporations)
in case of limited Companies.

h)
For
Loans: Letter of Disbursement.

i)
For
Overdrafts: Letter of Continuity.

j)
An
undertaking from the Directors of the limited Company to obtain prior clearance
from the Bank before declaring any interim/final dividend.

A.
ADVANCES AGAINST FIXED/SHORT TERM
DEPOSIT

RECEIPTS
/ BEARER CERTIFICATE OF DEPOSIT:

1.
Scrutinize
the Fixed/Short Term Deposit Receipts with regard to the following points
subject to credit restriction imposed from time to time:

a)
The
Fixed/Short Term Deposit Receipt is not in the name of a minor.

b)
It
is duly discharged by the depositor on revenue stamp of adequate value and his
signature is verified.

c)
If
the receipt is issued in joint names and/or payable to either or survivor it
shall be discharged by all the depositors named in the receipt on revenue stamp
of adequate value and their signature, verified.

Both the depositors
have the right, so long they are alive, to the proceeds of FDR or Short term
deposit receipt and as such creation of liability on the deposit by any one of
the depositors is irregular.

d)
If
the Deposit Receipt is offered as a security for allowing advance to a third
party, a letter of lien shall be obtained from the depositors, on the
appropriate form.

e)
If
the Deposit Receipt has been issued by the same branch, lien against that
specific Deposit Receipt is marked in the Fixed Deposit and/or Short Term
Deposit Register of the branch.

f)
As
far as possible advances against FDR/STD receipts issued by other banks should
be avoided. However, in case it is decided to make advance against such FDR/STD
receipts, the branch concerned should request the Issuing Bank/Branch to
register ‘LIEN’ of the Arab Bangladesh
Bank Ltd. against the FDR/STD receipts and issue a letter confirming the
registration of ‘LIEN’ in their books accounts under authorized signature.
Further, the branch where the advance is allowed shall directly get the
signature of the depositor on the letter of lien as well as his discharge on
the back of the F.D. Receipts/S.T.D. Receipts duly verified from the Issuing
Bank/Branch under authorized signature. The borrower shall not be allowed,
under any circumstances, to have such verification done on his own.

g)
The
discharged receipt, the letter of lien duly verified by the issuing branch and
the letter confirming registration of the lien on the Deposit Receipt shall be
kept along with other documents for the relative advance, duly entered in the
documentation check list.

h)
Lien
on the partial amounts on Fixed/Short Term Deposits shall not be accepted.

i)
The
lien of the Bank has to be marked in red ink/rubber stamp on the face of the
Deposit Receipt against which advance has been allowed. On adjustment of the
advance, lien shall be released under signature of two Officers on the back of
the Deposit Receipt.

j)
An
undertaking from the borrower/third party (if the deposit is in the name of
third party) for encashment of the FDR/Short Term Deposit and appropriation of
the proceeds thereof without reference to them be obtained.

k)
An
undertaking from the borrower/third party (if the deposit is in the name of
third party) for renewal of the Fixed and Short Term Deposits without reference
to them be obtained.

l)
In
case of Bearer Certificate of Deposit, lien to be marked on the face of the
certificate and margin to be calculated on the amount deposited.

2.
CHARGE
DOCUMENTS:

After
full satisfaction on the above referred points, obtain the following charge
documents duly stamped before allowing the advance:

a)
Demand
Promissory Note.

b)
Fixed/Short
Term Deposit Receipt duly discharged.

c)
Letter
of Lien (1st party)

Letter
of Lien along with a guarantee (third party)

d)
Letter
of Agreement.

e)
In
case of Partnership Firms:

a)
Photocopy
of Registered Partnership Deed duly certified by Notary Public.

ii)
An
undertaking in the prescribed form in case of firms not registered with
Registrar of firms. (Annexure – “C”).

iii)
Photocopy
of Registration Certificate duly certified by “NOTARY PUBLIC” in case
of firms registered with Registrar of firms.

iv)
Personal
Guarantee of all the Partners.

f)
Certified
copy of Resolution of the Board of Directors in accordance with corporate
Borrowing Power laid down in the Memorandum and Articles of Association of the
Company and in case of Corporations, resolution of the Board of Directors along
with charter to be vetted by Legal Adviser/Retainer.

g)
Personal
Guarantee of all the Directors in case of a limited Company.

h)
For
Loans: Letter of Disbursement.

i)
For
Overdrafts: Letter of Continuity duly stamped.

B.
ADVANCES AGAINST BALANCES IN
SAVINGS

BANK
AND CURRENT DEPOSIT ACCOUNTS:

1.
Subject
to the credit restrictions imposed, precautionary measures are to be observed
in allowing advances against balances lying in the Savings Bank and/or Current
Deposit Accounts of the parties:

a)
Ear-mark
the balance in the account.

b)
Make
a note of it at the top of the ledger folios/card of the account-holder in bold
RED letters duly authenticated.

2.
While
allowing advance to the party against a credit balance ear-marked in another
account kept by him in his own name and in the same rights, whether at the same
branch or at some other branch of the Bank, take a letter of authority from the
account-holder to combine the two accounts (one having a credit balance and the
other a debit balance), at any time without notice, and to return cheques
which, as a result of the Bank having taken such an action, would overdraw the
combined account. He should also agree not to close the account and withdraw
the balance, pending adjustment of the advance.

Where the advance is
allowed against credit balance, ear-marked in the account of a third party,
whether at the same branch or at some other branch of the Bank, take an
irrevocable letter of authority from third party, authorizing the Bank to
appropriate the credit balance lying in their account to the extent of the
debit balance appearing in the account of the borrower, at any time, without
any reference to them. This being an irrevocable letter of authority, they
should agree neither to close the account pending adjustment of the advance
allowed at their instance, nor to issue cheques which would reduce that
balance.

3.
The
signature of the account-holder in whose account a credit balance is ear-marked
is verified on the irrevocable letter of authority given by him.

4.
CHARGE
DOCUMENTS:

Allow the advance on obtaining
the following charge documents duly stamped:

a)
Demand
Promissory Note.

b)
Letter
of Lien (1st party)

Letter
of Lien (3rd party) along with guarantee.

c)
Letter
of Agreement.

d)
In
case of Partnership Firms:

i)
Photocopy
of Registered Partnership Deed duly certified by Notary Public.

ii)
An
undertaking in the prescribed form in case of firms not registered with
Registrar of firms. (Annexure – “C”).

iii)
Photocopy
of Registration Certificate duly certified by “NOTARY PUBLIC” in case
of firms registered with Registrar of firms.

iv)
Personal
Guarantee of all the Partners.

e)
Certified
copy of Resolution of the Board of Directors in accordance with corporate
Borrowing Power laid down in the Memorandum and Articles of Association of the
Company and in case of Corporations, resolution of the Board of Directors along
with charter to be vetted by Legal Adviser/Retainer.

f)
Personal
Guarantee of all the Directors in case of a Limited Company.

g)
Letter
of Authority to set off or appropriate the balance.

h)
For
Loans: Letter of Disbursement.

i)
For
Overdrafts: Letter of Continuity.

SET OF DOCUEMNTS TO
BE OBTAINED AGAINST

DIFFERENT TYPES
OF LOANS AND ADVANCES

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

a)
Documents
common to all Advances:

i)
D. P. Note signed on Revenue Stamps.

ii)
Letter of Agreement.

iii)
Acceptance of the terms and conditions
of sanction advice on duplicate.

b)
General
Documents:

i) D. P. Note.

ii)
Letter of Agreement.

iii) Letter of Continuity.

iv) Letter of Revival.

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

a)
In
case of Limited Company:

i) Individual Personal guarantee of all
Directors.

ii)
Board’s resolution covering corporate
borrowing power, authorising 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 Registrar, 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 form in case of firms not registered with
Registrar of firms (Annexure – “C”).

iii)
Photocopy
of Registration Certificate duly certified by “NOTARY PUBLIC” in case of firms
registered with Registrar of firms(Reference: Credit Instruction No.04/87 dated
26.2.1987).

iv)
Individual
Personal Guarantee of all the Partners.

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

Note:-

–
Loan
to partnership-at-will should not be entertained.

–
Enquiry
should be made about income tax liability. Preferably their TIN number should
be obtained.

c) In case of Proprietorship:

i)
Municipal
Trade License to prove the ownership of the concern.

ii)
TIN
number to ascertain whether he is an income tax assessee or not.

A.
PROCEDURES FOR SUBMISSION OF CREDIT
PROPOSALS FOR APPROVAL:

Every credit facilities extendable to
customers is subject to approval from competent authority. Due emphasis on the
following points are required in sending Credit Proposals to the Sanctioning
Authority.

1.
Request for Credit Limit (RFCL)

2.
Credit Information Bureau (CIB)

3.
Lending Risk Analysis Form (LRAF)

4.
Inspection Report (I-20)

5.
Documentation Completion
Certificate

6.
Submission of Renewal Proposals

Lending
Risk Analysis (LRA)

The Financial Sector Reform
Project (FSRP) has been instituted in the early nineties in Bangladesh with a
view to bringing about financial discipline through undertaking appropriate
reform measures in the financial sector of our country. The project has been
taken by the Government of Bangladesh (GOB) with combined support of the World
Bank and USAID under the structural adjustment program. The banking sector
constitutes the principal segment of the financial sector and hence the main
thrust of the reform activities rests on this sector. The reform programs also
gave freedom to the banks to select the borrowers on the basis of their own
judgement.

Among the several reform measures
that FSRP has so far recommended. Lending Risk Analysis (LRA) constitutes an
important set of activities that has been prescribed for minimising and
averting risk in funds business of local banks (public and private). It has
been identified by the experts and bankers that risk (high) involved in
providing loan to a particular borrower is the main reason for failing to
recover the bank’s money and the issued of risk analysis remains as one of the
main factors in determining the status of a loan/investment in terms of
recovery.

Lending Risk
Analysis (LRA): Terms & Definitions

Lending Risk Analysis (LRA) is
simply a loan processing manual. By going through this manual the lending
bankers can assess the creditworthiness of their prospective borrowers.
Therefore, LRA is such an instrument which is definitely and directly related
with lending information to analyze the borrower’s financial, marketing,
managerial and organizational aspects subjectively and objectively. It also
facilitates the analyst to know the security risk of the credit.

Lending Risk Analysis involves
assessing the likelihood of repayment of loans to the bank as per agreement on
the basis of analysis of certain risks. To analyze these risks bankers will
need to fill-up a 16 page LRA Form. The form leads to scoring various risk
factors involved in lending (Table A), first of all, has divided the various
risks into two groups namely. Business Risk and Security Risk.

Business Risk:

Business Risk is concerned with
whether the borrowing company would fail to generate sufficient cash out of
business to repay the loan. Business Risk, the main component of lending risk,
consists of the Industry Risk and the Company Risk.

A.
Industry
Risk: Due to some external reasons a business may fail and the risk which
arrives from external reasons of the business is called Industry Risk. It has
two components:

(i)
Supplies
Risk: When the business fails due to disruption in the supply of inputs, the
consequent risk which would arise is known as Supply Risk.

(ii)
Sales
Risk: t is another component of Industry Risk. When the business fails for
disruption in sales, this type of risk would generate.

B.
Company
Risk: Company Risk is shown for some internal reasons of the business. It has
also two main components and four sub-components.

(i)
Company
Position Risk: Each and every company holds a position within an industry. This
position is very much competitive. Due to weakness in the company’s position in
its industry, a company may fail and the risk of failure is called Company
Position Risk. It depends on –

(a)
Performance
Risk: If a company fails to perform well enough to repay the loan because of
its weakness under given expected external conditions, the company is said to
suffer from performance risk.

(b)
Resilience
Risk: When a company fails due to lack of its resilience to unexpected external
conditions, the conditions, the resilience risk is generated.

(ii)
Management
Risk: If the management of a company fails to exploit the company’s position
effectively, the company can fails and this risk of failure is called
management risk. It can be subdivided further.

(a)
Management
Competence Risk: Management competence risk is the risk that the company fails
to repay its loan due to lack of management integrity.

(b)
Management
Integrity Risk: Management integrity risk is the risk that the company fails to
repay its loan due to lack of management integrity.

Security Risk:

Security Risk is the risk that
the realized value of the security does not cover the exposure of loan.
Exposure means principal plus outstanding interest. Security risk can be
divided into two parts:

(a)
Security
Control Risk: Security Control Risk is the risk that the bank fails to realize
the security because of lack of bank’s control over the security offered by the
borrowers.

(b)
Security
Cover Risk: Security cover risk is the risk that the realized security value
may not cover the full exposure of loans.

Process
of Lending Risk Analysis:

For the purpose of risk analysis
for either trading or manufacturing companies, the credit officer or concerned
persons who are involved to prepare the LRA report should first collect the
information and data in respect of the loan proposal and the borrower.

The following steps are generally
followed:

1.
Collect
all data available from published sources.

2.
Visit
company to collect company specific data that is not published.

3.
Interview
management to assess their ability and integrity.

4.
Investigate
the security.

5.
Have
an impression (by the credit officer) of the company’s operations.

After collecting the required information and data:

1.
Prepare
financial spreadsheet which includes Balance Sheet, Income Statement. Cash Flow
Statement and Financial Ratios on the basis of at least 3 years financial
statement of the borrowers.

2.
Analysis
of Spreadsheet Ratios.

3.
Prepare
supplementary questions for company management, if necessary.

PROCEDURE FOR GRANTING DIFFERENT TYPES OF ADVANCES

A. LOAN AGAINST HYPOTHECATION OF CARS, BUSES,

TRUCKS, SCOOTERS AND WATER – CRAFTS:

B. LOAN AGAINST IMPORTED MERCHANDISE (L.I.M.):

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PROCEDURE
FOR GRANTING DIFFERENT TYPES OF ADVANCES

A.
LOAN AGAINST HYPOTHECATION OF CARS,
BUSES,

TRUCKS, SCOOTERS
AND WATER – CRAFTS:

B.
LOAN
AGAINST IMPORTED MERCHANDISE (L.I.M.):