INTRODUCTION
1.1 Origin of the Report
After completion
of 4 years in the BBA program of the faculty of business studies, department of management
studies, University of Dhaka, three months organizational
attachment is must. So the preparation and submission of this report is partial requirement for the completion of the
Bachelor of Business Administration (BBA).This
report is outcome of the three month long internship program conducted in
Jamuna Bank Limited, one of the reputed private commercial banks of the country
.While working in the bank the
standard operating procedures carried out by the bank the standard operating procedures carried out by
the bank were observed and understood.
1.2 Objectives of the Report
This report is prepared
primarily to fulfill the Bachelor of Business Administration (BBA) degree
requirement in BBA program of the faculty of business studies, department of
management studies, University of Dhaka.
Re secondary objectives of this
report are:
- To have exposure to
the credit operation and other function of Jamuna Bank Limited.
- To have a clear understanding of the business
operation of Jamuna Bank Limited.
- To discuss the services offered by Jamuna Bank Limitcd.
- To assess and evaluate the growth trends of Jamuna Bank Limited.
- To
evaluate the profitability of Jamuna Bank Limited.
- To identify the major
strength and weakness of Jamuna Bank Limited in respect to other banks.
- To
recommend ways and means to solve problems regarding banking of Jamuna Bank Limited.
1.3 Methodology
This report is
based mainly on observations that I experienced during the internship period. Data
required for this report were collected from the annual report of Jamuna bank.
Apart from these, helpful information was collected from online resources. To analyze the
performance of Jamina bank limited different statistical and financial tools such as ratio analysis, growth
analysis were done.
based mainly on observations that I experienced during the internship period. Data
required for this report were collected from the annual report of Jamuna bank.
Apart from these, helpful information was collected from online resources. To analyze the
performance of Jamina bank limited different statistical and financial tools such as ratio analysis, growth
analysis were done.
1.4 Limitation
Although the
officials were so busy, they gave me wholehearted cooperation in the time of
internship also in preparing this report. It was such a nice experience I have gathered from
JBL. But I have faced the following that may be terns as die limitations of the study.
officials were so busy, they gave me wholehearted cooperation in the time of
internship also in preparing this report. It was such a nice experience I have gathered from
JBL. But I have faced the following that may be terns as die limitations of the study.
No
remuneration was provided
remuneration was provided
The
first obstacle was that they would not provide any remuneration even TAJDA for doing internship in JBL.
first obstacle was that they would not provide any remuneration even TAJDA for doing internship in JBL.
Lack of records
Sufficient books,
publications and figures were not available. If this limitation were not been there, the report would have
been more useful.
publications and figures were not available. If this limitation were not been there, the report would have
been more useful.
1.5 Background
Information of Jamuna Bank Limited
Information of Jamuna Bank Limited
Jamuna Bank Limited is one of the leading private
commercial banks in Bangladesh that has achieved tremendous popularity and credibility among the people
for its products
& services. It is a public limited company and its shares are traded in
Dhaka and Chittagong stock exchange. The
bank undertakes all types of banking transaction
commercial banks in Bangladesh that has achieved tremendous popularity and credibility among the people
for its products
& services. It is a public limited company and its shares are traded in
Dhaka and Chittagong stock exchange. The
bank undertakes all types of banking transaction
to support the
development of trade and commerce in the country. JBLs service is also
available for the entrepreneurs to set up new ventures and BMM-,, of
industrial units.
development of trade and commerce in the country. JBLs service is also
available for the entrepreneurs to set up new ventures and BMM-,, of
industrial units.
To provide clientele services in
respect of international trade it has established wide, corresponded Banking relationship with local and foreign banks covering
major trade and financial interest home and abroad.
respect of international trade it has established wide, corresponded Banking relationship with local and foreign banks covering
major trade and financial interest home and abroad.
1.6 Historical Background of JBL
Jamuna Bank
Limited (JBL) is a Banking Company registered under the Companies Act 1994 with
its Head Office at Printers Building, 5 Rajuk avenue Dhaka-1000. The bank started its operation from 3rd
June 2001. Jamuna Bank Limited (Jf31,) is a highly capitalized new generation Bank with an Authorized
capital and paid-up capital of Taka 1600.00 million and Tk 390.00 million, Paid
up capital of the Bank raised to Tk.429 million as of December, 2005 and the
number of branches raised to 29.Thc bank
gives special emphasis on export, import, trade finance SME finance Retail credit
and finance to woman Entrepreneurs.
Limited (JBL) is a Banking Company registered under the Companies Act 1994 with
its Head Office at Printers Building, 5 Rajuk avenue Dhaka-1000. The bank started its operation from 3rd
June 2001. Jamuna Bank Limited (Jf31,) is a highly capitalized new generation Bank with an Authorized
capital and paid-up capital of Taka 1600.00 million and Tk 390.00 million, Paid
up capital of the Bank raised to Tk.429 million as of December, 2005 and the
number of branches raised to 29.Thc bank
gives special emphasis on export, import, trade finance SME finance Retail credit
and finance to woman Entrepreneurs.
1.7 Corporate Slogan of JBL
Your Partner For Growth
of JBL
To become a
leading banking institution and to play a pivotal role inthe
development of the
country.
leading banking institution and to play a pivotal role inthe
development of the
country.
1.9 Mission of JBL
The Bank is committed to satisfying diverse needs of its
customers through an array of products at a competitive price by using appropriate technology and
providing timely service so that a
sustainable growth, reasonable return and contribution to the development of the country can be ensured with a
motivated and professional workforce.
customers through an array of products at a competitive price by using appropriate technology and
providing timely service so that a
sustainable growth, reasonable return and contribution to the development of the country can be ensured with a
motivated and professional workforce.
1.10 Objectives of JBL
·
To
earn and maintain CAMEL Rating Strong.
To
earn and maintain CAMEL Rating Strong.
·
To establish relationship banking and improve service
quality throughdevelopment
of strategies marketing plans.
To establish relationship banking and improve service
quality throughdevelopment
of strategies marketing plans.
·
To
remain one of the best banks in Bangladesh in terms of Profitability and
To
remain one of the best banks in Bangladesh in terms of Profitability and
assets
quality .
quality .
To introduce fully automated system through integration of
Information Technology.
Information Technology.
·
To
ensure an adequate rate of return on investment
To
ensure an adequate rate of return on investment
·
To keep risk position at an acceptable range (including an
y of balance sheet risk)
To keep risk position at an acceptable range (including an
y of balance sheet risk)
·
To
maintain adequate liquidity to meet maturing obligation and commitments.
To
maintain adequate liquidity to meet maturing obligation and commitments.
·
To
maintain a healthy growth of business with desired image
To
maintain a healthy growth of business with desired image
·
To
maintain adequate control systems and transparency in procedure
To
maintain adequate control systems and transparency in procedure
·
To develop and retain a quality work force through an
effective Human Resources
Management System
To develop and retain a quality work force through an
effective Human Resources
Management System
·
To
ensure optimum utilization of all available resources
To
ensure optimum utilization of all available resources
·
To pursue an effective system of management by
ensuring compliance to clinical
norms, transparency and accountability
To pursue an effective system of management by
ensuring compliance to clinical
norms, transparency and accountability
1.11 Strategies of JBL
·
To manage and operate the Bank in the most efficient
manner to enhance financial
performance and to control cost of fund.
To manage and operate the Bank in the most efficient
manner to enhance financial
performance and to control cost of fund.
·
To strive for customer satisfaction through quality
control and delivery of timely
services.
To strive for customer satisfaction through quality
control and delivery of timely
services.
·
To identify customers credit and other banking needs and
monitor their perception
towards our performance in meeting those requirement.
To identify customers credit and other banking needs and
monitor their perception
towards our performance in meeting those requirement.
·
To
review and update policies, procedures and
practices to enhance the ability to extend better services to customers.
To
review and update policies, procedures and
practices to enhance the ability to extend better services to customers.
·
To train and develop all employees and provide adequate
resources so that customer
needs car, be responsibly addressed.
To train and develop all employees and provide adequate
resources so that customer
needs car, be responsibly addressed.
·
To promote organizational effectiveness by openly
communicating company plans,
policies, practices and procedures to all employees in a timely fashion
To promote organizational effectiveness by openly
communicating company plans,
policies, practices and procedures to all employees in a timely fashion
·
To cultivate a working environment that fosters positive
motivation for or improved
performance
To cultivate a working environment that fosters positive
motivation for or improved
performance
·
To
diversify portfolio both in the retail and wholesale market
To
diversify portfolio both in the retail and wholesale market
·
To increase direct contract with customers in order to
cultivate a closer relationship
between the bank and its customers.
To increase direct contract with customers in order to
cultivate a closer relationship
between the bank and its customers.
1.12 Organogram of JBL
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1.13.1 Corporate Governance
Board Of Directors
The
Board of Directors consists of 13 members elected from the sponsors. The Board
of Dirc-7 supreme body of the Bank.
Board of Directors consists of 13 members elected from the sponsors. The Board
of Dirc-7 supreme body of the Bank.
Executive Committee
All routine matters beyond the delegated powers of
management are decided upon by or routed through the “Executive Committee, subject to
ratification by the Board of Directors.
management are decided upon by or routed through the “Executive Committee, subject to
ratification by the Board of Directors.
Audit Committee
In line with the guidelines of
Bangladesh Bank, a three-member Audit Committee of the Board of Directors been
formed to assists the Board in matters related to Audit and Internal Control
System of the Bank.
Bangladesh Bank, a three-member Audit Committee of the Board of Directors been
formed to assists the Board in matters related to Audit and Internal Control
System of the Bank.
Chairman
AI-Haj Nur Mohammed
Vice Chairman
Mr. Md. Sirajul Islam Varosha
Directors
Al-haj M. A. Khayer
Engr. A. K. M. Mosharraf Hussain
Mr. Arifur Rahman
Mr. Arifur Rahman
Mr. Golam Dastagir Gazi, Bir Protik Mr. Fazlur Rahman
Mr. Md.Tajul Islam
Mr. Md. Mahmuclul Hoque Mr. Md. Irshad Karim
Mr. Shaheen Mahmud
Mr. Mohammad Nurul Alam
Sponsor Directors Engr.
Md. Atiqur Rahman
Al-haj Md. Rezaul Karim Ansari Mr.
Md. Belal Hossain
Mr. Sakhawat Abu Khair
Mohammad Mr. M.N.H. Bulu
Mr. Farhad Ahmed Akand
Mr. Md. Ismail Hossain Siraji
Mr. Gazi Golam Murtoza
Mr. Kanutosh Majumder
Shariah Council
Professor Dr. Mustafizur Rahman Mawlana
Mufti Ruhul Amin Mawlana Abdur Razzak
Professor Mowlana
Md.Salahuddin Mr. M
Azizul Huq
Azizul Huq
Managing
Director
Director
Mr. Mohammed Lakiotullah
Additional Managing Director
Mr.
Md. Motior Rahman
Md. Motior Rahman
Company Secretary
Mr. Md. Anwar Hossain
Auditors
M/s. G. Ki b ria & Co. Chartered Accountants
1.14 SWOT ANALYSIS OF JBL
|
STRENGTHS |
WEAKNESSES |
|
• Experienced top management. |
• Limited market share. |
|
• Satisfactory capital base. |
• Exposure to large loan‑ |
|
• Low infection in loan |
• Excessive dependency on term deposits. |
|
exposure. |
• Weak fund management. |
|
• Prospective IT infrastructure. |
• High cost of fund. |
|
|
• Islamic Branch funds are not ring fenced. |
|
OPPORTUNITIES |
THREATS |
|
• Regulatory environment |
• Increased competition in the market for |
|
|
quality assets. |
|
|
• Supply gap of foreign |
|
• Credit card. |
• Over all liquidity crises in money |
|
• Small and medium enterprises. |
|
CHAPTER-2
Products and Services of Jamuna Bank Limited
The products and services can be
classifying in two ways & those arc.
classifying in two ways & those arc.
·
The
deposit products & services
The
deposit products & services
·
The
lending products & services
The
lending products & services
|
Deposits products & services |
|
Corporate Banking |
Hi-her Purchase |
|
Personal Banking |
Lease Finance |
||
|
Online Banking |
Personal loan for woman |
||
|
Monthly Savings Scheme |
Project Finance |
||
|
i Monthly Benefit |
i Loan Syndication |
||
|
Double/Triple Benefit Scheme |
Consumer Credit |
||
|
Marriage Scheme |
Import and Export. Handling |
||
|
Education Scheme |
|
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|
Lakhpati Deposit Scheme |
|
||
|
Q-Cash ATM |
|
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|
|
|
2.1 Corporate Banking
The motto of
JBL’s Corporate Banking services is to provide personalized
solutions to their
customers. The Bank distinguishes and identifies corporate customers’ need and
designs tailored solutions accordingly.
JBL’s Corporate Banking services is to provide personalized
solutions to their
customers. The Bank distinguishes and identifies corporate customers’ need and
designs tailored solutions accordingly.
Jamuna
Bank Ltd. Driers a complete range of advisory, financing and operational combining trade, treasury, investment and services
to its corporate client groups coin transactional banking activities in one
package. Whether it is a project finance, term loan, import or export deal, a
working capital requirement or a forward cover for a foreign currency transition, there Corporate Banking Managers will offer you the accurate solution, their corporate Banking specialists will render
high class service for speedy approvals and efficient processing to
satisfy customer needs.
Bank Ltd. Driers a complete range of advisory, financing and operational combining trade, treasury, investment and services
to its corporate client groups coin transactional banking activities in one
package. Whether it is a project finance, term loan, import or export deal, a
working capital requirement or a forward cover for a foreign currency transition, there Corporate Banking Managers will offer you the accurate solution, their corporate Banking specialists will render
high class service for speedy approvals and efficient processing to
satisfy customer needs.
Corporate
Banking business envelops a broad range of businesses and industries. Every one can leverage on our
know-how in the following sectors mainly:
Banking business envelops a broad range of businesses and industries. Every one can leverage on our
know-how in the following sectors mainly:
·
Agro
processing industry
Agro
processing industry
·
Industry
(Import Substitute / Export oriented)
Industry
(Import Substitute / Export oriented)
·
Textile
Spinning, Dyeing / Printing
Textile
Spinning, Dyeing / Printing
·
Export
Oriented Garments, Sweater.
Export
Oriented Garments, Sweater.
·
Food
& Allied
Food
& Allied
·
Paper
& Paper Products
Paper
& Paper Products
·
Engineering,
Steel Mills
Engineering,
Steel Mills
·
Chemical
and chemical products etc.
Chemical
and chemical products etc.
·
Telecommunications.
Telecommunications.
·
Information
Technology
Information
Technology
·
Real
Estate & Construction
Real
Estate & Construction
·
Wholesale
trade
Wholesale
trade
·
Transport
• Hotels, Restaurants
Transport
• Hotels, Restaurants
·
Non
Bank Financial Institutions
Non
Bank Financial Institutions
·
Loan
Syndication
Loan
Syndication
·
Protect
Finance • Investment Banking
Protect
Finance • Investment Banking
·
Lease
Finance • Hire Purchase • International Banking
Lease
Finance • Hire Purchase • International Banking
·
Export
Finance.
Export
Finance.
·
Import Finance
Import Finance
2.2 Personal Banking
Personal Banking
of Jamuna Bank offers wide-ranging products and services matching the
requirement of every customer. Transactional accounts, savings schemes or loan
facilities from Jamuna Bank Ltd. make available to all a unique mixture of easy and consummate
service quality.
of Jamuna Bank offers wide-ranging products and services matching the
requirement of every customer. Transactional accounts, savings schemes or loan
facilities from Jamuna Bank Ltd. make available to all a unique mixture of easy and consummate
service quality.
They make every
endeavor to ensure their clients’ satisfaction. Their cooperative & friendly
professionals working in the branches will make your visit and enjoyable experience.
endeavor to ensure their clients’ satisfaction. Their cooperative & friendly
professionals working in the branches will make your visit and enjoyable experience.
2.3 Online Banking
Jamuna Bank
Limited has introduced real-time any branch banking on April 05,
2005. Now, customers can withdraw and deposit money from any of its 30 branches
located at Dhaka, Chittagong, Sylhet, Gazipur, Bogra, Naogaon, Narayanganj and Munshigonj.
Their valued customers can also enjoy 24 hours banking service through ATM card
from any of Q-cash ATMs located at Dhaka, Chittagong, Khulna, Sylhet and
Bogra. All the existing customers of Jamuna Bank Limited will enjoy this
service by default.
Limited has introduced real-time any branch banking on April 05,
2005. Now, customers can withdraw and deposit money from any of its 30 branches
located at Dhaka, Chittagong, Sylhet, Gazipur, Bogra, Naogaon, Narayanganj and Munshigonj.
Their valued customers can also enjoy 24 hours banking service through ATM card
from any of Q-cash ATMs located at Dhaka, Chittagong, Khulna, Sylhet and
Bogra. All the existing customers of Jamuna Bank Limited will enjoy this
service by default.
2.4 Monthly Savings Scheme (MSS)
Savings is the best friend
in bad days. Small savings can build up a prosperous future. Savings can meet
up any emergences. JBL has introduced Monthly Savings Scheme (MSS) that allows
saving on a monthly basis and getting a handsome return upon maturity. If
anyone wants to build up a significant savings to carry out you’re cherished
Dream, JBL MSS is the right solution.
in bad days. Small savings can build up a prosperous future. Savings can meet
up any emergences. JBL has introduced Monthly Savings Scheme (MSS) that allows
saving on a monthly basis and getting a handsome return upon maturity. If
anyone wants to build up a significant savings to carry out you’re cherished
Dream, JBL MSS is the right solution.
2.5 Monthly Benefit Scheme (MBS)
Jamuna Bank
Limited has introduced Monthly Benefit Scheme (MBS) for the prudent persons having
ready cash and desiring to have fixed income on monthly basis out of it without taking risk of loss and
without enchasing the principal amount. This scheme offers highest return with
zero risk. Everyone can plan your monthly expenditure with the certain monthly
income under the scheme.
Limited has introduced Monthly Benefit Scheme (MBS) for the prudent persons having
ready cash and desiring to have fixed income on monthly basis out of it without taking risk of loss and
without enchasing the principal amount. This scheme offers highest return with
zero risk. Everyone can plan your monthly expenditure with the certain monthly
income under the scheme.
2.6 Double/Triple
Growth Deposit Scheme
Growth Deposit Scheme
For people who have cash flow at this
moment and want to get it doubled/tripled quickly JBL has introduced
Double/Triple Growth Deposit Scheme that offers to make double/triple money
within 6(six) years and 9.5 (nine and a half) years respectively resulting a
high rate of interest.
moment and want to get it doubled/tripled quickly JBL has introduced
Double/Triple Growth Deposit Scheme that offers to make double/triple money
within 6(six) years and 9.5 (nine and a half) years respectively resulting a
high rate of interest.
2.7 Marriage Deposit
Scheme
Scheme
Marriage of children, especially
daughter is a matter of great concern to the parents. Marriage of children
involves expense of considerable amount. Prudent parents make effort for gradual building of fund as per their capacity to meet the
matrimonial expense of their
children specially daughters. Parents get relief and can have peace of mind if they can arrange the necessary fund for
marriage of their children, no matter whether they survive or not till
the marriage occasion.
daughter is a matter of great concern to the parents. Marriage of children
involves expense of considerable amount. Prudent parents make effort for gradual building of fund as per their capacity to meet the
matrimonial expense of their
children specially daughters. Parents get relief and can have peace of mind if they can arrange the necessary fund for
marriage of their children, no matter whether they survive or not till
the marriage occasion.
It can be a great
help to the parents if there is any scope of deposit of a modest mount as per
their financial capacity, which groves very fast at high rate of interest
yielding a sizeable
amount on maturity.
help to the parents if there is any scope of deposit of a modest mount as per
their financial capacity, which groves very fast at high rate of interest
yielding a sizeable
amount on maturity.
With this end in
view JBL has introduced Marriage Deposit Scheme, which offers you an opportunity to build – up your
cherished – fund by monthly deposit of serial, amount at your
affordable capacity.
view JBL has introduced Marriage Deposit Scheme, which offers you an opportunity to build – up your
cherished – fund by monthly deposit of serial, amount at your
affordable capacity.
2.8
Education Savings Scheme
Education Savings Scheme
Education is a basic need of every
citizen. Every parent wants to impart proper education to their children.
Education is the pre-requisite for socio-economic development of the country.
As yet, there is no arrangement of free education to the citizens from the government level. As such, there
should be pre-arrangement of fund to ensure higher educations
the children. Otherwise higher education may be hindered due to change of
economic condition, income of the parents at the future time when higher
education shall be required. Today’s higher education is becoming expired day
by day. Parents can get relief and can have peace of mind if they can arrange
the necessary fund for higher education of their children. As such, JBI, has
introduced ‘Education Savings Scheme’ which offers you an opportunity to
build up your cherished fund’ by monthly deposit of small amount it at your
affordable capacity or initial lump sum deposit to yield handsome amount on a
future date to meet the educational expenses. Under this Scheme you have the
different attractive options to avail the
future benefit i.e. withdrawal of the total amount accumulated in lump
sum or withdrawing monthly benefit to meet educational expense keeping
die principal amount intact or to withdraw both principal and accumulated
profit monthly for a certain period.
citizen. Every parent wants to impart proper education to their children.
Education is the pre-requisite for socio-economic development of the country.
As yet, there is no arrangement of free education to the citizens from the government level. As such, there
should be pre-arrangement of fund to ensure higher educations
the children. Otherwise higher education may be hindered due to change of
economic condition, income of the parents at the future time when higher
education shall be required. Today’s higher education is becoming expired day
by day. Parents can get relief and can have peace of mind if they can arrange
the necessary fund for higher education of their children. As such, JBI, has
introduced ‘Education Savings Scheme’ which offers you an opportunity to
build up your cherished fund’ by monthly deposit of small amount it at your
affordable capacity or initial lump sum deposit to yield handsome amount on a
future date to meet the educational expenses. Under this Scheme you have the
different attractive options to avail the
future benefit i.e. withdrawal of the total amount accumulated in lump
sum or withdrawing monthly benefit to meet educational expense keeping
die principal amount intact or to withdraw both principal and accumulated
profit monthly for a certain period.
2.9 Lakhpati Deposit Scheme
To become a lakhpati is a dream to
most of the people of Bangladesh specially to the lower and lower middle class
income group. They experiences their expectations and wants are enormous in nature in our small span of life. To meet our
deposit and wants we need right plan. Keeping the above in mind JBL has
introduced “Lakhopati Scheme” which has flexibility report of maturity and monthly installment as per
affordable capacity.
most of the people of Bangladesh specially to the lower and lower middle class
income group. They experiences their expectations and wants are enormous in nature in our small span of life. To meet our
deposit and wants we need right plan. Keeping the above in mind JBL has
introduced “Lakhopati Scheme” which has flexibility report of maturity and monthly installment as per
affordable capacity.
2.10 Q-Cash Round The Clock Banking
Jamuna Bank Q-Cash ATIM Card enables
the costumers to withdraw- cash variety of
banking transactions 24 hours a day. Q-Cash ATMs are conveniently located
covering major shopping centers, business and residential areas in Dhaka and chittagong. ATMs in Sylhet, Khulria and other
cities will soon start be introduced. The network will expand to cover
the whole country within a short span of time.
the costumers to withdraw- cash variety of
banking transactions 24 hours a day. Q-Cash ATMs are conveniently located
covering major shopping centers, business and residential areas in Dhaka and chittagong. ATMs in Sylhet, Khulria and other
cities will soon start be introduced. The network will expand to cover
the whole country within a short span of time.
With customers Jamuna Bank Q-Cash ATM
card they can:
card they can:
·
Cash withdrawal Round The Clock from any Q-Cash logo
marked ATM booths.
Cash withdrawal Round The Clock from any Q-Cash logo
marked ATM booths.
·
POS
transaction (shopping malls, restaurants, Jewell Aries etc)
POS
transaction (shopping malls, restaurants, Jewell Aries etc)
·
Enjoy
overdraft facilities on the card (if approved)
Enjoy
overdraft facilities on the card (if approved)
·
Utility
Bill Payment facilities
Utility
Bill Payment facilities
·
Cash
transaction facilities for selective branches nationwide
Cash
transaction facilities for selective branches nationwide
·
ATM service available in Dhaka and Chittagong Withdrawal
allowed from ATM’s of Jamuna Bank Ltd., AB Bank, The City Bank, Janata Bank, IFIC Bank, Mercantile Bank, Pubali Bank,
Eastern Bank Ltd. respectively
ATM service available in Dhaka and Chittagong Withdrawal
allowed from ATM’s of Jamuna Bank Ltd., AB Bank, The City Bank, Janata Bank, IFIC Bank, Mercantile Bank, Pubali Bank,
Eastern Bank Ltd. respectively
·
And
more to come Is Q-Cash
And
more to come Is Q-Cash
2.11 Hire Purchase
Hire purchase is
a type of installment Credit wider which the Hire purchase agrees to take goods on
hire at a stated rate which is inclusive of the repayment of principle as well as interest for adjustment of
the loan within a specified period.
a type of installment Credit wider which the Hire purchase agrees to take goods on
hire at a stated rate which is inclusive of the repayment of principle as well as interest for adjustment of
the loan within a specified period.
2.12 Lease Finance
Lease means a
contractual relationship between the owner of the asset and its utter-
fur a
specified period against mutually agreed upon rent. The owner is called the
Lessor and the user is
called the Lessee.
contractual relationship between the owner of the asset and its utter-
fur a
specified period against mutually agreed upon rent. The owner is called the
Lessor and the user is
called the Lessee.
Lease finance is
one of the most convenient source of financing of assets viz machinery, equipment vehicle, etc.
The user of the assets i.e. Lessee is benefited through tax advantages, conserving working capital and preserving debt
capacity. Moreover, Lease is an
off-balance sheet item 1.e lease amount is not shown in the balance
sheet of the lessee and does not affect borrowing capacity.
one of the most convenient source of financing of assets viz machinery, equipment vehicle, etc.
The user of the assets i.e. Lessee is benefited through tax advantages, conserving working capital and preserving debt
capacity. Moreover, Lease is an
off-balance sheet item 1.e lease amount is not shown in the balance
sheet of the lessee and does not affect borrowing capacity.
Leasing enables
the lessee to avail the services of a plant or equipment without making the
investment or incurring debt obligation. The Lessee car, use the asset by paying a series
of periodic amounts called “lease payment” or “lease
rentals” to the owner of the asset at the predetermined rates and
generally in advance. The payments may be made monthly or quarterly.
the lessee to avail the services of a plant or equipment without making the
investment or incurring debt obligation. The Lessee car, use the asset by paying a series
of periodic amounts called “lease payment” or “lease
rentals” to the owner of the asset at the predetermined rates and
generally in advance. The payments may be made monthly or quarterly.
Jamuna Bark Ltd., the highly
capitalized private Commercial 1 Bank in Bangladesh has introduced lease finance to facilitate funding requirement of valued
customers & growth of their business houses.
capitalized private Commercial 1 Bank in Bangladesh has introduced lease finance to facilitate funding requirement of valued
customers & growth of their business houses.
2.13 Personal loan for
women
women
Goal
To make financially sound
and solvent surd self dependent the women.
and solvent surd self dependent the women.
Three categories of women are under
this loan-
this loan-
Self Employed Women
Working Women
House Wife
2.14 Project Finance
Project loan is considered as long term investment of the
bank. If the period is helpful to improve the economy and has a wide market
then the bank thinks about giving project loan. To give this kind of lona the
bank observes the willingness of the customer, his capacity and his ability to
run the project. Having obtained this kind of information the bank makes a
credit report about the customers loan proposal. Interest rate on loan varies
from project Ratio of investment of customer and bank varies from customer to
customer and the customer’s relationship with the bank.
bank. If the period is helpful to improve the economy and has a wide market
then the bank thinks about giving project loan. To give this kind of lona the
bank observes the willingness of the customer, his capacity and his ability to
run the project. Having obtained this kind of information the bank makes a
credit report about the customers loan proposal. Interest rate on loan varies
from project Ratio of investment of customer and bank varies from customer to
customer and the customer’s relationship with the bank.
2.15 Loan syndication
Bank cannot invest more then 15% of its paid up capital on
one individual. When the loan amount exceeds 15% of its paid up capital then
the bank share the loan with other bank for giving one individual and this is
call loan syndicate.
one individual. When the loan amount exceeds 15% of its paid up capital then
the bank share the loan with other bank for giving one individual and this is
call loan syndicate.
2.16 Consumer Credit
Consumer credit scheme is relatively new field of micro-credit
activities. People with limited income can avail of this credit facility to buy
any household effects including car, computer and other consumer durable. It is
a special credit scheme and the customers allow the loan on soft terms against
personal guarantee and deposit of specified percentage of equity. The loan is
repayable by monthly installment within a fixed period.
activities. People with limited income can avail of this credit facility to buy
any household effects including car, computer and other consumer durable. It is
a special credit scheme and the customers allow the loan on soft terms against
personal guarantee and deposit of specified percentage of equity. The loan is
repayable by monthly installment within a fixed period.
2.17 Import and Export handling and
financing
financing
2.17.1 import Financing
Is the most
important method of import -financing International trade take place between sellers
and buyers located in different countries. The parties to a trade transaction are
not always known to each other. Even if they are known to each other the seller may
not have full confidence in the carried worthiness of the buyer or the buyer may not like to pay before he
actually receives the goods. In letter of credit the bankers credit worthiness is substituted for the credit worthiness of
the importer. Under a bank- cards
letter of credit, the issuing bank gives a written undertaking on behalf of the buyer that the bank will honor the
obligation of payment or expectance as
the case may be on presentation of stipulated documents. As the request of the importers bank issue the letter of credit at a
merging by the govt. instruction. Bail: does not generally issue the letter of credit less then 50% margin. JBL
follow the margin prescribed by the government strictly.
important method of import -financing International trade take place between sellers
and buyers located in different countries. The parties to a trade transaction are
not always known to each other. Even if they are known to each other the seller may
not have full confidence in the carried worthiness of the buyer or the buyer may not like to pay before he
actually receives the goods. In letter of credit the bankers credit worthiness is substituted for the credit worthiness of
the importer. Under a bank- cards
letter of credit, the issuing bank gives a written undertaking on behalf of the buyer that the bank will honor the
obligation of payment or expectance as
the case may be on presentation of stipulated documents. As the request of the importers bank issue the letter of credit at a
merging by the govt. instruction. Bail: does not generally issue the letter of credit less then 50% margin. JBL
follow the margin prescribed by the government strictly.
2.17.2 Export Financing
The Exporter needs finances at
various stages, some at pre-shipment stage and the other at the post shipment
stage.
various stages, some at pre-shipment stage and the other at the post shipment
stage.
CHAPTER- 03
FINANCIAL
PERFORMANCE OF JBL
PERFORMANCE OF JBL
3.1 PROFIT
In 2006 Jamuna Bank Limited posted an operating profit of Tk.701.32 million as against Tk.419.94 million in
2005 with a spectacular growth of
67.00 percent over the preceding year.
After having made necessary provisions for loans and advances in accordance
with the instructions of Bangladesh Bank
Net Income Before Tax (NIBT) stood at Tk.499.97 million in the year under review against Tk.363.31 million in the preceding year registering a growth of 37.62
percent. An amount of Tk. 246.57
million has been kept as provision for payment of Tax. Thus Net Income
after tax and provision stood at Tk.253.40
million in 2006 which was Tk.199.82 million in 2005.
2005 with a spectacular growth of
67.00 percent over the preceding year.
After having made necessary provisions for loans and advances in accordance
with the instructions of Bangladesh Bank
Net Income Before Tax (NIBT) stood at Tk.499.97 million in the year under review against Tk.363.31 million in the preceding year registering a growth of 37.62
percent. An amount of Tk. 246.57
million has been kept as provision for payment of Tax. Thus Net Income
after tax and provision stood at Tk.253.40
million in 2006 which was Tk.199.82 million in 2005.
3.2 CAPITAL STRUCTURE
Jamuna Bank
Limited has a conviction of maintaining a strong capital base in carrying on
opereat operation on June 03,2001 with a paid-up capital of Tk.390.00 million
divided into 3.90 million o of Tk.100 each. The authorized capital of the Bank
is Tk.1600 million divided into 16.00 million of Tk.100 each. The Bank’s
paid-up capital as at 31st December 2006 stood at Tk.1072.50 million.Tk was
raised through initial public issue of 4.29 million ordinary shares of TkA 00
each with a premiu- each while Tk.214.50 million was raised by issue of
Bonus Shares in the ratio of 1:4, i.e. one bonus _s-holding of 8.58
million ordinary shares as on 31.12.2005, for every 4 shares out of profits
upto the Thus, as on 31st December 2006, the total shareholder’s equity and
reserve stood at Tk.1701.82 mil!”
Limited has a conviction of maintaining a strong capital base in carrying on
opereat operation on June 03,2001 with a paid-up capital of Tk.390.00 million
divided into 3.90 million o of Tk.100 each. The authorized capital of the Bank
is Tk.1600 million divided into 16.00 million of Tk.100 each. The Bank’s
paid-up capital as at 31st December 2006 stood at Tk.1072.50 million.Tk was
raised through initial public issue of 4.29 million ordinary shares of TkA 00
each with a premiu- each while Tk.214.50 million was raised by issue of
Bonus Shares in the ratio of 1:4, i.e. one bonus _s-holding of 8.58
million ordinary shares as on 31.12.2005, for every 4 shares out of profits
upto the Thus, as on 31st December 2006, the total shareholder’s equity and
reserve stood at Tk.1701.82 mil!”
3.3
CAPITAL ADEQUACY RATIO
CAPITAL ADEQUACY RATIO
The Bank
adopted BIS risk adjusted capital standards to measure the capital adequacy in
line with set by
Bangladesh Bank. According to the instructions contained in Bangladesh Bank’s
BRPD Circ dated September 07, 2002 relating to Capital Adequacy every
commercial bank operating in the required to maintain at minimum 9 percent of
its risk-weighted assets as capital. Jamuna Bank Li-maintain Capital Adequacy ratio of 14.79 percent as at 31.12.2006 which
was higher than the requ Adequacy Ratio. The amount of capital with break-up is
given below :
adopted BIS risk adjusted capital standards to measure the capital adequacy in
line with set by
Bangladesh Bank. According to the instructions contained in Bangladesh Bank’s
BRPD Circ dated September 07, 2002 relating to Capital Adequacy every
commercial bank operating in the required to maintain at minimum 9 percent of
its risk-weighted assets as capital. Jamuna Bank Li-maintain Capital Adequacy ratio of 14.79 percent as at 31.12.2006 which
was higher than the requ Adequacy Ratio. The amount of capital with break-up is
given below :
|
|
“Fig in BDT Million” |
|
|
Particulars |
2006 |
2005 |
|
Tier I Capital |
1562.47 |
807.14 |
|
Paid up Capital |
1072.50 |
429.00 |
|
Non-repayable Share |
85.80 |
|
|
Statutory Reserve |
249.67 |
149.67 |
|
Retained Earnings |
154.50 |
228.47 |
|
Proposed Bonus Share |
|
|
|
Tier II capital |
139.35 |
109.32 |
|
1 % Provision |
139.02 |
108.99 |
|
Exchange |
0.33 |
0.33 |
|
Total Capital (Tier |
1701.82 |
916.46 |
From the above
it reveals that Jamuna Bank Limited was able to increase its core capital by
93.58 percent from Tk.807.14 million to Tk. 562.47 million and
supplementary capital by 27.47 percent from Tk.1 09.32 million to Tk. 39.35 million and total capital
by 85.69 percent from Tk.916.46 million to Tk.1 701.82 million.
it reveals that Jamuna Bank Limited was able to increase its core capital by
93.58 percent from Tk.807.14 million to Tk. 562.47 million and
supplementary capital by 27.47 percent from Tk.1 09.32 million to Tk. 39.35 million and total capital
by 85.69 percent from Tk.916.46 million to Tk.1 701.82 million.
3.4 TREASURY OPERATIONS
The Bank made
its mark in Treasury operation. In money market the Bank played active role in
local and foreign currency. Besides, it carried on operation as Primary
Dealer. Having participated in local currency and foreign currency market and taken part in
secondary trading of Govt. securities the Bank made significant growth. It would not be out of place to mention that Jamuna
Bank Limited was the only third generation bank, which was selected as Primary
Dealer by Bangladesh Bank owing to its excellent performance in money market.
Treasury operation has been
identified as one of the best sources for earning by the Bank through effective
participation.
its mark in Treasury operation. In money market the Bank played active role in
local and foreign currency. Besides, it carried on operation as Primary
Dealer. Having participated in local currency and foreign currency market and taken part in
secondary trading of Govt. securities the Bank made significant growth. It would not be out of place to mention that Jamuna
Bank Limited was the only third generation bank, which was selected as Primary
Dealer by Bangladesh Bank owing to its excellent performance in money market.
Treasury operation has been
identified as one of the best sources for earning by the Bank through effective
participation.
JBL’s dealing
room is well equipped with modern and updated equipments like voice recorder,
reuter 3000xtra, CDBL electronic system etc. The activities of FX and
local money market have been synchronized with complete segregation of
activities of front and back offices. Intensive monitoring is ensured by the
Bank’s Asset Liability Management Committee (ALCO) which sits in regular meetings to
review the asset liability position and interest rates and takes important decisions thereon.
room is well equipped with modern and updated equipments like voice recorder,
reuter 3000xtra, CDBL electronic system etc. The activities of FX and
local money market have been synchronized with complete segregation of
activities of front and back offices. Intensive monitoring is ensured by the
Bank’s Asset Liability Management Committee (ALCO) which sits in regular meetings to
review the asset liability position and interest rates and takes important decisions thereon.
In the year 2006 there was a bit
volatility in the local money market sometime in March-April but this market
.vas more or less stable with a little fluctuations in interest rate during
most of the time of the year. On the contrary, FX market was to a great extent
volatile in 2006 having pressure on Taka against dollar. But our professionally skilled human resources were quite
tactful in handling operations and could reap the benefits of local money market and FX market with significant
growth. They were prudent enough to maintain the regulatory requirements
of CRR and SLR of the Bank.
volatility in the local money market sometime in March-April but this market
.vas more or less stable with a little fluctuations in interest rate during
most of the time of the year. On the contrary, FX market was to a great extent
volatile in 2006 having pressure on Taka against dollar. But our professionally skilled human resources were quite
tactful in handling operations and could reap the benefits of local money market and FX market with significant
growth. They were prudent enough to maintain the regulatory requirements
of CRR and SLR of the Bank.
3.5. DEPOSITS AND
DEPOSIT MIX
DEPOSIT MIX
In commercial
banks operation starts with mobilization of resources i.e. tapping of deposits
and then the said resources are deployed as
loans, advances and investments for the purpose of maximizing wealth which -sans
deposits have dominance in commercial bank’s operations. That is why, there is
a common saying that deposit is the lifeblood of a bank. In keeping with this
axiom JBL attaches utmost importance to the deposit mobilization campaign and to the optimal deposit mix
for minimizing COF as far as practicable. A stiff competition persisted in the market as to deposit
mobilization and there was a pressure on interest rate. 3esides, instability in political atmosphere was
adversely affecting business, which stood as a hindrance to the smooth
operation of banks including deposit mobilization. Despite all these
unfavorable factors JBL was able to instill confidence in customers as to its
commitments to the depositors and borrowing customers and
banks operation starts with mobilization of resources i.e. tapping of deposits
and then the said resources are deployed as
loans, advances and investments for the purpose of maximizing wealth which -sans
deposits have dominance in commercial bank’s operations. That is why, there is
a common saying that deposit is the lifeblood of a bank. In keeping with this
axiom JBL attaches utmost importance to the deposit mobilization campaign and to the optimal deposit mix
for minimizing COF as far as practicable. A stiff competition persisted in the market as to deposit
mobilization and there was a pressure on interest rate. 3esides, instability in political atmosphere was
adversely affecting business, which stood as a hindrance to the smooth
operation of banks including deposit mobilization. Despite all these
unfavorable factors JBL was able to instill confidence in customers as to its
commitments to the depositors and borrowing customers and
 |
thereby could mobilize a total
deposit ofTk.17284.81 million in 2006 against that ofTk.14454.13 million in the
preceding year showing an increase of Tk.2830.68 million being 19.58 percent.
Endeavor is underway for augmenting low cost deposit by accommodating good
customers at competitive price. For healthy growth of business JBL puts emphasis on no cost and low cost deposit all the time.
A number of savings schemes are in place for mobilizing long term
deposits which can be planned to be invested in term loans in-the area lease finance, project finance and consortium finance
with a view to having better yields. JBL’s such move will motivate the
people to have good savings habit, as well. The comparative position of deposit
mix of the Bank as on 31.12.2006 and 31.12.2005 is depicted below:
deposit ofTk.17284.81 million in 2006 against that ofTk.14454.13 million in the
preceding year showing an increase of Tk.2830.68 million being 19.58 percent.
Endeavor is underway for augmenting low cost deposit by accommodating good
customers at competitive price. For healthy growth of business JBL puts emphasis on no cost and low cost deposit all the time.
A number of savings schemes are in place for mobilizing long term
deposits which can be planned to be invested in term loans in-the area lease finance, project finance and consortium finance
with a view to having better yields. JBL’s such move will motivate the
people to have good savings habit, as well. The comparative position of deposit
mix of the Bank as on 31.12.2006 and 31.12.2005 is depicted below:
|
Types of Deposit |
As on 31.12.2006 |
As on 31.12.2005 |
Changes |
2088.47
|
1543.06 |
+545.41 |
35.35 |
|
Bills Payable |
169.80 |
109.29 |
+60.51 |
55.37 |
|||
|
Savings Deposit |
1084.01 |
749.52 |
+334.49 |
44.63 |
|||
|
Short term Deposit |
636.87 |
384.03 |
+252.84 |
65.84 |
|||
|
Fixed Deposit |
11804.01 |
10899.42 |
+904.59 |
8.30 |
|||
|
Scheme Deposits |
1470.29 |
73107 |
+739.22 |
101.11 |
|||
|
Foreign Currency |
31.36 |
37.74 |
-6.38 |
-16.91 |
|||
|
Total Deposits |
17284.81 |
14,454.13 |
+2830.68 |
19.58 |
Though there was
an unfavorable business environment due to political turmoil throughout the year JBL was in constant
efforts to explore different areas of credit operation and could raise the credit portfolios to
Tk.12796.63 million in 2006 with an increase of Tk.1784.80 million (16.21%)
over that of the preceding year. The total credit as on 31.12.05 was
Tk.11011.83 million. In order to ensure compliance with regulatory requirements for avoiding risk of exposure to
an unfavorable business environment due to political turmoil throughout the year JBL was in constant
efforts to explore different areas of credit operation and could raise the credit portfolios to
Tk.12796.63 million in 2006 with an increase of Tk.1784.80 million (16.21%)
over that of the preceding year. The total credit as on 31.12.05 was
Tk.11011.83 million. In order to ensure compliance with regulatory requirements for avoiding risk of exposure to
single borrower, concentration on
large loans, to bring in excellence in
credit operation in relation to risk management, yield, exposure,
tenure, collaterals, security valuation etc. JBL strived for further diversification of credit portfolios. Its credit facilities
were concentrated on Trade Finance, Agriculture and related sector, project finance,
wholesale and retail trade, transport sector, hospital & diagnostic centers and syndicate financing for
big projects, capacity additions to the manufacturing sector and structured financing for developing infrastructure
of the country. Initiatives are underway for helping small and medium
entrepreneurs in the ventures for which, in JBL, we are developing SME credit
products and strategies. JBL has also
increased lending activities to small consumers through Consumer Credit Scheme.
large loans, to bring in excellence in
credit operation in relation to risk management, yield, exposure,
tenure, collaterals, security valuation etc. JBL strived for further diversification of credit portfolios. Its credit facilities
were concentrated on Trade Finance, Agriculture and related sector, project finance,
wholesale and retail trade, transport sector, hospital & diagnostic centers and syndicate financing for
big projects, capacity additions to the manufacturing sector and structured financing for developing infrastructure
of the country. Initiatives are underway for helping small and medium
entrepreneurs in the ventures for which, in JBL, we are developing SME credit
products and strategies. JBL has also
increased lending activities to small consumers through Consumer Credit Scheme.
3.7
RISK MANAGEMENT
RISK MANAGEMENT
As a regulatory body Bangladesh Bank
wants all banks to take effective measures for implementation of risk management in banking operations covering the
major risks in asset-liability management, credit risk management, Foreign Exchange Risk Management, Internal Control
& Compliance and Money Laundering Prevention. As these risks are integral
parts of banking business JBL has put highest priority on management of such
risks with intense monitoring of credit portfolios. We believe these will
improve our operational and financial performance along with meeting the
regulatory requirements. The Bank is in constant efforts to establish superior
monitoring of credit risks and returns. For bringing in harmonious matching
between assets and liabilities ALCO reviews these on a regular basis for keeping risk in this area to an
acceptable level. The Bank’s credit policy guidelines and procedures are continuously reviewed and upgraded by its
internal committees. The Bank also pursues an effective internal control system by establishing systems and procedures for
scrutinizing the transactions periodically, encompassing key back-up supports and commissioning regular contingency
plans. Through establishment of proper governance structure risk and
returns are evaluated with a view to producing sustainable revenues, reducing
volatility in earnings and enhancing value
to shareholders. Maintenance of quality of assets is always the key issue to
the JBL Management. Continuous
efforts are made to maintain earning assets at the highest possible level so as
to maximize profits and minimize cost of operation.
wants all banks to take effective measures for implementation of risk management in banking operations covering the
major risks in asset-liability management, credit risk management, Foreign Exchange Risk Management, Internal Control
& Compliance and Money Laundering Prevention. As these risks are integral
parts of banking business JBL has put highest priority on management of such
risks with intense monitoring of credit portfolios. We believe these will
improve our operational and financial performance along with meeting the
regulatory requirements. The Bank is in constant efforts to establish superior
monitoring of credit risks and returns. For bringing in harmonious matching
between assets and liabilities ALCO reviews these on a regular basis for keeping risk in this area to an
acceptable level. The Bank’s credit policy guidelines and procedures are continuously reviewed and upgraded by its
internal committees. The Bank also pursues an effective internal control system by establishing systems and procedures for
scrutinizing the transactions periodically, encompassing key back-up supports and commissioning regular contingency
plans. Through establishment of proper governance structure risk and
returns are evaluated with a view to producing sustainable revenues, reducing
volatility in earnings and enhancing value
to shareholders. Maintenance of quality of assets is always the key issue to
the JBL Management. Continuous
efforts are made to maintain earning assets at the highest possible level so as
to maximize profits and minimize cost of operation.
3.8 NVESTMENT
The investment
portfolio of the Bank as on 31.12.2006 rose to Tk.2552.67 million from Tk.2037.84
million as on 31.12.05 registering an increase of Tk.514.83 million being
25.26 percent. The investment
portfolio was blended with Government treasury
bills amounting to Tk.345.88 million, Treasury Bonds of Tk.1939.78
million, investment in primary shares and
Zero Coupon Bonds. Its investment was made in acquisition of Preference Shares of (5.00-2.50) 2.50 million of Aftab Automobiles
Limited. Besides, Tk.2.00 million has been invested in acquisition of two
shares of Central Depository Bangladesh Limited (CDBL). The Bank’s major
portion of investment is in Govt. Treasury Bills and Bonds for the purpose of fulfilling Statutory Liquidity
Requirement.
portfolio of the Bank as on 31.12.2006 rose to Tk.2552.67 million from Tk.2037.84
million as on 31.12.05 registering an increase of Tk.514.83 million being
25.26 percent. The investment
portfolio was blended with Government treasury
bills amounting to Tk.345.88 million, Treasury Bonds of Tk.1939.78
million, investment in primary shares and
Zero Coupon Bonds. Its investment was made in acquisition of Preference Shares of (5.00-2.50) 2.50 million of Aftab Automobiles
Limited. Besides, Tk.2.00 million has been invested in acquisition of two
shares of Central Depository Bangladesh Limited (CDBL). The Bank’s major
portion of investment is in Govt. Treasury Bills and Bonds for the purpose of fulfilling Statutory Liquidity
Requirement.
 |
3.9 IMPORT BUSINESS
The total import
business handled by the Bank in 2006 was Tk.15457.80 million compared to
Tk.12151.90
million in the preceding year registering a rise of Tk.4305.80 million being 27.20 percent. A sizeable
L/C’s were also opened by the Bank in the year
under review. The import items included industrial raw materials, machinery, consumer goods, fabrics,
accessories etc.
business handled by the Bank in 2006 was Tk.15457.80 million compared to
Tk.12151.90
million in the preceding year registering a rise of Tk.4305.80 million being 27.20 percent. A sizeable
L/C’s were also opened by the Bank in the year
under review. The import items included industrial raw materials, machinery, consumer goods, fabrics,
accessories etc.
 |
3.10 EXPORT BUSINESS
The Bank handled
export business worth TO 1583.70 million in the year under report. In 2005 total export business handled by the Bank was Tk.6521.80
million. Thus there was an increase of Tk.5061.90 million in export
business handled by the Bank, being 77.62 percent over the preceding year. The
major export item was Ready made Garments.
export business worth TO 1583.70 million in the year under report. In 2005 total export business handled by the Bank was Tk.6521.80
million. Thus there was an increase of Tk.5061.90 million in export
business handled by the Bank, being 77.62 percent over the preceding year. The
major export item was Ready made Garments.
 |
Credit Management
4.0 Loans and Advances
This section lends the
fund what the bank mobilizes through its various deposit accounts This is the
second function of banks two generic function -deposit mobilization and credit
creation. The major part of banks income is derived from credit and
since the banks credit is customer’s fund, bank takes extreme caution in
lending.
fund what the bank mobilizes through its various deposit accounts This is the
second function of banks two generic function -deposit mobilization and credit
creation. The major part of banks income is derived from credit and
since the banks credit is customer’s fund, bank takes extreme caution in
lending.
4.1 Sanctioning Loans
and Advance
and Advance
To have a clear idea about the credit
management of JBL the following points are essential.
management of JBL the following points are essential.
a. Credit
policy of the Bank
policy of the Bank
b. Credit
Sanctioning Authority of JBL and
Sanctioning Authority of JBL and
c. Processing
and Screening of credit proposal
and Screening of credit proposal
4.1.1 Credit Policy of
the Bank
the Bank
JBL Credit
Policy contains of total macro-economic development of the country. as a whole by way of providing financial support to
the trade, commerce and industry. Throughout its credit operation JBL goes to
every possible corners of the society. They are financing large and medium
scale business house and industry. At the same time they also take care
entrepreneur through its operation of lease finance and some micro credit, small loan scheme etc. The bank has came up with a
scheme where women will be 91-verL financial support for their self
employment and development.
Policy contains of total macro-economic development of the country. as a whole by way of providing financial support to
the trade, commerce and industry. Throughout its credit operation JBL goes to
every possible corners of the society. They are financing large and medium
scale business house and industry. At the same time they also take care
entrepreneur through its operation of lease finance and some micro credit, small loan scheme etc. The bank has came up with a
scheme where women will be 91-verL financial support for their self
employment and development.
4.1.2 Credit Sanctioning Authority of
JBL
JBL
Delegated powers
are expected to be exercised by the authorized executives sensibly
keeping the bank’s interest in mind. In exercising the power so
delegated authorized executives shah also
have credit restriction, tools and regulations .as governed by Banking
Company Act, Bangladesh Bank, and other usual credit norms . However,
the following guidelines are laid down before the executives of JBI. for exercising
the delegated power
are expected to be exercised by the authorized executives sensibly
keeping the bank’s interest in mind. In exercising the power so
delegated authorized executives shah also
have credit restriction, tools and regulations .as governed by Banking
Company Act, Bangladesh Bank, and other usual credit norms . However,
the following guidelines are laid down before the executives of JBI. for exercising
the delegated power
·
The
borrower must be a man of integrity and must enjoy good reputation in the
The
borrower must be a man of integrity and must enjoy good reputation in the
market.
·
The borrower must have the capacity and capability for
utilizing credit. Properly and profitably.
The borrower must have the capacity and capability for
utilizing credit. Properly and profitably.
·
The
enterprise of the borrower must be viable and profitable i.e. proposal of (lie borrower must be evaluated properly and carefully
so as to ascertain its profitability.
The enterprise must generate sufficient fund for debt and servicing.”
The
enterprise of the borrower must be viable and profitable i.e. proposal of (lie borrower must be evaluated properly and carefully
so as to ascertain its profitability.
The enterprise must generate sufficient fund for debt and servicing.”
·
A
customer to whom credit is to be allowed should be far as possible
within the command area. .
A
customer to whom credit is to be allowed should be far as possible
within the command area. .
·
No sanctioning officer can sanction any credit to any of
his near relatives and to any company where his relatives have financial interest.
No sanctioning officer can sanction any credit to any of
his near relatives and to any company where his relatives have financial interest.
4.1.2.1 Tools for Appraisal Credit
The 10 C’s of Good and
Bad Loan
Bad Loan
In addition to the formal credit
appraisal, the credit an official of JBL tries to judge the possible client based on some criteria. These criteria are called
the C’s of good and bad loan. These are described below:
appraisal, the credit an official of JBL tries to judge the possible client based on some criteria. These criteria are called
the C’s of good and bad loan. These are described below:
1. Character: Make sure that
the individual or company they are lending has outstanding integrity.
the individual or company they are lending has outstanding integrity.
2. Capacity: Make sure that
the individual or company they are lending has the capability of repaying the
loan.
the individual or company they are lending has the capability of repaying the
loan.
3. Condition: Understanding the
business and economic conditions that whether it will change after the loan is
made.
business and economic conditions that whether it will change after the loan is
made.
4. Capital: Make sure that
die individual or the company they are lending has in appropriate
level of investment in the company.
die individual or the company they are lending has in appropriate
level of investment in the company.
5. Make sure that there is a second way out of a
credit but do not allow that to drive the
credit decision.
credit but do not allow that to drive the
credit decision.
6. Complacency: Official do not
rely on past. They remain alert every time whether any mistake is taking place or not.
rely on past. They remain alert every time whether any mistake is taking place or not.
7. Carelessness: They believe that
documentation, follow up and consistent monitoring are essential to high quality loan
portfolio.
documentation, follow up and consistent monitoring are essential to high quality loan
portfolio.
8. They share credit objectives and
credit decision making both vertically and
laterally within the bank.
credit decision making both vertically and
laterally within the bank.
9. Contingencies: Make sure that
they understand the risk, particularly the downside possibilities and that they
structure and price the loan consistently with the understanding.
they understand the risk, particularly the downside possibilities and that they
structure and price the loan consistently with the understanding.
10. They do not get swept away by what
others are doing.
others are doing.
Lending
Risk Analysis (LRA)
Risk Analysis (LRA)
Lending Risk Analysis is a financial
tool to analyze the risk associate in a loan proposal. According to Bangladesh
Banks order every bank has to conduct LRA. For every loan amounting Tk. I Core
and above. JBL is frequent user of this technique.
tool to analyze the risk associate in a loan proposal. According to Bangladesh
Banks order every bank has to conduct LRA. For every loan amounting Tk. I Core
and above. JBL is frequent user of this technique.
4.1.2.3 SWOT Analysis
It
is a technique used by the credit officers to evaluate credit proposal
submitted by the company
especially by the production concern. Here,
is a technique used by the credit officers to evaluate credit proposal
submitted by the company
especially by the production concern. Here,
S stands for Strength
W stand’s for Weakness
0 stands for Opportunity
T stands for Threat
It analyze the inherent
of the company, resilience, and brand loyalty, endowment etc. Weakness This
analyzes the inherent weakness of a company, such as management, supply risk
etc.
of the company, resilience, and brand loyalty, endowment etc. Weakness This
analyzes the inherent weakness of a company, such as management, supply risk
etc.
Opportunity
This analyzes the
opportunity, which will be available to a company in a near future, such as tax
incentives export credit facilities etc.
opportunity, which will be available to a company in a near future, such as tax
incentives export credit facilities etc.
Threat
It analyzes the threats,
which the company may face such as legal barriers withdrawals of tax exemption
and international law, withdraw of most favorable nation (MFN) and GSP
facilities etc.
which the company may face such as legal barriers withdrawals of tax exemption
and international law, withdraw of most favorable nation (MFN) and GSP
facilities etc.
4.1.2.5 Credit Monitoring
and supervision Cell
and supervision Cell
JBL is a
unique characteristic in its loan management to make sure that there will be no
bad loan in its-loan portfolio, JBL established a loan monitoring and
supervision cell headed by an First Assistant Vice President. He along with
other official frequently visit customer premises or business whether loan
amount, which is taken is used properly or not. Sometimes customer need more
fund or ether types of facilities to run business profitably, then the
monitoring authority takes necessary steps to meet customer’s need.
unique characteristic in its loan management to make sure that there will be no
bad loan in its-loan portfolio, JBL established a loan monitoring and
supervision cell headed by an First Assistant Vice President. He along with
other official frequently visit customer premises or business whether loan
amount, which is taken is used properly or not. Sometimes customer need more
fund or ether types of facilities to run business profitably, then the
monitoring authority takes necessary steps to meet customer’s need.
4.1.2.6
COMPUTATION CREDIT RISK GRADING
COMPUTATION CREDIT RISK GRADING
The following step-wise
activities outline the detail process for arriving at credit risk grading.
activities outline the detail process for arriving at credit risk grading.
Credit risk
for counterparty arises from an aggregation of the following: Financial Risk
for counterparty arises from an aggregation of the following: Financial Risk
- Business/Industry Risk
- Management Risk
- Security Risk
- Relationship Risk
Each
of the above mentioned key risk areas require to be evaluated and aggregated to
arrive at an overall risk grading measure.
of the above mentioned key risk areas require to be evaluated and aggregated to
arrive at an overall risk grading measure.
a)
Evaluation of Financial Risk:
Evaluation of Financial Risk:
Risk that counter
parties will fail to meet obligation due to financial distress. This typically
entails
analysis of financials i.e. analysis of leverage, liquidity, profitability
& interest coverage ratios. To conclude, this capitalizes on the risk of high
leverage, poor liquidity, low profitability & insufficient cash flow.
parties will fail to meet obligation due to financial distress. This typically
entails
analysis of financials i.e. analysis of leverage, liquidity, profitability
& interest coverage ratios. To conclude, this capitalizes on the risk of high
leverage, poor liquidity, low profitability & insufficient cash flow.
b)
Evaluation of Business/Industry Risk:
Evaluation of Business/Industry Risk:
Risk
that adverse industry situation or unfavorable business condition will impact
borrowers’ capacity to meet obligation. The evaluation;
of this category of risk looks at parameters such as business
outlook, size of business, industry growth, market competition & barriers
to entry/exit. To conclude, this capitalizes on the risk of
failure due to low market share & poor industry growth.
that adverse industry situation or unfavorable business condition will impact
borrowers’ capacity to meet obligation. The evaluation;
of this category of risk looks at parameters such as business
outlook, size of business, industry growth, market competition & barriers
to entry/exit. To conclude, this capitalizes on the risk of
failure due to low market share & poor industry growth.
c) Evaluation of Management
Risk:
Risk:
Risk
that counter parties may default as a result of poor managerial ability
including experience of the management, its succession plans and
teamwork.
that counter parties may default as a result of poor managerial ability
including experience of the management, its succession plans and
teamwork.
d) Evaluation of Security Risk:
Risk
that the bank might be exposed due ‘:o poor quality or strength of the security
in case of default. This may entail strength of security & collateral,
location of collateral and support.
that the bank might be exposed due ‘:o poor quality or strength of the security
in case of default. This may entail strength of security & collateral,
location of collateral and support.
e) Evaluation of Relationship Risk:
These risk areas cover evaluation of
limits utilization, account performance, conditions/covenants compliance by the borrower and deposit
relationship.
limits utilization, account performance, conditions/covenants compliance by the borrower and deposit
relationship.
According to the importance of risk profile, the
following weitght ages are proposed for corresponding principal risks.
following weitght ages are proposed for corresponding principal risks.
Principal Risk Components Weight:
- Financial
Risk 50%
- Business/Industry
Risk 18%
- Management
Risk 12%
- Security
Risk 10%
- Relationship
Risk 10%
Principal
Risk Components: Key
Parameters:
Risk Components: Key
Parameters:
- Business/Industry Risk Size of Business, Age of
Business, Business
Outlook,
Collateral Coverage and Support.
Utilization of limit, compliance
Principal
Risk components: Key
parameters: Weight:
Risk components: Key
parameters: Weight:
- –Leverage 15%
-Liquidity 15%
-Profitability 15%
- -Size of Business 5%
-Age of Business 3%
-Business Outlook 3%
-Industry growth 3%
– Market Competition 2%
- -Experience 5%
-Succession 4%
-Team Work 3%
- Security Risk 10%
-Security coverage 4%
-Collateral coverage 4%
- Relationship Risk 10%
-Utilization of limit 2%
-Compliance of covenants/condition 2%
-Personal deposit 1%
After the risk identification
& weightage assignment
process (as mentioned above), the next steps will be to
input actual parameter in the score sheet to arrive at the scores corresponding
to the actual parameters.
& weightage assignment
process (as mentioned above), the next steps will be to
input actual parameter in the score sheet to arrive at the scores corresponding
to the actual parameters.
This
manual also provides a well-programmed MS Excel
based credit risk scoring sheet to arrive at a total score on each borrower.
The excel program requires inputting data accurately in particular cells for
input and will automatically calculate the risk grade for a particular borrower
based on the total score obtained. The following steps are to be
followed while using the MS Excel program.
manual also provides a well-programmed MS Excel
based credit risk scoring sheet to arrive at a total score on each borrower.
The excel program requires inputting data accurately in particular cells for
input and will automatically calculate the risk grade for a particular borrower
based on the total score obtained. The following steps are to be
followed while using the MS Excel program.
a) Open the MS XL file
named, CRG_SCORE_SHEET
named, CRG_SCORE_SHEET
b) The entire XL sheet named, CRG is protected except the
particular cells to input data.
particular cells to input data.
c) Input data accurately in
the cells which are BORDERED &
are colored YELLOW.
the cells which are BORDERED &
are colored YELLOW.
d)
Some input cells contain DROP
DOWN LIST for some criteria corresponding to the Key Parameters.
Click to the input cell and select the appropriate parameters from the DROP
DOWN
LIST as
shown below.
Some input cells contain DROP
DOWN LIST for some criteria corresponding to the Key Parameters.
Click to the input cell and select the appropriate parameters from the DROP
DOWN
LIST as
shown below.
|
|||
|
|||
e)
All the cells provided for input must be filled in order to arrive
at accurate risk grade,
All the cells provided for input must be filled in order to arrive
at accurate risk grade,
f)
We have also enclosed the MS Excel file named, CRG_Score_Sheet in CD ROM for use.
The
following is the proposed Credit Risk Grade matrix based on the total score
obtained by an obligor.
following is the proposed Credit Risk Grade matrix based on the total score
obtained by an obligor.
|
Number |
Risk Grading |
Short Name |
Score |
|
1 |
Superior |
SUP |
0 100% cash covered |
|
|
|
|
n Government guarantee |
|
|
|
|
n International Bank guarantees |
|
2 |
Good |
GD |
85+ |
|
3 |
Acceptable |
ACCPT |
75-84 |
|
4 |
Marginal/Watch list |
MG/WL |
65-74 |
|
5 |
Special Mention |
SM |
55-64 |
|
6 |
Sub-standard |
SS |
45-54 |
|
7 |
Doubtful |
DF |
35-44 |
|
8 |
Bad & Loss |
BL |
<35 |
4.1.3 Processing and
screening of Credit Proposal
screening of Credit Proposal
There are
some common regulations governed by Banking Company Act, 1991 Bangladesh Bank
and the law of the State, which has to be followed strictly at the time of
screening a credit proposal. In addition. Credit proposals are appraised
critically by JBL credit officials from various angle to judge the feasibility
of proposal.
some common regulations governed by Banking Company Act, 1991 Bangladesh Bank
and the law of the State, which has to be followed strictly at the time of
screening a credit proposal. In addition. Credit proposals are appraised
critically by JBL credit officials from various angle to judge the feasibility
of proposal.
The customer at the branch
of the bank place credit proposals. When a customer comes with accredit
proposal , the credit department officials of the branch make an open
discussion with the customer on different issues of the proposal to judge.
of the bank place credit proposals. When a customer comes with accredit
proposal , the credit department officials of the branch make an open
discussion with the customer on different issues of the proposal to judge.
worthiness
of tile proposal and customer.
if the proposal scenes worthwhile in all aspect then the proposal is placed before
credit committee of the bank. After threadbare discussion, if the committee
agrees in principle the proposal is sanctioned as per the delegated business power of the branch.
of tile proposal and customer.
if the proposal scenes worthwhile in all aspect then the proposal is placed before
credit committee of the bank. After threadbare discussion, if the committee
agrees in principle the proposal is sanctioned as per the delegated business power of the branch.
However,
if the magnitude of the proposal is beyond the delegated business power of the
branch they forward it to the Head Office with, sanction of approval.
if the magnitude of the proposal is beyond the delegated business power of the
branch they forward it to the Head Office with, sanction of approval.
On receiving rile
proposal, the Credit Division of Head Office places the proposal in the Head Credit
Committee. The committee further analyzes proposals critically and if agree in
principle they sanction the same as per delegated business power.. Again if the merit and magnitude of
the proposal is beyond the delegated business power of the Head Office Credit
Committee or Managing Director forward proposal to the Board of the Bank with
recommendation for approval.
proposal, the Credit Division of Head Office places the proposal in the Head Credit
Committee. The committee further analyzes proposals critically and if agree in
principle they sanction the same as per delegated business power.. Again if the merit and magnitude of
the proposal is beyond the delegated business power of the Head Office Credit
Committee or Managing Director forward proposal to the Board of the Bank with
recommendation for approval.
If the proposal is found unviable at
the branch level they decline the same from their desk. In the same way,
proposals are also declined from the Head Office Credit Committee and from
Board if it is not feasible.
the branch level they decline the same from their desk. In the same way,
proposals are also declined from the Head Office Credit Committee and from
Board if it is not feasible.
 |
4A.3A Securities
It is essential
that the proposals define clearly the purpose of. the
sources of repayment. the agreed repayment schedule. the value of security
(land, machinery security papers, bond, sanchay patra etc.) and the customer
relationships consideration implicit In, The credit division.
that the proposals define clearly the purpose of. the
sources of repayment. the agreed repayment schedule. the value of security
(land, machinery security papers, bond, sanchay patra etc.) and the customer
relationships consideration implicit In, The credit division.
Where the
security is to be accepted as collateral for the facility all documentation relating to the security shall be in
the approved from.
security is to be accepted as collateral for the facility all documentation relating to the security shall be in
the approved from.
All approval
procedures and required documentation shall be completed and ail securities shall be place prior to
the disbursement of the facility.
procedures and required documentation shall be completed and ail securities shall be place prior to
the disbursement of the facility.
For creation of
mortgage on the property-A3L requires die following documents:
mortgage on the property-A3L requires die following documents:
·
Original
sale deed favoring owner of the land.
Original
sale deed favoring owner of the land.
·
Certified
copy of the sale deed of the previous owner of the same property.
Certified
copy of the sale deed of the previous owner of the same property.
·
Duplicate
Carson Receipt (DCR)
Duplicate
Carson Receipt (DCR)
·
Up
to date rent receipt and Municipal Tax Receipt
Up
to date rent receipt and Municipal Tax Receipt
·
Certified
copy of C.S.S A. and R.S. Khatians
Certified
copy of C.S.S A. and R.S. Khatians
·
Up
to date Non-Encumbrance Certificate
Up
to date Non-Encumbrance Certificate
· Valuation Certificate
·
Clearance
from RAJUK/WORKS MINISTRY
Clearance
from RAJUK/WORKS MINISTRY
·
RAJUK
approved plan of the building with the approval letter
RAJUK
approved plan of the building with the approval letter
·
Photograph
of the property from three different angles and the over of the property
Photograph
of the property from three different angles and the over of the property
·
Site
Plan/ Mouza Map
Site
Plan/ Mouza Map
·
Board Resolution for mortgaging property if the same
belongs to any limited company.
Board Resolution for mortgaging property if the same
belongs to any limited company.
The borrower is requested to submit
the above-mentioned papers in original for Verification by the
Bar-1n lawyer and creation on the
property intended to mortgage against advance.
the above-mentioned papers in original for Verification by the
Bar-1n lawyer and creation on the
property intended to mortgage against advance.
4.2 Documentation
A document is a written statement of facts of proof. or
evidence arising out of particular transaction, which on placement may bind the
parties there to answerable and liable to the law for satisfaction of the
charge in question.
evidence arising out of particular transaction, which on placement may bind the
parties there to answerable and liable to the law for satisfaction of the
charge in question.
The execution of
documents in proper from and according to the requirements of the law is known
as documentation. The documentation does establish a legal relationship between
the lending bank and the borrower. The terms and conditions of loans and advances,
the securities charged and the repayment schedule are recorded in writing
Proper documentation is necessary to safeguard the future interest of the bank.
documents in proper from and according to the requirements of the law is known
as documentation. The documentation does establish a legal relationship between
the lending bank and the borrower. The terms and conditions of loans and advances,
the securities charged and the repayment schedule are recorded in writing
Proper documentation is necessary to safeguard the future interest of the bank.
Documents are necessary for the
acknowledgement of the debt by the borrower and charging of securities to the
bank by him. Proper and correct documentation is essential not only for the
safety of advance but also necessary for taking legal action against the
debtors in case of non-repayment of dues. Depending on the types of loans and
advances different documents are required. Such as
acknowledgement of the debt by the borrower and charging of securities to the
bank by him. Proper and correct documentation is essential not only for the
safety of advance but also necessary for taking legal action against the
debtors in case of non-repayment of dues. Depending on the types of loans and
advances different documents are required. Such as
4.2.1 Documentation of Loan
Demand of
Promissory (DP) Note
Promissory (DP) Note
Letter
of partnership (in case of partnership concern) or resolution of the board of
Directors (in case of Limited concern)
of partnership (in case of partnership concern) or resolution of the board of
Directors (in case of Limited concern)
Letter of
Agreement
Agreement
Letter of Disbursement.
Letter of Pledge
(in case of pledge of goods)
(in case of pledge of goods)
Letter of
Hypothecation (in case of hypothecation of goods)
Hypothecation (in case of hypothecation of goods)
Trust
Receipt (in case –of LTR facility)
Receipt (in case –of LTR facility)
Letter
of Lien and Ownership (in case of advance against share)
of Lien and Ownership (in case of advance against share)
Letter
of lien for packing credits (in case of packing credits)
of lien for packing credits (in case of packing credits)
Letter
of lien (in case of advance against FOR)
of lien (in case of advance against FOR)
Letter
of Lien and transfer authority (in case of advance against PSP, SSP etc.
of Lien and transfer authority (in case of advance against PSP, SSP etc.
Legal
documents for mortgage of the property (as drafted by legal advisor)
documents for mortgage of the property (as drafted by legal advisor)
4.2.2
Documentation of Overdraft
Documentation of Overdraft
Demand
of Promissory (DP) Note
of Promissory (DP) Note
Letter
of partnership (in case of partnership concern) or resolution of the board of
Directors (in case of Limited concern)
of partnership (in case of partnership concern) or resolution of the board of
Directors (in case of Limited concern)
Letter
of Agreement
of Agreement
Letter
of Continuity
of Continuity
Letter
of Lien and Ownership (in case of advance against share)
of Lien and Ownership (in case of advance against share)
Letter
of Lien (in case of advance against FOR)
of Lien (in case of advance against FOR)
Letter
of Lien and transfer authority (in case of advance against PSP, SSP etc,
of Lien and transfer authority (in case of advance against PSP, SSP etc,
Legal
documents for mortgage of the property (as drafted by legal advisor)
documents for mortgage of the property (as drafted by legal advisor)
4.2.3 Documentation of Cash Credit
Demand
of Promissory (D.P) Note.
of Promissory (D.P) Note.
Letter
of partnership (incase of partnership concern) or resolution of the board of
Directors (in case of Limited Concern.
of partnership (incase of partnership concern) or resolution of the board of
Directors (in case of Limited Concern.
Letter
of Agreement
of Agreement
Letter
of Continuity
of Continuity
Letter
of Pledge (in case of pledge of goods)
of Pledge (in case of pledge of goods)
Letter
of Hypothecation (in case of hypothecation of goods)
of Hypothecation (in case of hypothecation of goods)
Letter
of Lien and Ownership (in case of advance against share)
of Lien and Ownership (in case of advance against share)
Letter
of Lien (in case of advance against (FDR)
of Lien (in case of advance against (FDR)
Letter
of Lien and transfer authority (in case of advance against PSP, SSP etc,
of Lien and transfer authority (in case of advance against PSP, SSP etc,
Legal
documents for mortgage of the property (as drafted by legal advisor)
documents for mortgage of the property (as drafted by legal advisor)
4.2.4. Documentation of Bills
Purchased
Purchased
Demand
of Promissory (D.P) Note.
of Promissory (D.P) Note.
Letter
of partnership ( in case of partnership concern) or resolution of the board of
Directors (in case of Limited Concern)
of partnership ( in case of partnership concern) or resolution of the board of
Directors (in case of Limited Concern)
Letter
of Agreement
of Agreement
Letter
of Hypothecation of Bill
of Hypothecation of Bill
All required Documents as mentioned
before should be obtained before any loan is disbursed. Disbursed of any credit
facility requires approval of the component authority that should ensure before
exercising such delegated authority that all the required documentation have
been completed.
before should be obtained before any loan is disbursed. Disbursed of any credit
facility requires approval of the component authority that should ensure before
exercising such delegated authority that all the required documentation have
been completed.
4.3 Credit Facilities Extended by JBL
The man functions of a
commercial bank are tow:1) to take deposit and 2) to make advance. Making
advance is the most important function of a bank. The is expends the
profitability of the bank. Moreover, Bank make advance out of the deposits to
the public which are payable at demand. A Commercial Bank makes advances to
different sectors for different purpose i.e. financing of trade and commerce,
Export and import, industries Agriculture, Transport, House-Building etc.
commercial bank are tow:1) to take deposit and 2) to make advance. Making
advance is the most important function of a bank. The is expends the
profitability of the bank. Moreover, Bank make advance out of the deposits to
the public which are payable at demand. A Commercial Bank makes advances to
different sectors for different purpose i.e. financing of trade and commerce,
Export and import, industries Agriculture, Transport, House-Building etc.
44 Classification of loan
4.4.1 CC Hypo (Cash Credit Hypothecation)
Cash Credit allowed
against hypothecation of an asset is known as Cash Credit
against hypothecation of an asset is known as Cash Credit
(Hypo) of goods on which charge of lending
bank is created.
bank is created.
For Cash Credit (Hypo) Bankers takes
following precaution:
following precaution:
·
The
banker carefully verifies the stocks of the hypothecated assets and their
market price
The
banker carefully verifies the stocks of the hypothecated assets and their
market price
·
·
Ensure
dial docks are duly insured against fire, burglary with bank clause
Ensure
dial docks are duly insured against fire, burglary with bank clause
·
Obtains
sufficient collateral securities.
Obtains
sufficient collateral securities.
·
Identify that whether the goods are ready saleable and
whether they have good
demand in the market.
Identify that whether the goods are ready saleable and
whether they have good
demand in the market.
Ensure the borrowers trustworthiness.
4.4.2 CC Pledge (Cash Credit Pledge)
Cash
credit allowed pledge Of goods is known as “Cash credit
(Pledge). For Cash Credit (Pledge) the borrower pledges his goods to the bankers as a
security against the credit facility. The ownership of pledge goods remains with
the pledged. The bank remains the effective control of the pledged goods. Pledged
goods can be stored in the custody of borrower but under lock and key of the
bank. Banks appointed guards are take care of those goods round the clock. The banks
delivered the pledged
gods to the party by turns against payment.
credit allowed pledge Of goods is known as “Cash credit
(Pledge). For Cash Credit (Pledge) the borrower pledges his goods to the bankers as a
security against the credit facility. The ownership of pledge goods remains with
the pledged. The bank remains the effective control of the pledged goods. Pledged
goods can be stored in the custody of borrower but under lock and key of the
bank. Banks appointed guards are take care of those goods round the clock. The banks
delivered the pledged
gods to the party by turns against payment.
For Cash Credit Pledge
following points arc taken into consideration before allowing.
following points arc taken into consideration before allowing.
·
Whether
the quality of goods is ascertained.
Whether
the quality of goods is ascertained.
·
Whether
the goods are easily saleable and those goods must have good demand in the
market.
Whether
the goods are easily saleable and those goods must have good demand in the
market.
·
The
quality of goods is ensured. The goods cannot be perishable and will not
deteriorate in quality as a result for short and long duration.
The
quality of goods is ensured. The goods cannot be perishable and will not
deteriorate in quality as a result for short and long duration.
4.4.1 CC Hypo (Cash Credit
Hypothecation)
Hypothecation)
Cash Credit allowed against
hypothecation of an asset is known as Cash Credit (Hypo) In cash of hypothecation
die borrower retains the ownership possession of goods on which charge
of lending bank is created.
hypothecation of an asset is known as Cash Credit (Hypo) In cash of hypothecation
die borrower retains the ownership possession of goods on which charge
of lending bank is created.
·
For Cash Credit
(Hypo) Bankers takes following precautions:
For Cash Credit
(Hypo) Bankers takes following precautions:
·
The banker
carefully verifies the stocks of the hypothecated assets and their market price
The banker
carefully verifies the stocks of the hypothecated assets and their market price
·
Obtains
periodical statement of stock duly signed by the borrower
Obtains
periodical statement of stock duly signed by the borrower
·
Ensure Mai stocks
are duly insured against fire, burglary with bank clause.
Ensure Mai stocks
are duly insured against fire, burglary with bank clause.
·
Obtains
sufficient collateral securities.
Obtains
sufficient collateral securities.
·
Identify that
whether the goods are ready saleable and whether they have good demand in the market
Identify that
whether the goods are ready saleable and whether they have good demand in the market
·
Ensure the
borrowers trustworthiness.
Ensure the
borrowers trustworthiness.
4.4.2 CC
Pledge (Cash Credit Pledge)
Pledge (Cash Credit Pledge)
Cash Credit
allowed against pledge of goods is mown as Cash Credit (Pledge) For Cash Credit
(Pledge) the borrower pledges his goods to the banker as a security against the credit facility. The
ownership of pledge goods remains with the pledged. The bank remains
the effective control of borrower but under lock and key of the bank. stored in the custody of borrower but under lock
and key of the bank. Banks appointed
guards are take care of those goods round the clock. The banks delivered the
pledged gods to the party by turns against payment.
allowed against pledge of goods is mown as Cash Credit (Pledge) For Cash Credit
(Pledge) the borrower pledges his goods to the banker as a security against the credit facility. The
ownership of pledge goods remains with the pledged. The bank remains
the effective control of borrower but under lock and key of the bank. stored in the custody of borrower but under lock
and key of the bank. Banks appointed
guards are take care of those goods round the clock. The banks delivered the
pledged gods to the party by turns against payment.
For Cash Credit Pledge following
points are taken into consideration before allowing.
points are taken into consideration before allowing.
·
Whether
the quality of goods is ascertained.
Whether
the quality of goods is ascertained.
·
Whether
the goods are easily saleable and those goods must have good demand in the
market.
Whether
the goods are easily saleable and those goods must have good demand in the
market.
·
The
quality of goods is ensured. The goods cannot be perishable and will not
deteriorate in quality as a result for short and long duration.
The
quality of goods is ensured. The goods cannot be perishable and will not
deteriorate in quality as a result for short and long duration.
·
The
borrower has the absolute title of goods.
The
borrower has the absolute title of goods.
·
The prices of the goods have to steady and are not
subject to violent change.
The prices of the goods have to steady and are not
subject to violent change.
·
Goods should be stored in the presence
of a responsible bank office.
Goods should be stored in the presence
of a responsible bank office.
·
Ensure
that stocks are duly insured against fire, burglary, with bank clause.
Ensure
that stocks are duly insured against fire, burglary, with bank clause.
·
Stocks
must be invocated regularly by responsible bank office.
Stocks
must be invocated regularly by responsible bank office.
·
The
locks of the store are scaled and keys are kept in the bank.
The
locks of the store are scaled and keys are kept in the bank.
4.4.3 Overdraft
The overdraft is
always allowed on a special A/C operated upon cheques. The customers may be
allowed a certain limit up to which he can overdraw within a specific period of time. In an
overdraft A/C withdrawal and deposit can be made any number of times within the limit and prescribed period. Interested is
calculated and charged only on the actual debit balances on daily
product basis.
always allowed on a special A/C operated upon cheques. The customers may be
allowed a certain limit up to which he can overdraw within a specific period of time. In an
overdraft A/C withdrawal and deposit can be made any number of times within the limit and prescribed period. Interested is
calculated and charged only on the actual debit balances on daily
product basis.
Overdraft
are three types
are three types
1.
Temporary overdraft (TOD)
Temporary overdraft (TOD)
Clean overdraft (COD)
Secured overdraft (SOD)
4.4.3.1 Temporary overdraft (TOD)
Temporary
overdraft (TOD) is allowed to honor cheques which is future dated for the
valued client . without any prior
arrangement. This kind of facilities is provided for short time.
overdraft (TOD) is allowed to honor cheques which is future dated for the
valued client . without any prior
arrangement. This kind of facilities is provided for short time.
4.4.3.2 Clean
overdraft (COD)
overdraft (COD)
Sometimes Overdrafts are allowed with no other security
except personal security of borrowers.
except personal security of borrowers.
4.4.3.3 SOD Secured
overdraft (SOD)
overdraft (SOD)
When
Overdrafts are allowed against security is known as secured overdraft (SOD)
Overdrafts are allowed against security is known as secured overdraft (SOD)
Purposes
·
To
businessman for expansion of their business.
To
businessman for expansion of their business.
·
To contractors and suppliers for carrying construction
works and supply orders.
To contractors and suppliers for carrying construction
works and supply orders.
Securities
·
Lien
on fixed/term deposits.
Lien
on fixed/term deposits.
·
Shares/Debentures/Protiraksha
Sanchay Patra
Shares/Debentures/Protiraksha
Sanchay Patra
·
Insurance
Policy.
Insurance
Policy.
·
Mortgage
on real estates and properties.
Mortgage
on real estates and properties.
15 % per annum
Payment
against Document (PAD)
against Document (PAD)
Eligibility
PAD is generally granted to importer
for import of goods.
for import of goods.
16 % per annum
4.5.2Internal Bills
Purchased (IBP)
Purchased (IBP)
This kind of
arrangements is allowed for purchase of internal bills. Some times Contractors need
money to his liquidity problem. To avoid thus kind of situation they want to take loan against their
future dated cheque.
arrangements is allowed for purchase of internal bills. Some times Contractors need
money to his liquidity problem. To avoid thus kind of situation they want to take loan against their
future dated cheque.
Eligibility
Internal
Bills Purchased is usually provided for future dated cheque against some
service charge before 21 days of the maturity date.
Bills Purchased is usually provided for future dated cheque against some
service charge before 21 days of the maturity date.
4.5.3 Loan against Imported
Merchandise (LIM)
Merchandise (LIM)
This is as similar as CC Pledge. But
these loans are provided to the selected customers with internal contract.
these loans are provided to the selected customers with internal contract.
Eligibility
This loans only fur old and some
special customers.
special customers.
4.5.3Loan against Trust Received (LTR)
Under this arrangement, credit is allowed against trust
receipt and the exportable goods remain in the custody of exporter but he is
required to execute a stamped export trust receipt in favor of the bank.
Where the declaration is made that he holds Purchased with financial assistance
of the bank lit trust for the ‘bank.
receipt and the exportable goods remain in the custody of exporter but he is
required to execute a stamped export trust receipt in favor of the bank.
Where the declaration is made that he holds Purchased with financial assistance
of the bank lit trust for the ‘bank.
Eligibility
LTR is generally granted to exporter
for exportation of goods.
for exportation of goods.
16 % per annum.
4.5.4 Local/Foreign Documentary Bills
Purchased (LDBP/FDBP)
Purchased (LDBP/FDBP)
Under this arrangement, credit is
allowed for exporter for or exportable goods. Banks provide all the
agency commission. Its pay back period is 21 days.
allowed for exporter for or exportable goods. Banks provide all the
agency commission. Its pay back period is 21 days.
Eligibility
LDBP/FDBP is generally granted to
exporter for exportation of goods.
exporter for exportation of goods.
16 % per annum
4.5.5 Letter of Credit
Issuing letter of credit is one of
the important services for JBL. A letter of credit is a document authorizing by the bank for a specific amount of money. Two
types of L/C is provided by JBL.
the important services for JBL. A letter of credit is a document authorizing by the bank for a specific amount of money. Two
types of L/C is provided by JBL.
Demand Loan Loan ABP Mack T o Back L/C) Demand
Loan ABP (Deferred Payment, L/C)
Loan ABP (Deferred Payment, L/C)
Eligibility
This facility is given to the
exporter/manufacturer /producer
exporter/manufacturer /producer
·
It
should stipulate the name of the loan/credit/grant.
It
should stipulate the name of the loan/credit/grant.
·
It
should bear the name of the designed bank.
It
should bear the name of the designed bank.
·
Item
mentioned in the LCA form must contain with the permissible item.
Item
mentioned in the LCA form must contain with the permissible item.
4.6.1 Hire Purchase
The feature of hire purchase is that
borrower pays his remaining amount over a period of 6 month to 2 years & some times more then 2 years. For this kind
of credit tic goods, which has been
purchased, registered to the bank- as owner. And after end of final
payment goods are registered to owner formally.
borrower pays his remaining amount over a period of 6 month to 2 years & some times more then 2 years. For this kind
of credit tic goods, which has been
purchased, registered to the bank- as owner. And after end of final
payment goods are registered to owner formally.
Eligibility
Hire
purchase facility is allowed to [hose people who have either fixed source
of income or desire to pay it in lump stun.
purchase facility is allowed to [hose people who have either fixed source
of income or desire to pay it in lump stun.
16 % per annum
4.6.2 Loans (General)
When an advance
is made in a lump sum repayable either in fixed monthly installment or in
lump sum and no subsequent debit is ordinarily allowed except by way in interest and
incidental charges etc. This is loans (general). Loan is allowed for a single
purpose where the entire amount may be required at a time or in a number of installments
within a period of short Spam. After disbursement of the entire loan
amount, there will be only repayment made by the borrower. Loan once repaid in
full or in part cannot be drawn again by the borrower. Entire amount of the loan A/C in the name of the customer and is paid
to hen through his SB/CD A/C. Sometimes loan amount are disbursed in
cash.
is made in a lump sum repayable either in fixed monthly installment or in
lump sum and no subsequent debit is ordinarily allowed except by way in interest and
incidental charges etc. This is loans (general). Loan is allowed for a single
purpose where the entire amount may be required at a time or in a number of installments
within a period of short Spam. After disbursement of the entire loan
amount, there will be only repayment made by the borrower. Loan once repaid in
full or in part cannot be drawn again by the borrower. Entire amount of the loan A/C in the name of the customer and is paid
to hen through his SB/CD A/C. Sometimes loan amount are disbursed in
cash.
This loan is repayable within few
months or few years.
months or few years.
Securities:
Lien
on fixed/term deposits.
on fixed/term deposits.
2.
Shares/Debentures/Protiraksha
Sanchay Patra.
Shares/Debentures/Protiraksha
Sanchay Patra.
3. Insurance
Policy
Policy
4. Moftgaze of Real estates and
properties
properties
5. Hypothecation of stock/Stock/Machinery.
16 % per annum
4.6.3 Lease Finance
Jamuna bank Ltd.
is the first private commercial bank, in Bangladesh who introduced lease finance facilities for funding
requirement of valued customers & growth of their business.
is the first private commercial bank, in Bangladesh who introduced lease finance facilities for funding
requirement of valued customers & growth of their business.
Lease Items
·
Vehicles
like luxury bus, Mini bus, Taxi Cabs Cars, Pick-Up Van Etc.
Vehicles
like luxury bus, Mini bus, Taxi Cabs Cars, Pick-Up Van Etc.
·
Factory
equipment.
Factory
equipment.
·
Medical
equipments.
Medical
equipments.
·
Machinery
for agro based industry.
Machinery
for agro based industry.
·
Construction
and office equipment.
Construction
and office equipment.
·
Sea
or river transport and computer for IT education center.
Sea
or river transport and computer for IT education center.
Lease
Period By Items
Period By Items
|
Sectors |
Period Up to Years |
|
Vehicles like luxury Van Etc |
4 |
|
Factory equipments |
5 |
|
Medical equipments |
5 |
|
Construction equipment. |
3 |
|
Office equipment. |
3 |
|
3-5 |
|
|
Sea or river transport |
4 |
|
Computer for IT education center |
2-3 |
|
Machinery for agro based industry |
5 |
Maximum Limit:
70% of acquisition Cost,
Security /Collaterals.
The following securities are
acceptable.
acceptable.
·
Ownership
of leased assets before the period of loan adjustment.
Ownership
of leased assets before the period of loan adjustment.
·
Collateral securities in the form of land &
building/Fixed Deposits/other cash collateral /Wage Earners Development Bond having liquidation value
covering at least 100% amount of finance.
Collateral securities in the form of land &
building/Fixed Deposits/other cash collateral /Wage Earners Development Bond having liquidation value
covering at least 100% amount of finance.
·
Deposit Of A category shares, National Savings
Certificates, ICB Unit Certificates,
assignment of life insurance policies, Bank Guarantee also be allowed as
collateral securities.
Deposit Of A category shares, National Savings
Certificates, ICB Unit Certificates,
assignment of life insurance policies, Bank Guarantee also be allowed as
collateral securities.
·
Creation
of charge of axed assets of file existing industrial units requiring BMRE.
Creation of charge on the existing vehicle will also be acceptable as
securities.
Creation
of charge of axed assets of file existing industrial units requiring BMRE.
Creation of charge on the existing vehicle will also be acceptable as
securities.
Charges
Bank charges are modest and
competitive.
competitive.
Lease Deposit
Before disbursement of
lease finance, the lessee shall have to deposit 3 months rentals in advance,
which will be adjusted at the end of the lease period.
lease finance, the lessee shall have to deposit 3 months rentals in advance,
which will be adjusted at the end of the lease period.
Grace Period
For capital
machinery and equipment, maximum grace period of 6 (six) months may he allowed for
installation/commercial production.
machinery and equipment, maximum grace period of 6 (six) months may he allowed for
installation/commercial production.
Rental payments shall be made
every month and there shall be three payment dates as detailed below.
every month and there shall be three payment dates as detailed below.
If Lease executed.
Between 1st
to 10th ………5th of subsequent months
to 10th ………5th of subsequent months
Between I la‘
to
20th……15th of
subsequent months
to
20th……15th of
subsequent months
After 20th ………………25th
of subsequent months.
of subsequent months.
Insurance Coverage
The vehicle
/Equipment /Lease asset shall have to be covered by a comprehensive insurance policy
throughout the whole lease term at lessee’s own cost in the name of Jamuna Bank Limited. The premium
shall be on account of lessee.
/Equipment /Lease asset shall have to be covered by a comprehensive insurance policy
throughout the whole lease term at lessee’s own cost in the name of Jamuna Bank Limited. The premium
shall be on account of lessee.
Repair and Maintenance of Leased items
The lessee is
obliged to maintain the vehicle/Equipment in good working order and is solely responsible for any loss or
damage as long as it is in his possession. Repair and maintenance
cost for taking care of normal wear and tear and keeping it in good
running condition during the lea–se, pen-0d shall’ be the
responsibility of lessee.
obliged to maintain the vehicle/Equipment in good working order and is solely responsible for any loss or
damage as long as it is in his possession. Repair and maintenance
cost for taking care of normal wear and tear and keeping it in good
running condition during the lea–se, pen-0d shall’ be the
responsibility of lessee.
Transfer price/Lease Renewal Rental
On final adjustment of the lease finance,
the lessee may have an option to purchase the
equipment at 5% of the lease finance. Besides the above option, tile lessee may
renew the lease on year-to-year basis or return, the equipment to the
bank.
the lessee may have an option to purchase the
equipment at 5% of the lease finance. Besides the above option, tile lessee may
renew the lease on year-to-year basis or return, the equipment to the
bank.
4.6.4 Personal Loan for Woman
This is one of the new events in
Bangladesh in credit sector. Woman who are interested
and has the ability to pay it back in time those can get this kind facility To
encourage the woman JBL provide loan with low interest.
Bangladesh in credit sector. Woman who are interested
and has the ability to pay it back in time those can get this kind facility To
encourage the woman JBL provide loan with low interest.
Eligibility:
The borrower must be the following
profession.
profession.
- Service
holder of Government Organization
- Service
holder of Semi-Government Organization
- Service
holder of Multinational Organization
- Service
holder of Bank and Insurance Company
- Shop
owner/has small business.
Interest Rate: 15.5% per annum
4.6.5 Consumer Credit
Scheme
Scheme
Consumer credit
is recently new field of micro credit activities; people who have limited
income can avail of this credit facility to buy any household effects including
car, computer, household
and other commercial durables. JBL plays a vital role in extending the consumer
credit.
is recently new field of micro credit activities; people who have limited
income can avail of this credit facility to buy any household effects including
car, computer, household
and other commercial durables. JBL plays a vital role in extending the consumer
credit.
Eligibility:
The borrower must be the employee of
the following organization.
the following organization.
- Government
Organization
- Semi- Government Organization
- Multinational Organization
- Bank and insurance Company
- Reputed Commercial
Organization
- Professionals
Nature
Mid term Micro Credit
16 % per annum
Terms And Conditions
- Client
will procure the specified articles from the dealer/agent /shop acceptable by the Bank.
- All of the papers /cash memo
etc. related to the procurement of the goods will be in the name of bank
ensuring ownership of the goods. The ownership will be transferred in the
name of the client after full adjustment of Banks due.
- The clients will have to bear
all the expenses of license, registration and insurance etc.
- The clients
will have to bear the cost of repair and maintenance of the acquire articles.
CHAPTER -05
Credit risk
grading is an important tool for credit Risk management as if helps the Banks
& financial institutions to understand various dimensions of Risk
moved in different credit (transactions. The aggregation of such grading
across the borrowers, activities and the lines of business can provide hello
assessment of the quality of credit portfolio of a bank or a branch
The credit risk grading system is vital to take decisions both al the
pre-sanctum stage as well as post-sanction stage.
grading is an important tool for credit Risk management as if helps the Banks
& financial institutions to understand various dimensions of Risk
moved in different credit (transactions. The aggregation of such grading
across the borrowers, activities and the lines of business can provide hello
assessment of the quality of credit portfolio of a bank or a branch
The credit risk grading system is vital to take decisions both al the
pre-sanctum stage as well as post-sanction stage.
At the
pre-sanction stage, credit grading helps the sanctioning authority to decide
whether to lend or not to lend, what should be the loan price. what should be the
extent of exposure, what should be the appropriate credit facility. what are
the various facilities, what ;are the various facilities, what are the various
risk mitigation tools to put a cap on the risk level.
pre-sanction stage, credit grading helps the sanctioning authority to decide
whether to lend or not to lend, what should be the loan price. what should be the
extent of exposure, what should be the appropriate credit facility. what are
the various facilities, what ;are the various facilities, what are the various
risk mitigation tools to put a cap on the risk level.
At the post-sanction
stage, the bank can decide about the depth of the review or enewal,
frequency of review, periodicity or the grading and other precautions to be
taken.
stage, the bank can decide about the depth of the review or enewal,
frequency of review, periodicity or the grading and other precautions to be
taken.
review, periodicity of the mid other precautions to be taken
Having
considered the significance of credit risk )–,lading, it becomes
imperative for the banking system to carefully develop a credit risk grading
model which meets the objective outlined above.
considered the significance of credit risk )–,lading, it becomes
imperative for the banking system to carefully develop a credit risk grading
model which meets the objective outlined above.
The
lending Risk Analysis (LRA) mammal introduced in 1993 by the Bangladesh Bank
has been in practice for mandatory use by the Banks & financial
institutions for loan size of BDT 1.00 core and above. However, file LRA manual suffers from a lot of subjectivity,
sometimes creating confusion to the lending Bankers in terms of selection of
credit proposals on the basis of risk exposure. Meanwhile, in 2003 end Bangladesh Bank provided
guidelines for credit risk grade scorecard for risk assessment of credit
proposals
lending Risk Analysis (LRA) mammal introduced in 1993 by the Bangladesh Bank
has been in practice for mandatory use by the Banks & financial
institutions for loan size of BDT 1.00 core and above. However, file LRA manual suffers from a lot of subjectivity,
sometimes creating confusion to the lending Bankers in terms of selection of
credit proposals on the basis of risk exposure. Meanwhile, in 2003 end Bangladesh Bank provided
guidelines for credit risk grade scorecard for risk assessment of credit
proposals
Since
the two-credit risk models are presently in vogue. The Governing; Board
of Bangladesh institute of Batik Management (13113M) under (he chairmanship of
the Governor, 13;mf; ladcsh Bank decided (hat an integrated Credit Risk Grading;
Model be developed incorporating file significant features of the above mentioned models
with a view to render a need based simplified and user friendly model for
application by the Banks and financial institutions in processing credit decisions
and evaluating the magnitude of risk involved therein.
the two-credit risk models are presently in vogue. The Governing; Board
of Bangladesh institute of Batik Management (13113M) under (he chairmanship of
the Governor, 13;mf; ladcsh Bank decided (hat an integrated Credit Risk Grading;
Model be developed incorporating file significant features of the above mentioned models
with a view to render a need based simplified and user friendly model for
application by the Banks and financial institutions in processing credit decisions
and evaluating the magnitude of risk involved therein.
Bangladesh
Bank expects all commercial franks to have a well-defined credit risk
management which delivers accurate and timely risk grading. This manual describes
file elements of an effective internal process for grading credit risk. It also
provides a comprehensive but generic discussion of the objectives and
general characteristics of effective credit risk grading system In practice a
banks credit risk grading system should reflect the complexity of its lending
activities and the complexity of risk involved.
Bank expects all commercial franks to have a well-defined credit risk
management which delivers accurate and timely risk grading. This manual describes
file elements of an effective internal process for grading credit risk. It also
provides a comprehensive but generic discussion of the objectives and
general characteristics of effective credit risk grading system In practice a
banks credit risk grading system should reflect the complexity of its lending
activities and the complexity of risk involved.
DEFINITION OF CREDIT RISK GRADING (CRG)
·
The
Credit Risk Grading (CRG) is a collective definition based on the pre-specified
scale and reflects the underlying credit-risk for a given exposure.
The
Credit Risk Grading (CRG) is a collective definition based on the pre-specified
scale and reflects the underlying credit-risk for a given exposure.
·
A Credit Risk Grading deploys a number/ alphabet/ symbol
as a primary summary indicator of risks associated with a credit exposure.
A Credit Risk Grading deploys a number/ alphabet/ symbol
as a primary summary indicator of risks associated with a credit exposure.
·
Credit
Risk grading is the basic module for developing for developing a credit risk
management system.
Credit
Risk grading is the basic module for developing for developing a credit risk
management system.
FUNCTIONS OF CREDIT RISK GRADING
Well-managed credit risk grading systems promote bank
safety and soundness by facilitating informed decision-making. Grading systems
measure credit risk and differentiate individual credits and groups of credits
by the risk they pose. This allows bank management and examiners to monitor
changes and trends in risk levels. The process also allows bank management to
manage risk to optimize returns.
safety and soundness by facilitating informed decision-making. Grading systems
measure credit risk and differentiate individual credits and groups of credits
by the risk they pose. This allows bank management and examiners to monitor
changes and trends in risk levels. The process also allows bank management to
manage risk to optimize returns.
USE OF CREDIT RISK GRADING
·
The
credit risk grading matrix allows application of uniform standards to credits
to ensure a common standardized approach to assess the quality of individual
obligor, credit portfolio of aunt, line of business, the branch of the Bank as
a whole.
The
credit risk grading matrix allows application of uniform standards to credits
to ensure a common standardized approach to assess the quality of individual
obligor, credit portfolio of aunt, line of business, the branch of the Bank as
a whole.
·
As
evident, the CRG outputs would be relevant for individual credit selection,
wherein ether a borrower or a particular exposure/facility is rated. The other
decisions would be relative to pricing (credit-spread) and specific feathers of
the credit facility. These would largely constitute obligor level analysis.
As
evident, the CRG outputs would be relevant for individual credit selection,
wherein ether a borrower or a particular exposure/facility is rated. The other
decisions would be relative to pricing (credit-spread) and specific feathers of
the credit facility. These would largely constitute obligor level analysis.
·
Risk
grading would also be relevant for surveillance and monitoring, internal MIS
and assessing the aggregate risk profile of a Bank. It is also relevant for
portfolio level analysis.
Risk
grading would also be relevant for surveillance and monitoring, internal MIS
and assessing the aggregate risk profile of a Bank. It is also relevant for
portfolio level analysis.
NUMBER AND SHORT NAME OF GRADES USED IN THE CRG
·
The
proposed CRG scale consists of 8 categories with Short names and numbers are
prow\vided as follows:
The
proposed CRG scale consists of 8 categories with Short names and numbers are
prow\vided as follows:
|
GRADING |
SHORT |
NUMBER |
|
Superior |
SUP |
1 |
|
Good |
GD |
2 |
|
Acceptable |
ACCPT |
3 |
|
Marginal/Watch |
MG/WL |
4 |
|
Special |
SM |
5 |
|
Sub |
SS |
6 |
|
Doubtful |
DF |
7 |
|
Bad |
BL |
8 |
CREDIT RISK GRADING DEFINITIONS
A clear definition of the different
categories of credit risk grading is given as follows
categories of credit risk grading is given as follows
- Superior- (SUP)-1
- Credit
facilities, which are fully secured i.e. fully cash covered.
- Credit
facilities fully covered by government guarantee
- Credit
facilities fully covered by the guarantee of a top tier international Bank
·
Good – (GD)-2
Good – (GD)-2
o
Strong
repayment capacity of the borrower
Strong
repayment capacity of the borrower
o
The
borrower has excellent liquidity and low
The
borrower has excellent liquidity and low
o
The
company demonstrates consistently strong earnings and cash flow.
The
company demonstrates consistently strong earnings and cash flow.
o
Borrower
has well established, strong market share.
Borrower
has well established, strong market share.
o
Very
good management skill &, expertise.
Very
good management skill &, expertise.
o
All
security documentation should be in place.
All
security documentation should be in place.
o
Credit
facilities fully covered by N, the guarantee of a top tier local
Bank.
Credit
facilities fully covered by N, the guarantee of a top tier local
Bank.
o Aggregate Score of 85 or greater
basest oil the Risk Grade Score Sheet
basest oil the Risk Grade Score Sheet
·
Acceptable – (ACC19) – 3
Acceptable – (ACC19) – 3
· These borrowers
arc not as strong as COOD Grade borrowers, hug still demonstrate Consistent earnings, cash flow and
have a good back record.
arc not as strong as COOD Grade borrowers, hug still demonstrate Consistent earnings, cash flow and
have a good back record.
· Borrowers have adequate liquidity,
cash flow and earnings.
cash flow and earnings.
· Credit in this
grade would normally be secured by acceptable collateral ( its charge over inventory / receivables / equipment /
property).
grade would normally be secured by acceptable collateral ( its charge over inventory / receivables / equipment /
property).
· Acceptable management
· Acceptable parcel/sister company guarantee
· Aggregate Score of 75-84 based oil
the Risk Grade Score Sheet
the Risk Grade Score Sheet
·
This grade warrants greater attention due to conditions
affecting; the borrower. 111c inclusion, or the economic environment.
This grade warrants greater attention due to conditions
affecting; the borrower. 111c inclusion, 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 canings.
These borrowers have an above average risk due to
strained liquidity, higher than normal leverage, thin cash flow and/or
inconsistent canings.
·
Weaker business credit &’ early warning; signals of
emerging business credit detected.
Weaker business credit &’ early warning; signals of
emerging business credit detected.
·
The
borrower incurs a loss
The
borrower incurs a loss
·
Loan
repayments routinely fall past due
Loan
repayments routinely fall past due
·
Account
conduct is poor, or other untoward factors arc present.
Account
conduct is poor, or other untoward factors arc present.
·
Credit
requires attention
Credit
requires attention
·
Aggregate
Score of 65-74 based oil the Risk Grade Score Sheet
Aggregate
Score of 65-74 based oil the Risk Grade Score Sheet
·
Special Mention – (SM) – 5
Special Mention – (SM) – 5
·
This grade has potential weaknesses that deserve•
management’s ‘s close attention. If left
uncorrected,
these weaknesses may result in a deterioration of the repayment prospects of the borrower.
This grade has potential weaknesses that deserve•
management’s ‘s close attention. If left
uncorrected,
these weaknesses may result in a deterioration of the repayment prospects of the borrower.
·
Severe management problems exist
Severe management problems exist
·
Facilities should be downgraded to this grade if
sustained deterioration in financial condition is noted (consecutive losses,
negative net worth, excessive Leverage.
Facilities should be downgraded to this grade if
sustained deterioration in financial condition is noted (consecutive losses,
negative net worth, excessive Leverage.
·
An
Aggregate Score of 55-64 based oil the Risk Grade Score sheet.
An
Aggregate Score of 55-64 based oil the Risk Grade Score sheet.
·
Substandard – (SS) – 6
Substandard – (SS) – 6
·
Financial condition is
weak and capacity or inclination to repay is in doubt.
Financial condition is
weak and capacity or inclination to repay is in doubt.
·
These
weaknesses jeopardize the full settlement of loans.
These
weaknesses jeopardize the full settlement of loans.
·
Bangladesh
Bank criteria for sub-standard credit shall apply.
Bangladesh
Bank criteria for sub-standard credit shall apply.
·
Ali
Aggregate Score of 45-55 oil the Risk grade Score Sheet
Ali
Aggregate Score of 45-55 oil the Risk grade Score Sheet
·
Doubtful – (DF) – 7
Doubtful – (DF) – 7
·
Full repayment of principal and interest is unlikely and
Hic possibility of loss is extremely high.
Full repayment of principal and interest is unlikely and
Hic possibility of loss is extremely high.
·
However, due to specifically identifiable pending
factors. Such as litigation, liquidation procedure or capital injection, the
asset is not yet classified as Bad & loss.
However, due to specifically identifiable pending
factors. Such as litigation, liquidation procedure or capital injection, the
asset is not yet classified as Bad & loss.
·
Bangladesh
Bank criteria for doubtful credit shall apply.
Bangladesh
Bank criteria for doubtful credit shall apply.
·
An
Aggregate Score of less than 35-44 based
on the Risk grade score sheet
An
Aggregate Score of less than 35-44 based
on the Risk grade score sheet
·
Bad & Loss – (13L) – 8
Bad & Loss – (13L) – 8
·
Credit of this grade has long outstanding wills no
progress in obtaining repayment or on the verge of wind up/liquidation,
Credit of this grade has long outstanding wills no
progress in obtaining repayment or on the verge of wind up/liquidation,
·
Prospect
of recovery is poor and options have been pursued.
Prospect
of recovery is poor and options have been pursued.
·
Proceeds expected from the liquidation or realization of
security may be awaited. The continuance of the loan as a bankable asset is riot
warranted, and the anticipated loss should have been provided for.
Proceeds expected from the liquidation or realization of
security may be awaited. The continuance of the loan as a bankable asset is riot
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 valueless asset
even though partial recovery may be
affected in the future, Bangladesh Bank guidelines for timely write off of bad
loans must be adhered to. Legal procedures /suit initiated.
This classification reflects that it is not
practical or desirable to defer writing off this basically valueless asset
even though partial recovery may be
affected in the future, Bangladesh Bank guidelines for timely write off of bad
loans must be adhered to. Legal procedures /suit initiated.
·
·
An
Aggregate Score of less than 35 based on the Risk Grade Score Sheet.
·
An
Aggregate Score of less than 35 based on the Risk Grade Score Sheet.
CHAPTER- 06
6. CREDIT RECOVERY
The Recovery
Department should directly manage accounts with sustained dc1crioralion (a risk
Rating
of Sub Standard (6) or worse). Hanks may wish to transfer EXIT accounts graded
4-5 to the RU for efficient exit based on recommendation of CRM and Corporate
Banking. Whenever an account is handed over from Relationship
Management to RU, a Handover/1Downgrade Checklist (Annexure – 9) should be completed
Department should directly manage accounts with sustained dc1crioralion (a risk
Rating
of Sub Standard (6) or worse). Hanks may wish to transfer EXIT accounts graded
4-5 to the RU for efficient exit based on recommendation of CRM and Corporate
Banking. Whenever an account is handed over from Relationship
Management to RU, a Handover/1Downgrade Checklist (Annexure – 9) should be completed
Down Grading
process should be done nomadically and should not be postponed unit the annual
review process,
process should be done nomadically and should not be postponed unit the annual
review process,
The RU’s primary
functions arc:
functions arc:
·
Determine
Account Action Plan/Recovery Strategy
Determine
Account Action Plan/Recovery Strategy
·
Pursue all options to maximize/c recover, including
placing customers into receivership or liquidation as appropriate.
Pursue all options to maximize/c recover, including
placing customers into receivership or liquidation as appropriate.
·
Ensure adequate and timely loan loss provisions arc made
based on actual and expected losses.
Ensure adequate and timely loan loss provisions arc made
based on actual and expected losses.
·
Regular
review of grade 6 or worse accounts.
Regular
review of grade 6 or worse accounts.
·
Management
of classified loans and special mention
Management
of classified loans and special mention
·
Accounts
and related works writing off’ B/L loans with the approval of the Board
Accounts
and related works writing off’ B/L loans with the approval of the Board
The management of
problem loans (NPLs) must be a dynamic process, and the associated strategy together with the
adequacy of provisions muss be regularly reviewed. A process should he
established to share the
lessons learned from f1w experience of credit losses in order to update the
lending guidelines.
problem loans (NPLs) must be a dynamic process, and the associated strategy together with the
adequacy of provisions muss be regularly reviewed. A process should he
established to share the
lessons learned from f1w experience of credit losses in order to update the
lending guidelines.
CHAPTER-07
7.1 Problems
Identification
Identification
During internship
period in Jamuna Bank Limited Dilkusha Branch tile following problems are observed.
period in Jamuna Bank Limited Dilkusha Branch tile following problems are observed.
·
Human resource of any organization is considered as a
valuable asset. But human resources, in the branch, are not equipped with
adequate banking knowledge. Majority of the human resources have lack of
basic knowledge regarding money, banking finance and accounting. Without
proper knowledge in these subjects, efficiency cannot be optimized. Bank can
arrange training program
on these subjects.
Human resource of any organization is considered as a
valuable asset. But human resources, in the branch, are not equipped with
adequate banking knowledge. Majority of the human resources have lack of
basic knowledge regarding money, banking finance and accounting. Without
proper knowledge in these subjects, efficiency cannot be optimized. Bank can
arrange training program
on these subjects.
·
There is shortage of computer in general banking section.
Sometimes the shortage
of computer makes some unfortunate event in that section.
There is shortage of computer in general banking section.
Sometimes the shortage
of computer makes some unfortunate event in that section.
·
Flora On-line banking
software is used by JBL and this is quite difficult to use for the employee as the employees are
not well trained.
Flora On-line banking
software is used by JBL and this is quite difficult to use for the employee as the employees are
not well trained.
·
This bank does not have any plan to enter into the Credit
Card Market. It is well versed that tomorrow’s payment will be consisted of only
plastic money (Credit Card). A large part of business transaction will be done
by credit card III near future. In western world, more than 50% of transactions
are in credit card this bank does not prepare from now on, it
cannot compete in the future market. So, the branch should give special attention to the introduction
of Credit Card
This bank does not have any plan to enter into the Credit
Card Market. It is well versed that tomorrow’s payment will be consisted of only
plastic money (Credit Card). A large part of business transaction will be done
by credit card III near future. In western world, more than 50% of transactions
are in credit card this bank does not prepare from now on, it
cannot compete in the future market. So, the branch should give special attention to the introduction
of Credit Card
·
Since a number of new banks are coming to existence with
their extended customer service pattern in a completely competitive
manner. Customer-services must be made dynamic and prompt. Now a days,
people especially business people have very little time to waste. So the bank
should make its service
prompt so that people need not give more time in the banking activities
Since a number of new banks are coming to existence with
their extended customer service pattern in a completely competitive
manner. Customer-services must be made dynamic and prompt. Now a days,
people especially business people have very little time to waste. So the bank
should make its service
prompt so that people need not give more time in the banking activities
7.2
Recommendation
Recommendation
·
Now
a day’s on-line banking is not a very uncommon service 1,01-ally
private commercial bank. JBI, provide
On-line banking service but they take source charge for it, if the customers do not use his/her mother branch. To
encourage customers to use On-line
banking facility this service charge should not be taken charge from the
customers.
Now
a day’s on-line banking is not a very uncommon service 1,01-ally
private commercial bank. JBI, provide
On-line banking service but they take source charge for it, if the customers do not use his/her mother branch. To
encourage customers to use On-line
banking facility this service charge should not be taken charge from the
customers.
·
Though JBL using very popular software i.e. Flora bank
on–line software but the use of it is quite difficult for the employee.
(According to the statement of some employee of JBL who has the
experience to use more then one banking software).
Though JBL using very popular software i.e. Flora bank
on–line software but the use of it is quite difficult for the employee.
(According to the statement of some employee of JBL who has the
experience to use more then one banking software).
·
JBL are not taking their clearing cheque for other- They are using IBC/OBC systems to take that kind of
clearing cheque.
JBL are not taking their clearing cheque for other- They are using IBC/OBC systems to take that kind of
clearing cheque.
·
JBI, not providing the credit cards in market which now a
days one of the most
important part of banking. So for it they are loosing too many customers.
JBI, not providing the credit cards in market which now a
days one of the most
important part of banking. So for it they are loosing too many customers.
·
Customer service of bank has a greater impact on its
customer. To provide smarter customer service they need a call center
department is very popular
now a day.
Customer service of bank has a greater impact on its
customer. To provide smarter customer service they need a call center
department is very popular
now a day.
·
Foreign exchange operations of other banks are more dynamic
and less time consuming.
JBL should take some initiative to compete with those banks.
Foreign exchange operations of other banks are more dynamic
and less time consuming.
JBL should take some initiative to compete with those banks.
·
In our country financial problem is a great constraint in
foreign trade. JBL Is very conservative for post-shipment finance. 11′ it stays
in liberal position the exporters
can easily over-come their financial constraint.
In our country financial problem is a great constraint in
foreign trade. JBL Is very conservative for post-shipment finance. 11′ it stays
in liberal position the exporters
can easily over-come their financial constraint.
BIBLIOGRAPHY
- Annual Report 2006., Jamuna Bank
Ltd. 2007.
- Credit Risk Grading Manual,
Bangladesh Bank, 2005
·
Credit Policy
Guidelines, Jamuna Bank Ltd. 2005.
Credit Policy
Guidelines, Jamuna Bank Ltd. 2005.