Credit Analysis” of National Housing finance and Investments Ltd.
Executive Summary
National Housing Finance and Investments Ltd (NHFIL) is one of the best names in the non-banking financial industry of Bangladesh. It has been leading in the non-banking industry with its distinct products and excellent services. Technology and competition have made this sector more competitive. NHFIL put emphasis on meeting this continuous challenge of managing relationship significant achievements by their experts and experienced management team.
NHFIL is very fortunate to have a strong senior management team. They are committed to the continued implementation of sound strategic programs. It focuses on creating a culture that places importance on integrity, caring and excellence. NHFIL value closes relationships with each other. At the same time it brings the decision making authority close to the customers to give them the best service available. NHFIL will continue to reinforce the efforts to meet the needs and expectations of its customers. NHFIL are setting goals and challenges for its employer to respond to customer needs; NHFIL want to differentiate itself from its competitors’ through flexible and personalized services.
To conduct my study collected data from annual reports, respective department of head office, last annual meeting report. However information has also been collected from primary sources by interviewing the respective department’s Officers.
With the changes in business environment, the ways of doing business is also changing. The competing institutions are aggressively developing new products, which will facilitate the purposes of their clients. But NHFIL’s R&D division is weak comparing with other non-banking financial institution. If NHFIL don’t develop new products to provide more facilities to the clients they may well be bitten by competitor institutions and may lose clients to other banks. This may seriously hamper the profitability of NHFIL.
Chapter: 1
1.1 Introduction
The primary purpose of this report is to get an idea about the operations of “Credit Analysis” of National Housing finance and Investments Ltd. Credit Performance plays an important role in the balance of trade in our economy. In this regard Credit Performance of Bangladesh, non-banking financial institutions plays an vital role.
This report is an attempt to reflect the position of Credit Performance of National Housing Finance and Investments Ltd.
1.2 Origin of the Report
MBA program is designed with an excellent combination of theoretical and practical aspects. As the classroom discussion alone cannot make a student perfect in handling the real business situation, so it is an opportunity for the students to know about real life situation through this internship program. This internship program provides the students to link up their theoretical knowledge with practical fields. In this connection, the assigned to National Housing Finance And Investments Ltd (NHFIL), Gulshan Branch, Credit department for my practical orientation.
I am required to prepare an internship report under the supervision of our honorable teacher Md. Shahnawaz Mostofa on “Credit Analysis of National Housing Finance and Investments Limited” to conduct a depth analysis on this subject matter. The tried level best to present my experience of the practical orientation in this report.
1.3 Objectives of the report
- Determine the ways of measuring the creditworthiness of potential borrowers.
- Assessing the performance of different types of Loan products.
- Identification of weaknesses and problems regarding Credit management system.
- Analyzing Loan disbursement and collection procedure as well as their effectiveness and efficiency.
- Assessing existing Loan innovation system and practices
1.4 Scope of the report
- The report intends to cover National Housing Finance and Investments Ltd’s company profile, historical background, organizational overview, management, capital structure, products and functions regarding social responsibilities performed by the bank.
- Main focus will be given to Credit performance analysis.
1.5 Rationale of the study
Bangladesh is one of the developing countries in the world. The economy of the country has a lot left to be desired and there are lots of scopes for massive improvement. In an economy like this, Credit Analysis can play a vital role to improve the overall economic condition of the country. The Non-Banking Financial Institutions (NBFI) by playing the role of an intermediary can mobilize the excess fund of surplus sectors to provide necessary finance, to those sectors, which are needed to promote for the sound development of the economy.
This report is an effort to reflect a clear idea about the strategies, activities, and performance of Bangladesh regarding Credit Performance Business.
1.6 Limitations
To prepare this report, the faced some limitations, which are mentioned below.
• Limitation of time: It was one of the main constraints that hindered to cover all aspects of the study.
• Lack of Secondary Information: The secondary source of information was not enough to complete the report.
• Limitation of the Scope: Some confidential information was not disclosed by various personnel of their respective department.
1.7 Methodology
1.7.1 Techniques of Analysis
Secondary Data will be collected from different sources. Then those data includes repayment pattern, disbursement pattern, recovered amount, amount due to be recovered, loan overdue amount of different types of loan will be collected. The necessary information need to be collected to calculate Cost of Capital of the Branch.
1.7.2 Data Required
To prepare this report mainly focused on numerical data. Also used theoretical portion as report’s demand. Because to analyze Credit Performance of a Financial Institutions both theoretical and technical knowledge are necessary. Then based on everything analyzed and made conclusion.
1.7.3 Sources of Data
Sample Information
Information is mainly collected from annual report of National Housing Finance and Investments Limited, annual meeting report, brochures and web sites. The information incorporated in this report is also collected both from the primary sources and as well as from the secondary sources.
Primary Source of Data
I collect data directly from the practical field of different sectors that is National Housing Finance and Investments head office. This data is called primary source of data.
Secondary Sources of Data
The secondary data is also collected from annual report, different conceptual matters, internet and different articles published in different sessions. Secondary Sources are:
· Annual Reports of different years of NHFIL.
· Annual Report of Bangladesh Bank of 2009.
· Other published documents of NHFIL.
· Respective sectors of head office.
· Internal Reports
· Institution’s Record Books.
· Different types of manuals related to banking, its credit policy etc.
Chapter: 2
Overview of NBFI
2.1 About NBFI
A non-bank financial institution (NBFI) is as financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency. NBFIs facilitate bank-related financial services, such as investment, risk pooling, contractual savings, and market brokering.<href=”#cite_note-0″>[1] Examples of these include insurance firms, pawn shops, cashier’s check issuers, check cashing locations, currency exchanges, and micro loan organizations.(reference:5)
Non-Bank Financial Institutions (NBFIs) are those institutions that are licensed and controlled by FIA of 1993. NBFIs give loans and advances for industry, commerce, agriculture or housing; carries on business of hire purchase transactions including leasing of machinery or equipment; involves in business of the underwriting or acquisition of, or the investment or re-investment in shares, stocks, bonds, debentures or debenture stock or securities issued by the government or any local authority; finances venture capital; gives loan for house building and property purchases and uses its capital to invest in companies. The major differences of NBFIs with commercial banks are that the former cannot accept any deposit which is payable on demand by cheques, drafts or orders drawn by the depositor and cannot deal in foreign exchange. Starting from the IPDC in 1981, a total of 29 NBFIs are now working in the country as of November 2009.
For NBFIs the prime sources of funding are loans from commercial banks and other financial institutions, term deposits from the public, funds from capital market by issuing shares, debentures, bonds etc. and loan facilities from the international agencies like ADB, IDA, IFC etc. NBFIs are mostly dependent on funds from the credit lines of the commercial banks at a relatively higher rate of interest ranging up to 15%. Moreover, they have to provide high and expensive collateral securities like fixed deposits at the time of borrowing fund from the commercial banks. Raising fund from capital market is a prospective way to reduce dependency on borrowed funds and boost up the activities of NBFI’s in an efficient manner. The lease financing practices in Bangladesh have grown significantly within the last 10 years. Competition among the leasing companies has grown stronger with the growth of the NBFIs, besides entrance of commercial banks in the lease financing market who have the advantage of lower costs of fund compared to the NBFIs. Currently, out of 29 NBFI, 22 specialize in lease financing. As per central bank data released in May 2010, lease financing constituted 54.5% of total long term assets, with the rest consisting mainly of term financing.(reference:9)
2.2 NBFI Position
Bangladesh Leasing and Finance Companies Association, a representative body NBFI has been formed in 1999, to serve as a forum for interacting among the NBFIs on matters which affect the industry and to act as the official voice of the sector. Out of 29 licensed NBFIs 26 have registered themselves as member of the association. The Association is active and has been playing a positive & creative role to protect the interest of the member and contributing in the formulation and implementation of various national financial policies.
2.3 Role and Function
The role and importance of non-bank financial intermediaries is clear from the various functions performed by these institutions. Major functions of the NBFIs are as follows:
1. Financial Inter mediation:
The most important function of the non-bank financial intermediaries is the transfer of funds from the savers to the investors.
Financial intermediation is economical and less expensive to both small businesses and small savers,
(a) It provides funds to small businesses for which it is difficult to sell stocks and bonds because of high transaction costs,
(b) It also benefits the small savers by pooling their funds and diversifying their investments.
2. Economic Basis of Financial Intermediation:
Handling of funds by financial intermediaries is more economical and more efficient than that by the individual wealth owners because of the fact that financial intermediation is based on
(a) The law of large numbers: Financial intermediaries operate on the basis of the statistical law of large numbers. According to this law not all the creditors will withdraw their funds from these institutions. And
(b) Economies of scale in portfolio management: Large size of the asset portfolios enables the financial intermediaries to reap various economies of scale in portfolio management. The main economies are:
· Reduction of risk through portfolio diversification:
· Employment of efficient and professional managers; and
· Low administrative cost of large loans and
· Low costs of establishment, information and transactions.
3. Inducement to Save:
Non-bank financial intermediaries play an important role in promoting savings in the country. Savers need stores of value to hold their savings in. These institutions provide a wide range of financial assets as store of value and make available expert financial services to the savers. As stores of value, the financial assets have certain special advantages over the tangible assets (such as, physical capital, inventories of goods, etc.). They are easily storable, more liquid, more easily divisible, and less risky. In fact, saving- income ratio is positively related to both financial institutions and financial assets; financial progress. Induces larger savings out of the same level of real income.
4. Mobilization of Saving:
Mobilization of savings takes place when the savers hold savings in the form of currency, bank deposits, post office savings deposits, life insurance policies, bills, bond’s equity shares, etc. NBFI provides highly efficient mechanism for mobilizing savings. There are two types of NBFTs involved in the mobilization of savings;
(a) Depository Intermediaries, such as savings and loan associations, credit unions, mutual saving banks etc. These institutions mobilize small savings and provide high liquidity of funds.
(b) Contractual Intermediaries, such as life insurance companies, public provident funds, pension funds, etc. These institutions enter into contract with savers and provide them various types of benefits over the long periods.
5. Investment of Funds:
The main objective of NBFIs is to earn profits by investing the mobilized savings. For this purpose, these institutions follow different investment policies. For example, savings and loan associations, mutual saving banks invest in mortgages, while insurance companies invest in bonds and securities.
3.4 Role of Bangladesh Bank
Non-banking financial institutions (NBFIs) have come under Basel-II framework on a test-run basis from January 1 this year as part of the central bank’s move to consolidate their capital base and minimize inherent risk.
The central bank of Bangladesh has already introduced draft guidelines on BAFI, which will come into force from January 01, 2012 with its subsequent supplements and revisions.
“The central bank has taken the move to boost financial base of the NBFIs and ensure their management efficiency in the long run through using the best global best practices,” a senior official of the Bangladesh Bank (BB) told BBN in Dhaka.
The Basel-II framework, the most widely used accord which sets the benchmarks for banks and other financial institutions across the globe – has come into effect for all Bangladeshi commercial banks from January 2011.
The framework is based on three mutually reinforcing pillars: ensuring MCR, SRP and market discipline.
The accord outlines the level of capital required by a NBFI against credit, market and operational risk based on the risk profile of the organization.
“The primary objective is neither to raise nor to reduce regulatory capital for the financial institutions. However, the capital requirements for a specific financial institution may increase or decrease depending upon its own risk profile,” the central bank said. (Reference: 8)
Chapter: 3
Organizational Profile
3.1 Background of NHFIL
National Housing Finance And Investments Limited (NHFIL) was incorporated on August 18, 1998 as a public Limited Company under the Companies Act, 1994, obtaining license from Bangladesh bank under the Financial Institutions Act, 1993 on December 29,1998. The main objectives of the Company are to carry on the business of financing the acquisition, construction, development and purchase of houses, plots, apartments, real estates commercial spaces, etc.
The company has obtained permission from Bangladesh Bank on June 03, 2003 to enter into lease finance operation keeping housing finance as its core business. The
Company extends lease finance for all types of industrial, manufacturing and service equipments including vehicles to individual companies, and corporate houses.
The registered office of the company is located at, National Plaza (7th & 8th floor), 109, Bir Uttam C.R. Datta Road (Ex-Sonargaon Road), Dhaka-1205.
3.2 Principal Activities of NHFIL
The Company provides loan to the extent of 70.00% of the total purchase price of houses, plots and apartments under usual repayable terms varying from 5 to 20 years. The properties for which loans are disbursed are kept under registered / equitable mortgage as security. In addition to this NHFIL also involves with other activities such as accepting deposits, SME, lease financing, project financing etc.
3.3 Goal of NHFIL
Build up excellent client relationship and thereby add long-term value to the shareholders.
3.4 Mission of NHFIL
- Be equal Housing Lender to all irrespective of caste, creed and sex.
- Provide top quality services with care and sophisticated technology.
- Create innovative products to cater to the requirements of competitive market.
- Build a high quality employee team by providing job satisfaction and prospect of outstanding career development.
- Maximize steady return on shareholders’ equity by quality investment of funds.
3.5 Vision of NHFIL
Become the role-model financial institution with a keen sense of corporate social responsibility through maintaining the highest standards of business ethics. In doing so, the Company would add value to the wealth of the customers, employees, shareholders and to society as a whole.
3.6 Core Value of NHFIL
- Protect national interest and be part of national growth and prosperity.
- Create good leaders rather than typed managers.
- Give high priority on honoring trust, fairness, confidentiality, rules and regulations, objectivity, transparency, integrity, and corporate, individual and social responsibility.
- Always keep pace with state of the art technology and innovative ideas.
3.7 Objectives of NHFIL
- Maximize shareholders’ value through development of stringent investment strategy and control procedures.
- Create balanced portfolio in potential sectors for enhancement of corporate strength.
- Provide diversified products and uninterrupted services to the valued clients.
- Pursue ways to reduce cost, apply extremely vigilant terms to monitor risks and to operate most efficiently.
- Maintain highest standards of transparency and strengthen good corporate governance practices.
3.8 Code of Conduct & Ethical Principles
- Maintain strict professional integrity, proficiency, decency and self-esteem with the customers and related parties.
- Comply with all applicable laws, rules and regulations.
- National Housing is always straightforward in disclosing any conflict of interest.
- Maintain stringent confidentiality of customers’ information unless otherwise directed by competent regulatory authority.
- Courtesy and cooperation to the client is our manifesto. Encourage employees to act in a professional and ethical manner so as to create a good impression of National Housing and its employees, Trustworthy commitment to customers to build long-term relationship.
- Apply professional judgment and high quality care in all cases.
- Apply own corporate policies and appropriate technical and professional standards for rendering services to the client.
- Encourage and act against falsification, dishonesty, fraud, trickery and forgery.
Uphold the company’s good name and integrity.
3.9 Products & Services of NHFIL
Home Mortgage Loan
- Self Construction of Own home
- Purchase of Apartment or House
- Renovation of Existing House/Apartment
- Housing Plot purchase
- Commercial space and Chamber for Professionals
- Any purpose Mortgage Loan
Project Mortgage Loan
- Project Mortgage Loan for property Development.
Lease Finance
- Acquisition of industrial Machineries, Equipments, Generator, Power plant etc.
- Car purchase
- Medical/ Hospital Equipments
Term Loan for Industries
- Work Order Finance
- Factoring
Deposit Schemes with Attractive Return
- Term Deposit Account
- Double Money Account
- Income Account
- Monthly Savings Scheme
- Millionaire Savings Account
Deposit Scheme
1) Income Account
Invested Amount: 1 Lac
| Term | Monthly Income | Quarterly Income | Half yearly Income |
| 2 Years | 1,000 | 3,000 | 6,000 |
| 3 Years | 1,111 | 3,332 | 6,665 |
| 4 Years | 1,111 | 3,332 | 6,665 |
| 5 Years | 1,111 | 3,332 | 6,665 |
2) Term Deposit Account
| Term | Applicable Rate of Return |
| 6 months | 13.00% |
| 1 Year | 13.50% |
| 2 Years | 14.00% |
| 3 Years | 14.25% |
3) Double Money Account
| Term | Applicable Rate of Return |
| 72 months | 16.67% |
4) Monthly Saving Scheme
| Monthly Ins. | 500 | 1,000 | 1,500 | 2,000 | 2,500 | 5,000 |
| Payable after 3 years | 21,750 | 43,500 | 65,260 | 87,015 | 108,770 | 217,540 |
| Payable after 5 years | 41,250 | 82,500 | 123,750 | 165,000 | 206,250 | 412,500 |
5) Millionaire Scheme
| Period | Monthly Installment | Payable after Maturity |
| 7 years | 7,750 | 1,000,000 |
| 10 years | 4,440 | 1,000,000 |
SME Loan
- Refinancing Scheme by Bangladesh Bank to support entrepreneurs of small and Medium Enterprises
- Refinancing Scheme by Bangladesh Bank to support women Entrepreneur of small and Medium Enterprises
3.10 Corporate Information & Key Milestones of NHFIL
Registered Name : National Housing Finance and Investments Limited
Legal Form : Public Limited Company under Companies Act, 1994
Incorporated on : August 18, 1998
Registration Number : C-36097(397)/98
Authorized Capital : BDT 2,000 million
Paid-up Capital : BDT 520 million
Certificate of Commencement : August 18,1998
Date of Bangladesh Bank License : December 29, 1998
First Mortgage Loan : June 16, 1999
Opening of Motijheel Branch : August 18, 2001
First Lease Finance : February 22, 2004
Opening of Chittagong Branch : April 06, 2004
Opening of Gulshan Branch : June 01,2004
Date of listing:-
Dhaka Stock Exchange : December 23, 2008
Chittagong Stock Exchange : November 11, 2008
Opening of Bogra Branch : April 19, 2009
Auditors:
Hoda Vasi Chowdhury & Co., Chartered Accountants, BTMC Bhaban (8th Level) 7-9 Kawran Bazar,Dhaka-1215, Bangladesh.
Contact Details:
Head Office: 109 BIr Uttam C.R. Datta Road (Ex-Sonargaon Road), National Plaza (7th & 8th Floor). Dhaka-1205, Tel: 9670612-4, 9677181-2, 9669800 Fax: 9671016E-Mail: info@nationalhousingbd.com
Legal Advisor:
Barrister Masudur Rahman, (Masudur Rahman & Associates), Barrister ASM Abdur Razzaque, (Abdur Razzaque & Associates) Barrister Abdul Kuddus, (Law and Remedy)
3.11 Corporate Social Responsibility
The business and economic environments have undergone dramatic changes all over the world. Escalation of poverty and climate changers have become great hurdles for economic growth of the world. Considering these, the concept of Corporate Social Responsibility (CSR) is the demand of the current era. CSR has become a concept that frequently overlaps similar approaches, such as corporate sustainability, corporate sustainable development and corporate responsibility.
To meet CSR, the sponsors of National Housing Finance and Investments Limited formed a public Limited Company under the Companies Act, 1994 and licensed by Bangladesh Bank under the Financial Institutions Act, 1993 to meet the most important basic need of housing of urban people. National Housing is a socially responsible organization and always keen to promote the interest of customers, employees, shareholders and communities as a whole. National Housing has upheld its CSR in the following ways:
- National Housing has provided 4074 Home Mortgage Loans over the years at comparatively low interest rate on reasonable terms and for long durations.
- A good number of clients got waiver of interest due to their inability to pay the loan because of permanent disability or through death. Furthermore, their loans are rescheduled for reasonable durations with installments commensurate with their ability to pay their loans.
- National Housing is always strict on principle about not providing any lease/loan facilities for any environmentally hazardous or child labor oriented company.
3.12 Director Information
List of Board of Directors
| SL | Name | Representation |
| 1 | Mr. Latifur Rahman (Chairman) | Bangladesh Lamps Ltd. |
| 2 | Mr. Neaz Ahmed (Director) | National Bank Ltd. |
| 3 | Mr. Sayed Monjurul Islam (Director) | IFIC Bank Ltd. |
| 4 | Mr. Muminul Haque Chowdhury (Director) | Borak Travels (Pvt.) Ltd. |
| 5 | Mr. Md. Rezaul Karim (Director) | Shadharan Bima Corporationd |
| 6 | Mr. Azmal Hossain (Director) | Eastern Insurance Co. Ltd. |
| 7 | Mr. Mahamudul Huq Taher (Director) | National Life Insurance Co. Ltd. |
| 8 | Mr. M. Azmal Hoque (Director) | Estland Insurance Co. Ltd. |
| 9 | Mr. Mizanur Rahman (Director) | Shaw Wallace Bangladesh Ltd. |
| 10 | Mr. Md. Kabir Reza (Director) | Square Pharmaceuticals Ltd. |
| 11 | Mr. Syed Ali Jowher Rizvi (Director) | Overseas Investors Forum (Zambia) |
| 12 | Prof. Imran Rahman (Independent Director) | N/A |
| 13 | Md. Abdur Rob (Managing Director) | Ex- officio Director |
3.13 Shareholding Structure of the year end 2011
Sponsor Shareholder 90.31%
Banks 14.15%
· IFIC Bank Ltd.
· National Bank Ltd.
· United Commercial Bank Ltd.
Insurance Companies 33.41%
· Eastern Insurance Company Ltd.
· Eastland insurance Company Ltd.
· Jibon Bima Corporation
· National Life insurance Company Ltd.
· Pragati Insurance Ltd.
· Reliance Insurance Ltd.
· Sadharan Bima Corporation
Local Corporate/Business Groups 33.32%
· Bangladesh Lamps Ltd.
· Borak Travels (pvt.) Ltd.
· HRC Bangladesh Ltd
· Shaw Wallace Bangladesh Ltd
· Square Pharmaceuticals Ltd.
· Summit industrial and Mercantile Corporation (Pvt.) Ltd.
· Unicorn Equities Ltd.
Non-Resident Bangladeshi Investors 9.34%
· Overseas Investors Forum (UK)
· Overseas Investors Forum (Zambia)
General Shareholders 9.69%
Total- 100%
Chapter: 4
Credit performance department
4.1 Loan and Credit Department
4.2 Credit Evaluation Principals
4.3 Pre disbursement Compliance
4.4 Steps involved in Credit processing
4.5 Existing Process of handling Loan
4.6 Credit Query
4.7 Documentation of the Loan
4.8 Loan and Credit Facilities
4.1 Loans & Credit Department:
Credit decisions are heart of all credit works. Generally branch manager and the credit in-charge of a branch are held responsible for appraising of a loan proposal. The customer request for credit limit and the credit officer prepares a credit memo and send it to the head office, credit division. After taking all the relevant information from the branch the head office credit division sent the credit memo to the credit committee. Credit committee of NHFIL is comprised of Managing Director and other top-level executive. If credit committee is convinced about the merit of the proposal then it is sent the broad of directors. The board is final authority to approve or decline a proposal. The whole process takes a month or more.
4.2 Credit Evaluation Principles
Some principles or standards of lending are maintained in approving loans in order to keep credit risk to a minimum level as well as for successful banking business. The main principles of lending are given below:
4.2.1 Liquidity:
Liquidity means the availability of institutions funds on short notice. The liquidity of an advance means it repayment on demand on due date or after a short notice. Therefore, the non-banking financial institutions must have to maintain sufficient liquidity to repay its depositors and trade off between the liquidity and profitability is must.
4.2.2 Safety:
Safety means the assurance of repayment of distributed loans. It is in business to make money but safety should never be sacrificed for profitability, To ensure the safety of loan. The borrower should be chosen carefully. He should be a person of good character & capacity as well as financial institutions must have to maintain eligible number of security from borrower.
4.2.3 Profitability:
Financing is a business aiming at earning a good profit. The difference between the interest received on advances and the interest paid on deposit constitutes a major portion of the institutions income. The financial institutions will not enter into a transaction unless a fair return from it is assured.
4.2.4 Intent:
Banks sanction loans for productive purpose. No advances will be made by bank for 5nproductive purposes though the borrower may be free from all risks.
4.2.5 Security:
The security offered for an advance is an insurance to fall financial institution upon in cases of need. Security serves as a safety value for an unexpected emergency. Since risk factors are involved, security coverage has to be taken before a lending.
4.2.6 National interest:
Banking industry has significant role to play in the economic development of a country. The bank would lend if the purpose of the advances can contribute more to the overall economic development of the country.
4.3 Pre-disbursement Compliance
When the credit proposal are approved the credit officer must have to be ensured that the disbursement of the credit facilities must comply with the directions written in the credit policy and circular made by time to time along with checking all the following terms and conditions.
4.4 Steps Involved in Credit Processing
4.4.1 Application for loan:
Applicant applies for the loan in the prescribed form of Organization. The purpose of this forms is to eliminate the unwanted borrowers at the first sight and select those who have the potential to utilize the credit and pay it back in due time.
4.4.2 Getting Credit information:
Then the organization collects credit information about the borrower from the following sources:
1. Personal Investigation
2. Confidential report from other bank/ Head office/Branch/Chamber of commerce
3. CIB report from central bank
4.4.3 Scrutinizing and Investigation:
Non-banking financial then starts examination that whether the loan applied for is complying with its lending policy. If comply, than it examines the documents submitted and the credit worthiness. Credit worthiness analysis of financial conditions of the loan applicant are very important. Then bank goes for Lending Risk Analysis (LRA) and spreadsheet analysis, which are recently introduced by Bangladesh Bank. According to Bangladesh Bank rule, LRA and SA is must for the loan exceeding Dhaka core.
If these two analyses reflect favorable condition and documents submitted for the loan appears to be satisfactory then, financial institution goes for further action.
4.5 Existing process of handling loans:
The process of sanctioning loans is as follows:
The C’s of Good & Bad Loan:
The Branch manager of NHFIL try to judge the possible client based on some criteria. These criteria are called the C’s of good and bad loans. These C’s are described below:
4.5.1 Character
The outcome of analyzing the character is to have overall idea about the integrity, experience, and business sense of the borrower. Two variables; Interaction/interview, and Market Research are used to analyze the character of the borrower.
1. Interaction/interview: the indicators are
a) Prompt and consistent information supply, information given has not been found false (Willingness to give information).
b) CIB also reveals business character.
c) Willingness to give owns stake/equity & collateral to cover.
d) Tax payer.
2. Market Research:
a) Information on business is verified.
b) Dealing with supplier and or customer as supplier is also a kind of lender; the payment character can also be verified.
4.5.2 Capital
For identifying the capital invested in the business can be disclosed using the following indicators.
a) Financial Statements
b) Receivable, Payable, statements to practically assess the business positions. Net worth through financial statements or from declaration of Assets & Liabilities.
4.5.3 Capacity (Competence)
Capability of the borrower in running the business is highly emphasized in the time of selecting a good borrower. As the management of the business is the sole authority to run the business that is use the fund efficiently, effectively and profitably. The indicators help to identify the capacity of the borrower.
a) Entrepreneurship skills i.e. risk taking attitude shown by equity mobilization.
b) Management competencies both marketing and products detail, ability to take decision.
c) Resilience or shock absorption: Connection, Back up (if first time falls second lines come to help.)
4.5.4 Collateral
Make sure that there is a “second way out “of a credit, but do not allow that to drive the credit decision.
4.5.5 Cash Follow:
Cash flow is the vital factor that is used to identify whether the borrower will have enough cash to repay the loan or advance. Cash keeps the liquidity to ensure repayment. The relationship managers try to identify the annual cash flow from the submitted statements.
4.5.6 Conditions:
Understanding the business and economic conditions can and will change after the loan is made.
4.5.7 Complacency:
Do not rely on past history to continue. Stay alert to what can go wrong in any loan.
4.5.8 Carelessness:
Remember that documentation, follow-up and consistent monitoring is essential to high quality loan portfolios.
4.5.9 Communication:
Share credit objectives and credit decision making both vertically and laterally within the financial institution.
4.5.10 Contingencies:
Make sure that you understand the risks; particularly the downside possibilities and that you structure and price the loan consistently with that understanding.
4.5.11 Competition:
Do not get swept away by what others are doing.
4.6 Credit Query:
The loans and advance department gets a form filled up by the party seeking a lot of information.
The officer of Loan Administration must collect the acceptance of the customer’s of the terms and conditions on the duplicate copy of the sanctioned advice.
They will thoroughly examine and ensure that the subject credit facility does not contradict to any law, rules and regulation of the country, Bangladesh Bank and
· Deed of the Mortgage and power of the Attorney to be drafted and executed under the Supervision of the financial institution’s Legal Advisor.
· Lawyers certificate to the effect that all the legal formalities (Equitable/ Registered Mortgaged) has been properly created on the land and building in favor of the financial institution & institution has acquired the effective title of the property.
· Registered power of attorney has been collected form the borrower (contractor) assigning the work order favoring the NHFIL and the power of attorney has been registered with the work order given agency and they have agreed that they will issue all the cheques favoring NHFIL.
· The legal documents of the vehicle have been obtained.
Collection of the satisfaction certificate in respect of all the documents both legal and banking from the lawyer.
· Entry has been made in the Safe -in and Safe-out register and the documents are preserved.
After being satisfied all the above terms and conditions the credit in-charge will disburse the loan amount to the client.
4.7 Documentation of the Loan:
Documentation is obtaining such agreement where all the terms and condition and securities are written and signed by the borrower. It specifies rights and liabilities of both the lender and the borrower. In documentation each type of advances requires a different set of documents. It also differs with the nature of securities. The documents should be stamped according to the stamp Act. There are no hard and fast rules of documentation and it varies from organization to organization. Generally, the documents are taken in the case of a secured advance by NHFIL:
i. Demand promissory note: Here the borrower promises to pay the loan as and when demand by bank to repay the loan.
ii. Letter of arrangement.
iii. Letter of continuity.
iv. Letter of hypothecation of goods and capital machinery.
v. Stock report: This report is used for OD and CC. In this report, information about the quality and quantity of goods hypothecated is furnished.
vi. Memorandum of deposit of title deed of property duly signed by the owners of the property with resolution of Board of Directors of the company owning the landed.
vii. Personal guarantee of the owners of the property.
viii. Guarantee of all the directors of the company.
ix. Resolution of the board of directors to borrow fund to execute documents and completes other formalities
x. Form no. XVII/XIX for filling charges with the register of joint stock companies under relevant section.
xi. Letter of Revival
xii. Letter of lien for advance against FDR.
| 4.9Loans and Credit Facilities:
Credit Facilities and Program
Home Mortgage Loan: The main objectives of the company are to carry on the business of financing the acquisition, construction, development and purchase of houses, plots, apartments, real estates, commercial spaces, etc. And the loans are full secured by registered mortgage of property against which the loans are extended. The Company provides loan to the extent of 70% of the total purchase price of houses, plots and apartments under usual repayable terms varying from 5 years to 20 years.
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| v | Project Mortgage Loan
Lease Finance
Term Loan for Industries
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| v | SME Finance
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| v | Women Entrepreneur Loan | ||||||||||||||||||||||||||||||||||||||||
| v |
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| v |
Chapter: 5
Credit Analysis and Findings of National Housing finance and investments Limited
Here we can see the portion of different sector of distribution and the major part is Home loan 57.39% and Lease finance 22.15
6.2 Operational Overview of National Housing
Despite depressed Market Conditions and subdued activities in the housing and construction sectors, NHFIL has been able to expand its business activities during 2011 which can be seen from the data furnished below:
| Particulars | 2011 (Million) | 2010 (Million) | ||
| Disbursement | Outstanding portfolio | Disbursement | Outstanding portfolio | |
| Home mortgage loan | 350.35 | 2380.86 | 623.12 | 2386.53 |
| Lease finance and other loans | 667.74 | 1765.66 | 887.16 | 1601.22 |
| Total: | 1018.09 | 4146.52 | 1510.28 | 3987.74 |
Interpretation:
We can see the main change of disbursement in home mortgage loan is decreased by Tk.272.77 million in 2011 from the year2010. This is very negative sign. On the other hand disbursement amount of lease finance and other loans are increased by Tk.219.42 million in 2011from the year 2010. This is very positive sign. The total portfolio of the company increased by Tk.158.78 million to Tk. 4146.52 million during 2011, registering a growth rate of 3.98%.
6.3 Intra Company Analysis:
Horizontal Analysis:
Basically, used this analysis in intra company analysis to analyze the Income Statement and Balance sheet of National Housing Finance and Investments Limited. Since this technique enable us to evaluate a series of financial statements over three period of time (FY2009, FY2010, and FY2011) so it helps to determine the increase or decrease that has taken place and the change has been expressed as an amount and also as a percentage. In this Horizontal analysis of income statement and balance sheet FY2009 has been assumed as base year and compare to this year the change as an amount or as a percentage of FY2010 and FY2011 has shown below-
National Housing Finance and Investments Limited
Income Statement
31st December
| Types | All figures in million | Increase or (Decrease) during 2010 | Increase or (Decrease) during 2011 | ||||
| 2009 | 2010 | 2011 | Amount | Percent (%) | Amount | Percent (%) | |
| Interest Income | 656.86 | 613.31 | 736.30 | (43.55) | -6.63% | 79.44 | 12% |
| Interest paid on deposits, borrowings etc | (425.69) | (362.84) | (476.46) | (62.85) | -14.7% | 113.62 | 31% |
| Net interest | 231.18 | ||||||