“CREDIT EVALUATION PROCESS OF THE PREMIER BANK LIMITED”
REPORT ON CREDIT EVALUATION PROCESS
The policies, procedures and controls outlined in this Manual are minimum operating requirements and should not therefore be considered as all-inclusive.
It is envisaged that the procedures and controls given in this Manual should not limit the scope for the credit manager’s own judgment or be seen as fetters of his enterprise and business acumen. It is only intended that these procedures will equip him to assess business risks more closely and more methodically.
Staff/officers should keep in mind the Bangladesh Bank credit restriction on advances while handling customer (s) requests for credit facilities.
They are also advised to make themselves conversant with “Managing Core Risks in Banking” prepared for Bangladesh Bank and received by the bank in October/2003.
PRINCIPLES OF LENDING
The principles of lending can be considered as follows:
PROFITABILITY
All credit facilities granted to the Bank’s customer must produce profit. When judging a credit proposal, branch managers/ Business Relationship managers should take a comprehensive view of the business and other allied business that will be received by the branches. Particular attention should be given to facility parameters (e.g./ maximum amount, purpose, repayment period, security, pricing) should be clearly stated.
PURPOSE OF THE FACILITY
– The purpose of advance should be studied with a view to understanding whether it is within the policy of the Bank. The purpose of borrowing should not in any way contravene laws or Bangladesh Bank exchange control /banking control requirements.
– In the case of corporate borrowers, the purpose of borrowing must be consistent with the objectives of the company. The objectives laid down in the memorandum and articles of association or bye-laws of the company must be carefully examined before considering any credit facility for limited companies.
– In the case of other borrowers it must be in line with the occupation mentioned in AOF.
SOURCE OF REPAYMENT
– Demand /supply of the goods /product has to be carefully considered for repayment of the outstanding. If the goods /products have a continuous market then the repayment is considered realistic within a period, as agreed, by profitable cash generation.
– Long-term advance, generally over 5 years: examples of such facilities are investment in plant and machinery, buildings, a shop: generally, a long term loan is repaid out of future profits generated by the business.
– Before granting a facility Relationship manager/Branch manager should ensure that a reliable source of repayment exists and that the advance will be paid within the agreed period. When considering the period of repayments, sufficient margin should be provided for unforeseen circumstances such as downward markets trend or the general economic condition of the country. Besides payments of interest and installments, the funds generated by the business should preferably leave adequate margin for meeting needs
AOF-Account Opening Form.
– For future expansion or other business contingencies.
– Where the facilities are adequately secured by fixed assets, the sale proceeds of such security should not be considered as a prime source of adjustment of the facilities, since profitable cash generation of the business we considered as the prime source.
– In order to ascertain the capacity of the business to meet it’s obligations, the cash budget projections should be critically examined to ensure that repayment projection is realistic/ acceptable.
– Regular monitoring of cash budget should continue during the life time of the advance, and if any deviation is in evidence should be examined for a revised cash budget statement and carefully monitored.
SAFETY
– To safeguard Bank’s interest over the entire period of the advance, a comprehensive view of the capital, capacity and integrity of the borrower, adequacy and nature of security, (KNOW YOUR CUSTOMER) compliance with all legal formalities, completion of all security documentation and finally a constant watch on the account and cash budget/cash flow are called for. All advances will be against adequate security.
– The basis of security valuation will be expert third party assessment at two levels; current market price and forced sale value.
– In the case of property, valuations should be provided by estate valuation personnel /expert valuation firm.
– Inventory valuations may be taken at the balance sheet values shown in unqualified audited accounts after the branch manager /Relationship manager has carried out his own investigation in to the composition of the inventory.
– Specialist valuation personnel, and or expert valuation firm will be requested by the branch manager/RM to provide other asset valuations such as machinery and equipment.
– The value of debtors may be taken at the balance sheet values shown in unqualified audit accounts.
– The above valuation is applicable for a business under a going concern concept and that the advance is rated good.
– In case the account is down graded the value of stocks and debts should be ignored for finding out the realization value.
RM-Relationship Manager
VARIOUS TYPES OF BORROWERS
In this chapter, eight types of borrowers are considered:
1) Individuals: Single and Joint
– The fact that two or more persons have jointly opened an account does not imply that they have power to pledge each other’s credit.
– Joint account mandate should therefore in variably be signed by all parties to the account when opening an account.
– The branch manager /manager, should also ensure that joint & several liability of all the joint account holders is established in the joint account mandate.
– One advantage of securing joint and several liability of joint account holders is that it will enable the bank to set off a credit balance in the personal account of any of the joint account holders against the debit balance in a joint account.
– It is necessary to break the existing joint account immediately upon receipt of notice of death, insolvency or mental in capacity of one of the joint holders.
– Breaking off an account means that no further withdrawls should be allowed after the receipt of notice
– The account should not be closed nor should the balance be transferred to a new account.
– If further withdrawals are allowed, they should be recorded in a fresh account to be opened in the names of the remaining joint account holders after completing all the formalities.
– As soon as possible thereafter the credit facilities granted should be reviewed at the appropriate level.
– Ensure that Borrower is not suffering from any incapacity. In particular, verify that Borrower is not a minor, insane or insolvent, apart from verifying character and credit worthiness. These persons are not capable of contracting and therefore any borrowing by them could be unlawful.
PARTNERSHIPS
– Every partner is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner. After his death his estate is also severally liable. However, it is advisable to obtain legal advice as regards the charge documents to be obtained from the partners if doubt arises for any reason, so that the Bank’s interest is protected at all times.
– Although any partner in a trading firm has implied power to open a banking account in the firm’s name and so bind the partnership, he cannot bind the firm by opening an account in his own name for the firm unless he has been expressly so authorized by all the partners.
– Any change in the partnership due to death, bankruptcy, retirement, addition of or mental incapacity of a partner dissolves the firm. After such an event the account of the partnership must be broken. Breaking of an account means that no further operations are allowed after receipt of notice of death or any other change in the composition of the partnership. The account is not closed and it should not be transferred. Further operations, if any should be allowed in a new account with the remaining partners.
– The credit facilities should be reviewed as soon as possible and the decision whether any action is required against the estate of the deceased should be taken.
– The branch manager should obtain guidance if considered necessary from the Bank legal advisor, who in turn will be able to advise the branch manager on the actions that he should take in the event of any change in the partnership’s legal composition/content.
PARTNERSHIP AS BORROWER
– Obtain partnership Deed
– Verify whether there is any restriction on borrowing
– Check who are the partners who are empowered to borrow. What are the limitations, if any on such borrowing?
-Is the purpose of the ‘borrowing’ within the scope of the partnership business?
-Is the partnership authorized to give guarantees?
-Verify whether there is any restriction in creating mortgage / charge on properties of partnership.
-Obtain personal guarantees of all partners.
-Have documents signed by all partners unless any one of the partners, or the single partner-signing document is deemed fully competent to do so under which the firm is constituted.
LIMITED COMPANIES
– The bulk of advances are granted to companies, whether Private or Public. It should be clearly understood that a company is a separate legal entity, distinct from its directors and shareholders.
The bank officer will ensure that the following documents are already with the bank
a) Copy of the Memorandum and Articles of Association.
b) Copy of the certificate of incorporation or evidence that this has been inspected and returned to the customer.
c) Certificate of authority to commence business.
(This is not required in the case of Private Company)
d) Certified copy of a Resolution of the Board of Directors regulating the conduct of the Account.
– The following questions should be raised by the branch/credit manager when considering any credit facility to a corporate borrower. The answers to these questions can be obtained by reference to the Memorandum and Articles of Association and duly authorized bye-laws and resolutions of the company.
a) Whether the company and /or its director has the power to borrow, to invest or lend its funds, to mortgage its property and give security, and to give guarantees.
The Memorandum and Articles of Association or bye-laws etc. normally define the company’s power to borrow etc.
b) What are the limitations on the amount, which can be borrowed? Sometimes the amount that may be borrowed by the directors is limited either to a particular figure or to a figure worked out by some formula. For example, directors may be restricted to borrow up to the amount of Paid-up capital of the company. The branch manager should ascertain by reference to the memorandum or articles of association whether any limitation has been placed on the director’s power: borrowing in excess of the limit given in the Memorandum or bye-laws is ultra-vires and since such borrowings are void the Bank will not be able to recover them from the company.
c) What is the purpose of borrowing? It must be within the scope of the company’s objectives. The Memorandum and Articles of Association, bye-laws etc. describe the company’s principal and subsidiary objectives. It must also be ensured that the directors exercise their authority legally and in the general interest of the company.
d) What powers are there to give security?
The Memorandum & Articles of Association specifies the powers enjoyed by the company in giving charge on its assets. The directors’ power to give charge on a company’s assets is detailed in the articles of association. The branch / credit manager must examine the articles to ascertain whether any specific restrictions have been placed on the directors’ power to give security.
LIMITED COMPANIES AS BORROWER
A. 1 (i). Obtain Memorandum and Articles of Association / Statute under which the corporation is established.
A. 1(ii) Verify: (a) whether it is empowered to borrow;
(b) Are there restrictions on the corporation’s power to borrow, e.g. limitation as to the amount?
(c) What are the Directors’ borrowing powers?.
(d) Is the purpose of the borrowing within the objective clause of the Memorandum and Articles of Association / charter?
(e) Is it empowered to create mortgage /charge on its properties?
(f) Is it empowered to give guarantees?
A.1 (iii) Obtain appropriate Board Resolution to borrow and any other documents, as may be required in terms of sanction.
A.1 (IV) Have the documents been signed by persons properly authorized? (If in doubt, verify who is /are authorized to sign on behalf of the borrower i.e. authority of directors in Memorandum & Articles of Association and / or in Board Resolution and /or in other records). Make sure of the identity and signature of authorized persons.
A.1 (v) Inspect the official records (e.g. the office of the Registrar of Joint Stock Companies) to ascertain (a) what is the Paid-up Capital; (b) who are the directors; (c) what are the charges /mortgages already registered in respect of properties of the Borrower etc. Obtain certified copies of these records and preserve.
UN INCORPORATED BODIES
– Unincorporated societies or clubs cannot be sued for a debt. The branch manager should not allow any advance, including temporary overdraft, to such societies or clubs.
– Credit facilities to unincorporated societies or clubs are sometimes granted against the personal guarantees of members of the club or pledge of specific securities. The branch/ credit manager should make reference to HO and obtain prior approval and guidance before granting an advance to an unincorporated society or club.
TRUSTS
– Trustees have no automatic implied powers to borrow for the purpose of the trust. It is necessary to ascertain from the trust deed or the rules and regulations of the charity whether the trustees possess the necessary power to borrow.
– Similarly, trustees do not have the power to offer any asset belonging to the trust as security, unless the trust deed or similar document has expressly empowered them to do so.
LOAN CATEGORY SET OUT IN BANGLADESH BANK
LOAN CLASSIFICATION MANUAL
i) Agriculture – (AG)
ii) Large and Medium Scale Industry (Term Loan) – (LM)
iii) Small & Cottage Industry (Term Loan) – (SCI)
iv) Working Capital – (WCL)
v) Working Capital (Small Industry) – (WCS)
vi) Export – (EX)
vii) Commercial Lending – (Com)
viii) Ready Made Garments – (RMG)
ix) Housing – Commercial – (HC)
x) Housing – Residential – (HR)
xi) Other – (OT)
SMALL BUSINESS / PERSONAL LOAN ASSESSMENT FORM
A statement of financial position (as at date of application and/ or end last month) for loan/ advance applied for by an individual/ retail and/ or small borrower must be obtained to asses the Liabilities / Assets of the customer in the proforma as appeared in the next page.
SMALL BUSINESS / PERSONAL LOAN ASSESSMENT FORM
The Manager
The Premier Bank Limited.
STATEMENT OF FINANCIAL POSITION AS AT / / Taka in nearest whole unit.
| LIABILITIES | Taka | Assets | Present Value
Taka |
||||
| The Premier Bank Limited | The Premier Bank Limited | ||||||
| – Overdraft/ Cash Credit | – Current A/C | ||||||
| – Other loans | – Saving A/C | ||||||
| – Accrued interest | – Other Term Deposit etc.. | ||||||
| Other banks-Borrowings | Accounts at Other banks | ||||||
| – over draft /cash credit | – Current A/C | ||||||
| – loans | – Saving A/C | ||||||
| – Accrued interest | – Other Term Deposit | ||||||
| Borrowing from Employer | – Any other Deposit | ||||||
| Accrued interest | Book debts | ||||||
| Credit cards | Stocks in trade | ||||||
| Other outstanding accounts (specify) | Work in Progress | ||||||
| Trade creditors & bills payable | House property | ||||||
| Loans against Life Policies | Address | ||||||
| In name of | |||||||
| Mortgages/ Loans | |||||||
| Asset charged to | Purchased / / for Taka | ||||||
| 1. | Insured for Taka | ||||||
| 2. | Other property (details) | ||||||
| 3. | |||||||
| TIN # | |||||||
| Taxation due on | |||||||
| Other liabilities (details) | Motor Vehicles /Motor Cycle
Make Model Cost Tk. |
||||||
| Savings Certificates/ Prize Bonds/ Bonds | |||||||
| (Market Value) | |||||||
| ICB Certificates | |||||||
| Shares/debentures (Market Value) | |||||||
| Office equipment (details) (Cost Taka) | |||||||
| Plant and machinery (Cost Taka)_ | |||||||
| Furniture and household effects (Cost Taka)_ | |||||||
| Life policies Annual Premium Tk. | |||||||
| Date | Sum | Annual | |||||
| Taken | Assured | premium | |||||
| due | |||||||
| Total Liabilities | Other assets (details) | ||||||
| Surplus | |||||||
| Total (to agree with total assets) Taka | Total assets Taka | ||||||
| Contingent Liabilities( Guarantees to bank and others) | |||||||
P.T.O
Taka in whole unit
| Income (Average monthly) | Expenses/Commitments (Average monthly) | ||
| Business Income -Sales Taka | House Loan repayments- | ||
| -Net profit | Other loans (details) | ||
| Salary (Net after tax & super) Self | Rent payable | ||
| – Spouse | |||
| Overtime | |||
| Part time employment | |||
| Dividends | Credit cards | ||
| Interest | Lease in statement payable for | ||
| Rent received | |||
| Commission | |||
| Other (details) | Lease rental (terminating for | ||
| Payment to | |||
| Taxation (if not deducted from income) | |||
| Life assurance premiums | |||
| PF contribution | |||
| Car reg. Ins. and running expenses | |||
| Rates-Government & Municipal | |||
| Utilities i.e. fuel, light, water | |||
| Telephone and power | |||
| Education (No of children) | |||
| Total monthly income | Tuition fees etc. | ||
| Living expenses food, clothing & personal) | |||
| Less total monthly outgoing | Medical | ||
| Social Commitment | |||
| Club Bill | |||
| Total monthly income Taka | Total Monthly Outgoing |
WORKING CAPITAL
WORKING CAPITAL-funds invested is a company’s Cash, Accounts Receivable, Inventory and other CURRENT ASSETS (Gross Working Capital). Working capital finances the CASH CONVERSION CYCLE of a business-the length of time required to convert raw materials into finished goods, finished goods into sale, and accounts receivables into cash. These factors vary with the type of industry and the scale of production, which varies in terms with reasonability and with sales expansion and contraction.
Internal sources of working capital include RETAINED EARNINGS, savings achieved through operating efficiencies, and the allocation of CASH FLOW from sources like depreciation of deferred taxes to working capital.
External sources include bank and other short-term borrowings.
CREDIT MEMO Page – 1
All figures in 000’s
| Originating Unit : | Number : | Date : | Review Date : | |||||||||||
| Applicant : | Customer | Telephone
Fax web site ID # CIB code TIN # |
:
: : : : : : |
|||||||||||
| grade : | ||||||||||||||
| Nature of Business :
INDUSTRY/BUSINESS LOCATED AT |
||||||||||||||
| MARKETED BY THE BANK/CUSTOMER
APPROACHED/REFERRED BY INDIVIDUAL |
LENDING CATEGORY | |||||||||||||
| Facility Type | Present Limit
Taka |
Proposed Limit. Taka | Outstandings
Taka |
1 | 2 | 3 | Interest/
Commission |
|||||||
| Purpose | Repayment | Security | ||||||||||||
| Total Currency Taka | Complies with Credit Policy | Yes/No | ||||||||||||
| Exception to Credit Policy obtained | Yes/No | |||||||||||||
| Exception to Credit Policy : | Approved/Reviewed : | |||||||||||||
Contd. P/2
Page – 2
FINANCIAL DETAILS OF CUSTOMER
(All figures in 000’s)
| Currency. TAKA | As at | ||
| Current Assets
Current Liabilities |
|||
| Net Current Assets/Liabilities | |||
| Fixed Assets
Other Non Current Tangible Assets Long Term debt deferred Tax Other Term Liabilities Intangibles Paid up Capital Reserves (inc. Retained Earnings) |
|||
| Tangible Net Worth |
| Sales (Turnover)
Profit (Before Tax) Net Profit (After Tax) Depreciation and other Non Cash Charges Dividends declared or withdrawals Capital Expenditure |
| Current Ratio
Leverage Ratio Gearing |
|||
| FACILITIES WITH OTHER BANKS (CIB / BANK / Self declared) | |||
Contd. P/3
Account Profitability Page – 3
| Balance of other accounts in name of Applicant at this or any other branch | ||||
| Constitution, date formed and up to date history of account | ||||
| Name of Directors, Names and means of Partners, Proprietor and Guarantors with address & phone | ||||
| Associated concerns and their relationship, also details of facilities granted thereto at this or other branches | ||||
| Main Participation and % Share holding | ||||
| Allocation of credit for this sector | To be filled in by HO | |||
| Balance during Past 12 Months | Enclosures | |||
| Maximum | Minimum | 1) Balance Sheet
2) SPREAD SHEET 3) Profitability Statement 4) Cash Budget |
||
| Current A/C Dr. | ||||
| Current A/C Cr. | ||||
| Letter of Credit | ||||
| Guarantees | ||||
| Import Bills (O/Due) | ||||
| Term Loan | ||||
Contd. P/4
Page – 4
| Certify That : | |||||
| 1 | Know your customer policy guidelines read & understood | 13 | Reconciliation of borrowing from the bank | ||
| 2 | CIB and Report from other banks obtained and found satisfactory | 14 | Memorandum and Articles of Association held | ||
| 3 | Security documentation complete and in order after sanction and before disbursement. | 15 | List of book debts examined and considered sound security | ||
| 4 | Conforms with exchange control requirements | 16 | The proposal does not contradict to any objective clause of the Bank. | ||
| 5 | No conflicting charges registered | 17 | The proposal does not contradict with rules and regulations of Bangladesh Bank and Banking companies Act. | ||
| 6 | No other charges outstanding except as detailed in latest B/sheet | 18 | Due diligence have been taken in processing the proposal and all facts relating to the proposal which came to our knowledge have been revealed in the Credit proposal. | ||
| 7 | Authorized limit adhered to and borrowings covered by security with stipulated margin | 19 | |||
| 8 | Swing of overdrawn accounts satisfactory | 20 | |||
| 9 | Stocks etc., fully insured to our satisfaction | 21 | |||
| 10 | Stock inspected and in order | 22 | |||
| 11 | Borrowing powers in order | 23 | |||
| 12 | Title and valuation of properties mortgaged to the Bank in order | 24 | |||
| Branch Manager’s comments and recommendation | |||||
| – Notes on certificates
– Waivers requested – Comments on Management Industry scan / Activities / Products / Markets – Key risk issues – Why do we want to do it – Competitors – Cash budget with explanation – Management, labor and other resources – Security – Account Profitability – Analysis of Risk Business Risk/SWOT – Financial Risk – Management Risk – Structural Risk – Security Risk – Accounts Performance Risk – Reward/Relationship strategy (Profitability) – Recommendation: |
|||||
CASH CREDIT
An advance under this head is granted for financing inventory, which may be either pledged or hypothecated to the Bank as security.
A limit is advised to the borrower.
INVENTORY
– A borrower should normally be granted credit facilities against pledge or hypothecation of those goods in which he usually deals.
– Raw materials for manufacturing goods are mostly imported and therefore the pre- manufacturing price of the materials is invoice value (C&F) + duty & taxes (customs bill of entry) + insurance cost +transport cost +storage cost + clearing & forwarding agents commission.
– The margin on the advance may be determined on the landed cost of the goods but an adequate margin should be maintained depending on the marketability of the finished goods.
– When considering an advance secured by locally purchased inventory it is important to verify that the borrower has the tittle to goods he intends to pledge or hypothecate to the Bank. Title to the goods can be verified by reference to the original invoices. Prices shown on purchase invoices can also help the Bank to determine the amount, which could be advanced against the goods after deducting an adequate margin. Generally the stipulated margin should provide for an adequate cushion at all times against falls in price or stock shortages due to handling.
– The safety of advances secured by inventory depends on the marketability of the goods and their value. The turnover of goods is a reliable indicator to ascertain the marketability of goods. When judging the turnover in the account, the total amount of receipts and payments in relation to the size of the advance should be considered.
– Lack of movement in the account may indicate that the goods are obsolete, out of fashion, overvalued or defective in some other way, and hence are not marketable. The aging of the goods may affect their quality and price leading to a reduction in inventory values and insufficient security cover for the advance.
– The branch manager must pay a great attention to movements in the customers’ account especially after the credit facility is secured against inventory. Turnover on the account should be consistent with the CASH BUDGET of the borrowers’ business.
– A realistic CASH BUDGET must be supported by each advance, which should be monitored carefully to ensure that the advance is repaid as budgeted. Any deviation must be carefully examined so that corrective measures are taken for repayment of the outstanding.
– A proforma of CASH BUDGET is enclosed.
– There are two ways in which the Bank may accept inventory as security for an advance.
(a) by pledge of goods
(b) By hypothecation of goods.
– Ensure that the charge on hypothecation has been registered with the Registrar of Joint Stock Companies in case of advance to limited companies.
A prohibition of further charge clause by other bank must be part of our charge in form xviii i.e. the charge form.
– In case of a pledge, goods are taken into the possession of the Bank and stored either in the Bank’s own warehouses or in warehouses approved by the Bank. One of the conditions which the bank should insist on is that the warehouse must provide as much care and attention to the safety of the goods as the owner of the goods himself could provide.
– An adequate waiver letter from the owner of the warehouse stating that bank’s charge will prevail over the charge of the owner of the warehouse so long the goods remain in the warehouse.
– The following additional points must be noted when considering the safety of the goods.
(i) The warehouse should be located in an area where there is reasonable security against theft and burglary, alternatively-guards at the warehouse may be considered.
(ii) The selection of the warehouse will depend on the specific nature of the goods stored: e.g. goods liable to be damaged by moisture and other hazards require extra precaution as regards the flooring and ventilation in the warehouse. Proper Dunnage should be laid on the floor before any storage is made.
– The warehouse should have leak-proof roofs and strong doors.
– The warehouse may be equipped with fire extinguishers.
– Insurance cover against possible hazards for full value of the goods + 10% must be obtained and recorded in the insurance register at the bank and filed with the security documents.
– Insurance policies must be renewed on expiry of the policy, and or delivered to the customer if outstanding repaid, against acknowledgement.
THE STOCK REGISTER
– A stock register for pledged goods must be maintained at the Bank branch.
– Movements for IN-OUT-BALANCE must be recorded at the time of entry and delivery of goods.
– A bin card also to be fixed with the stock in the godown for recording of the movements of the stock.
– Each delivery of goods must be supported by a delivery order executed by an authorized signatory of the bank. FIFO method should be applied for delivery if all goods are of the same nature.
Acknowledgement of delivery of goods must be obtained on the back of the delivery order by the borrower, by his signature, as recorded with the AOF and dated.
– The delivery order should be filed in the bank branch.
Note:
A DELIVERY ORDER is a document addressed by the owner of goods to the proprietor of a dock or warehouse in which the goods are stored, instructing such proprietor to delivery either all or some of the goods to a specified person or to his assigns. Although a delivery order is not strictly a document of title and does not require stamping, it is necessary to enable a third party to obtain goods covered by a warehouse keeper’s receipt or certificate.
INSPECTION OF GOODS
– Inspection of goods pledged to the bank should be carried out at regular intervals by a team of two officers at a time. While inspecting the goods, care should be exercised to ensure that.
(a) Goods are of a reasonable age: this would depend on the nature of the goods pledged.
(b) Goods are easily marketable at the value at which they are pledged.
(c) There is a frequent turnover of the goods pledged.
(d) Condition of the warehouse.
(e) Up to date receipts of Municipal tax receipts, etc.
– Inspection of goods should be carried out with reference to the stock list submitted by the borrower each fortnight /month. The inspecting officers will review the list and satisfy themselves as to its accuracy.
– The stock list should also tally with the stock register maintained at the branch.
– The stock list should be retained in the borrowers’ account file.
– The inspecting officers should submit a report on their findings.
– Satisfactory reports should be filed.
– Necessary follow up should be made with the borrower for correcting irregularities, if there are adverse comments.
– Name board inscribing UNDER PLEDGED TO THE PREMIER BANK LIMITED must be displayed in outside & inside the godown.
HYPOTHECATION
– A credit facility against hypothecation of goods will only be considered against established business house.
– The proprietor, partner, directors of the business house must be of indubitable integrity.
– The procedure of monitoring under hypothecation is similar to pledge with the following exceptions.
That the goods will remain under the control of the borrower.
The control is maintained on periodical submission of stock statements submitted by the borrower(s) and by regular inspection of stocks and by surprise inspection.
(1) Ensure that all transactions of the borrower(s) particularly in relation to the sale and purchase of goods hypothecated to the bank, must pass through the account with the bank, and reflected in the periodical stock statements.
(2) Ensure that margin stipulation on stock value is maintained.
(3) CASH BUDGET must be carefully examined to ensure regular sale proceeds as projected are deposited, and irregularity if any, must be examined and sorted out with the borrower.
BOOK DEBTS AND RECEIVABLES
– Book debts and receivables are a form of property which a owner (borrower) does not actually possess but which he has right to receive.
– In our country we seldom had experienced BOOK DEBTS constitute primary security. However, manufacturers /businessmen have to grant credit in the course of business resulting in book debts.
– It has been the practice prevailing in our country to obtain Hypothecation over BOOK DEBTS along with Hypothecation over stocks.
– Generally we should not consider book debts, which are more than three months old as a valuable security. Periodical ageing of outstanding book debts must be obtained preferably in the stock statement, and examined as to their realizable value.
– The branch must regularly monitor receipts of the security, which should reflect in the account.
– Quick recovery of Book debts influences the P & L of the entity.
– In the normal course, if the obligant is a limited company, a charge with the Registrar of Joint Stock Companies must be obtained in form xviii, and registration certificate obtained.
DEMAND LOANS (GEN)
Demand Loan is defined as a loan for a specific purpose, agreed and granted, repayable over a period of time in periodical installments. As usual interest is charged on a quarterly basis to the account and /or in current / savings account as agreed at the time of granting the loan.
SECURED OVERDRAFT (SOD)
Overdrafts for either short or longer periods are normally granted against the security of tangible assets and financial obligations viz. FDR, Sanchya Patras etc. They are called secured overdrafts.
EXPORT CASH CREDIT (ECC)
Credit facilities allowed to a borrower to facilitate export of commodities against Lien of Confirmed letters of credit and/or confirmed orders from the renowned foreign buyer.
The advance is repaid out of export proceeds within a maximum period of 180 days.
TEMPORARY OVER DRAFT-TOD (Current Account)
Customers who maintain satisfactorily conducted accounts may be accommodated at their specific request to overdraw their balance in the current account to meet unexpected and urgent requirements for credit facilities. The amount up to which overdrawing is permitted is dependent on the need of the customer, the previous conduct of his account with the Bank and turnover in the account, average balance maintained etc.
The overdraft must not be allowed to continue beyond 3-7 days from the date of sanction.
CLEAN ADVANCE
– In the course of our banking business, we require to give clean advance in exceptional cases only to parties of undoubted standing for a period not extending a week.
– While considering such facility to a highly rated customer, source of repayment must invariably be obtained, and confirmed.
– Advance payment against uncleared effects may be granted on the standing of the borrower.
– If the outstanding is not repaid within seven days, it should be reported to line management who in turn report to controlling authority, detailing reason of non-repayment and expected date of repayment.
CONSUMER CREDIT SCHEME
– Special credit of the bank to finance purchase of consumers durable to the fixed income group.
The bank normally finances up to a limit of maximum 90% of the goods to be purchased.
– The customers are allowed to enjoy the loan if the bank is satisfied that he/ she has the means to repay within a specified time period.
– Personal net worth statement must be obtained and verified before granting the loan.
– If the customer is an employee of a company / firm, a letter from the employer stating that monthly installment would be sent to the bank for repayment of the employers’ loan must be obtained.
HOUSE BUILDING LOAN
Loan granted to individual /corporate body for construction of buildings for living and/or for commercial purpose.
The amount of loan is required for a longer time as such repayment program must be supported by a cash budget for the life of the loan period and critically examined before granting of the loan.
HOUSE BUILDING LOAN (STAFF)
STAFF LOAN General
Any Loan considered / granted for our permanent STAFF ROLL is governed by staff TERMS OF SERVICES.
LOAN GENERAL
Loan created under short / medium/ long term to individual and /or to entities for a specific purpose repayable by installments.
TRANSPORT LOANS
Loans for acquiring any type of vehicles.
Cost of vehicles must be ascertained as under:
(i) Invoice value
plus (+)
(ii) Duty & Taxes (As appraised under custom’s Bill of Entry)
TERM LOAN
SMALL AND COTTAGE INDUSTRY
Short Term loans and / or medium term loan financing to small & Cottage Industry.
Small & Cottage Industry is defined as an industry having investment in fixed assets to the extent of Tk. 30m.
Short term: Loans having final repayment due up to and including 12 (twelve) months from the date of first disbursement.
TERM LOAN
LARGE AND MEDIUM SCALE INDUSTRY
Medium and long term financing for acquiring capital machinery and equipment of newly floated industries and/or for BMRE of an existing industrial units who are engaged in manufacturing goods and services.
Term finance to Tea gardens are also falls in this category
Long term means : Loans having final repayment due in more than 60 (sixty) months from the date of first disbursement.
Medium term means: Loans having final repayment due more than 12 (twelve) months but up to and including 60 (sixty) months from the date of first disbursement.
CONTINGENT FACILITIES
LETTERS OF CREDIT (L/C)
Letters of credit issued by the Bank can broadly be classified as under:
(i) Sight Letters of Credit (S L/C)
(ii) Usance Letters of Credit (U L/C)
– The Sight Letters of Credit call for the draft to be drawn ‘at sight’. Documents negotiated and received against S L/C are held as security till their retirement/payment.
– Drafts drawn under usance letters of credit are for a tenure specified in the L/C and are payable by the customer on due date.
– Where the beneficiaries of the L/C extend credit to the applicant, an ‘acceptance’ L/C is issued. Such Letter of credit is called usance Letter of Credit-Acceptance.
The acceptor of the Draft under U L/C-Acceptance signed the Bill of Exchange (B/E) by marking the B/E-ACCEPTED and signed.
– There are also other types of Letters of Credit, for example, “back to back”.
CONTINGENT FACILITIES
LETTERS OF GUARANTEE
Guarantees issued by the Bank can be classified under two categories.
(a) Financial guarantees, Where the Bank guarantees the fulfillment of a financial commitment on behalf of the customer, and
(b) Performance guarantees, Where the Bank guarantees the performance of a contract or other work as specified in the guarantee.
These two categories can be further subdivided into the following types of guarantees:
Financial Guarantees:
– Payment of dues guarantee, e.g. to a landlord guaranteeing payment of rent.
Under such guarantees there is an unconditional commitment to pay a certain amount on definite dates.
– Guarantee in lieu of security deposit e.g. to customer service concerns for connection of supply of gas / water/ electricity etc.
– Bid Bonds, which are issued in lieu of deposit of earnest money while bidding for a tender.
Under these guarantees, the bank is called upon to pay in the event of a breach of terms on the part of the customer.
Performance Guarantees:
– Under these guarantees, the Bank guarantees due fulfillment of a contract, undertaken by the customer. The amount of the guarantee is usually up to the extent of the value of the contract.
Shipping Guarantees:
– Under which the Bank issues guarantees in favor of the shipping company to enable the importer to obtain delivery of the goods without production of the Bill of Lading.
SECURITIES FOR ADVANCES – LAND & BUILDINGS / FLATS
– Securities taken by a bank as cover for an advance may be generally classified as Primary or Collateral.
Primary security is that which is regarded as the main cover for an advance.
Collateral security in general term we mean additional security for an advance.
LAND AND BUILDINGS
– Land and building have become increasingly more acceptable securities in the recent past, mainly due to steady increase in value in respect urban property particularly in DHAKA and other divisional cities of Bangladesh.
– Land and buildings are accepted as collateral with increasing reliance, in modern banking, to strengthen the bank’s security and reduce the risk factor considerably.
– It should always be remembered that the word “land” denotes not only the vacant land/ ground but also any building point. Consequently, if the borrower creates a mortgage of his land in the Banks’ favor and then proceeds to build a factory on that land, the factory building automatically becomes part of the Banks’ security.
– An absolute reliance on land as security for the realized value of the security may deviate from the valuation or prove to be time consuming to materialize
– Branches of the Bank should obtain as near as accurate valuation of the property offered as security through Bank’s appointed / approved valuer.
– Before creation of mortgage in the case of limited company’s properties, a search with the Registrar of Joint Stock Companies should be made to ensure that no conflicting charge is registered with them.
– AGRICULTURAL land must not be considered as security either Primary or Collateral.
FLATS
– Property developers are building flats in and around Dhaka city, and other Divisional cities, and town for sale. Cost of flat apart from its size depends on the location. Branch/ credit manager should exercise caution while dealing with flats as security particularly in respect of sale documents and valuation.
– While accepting title deed/ sale deed the manager should be confident that the advance will be repaid by the borrower by regular profitable cash generation from the business and /or personal income is sufficient for repayment of the loan.
– Before creation of mortgage in the case of limited company’s properties, a search with the Registrar of Joint Stock Companies should be made to ensure that no conflicting charge is registered with them.
Land & Building-as Security:
METHOD OF CHARGING: