Credit Management & Foreign Exchange Activities of Arab Bangladesh Bank Ltd
Background of ABBL
AB Bank Limited, the first private sector bank was incorporated in Bangladesh on 31st December 1981 as Arab Bangladesh Bank Limited and started its operation with effect from April 12, 1982.
AB Bank is known as one of leading bank of the country since its commencement 28 years ago. It continues to remain updated with the latest products and services, considering consumer and client perspectives. AB Bank has thus been able to keep their consumer’s and client’s trust while upholding their reliability, across time.
During the last 28 years, AB Bank Limited has opened 78 Branches in different Business Centers of the country, one foreign Branch in Mumbai, India and also established a wholly owned Subsidiary Finance Company in Hong Kong in the name of AB International Finance Limited. To facilitate cross border trade and payment related services, the Bank has correspondent relationship with over 220 international banks of repute across 58 countries of the World.
In spite of adverse market conditions, AB Bank Limited which turned 28 this year, concluded the 2008 financial year with good results. The Bank’s consolidated profit after taxes amounted to Taka 230 cr which is 21% higher than that of 2007. The asset base of AB grew by 32% from 2007 to stand at over Tk 8,400 cr as at the end of 2008.
The Bank showed strong growth in loans and deposits. Deposit of the Bank rose by Tk. 1518 cr ie., 28.45% while the diversified Loan Portfolio grew by over 30% during the year and recorded a Tk 1579 cr increase. Foreign Trade Business handled was Tk 9,898 cr indicating a growth of over 40% in 2008.
The Bank maintained its sound credit rating in 2008 to that of the previous year. The Credit Rating Agency of Bangladesh Limited (CRAB) awarded the Bank an A1 rating in the long term and ST-2 rating in the short Term.
AB Bank believes in modernization. The bank took a conscious decision to rejuvenate its past identity – an identity that the bank carried as Arab Bangladesh Bank Limited for twenty five long years. As a result of this decision, the bank chose to rename itself as AB Bank Limited and the Bangladesh Bank put its affirmative stamp on November 14, 2007.
The Bank decided to change its traditional color and logo to bring about a fresh approach in the financial world; an approach, which like its new logo is based on bonding, and trust. The bank has developed its logo considering the contemporary time. The new logo represents our cultural “Sheetal pati” as it reflects the bonding with its clientele and fulfilling their every need. Thus the new spirit of AB is “Bonding”. The Logo of the bank is primarily “red”, as red represents velocity of speed and purity. Our new logo innovates, bonding of affiliates that generate changes considering its customer demand. AB Bank launched the new Logo on its 25th Anniversary year.
AB Bank commits to nation to take a lead in the Banking sector through not only its strong financial position, but also through innovation of products and services. It also ensures creating higher value for its respected customers and shareholders. The bank has focused to bring services at the doorstep of its customers, and to bring millions into banking channels those who are outside the mainstream banking arena. Innovative products and services were introduced in the field of Small and Medium Enterprise (SME) credit, Women’s Entrepreneur, Consumer Loans, Debit and Credit Cards (Local & International), ATMs, Internet and SMS Banking, Remittance Services, Treasury Products and Services, Structured Finance for Corporate, strengthening and expanding its Islamic Banking activities, Investment Banking, specialized products and services for NRBs, Priority Banking, and Customer Care. The Bank has successfully completed its automation project in mid 2008. It envisages enabling customers to get banking services within the comfort of their homes and offices.
AB Bank has continuously invests into its biggest asset, the human resource to drive forward with its mission “to be the best performing bank in the country.” The bank has introduced Dress Code for its employees. Male employees wear designed ties and females wear Sharee or Salwar Kamiz, all the dresses are consisted with the unique AB Bank logo.
AB is recognized as the people’s choice, catering to the satisfaction of its cliental. Their satisfaction is AB’s success.
Vision of ABBL
“To be the trendsetter for innovative banking with excellence & perfection”
Mission of ABBL
“To be the best performing bank in the country”
Objectives of ABBL
Bringing modern Banking facility to the doorstep of general public through diversification of Banking services, thereby arousing saving propensity among the people.
Foreign a cordial, deep-rooted and firm banker-customer relationship by dispensing prompt and improved client’s service.
Taking part in the development if the national economy through productive deployment of the Bank’s resources as well as patronizing different social activities.
Connecting clients to modern banking practice by the best application of improved information technology, so that they get encouraged to continue and feel proud of banking with ABBL.
Ensuring highest use of the professional workforce through enhancement of their aptitude and competency.
Responding to the need of the time by participating in syndicated large loan financing with likeminded Bank’s of the country, thereby expanding the area of investment of the Bank.
Elevating the image of the Bank at home and abroad by sustained expansion of its activities.
Ensuring maintenance of capital adequacy, comfortable liquidity, asset quality and highest profit through successful implementation of the Management Core Risk program.
Alongside providing best service to the clients, patronizing and taking part in social development activities as well as making due contribution to growth of the national economy.
The strategy of ABBL is to create and attitude toward savings by giving various multi-banking services at the door of the clients. It can increase its branches even in Upazila level.Another strategy may be to create deeper and cordial relation between bank and clients through quick, prompt and developed client services. Bank can participate in financial and social programs through investment. To facilitate the clients by use of advance “Information Technology”.
Branches of ABBL:
ABBL started its journey through its first branch at, 102 Kazi Nazrul Islam Avenue, BSEC Bhaban, Karwan Bazar, Dhaka 1215, on April 12, 1982, as a first Joint Venture Bank in Bnagladesh. The Bank is now at 28 years of age and meanwhile it has established as many as 77 branches throughout the country and made a smooth and comprehensive network inside the country as well as around the globe.
At present area wise Branches of the Bank around the country is presented below:
|Region||Number of Branches|
Board of Directors:
AB Bank Ltd. the Board of Directors has been conceived as the sources of all headed by its chairman. It is a legislative body of the Bank. Board can delegate its power and authority to professional but cannot delegate relinquish or avoid their responsibilities.
Board of Directors
M. A. Awal
Shishir Ranjan Bose FCA
Syed Afzal Hasan Uddin
Md Mesbahul Hoque
Md. Anwar Jamil Siddiqui
Dr. M. Imtiaz Hossain
Runa Zakia Shahrood Khan
Bipad Bihary Saha Roy
Kaiser A. Chowdhury
President& Managing Director
The board delegates its functional responsibilities of the professional management team headed by Managing Director. He is an ex-officio of the Board of Director and has to take the full load of carrying out the guidelines, rules and regulations. He has to provide all vital information to the Board of Director time to time for their knowledge and effective decision making.
Division of ABBL
The Bank has strict control over its all organizational activities. The Bangladesh Bank directives indicate some control measures. The central bank conducts credit inspection by a team. The AB Bank Ltd has audit and inspection department to take controlling measures in internal operations. Audits and inspection team send to the branches now and then is responsible for preparing report that will be submitted to the Chief Administration to take necessary actions. Name of the divisions of ABBL are as follows:
Ø Human Resource Division.
Ø General Banking Division.
Ø Audit and Inspection Division.
Ø Credit Card Division.
Ø Finance and Administration Division.
Ø Marketing Division.
Ø CRM Division
Ø Retail Banking Division
Ø IT Division
Ø Reconciliation Division
Ø Accounts Division.
Ø Public Relation.
Ø Law and Recovery Division.
Ø Foreign Exchange Division.
Ø Merchant Banking Division.
Two Special Divisions:
Ø Special Audit Division.
Ø Tax Department.
Highlighting Islampur Branch of ABBL
AB Bank, Islampur Branch (ISLP) is of larger branch of ABBL is located at Islampur Dhaka. Different types of business organization is doing their business in this area. But there were few financial institutions for assisting the business organization in that area. The Board of Director decides that they established the branch of AB Bank Ltd. at Islampur Dhaka.
Islampur Branch of ABBL was established in the 27th April 2002 with a view to contribute in the expansion of small and medium industries and commercial activities by giving short, medium and long term loan or advance to the entrepreneurs in the commercial area of Old town.
Management Hierarchy of ABBL (Islampur Branch)
From the top to the bottom Management body of can be divided into four levels
Top level Management
Executive level Management
Mid level Management
Junior level Management
Hierarchy of AB Bank (Islampur Branch)
* E = Employee.
ABBL Products and Services
Foreign Remittance Through Exchange House
For Inward Remittance, AB Bank established extensive drawing arrangement network with Banks and Exchange Companies located in the important countries of the world.
Financial Performance of ABBL at a glance
Amount in million Taka
|2||Paid up Capital||896.46||743.26||571.74||519.76|
|5||Loans, Advances & Bills||70889.93||40,915.35||31,289.25||21,384.63|
|11||Net Profit Before Taxes||190.07||2,817.99||532.19||407.45|
|12||Net Profit after Taxes||90.07||1,903.49||532.19||162.45|
|13||Fixed Assets & Other Assets||324.94||7015.82||5361.22||4753.77|
2.16 Key Financial Ratio
|1||Loan to Deposit Ratio||78.01%||74.90%||72.92%||76.02%|
|2||Return on Assets||5.15%||5.05%||1.31%||1.24%|
|3||Risk Weighted Capital Adequacy Ratio||109%||10.74%||9.23%||9.17%|
|4||Net Loans & Advances To Total Assets||66.8%||62.91%||63.94%||62.91%|
|5||Efficiency Ratio (Cost of Income)||25.45%||28.59%||73.18%||52.14%|
|6||Net Interest Margin||2.72%||3.84%||2.27%||3.49%|
|7||Liquid asset ratio||36.88%||22.79%||22.72%||20.98%|
|8||Net NPL Ratio||8.32||2.07||2.13||5.63|
AB Bank at a glance: YEAR 2009
|December 31||2009||2008||% Change|
|Gross Interest Income||7,366.85||5,269.90||39.79|
|Net Interest Income||2,030.69||1,439.28||41.09|
|Operating Profit (PBP & T)||4,298.39||3,325.29||29.26|
|Net Operating Profit (PBT)||3,600.62||2,817.99||27.77|
|Profit after Tax (PAT)||2,300.62||1,903.49||20.86|
|Loans & Advances||56,708.77||40,915.35||38.60|
|Non Interest Income to Operating Income (%)||66.98||69.09|
|Cost Income Ratio||62.57||28.59|
|Return on Equity – ROE (%)||40.96||42.19|
|Return on Assets – ROA (%)||3.12||3.41|
|Advance Deposit Ratio (%)||82.71||76.66|
|Capital Adequacy Ratio||12.84||10.75|
|NPL as % of Advances||2.99||4.31|
|Earnings per Share (Tk.)||103.18||85.37|
Sector Wise LDOs position as on December 30, 2009
|Figure in ‘000’|
|Industrial sector||SIC Code||Limit||%||Outstanding|
|Energy & Mining||6000||1,016,647||2%||945,776|
|100% Secured Loan||8000||2,633,006||4%||2,098,487|
|Special Scheme Loans||9000||2,095,618||4%||2,730,863|
* Sectorwise LDO’s Position as on December 30, 2009 – Including CCS, Staff Loan, MSS, PF & Excluding Card Division.
Return on Assets
From Return on Asset ratio of ABBL, it is found that from 2006 -2007 return ratio is not fluctuate very much, which was 0.58 in 2006, 1.24 in 2007 and 1.31 in 2008.The ratio here was in increasing trend. But in the year 2009 Return on Asset ratio was increased a lot which were 5.05.
Trend analysis of return on assets.
Return on Equity
Return on Equity (ROE) ratio shows us the return against equity capital. Here, ABBL’s ROE in 2006 was 15.97%, which increased in 2007 and reached at 29.41%. But in 2008 ROE decreased, which was 25.90%. In 2009 ROE increased by an huge percentage, which was 79.44%.
Figure: Trend analysis of return on equity.
Capital and Reserve Fund
The authorized capital of the Bank remain unchanged till 2008 which was Tk. 2000 million but in 2009 an Extra Ordinary General Meeting held to increase the authorized capital of the Bank which is now Tk. 3000 million. Issued and paid up capital increased per year till 2008 and remain same in as per un audited financial statement of 2009. Besides this the amount of reserve fund increase per year.
Total deposit of the Bank stood out Tk. 53,375.35 million in 2008 which is much higher than 2007, which was Tk. 42,077.00 million. But now in 2009 the deposit of the Bank raise on Tk. 62,340.57 million. The rate of growth is about 20%.
Loans & Advances
The total volume of advances extended by the Bank stood at Tk. 51,908.38 million at the end of June 30, 2009 and at the end of 31 December 2008 it was TK. 40,915.35 million, which is much higher than June, 2009. That means Bank has been able to make a high volume of advance to customers during last six month, which is Tk. 10,993.03 million higher than 2008. It gives us a clear idea that Bank will make a huge volume of loans and advances prior to previous year. The loan amount in 2007 was Tk. 31,289.25 million and in 2006 it was Tk. 21,384.63 million. The rate of growth is about 23.52%.
By adopting a time befitting policy in credit management and applying modern techniques of loan risk analysis, the Bank may be able to bring down the amount of bad loan to a tolerable level. In line with the Government industrial policy and in the light of Bangladesh Bank’s policy, guidelines, alongside priority sectors, the Bank may extend loan facility to different import sectors , such as information technology, agro based industry, textiles industry, lease financing, housing industry and other traditional and nontraditional industry.
Export financing by ABBL in 2009 was Tk. 2236.60 million with a growth rate of 156.9%. The Bank finance 5.70% of its total funding in this sector.
Sector wise Loans & Advances of ABBL
ABBL’s profit before provision and tax (Operating profit) in 2008 was Tk. 532.19 million and in 2007 it was Tk. 162.45 million and before provision and tax in 2009 was Tk. 1903.49 million. A profit curve trends shown below:
SWOT analysis of ABBL
Every organization is composed of some internal strengths and weaknesses and also has
some external opportunities and threats in its whole life cycle.
· ABBL provides its customer excellent and consistent quality in every service.
· ABBL is a financially sound company.
· ABBL utilizes state-of-the art technology to ensure consistent quality and operation.
· ABBL provides its works force an excellent place to work.
· ABBL already achieved good image among the clients.
· ABBL has research division.
· ABBL lacks well-trained human resource in some area.
· ABBL lacks aggressive advertising.
· The procedure of credit facility is to long compare to other banks.
· Employees are not motivated in some areas.
· Emergence of E-banking will open more scope for ABBL.
· ABBL can introduce more innovative and modern customer service.
· Many branches can be open in remote location.
· ABBL can recruit experienced, efficient and knowledgeable work as it offers good working environment.
· The worldwide tend of mergers and acquisition in financial institutions is causing problem.
· Frequent taka devaluation and foreign exchange rate fluctuation is causing problem.
· Lots of new banks are coming in the scenario with new service.
· Local competitors can capture huge market share by offering similar products.
Credit Facilities of ABBL
Loans and advances termed as ‘credit facility’ may either be funded (i.e. creation of funded loan) and funded (i.e. undertakes/indemnities) on behalf of the client to settle the liability of the client in case of his/their failure to perform certain contractual obligation. In the Bangladeshi commercial bank they have various types of the credit facilities are generally the following types of credit allowed by the commercial bank in our country to the individuals, partnership firms, companies and corporations and others, either on demand, time or self liquidating basis and are carried on Bank’s General Ledger. So the classification is huge and the discussion on these various types of loans by the commercial bank in Bangladesh has discussed below-
Different Loan Products of ABBL
a) Demand Loans.
b) Time Loans.
c) Term Loans (more than one year)
a) Against pledge of goods/stocks
b) Against hypothecation of goods/stock
c) Against any other permissible securities
Funded Credit Facilities
a) Cash credit (cc)
b) Cash credit (pledge)
d) Packing Credit
e) LIM ( Loan Against Imported Merchandise)
f) LTR ( Loan Against Trust Receipts)
g) Local Documentary Bills Purchased (LDBP)
h) Loan Against Other Securities (LOAS)
i) Loan Against Work Order
j) Advance Against FDR
k) Special Credit Scheme
l) Consumer Credit Scheme
e) Chhoto Puji
BESIDE THE ABOVE MENTIONED FACILITIES THERE ARE SOME NON-FUNDED FACILITIES
Non-Funded Credit Facilities
a) Letter of credit
b) Letter of guarantee
Demand loan is used as one of the import finances of the commercial bank in Bangladesh. Under SEM (Secondary Exchange Market) L/C client has to provide the full L/C amount in foreign exchange to the bank. To purchase this foreign exchange, bank extends demand loan to the client at stipulated margin. No specific repayment date is fixed. However, as soon as the L/C documents arrive, bank request (demand) the client to adjust their loan and retire the L/C documents.
Time loan is generally provided to the client where finance is required for a specific business deal for example bank may provide time loan to client to procure particular machinery required for his industry. The loan is disbursed in one or two installments as per specific repayment dates. Hypothecation of marketable goods and equitable mortgage of properties generally secure time loan.
Term loan is only provided in selective cases in most of the commercial banks in Bangladesh. The basic characteristics of the loan are almost the same as time loan except that the repayment period is more than one year.
This is a credit facility extended to the clients as working capital finance for trading and manufacturing and also for finance against work order. Specific limitation is covering the sanctioned loan amount. Client is allowed to overdraw and maintain regular transaction up to this limit in his current account. The extent of which client can overdraw depends upon sanctioned amount and margin stipulation. Specific repayment dates are given within the client has to adjust his or her overdrawn amount.
a) Against pledge of goods/stocks
Under this arrangement, the credit facility is granted to the borrower against the security of ledge of goods/product in the form of raw material or finished products subject to credit/margin restrictions.
b) Against hypothecation of goods/stock
Under this method, facilities are extended to borrower on his signing a letter of hypothecation, creating a charge against the goods/produce, plant and possession as well as the ownership of the hypothecated goods/produce etc. is retain by the borrower but binding himself to surrender possession of the foods of the bank as and when call upon to do so.
c) Against any other permissible securities
“Under these criteria there areseveral types of other loans”
Funded Credit Facilities
Cash Credit (CC)
Cash credit is a credit facility offered by a bank against security of goods plus collateral immovable property. Collateral security is taken because it helps the banks to minimize its risk at the same time it allows the party to avail a higher limit from the goods he puts as security. The security also helps the party to enhance (extend) the limit in future. In most of the commercial banks in Bangladesh the CC is allowed for one year i.e. within one year the party has to adjust the money, he withdrawn from this account. If the party applies for enhancement of the limit or enhancement of the period by renewal, considering the security and credit need if bank thinks it logical to allow that opportunity the respective branch after getting sanction from head office extend the limit or renews the limit as the party applied for.
Cash credit is a favorite mode of borrowing by traders, industrialists etc. for meeting their working capital requirement. It is operated like overdraft account. Depending on the needs of the business, the borrower can draw on his cash credit account at different time and when he gets money can adjust the liability. Depending on charging security there are two forms of cash credit:
Cash Credit (Pledge):
It is a short-term arrangement by which a customer is allowed to borrow money up to a certain limit sanctioned by the bank for a certain time. Under the condition the borrower is required to submit the stock fortnightly in the bank specimen form. It is allowed to maximum a period of one year.
Cash Credit (Hypothecation):
It is also a continuous loan allowed against pledge of goods as primary securities fall under this head of advance. To avail cash credit (hypo) facility in the commercial banks the prospective borrower has to mortgage goods. The goods are not delivered to bank they are just showed to respective banker. Here some extra security is also taken from the party.
Advances against import bills are originally from the lodgment of shipping document received from foreign correspondents against letter of credit established by the bank on behalf of its customers. In other words, this loan is created for settlement of payment of import documents.
Packing credit is provided against confirmed export orders covering tip to 90% of the value of the order. This type of loan is provided to procure and process materials for making finished goods for export purpose. The packing credit is adjusted through the export proceeds.
(Loan Against Imported Merchandise) LIM
Advances allowed for retirement of shopping documents and release of goods imported through L/C taking effective control over the goods by pledge fall under this type of advance, when the importer failed to pay the amount payable the exporter against import L/C, then banks gives loan against imported merchandise to the importer. The importer will bear all the expenses i.e. warehouse charges, insurance fees, etc. and the ownership of the goods is retain to the bank. This is also a temporary advance connected with import, which is known as post import finance.
(Loan against Trust Receipts) LTR
Advance allowed for retirement of shipping documents and release of goods imported through L/C falls under this head. The goods are handed over to the importer under trust with the arrangement that sale proceeds should be deposited to liquidate the advances within a given period. This is post import finance by the banks.
(Local Documentary Bills Purchased) LDBP
Payment made against documents representing sell of goods to local export oriented industries which are deemed as exports and which are denominated in Local currency! Foreign currency falls under this head. The bill of exchange is held as the primary security. The client submits the bill and the bank discounts it. This temporary liability is adjustable from the proceeds of the bills.
(Loan Against Other Securities) LAOS
Loan against Other Securities is a 100% secured advance, which requires no sanction from the Head Office. Marking lien on FDR, ICB Unit Certificate etc. bank sanction it.
Loan Against Work Order
Many commercials branches allow contractors loan against their work order. Here the following procedures are undertaken
ü First a contractor submits his work order to the bank mentioning his required amount of money in the application and stating his consent that his employer will send every payment in this branch and after deducting necessary margin the bank will transfer the rest of the money to borrowers account.
ü After receiving the application the respective official of the banks will scrutinize the work order.
Advance against FDR
Advance is granted to a client against the security of fixed deposit receipt and advance is allowed to the person to whom the instrument belongs. The instrument is to be discharged duly the holder (or all of them if they are more than one) on appropriate revenue.
Special Credit Scheme
In most of the commercial banks in Bangladesh they have some kind of special credit scheme. They classify it in various terms like the
Ø House/building renovation loan.
Ø Small business loan.
Ø Personal credit scheme.
Ø Consumer credit scheme.
The main theme of SME financing is to provide loan to the small, medium and cottage industries in order to help the overall economic development of the country. For that AB Bank Ltd. also introduce some SME products to finance the small and medium industries in Bangladesh. The products are
e) Chhoto Puji
Each product has its own unique characteristics. All the SME loans have a tenor of maximum three years and maximum amount of facility is of Tk. 50.00 Lac.
A loan facility for meeting regular as well as additional requirements of businesses; i.e. it will be part of working capital of the business.
It is long term finance for infrastructure development /capacity building etc.; i.e. Term Loan for expansion & BMRE.
Double amount of loan against value of the savings instrument (ABBL FDR, DDS etc.) to meet any type of business requirement.
Term loan for CNG Refueling conversion/Light Engineering/project finance (Package Deal including non-funded).
Mortgage free Term Loan for working capital/fixed investment requirement.
Loan for New entrepreneur/business. (For working capital as well as fixed capital investment.)
A loan facility for meeting working capital requirement as well as fixed investment in businesses for women entrepreneurs.
Non-Funded Credit Facilities
Back to Back Letter of Credit
Letter of credit is a commitment by the bank to pay an agreed sum to the seller of goods on behalf of the buyer (clients) under precisely defined condition. This is a non-fund facility provided to the client for import of goods from abroad or in some cases to procure them locally. The liability is adjusted from export proceeds.
Letter of Guarantee
Bank guarantee is also a non-funded facility provided to the client bank on behalf of the client undertakes to pay agreed amount of money at certain time of client fails due performance. Bank guarantee is generally provided in line of earnest money for bidding in tender by the client or as guarantee for due performance of any contractual obligation (performance Guarantee).
Lending Process of ABBL
Lending process of AB Bank Ltd.
Most of the bank loans to individuals arise from a direct request from a customer who approaches a member of the bank’s staff and asks to fill out a loan application. Business loan requests on the other hand, often arise from contacts the bank’s loan officers and sales representatives make as they solicit new accounts from firms operating in the ban’s market area. Sometimes loan officers will call on the some business firm for months before the customers finally aggress to the bank a try by filling out al loan application or requesting other services. Most bank personnel will fill out customers contact report similar to the place customer’s place of business. This report in updated after each subsequent visit, giving the next loan officer crucial information about a prospective client before any other personal contacts is made.
Once a customer decides to request a loan, an interview with a loan officer usually follows right away, giving the customer the opportunity to explain his or her credit needs. If the customer appears to lack sincerity in acknowledging the necessary of adhering to the terms of loan, this must be recorded as a strong negative factor weighing against approval of the loan request.
If a business or mortgage loan is applied for a site visit usually will be made by an officer of the bank to assess the customer’s location and the condition of the properly and to ask clarifying question. The loan officer will contact other creditors who have previously loaned money to this customer to see what their experience has been. The customer’s previous payment record often reveals much about his or her character, sincerity of purpose and sense of responsibility in making use of bank credit.
If all is favorable to this point, the customer is asked to submit several crucial documents needed by the bank to hilly evaluate the loan request, including director’s resolution authoring the negotiation of a loan with the bank. Once all documents are on file the Credit Analysis Division of the bank conducts a through financial analysis of those documents aimed at determining whether the customer has sufficient cash flow and back up assets to repay the loan. The Credit Analysis Division hence prepares a brief summary and recommendation which goes to the loan committee for approval Members of the credit Analysis Division will on larger loans, give an oral presentation and discussion will issue between staff analysis arid the loan committee over the strong and weak points of a loan request.
If the loan committee approves the customer’s request the loan officer or the credit committee usually will check on the property or other assets to be pledged as collateral in order to ensure that the bank gas immediate access to the collateral in defaulted. This is often referred to as perfecting the committee to satisfy that both the loan and the proposed collateral are sound the note and other documents that make up a loan agreement are prepared and signed by all parties to the agreement.
The new agreement must be monitored continuously to ensure that the terms of the loan are being followed and that all required payments of principal and or interest are being made as promised. For large commercial credits the loan officer will visit the customer’s business periodically to check on the firms progress and to see what other services the customers need
(Usually a loan officer of other staff member will place information about a new loan customer in a computer file known as a bank customer profile. This file shows what bank services the customer is currently using and contains other information required by bank management to monitor a customer’s progress and financial service needs). If the customer dose encounters serious problems in repaying of loan, a workout portion of its committee funds as possible. Come banks vest such responsibility on the officer that handled the loan in the first place. Other prefers that procedure brings more objectivity to the loan recovery process.
After getting loan application from the client loan disbursement process started. And for this credit assessment and risk grading analysis is must.
A thorough credit assessment should be conducted prior to the granting of a facility, and at least annually thereafter for all facilities. The results of this assessment should be presented in a Credit Application that originates from the relationship manager/account officer (“RM”), and is reviewed by Credit Risk Management (CRM) for identification and probable mitigation of risks. The RM should be the owner of the customer relationship, and must be held responsible to ensure the accuracy of the entire credit application submitted for approval. RMs must be familiar with the Fl’s Lending Guidelines and should conduct due diligence on new borrowers, principals, and guarantors. It is essential that RMs know their customers and conduct due diligence on new borrowers, principals, and guarantors to ensure such parties are in fact who they represent themselves to be. All Banks’ should have established Know Your Customer (KYC) and Money laundering guidelines which should be adhered to at all times. Credit Applications should summaries the results of the RMs risk assessment and include, as a minimum, the following details:
1. Amount and type of facility(s) proposed
2. Purpose of facilities.
3. Facility Structure (Tenor, Covenants, Repayment Schedule, Interest)
4. Security Arrangements
5.Government and Regulatory Policies
6. Economic Risks
Credit Risk Assessment:
• Borrower Analysis:
The majority shareholders, management team and group or affiliate companies should be assessed. Any issues regarding lack of management depth, complicated ownership structures or inter-group transactions should be addressed, and risks mitigated.
• Industry Analysis:
The key risk factors of the borrower’s industry should be assessed. Any issues regarding the borrower’s position in the industry, overall industry concerns or competitive forces should be addressed and the strengths and weaknesses of the borrower relative to its competition should be identified.
• Supplier/Buyer Analysis:
Any customer or supplier concentration should be addressed, as these could have a significant impact on the future viability of the borrower.
• Historical Financial Analysis:
Preferably an analysis of a minimum of 3 years historical financial statements of the borrower should be presented. Where reliance is placed on a corporate guarantor, guarantor financial statements should also be analyzed. The analysis should address the quality and sustainability of earnings, cash flow and the strength of the borrower’s balance sheet. Specifically, cash flow, leverage and profitability must be analyzed.