Banking business is associated with risks. In order to remove or minimize risks, banks follow some rules and regulations. Rules and policies are adopted to ensure less risk for every banking business. Dhaka Bank is a fast growing private sector bank. One of the strongest sides of Dhaka Bank is that it has a big market share of loans and advances. This means, this bank gives or sanctions a big amount of loans to corporate and retail customers each year. Before sanctioning loans, bank does proper judgment of the customer. Dhaka Bank takes every measure to minimize risks. But, many loans become classified every year. Bangladesh Bank has imposed some rules and regulations of credit, which must be maintained by every bank. Bangladesh bank is very eager to bring discipline in the banking sector and improve the loan quality of every bank. Dhaka Bank also has its own credit policy which helps the bank to maintain quality of loans.
- Purpose, and
The importance of Securities in Credit:
Securities play a vital role in sanctioning credit. Security means things deposited as a guarantee of the undertaking or loan to be forfeited in case of failure to repay the same. The customer/ guarantor should own it. In other words, the assets against which banks allow credits are called Securities. Good and strong securities help a bank to take decision about sanctioning credit. It also minimizes the risk. The type of securities offered may be, Government bonds, share, assignment of book debt or bills receivables, raw material and finished goods, fixed deposit receipts, land, factory building and other movable and immovable assets of the borrower. If a borrower becomes unable to adjust his loan, then bank can recover the loan amount by selling securities. That is why the role of securities is very important in credit system.
Classification of Credit Facilities:
Credit or loans can be classified broadly into two categories:
? Funded Credit Facilities;
Non Funded Credit Facilities.
Funded Credit facilities:
All type of credit facility which involve direct outflow of Bank’s fund on account of the borrower, is termed as funded credit facility. Funded credit facility can be classified into four categories-
When a lender lends money to a borrower imposing interest for the lended money, for a given time period and which is repayable in fixed monthly installments is called loan. Loan is allowed for a single purpose where the entire amount may be recovered at a time or in a number of installments within a period of short span. After disbursement of the entire loan amount, there will be only repayment by the borrower. A loan once repaid in full or in part, cannot be drawn again by the borrower.
Types of Bank Loans:
Every bank has a credit portfolio. Banks can give loans and invest according to the limit of portfolio. Banks can lend half or more of their total assets and about half to two third of their revenues. Risks in banking tend to be concentrated in the loan portfolio. When a bank gets into serious financial trouble, its problems usually spring from loans that have become uncollectible due to mismanagement, illegal manipulation of loans, ineffective lending policies or an unexpected economic down turn. The banks make a wide variety of loans to a wide variety of customers for many different purposes- for purchasing automobiles, buying new furniture, taking dream vacations, constructing homes and for other corporate and project loans. Bank loans may be divided into the following broad categories of loans, delineated by their purpose:
Loan against Work Order: Sometimes, govt. development work like road construction, bridge construction, setting of sewerage line, setting of underground pipeline takes place. Govt. invites tender and the lowest rate giver wins the work order. But the contractor needs money to start the work on. Then the contractor submits his work order to a bank and takes loan against of that.
Demand Loan: Demand loan is payable on demand which is allowed for a short period to meet short term working capital need. This type of loan can take only banks existing clients, with whom bank has a good relation and maintains good transaction over his account
Consumer loans: this loan is given to individual customers for the purchase of automobiles, homes, electrical appliances, for vacation and for other personal purposes, which is extended directly to the individual.
Working Capital Loan: This type of loan is given to industries ranging from small to medium for the time span of one year. This type of loan is most often used to fund the purchase of inventories, raw material, etc. Working capital loan is designed to cover seasonal peaks in the business customer’s production levels and credit needs
Lease financing: Under this loan scheme, bank buys equipment or vehicles and leases them to its customers. Customers pay the loan installments and after full adjusting the loan, bank gives the ownership of the vehicle or asset to the respective customer.
Asset based Loans: this kind of loan is secured by a business firm’s assets, particularly stocks, inventories and accounts receivables.
Other Loans: other loans in the funded loan category are Real Estate Loans, Financial institutions loans, agricultural loans, installment loans, etc.
Cash Credit facilities are allowed against pledge or hypothecation of goods. Under this arrangement the borrower can borrow any time within the agreed limit and can deposit money to adjust whenever he does have surplus cash in hand. All the nationalized banks allow cash credit both hypothecation and pledge facilities.
Overdraft: Overdraft is withdrawing money from an account even if the account holder does not have that much amount of balance in his account. Bank gives this money as loans. This is a credit facility against any securities. The customer of the bank who have any savings account or DPS in the bank, can get overdraft facilities from the bank against these securities. The customer can withdraw a certain limit of amount within a fixed period of time. The interest amount is calculated on the actual debit balance.
Bills Discounted and purchased:
Discount: Banks allow advances to the clients by discounting bill of exchange or promissory note which matures after a fixed tenure. This way, the bank calculates and realizes the interest at a prefixed rate and credit the amount after deducting the interest from the amount of instrument.
Purchase of Bill: Banks also make advances by purchasing bills, instead of discounting, which are accompanied by documents of the title of goods such as bill of lading or railway receipts, etc. In this case the bank becomes the purchaser of such bills which are treated as security for the advance. This allowed primarily relying on the credit worthiness of the client.
Non Funded Credit Facilities:
Though these types of credit facilities are primarily non funded in nature but at times it may turn into funded facilities. As such, liabilities against this type of credit facilities are termed as contingent liabilities. The facilities are:
- Advance payment Guarantee;
- Foreign counter Guarantee.
What does Credit Department do?
Sanctioning loans is the most important and sensitive part of every banks. Interest from credits is the big income of a bank. Loans and advances comprise a large portion of bank’s total assets. The strength of a bank is primarily judged by the soundness of its loans and advances. So, credit department is the most important department of a bank.
The main functions of this department are:
o To manage the credit portfolio of Dhaka Bank Ltd;
o Receive credit proposal from retail or corporate customers;
o Processing of the proposal and approval from head office;
o Monitor and follow up of the loans and advances;
o Takes necessary steps to recover classified and default loans;
o Time to time adjustment of the rates of loans and advances;
o Prepare various statements to submit to Bangladesh Bank;
o Makes part and full adjust of loans;
o Gives balance outstanding statements to customers.
Credit department is fully responsible for analyzing and making recommendations on the fate of most loan applications. Banks need income from business. But at the same time, bank must ensure the safety of the invested amount, which is done by this department. Before sanctioning credits to customers, banks must consider some of the following things:
The Creditworthiness of the borrower:
The credit department must assess and analyze that whether the customer will be able to give installments after taking the loans. To assess this, credit department must consider the following things:
¯ Character: very genuine purpose for loan request and serious intention to repay.
¯ Capacity: proper authority to request for loan and legal standing to sign agreement.
¯ Cash: ability to generate enough cash flow in the customer’s business.
¯ Collateral: assets of the customer or business given as security.
¯ Conditions: borrowers present activity and economic condition.
¯ Control: ability of borrower to meet any unexpected circumstance in favor of bank.
Loan quality: Credit department must ensure that the loan is properly structured and documented in order to protect respective bank. The drafting of a loan agreement that meets the borrower’s needs for funds with a comfortable repayment schedule. The borrower must be able to comfortably handle any required loan payments, because the bank’s success depends fundamentally on the success of its customers. If any borrower gets into trouble, the bank may find itself in serious trouble as well. So the credit department must play the role of a financial counselor to customers. A properly structured loan agreement must also protect the bank by imposing certain restrictions on the borrower’s activities when these activities could threaten the recovery of the bank funds. So, this department must ensure the good loan quality in terms of the smoothness of loan recovery.
Proper Security: Keeping proper security is a very important task for this department. Security or collateral minimizes risk of the bank. If the borrower cannot pay the loan, the collateral gives the lender the right to seize and sell those assets using the proceeds of sale to cover what the borrower did not pay. It also gives the lender a psychological advantage
over the borrower. If the borrower don’t repay, his assets will be seized. That is why, the borrower will try heart and soul to repay the loan anyhow. He will avoid loosing his valuable asset. The most popular assets pledged as collateral for bank loans are, Real property, Personal guarantee, Third party guarantee, Inventory, Accounts Receivable, etc.
That is why, credit department must take steps very carefully in case of sanctioning loans, meeting the benefit of customers and obviously, reserving the benefit and security of the bank.
Credit Policy of Dhaka Bank Ltd:
Loans and advances is an important function of every commercial bank. Banks earn a big amount of interest from sanctioning and creating loans. So Credit Department is the most important department of a bank. The surplus money, specially the deposit of individuals is invested to the deficit sector. And the difference between these two interest rates is the profit of banks. Credit policy is very important. A strict credit policy can lead to lesser amount loan disbursed and low rate of bad loan. Again a flexible credit policy can lead to high amount of loan default and high amount of loan disbursed. Credit policy is like a guiding light of every loans and advances. A wise and prudent credit policy creates healthy loan, earns money and provide safety of the invested money. Dhaka Bank also has credit policy. Credit policy of DBL generally aims at:
Sanctioning healthy loan assets to ensure interest earning of the Bank.
Ensuring safety through judicious selection of banks.
The credit policy of Dhaka Bank Ltd. has been formulated of the plan of “All New loans to be Good Loans” The plan was taken on the basis of the following objectives:
Form: CIB 05 (Guarantor information)
Form: CIB 1A (Inquiry form)
Form: CIB 2A (Owner Information)
Form: CIB 3A (Information of group)
CIB undertaking: Contains Name, Address, and Sister Concern of borrower.
Form SC 8.
Form: CIB 01 (Segment 5)
Company Letterhead form.
Form (XII): This form contains the information of all the directors of the company. This form is needed to submit at the time of enlistment as a limited company at RJSC (Register of Joint Stock Companies). But in case of giving loan to customers this form is essentially kept by bank for the purpose of getting director’s information and reporting to CIB. Through this form, bank can get the information- who are the directors, number of directors, etc. If any director resigns and any new director joins in, then this information must be submitted by the company to the bank within two weeks.
Schedule (X): This form contains the information about the sponsor shareholders of a firm. Directors can also hold shares of the company. So, this form informs, who the shareholders are, if any director is holding shares, what percentage of share a director is holding of the total share, etc. This information helps the respective bank to take any decision about that company in the future. If the company fails to repay the loan, bank will claim money to all the directors according to the percentage of their shares.
3. Report to Bangladesh Bank:
Bank sends all the CIB forms to Bangladesh Bank in order to inform Bangladesh Bank about the borrower. Along with the forms, Bank sends soft copy of the information of the borrower. Bank sends the soft copy in four formats prescribed by Bangladesh Bank:
w The company in not badly liable to other financial institutions;
w Total= 50% of Bank’s equity.
§ Other conditions.
This sanction letter is for branch use stored for future reference. Then the branch issues another letter called Offer letter. This offer letter includes interest rate, mode of disbursement, mode of repayment, securities and all other conditions of sanctioning loans. The party is given the original copy and keeps the duplicate of that letter. If the party agrees all the terms and conditions, then signs in the offer letter. This is the final agreement between the party and the bank. According to the agreement, loan is disbursed, party receives the loan amount and repays at the prescribed time schedule.
Mortgage is very essential for large loans. Without mortgage, loan is not sanctioned. It is a security to the bank against the loan amount. If the amount of mortgaged asset is higher than the loan amount, then the bank feels quite safe. Bank becomes the owner of the mortgaged asset and holds the ownership upto the full adjustment of loans. If the loan is fully adjusted, then bank returns the ownership of the mortgaged asset to the borrower through registration. The main purpose of mortgage is, if the party becomes unable or do not adjust the loan willingly, then bank can recover the loan amount by selling the mortgaged asset. Different types of asset are kept mortgage against different types of loans. These are given below:
Types of loans
Land, Building, Factory building, machinery, stock of inventory.
Land, Building, Gold, Insurance Policy.
v Counter guarantee;
v Debit balance confirmation slip;
v Letter of revival;
v Loan disbursement letter;
v Right to recall the loan;
v Letter of disclaimer.
11. Loan Disbursement:
After completing all the documentation, security deposit and other formalities, bank disburse the loan amount. The mode of disbursement is pre agreed by both the parties. But bank do not disburse the loan amount by cheque. Bank transfers this amount to the account of the customer. In case of corporate loan or project loan, it is disbursed through the CD account of the customer. In case of retail customer, loan in disbursed through the customers Savings account. And then both the corporate and retail customers withdraw money from their respective accounts.
These are the steps by which a customer can obtain loan from Dhaka Bank. Though the process is very lengthy, but it is good for both the parties. Bank must ensure safety for its lended amount. On the other hand, customer must agree the terms and conditions imposed by bank. When the time for loan adjustment arrives, customer deposit the installment amount in their respective account and loan account is adjusted automatically. If any loan installment becomes overdue, after a certain period it becomes classified. This is a continuous process. Retail customers adjust their loan. In case of corporate loan, party takes a loan, adjusts it and then again takes loan. So, in case of corporate customers, the process never stops. Corporate customers enjoy multiple credit facilities from Dhaka Bank. They maintain bank account, takes loan, open L/Cs, have PAD, etc. That is why, big customers build relationship with a bank, which can provide a wide range of products and services to them. And Dhaka Bank is one of the banks of first choice among the large corporate customers.
Different types of loan guided by the Policy of Dhaka Bank Ltd:
There are various type of loans offered by Dhaka Bank Ltd. Each loan has its own characteristic which is guided by the policy of Dhaka Bank. Each loans are launched aiming to serve customers. At the same time, the security of the invested amount and bank’s profit are also considered. Description of some of these type of loans are given below:
Overdraft is the facility by which a customer can withdraw money over his credit balance in his current account upto an agreed limit. This loan is sanctioned occasionally and for short time duration. This loan is given only when there is enough security in banks hand against this loan. This facility is renewable after expiry. The interest is charged only for the total amount overdrawn, but not for the amount sanctioned. The overdraft facility is provided on the CD account of the customer. In an overdraft account, withdrawals and deposits can be made any number of times within the limit and prescribed period. Interest is calculated and charged only on the actual debit balances and daily product basis.
Overdraft against pledge of goods:
Pledge of goods is one of the ways of sanctioning overdraft to a customer. It may be provided to the borrowers against pledge of raw materials for finished goods as security. The borrower surrenders the physical possession of the goods under effective control of the bank. The ownership of the goods however, remains with the borrower. If the borrower fails to repay the loaned amount in prescribed period, then bank can realize the lended amount with interest by selling the pledged goods. In this case, bank must inform the borrower before attempting to sell those goods.
Overdraft against hypothecation of goods:
Overdraft facility is also extended against hypothecation of goods or stocks. In this case, both the ownership and physical possession of the goods remain under the borrower’s authority. The borrower must surrender the hypothecated goods to the bank when he is told to do so. The bank only acquires a right over the goods. Overdraft facility against hypothecation of goods is allowed only to trustworthy and prudent customers.
The following criteria must be taken in consideration by the bank/ branch before sanctioning overdraft against hypothecation of goods/ stocks:
ª The value of goods (quantity) must exceed the overdrawn amount.
Bid Bond Guarantee:
In many times, for govt. work tender is asked and a specific amount is required for submitting along with the tender schedule as security. The money of this security is submitted in the form of bid bond. This guarantee is issued by the bank on behalf of bank’s client favoring the beneficiary. Bid bond guarantee is required for the purpose of public tender, govt. contracts and to secure payment of guarantee amount. In case of default of the tender at whose request the guarantee is extended the beneficiary may en cash the same. The validity of this guarantee is usually three to six month.
This guarantee ensures the ability and experience of the contractor to the Govt. sometimes, Govt. asks the contractor to submit performance guarantee before starting a govt. work. On request of the client, bank issues a performance guarantee favoring the beneficiary. Performance guarantee is given to Govt. or any other corporation on behalf of the contractor, undertaking to make payment of penalty in the event of non-fulfillment of the performance of the contractor according to the contract, supply of goods as per contract or any breach of contract or discrepancy in between the actual performance and the contracted performance. Contractors and local suppliers may also use performance guarantee, which must be referred to Head office along with the copy of guarantee or necessary approval. The purpose of this guarantee is to pay the beneficiary the guaranteed amount when the supplier/ seller/ contractor have not fulfilled his contractual obligations.
Advance Payment Guarantee:
This guarantee ensures that a supplier/ contractor will supply or do specified work to the buyer within the specified time period. It is an undertaking issued by a bank or insurance company at the request of the supplier of goods or service or other contractor to repay a stated sum of money to the buyer within its validity period in the event of default by the principal to fulfill the terms of the contract. Its purpose is to ensure repayment of advance made to supplier by the buyer for purchase of raw materials, production costs, etc. The guarantee is issued for the period up to completion of the performance. This is more risky than a payment guarantee. If it is found that customer is diverting the money and not using the same money in the work in which it was supposed to, then the branch must inform the Head office about it and further drawing of this facility will not be given to that client. Total amount of APG must be received directly by the bank and credited to customers account. Withdrawal should be watched and regulated on the basis of understanding with the customer.
This guarantee is issued in case of non receipt of original shipping documents, while the ship has arrived and the goods have been incurring demurrage or the original shipping documents have been lost after retirement from bank. These guarantees are limited to the bill amount but not exceeding the letter of credit value and for the period till receipt of original bill of lading. The guarantee is signed by the importer in favor of shipping company and counter signed by the banker. Full guarantee value must be retained as margin for issue of such guarantee. The goods can also be kept in bank’s custody. As soon as the original shipping documents are received, these shall be sent to clearing agents to facilitate return of original guarantee. In the alternative way, custom authority’s confirmation regarding cancellation shall be obtained
Guarantee on account of Foreign Correspondent:
Foreign correspondent guarantee is required to be issued at the request and on behalf of the clients of foreign correspondents in favor of beneficiaries in Bangladesh in the form of Bid/ Earnest money guarantee or Performance bond. Counter guarantee is required for issuing this guarantee. The authorized dealer of branches will handle this guarantee only
Personal loan is one of the strengths of Dhaka Bank Ltd. Dhaka Bank has created a separate division for this, called, “Personal Banking”. This division is involved in marketing of personal loan products. This division also processes the loan application and sanctions all the personal loan. Dhaka Bank offers various personal loan products. Any Bangladeshi citizen can apply for this loan. The minimum age of an applicant must be 21 years and maximum age must be 52 years. The minimum monthly income of an applicant must be 15,000 Taka. Self employed professionals, salaried employees, business man can apply for this loan. After completion of all the documentations, the papers are sent to the head office. Head office sanctions the loan and send sanction letter to the branch. The branch then disburses the loan to that customer. After two months, the installment for loan repayment starts. The monthly installment will be debited from the client savings account with Dhaka Bank against the post dated cheques or auto debit instructions obtained at the time of loan disbursement. Early settlement of the loan is allowed after six months pre payments. Partial pre payment of the loan is not allowed.
Personal installment loan:
This loan is mostly taken by the retail customers. Dhaka Bank has a wide range of personal loan products. Customers can purchase household appliances, electronic goods, computers, can use it for the purpose of marriage, medical treatment, etc. The maximum loan amount for this kind of loan is BDT 5 lac and the minimum of BDT 25 thousand. The loan amount is disbursed through the savings account of the customer. The loan amounts have to be repaid in the monthly installments of 12, 24, 36 and 40.
Stamping (stamp duty rate enclosed);
Notarized power of attorney to sell hypothecated
Land / Building: Registered mortgage/ Equitable mortgage.
Title deeds and other land related documents.
Stock / Bond: Letter of Lien and Authority.
FDR/TDR/ ICB unit: Letter of Lien and authority.
Vehicle: Hypothecation of vehicle.
Hypothecation documents are obtained where stocks, book debts and/ or machinery are obtained as collateral and charge needs to be created on these collateral. Hypothecation created legal right of the bank on the assets of a borrower while the borrower is free to deal with the assets. Separate hypothecation documents are obtained for each category of assets or a combined charge on all three types of assets, generally known as floating charge, could be created.
Title of immovable property in Bangladesh is generally of two types, Freehold and Lease hold. In freehold property, the owner is free to deal with the property without the intervention of Government. On the other hand, for leasehold property, which are primarily located in the city areas, the lessee must comply with the terms of the lease deed in dealing with the property. Such deeds usually contain a condition to obtain the permission of the lessor prior to dealing with the property, including sale, sub-lease or mortgage. Documentation requirement for freehold property is different from that of lease hold. Out of about six different types of mortgages, two are very common and well accepted in banking arena of our country. They are registered mortgage or legal mortgage and Equitable mortgage or mortgage by deposit of title deeds.
Equitable mortgage could be created by submitting a memorandum of deposit of title deeds along with original title deed by the mortgagor of the bank. In absence of original title deed, certified copy of title deed along with original receipt for filing and registration in acceptable.
Legal mortgage requires signing a mortgage deed by the mortgagor in favor of the mortgage. The mortgage deed must be signed by the mortgagor in presence of and attested by two witnesses. Stamp duties as specified by the Government must be paid for the mortgage deed based on the amount secured by the mortgage deed.
Checklist of Land Documents for Title search:
X Municipal tax receipt for properties located in municipalities;
X Non encumbrance certificate.
X Valuation Certificate.
Existing Stamp duty for Mortgage deed:
Upto Taka 10. Lac
Tk. 10 Lac- 50 Lac.
Exceeding Tk 50 Lac.
Tk. 3500 for first 10 Lac+ 10% for the rest.
Pledge documents are obtained in the case of LIM and CC (pledge) facility. Agreement for pledge is obtained for all types of LIM and CC (pledge) facility. Letter of disclaimer is obtained from the godown if it is neither bank’s godown, nor client’s.
L/C related Documents:
While opening L/C, two documents are required:
Letter of arrangement for bill purchase limit.
Other important Credit related documents:
Marketing Call Report:
To be prepared on the basis of a meeting between a potential client and bank’s officer/ executive or between an existing client and bank’s officer / executive for tapping potential business. Sending the copies of this report to senior management will ensure keeping them informed about branch’s activities toward the growth of lending business and intimation about a client/ business prior to sending formal proposal.
Factory visit report:
To be prepared by bank’s officer / executive after visiting a client’s factory / manufacturing unit. The factory could be in running condition or it could be a project under construction/ implementation. Additional relevant information might be incorporated on top of information sought in the standard format.
Mortgage Property Visit Report:
Mortgage property must be visited prior to making initial lending decision and subsequently at a suitable interval based on branch manager’s judgment. The report to be prepared by the visiting officer and counter signed by the branch manager. The location map will facilitate finding out the property in difficult situation and other information will help management taking appropriate credit decision
Net Worth Statement:
To be obtained, on best effort basis for the proprietor / partners of a firm, directors of a limited liability company and third party guarantors. The importance of this report is rather enormous, when lending decision is largely based on the net worth of the sponsors/ guarantors. In case of major change in net worth position, a fresh report to be obtained.
Statement of Stock and Book Debts:
This statement is to be obtained for all sorts of working capital financing or financing where stocks and / or book debts are primary security. To be obtained periodically as per approval condition. Obtaining and reviewing this report will help monitoring the trend of client’s business activities and highlight any potential problems like blocked receivables, low sales resulting obsolete or accumulation of inventories. The importance of this report is immense for large manufacturing borrowers.
Statement of Stocks (RMG):
As the nature of business of RMG units and pattern of bank financing thereof are different from those of other clients, stock report from RMG clients are obtained in a separate format, which would track down stock position corresponding to related BBLC and accepted liability
Drawing Power Calculation:
Drawing power should be calculated for all clients, except RMG, for WC lending. Excess drawing would cause diversion of fund and hence would jeopardize the timely repayment. In case of lending by multiple financial institutions, the outstanding of all financial institutions should come under consideration. Net stocks and book debts position should be taken for DP calculation. The calculation should be done on the basis of stocks and book debts position at a cut off date and outstanding on the same date. This cut off date should preferably be a month end or quarter end position. In case of DP shortfall, investigation and prompt action should be taken. If necessary, the client should be asked to settle excess outstanding.
Charge Documents for different kind of Loans:
Charge Document for Overdraft:
- Letter of Authority to mark lien;
- Letter of Authority for encashment of FDR;
- Letter of Trust Receipt;
- Hypothecation of imported goods;
- Personal Guarantee of all the directors;
- Letter of Partnership in case of partnership account;
- Resolution of the Board of Directors along with Memorandum and Article of association.
Charge Documents for LIM:
§ Letter of Indemnity.
Charge Document for Bank Guarantee:
- Letter of consent/ acceptance from the work order / supply order issuing department.
Additional documents for Overdraft/ Cash Credit/ LIM/ LTR/ Bank Guarantee:
- Letter of Partnership along with Registered Partnership Deed in case of Partnership Accounts.
- Resolution of the Board of Directors along with Memorandum & Articles of Association in case of Accounts of Limited Companies. In case of Corporation, resolution of the Board along with Charter.
- Personal guarantee of all the Partners in case of Partnership Accounts and of all the Directors in case of Limited Companies.
- An undertaking from the Directors of the Public Limited Company to obtain prior clearance from the Bank before declaring any interim/final dividend.
§ Letter of Guarantee signed by the depositors of title deeds to secure the advance
to third parties.
- Notarized/Registered Irrevocable Power of Attorney to collect bills directly from the concerned authority to be vetted by Bank’s Legal Adviser.
- In case of Limited Companies get the first charge on the fixed and floating assets of the companies favoring Bank registered with the Registrar of Joint Stock Companies as per companies act within 21 days of the exaction of charge documents & obtain “Certificate of Registration of Mortgage”.
- Withdraw the Bank’s charge after the advance is adjusted and limit cancelled by obtaining a certificate from the Registrar to the effect that Bank’s charge has been satisfied.
Charge Document for Personal Loans:
- Authorization to take repossession of vehicle;
- Irrevocable letter of Authority;
- Declaration in respect of overdue;
- Letter of Hypothecation;
- Letter of Set off in respect of Credit Balances;
- Third Party personal guarantee;
- Declaration of Stuckup Liabilities.
- Demand Promissory Note;
- Letter of Hypothecation;
- Letter of Set off in respect of Credit Balances;
- Third Party personal guarantee;
- Hypothecation of vehicles;
§ 24 post dated cheques covering monthly rental amount;
§ Usual charge document.
From the above table we can see that in 2002, the amount of classified loans was 267 million. But in 2003, it increased to almost double. It was 419 million. But in 2004, the amount of classified loan again came to the previous position and decreased to 271 million. Due to huge natural calamities in 2004, the classified amount increased this year.
Upto 1 month
3 months- 1 year
1 Year – 5 Years
More than 5 Years
From the above table, we can see that loans of long term residual maturity is sanctioned through Dhaka Bank in big volume. Specially one year loans and five year loans are taken in a big volume. Mostly, corporate customers take this type of loan .
Loans and Advances allowed to each customer exceeding 15% of Bank’s total capital: 2004 2003 2004
Amount of Outstanding Loans
Number of Customers
Loans secured by others (land,building,stock)
Total amount of Outstanding Loans=
Cumulative amount of written off loan
The amount of written off loan in 2004 is cumulative, or the total of all written off loan of the previous years.
Interest Suspense Account:
2004 2003 2002
Balance at the Beginning of the year
Amount transferred to Suspense A/c this year(+)
Amount recovered in Suspense A/C this year (-)
Amount written off during the year (-)
Balance at the end of the year=
Non funded loans are also called contingent liabilities. Money for which the bank is contingently liable in respect of guarantees given favoring Directors, Government, Bank and other financial institutions. Among the guarantees Performance Bond Guarantee is sanctioned in big volume.
Commission Earnings: (Taka)
2004 2003 2002
Commission on L/C
Commission on L/G
Other Commission / Fees
Dhaka Bank charges 10% of commission fees on all the Bank Guarantees. It is a type of earning for bank. In 2004, Dhaka Bank earned 113 million taka from commission from L/C’s. This amount is increasing through the last few years. Dhaka Bank also earns a big amount of commission from L/G every year.
Advances taken by Corporate customers (more than 15% of bank’s total capital): as on 31st December, 2004.
Apollo Ispat Complex Ltd.
HRC lighting Limited
Karnafully Steel Mills Ltd.
Karotoa Spinning Mills Ltd.
Navana Construction Ltd.
Partex Beverage Limited
Partex Sugar Mills Limited
Rahim Steel Mills Co. Ltd.
RFL Plastics Ltd.
Singer Bangladesh Limited
Unique Cement Industries ltd.
Uttara Traders Pvt. Ltd.
Outstanding Advances Distributed By Rates of Interest:
Issued from Dhaka Bank Ltd, Local Office. As on 30.06.2005 (fig. in million Tk.)
Different Interest Rates (%)
Dhaka Bank reports to Bangladesh Bank on interest rate wise disbursed loans and advances. This is a requirement of Bangladesh Bank also. Through this statement, Bangladesh Bank tries to find out, how much loan is given on a particular interest rate by Dhaka Bank Ltd to its customers. It is also seen that on which interest rate highest loan is disbursed. In other words, on which interest rate customers want to borrow money most. Bangladesh Bank also wants to find out what is the range of interest rates on which much of the loans are given. This is also seen that what the loan outstanding position on high interest rates is
Name of Sector
Steel Engineering Metal
Other Manufacturing Company
Other Small Scale Mfg. Co.
Other Service industry
Trust Fund Profitable Org.
Non Govt. Organization
Other Non Banking Fin. Org.
Central Co-Operative Bank
Other Co-Operative Bank
Other Financial Organization
Self employed person
Service holder within country
Other Firm/ Individual
From the above report of sector wise loan outstanding, we can see that how diversified the credit portfolio of Dhaka Bank Ltd. is. There are a lot of sectors in which this Bank has given credits. Cement factories are the most prioritized sector from Dhaka Bank’s point of view. There are other sectors in which this bank has given big volume of loans. They are Garments industries, Leasing companies, Import, Construction Companies, etc. These are all funded facilities. On the other hand, Export Sector, Textile and Construction sectors are given Non-funded facilities most.
Analysis of the Credit Position of Dhaka Bank Ltd:
In this part, the credit position and the performance of Dhaka Bank will be discussed. The financial measurement will help to identify how much effective is Dhaka Bank’s Policy of credit.
? Total Loans and Advances: (In million Tk.)
Total loan outstanding
As it has been mentioned before, that the portfolio of Credit of Dhaka Bank is large and diverse, therefore this bank issues a big amount of Loans each year. Dhaka Bank always maintains quality of loans. Before sanctioning credit, Dhaka Bank confirms the credit worthiness of the customer and repayment capacity. These procedures express the strengths of the Credit Policy of Dhaka Bank. From the above table, we can see that the amount of outstanding loans and advances is increasing in the recent years. Because of the strong credit policy, Dhaka Bank was able to maintain loan quality which leads to increased loan amount every year. Customers are given good facilities beside loans and the after sales service is excellent in this bank. That is why, more customers are taking loans from this bank. Every year, this bank is making relationship with both new corporate and retail customers. This leads to increased amount of loan sanctioned. And another thing is, every year the amount of deposit is increasing in this bank. That is why, this bank is able to sanction more loans each year. There exists some external pressure also. Government directs its financial activities in the country through the Govt. fund. But some times, Govt. is in shortage of fund. At that moment, in order to continue the financial activities, Govt. makes Internal Borrowing. Govt. borrows from the Banks and financial institutions inside of the country. Then banks cannot save themselves from Govt. Borrowing. They must lend loans to the Govt. In that case, Bank’s ability of giving more loans is reduced. In spite of these barriers, Dhaka Bank has successfully managed to give loans and advances to its customers and this amount is increasing every year.
Interest earned from loans and advances:
Interest earned from different categories of loans and advances are given below-
(figure in Tk.) 2004 2003 2002
Loan against Imported Merchandise
Loan against Trust Receipt
Payment against Documents
House Building Loans
The above chart represents the interest income of loans and advances for the year 2002, 2003 & 2004. Here also we see that the interest is increasing over the years. This is a very good sign for an institution. The increasing income refers that the way Dhaka Bank is operating credit division, is right. This also refers to the effectiveness of the Credit policy of this bank. We know that Dhaka Bank’s credit portfolio is so diverse. Dhaka Bank also offers a wide range of products of loans and advances to its customers. Every year this bank is giving more and more loans in different loan categories. As a result, the bank is getting interests from these loans. Interest from loans is the major earning for a bank. So, higher the loans sanctioned, the higher it will be the interest income. Dhaka bank possess strict credit policies for each and every category of loans and maintains that very strictly also. That is the reason for maintaining good quality over the credits. This is another reason for gaining steady income from interest of loans over the years.
? Volume of Non Performing (classified) Loans: 2004 2003 2002
§ Loans considered good in respect of which the banking company is fully secured.
§ Loans considered good against which the banking company holds on security other than the debtor’s Personal Guarantee.
§ Loans considered good secured by the personal undertakings of one or more parties in addition to the personal guarantee of the debtors.
§ Loans due by directors or officers of the banking company or any of these either separately or jointly with any other persons.
Dhaka Bank is very eager to maintain the quality of loans sanctioned. If the loans sanctioned are fully secured, then it is good for the bank. If the borrower fails to repay the loan, then it will be easy for the bank to recover the loan. From the above table we can see that the amount of loans which is fully secured is increasing over the years. This is a good sign for the bank. It shows the effectiveness of the bank. Dhaka bank gives a big volume of Directors loan every year. in case of Directors loan, it is a common practice that no security is kept without the Director’s personal guarantee. But this personal guarantee is not sufficient is case of loan default. In 2002 and 2003, the amount of loans given to Directors was in the low range. But in 2004, it jumped. Dhaka bank should control this kind of loans. There is another category, loans considered good which is secured by the personal undertakings of one or more parties beside the personal guarantee of the borrower. Dhaka Bank should work to improve in this category of loans. There is another category, loans due by directors or officers of the banking company either separately or jointly with any other persons. Dhaka Bank should think about this type of loan. If this kind of loan is fruitful, then the bank should try to give more of this loan.
Effectiveness of Credit Policy through Ratio Analysis:
Performance measurement is a continuous process. It continuous through the active live of an organization. It is directly related to the goals of different organizations. As the goals of different organizations are different, the performance measurement techniques are also different for the different organizations. These techniques may also differ even between two organizations of same nature because of the difference of ownership or organizational structure. All categories of banks in Bangladesh are guided by identical rules and regulations. The operational and financial performance of a Bank was made normally to know the following:
To determine the relative liquidity and solvency of the Banks.
To judge the effectiveness of their Credit policies.
To ascertain the earning capacity of the banks.
To evaluate the efficiency of management.
Risk management is an integral part of the management of Bank’s funds. Banks must make sure that they are compensated with earnings proportionate to the risk they exposed to and they must balance the levels of risk that exists within and among their various portfolios. Financial institutions should, therefore consider how much risk could be taken to achieve the highest yields without compromising the safety of their funds. Following ratios are used for risk management:
Capital Adequacy Ratio: The calculation process of this ratio is- 9% of risk weighted assets.
Capital Adequacy Ratio
Plough Back to Shareholders Equity Ratio: This ratio calculates that how much portion of the shareholders equity is coming back as yield to the share holders. The calculation process is- (Reserves and Surplus/ Net Profit)*100.
Decision making way- The higher the ratio, the more strength of a bank.
Plough Back to Shareholders Equity
From the above table, we can see that the Plough back to share holder equity ratio is increasing over the years. This is a good sign for the bank. The higher the ratio, the more strength of a bank. Over the past few years, the ratio is increasing as well.
Amount of Lawsuit Filed:
2004 2003 2002
The Amount of Written off loan for which lawsuit has been filed
From the above table we get the information of the total amount of written off loan for which law suit has been filed. When a loan becomes Bad or loss and it remains as for a long time, then bank writes off that loan. The reason behind that is if the loan is carried as Bad/ loss, then bank has to put provision against that loan which is not worth while. That is why, those loans are written off. And case is filed for the purpose of recovering those loans. In 2004, the amount of written off loan for which law suit has been filed is 128 million, which is very high than the previous years. In 2003, there were 419 million Tk classified loans. For these reason, in 2004, law suit has been filed for this amount.
From the above table we can see that Dhaka Bank expenses a big amount of money to manage its legal actions every year. This was 940 thousand, in 2004. As there were a big amount of classified loan in 2003 that is why, bank has to spend a big amount of money for the legal actions taken. There are Professional expenses also which is related to loan recovery. Bank has to spend a lot of money for this every year also.
Dhaka Bank is directing its operation with expertise. After starting, Dhaka Bank has passed 11 years. And in these years, this bank has developed in all the areas. But still there are some fields where Dhaka Bank needs to reshape the rules and policies. We want to recommend Dhaka Bank about some of the areas of Credit to improve in-
There is a norm in Dhaka Bank Credit Policy and Bangladesh Bank Regulation also, that if the CRG is not good of any client, no loan will be given. But Dhaka Bank relaxes this norm to some of the special cases. I would recommend Dhaka Bank to stick to this norm strictly in order to maintain good credit quality.
The Tax Payer’s Identification Number (TIN) must be made compulsory for applying for the loan. Though it is a norm to submit TIN number by the client, but in many cases, it is ignored. The credit officials must ensure that this TIN number is submitted by the client before the sanctioning of loan.
If a borrower has taken loan from any of the banks or financial institutions previously, then the bank should revise that loan statement and the repayment behavior of the borrower before sanctioning loan. Bank should collect other additional information (if any) about the borrower form other banks.
Bank should not give loans to aged clients. Specifically, client over 55 years of age (in Bangladesh context) should not be given loan.
Bank should ensure that if a borrower dies, there are other capable persons who can take charge of the business and keep the business running without any interruption.
In case of Letter of credit and Bank guarantee, the necessity of creating Force Loan appears to the bank sometimes. In these cases, Bank should take securities before giving these sorts of facilities to the clients. As a result, there will not be any necessity to create force loan. If any claim arrives, form the beneficiaries of letter of credit and bank guarantee, then that claim can be met by selling that security.
In some special cases, Dhaka Bank relaxes in the lending rates of credit, which should not be done at all. It reduces profitability and increases risk. In order to maintain good quality of credit, Dhaka Bank should stick to its rules.
In order to secure a loan, Personal Undertaking should also be taken besides personal guarantee.
Sometimes, Bank buys loan of a customer from another Bank. It is called Debt buying. Dhaka Bank should not do it as this loan has 100% chance of becoming classified. Dhaka Bank should carefully select loan customers.
In case of loan default, case should be filed against the guarantor also, besides the borrower. This may be proved as an effective move and the loan may be adjusted.
Bank officials must supervise and ensure that the sanctioned loan is being used for the announced purpose in order to stop Fund Diverting.
Undertaking must be taken from all the partners of a Partnership Firm that in future, Bank will not be disturbed by any activities of the partners or by any disputes among them.
Bank do not sanctions Corporate loan, if the liability of the company is too much. In that case, bank can give loan to that customer by taking cash security or land mortgage security.
Dhaka Bank do not gives much loans to the rural areas. Dhaka Bank should think about it and sanction loans to the rural areas in some profitable sectors.
Bangladesh is an agricultural country. Bangladesh economy is still dependent of agriculture. But Dhaka Bank do not gives loan in this sector. Dhaka Bank should give loans to agricultural industries.
Dhaka Bank is one of the 2nd Generation Banks and is being running successfully. This bank has highly skilled and committed workforce and experienced management to lead the bank from the front. Dhaka Bank has a wide range of products and serves its customers with latest technological tools. One of the strengths of Dhaka Bank is that this bank gives a huge amount of loans and advances to corporate and retail customers. Dhaka Bank is involved more with corporate customers. The credit portfolio of Dhaka Bank is so much diversified and invests in almost all the sectors of industries of Bangladesh. Credit Department, that is why, is an important department for this bank. Every year Dhaka Bank earns a big amount of interest form loans. So, we can say that interest income is the life blood of Dhaka bank. Dhaka Bank is eager to maintain good loan quality. That is why, the interest rates of loans and advances are higher in Dhaka Bank than other banks. In this case, Dhaka Bank is working with Bangladesh Bank. Bangladesh Bank has taken several measures to improve financial discipline in the Banking sector. In spite of maintaining good loan quality, some loans are becoming Bad / Loss every year. Dhaka Bank’s credit policy is very strict. The Credit Management is very effective also. The Credit Management is using some effective tools. Credit Risk Grading, Special Mention Account, Loan classification, Loan Rescheduling, Provisioning of loans are the important tools for managing credit. That is why, every year the classification of loans and the amount of default loan is decreasing. So, we can say that the credit Policy of Dhaka Bank is effective. But still there are some opportunities to improve and reshape the credit policy in some areas. It can be hoped that Dhaka Bank will be able to contribute more in the Bangladesh economy in the coming years.
§ Dhaka Bank website: www.dhakabankltd.com
§ Banker’s Training Handbook, BIBM, 8th edition, 2004.
§ “Revised Guideline to fill in the CIB-01 Form”, 4th edition, 2002, Credit Information Bureau, Bangladesh Bank.
§ Dhaka Bank Annual Report, 2003, 2004.
§ “Strategic Management”, Strickland / Thompson, 13th edition, Tata McGraw Hill, New Delhi.
§ Newsletters and Product Brochures of Dhaka Bank Ltd.
Security details of
§ Duty, Vat and other port dues to be borne by the company from their own sources;
Other Conditions of Multiple Credit facilities:
§ All legal fees and other costs incurred by the bank in connection with these facilities will be drawn from borrowers account;
§ Any material or adverse change in business condition will cause the amount due to bank immediately repayable;
§ Prior notice should be given to the bank regarding any change in the ownership structure of the company and Form- XII, Schedule- X must be submitted.
§ Authorized financial statement of the company must be submitted in the bank;
§ Bank reserves the right to setoff any outstanding in one account against any other accounts held in company’s name with the bank whether in debit or credit;
§ Bank reserves the right to review and change interest rate, if required in connection with market rate;
§ Marine insurance policy in case of goods imported by ship and lorry insurance policy in case of goods imported by truck to be obtained.
§ All rules and regulations of import policy, guidelines of foreign exchange transactions, public notice, Bangladesh Bank and Head office circular issued from time to time must be compiled with;
§ Quality, Quantity, rates and all other details of the imported goods must be as per respective indent/ proforma invoice and the rate to be comparative as per local and international market.
Security details of Personal Loan:
§ Hypothecation of all unencumbered movable assets of the borrower;
§ Declaration in respect of Overdue/ Stuck up liability;
I. 10% margin, i.e. 5% at the time of opening L/C by keeping lien of FDR / STD accounts of sister concerns and rest 5% in the form of cash during the creation of LTR.
II. 10% Cash margin in case of issuing B.G.
Security of Third Party: There exist some loans, in which security/ mortgage of third party is kept against the loan. In this case, what happens is, the original borrower do not take the repayment seriously. Because, he thinks that the security is not his asset. If borrower do not repays loan, bank will seize the security of that third party, which will cause nothing harm to the real borrower. But that third party will be affected in fact. These types of loans become classified.
Debt Buying: If a bank buys back a debt from any other bank in an intention to do business from that debt, in most of the cases, these loans become classified. A customer may have a loan in a bank. That customer requests another bank which he knows, to take that loan. Because that customer does not want to do any transactions with the loan originating bank. At this moment, the later bank buys that customer’s debt from the original bank in order to make profit from that customer. In these cases, the genuineness of the loan is very bad and the borrower do not repay loan willingly also. For these reasons, the loan becomes classified.
Significance of Classification of Loans:
Bangladesh Bank instructs that classification of a loan does in no way lessen the borrower’s responsibility to pay the full amount due, including any suspended interest whether or not entered on the loan ledger. In any court action in which a claim is made of reduced liability due to classification and provisioning, the circular of loan classification should be presented to the court as evidence that the monetary authorities instruct the banks that such responsibility is not diminished by loan classification, the making of provisions, or the suspension of interest.
Basis of Loan Classification:
The loan should be classified by the lending bank whenever the bank has reason to believe the loaner may not be able to repay the loan due to a change in the circumstances under which the loan was originally sanctioned, i.e. on the basis of qualitative factors. The reasons for classification based on judgment include all criteria previously used by the inspecting departments of Bangladesh Bank in classifying loans, all of which should continue to be applied as previously. These criteria include but are not limited to more than a normal risk due to adverse financial condition (arising from loss of a part of borrowers capital), poor financial performance of the borrower (borrower’s cash flow is insufficient to service debt requirements), or due to insufficiency of security (value of security is less than the amount of the loan outstanding) or other unfavorable factors. This judgment can be made regardless of whether the loan is overdue or not. Banks are responsible for formulating specific conditions for classification on qualitative basis and forming their branches of these conditions.
i. Any agricultural loan will be turned into irregular credit just after it is not repaid/ rescheduled within the prescribed time period. If the aforesaid credit lied irregular for 3 months and above but below 6 months then the credit will be classified as Sub Standard, if it lies irregular for 6 months and above but less than 12 months then it will be classified as Doubtful and if it is left unrecovered for 12 months or above then the loan will be classified as Bad Loan.
When a demand loan is left unrecovered for 3 months or above but less than 6 months from the date of the loan is claimed or from the date of compulsory credit creation, then the loan will be classified as Sub-standard loan. But when it is left unrecovered for 6 months or above but less than 12 months the loan will be classified as Doubtful and if the loan lies unrecovered for 12 months and above then it will be classified as Bad loan.
In case of fixed term loan if any installment is left unrecovered within the scheduled date, the amount falling due on account of unrecovered installment, will be classified as Overdue installment. A fixed term loan is repayable within a maximum period of 5 years. If the amount of overdue installment equals or exceeds the amount repayable within 6 months, then such credit will be classified as Sub standard. If the amount of overdue installment equals or exceeds the amount repayable within 12 months then such credit will be classified as Doubtful. If the amount of overdue installment equals or exceeds the amount repayable within 18 months then such credit will be classified as Bad Loan.
Classification as Sub-standard:
A loan is classified as sub standard if any one of the following conditions is met:
If an advance or any portion of an advance or interest thereon remains overdue for one year or more but less than three years then the advance is classified as substandard.
For an advance of a continuing nature, even if the loan is not overdue as much as one year, but the limit stands overdrawn by more than 50% for a period of 45 continuous days preceding the reference date for the classification, then it is classified as sub standard.
If a loan has been renewed or rescheduled at least three times but is not overdue, and any of the required payments for the required period have not been made when they fall due, then the loan is classified as sub standard.
Classification as Doubtful:
A loan is classified as doubtful if any one of the following conditions is met:
The advance or any portion of the advance or interest thereon remains overdue for three years or more but less than five years.
A loan classified as substandard mentioned above has remained substandard for two years or more.
Qualitative criteria based on judgment.
Legal action has been initiated.
Classification as Bad or Loss:
A loan is classified as bad if any one of the following conditions is met:
The advance or any portion of an advance or interest thereon remains overdue for five years or more.
A loan classified as doubtful mentioned above has remained doubtful for two years or more.
If legal action has been initiated and no court decision has been obtained within five years of initiation of action then the loan is classified as bad.
Qualitative criteria based on judgment.
Accounting Procedure of interest of Classified Loan:
If any credit or advance is classified as substandard or doubtful, the interest will be imposed on that credit account but such interest will not be transferred to the income account. Total interest imposed on substandard or doubtful account will be kept in interest suspense.
If any credit or advance is classified as Bad or loss, imposition of interest on that account will be suspended forthwith. If any suit is required to be filed for recovery of such credit, the suit will be filed on the total amount of principal including interest calculated upto the period before the suit is filed. Such interest will be kept on interest suspense. In case of any other special reason if interest is imposed on Bad and Loss account then such interest will be recovered in interest suspense account.
If any classified loan or part of thereof is recovered, i.e. actual deposit on account of recovery is made in the credit account, then recovery of non imposed as well as imposed interest will be made first from such deposit. Then original loan will be adjusted.
Classification of loans according to overdue period:
Length of overdue
Length of overdue
Length of overdue
Length of overdue
Length of overdue
Less than 12 months.
Less than 9 months.
Less than 9 months.
Less than 6 months.
Less than 3 months.
12 months or more but less than 36 months.
9 months or more but less than 24 months.
9 months or more but less than 24 months.
6 months or more but less than 12 months.
3 months or more but less than 6 months.
36 months or more but less than 48 months.
24 months or more but less than 36 months.
24 months or more but less than 36 months.
12 months or more but less than 24 months.
6 months or more but less than 12 months.
48 months or more.
36 months or more.
36 months or more.
24 months or more.
12 months or more.
Credit Management Procedure of Dhaka Bank Ltd:
Loans and Advances is the major business of any banks. Banks receive idle money or Deposit from a source and lend this money to others. Bank gives interest on deposit and receives interest from lended amount. Obviously, the lending rate is higher than the interest paid on deposit. So, bank gains from this trade off. Like any other banks, credit department is the most important division of Dhaka Bank. Because, credit department sanctions loans and it is the major business of this bank. We can say that this is the life blood of Dhaka Bank Ltd. So, it is very important to direct this division very carefully. Credit management is the process by which Dhaka Bank can direct the department as well as can control each and every steps of loan sanction and disbursement. Credit management procedure also helps to monitor and supervise the sanctioned loan. Sanctioning a loan is important. But the more important is to monitor and supervise that loan so that it is smoothly repaid by the borrower. Bangladesh Bank also has been playing an important role for bringing out discipline and dynamism in the banking sector of the country. Due to stringent supervision and control exercised by the central bank, there had been a significant progress in the reduction of percentage of classified loans in the banking sector. The guidelines introduced by Bangladesh Bank influences the Credit management of Dhaka Bank. The Credit management procedure of Dhaka Bank is discussed below:
¯ Reporting to Credit Information Bureau (CIB): When a corporate or retail customer applies for a loan, it is mandatory for a bank to inform about that customer to CIB of Bangladesh Bank and obtain CIB report about that customer also. This has been made mandatory by Bangladesh Bank to all the Bank and financial institutions. Bank has to inform the CIB about the existing borrowers also. The schedule for informing CIB about the borrowers is:
· Good – (GD) – 2
o Strong repayment capacity of the borrower
o The borrower has excellent liquidity and low leverage.
o The company demonstrates consistently strong earnings and cash flow.
o Borrower has well established, strong market share.
o Good management skill & expertise.
o All security documentation should be in place.
o Credit facilities fully covered by the guarantee of a top tier local Bank.
o Aggregate Score of 85 or greater based on the Risk Grade Score Sheet
· Special Mention – (SM) – 5
o This grade has potential weaknesses that deserve management’s close attention. If left uncorrected, these weaknesses may result in a deterioration of the repayment prospects of the borrower.
o Severe management problems exist.
o Facilities should be downgraded to this grade if sustained deterioration in financial condition is noted (consecutive losses, negative net worth, excessive leverage),
o An Aggregate Score of 55-64 based on the Risk Grade Score Sheet.
· Substandard – (SS) – 6
o Financial condition is weak and capacity or inclination to repay is in doubt.
o These weaknesses jeopardize the full settlement of loans.
o Bangladesh Bank criteria for sub-standard credit shall apply.
o An Aggregate Score of 45-54 based on the Risk Grade Score Sheet.
· Doubtful – (DF) – 7
o Full repayment of principal and interest is unlikely and the possibility of loss is extremely high.
o However, due to specifically identifiable pending factors, such as litigation, liquidation procedures or capital injection, the asset is not yet classified as Bad & Loss.
o Bangladesh Bank criteria for doubtful credit shall apply.
o An Aggregate Score of 35-44 based on the Risk Grade Score Sheet.
b) After adjustment of interest suspense and value of eligible securities from outstanding balance of classified credit- the reservation of provisions will be kept on the calculated balance. General provisions will also be kept at a rate of 1% on unclassified loans.
In respect of Short Term Agricultural Loan and Micro Credit, the reservation of provision will be made as under:
i. Credits other than Bad Loan (Doubtful, Substandard and regular)= 5%
ii. In case of Bad Loan =100%
¯ Loan Rescheduling:
After classification of a loan, if the borrower appears to the bank and states that due to some unavoidable reasons he was unable to adjust the loan. Now the borrower wants to adjust the loan and requests the bank to give a new schedule against his loan. This is called Rescheduling of Loan. In this circumstance, the customer promises to ensure full adjustment of loan in the bank’s prescribed way. In order to reschedule a loan, the borrower must pay 15% down payment of the outstanding balance of the loan at first. If a loan is rescheduled, then the rate of interest increases. The rate of interest increases by 1% in each quarter. If a borrower applies to the bank to reschedule his loan after depositing a specific down payment in order to make his loan regular, then the bank must take decision about rescheduling the loan within three months from the date of receiving the application. The Inter Bank Committee for Loan Rescheduling and Restructure will measure the possibility of rescheduling this loan and will accept the rescheduling in possible terms. In order to measure the loan reschedule proposal, External Consultants could be appointed.
¯ Suspense Account:
According to the Bangladesh Bank regulation, when a loan becomes classified, the interest relating that loan is suspended. Therefore, the respective bank or financial institution cannot take the interest amount from that loan. For this reason, an account is created called Suspense Account. In this account, all the interests of classified loans are kept. If the loan becomes regular, then the bank can take the interest charged against that loan. So, the bank has to wait until the loan becomes regular. The main reason of creating this account is, if bank continuously charges interest on a classified loan, it will put extra pressure on the borrower. Then the borrower will not be interested to adjust that loan. In order to reduce the pressure from the borrower, Bangladesh Bank introduces this account. On the other hand, bank suffers for this account. Bank is not getting the interest income. This is a loss for the bank. Banks are made deprived of getting interest and they have to wait for a long period of time for the loan to be regular. And this is very much uncertain that whether the loan will be regular or not.
Within 10th of the following month
CIB Form-01: (Tk. One Crore or above)
Within 5th of the following month
Identification of Agro based industries.
Within 15th of the following month
New loan disbursed in the year for last five years.
Within 15th of the following month
Statement of irregular loan Disbursed.
Within 15th of the following month
Within 10th of the following month
Within 15th of the following month.
Within 10th of the following month
Loans and Advances secured by financial obligation
Within 7th of the following month
House Building Loan
Loan against Trust Receipt
Payment against Documents
Loan against Imported Merchandise
Loan against Accepted Bills
Personal/ Car Loan
2004 2003 2002
Textile and Garment industries
From the above table we can see the industry wise loan outstanding of Dhaka Bank of the year 2002, 2003 and 2004. The above table shows that Engineering & Metal and Food & Allied industries are given most priority for giving loans. Textile, Housing and Pharmaceutical industries are also sanctioned a good amount of loan during those years. But Agricultural industries are given less amount of loan. The reason for that is, factory for agricultural based products in our country is low. Though our country is an agricultural country and agricultural products are vastly traded all over the country, but because of less scope of agricultural based industries in our country, the sanctioned loan is low in this sector.
Geographical Location wise Loans & Advances: (fig. in million Tk.)