Executive Summary
The ongoing development of contemporary management methods and the increased use of innovative financial products such as securitization and credit derivatives have brought about substantial changes in the business environment faced by credit institutions today. Especially in the field of lending, these changes and innovations are now forcing banks to adapt their in-house software systems and the relevant business processes to meet these new requirements.
Credit Risk Management is intended to assist practitioners in redesigning a bank’s systems and processes in the course of implementing the Basel II framework.
Throughout last five years securitization, rating and validation, credit approval processes and management, as well as credit risk mitigation techniques. Credit management is based on developments in the banking sectors is meant to provide readers with best practices AB bank would be well advised to implement regardless of the emergence of new regulatory capital requirements.
AB Bank is to develop mutual understanding between regulatory authorities and banks with regard to the upcoming changes in banking. Credit risk Management provides interesting reading as well as a basis for efficient discussions of the current changes in AB Bank.
The bank has been successful in holding its position as a progressive and dynamic financial institution in the country for a long period of time. It has now centralized all of its activities and has been acclaimed by the customers for its modern and innovative ideas and financial solution. It has been able to create a unique image for itself and significant solution in the banking sector proving its brand mantra “Would make finest corporate citizen”.
1.1 Background of the study
The main product of bank is Loans and Advances. The price of a loan is determined by the cost to make the loan plus a profit or risk premium on it. Lending is the primary business of a bank and profit is a measure of its success. So the main objective of lending is to earn profit on loans for the ongoing viability of a bank.
According to Michael C. Dennis (2001), most of the banks use objective and subjective data interpretation to evaluate a borrower’s financial condition from their financial statements. Objective analysis involves traditional methods of number and data analysis. Such as, review of unusual accounting methods used by the client, unusual information in the notes in the financial statement. Review of CIB (Credit Information Bureau) Report of client including financial ratios, trend analysis and financial profitability analysis of his business has been done before disbursement of a loan. Financial profitability, leverage liquidity and efficiency analysis of the client and its business considered as key denominator of a prospective client. Subjective analysis involves the overall evaluation of how a borrower is doing financially and whether extending the borrower’s credit would pose any acceptable or unacceptable risk.
To extend credit facilities (or to continue the credit facilities) to an applicant, bank can make a decision only after an objective analysis and subjective evaluation. This analysis combined with information about applicant’s payment history, trends in the client’s industry, changes in the overall economy, and changes in demand for the client’s products and services are used to develop an intuitive understanding of the opportunities and challenges the client faces.
As a developing country, Bangladesh follows analytical tools recommended by BRDP (Banking Rules and Development Policy) of Bangladesh Bank. Bank mainly has to depend on judgment and their confidence whether borrower will pay or not. AB Bank Limited sanctions loan first by seeing the client’s reputation in the market. Secondly, past information helps to analyze the business pattern and industry trend. Thirdly, uses the CRG (Credit Risk Grading) scorecard to evaluate the credit risk. From the CIB report bank can identify whether the client is classified or not
The study has been undertaken with the following objectives:
General objective:
· Achieve experience about credit risk of banking system and theoretical application of knowledge in the real life
· To observe the general banking and advance operation f ABBL, and their services
· To get an overall practical knowledge concerning banking activities as a financial institution.
· How a bank operates their activities in different areas being a single organization.
· What a bank is doing for Bangladesh to develop national economy.
Specific objective:
· How Credit control authority work inside the bank, to know about that
· Details about Credit risk management of banking system.
· Framework of credit risk management.
· To analysis the pros and cons of the conventional ideas about credit operation of a Bank.
· To have better orientation on credit management activities specially credit policy and practices, credit appraisal, credit-processing steps, credit management, financing in various sector and recovery, loan classification method and practices of AB Bank Limited.
· To compare the existing credit policy of AB Bank limited with that of best practices guideline given by Bangladesh Bank, the central bank of Bangladesh.
· To identify and suggest scopes of improvement in credit management of ABBL
· To get an overall idea about the performance of AB Bank Ltd.
· To fulfill the requirement of the thesis report under BBA program.
The study would focus on the following area of AB Bank limited:
· Overall activity of AB Bank Ltd
· Credit appraisal system of AB Bank limited.
· Procedure for different credit facilities
· Portfolio of loan or advances management of AB Bank limited
· .Organization structure and responsibilities of management.
· The report concerns about the Credit Division of AB Bank Limited.
· different products and services of Credit Division
· Credit operating system and procedures of loan supervision, and monitoring of AB bank. Management system
· Each of the above areas would be critically analyzed in order to determine the efficiency of ABBL’s Credit appraisal and
Secondary sources of data:
- Searching information through the internet.
- Using some of the text book.
- Some international articles.
- Annual report of AB Bank and national bank.
- Bangladesh institute of bank management (BIBM).
- Web site of AB bank.
To prepare this report I have faced the following limitations:
· It was one of the most important factors that shortened the present study. Due to time constraints, the sample size had to be restricted.
- Another limitation is lack of knowledge about these topics, which could be very much useful.
- It is a theoretical practice not practical so we do not skilled enough to cover the total information.
- Confidentiality of data was another important barrier that was faced during the conduct of this study.
- Rush hours and business was another reason that acts as an obstacle while gathering data.
· To prepare this report I have faced the following limitations:
- Most of the time ABBL’s employee was very busy. So they can’t provide enough time to get information for preparing this report
- .Few officers sometime felt disturbed, as they were busy in their job. Sometime they didn’t want to supervise me out of their official work.
- The most functions of ABBL are manual and lengthy though it is trying to upgrade.
- Some desired information could not be collected due to confidentially of business.
- Library management and functioning is not satisfactory at many places and much of the time and energy of us are spent in tracing out of Books, Journals, and Reports etc.
2.1 History of banking
When money became an accepted medium of exchange, the need arose to keep the money safe. In addition, some people needed to borrow money. These needs led to the development of banks. The earliest banking records, dated around 2000 B.C., indicate that Babylon had a highly developed banking system. Babylonian banks were not unlike the banks of today, except that you might say they had a monopoly. Many years later, in the sixth century B.C., the first private bank emerged-the Igibi bank.
Like today’s bank, it accepted for deposit money on which it paid interest. It also lent money to persons who needed the money for worthwhile purposes and who repaid the borrowed funds with interest. By the fourth century B.C., Greece was the dominant nation in the world. Private and city-state-owned banks existed in the outlying lands of the Greek Empire, but only privately owned banks were allowed in Greece. Government to a great extent regulated those banks; however, Rome then became the dominant empire. Under early Roman law, banks could only be privately owned, but they were regulated by law. With the fall of the Roman Empire, banking became essentially illegal until the third century A.D. By the fourteenth century, when trade routes were being developed, privately owned banks were once again allowed. And by the fifteenth century, banks were needed to advance the huge sums of money required to send out ships to bring back valuable commodities such as spices, silk and gold. At this time in history, banking was big business
2.2 Banking system of Bangladesh
The banking system at independence consisted of two branch offices of the former State Bank of Pakistan and seventeen large commercial banks, two of which were controlled by Bangladeshi interests and three by foreigners other than West Pakistanis. There were fourteen smaller commercial banks. Virtually all banking services were concentrated in urban areas. The newly independent government immediately designated the Dhaka branch of the State Bank of Pakistan as the central bank and renamed it the Bangladesh Bank. The bank was responsible for regulating currency, controlling credit and monetary policy, and administering exchange control and the official foreign exchange reserves. The Bangladesh government initially nationalized the entire domestic banking system and proceeded to reorganize and rename the various banks. Foreign-owned banks were permitted to continue doing business in Bangladesh. The insurance business was also nationalized and became a source of potential investment funds. Cooperative credit systems and postal savings offices handled service to small individual and rural accounts. The new banking system succeeded in establishing reasonably efficient procedures for managing credit and foreign exchange. The primary function of the credit system throughout the 1970s was to finance trade and the public sector, which together absorbed 75 percent of total advances.
The government’s encouragement during the late 1970s and early 1980s of agricultural development and private industry brought changes in lending strategies. Managed by the Bangladesh Krishi Bank, a specialized agricultural banking institution, lending to farmers and fishermen dramatically expanded. The number of rural bank branches doubled between 1977 and 1985, to more than 3,330. Denationalization and private industrial growth led the Bangladesh Bank and the World Bank to focus their lending on the emerging private manufacturing sector. Scheduled bank advances to private agriculture, as a percentage of sectoral GDP, rose from 2 percent in FY 1979 to 11 percent in FY 1987, while advances to private manufacturing rose from 13 percent to 53 percent.
The transformation of finance priorities has brought with it problems in administration. No sound project-appraisal system was in place to identify viable borrowers and projects. Lending institutions did not have adequate autonomy to choose borrowers and projects and were often instructed by the political authorities. In addition, the incentive system for the banks stressed disbursements rather than recoveries, and the accounting and debt collection systems were inadequate to deal with the problems of loan recovery. It became more common for borrowers to default on loans than to repay them; the lending system was simply disbursing grant assistance to private individuals who qualified for loans more for political than for economic reasons. The rate of recovery on agricultural loans was only 27 percent in FY 1986, and the rate on industrial loans was even worse.
As a result of this poor showing, major donors applied pressure to induce the government and banks to take firmer action to strengthen internal bank management and credit discipline. As a consequence, recovery rates began to improve in 1987. The National Commission on Money, Credit, and Banking recommended broad structural changes in Bangladesh’s system of financial intermediation early in 1987, many of which were built into a three-year compensatory financing facility signed by Bangladesh with the IMF in February 1987.
One major exception to the management problems of Bangladeshi banks was the Grameen Bank, begun as a government project in 1976 and established in 1983 as an independent bank. In the late 1980s, the bank continued to provide financial resources to the poor on reasonable terms and to generate productive self-employment without external assistance. Its customers were landless persons who took small loans for all types of economic activities, including housing. About 70 percent of the borrowers were women, who were otherwise not much represented in institutional finance.
Collective rural enterprises also could borrow from the Grameen Bank for investments in tube wells, rice and oil mills, and power looms and for leasing land for joint cultivation. The average loan by the Grameen Bank in the mid-1980s was around Tk2, 000 (US$65), and the maximum was just Tk18, 000 (for construction of a tin-roof house). Repayment terms were 4 percent for rural housing and 8.5 percent for normal lending operations.
The Grameen Bank extended collateral-free loans to 200,000 landless people in its first 10 years. Most of its customers had never dealt with formal lending institutions before. The most remarkable accomplishment was the phenomenal recovery rate; amid the prevailing pattern of bad debts throughout the Bangladeshi banking system, only 4 percent of Grameen Bank loans were overdue. The bank had from the outset applied a specialized system of intensive credit supervision that set it apart from others. Its success, though still on a rather small scale, provided hope that it could continue to grow and that it could be replicated or adapted to other development-related priorities. The Grameen Bank was expanding rapidly, planning to have 500 branches throughout the country by the late 1980s.
Beginning in late 1985, the government pursued a tight monetary policy aimed at limiting the growth of domestic private credit and government borrowing from the banking system. The policy was largely successful in reducing the growth of the money supply and total domestic credit. Net credit to the government actually declined in FY 1986. The problem of credit recovery remained a threat to monetary stability, responsible for serious resource misallocation and harsh inequities. Although the government had begun effective measures to improve financial discipline, the draconian contraction of credit availability contained the risk of inadvertently discouraging new economic activity.
Foreign exchange reserves at the end of FY 1986 were US$476 million, equivalent to slightly more than 2 months worth of imports. This represented a 20-percent increase of reserves over the previous year, largely the result of higher remittances by Bangladeshi workers abroad. The country also reduced imports by about 10 percent to US$2.4 billion. Because of Bangladesh’s status as a least developed country receiving concessional loans, private creditors accounted for only about 6 percent of outstanding public debt. The external public debt was US$6.4 billion, and annual debt service payments were US$467 million at the end of FY 1986.
2.3 Background of AB Bank Limited
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 77 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 2009 financial year with good results. The Bank’s consolidated profit after taxes amounted to Taka 3300 cr which is 43.44% higher than that of 2008. The asset base of AB grew by 27.20% from 2008 to stand at over Tk 10691 cr as at the end of 2009.
The Bank maintained its sound credit rating in 2009 to that of the previous year. The Credit Rating Agency of Bangladesh Limited (CRAB) awarded the Bank an AA3 rating in the long term and ST-1 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.
2.3.1Company profile:
Name of the company: AB Bank limited
Sub Industry Group: Private Commercial Bank
Company Form: Public Limited Company
Corporate Office: BCIC Bhaban 30-31, Dilkusha C/A, Dhaka, Bangladesh
Date of Incorporation: 12 April 1982
President & Managing Director: Mr. Kaiser A. Chowdhury
Auditors: ACNABIN
Sponsors of AB Bank
| Bangladeshi Sponsors | 20% |
| Bangladeshi General Public | 15% |
| Bangladesh Government | 05% |
| Dubai Bank Ltd | 60% |
Table-2.1: Sponsors of AB bank
Authorized Capital: 600, 00, 00, 000/
Capital structure of AB Bank Limited:
Bangladeshi sponsors/ Directors: 50%
Bangladeshi General Public: 49.43%
Govt. of Bangladesh: 0.57%
Objective:
The objectives for which the bank is established are as follows:
· To carry on, transact, undertake and conduct the business of banking in all branches of ABBL.
· To receive, borrow or raise money on deposit, loan or otherwise upon such terms as the company may approve.
· To carry on the business of discounting and dealing in exchange and securities and all kinds of mercantile banking.
· To provide for safe-deposit vaults and the safe custody of valuables of all kinds.
· To carry on business as financiers, promoters, capitalists, financial and monitory agents, concessionaires and brokers.
· To act as agents for sale and purchase of any stocks, shares or securities or for any other monetary or mercantile transaction.
· To establish and open offices and branches to carry on all or any of the business
Vision statement
“To be the trendsetter for innovative banking with excellence & perfection”
Mission statement
“To be the best performing bank in the country”
Corporate governance
Good Corporate Governance practices enhance an entity’s corporate image and market Credibility, which attract capital and increase its borrowing power. These can be reflected in the quality of financial reporting and disclosures; strength of internal control system and internal audit function; induction of professionally competent, independent non-executive Directors on corporate Board; formation of Audit Committee; delegation to executives and staff; protection of shareholder rights; redress of stakeholder complaint; etc. AB Bank has addressed the issues of corporate governance for strengthening organizational strength.
2.3.2 Board of Directors
ABBL’s Board of Directors (BODs) consisted of 10 members where Mr. Faisal M. Khan is designated as the Chairman of the Board. During 2009, the BODs met 9 times. Normally Bank’s Board of Directors meets monthly; but may hold more meetings in case there are special needs. Board is involved in policy formulations, strategic direction setting, business plan approval and review of various activities and also providing necessary direction to the management for conducting businesses in a competitive and profitable manner. Board also ensures effective risk management across the Bank as per the central bank’s guidelines. The Board has two sub committees, namely, Executive Committee and Audit Committee. Functions of those committees are described below:
Executive Committee
The Board’s Executive Committee, which has 5 members (including Chairman), headed by Mr. Sajedur Seraj, Vice Chairman ABBL, and reviews all the proposals for loans and advances that do not fall within the power of the Managing Director. The committee is also responsible for administration, investment aspect, expansion of business, property purchase of the Bank rescheduling of the loans etc. The Board confirms the decision of all Executive Committee meetings and assesses the operational results.
Audit Committee
The Board constituted an Audit Committee in 2006 comprising of three members of the Board in terms of Bangladesh Bank’s BRPD Circular No. 12 of 23 December 2002. The Committee comprising of Mr. M. Wahidul Haque as Chairman and Mr. Sajedur Seraj and Mr. Golam Sarwar as members, meets at regular intervals to review and monitor regulatory compliance, financial reporting, internal control & internal audit functions, and other operational activities, particularly emphasizing on such areas as risk management system, Bank’s computerized system and its use etc. The committee met five (7) times during the year 2009.
Delegation of Authority
To ensure efficient and prompt services to its clients, delegation of power is important. However, the principle should be, ‘safety first, business next’. ABBL envisages delegation certain powers to its executives at different level of operations. The BOD has empowered the Executive committee with decisions relating to operational and approving activities. The Board has also empowered the Managing Director in specific areas through power of attorney.
Internal Control and Internal Audit System
With the strategy of business expansion in the year 2006, ABBL had to integrate preemptive risk management plan to satisfy compliance requirements and also to address the operational risks associated thereto. From 2006, the Bank started Risk Based Audit all across the Bank. For the first time, risk based audit reports of all branches and divisions of the HO were submitted to the BOD. Such parameterized health report lead to an overall risk rating of the Bank thereby contributing towards the Risk Management Plan of the Bank. During 2007, 26 branches were audited through new risk based audit system, the Bank hope that, all of the branches will be audited through new system in current year. ABBL re-energized its Risk Management Tools like Departmental Control Function Checklist, Quarterly Operations Report, Loan Documentation Checklist, etc.
ABBL’s Internal Control & Compliance Division conducts internal audit of every branch once a year. The team also undertakes audit if any special incidence occurs. The Audit and inspection division enjoys full independence and works without any influence. The team can audit any branches/department any time without prior consent. Throughout the year, such division conducted sessions for Branch Managers and other employees on various Risk Management and Compliance issues like Anti Money Laundering matters etc. Last year the Internal Control and Compliance Division performed following jobs:
· Audit of 77 branches,
· Surprise visit more than 100 times of various branches;
· Audit of all divisions of Head office.
Accounting and Auditing
For accounting purposes, ABBL uses Misys Equation Banking System as accounting software developed by renowned software developer, covering various operational aspects and the general ledger. According to the Auditor of the Bank, the financial statements appear to contain the relevant mandatory disclosures under the regulatory framework, including compliance with the provisions of Bangladesh Accounting Standard (BAS), as indicated in the concerned BRPD circular. The annual financial statements were audited by reputed Chartered Accountants firm M/S ACNABIN and obtained unqualified Audit Report for the concerned year.
2.3.3 Management
ABBL’s management is headed by its President & Managing Director Mr. Kaiser A. Chowdhury. Mr. Chowdhury is one of the senior bankers of the country having a long banking career. He started his banking career with ANZ Grind lays Bank Ltd (Presently Standard Chartered Bank) in 1975 as trainee officer and served till 1999.
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Fig-2.1: Management hierarchy of AB Bank Ltd
He then joined One Bank Limited in the same year as Executive Vice President and served till 2004 (as DMD). In 2005 he joined the Arab Bangladesh Bank Limited (now AB Bank Ltd) and continued his service with ABBL. Mr. Chowdhury is aided by other top level management team to perform Bank’s day to day functions.
For smooth functioning of the Bank the following committees have been formed:
A. Management Committee (MANCOM); comprising of senior members of the management (10 members) headed by Managing Director meets weekly to discuss relevant matters of the business of the Bank. Responsibilities of MANCOM are to determine and review management policies, business targets and operational initiatives, ensure smooth roll out of all business plans and review these from time to time in the light of changing environment, linkage between all Functional activities at HO and branches, periodical review of management activities etc.
B. Credit Committee; headed by the Managing Director, is responsible for review of all credit proposals originated by the CRM Division and accord decision and recommend as per delegation guidelines, review business strategies and performance, status of loans and advance, furnish credit related MIS to Board or EC for review etc. The committee consists of 5 members.
C. Asset Liability Management Committee (ALCO); headed by the Managing Director, is responsible for balance sheet risk management. The committee consists of 7 members.
Branch Network
As on 31th December2009, AB Bank had 78branches including 1(one) Islamic branch in Kakrail, Dhaka and 1 (one) overseas branch in Mumbai, India.77 branches were located at different areas of Bangladesh.
Division wise branches location of AB bank
| Division Name | Number Of Branches |
| Dhaka Division | 29 |
| Chittagong Division | 25 |
| Sylhet Division | 08 |
| Khulna Division | 06 |
| Rajshahi Division | 05 |
| Rangpur Division | 03 |
| Barisal Division | 01 |
Table- 2.2: Division wise branches location of AB bank
Human Resources Management
The valuable contributions made by the employees for the continuous growth of the Bank have always been acknowledged. Human Resources Division of ABBL worked with the business as the core strategic partner through performing the job of recruitment, training, placement, and through introduction of the performance management tools. The Bank has its own Training Institute for training of its staff internally. The Bank has planned to restructure the Training Institute to a fully fledged Training Academy within this year. The Bank also sends its employees to the Bangladesh Institute of Bank Management (BIBM), Bangladesh Bank and other professional institutions in home and abroad for training purposes.
In 2009, total numbers of employees were 1952. Total 185 were recruited in that year, of which 147 were at entry levels, 30 in mid levels and 8 in management level. The recruitment examination is managed by both internal and external agencies. The Bank has Employees’ Service Rules followed from 1991.
According to the HR division, the Bank is the top player in the industry for the SVP & above rank. And for Probationary to VP rank, the Bank provides salary according to industry practice. The employees also get other facilities like gratuity, provident fund, festival bonus, incentive bonus, medical facilities etc from the Bank. Employee turnover at mid and executive level is very low. Lower mid level employee turnover is little high.
Credit Management
In October 2003, Bangladesh Bank advised all banks to put in place an effective risk management system focusing on five core areas. In response to that, ABBL developed a Core Risk Manual on the five core risk areas approved by the Board. During 2004, as per BB guidelines, Credit Risk Management was given a new shape. A new CRM Division was created in June 2005 with identified responsibilities for managing credit risks.
Products and services
AB Bank currently provides the following product and services to its customer:
3.1 Depository product
AB Bank Limited is now offering different types product for mobilizing the savings of the general people.
· Current Deposit
· Saving deposit
· Foreign Currency Deposit
· Fixed deposit
3.1.1 Current deposit:
Current account is an account where a customer can deposit money and withdraws several times in a working day. In this account there is no interest rate. Customers are just maintaining this kind of account for transaction. This account is open for the industrials or for the business purpose. Individuals are not interested to open this kind of account. Customer can withdraw money by the cheque. For the current account there are 2 types of cheque book. Those are:
· 20 leafs cheque book and
· 50 leafs cheque book.
3.1.2 Savings deposit:
Savings accounts are open for the purpose of savings. Generally, Customer can deposit and withdraws money one time in a single working day. Now a days in the savings account deposit and withdraws money more than one time by the permission. Customers receive the interest against their savings. They get the rate of interest of 6% in an economic year. For the maintaining of savings account the AB Bank deduct Tk.250 in half yearly, if the balance falls below 10,000.For open a savings account customer will have to deposit at least Tk.10,000. To closing the account, bank charges Tk.300 of the account holder.
| Products | Rate of Interest |
| Savings Deposits | 6.00% |
| STD (General) for minimum Tk5.00 lac and above | 4.00% |
| STD (Specific) | 7.00% |
| Security Deposit Receipts (SDR) / Call Dep | 3.00% |
| NFCD | Rate as per daily FX rate |
| RFCD (Minimum balance USD 2000 or its equivalent for other currency & min tenor one month) | Rate as per daily FX rate |
Table 3.1: Interest Rates of Deposit Accounts
3.1.3 Foreign currency:
Following the liberalization of exchange controls Bangladesh Bank has authorized the banks to maintain different types of foreign currency accounts and convertible taka accounts. The following are the regulations laid down by Bangladesh in respect of these accounts.
Who can open the accounts?
Branches of AB Bank limited may open Foreign Currency Accounts in the names of:
· Bangladesh nationals residing abroad
· Foreign nationals residing abroad or Bangladesh and foreign firms operating in Bangladesh or abroad.
· Foreign missions and their expatriate employees.
3.1.4 Fixed deposit:
Fixed Deposit account or FDR accounts are open for certain amounts of money are fixed for a certain period of time. The time period or tenure should be for a month, 3months, 6 months, 1 year or 2 years. The interest rate for the (FDR) tenure is the following:
| Deposit tenure | Limit | Interest Rate |
| 1 (one) Month | 5,00,00,000 & above | 6.00% |
| 3 (three) Months | Below 1,00,00,000
1,00,00,000 to 5,00,00,000 Above 5,00,00,000 |
8.50%
9.00% 9.50% |
| 6 (six) Months | Below 1,00,00,000
1,00,00,000 to 5,00,00,000 Above 50,00,000 |
8.50%
9.00% 9.50% |
| 1 (one) Year | Below 5,00,00,000
5,00,00,000 & Above |
9.00%
9.50% |
| 2 (two) years | 9.00% |
Table 3.2: Fixed Deposit Rates
From the chart of the rate sheet we can see the frequent decrease in the rate for FDR account. After the maturity 10% income tax are deducted from the interest amount
3.2 Services of AB Bank
AB Bank Provide the following services to its customer
· Retail Banking
· Unsecured loan
· Secured loan
· Corporate banking
· SME banking
· Loan syndication
· Islami banking
· Other Services
§ AB investment banking
§ Card service
§ Money Transfer (western Union)Locker service
§ Remittance service
§ ATM service
§ Foreign trade
§ Internet Banking
3.2.1 Retail banking:
In the point of view of AB Bank retail banking are divided into two broad categories. Those are given bellow as detail:
1. Unsecured loans
AB Bank provides the following types of unsecured loan to its customer:
a) Personal loan:
Target Customer:
Employees of reputed Local Corporate, MNCs, NGOs, Airlines, Private Universities, Schools and Colleges, International Aid Agencies and UN bodies, Government Employees, Self-employed Professionals (Doctors, Engineers, Chartered Accountants, Architects, Consultants), Businessmen.
Purpose:
Marriages in the family, Purchase of office equipment / accessories, Purchase of miscellaneous household appliances, Purchase of Personal Computers, Purchase of audio-video equipment, Purchase of furniture.
Loan Amount: Minimum Tk. 25,000.00, Maximum Tk. 5, 00,000.00
Charges: Application fee: Tk. 500.00Processing fee: 1% on the approved loan amount or Tk. 2000.00 whichever is higher.
Tenor: Min 12 months, Max 36 months
Rate of Interest: 14.50% p.a-17.50% p.a
Security: Hypothecation of the product to be purchased. Two personal guarantees (as per our list of eligible guarantors)
b) Auto loan
Target Customer:
Employees of reputed Local Corporate, MNCs, NGOs, Airlines, Private Universities, Schools and Colleges, International Aid Agencies and UN bodies, Government Employees, Self-employed Professionals (Doctors, Engineers, Chartered Accountants, Architects, Consultants), Businessmen.
Purpose:
To purchase Brand new vehicle, non-registered reconditioned vehicle. Loan Amount:70% for the brand new car60% for the reconditioned car but must not exceed BDT 10, 00,000.00
Charges: Application fee: Tk. 500.00 Processing fee: 1% on the approved loan amount or Tk. 5000.00 whichever is higher.
Tenor: For Reconditioned Car: Max 36 months For Brand new Car: Max 60 months.
Rate of Interest: 14.50% p.a -17.50% p.a.
Security: Hypothecation of the vehicle to be purchased. Two personal guarantees (as per our list of eligible guarantors)
c) Easy loan (for executives)
Target Customer:
The loan is specially designed for salaried people who are employed in different reputed companies
Purpose: Marriages in the family, Purchase of office equipment / accessories, Purchase of miscellaneous household appliances, Purchase of Personal Computers, Purchase of audio-video equipment, Purchase of furniture, Advance rental payment, Trips abroad, Admission/Education fee of Children etc.
Loan Amount: Minimum Tk. 50,000.00, Maximum Tk. 3, 00,000.00
Charges: Application fee: Tk. 500.00, Processing fee: 1% on the approved loan amount or Tk. 1000.00 whichever is higher.
Tenor: Min 12 months, m ax 36 months
Rate of Interest: 16.00% p.a
Security:
Letter of confirm at ion from the employer. One personal guarantee (as per our list of eligible guarantors)
d) Gold grace Jewellery loan:
Target Customer:
Both female & male employees may apply viz. employees of reputed Banks & Leasing companies, reputed Local Corporate, MNCs, NGOs, Airlines, Private Universities, Schools and Colleges, International Aid Agencies and UN bodies. Government Employees, Self-employed Professionals (Doctors, Engineers, Chartered Accountants, Architects, Consultants) businessmen with a reliable regular source of income.
Purpose: To purchase ornaments/ Jewellery for personal use.
Loan Amount: Minimum Tk. 50,000.00, Maximum Tk. 3, 00,000.00
Charges: Application fee: Tk. 500.00, Processing fee: 1% on the approved loan amount or Tk. 1000.00 whichever is higher.
Tenor: Min 12 months, Max 36 months
Rate of Interest: 16.00% p.a
Security: Letter of confirmation from the employer. Personal guarantee from the parents and spouse (if married)
e) House / Office furnishing / Renovation loan:
Target Customer:
Expatriate Bangladeshi nationals who are in business or service holders .Employees of reputed Banks & Leasing companies, reputed Local Corporate, MNCs, NGOs, Airlines, Private Universities, Schools and Colleges, International Aid Agencies and UN bodies, government Employees, Self-employed Professionals (Doctors, Engineers, Chartered Accountants, Architects, Consultants).Reputed and highly respectable Businessmen with a reliable source of income.
Purpose: House/Office Furnishing/ Renovation, for interior decoration / Titles Stones, Electrical fittings, wooden cabinets / Overall furnishing and all types of House/Office Renovation, purchase/furnishing of apartments etc.
Loan Amount: Minimum Tk. 1, 00,000.00, Maximum Tk. 10, 00,000.00
Charges: Application fee: Tk. 500.00, Processing fee: 1% on the approved loan amount or Tk. 2000.00 whichever is higher
Tenor: Min 12 months, Max 48 months
Rate of Interest: 16.50% p.a
Security: Title deed of the House/Office to be furnished/renovated along with memorandum of deposit of title deed duly supported by a notarized power of attorney to be kept by the bank as a matter of comfort. Two personal guarantees (as per our list of eligible guarantors) Registered mortgaged of the property if the loan amount is more than Tk. 5.00 lac
f) Staff loan
Target Customer: All permanent employees of ABBL
Purpose: Marriages in the family, Purchase of office equipment / accessories, Purchase of miscellaneous household appliances, Purchase of Personal Computers, Purchase of audio-video equipment, Purchase of furniture
Loan Amount:
According to the debt burden ration and other criteria
Charges: Processing fee: 1% on the approved loan amount
Tenor: Min 12 months, Max 36 months
Rate of Interest: 15.50% p.a
Security: Hypothecation of the product to be purchased
g) Education loan
Target Customer: Student criteria: Students of reputed educational institutes, such as Public Private Universities, Medical Colleges & Engineering Institute. Undergraduate & Post graduate Level Professionals degrees (Chartered Accountants (CA), Cost & management Accountants (CMA), Marine, MBM, MBA) Doctorate degree (PhD), FCPS etc. Occupation: Student Minimum Age: 17 years Maximum Age: 40 years
Educational Qualification:
Minimum HSC/A level pass.
Parents Criteria: Service Holder:
Individuals with ranks equivalent to Senior Assistant Secretary or higher would qualify guarantor Bank officials (Equivalent to Senior Principal Officer of NCBs, AVP / Branch Manager of Local and Foreign banks) and Department Head of Multinational Company or established Local Corporate. Guarantors must be accepted by the Branch Manager / Head Office
Businessman:
Well reputed and widely respected Se employed professionals
Purpose: To Financially Assist the Parents: Admission/Education Fees, Semester Fees, and Study abroad
Loan amount:
Minimum Tk. 50,000.00, Maximum Tk. 3, 00,000.00
Charges: Application fee: Tk. 500.00, Processing fee: 1% on the approved loan amount or Tk. 1000.00 whichever is higher
Tenor: Min 12 months, max 36 months
Rate of interest: 14.50% p.a. – 16.00% p.a
Security: One personal guarantee (as per our list of eligible guarantors)
2. Secured loans:
Secured Loans are divided into the following type:
a) Personal loan
Target Customer: All Clients of ABBL
Purpose: To meet personal requirement of fund
Loan Amount: Maximum 95% of the present value of the security
Charges: Processing fee: Tk. 1000.00
Tenor: Min 12 months, Max 36 months
Rate of Interest: 13.50% p.a. – 16.50% p.a. (subject to type of the security). 2% spread must be maintained in case of own bank FDR
Security: Lien over FDR, BSP, ICB Unit Certificate, RFCD, NFCD, and CD account(s) etc. One personal guarantee in case of third party cash collateral (as per our list of eligible guarantors)
b) Personal overdraft
Target Customer: All Clients of ABBL
Purpose: To meet personal requirement of fund
Loan Amount: Maximum 95% of the present value of the security
Charges: Processing fee: Tk. 1000.00
Tenor: Revolving with annual review
Rate of Interest: 13.50% to16.50 % p.a. (subject to type of the security).2% spread must be maintained in case of own bank FDR
Security:
Lien over FDR, BSP, ICB Unit Certificate, RFCD, NFCD, and CD account(s) etc. One personal guarantee in case of third party cash collateral (as per our list of eligible guarantors
3.2.2 Corporate banking:
AB Bank provides complete range of solutions to meet Corporate Customers’ requirement. AB’s Corporate Banking solutions include a broad spectrum of products and services backed by proven, modern technologies.
Corporate lending
AB’s specialist teams offer a comprehensive service providing finance to large and medium-sized businesses based in Bangladesh.
Structured finance
AB have a specialist Structured Finance Team who arrange and underwrite finance solutions including Debt and Equity Syndication for financial sponsors, management teams and corporate. AB also provides corporate advisory services.
The aim of structured finance is to provide tailored financing solutions with a dedicated team who can rapidly respond to client needs.
Following are some of the products and financial tools of Corporate Banking:
· Project Finance
· Working Capital Finance
· Trade Finance
· Cash Management
· Syndicated Finance, both onshore & off-shore
· Equity Finance, both onshore & off-shore
3.2.3 SME Banking:
The Small and Medium Enterprises worldwide are recognized as engines of economic growth. In recent days the Small and Medium Enterprise (SME) Financing has become an important area for Commercial Banks in Bangladesh. To align its corporate policy with the regulation of Central Bank, banks have become more concerned about SME and opened windows to conduct business in this particular area. According to the latest circular of Bangladesh Bank (Date – 26/05/2008), the definition of Small and Medium Enterprise sector is given below:
Small enterprises:
Small enterprises refer to those enterprises which are not any Public Limited Companies and which fulfill the following criteria-
Service Concern:
Having an investment of Tk.50,00 to Tk. 50, 00,000 excluding land & building And / or employing up to 25 workers.
Business Concern:
Having an investment of Tk. 50,000 to Tk. 50, 00,000 excluding land & Building and / or employing up to 25 workers.
Manufacturing Concern:
Having an investment of Tk. 50,000 to Tk. 1, 50, 00,000 excluding land & Building and / or employing up to 50 workers.
Medium enterprises:
Medium enterprises refer to those enterprises which are not any Public Limited Companies and which fulfill the following criteria:
Service Concern:
Having an investment of Tk.50, 00,000 toTk.10,00, 00,000 excluding land & building and / or employing up to 50 workers.
Business Concern: Having an investment of Tk. 50, 00,000 to Tk. 10, 00, 00,000 excluding land & building And / or employing up to 50 workers.
Manufacturing Concern:
Having an investment of Tk.1,50, 00,000 to Tk.20, 00, 00,000 excluding land & building And / or employing up to 150 workers.
SME products offer by AB Bank Limited:
The following Loan schemes under the category of Small & Medium Enterprise (SME) have been introduced:
Fig- 3.1 Types of SME product offer by AB Bank Limited
3.2.4 Loan syndication
Syndication or club financing is a growing concept in Banking Arena of Bangladesh. Syndicated finance diversifies the risk of one bank on a single borrower and increases the quality of loan through consensus or cumulative judgment and monitoring of different banks / financial institutions.
AB Bank, the first bank in the private sector also took initiative to adapt to this growing concept.
In 1997, AB Bank for the first time arranged a club financing with AB Bank Ltd to raise Tk. 6700 lac – out of which ABBL financed Tk. 5700 Lac and Dhaka bank financed Tk. 1000 Lac.
In 1999, AB Bank arranged its second syndicated credit facility with IPDC to raise Tk 3563 Lac