Loan Management Systems: A Case Study on NBL
Part # 01
Orientation of the Report
1.1Background of the study:
A banking institution is indispensable in a modern society. It plays a pivotal role in the economic development of a country and forms the core of the money market in an advanced country. In recent times the banking sector over the world has been undergoing a lot of changes due to deregulation, technological innovation, globalization etc. Bangladesh banking sector is lagging for behind in adopting these changes. Bank plays an important role in the business sectors and in the industrialization of a country. Basically the banks is a financial intermediary which accept deposits from the customers against interest and lend it to the borrowers against interest cessation period and offers the widest menu of services of any financial institution
1.2 Objectives of the Study
The main objectives of this study is analysis of “Loan Management System” of NBL.To achieve this main objective the following sub objectives have been undertaken. These are as follows:
v To give a theoretical idea about loan management system of NBL
v To know the different types products under Business and Consumer Loan of NBL.
v To measure loan disbursement of NBL.
v To access non-performing loan of NBL.
v To make comparison among different credit product of NBL and others Banks
1.3 Methodology of the Study
The study requires a systematic procedure from selection of the topic to preparation of the final report. To perform the study, the data sources were to be identified and collected, to be classified, analyzed, interpreted and presented in a systematic manner and key points were to be fund. Information collected to furnish this report is both from primary and secondary sources. The overall process of methodology has been given below:
Sources of data:
Primary Sources of data: For primary data, there are two types of population. Such as:
Target population: All officers and customers of National Bank Limited (NBL) Mirpur Branch
o 4 officers
o 12 customers.
Sampling method: Convenience sampling method has been used to select the sample.
Primary Data collection method:
- Personal observation.
- Face to face conversation with the officers.
- Face to face conversation with the clients.
- Working at different desks of the bank.
Secondary Sources of Data:
- Annual report of National Bank Limited.
- Web site of National Bank Limited.
- Training sheet, National Bank Limited.
1.4. Scope of the Study
This report will be dealing with the overview of National Bank Limited & mainly deals with “Loan Management System” of this Bank. The topic is fixed. But the report has tried to cover overview of NBL objectives, functions, management, business policy and other things. This report has also mentioned some problems of NBL’S Operating systems and its solutions. The empirical part includes only the published information and current practices of the National Bank Limited included.
1.5 Limitations of the Study
On the way of my study in National Bank Limited (NBL) Mirpur Branch, I have faced the following problems, which may be termed as the limitations of the study. The major limitations of this study are given as follows:
- There were some restrictions to have access to the information confidential by concern authority.
- Due to some legal obligation and business secrecy bank was reluctant to provide data. For this reason, the study limits only on the available published data and certain degree of formal and informal interview.
- The bankers are very busy with their jobs, which lead a little time to consult with them.
- Sufficient records, publications regarding customer service were not available as per requirement.
- Three-month is not sufficient time to gain practical knowledge and prepare a report.
Part # 2
NATIONAL BANK LIMITED IN BANGLADESH: AN OVERVIEW
2.1 Historical Background of national Bank
National Bank Limited has its prosperous past, glorious present, prospective future and under processing projects and activities. Established as the first private sector bank fully owned by Bangladeshi entrepreneurs, NBL has been flourishing as the largest private sector Bank with the passage of time after facing many stress and strain. The members of the board of directors are creative businessmen and leading industrialists of the country. To keep pace with time and in harmony with national and international economic activities and for rendering all modern services, NBL, as a financial institution, automated all its branches with computer networks in accordance with the competitive commercial demand of time. Moreover, considering its forth-coming future, the infrastructure of the Bank has been rearranging. The expectation of all class businessmen, entrepreneurs and general public is much more to NBL. At present we have 145 branches under our branch network. In addition, our effective and diversified approach to seize the market opportunities is going on as continuous process to accommodate new customers by developing and expanding rural, SME financing and offshore banking facilities. We have opened 10 branches and 5 SME/Agri branches during 2010. The emergence of National Bank Limited in the private sector was an important event in the Banking arena of Bangladesh. When the nation was in the grip of severe recession, the government took the farsighted decision to allow the private sector to revive the economy of the country. Several dynamic entrepreneurs came forward for establishing a bank with a motto to revitalize the economy of the country. National Bank Limited was born as the first hundred percent Bangladeshi owned Bank in the private sector. From the very inception, it was the firm determination of National Bank Limited to play a vital role in the national economy. We are determined to bring back the long forgotten taste of banking services and flavors. We want to serve each one promptly and with a sense of dedication and dignity. The then President of the People’s Republic of Bangladesh Justice Ahsanuddin Chowdhury inaugurated the bank formally on March 28, 1983 but the first branch at 48, Dilkusha Commercial Area, Dhaka started commercial operation on March 23, 1983. The 2nd Branch was opened on 11th May 1983 at Khatungonj, Chittagong. At present, NBL has been carrying on business through its 139 branches and 15 SME / Agri Branches (total 154 service locations) spread all over the country. Since the very beginning, the bank has exerted much emphasis on overseas operations and handled a sizable quantum of home bound foreign remittance. It has drawing arrangements with 415 correspondents in 75 countries of the world, as well as with 37 overseas Exchange Companies located in 13 countries. NBL was the first domestic bank to establish agency arrangements with the world famous Western Union in order to facilitate quick and safe remittance of the valuable foreign exchanges earned by the expatriate Bangladeshi nationals. This has meant that the expatriates can remit their hard-earned money to the country with much ease, confidence, safety and speed.
NBL was also the first among domestic banks to introduce international Master Card in Bangladesh. In the meantime, NBL has also introduced the Visa Card and Power Card. The Bank has in its use the latest information technology services of SWIFT and REUTERS. NBL has been continuing its small credit programmes for disbursement of collateral free agricultural loans among the poor farmers of Barindra area in Rajshahi district for improving their livelihood.
2.2 Department of the Branch
- Account opening Department.
- Cash Department.
- Remittance Department.
- Accounts Department.
- Investment Department.
- Foreign Exchange Department.
- Loans and Advances Department
- Clearing Department
- Administration Department.
2.3 Objective of the Bank
The objective of NBL is specific and targeted to its vision and to position itself in the mindset of the people as a bank with difference. The objective of NBL is as follows:
ü Building a strong customer focus and relationship based on integrity, superior service.
ü To creating an honest, open and enabling environment
ü To value and respect people and make decisions based on merit
ü To strive for profit & sound growth
ü To value the fact that they are the members of the NBL family – committed to the creation of employment opportunities across Bangladesh.
ü To work as a team to serve the best interest of our owners
ü To relentless in pursuit of business innovation and improvement
ü To base recognition and reward on performance
ü To responsible, trustworthy and law-abiding in all that we do
ü To mobilize the savings and channeling it out as loan or advance as the company approve.
2.4 Mission of NBL:
Ensuring highest standard of clientele services through best application of latest information technology, making due contribution to the national economy and establishing ourselves firmly at home and abroad as a front ranking bank of the country are our cherished vision.
2.5 Vision of NBL
Efforts for expansion of our activities at home and abroad by adding new dimensions to our banking services are being continued unabated. Alongside, we are also putting highest priority in ensuring transparency, account ability, improved clientele service as well as to our commitment to serve the society through which we want to get closer and closer to the people of all strata. Winning an everlasting seat in the hearts of the people as a caring companion in uplifting the national economic standard through continuous up gradation and diversification of our clientele services in line with national and international requirements is the desired goal we want to reach.
2.6 Business Strategies
- Achieve business vision through quality and customer acceptance by providing financial services.
- Maintain highest ethical standards in every aspect.
- Customer focus – a perspective of quality throughout:
– The entire organization or each department and bank.
– All processes, systems and services.
- Compliance – with regulatory requirements.
Added value – through continuous improvements to benefit customers and the bank
2.7 Functions of National bank Ltd:
Some general function of National Bank are given below-
Maintain all types of deposit Accounts.
Make investment in different sectors.
Conduct of reign exchange business.
Perform other Banking services.
Perform social welfare activities.
To work for continues business innovation and improvements.
Ensure the best uses of its creativity, well disciplined, well manages and perfect growth.
2.8 Market and target customers of NBL
Due to the predecessor Company’s involvement financing sector of the country, the bank inherited its top corporate customers. Moreover the bank is involved in import trade financing. Bulk importers of consumer durable, food gains industrial raw materials are its customers. The bank has financed in textile and apparels sectors. The bank has a trade of choosing customer from diversified groups. The bank has first class customers in the construction sectors involved in high-rise building, heavy construction, and roads and high way construction
2.9 Business Ideology of NBL
Alongside providing the best services to the clienteles, patronizing and taking part in social development activities as well as making due contribution to growth of the national economy.
2.10 Business Goal of NBL
To patronize, sponsor and encouraged games and sports, entertainment and other socio-economic activities alongside providing the best services to the client
2.11 Sports and Cultural Activities
Since its inception, NBL has been playing a pioneering role in sponsoring sports and games in the country. NBL was the sponsor of Metropolis Football League and Senior Division Football League last year. Besides, NBL extended substantial patronization to Bangladesh Olympic Association and Bangladesh volleyball Federation in 2003.The Bank never hesitates to extend its helping hands to the people as in the days of crisis so also in the exuberant happy moments of cultural events
The deposit of National Bank Limited Stood at tk. 128215.97 million as on 31.12.2011 as against tk.102471.83 million of 31.12.2010 registering an increasing of tk. 25744.14 million i.e.25.12% growth. Deposit is the “life-blood” of a bank. Bank has given utmost importance mobilization of deposit introducing a few popular and innovative schemes.
Figure: Trend of Deposits of NBL
Sources: Annual Report 2011
2.13 Paid-up –Capital
The paid- up- capital of the National Bank Ltd. was TK. 4412.13 million at end of the year 2010, and TK.8603.36 million capital at end of the year 2011.
Sources: Annual Report 2011
2.14 Statutory Reserve
The Bank total statutory reserve TK. 14693.47 million at end of the year 2010 and TK. 12918.92 million in 2011.
Sources: Annual Report 2011
2.15 Financial Highlight
|7||Total Contingent Liabilities and Commitments||44392.67||45045.10|
|9||Percentage of Classified Loans against total Loans and Advances||2.83%||3.96%|
|10||Profit after tax & provision||6085.70||6860.34|
|11||Amount of Classified Loans||3264.95||3642.57|
|12||Provision kept against Classified Loans||1166.79||1086.08|
|14||Cost of Fund||10.35%||9.12%|
|15||Interest Earning Assets||140198.97||110401.84|
|16||Non-interest Earning Assets||28838.425||24330.47|
|17||Return on Investment||12%||32.7%8|
|18||Return on Assets||4.01%||6.05%|
|19||Income from Investment||3320.22||6115.41|
|20||Earning Per Share (TK)||7.07||7.97|
|21||Net Income Per Share (TK)||7.07||7.97|
|22||Price Earning Ratio (Times)||9.45||24.03|
|23||Net Assets Value per Shares (TK)||25.02||43.30|
|24||Net Operating Cash Flow per Share (TK)||8.88||7.90|
Sources: Annual Report 2011
2.16 Products and services of NBL
The products and services rendered by NBL are mainly Deposit products, Credit products and Card services.
Deposit products offered by the bank are:
ü Savings Deposit
ü Current Deposit
ü Term Deposit
ü Foreign Currency Deposit
ü Monthly Savings Scheme
ü Monthly Income Scheme
ü Double Benefit Scheme
ü Millionaire Income Scheme
Term Deposit of NBL may be sub divided into two. These are Special Notice Deposit (SND) and Fixed Deposit. The bank provides interest to SND account and allows you to withdraw money at any time. Fixed Deposit account is naturally supposed to retain the money for the fixed term and then you’ll have full benefit. NBL presents opportunity for resident and non- resident Bangladeshis to have foreign currency accounts with interest. Monthly deposit Scheme is a forced savings for limited income people. You have to deposit a fixed amount from Tk. 500 to a maximum of Tk. 10,000 every month. After a term of 3, 5, or 8 years you’ll get a handsome amount including interest. For Monthly income scheme you mat deposit a minimum amount of Tk. 100,000 and a maximum of Tk.5,000000 for three years and you get in return a monthly income of Tk. 1000 for every Tk.100,000. Double benefit scheme of NBL doubles your money in only 6 years. You are to deposit a minimum of Tk. 50,000 or any of its multiples. Maximum ceiling is Tk. 5,000000. Millionaire income scheme will make you an owner of Tk. 1 million in 5, 7, or 10 years through a monthly deposit. Installment varies accordingly.
The credit schemes provided by NBL are appended below:
Ø Lease Financing
Ø House Building
Ø Small and Medium Enterprise
Ø Consumer Credit Scheme
Ø Trade Finance
NBL maintains Over Draft opportunity for corporate clients to facilitate their day to day business operations. This is offered against deposit receipt or mortgage of property. The bank provides Lease finance facility for Capital machinery, Different equipment, Gas /Diesel generator, Power Plant, Medical equipment, Lift/Elevator, Information Technology equipment, Construction equipment, and Consumer durables. The pay back is in easy installments. A home of your own is not too far. You can have a loan from NBL for purchasing an apartment or for building a house. Maximum allowable loan is 70% of total value or Tk. 7,500000 which one is higher. You may have a grace period of 9 to 12 months. NBL has come forward to support financially the small businesses and small enterprises with new products named Festival Small Business Loan and NBL Small Business Loan. Maximum limit of loan is Tk. 300,000 and Tk.500.000 respectively for the two schemes. Consumer credit is available from this bank for electronic consumer goods and for computer/computer peripherals. Interest rate is competitive. NBL provides Trade Finance to almost all types of commercial concerns. It provides Working capital for industrial entrepreneurs, Trade finance for business, Issuance of import L/C, Confirming of export L/C, and ensures Bonds and Guarantees.
Credit & Debit cards
National Bank presented its International Master Card service before any other local bank here. In the meantime it has also introduced Visa and Power Cards (Debit card). The mission under taken by NBL during its inception was never ignored by it and it’s still working for the country and for the nation with full commitment
Part # 03
Loan Management System of NBL
More appropriately loan refers the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time . It is also a written or oral agreement for a temporary transfer of a property (usually cash) from its owner (the lender) to a borrower who promises to return it according to the terms of the agreement, usually with interest for its use. The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent.
3.2Loan Management System:
Loan management System is the process by which risks that are inherent in the credit process are managed and controlled. Loan Management System assists banking and finance companies in servicing the approved loans, disbursals, accruals, billing, repayments, non performing assets tracking, provisioning, re-pricing, termination handling, document tracking and insurance tracking. Loan Management System considerably reduces customer acquisition costs, servicing, marketing and communication costs and thereby substantially increases spreads for the banks. Loan Management System also supports the requirements of Leasing, Hire Purchase, Consumer Finance and Housing Finance business. National Bank is a private commercial bank. The main task of a commercial bank is to collect deposit in a comparative low rate of interest and to pay loan in a comparative high rate of interest. A bank has to bear deposit cost and by it’s earning from grating loans. If it fails to bear these costs by it is earning from granting loan, its business will be closed. In my internship program, a critical analysis of credit disbursement in presented in this part of the report.
3.3 Rules for Application of loan
Interested clients shall apply to any branches of NBL as per following procedures:
1. Interested client must open a current or saving account before application.
2. Application in Bank’s prescribed form duly filled in all accounts.
3. Two passport size photographs duly attested.
4. A photocopy of National ID card must be submitted with application form.
5. A certificate of net monthly income from the employer (in case of Service holders).
6. Suppliers should be authorized by the Bank.
3.4 Documentation of Loan
The customer will execute the following documents
? D.P. Note
? Letter of Undertaking
? Letter of Installments
? Letter of Hypothecation
? Loan Agreement under Consumers Finance Schemes
? Letter of Guarantee
? Letter of disbursement
? Letter of Authority
The client will also submit crossed cheques in advance for all the stipulated installments in favor of the Bank towards repayment of loan including interest and service charge. Personal guarantee of two officials of the same rank or of superior rank of the borrower, Officers/Managers of Bank in the grade of principal officer or above. The guarantor must have to be a man of means and shall have to be acceptable to bank. Security in the form of FDR/BSP/PSP or Bank/ Insurance guarantee or corporate if possible may be obtained. The articles procured under the scheme shall remain hypothecated to the bank as security.
3.5 Loan Sanction
Clients demand specific amount of loan from the Bank after making justification of Clients demand, the amount of money sanctioned by Bank as loan is called Loan Sanction. Generally the loan FSIB offers to its clients is divided into two categories; Retail loan and Consumer Credit Scheme.
3.6 Credit Principles of NBL
To achieve goal for maximizing the stockholders value and protest the interest of the depositors as well improve the quality of the banks assets NBL follows credit principles:
1. Assessment of the customer’s character, integrity, willingness to repay will form basis of lending.
2. Customers having capacity and ability to repay shall only be lent.
3. Possibility of default will be worked out before lending.
4. Credit will be extended in the areas risks of which can be sufficiently understood and managed.
5. Independent Credit participation in the credit process shall be ensured.
6. Ethical behavior in all credit activities shall be ensured.
7. Be proactive in identifying, managing and communicating credit risk.
8. Risk and reward to be optimized.
9. Diversification credit portfolio to be built and maintain.
10. All credit extension must comply with the requirement of banking companies’ Act 1991 and amendments thereof from time to time.
3.7 Loan Facility Parameters of NBL
NBL extends and will extend credit for various genuine purposes. One type of advance requires to be treated differently from other types. Depending on the type financed, ownership pattern, business mood, security and other related matters facility parameter are to be set.
However the general parameters in facility will be as under:
÷ Nature of Advance
÷ Limit/Amount of Facility/Maximum Size
÷ Rate of Interest
÷ Rate of commission and charges
÷ Mode of repayment
÷ Mode of Disbursement
÷ Validity/Maximum Tenor
÷ General/Special Conditions/Covenants
3.8 Conditions for a Loan of NBL
Before getting loan from NBL a client must fulfill the following conditions
ü Customer will bear the license fee, registration fee, insurance charge etc, if any, in respect of the articles.
ü Customer will bear the expenses for necessary repair and maintenance of the articles during the period loan.
ü After delivery of the articles, the respective customer shall remain responsible if the articles are broken, stolen or damaged. The articles shall be used by the customer with optimum care, caution and prudence and he will be liable for compensation or replacement etc. for any damaged caused due to this negligence, carelessness and inefficient handling. In the event of the articles being lost or totally damaged and become irreparable due to his negligence, carelessness and inefficient handling, he will be liable to adjust Bank’s due i.e. outstanding principal, interest and other charges on demand.
ü Customer will inform the Bank of any Change of his address immediately after the change.
ü The articles shall remain in sole control and custody of the customer who will not let out, lend, resell or transfer the possession or rights of the same to a third party under any circumstances.
ü Customer will keep available all the articles supplied to him for inspection by the Bank officials or supervising agency as and when required.
ü Default in payment of 3 (three) consecutive installments shall render the customer liable to handover the articles of the Bank.
ü In case of loan for purchase of Car loan, the registration of the vehicle loan shall be made in the sole name of the Bank/ joint name of the Bank and the customer until full adjustment of the loan.
ü The Registration, Blue book, Tax token, Fitness Certificate, etc for vehicles must always be kept up to date at the cost of the customer.
ü The vehicles must be cover by comprehensive insurance policy, which is taken by the customer on his own expenses.
ü No additional amount will be paid by Bank for repairing or any other purpose for which credit was allowed.
3.9 Loan Repayment:
Repayment of loans including accrued interest will be made by equal monthly installments, which will start from the following month of the disbursement of loan. Before disbursement of loan, the customer will deposit crossed cheque covering the total number of monthly installments in favor of Bank, which will have to be present for collection on the due date. Installment will be pay within banks given time day of each month. However, prepayment is also allowed.
3.10 Loan Prepayment:
Customer can repay the loan before the maturity of the loan. Prime usually welcomes the early payment of loan and no prepayment penalty is to be charged. Bank always try to avoid classified loan even at a cost of losing profit and receiving risk just to maintain its credit history and good CAMEL rating.
3.11 Loan Amortization:
National Bank uses the most common loan amortization method that is “Capital Recovery Method”. Under this method constant monthly payment is calculated on an original loan amount at affixed interest for a given term.
Loan Amount: BDT 100,000 (PV)
Interest rate: 15% (r)
Number of Installments (monthly): 24
So monthly install will be: PV/ *MPVIFA @15%, 24 months)
So Monthly installment: 100,000/20.62423451= BDT 4848.66/Month
*MPVIFA= Monthly Present Value Annuity Factor
3.12 Judgment Process of Credit Proposal under the Loan Management System:
Loans and Advances is the main asset of a bank. It is very crucial for any bank because it generates the greatest part of revenue for a bank. Within the total credit portfolio consumer credit is the most popular form of credit because it is easily recoverable. To disburse the loan, the credit officers of NBL have to verify the potential borrower’s income, expenditure pattern, type of service etc to select the appropriate borrower. The factors that are considered in this process are stated below:
v Borrower’s income: It is the vital factor for selecting a borrower. To gather required information in his regard, the borrower is requested to allow the credit officer to verify the following subject matters:
ü Place of employment
ü The stated Salary
ü The continuity of Existing job
ü Income from part time employment
ü Spouse’s income
ü Income from rentals
ü Dividend or interest
ü Children’s support
Besides these the credit officer also verifies borrower’s income from the TIN certificate, tax return, and salary statement etc.
v Estimated Housing Expenses:
The credit officer tries to evaluate the expenditure pattern as well as monthly living expenditure with the help of the following information:
ü Children’s educational expenses
ü House rent
ü Interest payment on previous borrowing
ü Interest payment for the loan which is under consideration
The location of the borrower is an important factor for selecting any borrower. If the location of the borrower is far from the bank, the physical communication becomes though for the bank. So bank likes to provide loan to those who stay near to the bank’s branch.
v Assessment of credit History:
The credit officer evaluates the credit history of a potential borrower with the help of the CIB report and with the inquiry of his or her Business community
v Social Status:
Social status of a borrower is to be verified from the following information:
ü Ownership of a car
ü Ownership of a House in the metropolitan area
ü Holding a land phone in residence
ü Holding a passport, TIN certificate
ü Membership of a first club
ü Marital status
v Guarantors status:
Under the LMS, credit is offered by taking personal guarantors from a third party. The guarantor will be liable for the default of loan. So guarantor’s designation, type of job, monthly salary, period of service, office address, and the consent of the guarantors regarding the matters are evaluate.
NBL also follows the following Credit (Loan &Advance) Evaluation or Judgment Process:
Prevailing credit practice in the market.
Credit worthiness, background and track records of the borrower.
Financial standing of the borrower supported by financial statement and other documentary evidences.
Legal jurisdiction and implications of applicable laws.
Effect of any applicable regulations and laws.
Purpose of the loan/facility.
Tenure of loan /facility.
Viability of the business concern.
Cash flow analysis and also projection thereof.
Quality, value and adequacy of security, if available.
Risk taking capacity of the borrower.
Reliability of the sources of repayment.
Credit Risk Grading.
Yield from the facility.
Total global exposure of the borrower.
3.13 Numerical judgment for selecting a borrower:
Under the CCS, the bank is dealing directly with many borrowers at a time, is providing unsecured loan to them, and apply some numerical judgment to select a particular borrower for unsecured loan disbursement. In this regards, NBL uses numerical credit scoring model.
Under the model, the potential borrower is asked a set of questions at the beginning of processing of loan proposal. The answers are then scored based on the standards value previously set to score a loan application. Based on the score, a credit proposal is stated to process further or refused. The model is as follows:
|SL No||Items||Assigned Points||Point Scored|
|Fixed salaried person ( Govt./ reputed organization)||0-5|
|2||Monthly Net Cash Flow (in BDT)||Allotted Points||60|
|80,001 and above||60|
|3||Ownership of a Car||3|
|4||Holding a land phone in residence||2|
|5||Ownership of a House in the metropolitan area||3|
|6||Customer of the bank having other well performed credit facility/ considerable deposit/ CCS loan availed earlier and repaid as per terms.||3|
|7||Other mentionable regular income/ earning by spouse||0-3||3|
|9||Social Status/Reputation of the customer||0-3||3|
|10||Holding a passport||1||1|
|11||Income Tax payer||0-2||2|
|12||First class club member||1||1|
|13||FDR in the form of security||1-10||10|
|14||Reputation of supplier||0-2||2|
Table 3: The numerical judgment of borrower selection
Different classes of scores are fixed and a limit of loan is to be fixed based on the scores. Different classes are shown below where total scoring is calculated based on cumulative value of 100.
Table 4: The limit of loan based on scores
|SL No||Scores (Ranges)||Limit of credit which can be offered (in BDT)|
Sources: NBL/ Credit Policy Manual
3.14Credit (Loan & Advance) Monitoring process of NBL:
To minimize the credit losses, monitoring procedures and system should be reinforced and more effective system should be developed in view of varied complexities involved in various types of credit. The procedures and system must provide early indication of deteriorating financial health of a borrower. At a minimum, reports on the following to be generated and submitted to management instruct the branch to regularize the same.
o Overdue principle & interest
o Overdue trade bills
o Status reports on drawing power and collateral shortfall on a regular basis.
o Breach of loan covenants/ terms and conditions/documentations deficiencies.
o No payment and late payment
o Branch monitors OD/cc facilities on a regular basis to ensure turn over.
o Non-receipt of financial statements in time.
o Details of Early Alert Accounts and preparation of list of delinquent account and Special Mention Account
o Identification of early alert account, delinquent account Special Mentioned Account.
3.15Credit (Loan & Advance) Approval process of NBL:
NBL conducts its banking operation under branch banking system. Credit proposals are generally originated at branch. However may also be received at Head Office for syndication and from big clients, Financial Institutions.
At the branch level, the credit officers/executives along with Branch Manager ensure sufficiency and consistency of the documents after obtaining credit applications. They will originate credit proposals, prepare detailed credit memorandum after undertaking a thorough credit check. Branch credit committee after thoroughly & critically examining the proposal will recommend to Branch Manager. When the proposal falls beyond the power of the Branch manager then it will sent to Regional Manager. When the proposal falls beyond Regional Manager’s power then it sent to Head Office Credit Division. Divisional Head, Credit will get credit and risk assessed by credit officials. The proposal being found acceptable will be placed to Head Office credit committee if the proposal falls under delegated authority of the management. If a proposal does not meet the basic lending criteria as per CRM guidelines and banking norms, it will be declined and Credit Operations Division will inform the decision to the branch accordingly.
Mandatory Checking for Credit (Loan & Advance) Approval:
NBL mandatorily checking the following rules before approving a loan.
÷ Proposed credit facilities are compliant of the existing banking regulations.
÷ CRG has been done.
÷ Other analysis and assessment has been done properly.
÷ Competent authority as per Bank’s policy approves facilities in writing.
÷ All credit approvals are given on a one –obligor basis.
÷ Limit is approved as per authority delegated in the rule book.
÷ Standard facilities are described using standard language.
÷ Large loan are approved within the ceiling advised by Bangladesh Bank.
÷ Approval authorities’ checks that pricing of the facilities are within the Bank’s declared band.
÷ Proposal incorporates that facilities are subject to banking regulation, which shall be mentioned in the sanction letter also.
÷ Fresh approvals, renewal, rescheduling, compromise agreement for large loan accounts are placed for approval by the Board as per Bangladesh Bank Guidelines.
Flow chart for approval Process of Loans and Advances:
Sources: CRM Policy Guideline
3.16Security against Loan:
NBL mostly relies/will continue to rely on security based lending, taking into consideration the character of the borrower ,nature of the business cash flow, environmental, economic, business and other influencing factors. In obtaining security primary and collateral security are suggested. Primary securities are valued on basis of landed cost. Collateral security of acceptable type having adequate market and sales value is accepted.
Security and support:
The following types of security are accepted by NBL.These are as follows:
ü Machineries of factory/industry on hypothecation basis.
ü Raw materials, work in progress, finished goods, stock in trade on hypothecation and pledge basis.
ü Land and building of acceptable type and value under registered mortgage.
ü Cars, buses, water crafts, vessels under hypothecation and joint registration.
ü Shipping documents as lien against LC.
ü Trust receipt
ü Export documents-under Lien
ü Export LC/ Contract under lien.
ü Packing credit letter
ü Personal guarantee/corporate guarantee/cross-corporate guarantee.
ü Post dated cheques and etc.
ü 4.1Categories of loan
ü NBL categorized his all loans and advances into four group.
ü These are as follows:-
ü ? Continuous Loan
ü ? Demand Loan
ü ? Fixed Term Loan and
ü ? Short Term Agricultural & Micro Credit
ü Continuous Loan: The loan Accounts in which transaction may be made within certain limit and have an expiry date for full adjustment will be treated as continuous loan. For example: CC (cash credit), OD (Over Draft) etc. In continuous loan bank need some collateral securities to the customer. If customer wants to take a lone against his FDR (any bank account) he has to submit all documents of FDR. He also takes loan against his fix assets like land, houses.
ü Demand Loan: The loan that becomes repayable on demand by the bank will be treated as Demand Loans. If any contingent or any other liabilities are turned to force loans (i.e. without any prior approval as regular loan) those too will be treated as Demand Loans. Such as: Forced LIM, PAD, FBP, and IBP etc. If customer wants to take loan against his house, at first bank have to see all deeds and documents legal or not, then take the valuation of assets and give loan 80% (force rate) of value.
ü Fixed Term Loan: Loans which are repayable within a specific time period under a specific repayment schedule will be treated as Fixed Term Loans.
ü Short Term Agricultural & Micro Credit:
ü Short Term Agricultural & Micro Credit will include the short-term credits as listed under the Annual Credit program issued by the Agricultural Credit department of Bangladesh Bank. Credit in the agricultural sector repayable within less than 12 months will also be included herein. Short-term Micro-Credits will include any Micro-Credits for less than Tk. 25,000/- and repayable within less than 12 months, be those termed in any names Such as nonagricultural credit, self-reliant Credit, Weaver’s Credit or Bank’s individual project credit. Actually this loan doesn’t need special documents. It’s only need chairmen/commissioner certificate.
4.2 Types of Loan from View Point of Loan Providers or Banks
Based on the above mention categories NBL offers following types of Credit (loans and advances) as a whole as well as Mirpur Branch:
- Cash Credit (Hypo)
- Cash Credit (Pledge)
- Loan Against Trust Receipt(LTR)
- Term loan
- Secured Overdrafts
- Lease Finance
- Home Loan
- SME Loan
- Consumer Credit
- Trade Finance
Cash Credit (Hypo):
Cash Credit or continuing credits are those that form continuous debits and credits up to a limit and have and expiration date. A service charge that is effect an interest charge is normally made as a percentage of the value of purchases. These credits may be of the nature of pledged and /or hypothecated and banks should report these in separate heads incorporated under the main head cash credit. A detailed explanation of hypothecation is given below. Under this arrangement a credit is sanctioned against hypothecation of the raw materials or finished goods. The letter of hypothecation creates a charge against the goods in favor of the Bank but neither the ownership nor its possession is passed on to it; only a right or interest in the goods is created in favor of the Bank and the borrower binds himself to give possession of the goods to the bank when called upon to do so. When the possession is handed over, the charge is converted into pledge. This type of facility is generally given to the reputed borrowers of undoubted integrity.
Cash Credit (Pledge)
Under this arrangement a cash credit is sanctioned against pledge of goods or raw materials. By signing the letter of pledge, the borrower surrenders the physical possession of the goods under the Banks effective control as security for payment of Bank dues. The ownership of the goods, however, remains with the borrower. The pledge creates an implied lien in favor of the Bank on the underlying merchandise. In the event of failure of the borrower to honor his commitment the Bank can sell the goods for recovery of the advance. No collateral security is normally asked for grant of such credit.
Loan against Trust Receipt (LTR)
This is a loan facility up to a satisfactory limit to the traders / customers by a Bank against security of the value of the imported merchandise. This item also includes loan against Trust Receipts.
A Bank advance for a specific period repaid with interest under fixed schedules. The term loans may be as follow:
Short Term: Up to and including 12 months.
Medium Term: More than 12 months up to and including 60 months.
Long Term: More than 60 months. [This item includes lease financing]
Overdraft is a loan facility on a customer’s current account at a Bank permitting him to overdraw up to a certain agreed limit for an agreed period. The terms of the loan are normally that it is repayable on demand or at the expiration date of the agreement. NBL offers overdraft facility for corporate customers for day-to day business operations.
- Low charges in overdraft account maintenance.
- Facility is available against deposit receipt or mortgage property.
- Low interest rate 13-16%.
- Introductory current account.
- Others necessary documents as per loan requirement.
An oral or written agreement transferring the right to exclusive use and possession of property for some period. Some important lease concepts are
• The normal requirement that all contracts having to do with real estate must be in writing does not apply to contracts that are capable of performance in one year or less. In most states, an oral lease for less than one year is enforceable; an oral lease for a longer period is not.
• A tenant is not relieved of responsibility to pay rent if the premises are damaged, destroyed, or partially or very unusable unless the lease allows it, or unless consumer protection laws applicable to residential leases allow it.
• If a tenant transfers the entire remaining term of a lease to someone else, that is an assign- meant. If a tenant transfers less than the remaining term, that is a sublease. Either way, the original tenant is still fully responsible for complying with all lease terms, even i