Credit Portfolio Management of Prime Bank Ltd
Prime Bank Limited
Prime Bank Limited is a scheduled commercial Bank under private sector established within the ambit of Bank Company Act, 1991 and was incorporated as a Public Limited Company under Companies Act, 1994 on February 12, 1995. The Bank started commercial banking operations from April 17, 1995 with the inauguration of the Bank’s Motijheel Branch at 119-120, Motijheel Commercial Area. A huge public response has enabled the Bank to keep up the plan of expanding its network. Within a span of ten years the bank has been able to deliver services to its customers through thirty-seven branches. In terms of profitability the bank has outperformed its peer banks. Operating profit of the bank in the last financial years was Tk. 3257 million.
As a fully licensed commercial bank, Prime Bank Ltd. is being managed by a highly professional and dedicated team with long experience in banking. They constantly focus on understanding and anticipating customer needs. As the banking scenario undergoes changes so is the bank and it repositions itself in the changed market condition.
Prime Bank Ltd. offers all kinds of Commercial Corporate and Personal Banking services covering all segments of society within the framework of Banking Company Act and rules and regulations laid down by our central bank. Diversification of products and services include Corporate Banking, Retail Banking and Consumer Banking right from industry to agriculture, and real state to software.
The bank has consistently turned over good returns on Assets and Capital. During the year 2008, the bank has posted an operating profit of Tk. 3257 million and its capital funds stood at Tk 6382 million. Out of this, Tk. 2275 million consists of paid up capital by shareholders and Tk. 2659.21 million represents reserves and retained earnings. The bank’s current capital adequacy ratio of 11.50% is in the market. In spite of complex business environment and default culture, quantum of classified loan in the bank is very insignificant and stood at less than 1.35%.
Prime Bank Ltd., since its beginning has attached more importance in technology integration. In order to retain competitive edge, investment in technology is always a top agenda and under constant focus. Keeping the network within a reasonable limit, our strategy is to serve the customers through capacity building across multi delivery channels. Our past performance gives an indication of our strength. We are better placed and poised to take our customers through fast changing times and enable them compete more effectively in the market they operate.
“To be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management and profitability having strong liquidity”
“To build prime Bank Limited into an efficient, market driven, customer focused institution with good corporate governance structure.
Continuous improvement in our business policies, procedure and efficiency through integration of technology at all levels”
Efforts are focused on
Delivery of quality service in all areas of banking activities with the aim to add increased value to shareholders’ investment and offer highest possible benefits to our customers.
To have sustained growth, broaden and improve range of products and services.
The company believes that communication with, and feedbacks from its clients help it achieve its goal of providing world-class products and services. Prime Bank has engaged a relationship officer for each individual customer to address the requirements of the customer. It also constantly monitors its standards, and strives to exceed clients’ expectations.
Values Considered as Guiding Factors
All the activities and decisions of Prime Bank Limited are based on, and guided by, these values:
· Placing the interests of clients and customers first
· A continuous quest for quality in everything the company does
· Treating everyone with respect and dignity
· Conduct that reflects the highest standards of integrity
· Teamwork- from the smallest unit to the enterprise as a whole
· Being good citizens in the communities, in which they live and work
Capital Adequacy Ratio
In accordance with the instruction of Bangladesh Bank (the Central Bank of the country), the Bank adopted BIS risk adjusted capital standards to measure capital adequacy. Banks in Bangladesh are required to maintain the ratio of minimum 9.00% against risk weighted assets. The bank’s Capital Adequacy Ratio stood at 10.74% at the end of December 2008.
TIER I CAPITAL
10,00,00,000 Ordinary shares of Tk 100 each Tk. 10,00,00,00,000.00
Paid Up Capital Tk. 2,84,37,50,000.00
Statutory Reserve Tk. 2,36,62,14,496.00
Surplus in profit & loss account/Retain Earnings Tk. 1,05,49,21,127.00
TIER II CAPITAL
General Provision maintained against unclassified
Loans/ investments Tk. 1,03,98,00,000.00
General provision on off-balance shit items Tk. 32,80,00,000.00
General provision on off-shore Banking Units Tk. 55,00,000.00
Revolution gains Tk. 9,01,40,000.00
Revolution reserve 50% of total Tk. 12,58,01,000.00
Exchange Equalization Account Tk. 45,23,000.00
Performance of the Bank
Profit and Operating Results
The Bank earned as operating profit Tk. 2463.35 million during 2009 after all provisions including the 1% general provision on unclassified Loans & Advances. Provision for income tax for the year amounted to Tk. 1231.52 million resulting into a net profit after tax of Tk 1231.83 million.
A strong deposit base is necessary for the success of a Bank. During the year 2009 the Bank mobilized a substantial amount of deposits from mid-level income group people under Deposit Savings Scheme. After critical handling the Bank mobilized total Deposit of Tk. 88020.59 million as at December 31, 2009, thus recording an increase of 24.82% in comparison with Tk. 70512.37 million as at December 31, 2008. The significant growth in deposit enabled the Bank to expand its business, performing assets and also had an impact on the profit position of the bank.
Loans and Advance
The bank’s Loans & Advances portfolio also indicates an impressive growth. Total Loans and Advances amounted to Tk. 75156.21million in 2009 against Tk. 57683.02 million in 2008 and the growth being 30.29%, Prime Bank’s credit portfolio is well diversified and covers a wide range of businesses and industries. The sectors financed include Manufacturing, Trading, Construction, Transport, Agriculture, Fishing & Forestry, Edible Oil, Pharmaceuticals, Information Technology, and Consumer Credit amongst others. Advances constitute the most significant indicator of the health of a Bank. The Bank has formulated its policy to give priority to SMEs (small and medium enterprises) and at the same time the Bank is financing large-scale enterprises through consortium of Banks. Prime Bank is committed to maintaining a very high quality of assets. Close monitoring and efficient asset management has resulted in minimal creation (1.76 %) of classified loans to total Loans and Advances.
Foreign Exchange Business
International Trade constitutes the main stream of business activities of the bank. It offers a full range of trade finance and services namely, issue, advise and confirmation of Documentary Credit; arranging forward exchange coverage; pre -shipment and post-shipment finance; negotiation and purchase of export bills; discounting bill of exchange; collection of bills, inward and outward remittance etc.
· Import Business:The Bank established Letters of Credit amounting to Tk. 36747.00 million during 2009; showing a growth of 44.44% over the volume of
Tk. 25440.70 million in the year 2008.
· Export Business: The total export handled by the bank amounted to Tk. 19501.80 million for the year 2009 compared to Tk. 16490.10 million for 2008.
· Foreign Correspondents: The number of foreign correspondents and agents of Prime Bank in 2009 stood at 501 covering most of the important business centers in different countries of the world. The Bank has maintained excellent relationship with leading international Banks and has successfully established credit lines with major Banks to support global Foreign Trade Business.
Investment stood at Tk 3083.81 million at the end of 2009. This consists of Tk.1, 250.80 million in Treasury Bills & Prize Bonds, Tk. 74.36 million in Debentures and Tk. 12.38 million in Shares.
Salient Features of the Bank
· Prime Bank is engaged in conventional commercial banking as well as Islamic banking based on Islamic Shariah Principles.
· It is the pioneer in introducing and launching different customer friendly deposit schemes to tap the savings of the people for channeling the same to the productive sectors of the economy.
· For uplifting the standard of living of the limited income group of the population, the Bank has introduced Retail Credit Scheme by providing financial assistance in the form of loan to the consumers for procuring household durables.
· The Bank is committed to maintaining continuous research and development to keep pace with modern banking.
· The operations of the Bank are computer oriented to ensure prompt and efficient services to the customers.
· The Bank has introduced camera surveillance system (CCTV) to strengthen the security services inside the Bank premises.
· The bank has introduced customer relations management system to assess the needs of various customers and resolve any problem on the spot.
Products and Services
Prime Bank Limited launched several financial products and services since its inception. Among them are Contributory Savings Scheme, Monthly Benefit Deposit Scheme. All of these have received wide acceptance among the people.
The bank established correspondent relationships with a good number of foreign banks, namely CITI Bank N.A, American Express Bank, Bank of Tokyo, Standard Chartered Bank, Mashreq Bank and AB Bank Limited. The bank is maintaining foreign currency accounts in New York, Tokyo, Calcutta, London and many other important commercial hubs of the world. During this period the bank provided letter of credit facility on behalf of its valued customers using its correspondents as advising and reimbursing banks.
Lending Process- Products, Principles and Strategies
Types of Credit offered
Prime Bank Limited offers both funded and non-funded credit facilities. The various funded and non-funded credit facilities that Prime Bank provides to its borrowers are:
The funded credit facilities are those which involve direct cash. In other words, any type of credit facility which involves direct outflow of bank’s fund on account of borrower is termed as funded credit facility. The following funded credit facilities are provided by Prime Bank Limited:
Cash credit is a continuous loan facility usually provided to meet up working capital requirements of the customer. Cash credit can be given on hypothecation or pledge of goods but Prime Bank only provides Cash Credit on Hypothecation.
This advance is given to the retailers and whole sellers. In this credit primary security is the goods under hypothecation i.e. the goods for purchase of which the bank provides finance. This is a continuous loan and the customer can withdraw money from the account as many times a day as it wants and thus it functions as a checking account. Again the customer can deposit money as many times as it wants and is obliged to deposit the sale proceeds in the account as per terms of sanction.
Secondary security and hence collateral security is the registered mortgage of houses, land and buildings etc as provided by the customer. Prime Bank Limited encourages highly collateralized facility only. Interest rate is 14.00% p.a with quarterly compounding with special rate for corporate customers.
Cash Credit (Pledge)
This is another advance mode to finance the working capital requirement of the retailers and resembles Cash Credit (hypothecation). The only difference between Cash Credit (Hypothecation) and Cash Credit (Pledge) is that in case of CC(Hypo) the goods are both owned and controlled by the retailer, the loanee whereas in case of CC(Pledge) ownership of the goods lies with the borrower and control of the goods lies with the bank. The borrower deposits money in the account and releases the goods equivalent to the money deposited.
Interest rate is 14.00% p.a. For customers with exceptionally good repayment the interest rate is lowered up to 12.50% p.a. Interest rate also is dependent on the quality and marketability of the security offered.
Features of Cash Credit
· A certain limit of credit amount is set at the time of initiation of Cash Credit facility
· An expiration date is set, which is not more than one year
· The drawings are subject to drawing power
· The primary security of Cash Credit facility is stock of goods, which is hypothecated to Prime Bank Limited as collateral
· With satisfactory transaction the limit may be enhanced based of the requirement of the customer
Over draft facility is also a continuous loan arrangement permitting him/her to draw up to a certain approved limit for an agreed period. Here the withdrawal of deposits can be made any number of times at the convenience of the borrower, provided that the total overdrawn amount does not exceed the sanctioned limit.
Customer can return any amount at any time within the pre-fixed time of the facility. Turn over of an Over Draft facility is the most important phenomenon on which renewal of the facility depends. Over Draft facility is given to the businessmen for financing working capital requirement and high net worth individual to overcome temporary liquidity crisis.
This type of loan is provided to both individuals as well as business entities. This is named so as the advance made is secured by either financial instruments like Sanchaypatra, Fixed Deposit Receipt and other financial obligations or by the bills receivable. This has following sub types:
· SOD against financial Obligation
· SOD against FDR
· SOD against Special Scheme
· SOD General
· SOD against Work Order
· SOF against Shares
i. This is the overdraft against lien on financial obligations like Sanchaypatra, ICB Unit certificate etc. Rate of interest ranges from 2.50% to 3.00% above the rate earned by the financial instrument e.g if the Sanchaypatra earns 10% interest, interest on loans against the Sanchaypatra ranges from 12.50% to 13.00%. However as this loan account can be transacted as many times as possible within the given validity period of one year this also meets requirement of business houses. Interesting thing that is beneficial to the loanee is that the loanee has to pay interest only on the outstanding amount e.g. if the loanee takes a loan of Tk. 50,000.00 against lien on Sanchaypatra valuing Tk. 1,00,000.00, he has to pay interest only on 50,000.00 whereas he earns interest on the whole amount of Sanchaypatra i.e. 1,00,000.00.
ii. SOD (FDR) is the overdraft against lien on FDR. The FDR may be of the same bank or other bank. In case of FDR of Prime Bank Limited, the interest rate is 2.50% above the FDR interest rate whereas for other bank’s FDR the interest is 14.00% p.a with quarterly compounding irrespective of the interest earned by the FDR.
iii. SOD against special scheme is the SOD against special schemes like CSS (Contributory Savings Scheme). In this case only 80% of the principal amount deposited by the customer is given as advance. Again the interest rate is 14.00% per annum with quarterly compounding.
iv. SOD general is the overdraft for bidding in tenders and is given as Pay Order. Whenever a government authority like Roads and Highways Division invites a tender it seeks security from the bidders so that in case of award of the work order the contractor cannot leave the job undone. To avoid the risk the authority asks the bidders to submit pay order which is highly liquid to them. Banks issue pay orders on behalf of the customer, here the contractor, through creation of a loan account in the name of the customer.
Another thing is that most of the times each individual contractor submits his bid in the name of multiple firms to increase the probability of winning the bid. This requires huge amount of money which businesses do not have always. The banks bridge the gap through extension of SOD (Earnest Money) or SOD (General) facility. The pay orders that do not win the tender are returned by the work giving authority to the contractors who submit it to the banker and thus gets rid of its liabilities. Interest rate charged by Prime Bank Limited on this facility is 14.00% p.a with quarterly rest.
v. SOD against work order is given for execution of work orders awarded by different government bodies and private companies. In this case the security is the bills receivable by the contractor from the work awarding authority following execution of work to its complete satisfaction.
The Irrevocable General Power of Attorney executed by the contractor in favor of the bank authorizing it to collect all the bills receivable by him stands as the primary security. The work awarding authority pays the bills to the bank and thus the liabilities are adjusted. Rate of interest is 14% for general customers and for top rated customers it ranges from 14.00% to 12.00% depending on the creditworthiness and bargaining power of the customer.
vi. SOD against Shares is loans given against shares as security. However, to cope with the volatility of the share market, the bank gives loans only up to 50% of the average Market value of the particular share under consideration during the last six months or the face value whichever is lower. Interest rate is 15.00% per annum. Interest is 1% higher due to higher risk of the share value fluctuation.
Hire Purchase is a type of installment credit under which the Hire Purchase agrees to take the goods on hire at a stated rental, which is inclusive of the repayment of Principal as well as interest for adjustment of the loan within a specified period.
Lease financing is one of the most convenient long term sources of acquiring capital machinery and equipment. It is a very popular scheme whereby a client is given the opportunity to have an exclusive right to use an asset, usually for an agreed period of time, against payment of rent. Of late, the lease finance has become very popular in almost all the countries of the world. An obvious advantage of the lease is to use an asset without having to buy it. The lessee is obligated to make lease payments until the expiration of the lease agreement, which corresponds to the useful life of the asset.
In a capital scarce economy like ours, Lease Financing is suitable for firms to acquire Capital Machinery, Equipments, Medical Instruments, Automobiles etc. And thereby employ their own resources more advantageously in some other investments. Lease financing also helps a firm to reap significant economic benefit through tax saving and by reducing the risk of the equipments becoming obsolete due to the technological advancement.
Objective of Lease Finance
Prime Bank Ltd. has introduced the lease finance with the following objectives:
· To assist the genuine and capable entrepreneurs for acquiring Capital Machinery and Equipments to undertake enterprises without equity.
· To encourage the new and educated young entrepreneurs to undertake productive venture and demonstrate their creativity and thereby participate in the national development.
· To participate in the industrial development of the country.
Lease Items / Equipments
Prime Bank Limited offers lease finance for acquiring the use of capital machinery, equipments, medical instruments, etc. The customers are entitled to decide the specification, price and model of the lease item/equipment. Bank will purchase the item (s) in accordance with the specifications given by the clients. However, the suppliers of the items must ensure after sales services and warranties. The price should be competitive and acceptable to the Bank.
Eligibility for Availing Lease finance
All genuine entrepreneurs having adequate experience and expertise are eligible to apply for Lease Finance under the scheme. The amount of Lease Finance will not generally exceed Tk. 1.00 crore, but in exceptionally good cases, the limit can reasonably be exceeded on condition that the Bank will depute an officer for close and intensive supervision of the project. In other cases of Lease Finance for amount below Tk. 1.00 crore, an officer of the Bank will supervise a number of projects at a time according to convenience.
Documents & Security
The entrepreneur will be required to provide the following securities:
01. The lease items will remain in the name of the Bank i.e., Bank will be the sole owner of the leased items.
02. Collateral securities having liquidation value covering at least 100% of the amount of finance.
03. Deposit of listed Shares, National Savings Certificates, ICB Unit Certificates, Assignment of Life Insurance Policies, Bank Guarantee, Insurance Guarantee etc. will also be acceptable as collateral securities.
04. In case of existing industrial units requiring BMRE, charge may be created on the existing Fixed Assets as collateral securities for the finance. In case of existing Automobile enterprises, creation of charge on the existing vehicles will also be acceptable as collateral securities.
05. i) In case of default in payment of lease rental for consecutive 2 (two) months, the Bank will take over the lease items without giving any prior notice. ii) In case of taking over the lease items by the Bank before maturity, the lessee will be liable for the loss, if any, caused to the Bank of such premature taking over. iii) The Bank will exercise close and intensive supervision of such projects. An Officer of the Bank will be engaged separately for supervision of such projects to ensure proper utilization of the lease items and timely repayment of the monthly rentals.
After having favorable discussion on the various aspects of the Project particularly on the terms and conditions of lease financing, a customer may formally apply in specific application form designed by the Bank. The customer is required to provide detailed information on the project and its various aspects. After proper appraisal, if found suitable, Bank will draw terms and conditions of the lease.
After sanction of a proposal for lease finance, a lease agreement will have to be executed between the client and the Bank. The lease rental, lease deposit etc. stated in the lease agreement shall be calculated on the basis of the estimated acquisition cost of the equipment which shall be adjusted on the basis of actual costs and charges at the time of execution. After execution of the agreement, the Bank will purchase the specified items/ equipments and the customer will be under obligation to accept the equipment for the specified lease period.
The customer will be required to make a deposit equivalent to 3 (three) months lease rentals to the Bank on the date of signing of the lease agreement which shall be refunded to the client at the expiry of the lease term.
Procurement and Installation of Lease Equipment
Bank will place firm purchase order directly to the manufacturer / supplier on the basis of terms and conditions embodied in the agreement between the client and the supplier. The equipment is to be delivered to the selected location of the client. Bank will make full payment after confirmation of the acceptance of the equipment by the client.
In case of imported equipment, Bank will open Letter of Credit in its own name. the Custom clearance and inland transportation of the equipment to the respective locations shall be handled by the client with the co-operation of the Bank. All incidental costs in this regard shall be paid by the Bank and will be included in the acquisition cost of the equipment.
After taking delivery of the equipment, the customer will directly install it at his location as specified in the agreement with the technical assistance of the supplier, if any.
On lease execution, the client and the Bank shall enter into an Amendment Lease Agreement reflecting the actual acquisition cost. At the same time the client will issue the certificate of the acceptance of equipment and pay the first lease rentals, insurance premium of the 1st lease year as well as any other charge to the Bank.
The acquisition cost shall be the purchase price and all other incidental expenses incurred by the Bank including financial expenses such as custom duty and other taxes, charges in connection with opening of L/C, insurance premium, freight, transportation, storage charge etc.
Term of Lease and Payments There Against:
The term of lease may be for a period of maximum 5 (five) years during which the lessee will have the exclusive right to use the equipment. On expiry, the lessee may have the option to renew the lease on a year to year basis at a predetermined rental or return the equipment to the Bank. Besides the above options, the lessee may purchase the lease equipment at a reasonable price upon mutual agreement.
Lessee will pay service charge or project examination fee @0.15% on the sanctioned amount subject to a minimum Tk. 3,000 and maximum Tk. 10,000 in case of acquisition of Machinery and Equipments for projects. In case of Automobile, a service charge of Tk. 500 is payable when the acquisition cost is below Tk. 10.00 lac and an amount of Tk. 1,000 is payable when the acquisition cost is Tk. 10.00 lac and above.
The lessee will pay monthly rental in advance starting from the date of execution till end of lease term. Insurance charges are payable by the lessee at actual. 1st year premium is payable on the date of execution.
Consumer Credit Products
Lending is the main profit generating activity of a bank. Every bank should possess a lending procedure that provides correct borrower selection, quick processing, assurance of repayment and effective monitoring and supervision. The lending procedure followed by Prime Bank Limited consists of a set of sequential activities. In these sequential activities, both bank officials and potential borrowers play significant role.
Different Activities in Lending Process
The lending procedure starts with building up relationship with customer through account opening. The stages of credit approval are done both at the branches and at the corporate office level. The lending procedure is described below in sequential order:
A loan procedure formally starts with a loan application from a client who must have an account with the bank. Branch receives application from client for a loan facility. In the application client mention what type of credit facility he/she wants from the bank including his/her personal information and business information. Branch Manager or the Officer-in-charge of the credit department conducts the initial interview with the customer.
The bank sends a letter to Credit Information Bureau of Bangladesh Bank for obtaining a credit inquiry report of the customer from there. This report is called CIB (Credit Information Bureau) report. This report is usually collected if the loan amount exceeds Taka fifty thousand. The purpose of this report is to be informed that whether or not the borrower has taken loans and advances from any other banks and if so, what is the status of those loans and advances i.e. whether those loans are classified.
If Bangladesh Bank sends positive CIB report on that particular borrower and if the Bank thinks that the prospective borrower will be a good one, then the bank will scrutinize the documents. Required documents are:
- In case of corporate client, financial statements of the company for the last three to five years. If the company is a new one, projected financial data for the same duration is required.
- Personal net worth of the borrower(s).
Bank officials of the credit department will inspect the project for which the loan is applied. Project existence, its distance from the bank originating the loan, monitoring cost and possibilities are examined.
Any loan proposal is evaluated on the basis of financial information provided by the applicant. Financial spread sheet analysis which consists of a series of quantitative techniques is employed to analyze the risks associated with a particular loan and to judge the financial soundness and worthiness of the borrower. Besides lending risk analysis is also undertaken by the bank to measure the borrower’s ability to pay considering various risks associated the loan. These quantitative techniques supported with qualitative judgment are the most important and integral part of the credit approval process used by Prime Bank Limited.
Documents related to the collateral security offered by the customer are sent to the bank’s panel lawyer for vetting. Bank based on the expert opinion of the lawyer further process the loan proposal.
If the proposal meets Prime Bank’s lending criteria and is within the manager’s delegated power, the credit line is approved by the manager himself. The manager and the sponsoring officer sign the credit line proposal and issue a sanction letter to the client.
If the value of the credit line is above the branch manager’s limit then it is sent to head office or for final approval with detailed information regarding the client (s), credit analysis and security papers.
Head office processes the credit proposal and puts forward an office note if the loan is within the power of the head office credit committee. Otherwise it is sent to board if the loan requires approval from the board of directors.
If the credit committee of the head office or the board as the case may be approves the credit line, an approval letter is sent to the branch. The branch then issues a sanction letter to the borrower with a duplicate copy.
After issuing the sanction advice, the bank will collect necessary charge documents. Charge documents vary on the basis of types of facility, types of collateral.
Finally loan is disbursed by the branch through a loan account in the name of the borrower and monitoring of the loan starts formally.
Monitoring techniques uses in credit
Supervision and monitoring of a loan denotes continuous checking and assessing the borrower, his business and his willingness to repay the loan based on some predetermined manners. Supervision generally starts immediately after the selection of the borrower and monitoring starts when the project/activity enters implementation although these terms are also interchangeably used. Proper supervision and monitoring, act as a substitute of collateral.
Purpose of Credit Monitoring in Prime Bank
The purposes of credit monitoring are pointed out below:
· To prevent loan classification
· To return flow of fund
· To ensure compliance of terms and conditions
· To obtain feedback from the borrowers
· To take timely corrective action regarding a particular loan
Credit Administration as a Tool for Credit Monitoring
· To ensure that all security documentation complies with the terms of approval and is enforceable.
· To monitor insurance coverage to ensure appropriate coverage is in place over assets pledged as collaterals and is properly assigned to the bank.
· To control loan disbursement only after all terms and conditions of approval have been met, and all security documentation is in place.
· To maintain control over all security documentation.
· To monitor borrower’s compliance with covenants and agreed terms and conditions, and general monitoring of account conduct/performance.
· To minimize credit losses, monitoring procedures and systems should be in place that provides an early indication of the deteriorating financial health of a borrower.
Risk Grading as a Tool of Credit Monitoring
The system should define the risk profile of borrower’s to ensure that account management, structure and pricing are commensurate with the risk involved. Risk grading is key measurement of a Bank’s asset quality, and as such, it is essential that grading is a robust process. All facilities should be assigned a risk grade. It is recognized that the banks may have more or less risk grades; however, monitoring standards and account management must be appropriate given the assigned Risk Grade.
When it becomes inevitable to face an adverse situation regarding a particular loan, Prime Bank Limited takes corrective measure to mitigate the situation as much as possible. The following corrective measures are taken in this regard:
· Reviewing the documents and situation from legal point of view
· Working out strategy and action to face the problem
· Loss is evaluated against the security realization value
· Deciding on whether to stay or leave the project and reclassification is done accordingly
· Visiting the client continuously to find any way out
· Then all efforts are put forward for negotiation
· Ultimately legal actions are taken when all measures fail
Loan Monitoring Through Continuous Reporting
Prime Bank Limited also monitors its credit portfolio through continuous reporting to Bangladesh Bank. For this purpose Bank uses six forms (CL-1, CL-2, CL-3, CL-4, CL-5 and CL-6) in accordance with the nature of loan and advances.
· Cl-1 is the compilation of the 5 other reports which covers different loan categories including the staff loan.
· CL-2 is used to report continuous loan.
· CL-3 is used to report demand loan.
· CL-4 is used to report for loan repayable within maximum 5 years.
· CL-5 is used to report term loan of over 5 years.
CL-6 is used to report short term agricultural loan.
Credit analysis is of utmost importance for the lending process to be successful. Proper credit analysis helps avoid risks in lending and brings transparency. The analysis of financial statements of the prospective borrower(s) carried on for the purpose of determining the past financial health of the borrowing unit and judging whether any future loan commitment to the unit is secured or not is known as credit analysis. Credit analysis is generally done at the branch level of lending process and the results and findings are evaluated in the corporate office.
The basic financial statements required for credit analysis are:
· Balance Sheet
· Income statement (Profit and Loss Account)
· Cash Flow Statement.
· Equity Statement
The credit analysis starts with the financial spread sheet analysis using the financial statements provided by the borrowing unit.
As at 31 December, 209
|Particulars||Amount in Taka|
|PROPERTY AND ASSETS|
|Balance with Bangladesh Bank||6,447,553,847||4,755,788,872|
|Balance with other Banks and financial institutions|
|Money at call and short notice investments|
|Loans and Advances/ Investments|
|Loans Cash Credits, Overdrafts/ Investments||70,574,812,562||53,814,967,656|
|Bills Purchased and discounted||4,581,394,255||3,868,053,856|
|Fixed Assets including premises, furniture and fixture||1,374,826,295||660,490,066|
|LIABILITIES AND CAPITAL|
|Borrowings from other banks, other financial institutions and agents||11,397,859,931||3,908,694,900|
|Deposits and other accounts|
|Current/Al Wadeeah current Deposits||11,868,543,906||10,590,463,357|
|Savings bank/ Mudaraba savings deposits||6,797,681,897||6,027,260,878|
|Term deposits/ Mudaraba term deposits||68,114,743,430||52,750,109,722|
|bearer certificate of deposits|
|Capital/ Shareholders Equity|
|Paid up Capital||2,843,750,000||2,275,000,000|
|Revaluation Gain/(Loss) investment||180,281,588||12,723,913|
|Surplus in profit and loss account/ retained earnings||1,054,921,127||1,112,009,852|
|Total shareholders equity||6,696,770,778||5,273,277,362|
|Total liabilities and equity||110,437,103,311||79,588,430,798|
|OFF-BALANCE SHEET ITEMS|
|Acceptance and endorsements||9,129,069,603||6,905,831,656|
|Letters of guarantee||13,201,578,022||10,480,381,241|
|Irrevocable letters of credits||10,323,790,924||14,287,797,206|
|bills for collection||3,599,083,644||1,414,716,406|
|Other contingent liabilities|
|Documentary credits and short term trade related transactions|
|Forward Asset purchased and forward deposit placed|
|Undrawn note issuance and revolving underwriting facilities|
|Liabilities against forward purchase and sales||588,912|
|Other memorandum items|
|Value of travelers cheques in hand||269,954||141,383,952|
|Value of Bangladesh sanchay patras in hand||311,360,300||1,348,897,500|
|Total off-balance sheet items including contingent liabilities||38,126,974,217||34,579,007,961|
Profit and Loss Account
For the year ended 31 December, 2009
|Particulars||Amount in Taka|
|Interest Income/ profit on investment||9,095,891,683||7,170,099,616|
|Interest / profit paid on deposits, borrowings, etc||-7,126,309,515||-5,266,592,564|
|Net interest/ Net profit on investments||1,969,582,168||1,903,507,052|
|Commission, exchange and brokerage||1,436,896,251||1,198,942,404|
|Other operating income||627,564,412||419,555,862|
|Total operating income(A)||5,777,810,297||4,816,210,375|
|Salaries and allowances||899,204,898||725,285,435|
|Rent, texes, insurance, electricity etc||203,265,914||159,529,399|
|Postage, stump, telecommunication etc||78,712,209||60,999,650|
|Stationary, printing, advertisements etc||95,990,087||121,691,050|
|Managing directors salary and fees||7,914,344||9,131,448|
|Charge on loan losses|
|Depreciation and repaid of banks assets||151,233,852||102,185,026|
|Total operating expenses(B)||1,930,955,801||1,559,345,650|
|Profit/ (loss) Before provision(C=A-B)||3,846,854,496||3,256,864,725|
|Provision for loans/ investments||-1,115,000,000||-350,000,000|
|Provision for off-shore banking units||118,000,000||210,000,000|
|Provision for off-balance sheet items||-1,383,500,000||-910,000,000|
|Provision for diminution in value of investments|
|Total profit/(loss) before taxes(C-D)||2,463,354,496||2,346,864,725|
|Probation for taxation|
|Net profit after taxation||1,231,832,174||1,400,664,725|
|Retain earning brought forward from previous year||315,759,852||180,718,073|
|Earning per share (EPS)||43.32||49.25|
Cash Flow Statement
For the year ended 31 December 2009
|Particulars||Amount in Taka|
|A) cash flow from operating activities|
|interest receipt in cash||9,606,084,937||7,076,601,586|
|Fees and commission receipts in cash||1,436,986,251||1,198,942,404|
|Recoveries of loans previously written-off||85,202,572||415,867|
|Cash payments of employees||-749,119,242||-729,416,883|
|Cash payments to suppliers||-307,191,812||-286,567,522|
|Income taxes paid||-941,801,045||-476,148,788|
|Receives from other operating activities||745,157,044||419,558,862|
|Payment for other operating Activities||-468,943,744||-470,041,003|
|Cash generated from operating activities before change||3,910,351,750||1,474,723,317|
|Net operating assets and liabilities|
|Increase/ (decrease) in operating assets and liabilities|
|Purchase of trading securities(treasury bills)||-1,105,739,703||-1,197,259,262|
|Loans and advances to other banks|
|Loans and advances to customers||-17,473,785,305||-12,672,803,463|
|Deposits from other banks/ borrowings||11,242,203,400||632,890,500|
|Deposits from customers||16,773,432,106||15,171,985,121|
|Other liabilities account to customers||95,081,185||616,309,220|
|Net cash from operating activities||2,665,875,321||1,096,636,429|
|B) Cash flows from investing activities|
|Proceeds from sale of securities|
|Payments for pu