Report On UBL
Introduction
Uttara Bank Ltd (UBL) had been a nationalized bank in the name of Uttara Bank under the Bangladesh Bank order 1972, formerly known as the Eastern Banking Corporation Limited which was started functioning on and from 28.1.1965. Consequent upon the amendment of Bangladesh Bank Order 1972, the Uttara Bank was converted into Uttara Bank Limited was as a public limited company in the year 1983. The Uttara Bank Limited was incorporated as a banking company on 29.6.1983 and obtained business commencement certificate on 21.8.1983. The Bank floated its shares in the year 1984. It has 207 Branches all over Bangladesh through which it carries out all its banking activities. The Bank is listed in Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd., as a public pouted company for trading of its shares. Uttara bank’s Corporate Office at the Motijhil. Its chairman is Mr. Azharul Islam and Vice Chairman is Mr. IftaKharul Islam. Mr. Shamsuddin Ahmed is the Managing Director.
UBL conducts all types of commercial banking activities. The core business of the bank comprises of import, export, working capital finance and corporate finance. The bank is also rendering personal credit, services related to local and foreign remittances. The “Personal Credit” scheme of the bank, which is designed to help the fixed income group in raising standard of living is competitively priced and has been widely appreciated by the customers. The bank’s strategy is to gradually cover the total arena of banking.
Mission
To assist in bringing high quality service to our customers and to participate in the growth and expansion of our national economy. To set high standards of integrity and bring total satisfaction to our clients, shareholders and employees. To become the most sought after Bank in the country, rendering technology driven innovative services by our dedicated team of professionals.
VISION
Uttara Bank’s vision is to have a poverty free Bangladesh in course of a generation in the new millennium, reflecting the national dream. Our vision is to build a society where human dignity and human rights receive the highest consideration along with reduction of poverty
Objectives
The objectives of UBL are to provide high quality service to its customers, to participate in the growth and expansion of our national economy, to set high standards of integrity, to bring total satisfaction to our clients, shareholders and employees, and to become the most sought after bank in the country, rendering technology driven innovative services by the dedicated team of professionals.
Table UBL’s Objectives are reflected in the following areas
| UBL’s Objectives (Areas) |
| Highly personalized service
Customer-driven focus Total commitment to quality Outstanding products |
Contribute in the economy
Quality of human resources Commitment to its clients at each level |
Source: Prospectus of Uttara Bank Limited, Year 2009.
Board Of Directors Of UBL
UBL formed with the Bank Company Act 1991, the rules and regulations issued by the Bangladesh Bank, the Company Act 1994, and the Securities and exchange Rules 1987 and other applicable laws and regulations in 1999.The first Board of Directors of the bank was constituted with 13 Directors. Since the Bank has floated its share for public subscriptions; two Directors have been elected from the public shareholder. The director’s list is following:
| Mr. Azharul Islam | Chairman |
| Mr. Iftekharul Islam | Vice Chairman |
| Mr. Shah Habibul Haque | Director |
| Mr. Abul Barq Alvi | Director |
| Col. Engr. M. S. Kamal (Retd) | Director |
| Mr. Syed A. N. M. Wahed | Director |
| Mr. Sk. Amanullah | Director |
| Major General Prof. M. A. Mohaiemen (Retd) | Director |
| Dr. Md. Rezaul Karim Mazumder | Director |
| Lt. Col. Dewan Zahedur Rahman (Retd) | Director |
| Engr. Tofazzal Hossain | Director |
| Mr. Mohammed Farooq | Director |
| Mr. Muhammad Quamrul Ahsan | Director |
| Mr. Asif Rahman | Director |
| Mr. Shamsuddin Ahmed | Managing Director |
Branches of UTTARA Bank LIMITED
Currently UBL has 207 branches. Corporate office is located in 90, Motijheel commercial area Dhaka-1000. Other branches of UBL are given below:
Table Branches of Uttara Bank Limited
| Serial. No. | Number of Branch | Region |
| 1. | 20 | Dhaka Central Zone |
| 2. | 27 | Dhaka North Zone |
| 3. | 18 | Dhaka South Zone |
| 4. | 13 | Narayangonj Zone |
| 5. | 8 | Mymensingh Zone |
| 6. | 17 | Comilla Zone |
| 7. | 19 | Chittagong Zone |
| 8. | 19 | Sylhet Zone |
| 9. | 16 | Khulna Zone |
| 10. | 18 | Barisal Zone |
| 11. | 12 | Rajshahi Zone |
| 12. | 18 | Bogra Zone |
Source: Uttara Bank Limited, Year 2009
MANAGEMENT HIERARCHY
Figure Overall Organ gram of UBL
| President & Managing Director |
| Deputy Managing Director |
| Senior Executive Vice President |
| Executive Vice President |
| Senior Vice President |
| Vice President |
| First Vice President |
| First Assistant Vice President |
| Senior Executive Officer (SEO) |
| Executive Officer (EO) |
| Senior Principle Officer (SPO) |
| Senior Officer (SO) |
| Management Trainee (MT) |
| Officer |
| Junior Officer (JO) |
| Assistant Officer (AO) |
| Banking Officer |
| Trainee Officer |
| Teller |
Source: Annual report of Uttara Bank Limited, 2009.
UBL can be broadly divided into two functional areas; a. Business b. Support
Figure Organogram of the Branch
BUSINESS OF UTTARA BANK LIMITED
The Business division can be divided into the following parts:
Figure Business division of UBL
Source: Uttara Bank’s confidential information, Year 2009.
UBL is primarily corporate driven where the corporate banking division generates more than 40% of the total revenue and treasury contributing around 20%. The rest revenue comes from custodial services, retail banking and institutional banking. The respective branch managers are responsible for their performance and the operations of their unit. The managers agree upon the targets set mutually by them and the head of the department and this exercise has ample resemblance with the management practice known as MBO.
Support services OF UTTARA Bank Limited
Figure Support Services of UBL
Source: Bank Uttara Bank’s confidential information, Year 2009
IT Support
This department is instrumental in the running of all the computerized operations of the bank. Stealer has been developed and customized by ERA-InfoTech Ltd a joint venture IT Company set by ETA-InfoTech of Dubai, Uttara Bank and Ranks IT. The company also enjoys the technical support from ETA Info Tech, UAE.
Human Resources
The total manpower of the bank as on 31st December, 2009 is 3,291, out of 2,123 is officers and 1,168 are the supporting staffs. Efforts have been made to rationalize the use of manpower by improving their efficiency and productivity.
Risk Management: The risk management within the always calls for careful and responsible handing of the risks. Commercial banks are exposed to various risks. The management of Uttara Bank limited is fully cognizance to the importance of various risks involved in the banking business. Risk management is one of the critical factors in banking. Bangladesh Bank has identified 05(five) core risk of management of the Bank and has provided necessary guidelines for prevention therefore. The five core risks are:
1. Credit Risk Management.
2. Asset Liability Management.
3. Foreign Exchange Risk Management.
4. Prevention of Money laundering.
5. Internal Control and Compliance.
6. Financial Highlights of the organization
(Figure in Million (Tk.) where applicable)
| Sl.No. | Particulars | 2009 | 2008 | 2007 | 2006 |
| 1 | Gross Income | 7,396.5 | 6,313.5 | 5,020.2 | 4,435.1 |
| 2 | Gross Expenditure | 4,882.6 | 4,007.9 | 3,554.0 | 3,153.2 |
| 3 | Gross Profit | 2,513.9 | 2,305.6 | 1,466.2 | 1,281.9 |
| 4 | Pre-Tax Profit | 2,188.9 | 2,098.1 | 1,143.7 | 866.8 |
| 5 | Post-Tax Profit | 1,105.2 | 1,138.5 | 409.5 | 248.8 |
| 6 | Authorized Capital | 3,200.0 | 1,600.0 | 1,000.0 | 1,000.0 |
| 7 | Paid-up-Capital | 1,597.3 | 798.6 | 399.3 | 199.7 |
| 8 | Reserve Fund and Other Reserves | 4,609.6 | 2,890.2 | 2,054.2 | 1,885.8 |
| 9 | Shareholders Equity | 6,206.9 | 3,688.8 | 2,453.5 | 2,085.4 |
| 10 | Deposit | 59,387.3 | 50,817.0 | 43,586.4 | 39,360.2 |
| 11 | Advances (Gross) | 39,451.4 | 37,141.3 | 28,477.4 | 25,163.9 |
| 12 | Investment | 22,502.5 | 11,188.3 | 14,455.8 | 9,264.5 |
| 13 | Guarantee Business | 1,633.5 | 1,826.9 | 1,474.4 | 1,564.1 |
| 14 | Export Business | 15,096.9 | 15,039.6 | 14,784.5 | 18,133.9 |
| 15 | Import Business | 29,129.3 | 31,146.9 | 25,407.9 | 22,630.7 |
| 16 | Foreign Remittance | 44,635.3 | 36,073.2 | 29,575.3 | 28,728.1 |
| 17 | Fixed Assets | 1,088.4 | 1,065.4 | 1,014.0 | 942.1 |
| 18 | Total Assets | 71,946.0 | 58,444.3 | 52,860.3 | 45,217.0 |
| 19 | Classified Loans and Advances | 2,842.0 | 2,633.8 | 3,530.9 | 3,783.9 |
| 20 | Total Off Balance Sheet Exposures | 8,560.5 | 8,806.9 | 8,830.5 | 7,428.5 |
| 21 | Required Capital | 3,688.2 | 3,420.5 | 2,617.8 | 2,083.0 |
| 22 | Actual Capital | 5,829.0 | 4,048.4 | 2,746.7 | 2,273.0 |
| 23 | Required Provision against loans & advances | 889.7 | 684.8 | 727.1 | 790.6 |
| 23.a | Provision Maintained | 910.1 | 792.8 | 826.4 | 907.4 |
| 24 | Required Provision against off Balance sheet exposures | 85.6 | 88.1 | 44.2 | N/A |
| 24.a | Provision Maintained | 101.7 | 101.7 | 44.2 | N/A |
| 25 | Earning per Share (EPS) | 69.19 | 142.56 | 102.56 | 124.59 |
| 26 | Market Value per Share | 1,450.25 | 3,393.75 | 4,854.75 | 2,312.25 |
| 27 | Price Earning Ratio (Time) | 20.96 | 23.81 | 47.34 | 18.56 |
| 28 | Book Value per Share (NAV) | 388.58 | 437.88 | 573.73 | 957.66 |
| 29 | Advance Deposit Ratio | 0.66:1 | 0.73:1 | 0.65:1 | 0.64:1 |
| 30 | Total Adv. /Class. Advance (%) | 7.20% | 7.09% | 12.40% | 15.04% |
| 31 | Total Adv. /Class. Advance (net)% | 5.21% | 5.46% | 10.13% | 13.40% |
| 32 | Income from Equity (%) | 17.80% | 30.86% | 16.69% | 11.93% |
| 33 | Income from Assets (%) | 1.54% | 1.95% | 0.77% | 0.55% |
| 34 | Number of Shareholders | 42,570 | 27,228 | 12,467 | 5,390 |
Source: Annual report of Uttara Bank Limited, 2009.
Products & service of uttara bank Limited
Products offered by uttara bank Limited
UBL has a wide range of product and services targeted to different customer segments. Every account is assigned an account manager who personally takes care of the customer and provides customized service and personal consultancy and troubleshooting regarding the services of the organization. In the following, a list of products and services of the bank is presented:
Table Products Offered By UBL
|
|
ATM Service ? Any Branch Banking ? Savings Account SMS Banking ? Current Account Bonus Savings Schemes ? Debit Card Personal Secured Credit ? Personal Installment Loan Palli Shawnirvor Prokolpo ? Evening Banking Kormo Shongsthan Prokolpo
|
Savings Account
Current Account Debit Card Personal Installment Loan Traveler’s Cheques |
||
| Corporate Credit: Overdraft, Import and Export Finance, Payments Against Documents (PAD), Loan against Trust Receipt (LTR), Guarantees and Bonds, etc.
Payments and Cash Management: Account Management Services, Countrywide Payments / Countrywide Collections, etc.
|
Customized Loans
Loan Syndication Trade Services include Export Services, Import Services, Trade Express, Document Tracker etc. Personal Loan, Auto Loan Home Loan Electronic Banking: Cash Management Services and Trade Services |
||
| Locker Service
Custodial Service |
Privacy
Secure Transaction |
Source: Prospectus of Uttara Bank Limited, Year 2009.
Product range of UBL includes as follows:
Table Product Range of Uttara Bank Limited
| ? Savings
? Deposit ? Corporate ? Institutional ? Commercial ? Treasury |
? Retail or retail
banking services ? Custodial services ? Cash management ? Locker services and leasing priority banking |
Source: Prospectus of Uttara Bank Limited, Year 2009.
Corporate Banking Products
Uttara Bank’s corporate banking arm provides a range of products and services that address the financing needs and transaction structuring requirements of large and mid-sized corporate customers. Services provided include loan syndication and asset sales, corporate advisory, trade finance and working capital and term financing. Working closely with the Bank’s trading professionals Corporate Banking also provides a range of foreign exchange, interest rate management and risk management products.
WORKING CAPITAL FINANCE
The term working capital means capital required by a business to carry out its day-to- day operations in particular to complete the operating cycle of the business. In the course of running a business, payments have to be made for raw materials, wages, manufacturing and other expenses. However, money on account of sale of goods or services is not immediately realized. It may take, three to six months depending upon the credit terms prevailing in the business. The business must have sufficient funds for this period. This amount is known as ‘Working Capital” of the business. e.g. Cash credit, Overdraft, import and export finance, bills discounting, short term loans etc.
SYNDICATED LOAN
It is one of the principal products offered by the corporate banking division of the bank. In case of syndicated loan, a group of banks form a cartel and extend a large amount of loan to a firm for long term. The underlying idea is to minimize the risk associated with such loan since the performance of the loan depends on the single borrower. Syndicated loan diversify risks between the lenders and thus each lender is exposed to limited risk despite the loan amount being large.
TRADE FINANCES
The acquisition of Bank of Nova Scotia gave UBL new strength in its trade financing activities. Previously UBL was not facilitated with “SWIFT” which is very crucial in efficient modern banking correspondence. Now the Scotia Branch has correspondence with over 800 financial institutions worldwide. It is the first branch in UBL to have such facility. Scotia Branch provides L/C payment, L/C advising, negotiation, reimbursement, shipping guarantee, export bill collection services to its valued clients. Scotia Branch becomes UBL’s one of the strongest international banking arms, helping to serve their clients through its global network.
CASH MANAGEMENT
This service provides the clients with a full range of cash management products, collections, payments and liquidity products. The bank has invested heavily in the state of the art technology and processing capability specially suited towards mitigating such needs of the corporate clients.
PERSONAL LOAN
To cater the urgent financial need of the service holder having limited income. Emergency expenses for own marriage of a service- holder or his dependents. Emergency expenses of urgent surgical operation/ medical treatment. Emergency educational expenses of the children for admission/purchase of books, examination fees etc.
TREASURY PRODUCTS
This division has a centralized trading room in Dhaka and designed to serve the following:
a. FOREIGN EXCHANGE: Treasury division is linked up with the exchange rate information service provided by the International News Agency “Reuters”. Dealers working there provide advisory service from 10:00 am to late evening hour five days a week. The division includes various hedging techniques to offer better deal to its customers and protect itself from adverse of the adverse fluctuation in the exchange rates.
Table The other products include the following
| Products | |
| Ready Contracts | Forward contracts |
| Cross currency contracts | Information analysis |
Source: Prospectus of Uttara Bank Limited, Year 2009.
b. MONEY MARKETS AND INVESTMENT:
Treasury division is the local market leader in debt instruments that attempts to take advantage of the developments of the money market developments. The money market includes instruments like call money rate, T-bill, swaps etc.
Retail/CONSUMER Banking
Retail Banking at UBL provides all types of clients with typical banking services such as, savings accounts, current accounts, call and short-term deposit accounts, fixed deposit accounts, time deposits, foreign currency accounts and secure locker services. UBL’s retail banking division is entrusted with the duty of operating the operations of the 31 branches in the country. The services and products of the department can be classified into two broad categories: asset products and liability products.
Features of Liability products
The different types of deposits are given below:
CURRENT ACCOUNT
A non-interest bearing account where the client deposits the money without have any intention to get any interest. There is no provision of minimum balance under this category of account. Initial deposit for opening this account is TK 2000.
SAVINGS ACCOUNT
Savings account is interest bearing, which can be divided into 2 parts. One is Bonus Savings and another is Normal Savings. In Bonus Savings a customer has to maintain at least Tk. 50,000 in the account at any point of time. Then the interest will be 7.50%. The interest is calculated at a daily basis. The interest comes to an effect in the account after every 3 months. If the deposit falls back Tk 50,000 for a particular time, then the interest will be calculated @7%. On the other hand, the interest rate for Normal Savings is 7% and the customer needs to open the account depositing at least Tk 15,000 at start. The basic deference between these two is that, the customer has to maintain Tk 50,000 at any point of time in the Bonus Savings whereas for Normal Savings, he/she can withdraw even if the deposit falls back Tk 50,000. Other Bangladesh Bank rules will be applied for withdrawal of money from the account and other transactional activities.
SHORT TERM DEPOSIT
STD is an interest bearing account where the interest is 6% and calculated in a daily basis. Minimum Deposit Should is 50, 00000.
DOUBLE BENEFIT PLUS (DB+)
DB+ is a 6yr or 9.5yr old scheme. Customers deposit doubles in 6 yrs and triples in 9.5 yr. Minimum initial deposit for the scheme is Tk 100,000
DEPOSIT PENSION SCHEME PLUS (DPS+)
In this scheme the customer deposit monthly installments ranging from Tk 1,000 to Tk 5,000 and after 3 to 10 yrs receive a handsome amount of money.
MONTHLY BENEFIT PLUS (MB+)
MB+ is a 3-yrs/5-yrs scheme that lets you earn monthly benefit respectively of TK. 975, TK. 1000 (minimum initial deposit of Tk. 100000.)
FIXED DEPOSIT
Fixed deposit requires a minimum deposit of BDT 50000 for opening. The fund can be deposit for any maturity greater than 3 month while interest rate varies with the maturity date.
Table Interest rate of UBL
| Tenor | Interest Rate |
| For 3 months period | 7.75% |
| For 6 months period | 8.50% |
| For 1 year period & above | 9.00% |
Source: Uttara Bank Limited, Year 2009.
SWIFT
Swift is a Bank owned non-profit co-operative based in Belgium servicing the financial community worldwide. It ensures secure messaging having a global reach of 6,495 Banks and Financial Institutions in 178 countries, 24 hours a day. SWIFT global network carries an average 4 million message daily and estimated average value of payment messages is USD 2 trillion.
Swift is a highly secured messaging network enables Banks to send and receive Fund Transfer, L/C related and other free format messages to and from any banks active in the network.
Having SWIFT facility, Bank will be able to serve its customers more profitable by providing L/C, Payment and other messages efficiently and with utmost security. Especially it will be of great help for our clients dealing with Imports, Exports and Remittances etc.
CREDIT FUNDAMENTALS
Types of Credit Activities of UTTARA BAnk Limited
Credit plays an important role in generating bank’s income. Commercial banks make credit or advances in different forms. All type of credit facilities can be broadly distinguished into two groups:
Figure Type of credit facilities of UBL
Source: Uttara Bank confidential information, Year 2009.
FUNDED CREDIT
PERSONAL CREDIT (PC)
This loan is designed for mitigation the demand for loan for personal reason. The loan is a convenient option to finance fund requirement for buying new household items, emergency needs, house renovation, office equipment etc.
SECURED OVER DRAFT (SOD)
When Overdrafts are allowed against securities they are called Secured Overdrafts. Overdrafts are generally granted to contractors & supplies for carrying on construction works and supply orders and to businessmen for expansion of their business. SOD is generally allowed against securities of Fixed & term deposits shares/debentures, PSP, Insurance Policy, real estates, etc: depending on the nature & purpose of advance.
OVER DRAFT
Overdraft facility is also a continuous loan arrangement on a customer’s current account permitting him to overdraw up to a certain approved limit for an agreed period. In another way we can say that, advances in the form of overdraft are allowed on a current account operated upon by cheques for a certain approved limit for an agreed period.
CASH CREDIT
CC is mainly given to meet day-to-day expenses. Under this arrangement borrowers can borrow any time within the agreed limit and can deposit money to adjust whenever he has surplus cash in hand.
PAYMENT AGAINST DOCUMENTS (PAD)
On receipt of import bills against the L/C from the Negotiating Bank, the Issuing Bank scrutinize the documents with the terms and conditions of the L/C and if it is found completely in order PAD loan is created in the name of the importer in order to reconcile the entries so debited by the Reimbursing Bank.
LOAN AGAINST TRUST RECEIPT (LATR)
LTR may be issued at the request of valued customers of the bank. After sanction of LTR, import bills are handed over to the importer who will clear the goods from the custom authorities. The goods will remain at the custody of the importer. LTR may be sanctioned for 90/180/360 days depending on the merit of the case and the importer should adjust the LTR a/c within the sanctioned period.
The bank would like to focus this product on that section of the society who has made some reasonable progress in their profession and are in the threshold of a further step.
CAR LOAN
In other words, senior government or semi-government officials, professionals like doctor, engineer, architects and accountant with some degree of track record, executive of large business house who have attained a reasonable degree of seniority and holding responsible position. Interest Rate will be 16%
NON FUNDED CREDIT (NFC)
LETTER OF CREDIT (L/C)
A Letter of Credit (LC) is a non-funded credit line given by a bank to an importer to facilitate both foreign and inland business. This is a contingent liability which can be converted to a funded facility incase bank makes the payment on behalf of the importer. A Letter of Credit can be revocable or irrevocable, at sight, restricted or negotiable so on.
BANK GUARANTEE (BG)
BG gives a major potion of revenue for bank every year. Bank offers BG to reliable and valuable customer as per requirement. This is also a contingent liability for bank.
FOREIGN DOCUMENTS BILLS PURCHASED (FDBP)
This type of finance made out to purchase foreign clean bills such as foreign currency draft, cheque etc. The facility is generally allowed to a very well known client with good standing save in the case of encashment of Traveler’s chares.
LOCAL DOCUMENT BILLS COLLECTION (LDBC)
This type of finance made out to purchase local clean bills such as both local and foreign currency draft, cheque etc. The facility is generally allowed to a very well known client with good standing save.
FOREIGN DOCUMENT BILLS COLLECTION (FDBC)
Similar to LDBC, here this is use for outside country bill collection.
Credit department
DEPARTMENT: CREDIT
· Processing of Personal Credit (PC) proposals, documentation and disbursements.
· Processing of Customized Loan proposals, documentation and disbursements.
· Processing of Term Loan, documentation and disbursements.
· Processing of over draft proposals, documentation and disbursements.
· Monitoring recovery of installments regarding all types of advance.
Prepare and submit statements and returns relating to credit departments to all concerned agencies including Head Office and Bangladesh Bank.
Challenges of work
UBL being a local private bank has very friendly and helpful working environment. Being an intern the most challenging work for me was to perform my daily job properly. I had to very sincere and alert while serving customer as any mistake done by me may could a great harm to the bank and its reputation. The working environment at Uttara Bank always provided me with challenge to improve my performance everyday. I was trained to interact with sophisticated customers, visit a project/site before giving an advance to follow bank’s producers accordingly.
ORGANOGRAM OF CREDIT DEPARTMENT
Figure Organ gram of Credit Department
Source: Confidential information of Uttara Bank Limited, Year 2009.
PROCEDURE FOR GIVING ADVANCES
The General Advances Department of Siddeswari Branch of Uttara Bank Ltd. usually follows the below-mentioned procedures and steps for sanctioning any kind of advances as available with the branch:
First step
The prospective borrower has to apply to Siddeswari Branch for loan by filling up of a specific Loan Application form. A loan application to be considered, first and foremost, the applicant has to be a customer of the bank. This is part of the bank’s ‘Know Your Customer’ policy. The customer applies in the Bank’s own format stating type of facility required and amount of each. Also stated are:
The type of security they are prepared to offer and the value of that security
The purpose of the facility
The source and manner of repayment
Information about themselves such as legal form, date of establishment, authorized capital, address, basic details about their business, sister concerns, information about proprietors, partners and directors and their interest in the organization
Details about credit facilities with other banks including nature of facility, limit, validity, present outstanding
Current facilities with this bank
The customer also provides some additional information at this stage such as:
Balance sheet
Income statement
Cash flow statement
Memorandum and articles of association (for companies)
Certificate of incorporation (for companies)
Second step
After receiving the loan application form, Siddeswari Branch sends a letter to Bangladesh Bank for obtaining a report from there. This report is called CIB (Credit Information Bureau) Report. This report is essential for giving loans and advances. The purpose of this report is to being informed that whether the borrower has taken loan from any other bank or not if ‘yes’, then whether these loans are classified or not.
Third step
After receiving CIB report if the Bank thinks that the prospective borrower will be a good borrower, then the bank will scrutinize the documents. In this stage, the branch will analyze the information in order to come to a decision about whether it would be desirable for the bank to disburse the loan. Using the financial statements, a financial analysis is carried out using the bank’s own format which is done on MS Excel. This format was developed by the bank’s own personnel when operations started. This analysis procedure is called Financial Spreadsheet Analysis (FSS).
In FSS, various figures from the financial statements, usually of the last three years are inputted into the spreadsheet, and various ratios are calculated. These ratios are weighted and grouped into two parts to come out with two different scores called Y-Score and Z-Score. It uses a combination of financial ratios to produce a rating which is an indication of a company’s management ability and financial strength The Y-Score and Z-Score give an indication of whether the loan should be disbursed or not. The Z-Score is used for public ltd or government owned manufacturing companies. If the Z-Score is under 3 it means further investigations are warranted and if it is less than 1.81 it indicates inherent weakness is present. The Y-Score is used for all Borrowers. If under 12 it indicates that an unusual degree of risk is indicated and thus there should be heavy reliance on security.
It is important to look at the trend in the ratios over the years. For example if the Y-Score is 15 in one year, 13 the next year and 12 the next year, this should be taken as a sign that the business’s performance is deteriorating and care should be taken about approving the loan to such an applicant.
The ratios are not all that is analyzed. The Cash flow Statement is also carefully analyzed. What is looked for in the cash flow statement includes whether there is regular positive cash flow in the business, and what type of investments have been made by the business, and how often, and whether these support the type of information provided by the customer about his activities.
Fourth step
Lending Risk Analysis (LRA) is a technique by which the risk of the credit is calculated. Experienced people of General Advance Department do this analysis. It is a ranking whose total score are 140. Among this score, 120 is for Total Business Risk and 20 for Total Security Risk. It is a four-scale rating. In case of business risk, if the score falls:
Table Business risk of UBL
| In between 13-19, then | Good risk |
| In between 20-26, then | Acceptable risk |
| In between 27-34, then | Marginal risk |
| Over 34, then | Poor risk |
Source: From interview with the officer of credit department of Uttara Bank Limited.
In case of security risk, if the score fall:
Table Security risk of UBL
| In between -20 to -15, then | Good risk |
| In between -14 to 0, then | Acceptable risk |
| In between 0 to 10, then | Marginal risk |
| Over 10, then | Poor risk |
Source: From interview with the officer of credit department of Uttara Bank Limited.
In LRA bankers analyze eight risks such as
1. Supplies risk and sells risk 2. Industry risk
3. Performance risk 4. Resilience risk
5. Management competence risk 6. Management integrity risk
7. Company risk and Security control risk 8. Security risk
Fifth step
Fifth step is processing stage and in this stage, the Bank will prepare a proposal. Branch incumbent (L/O) has the discretionary power to sanction loan (SOD) up to Tk.50 Lac against financial obligations by informing Corporate Office. But in that case, the Branch Manager has to give attention to the following matters: prepare a proposal for the Head of Credit and Operations (with his recommendation) for his consideration and approval giving information such as the type of credit facility being considered, security, conditions applicable, reporting requirements, purpose, other banks giving loan to the applicant, source of repayment, environmental considerations, financial performance of the customer, risks and mitigating factors and recommendation of the branch manager. Each of the above factors is examined in more detail below.
Type of Credit Facility Being Considered
This section will give details on:
Figure Type of Credit Facility
Source: Annual report of Bank Asia Limited, Year 2009.
Security Being Taken From Credit
This section details the various types of security to be taken from the customer.
Conditions of Credit
This section will state various conditions that have to be met before the loan will be allowed which are referred to as ‘conditions precedent’. They generally state the various types of documentation that have to be provided by the borrower before availing of the loan such as a resolution of the Board of Directors and specific security documents of specific value such as DP Note, Letter of Continuity, Corporate Letter of Guarantee, etc.
Also stated are the general conditions which have to be met by the borrower in order to avail of the loan which are more or less standardized for all customers, but one or two conditions may be waived depending upon the relationship with customers and their creditworthiness.
The general conditions are stated below:
Facilities to be availed for specified purpose only
Any material and adverse conditions will immediately cause acceleration of all payments to the Bank
The credit facilities are granted under and subject to the conditions and limitations set out and specified by the Bangladesh Bank and other regulatory authorities in Bangladesh
Inter company borrowing and lending should not take place without the prior approval of the Bank
No mergers and acquisitions to take place without the prior approval of the Bank
All Government levies, excise duties, etc. on the facilities will be paid by the Borrower. In addition all legal and other fees, costs and expenses incurred in connection with the facility and securities as referred to herein, are for the account of the Borrower and shall be paid by the Borrower on demand.
Reporting Requirement
This section states various reports that the customer is required to submit to the Bank on a periodic basis such as quarterly statement of inventory and aged receivables, audited financial statements (and where appropriate a consolidated group position). It also details what the disbursing branch should review/do on a periodic basis such as inspect stocks, review borrower’s financials, obtain annual CIB report on the Borrower and obtain large loan approval for credit facilities in excess of 15% of the bank’s paid up capital.
Purchase (Adequacy of) Facilities
This section gives information on why the applicant is asking for the particular facilities, the type of credit it is and maximum validity.
Banking Relationship
This section gives information on the various banks that have given credit facilities to that particular customer, the type of facilities given by each, the amount outstanding from each, and the tenor and repayment dates of each.
Source of Repayment
Here, information on the primary, secondary and tertiary sources of repayment of the loans is given. An example:
Primary: Operational cash flow from operations of the Company
Secondary: Operational cash flow from other Group Companies
Tertiary: Sale Proceeds of the Companies self-liquidating short term assets
Assessment of Securities
Here, comments are made about the securities to be taken eg. First Registered over all existing and future current assets of the Borrower on the basis with other lenders with the Register of Joint Stock Companies, RJSC; Notice of the charges filed with RJSC to be verified independently by a search report.
Environmental Consideration
What is stated here is whether the proposed project for which loan is required poses any threats to the environment or not.
General Financial Comments
Comments are made on the profitability and Balance Sheets of the business, specifically on sales, gross profit margins and why the profitability is changing, the inventory turnover days, the receivables turnover days, the tangible net worth, leverage, etc. Specific ratios are given with a comment about acceptability of ratios. Critical ratios mentioned include current ratio, quick ratio, asset ratio and debt service coverage ratio.
Future Prospects
Scope for future profitability and business plans are mentioned briefly.
Critical Risk and Mitigating Factors
Various risks to the applicant’s business are analyzed here and how the company plans to tackle those risks is also mentioned. Examples of risk analyzed are competition and devaluation risk.
Recommendation
Whether credit should be given or not is mentioned here with reasons. Examples of reasons include experienced management, growth and profitability potential of business, repayment track record and past earnings from the applicant.
Total Credit (OD) To the Connection
Shows total debits and credits into the account of the applicant in the past.
Credit disbursement &
monitoring of UBL
CREDIT DISBURSEMENT
After verifying all the documents, the branch disburses the loan to the borrower. The loan officer disburses the loan to the borrower’s loan account. A “Loan Repayment Schedule” is also prepared by the branch and is given to borrower.
FIRST step
After the disbursement of the loan the bank follows the borrower in the following manner
· Constant supervision.
· Working Capital assessment.
· Stock report.
· Break Even analysis
· Rescheduling of repayment.
second step
The loans are repaid in installment. This installment is according to bank directives. Some loans are repaid all at a time. If any loan is not repaid then notices are served to the customer. Sometimes legal actions are also taken for recover the loan.
Credit Planning at different level
Credit Planning implies estimating first the total lend able resources that are likely to be available within the given period and then allocating the same amongst various alternative uses in conformity with the national plan and priorities.
Necessity of credit planning in context
Demand for Credit is much more than its supply
Providing credit at right person at right time at right quantity
Getting maximum output as a result of credit allocation
Ensuring the best alternative investment opportunities
Achieving declared objectives such as providing credit to priority sectors
Methodology of preparing Credit Budgets at Bank’s Different level
At Branch Level:
Determination of the requirements of incremental creditable funds.
Allocation of the said funds to different sectors and client groups during the budget period.
Analysis of the command area.
Adherence to the policy guidelines of the Corporate Office and the supplementary policy guidelines of the Regional Office.
At Regional Level:
Analysis and settlement of the branch credit plan in a branch managers meeting and in a democratic way.
Transmission of the Regional Credit plan to the Corporate Office
At Bangladesh Bank Level:
Adherence to the policy guidelines of the Central Bank regarding development of credits.
Correction of the regional as well as sectored imbalances if any Settlement of the credit plans of the concerned bank for the budget year.
The Procedure for Credit Classification & Provisioning
For Classification purposes credits have been categorized under four heads. These are:
Figure 6-1: Credit classification of UBL
Source: Credit Manuals of Uttara Bank Limited, Year 2009.
Continuous Credit
The credit, which has no particular repayment schedule, but contains date of expiry, credit limit etc. will be termed as continuous credit e.g. CC, OD etc.
Demand Credit
The credit, which is considered repayable, only after the banks claim it will be termed as Demand Credit. If contingent or any other liability is converted to Compulsory Credit or Forced Credit then it will be termed as Demand Credit.
Fixed Term Credit
The Credit, which is repayable within a particular period of time as per repayment schedule, will be termed as Fixed Credit.
Short Term Agriculture and Micro Credit
Those credit which are enlisted, as short tem credit under the annual agricultural credit program of the Bangladesh Bank will be termed as agro Credit. It will also include credit extended to agriculture sector and repayable with in a period nit exceeding 12 months. The short-tem Micro-Credit will be that which will not exceed an amount of taka 10,000 and will be repayable within a period not exceeding 12 months.
Basis for Credit Classification
A) OBJECTIVE CRITERIA
Any agricultural credit will be tuned into irregular credit just after it is not repaid/ rescheduled within the prescribed time period. If the aforesaid credit lies irregular for three months and above but below six months then the credit will be classified as Sub-Standard, if it lies irregular for 6 months and more but less than 12 months then the credit will be classified as bad credit.
When demand credit is left un-recovered for 3 months an above but less than 6 months form the date of the credit is clamed or from the date of compulsory credit creation, then the credit will be classified as Sub –Standard, it is i.e. irregular for 6 months and More but less than 12 months then it will be Doubtful and if it remains un-recovered for more than 12 months and above then it will be classified as Bad credit.
In case of fixed term Credit if any installment is left un-recovered with in the scheduled date, the amount falling due on account of Un-recovered installment will be classified as “Overdue Installment”.
i) Fixed Term Credit which is repayable within a maximum period of 5 years in that case
If the amount of Overdue Installment equals or exceeds the amount repayable with in 6 months then such credit will be classified as Sub-Standard.
If the amount of Overdue Installment equals or exceeds the amount repayable within 12 months then such credit will classified as doubtful.
If the amount of Overdue Installment equals or exceeds the amount repayable within 18 months than such credit will be classified as ‘Bad Credit”
(ii) Fixed Term Credit, which is, repay able after 5 years in that case
If the amount of Overdue Installment equals or exceeds the amount repayable within 12 months then such credit will be classified as Sub-Standard.
If the amount of Overdue Installment equals or exceeds the amount repayable within 18 months then such credit will classified as doubtful.
If the amount of Overdue Installment equals or exceeds the amount repayable within 24 months than such credit will be classified as ‘Bad Credit”
Clarification– If any Fixed Term Credit is repayable in monthly installment then the amount of recoverable installment will be equal to the sum of 6 installments (monthly). Similarly, in case of quarterly repayable installment total amount repayable within 6 months will be equal to the amount of the total of two quarterly installments.
(i) Short Term Agriculture and Micro-credit will be termed as irregular credit if it is not recovered within the scheduled date as per the contract of the credit. After exceeding 12 months as irregular credit it will be classified as substandard, after exceeding 36 months it will be doubtful and after exceeding 60 months it will be bad.
(ii) Qualitative Judgment– Whether any conditions credit or Demand Credit or fixed term credit are classifiable or not on the
Treated as final classification and before any subsequent inspection is conducted by Bangladesh Bank the credit will not attain any merit of declassification.
Accounting Procedure of Interest of Classified Loan
Credit basis of objective criterion but if there is any doubt or uncertainty as regards their recovery then the credit will be classified on the Qualitative Judgment.
If the recovery of the credit becomes uncertain resulting from change of circumstances under which credit was extended or the borrower sustains loss of capital or the value of the security decreases or any adverse situation arises then the credit will be classified on the basis o