A WORKING REPORT ON CREDIT OPERATION & MANAGEMENT OF

PRIME BANK LTD

by

Fatima Prodhan
ID # 0710011

An Internship Report Presented in Partial Fulfillment

of the Requirements for the Degree
Bachelor of Business Administration

INDEPENDENT UNIVERSITY, BANGLADESH

April 2011

A WORKING REPORT ON CREDIT OPERATION & MANAGEMENT OF

PRIME BANK LTD

by

Fatima Prodhan
ID # 0710011

has been approved

April, 2011

Ms. Sylvana Maheen Ahmed

Lecturer
School of Business
Independent University, Bangladesh

LETTER OF TRANSMITTAL
21 April, 2011

To
Ms. Sylvana Maheen Ahmed
Lecturer,
Independent University, Bangladesh

Subject: Submission of Internship Report.

Dear Madam,

With due respect I am very please to enclose herewith the internship report on Credit Operation
and Management of Prime Bank LTD. I have tried my best to prepare a good report with
providing all of my effort and to cover all aspects regarding the matter. I think that the report
contains the information that you need to get an idea about Credit Operation and Management of
Prime Bank Ltd.

I, therefore, hope that you would be kind enough to accept my internship report and oblige there
by.

Sincerely Yours,

Fatima Prodhan
ID # 0710011

ACKNOWLEDGEMENT

First of all I would like to pay all my sincere gratitude to the creator of this universe Almighty
Allah for giving me the required patience, energy and little bit knowledge to prepare this report.

I am also very much grateful to my supervisor Ms. Sylvana Maheen Ahmed for her tips
containing prime guideline regarding the preparing the report successfully.

I am very much grateful to the authority of Prime Bank Limited for assigning me as an internee
in this reputed bank and having the opportunity to learn theoretical as well as practical
knowledge related to overall banking system and complete such an ambitious study for my
internship program as well as for preparation of this report.

I am grateful to all concerned persons who provided valuable guidance, suggestions and advices
in collecting information, analyzing and preparing the report. I am particularly indebted to them
whose efforts and cordial cooperation made the report possible.

Finally I would like to thank bank staffs for providing information and additional elements.

Executive Summary
PRIME BANK is a bank with a difference incorporated as a public limited company on 17th
April 1995 under the company acts 1994. Prime Bank limited is a full service commercial bank
with local and international institutes. Prime bank has been striving to provide best-in-the-class
services to its diverse range of customers spread across the country under an on-line banking
platform. I have worked one of the major departments of this bank.
The main objectives of this study are to give a brife idea about credit operation and management
of Prime Bank and explain my duties and responsibilities in Prime Bank over this three months.
For collection of data for this report I have used both primary and secondary sources. I had
collected data from personal observation and informal discussion with the employees of Prime
Bank Narayanganj Branch, relevant books, newspapers etc. PBL annual report, 2008 2009,
published documents, office circular.
In this report chapter one is about introduction of PBL and the objectives of this report. Chapter
two is talked about the policy of credit operation and management of PBL. Third chapter is about
my responsibilities and duties in PBL and the last chapter is conclusion.
During analysis of data I have noticed some positive and negative aspects of Prime Bank Ltd.
like strong manpower, branch network, work environment problems, administrative problem and
technological problem.
After observing over these three months in Prime Bank Ltd. I can say that if PBL centralize their
monitoring system it could be more active to maintain classified loan to a minimum level. PBL
should open more new exchange houses abroad for enhancing remittance business. PBL should
arrange job rotation in branch level to get overall banking knowledge for their employee.

Table of Content
Letter of Transmittal
Acknowledgement
Executive summary
Pg No.
Chapter 1: Introduction
1.1 Introduction

..... 1

1.2 Objective of the Report

... 2

1.3 Data Collection ... .2

1.4 Limitations of the Report ........ 2

Chapter 2: Credit Operation & Management

2.1 Credit.... 3
2.2 Credit Operation....... 3
2.3 Credit Management...... 3
2.4 Background of Credit Operation & Management of Prime Bank.... 4
2.4.1 Credit Operation & Management of Prime Bank4
2.4.2 CREDIT RISK MANAGEMENT OF PRIME ......4
2.4.3 CREDIT POLICY OF PRIME BANK LIMITED......... 5
2.4.4 Types of CREDIT OF PRIME BANK....... 5
22.5 Steps in the Lending Process.... 6
2.6 Creditworthiness of the Borrower.... 7
2.6.1 Computation of CRG... 8
2.7 Structure of the Loan Agreement... 10
2.8 DOCUMENTATION OF LOAN AGREEMENT........11
2.9 Information About the loan Customers.....14
2.10 Mechanism of Credit Distribution of the Prime Bank...14
2.11 Disbursement.....15
2.12 Loan Classification-Provisioning...15
2.13 Recovery Policy of the Prime Bank...16
2.14 Conclusion.........16

Chapter 3: Working Experience

3.1 Introduction...17
3.2 General Banking Division.17
3.3 Cash Section..18
3.4 Credit Division...18
3.5 Findings..19
3.6 Recommendations.20
3.7 Conclusion.20

References
Appendix

A Working Report on Credit Operation & Management of Prime Bank Ltd

Chapter 1
1.0 Introduction
1.1 Introduction
Prime Bank Limited was incorporated as a scheduled Bank under the Companies Act 1994,
initiated its operation on April 17,1995 with target to play the vital role on the socio-economic
development of the country (Prime Bank, n.d.). It availed its registration as a Banking
company under the Banking Company Act, 1993 from the Bangladesh Bank dated February 12,
1995. PBL focuses on a wide range of financial products and services, which include
commercial banking through both Conventional and Islamic mode, Merchant and Investment
Banking, SME & Retail banking, Credit Card and off-shore banking. It plays leading role in
Syndicated Financing. It has expertise in corporate credit and trade finance and made extensive
market penetration with continuous growth in corporate, Commercial and Trade Finance sectors.
It has a fully owned exchange house at Singapore focusing on remittance inflow to Bangladesh
(Prime Bank, n.d.). The vision of Prime Bank Limited is to be the best private commercial
bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management
and profitability having strong liquidity. The chairman of Prime Bank is Mr. Azam J.
Chowdhury. The Prime Bank Group has a large and well distributed branch network of 94 fully
fledged branches and 39 Booths in Bangladesh with a strong tradition of service excellence.
Prime Bank Narayanganj Branch has stablished at 15th March 1998 and the manager of the
branch is MD. Farhad Ahmad Khan(Senior Assistant Vice President & Head of Branch). Prime
Bank offers a number of products and services. The Deposit Schemes are Contributory Savings
Scheme, Monthly Benefit Deposit Scheme, Education Savings Scheme, Fixed Deposit Scheme,
Short Term Deposit, Lakhopati Deposit Scheme, Double Benefit Deposit Scheme, House
Building Deposit Scheme, Prime Millionaire Scheme. Loan Schemes are General Loan Scheme,
Consumer Credit Scheme, Personal Loans, Lease Finance, Hire Purchase, Small and Medium
Enterprise (SME). Other Services of PBL are On-line Banking, Information Technology in
Banking Operation, SWIFT Service and Western Union Money Transfer (Prime Bank, n.d.).

Prime Bank Limited

A Working Report on Credit Operation & Management of Prime Bank Ltd

1.2 Objectives of the Study

The main objectives of this study are:

To give a brief idea about credit operation and management of Prime Bank.

To explain my duties and responsibilities in Prime Bank.

1.3 Data Collection

Data were collected from both primary and secondary sources. Primary data were collected from
personal observation and informal discussion with the employees of Prime Bank Narayanganj
Branch. Secondary data were collected from relevant books, newspapers etc. PBL annual report,
2008 2009, published documents, office circular.

1.4 Limitations
Some limitations were faced while conducting this study. The limitations were - The employees in Prime Bank Limited are so much busy in their responsible fields; they
could hardly provide little time to discuss with them.
Another limitation of this report is Banks policy of not disclosing some data and
information for obvious reason, which could be very much useful.
Actually to cover whole credit operation and management of PBL it needs more time. As
I had only three month I tried to cover the basic things only.

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A Working Report on Credit Operation & Management of Prime Bank Ltd

Chapter 2
2.0 Credit Operation & Management
2.1 Credit
The word credit comes from the Latin word Credo meaning I believe. It is a lenders trust in a
persons/firms or companys ability or potential ability and intention to repay. The fundamental
nature of credit is that an element of trust exists between buyer and seller-whether of goods or
money. In other words credit is the ability to command the goods or services of another in return
for a promise to pay such goods or services in some specified time in the future (Investorwords,
n.d.).

2.2 Credit Operation

Bank is a financial intermediary whose prime function is to move scarce resources in the form of
credit from savers to those who borrow for consumption and investment. The main use of bank
fund is to collect money from surplus unit and lend it to deficit economic unit as credit. A banks
main earning source is interests on different credits. In order to ensure the effectiveness and
efficiency of utilization of bank fund in the form of credit, the bank has to carry out a certain
course of action that is known as credit operation (Wikipedia, n.d.).

2.3 Credit Management

Credit Management is a dynamic field in banking industry where a certain standard of longrange planning is needed to allocate the fund in diverse field and to minimize the risk and
maximize the return on the invested fund. While sanctioning of credit undergoes some steps like
collecting of related documents and information with duly filled-up credit application form,
scrutinizing, investigation, preparation of proposal, sanctioning, pre-disbursement compliance,
disbursement, supervision, monitoring. Credit Management deals with all this process. Effective
credit administration can ensure good recovery of loan and advances and good yield. (Wikipedia,
n.d.).

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A Working Report on Credit Operation & Management of Prime Bank Ltd

2.4 Background of Credit Operation & Management of Prime Bank

This chapter will give a brief idea about the credit operation and management of Prime Bank
Limited. Credit operation means to give loans and advances to the customers who have the
ability to repay the loan. Credit management means the process of giving loans, assessment the
credit worthiness of the customer and the actions taken by the bank when the customer defaults
to repay the loans. Credit operation and management is a huge issue and it covers a big area of
banking operation. The focus of this study is limited to the basic things of the credit management
of PBL due to time constrain.

2.4.1 Credit Operation & Management of Prime Bank

Prime has been established with the objective of providing efficient and innovative banking
services to the people of all sections of our society. Towards attainment of its goals and
objectives, the bank pursues diversified credit policies and strategic planning in credit
management. To name a few, the bank has extended micro credit, consumers durable scheme
loans, house building loans etc. to cater to the needs of the individuals, which turn has helped
thousands of families. The bank also extends loan in the form of trade finance, industrial finance,
and project finance, export & import finance etc (PBL, 2005 November. Credit Risk
Management Policy).

2.4.2 CREDIT RISK MANAGEMENT OF PRIME

This is one of the major risks that can be described as potential loss arising from the failure of a
counter party to perform as per contractual agreement with Prime Bank. A separate corporate
division has been formed at Head Office, which is entrusted with the duties of maintaining
effective relationship with the customer, marketing of credit products, exploring new business
opportunities etc. The Prime Bank has segregated the functions of credit approval,
administration, monitoring and recovery by forming three separate units within Credit Division.
In determining the credit limit, the instructions of Bangladesh Bank are strictly followed. Internal
audit conducted on periodic interval to ensure compliance of Banks and Regulatory policies.
Class of Loans is made as per Bangladesh Bank guidelines (PBL, 2005 November. Credit Risk
Management Policy).

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A Working Report on Credit Operation & Management of Prime Bank Ltd

2.4.3 CREDIT POLICY OF PRIME BANK LIMITED

The credit policy pursed by Bangladesh Bank is to be aimed at ensuring development of scare
Bank resources in the best possible manner for increasing production, employment and Real
income within its objective and justice need for containing money supply within a safe limit
(informal discussion):
Take deposit from surplus unit and give loans to the deficit unit with higher interest rate to earn
profit. (personal letter, February 15, 2011).
Prime Bank takes the policies, which help the development of several sectors of the country
under general credit division. For achieving the proposed goals of the principles of development
of a number of sectors such as Agricultural, Economical, Industrial and Trade the bank follow
the guidelines of Bangladesh Bank; this is the credit policy of Prime Bank. This policy is
changeable. If Bangladesh Bank resists providing credit in any sector Prime Bank does not
provide any credit in those sectors(PBL, 2005 November. Credit Risk Management Policy).

2.4.4 Types of CREDIT OF PRIME BANK

Portfolio management of credit implies the deployment of loan able fund among alternative
opportunities through proper allocation. Credit portfolio of the Bank consists of Trade financing,
Project Loans for new projects and existing projects, Working Capital financing and Small Scale
Industries financing. Besides, the Bank is financing the need of individual borrowers under
Consumer Credit scheme. Loans and advances have preliminary been divided into two major
groups:
1) Fixed Term Loan: These are the loans made by the Bank with fixed repayment schedule.
Fixed term loans are categorized into 3 based upon its tenure which is defined as follows:
Short Term

: Upto 12 months

Medium Term : More than 12 and up to 36 months

Long Term

: More than 36 months

2. Continuing Loan: These are loans having no fixed repayment schedule, but have an expiry
date at which it is renewable on satisfactory performance of the customer.

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A Working Report on Credit Operation & Management of Prime Bank Ltd

a. Lease Financing: This facility is given to the business enterprises to meet up midterm and
long term fund requirements. These facilities are usually provided to acquire capital machinery.
However, Loan facility may be allowed for some other purposes such as factory construction etc.
b. Back-to-Back L/C: This facility is given to the exporter to procure raw materials from local
and overseas sources for execution of export L/C. Since L/C is opened backed by another master
L/C, this type of L/C is termed as Back to Back L/C.
c. Packing Credit: This facility is given to the exporter for payment of wages, salaries, freight
and other factory overhead expenses during execution of an Export L/C.
d. L/C (Sight) / Deferred Payment L/C: This facility is given to the importer to procure raw
materials or capital machinery from local and overseas sources for trading or manufacturing
purpose (PBL, 2005 November. Credit Risk Management Policy).
e. LTR: This facility is given to the importer to retire of shipping documents against import of
raw materials or capital machinery. This facility is given for the short time usually for 90-120
days for commercial purpose and maximum 180 days for industrial purpose.
f. CC (H)/ CC (P)/ OD (General)/SOD (Work Order): This facility is given to the business
enterprises to meet up working capital requirements. It may be for commercial purpose or
manufacturing purpose.
g. IDBP/IBP/FBP/FDBP: This facility is given to the exporter to meet up short term fund
requirements. Bank purchases the bill. This facility is also for the short time maximum 180 days.
h. House Building Loan (Commercial): Banks provide this facility to construct building for
commercial purposes (PBL, 2005 November. Credit Risk Management Policy).

2.5 Steps in the Lending Process

Once a customer decides to request a loan, an interview with a loan officer usually follows right
away, giving the customer the opportunity to explain his or her credit needs. That interview is
particularly important because it provides an opportunity for the banks loan officer to assess the
customers character and sincerity of purpose. The approval process must reinforce the
segregation of Relationship Management/Marketing from the approving authority.
The responsibility for preparing the Credit Application should rest with the RM within the
corporate/commercial banking department. Credit Applications should be recommended for

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A Working Report on Credit Operation & Management of Prime Bank Ltd

approval by the RM team and forwarded to the approval team within CRM and approved by
individual executives. Banks may wish to establish various thresholds, above which, the
recommendation of the Head of Corporate/Commercial Banking is required prior to onward
recommendation to CRM for approval. In addition, banks may wish to establish regional credit
centers within the approval team to handle routine approvals. Executives in head office CRM
should approve all large loans. The recommending or approving executives should take
responsibility for and be held accountable for their recommendations or approval. Delegation of
approval limits should be such that all proposals where the facilities are up to 15% of the banks
capital should be approved at the CRM level, facilities up to 25% of capital should be approved
by CEO/MD, with proposals in excess of 25% of capital to be approved by the EC/Board only
after recommendation of CRM, Corporate Banking and MD/CEO (PBL, 2005 November. Credit
Risk Management Policy).

Credit Planning or customer

decides to request a loan

Portfolio Management
of Credit

Preliminary Screening
of a Credit Proposal

Analysing of Financial &

Pricing of Loan

Selection of Borrower

Credit Risk Grading

(CRG)

Proposal sending to
CBD

Sanction letter
prepared by CRM

Supervision- MonitoringRecovery of Credit

Loan Disbursement

Loan documentation
and sending checklist
for DA

Cash Flow of the Customer

Fig: Steps in the Lending Process

2.6 Creditworthiness of the Borrower

The question that must be dealt with before any other is whether or not the customer can service
the loan-that is, pay out the credit when due, with a comfortable margin for error. This usually
involves a detailed study of six Cs of the loan application- character, capacity, cash, collateral,

Prime Bank Limited

A Working Report on Credit Operation & Management of Prime Bank Ltd

conditions, and control. All must be satisfactory for the loan to be a good one from the lenders
point of view.

Character: Market reputation, morality, family background and promptness in repayment.

Capacity: Ability to manage the business, ability to employ the fund in the right way, ability to
overcome unforeseen problems.
Capital: Equity strength, assets and properties.
Collateral: The easy marketability of the property given security.
Conditions: The loan officer and credit analyst must be aware of recent trends in the borrowers
line of work or industry and how changing economic conditions might affect the loan.
Control: The last factor in assessing a borrowers creditworthy status is control which centers
on such questions as whether changes in law and regulation could adversely affect the borrower
and whether the loan request meets the banks and the regulatory authorities primes for loan
quality.
As this six Cs analysis is now a traditional method there is another method to understand the
creditworthiness of the customer called Credit Risk Grading (CRG) (Mishkin, F. S. (2008). The
economic money, banking, financial markets. Pearson Addison Wesley).

2.6.1 Computation of CRG

Step 1: Identify all the Principal Risk Components
Step 2: Allocate weightages to Principal Risk Components
Step 3: Establish the Key Parameters
Step 4: Assign weightages to each of the key parameters.
Step 5: Input data to arrive at the score on the key parameters
Step 6: Arrive at the Credit Risk Grading based on total score obtained

An example of CRG of Prime Bank Ltd. Has been attached in the appendix.

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A Working Report on Credit Operation & Management of Prime Bank Ltd

Principal Risk Components

Key Parameters:

Weight:

Financial Risk........ 50%

Leverage

15%

Liquidity

15%

Profitability

15%

Coverage

5%

Business/Industry Risk18%
Size of Business

5%

Age of Business

3%

Business Outlook

3%

Industry growth

3%

Market Competition

2%

Entry/Exit Barriers

2%

Management Risk ...12%

Experience

5%

Succession

4%

Team Work

3%

Security Risk.....10%
Security coverage

4%

Collateral coverage

4%

Support

2%

Relationship Risk......10%

Account conduct

5%

Utilization of limit

2%

Compliance of covenants

2%

Personal deposit

1%

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10

No. Risk Grading

Short Name

SUP

Superior

Score

100% Cash Covered, Government Guarantee and

Intl Bank Guarantee

Good

GD

85+

Acceptable

ACCPT

75-84

Marginal/Watchlist

MG/WL

65-74

Special Mention

SM

55-64

Sub-standard

SS

45-54

Doubtful

DF

35-44

Bad

BL

Below 35

(PBL, 2005 November. Credit Risk Management Policy).

2.7 Structure of the Loan Agreement

The six Cs of credit aid the loan officer and bank credit analyst in answering the board question.
Is the borrower creditworthy? Once that question is answered, however, a second issue must be
faced: can the proposed loan agreement be structured and documented to satisfy the needs of
both borrower and bank?
A properly structured loan agreement must also protect the bank and those it represents
principally its depositors and stockholders- by imposing certain restrictions on the borrowers
activities then these activities could threaten the recovery of bank funds. The process of
recovering the banks funds- when and where the bank can take action to get its funds returned
also must be carefully spelled out in a loan agreement (PBL, 2005 November. Credit Risk
Management Policy).
2.7.1 Securities:
Security means anything that is deposited by borrower to secure the loan or advance. Security
may be of the following types:

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11

Primary security: Primary security is the one for which the advance is made and the security
has been deposited by the borrower. For example, in case of House Building loan, primary
security is the land & building.
Collateral security: Collateral security is the one for which the advance has not been made but
the security has been deposited by the borrower. For example, in case of House Building loan,
primary security is the land & building. Collateral security may be post dated cheque, FDR etc.
2.7.2 Margin:
Definition of Margin varies from situation to situation. In case of security, Margin means the
value of the securities and the amount up to which the borrower can draw. For example, value of
security is Tk. 100/- and amount of the advance is Tk. 50/-. The margin is Tk. 50/- or 50% of the
security.
In case of Purchase, Margin means the equity participation.
The percentage of margin to be kept differs from one security to another because of: Price
fluctuation, Marketability, Depreciation, Possible loss such as fire, burglary etc (PBL, 2005
November. Credit Risk Management Policy).
2.7.3 METHODS FOR CREATING CHARGE OVER SECURITIES:
Charge: Charge means right of payment out of certain property.
Types of Charge:
Fixed Charge: It is a charge on property which is fixed in nature, e.g., charge on land &
building.
Floating Charge: It is a charge on property which is constantly changing, e.g., charge on stock.
Pari passu Charge (Latin: with equal step): It is a charge on property which gives equal rights
to all the lenders on the property. No first charge or second charge.
Second Charge: It is a second time charge on charged property.

2.7.4 Charging of securities:

Charging of securities means the manner by which some articles or commodities or properties
are made available to a banker as security is known as charging of securities.

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12

Second Mortgage: It is the mortgage of mortgaged property by the mortgagor to another person
as security for further borrowing.
Sub Mortgage: It is the mortgage of mortgaged property by the mortgagee to another person as
security for further borrowing (PBL, 2005 November. Credit Risk Management Policy).

2.8 DOCUMENTATION OF LOAN AGREEMENT

Section 3 of Evidence Act, 1872 states: Documentation means any matter expressed or described
upon any substance by means of letters, figures or marks or by more than one of those means
intended to be used for the purpose of recording that matter. Simply, documents mean any
written record which serves as evidence in respect of transaction. Depending on three factors,
such as Legal status of the borrower, Type of the securities and Type of loan, necessary
documents are obtained.
2.8.1 Charge Documents: Following charge documents are compulsory while giving loans.
2.8.2 Letter of guarantee: This is a document given by the proprietor, directors or the third
party in favor of the principal debtor. The beneficiary of this document is the bank. Surety is
bound to pay the guaranteed amount if such situation arises.
2.8.3 Counter guarantee: This is a document given by the proprietor, directors or the third
party in favor of the principal debtor. The beneficiary of this document is the bank. Surety is
bound to pay the guaranteed amount if such situation arises.
2.8.4 Letter of authority: By this letter, the principal debtor gives the authority to the bank to
debit the current account or investment account of the principal debtor for the following cases:
I. Wages of the go-down keeper and go-down guard.
II. Rent of the go-down.
III. Insurance premium and
IV. Any other expenses regarding these functions.
2.8.5 Letter of recall the loan: This letter is given to the bank by the borrower, giving the bank
the right of recalling the loan amount at any time if the borrower fails to repay any one of the
installments and the borrower cannot protest such recalling.

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13

2.8.6 Letter of continuity: By this letter, the borrower agrees that the promissory note given by
the bank will act as security for the repayment of the ultimate balance or sum remaining unpaid
on account of the overdraft or advance.
2.8.7 Letter of revival: By this letter, the borrower agrees that he will be liable to bank for
payment of the promissory note with interest in respect of all present and future indebtedness
liabilities secured thereby which promissory note is to remain in force with all relative securities,
agreements and obligations.
2.8.8 Joint promissory note: This promissory note is given to the bank by the borrower if the
borrowers are more than one person.
2.8.9 Single promissory note: The borrower to the bank gives this promissory note if the
borrower is a single person.
2.8.10 Letter of undertaking:

This document is given to the banker by the borrower

acknowledging the right to cancel the facility at any time with or without intimation to the
borrower.
2.8.11 Loan disbursement letter: By this letter, the borrower request to disburse the loan
sanctioned in his favor by the bank. All the persons, in whose names the account is opened,
should sign the letter.
2.8.12 Charge over bonds or of shares etc: It is a document given by the borrower to the
banker declaring that the stocks, shares, debentures, securities and investments which are now
deposited to the bank and which may from time to time be deposited by the borrower shall stand
charged and hypothecated to bank as security for the payment to bank on demand of the balance
of the loan amount and of any other indebtedness and liability to the bank of any kind whether
mature or accruing and whether incurred alone or jointly with others and whether as principal or
surety including all interest document, commission, expenses, charges and costs incurred by the
bank in relation any such indebtedness or liability.
2.8.13 Letter of lien against fixed deposit receipt: By this letter, the borrower gives the right
to the bank to hold the Fixed Deposit Receipt (FDR) if the borrower fails to repay or adjust the
loan on demand or discharge the liabilities to bank. In this letter, FDR number, issuing branch,
name of the favoring person and amount are writer.

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2.8.14 Letter of authority to en-cash FDR: By this letter, the borrower gives the right to bank
to encash the FDR in case of need. Here the amount and address of the bank of issue and the
signature of the holders are given.
2.8.15 Memorandum of deposit of title deeds: It is a deed that is necessary in case of
mortgage by deposit of title deed or equitable mortgage. Here the mortgagor agrees that he has
deposited necessary documents of the property to the bank.
Hypothecation of goods to secure a demand cash credit or overdraft or loan account: Here the
amount of loan, interest, and the name of the borrowers are written. Here the bank and the
borrowers agree on the following terms: Security, Balance due to the Bank, Surplus, Borrowers
not to the encumber or parts of the goods, Inspection, Sale, Margin, Repayment, Sale of goods,
Deficiency, Insurance, Statement of account, Continuing security, Saving, Change of borrowers
and notices, Interest rate.
2.8.16 Guarantee by third party: Sometimes third party guarantee is needed for allowing loan.

Here third party gives the guarantee that of the principal debtor fails to repay the loan, and then
the guarantor will be bound to repay the loan to bank.
2.8.17 Hypothecation of vehicle:This document is necessary in case of transport loan. Here the
borrower hypothecated the vehicle to the bank. In case of failure of repay the loan, bank will sell
the vehicle to collect the money (PBL, 2005 November. Credit Risk Management Policy).

2.9 Information About the loan Customers

The bank relies principally on outside information to assess the character, financial position, and
collateral of a loan customer. Such an analysis begins with a review of information supplied by
the borrower in the loan application. The bank may contact other lenders to determine their
experiences with this customer regarding the following information:

Were all scheduled payments in previous loan agreements made on time?

Were deposit balances kept at high enough levels?

How much was borrowed previously and how well were those earlier loans handled?

Is there any evidence of slow or delinquent payments?

Has the customer ever declared bankruptcy?

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A Working Report on Credit Operation & Management of Prime Bank Ltd

2.9.1 Sources of Information about the Loan customers:

Physical Investigations

Customer financial statements

Experience of other lenders with this customer

Customer Annual Report

Local or regional credit bureaus

Local Newspapers

Local chamber of commerce.

2.10 Mechanism of Credit Distribution of the Prime Bank

The primary factor determining the quality of the banks credit portfolio is the ability of each
borrower to honor, on a timely basis. The authorizing credit personnel prior to credit approval
must accurately determine this. If the report of the project appraisal is very satisfactory to
approve the loan proposal, then the following steps furnish the approval procedure:

Make a proposal by the client to the bank

Give all the necessary documents.

Bank will send the parties statement to the Bangladesh Bank, their CIB (Credit
Information Bureau) will inquiry that whether this party is defaulter or a new one.

Bank will take the collateral from the party and analysis that how much it will cover the
total loans.

Bank will send this proposal to the head office. In the head office the Board of Directors
and Managing Director will approve the loan.

Head Office will send the approval to the branch office.

2.11 Disbursement:
After completing all the necessary steps for sanctioning loans bank will create a loan account by
the name of the party and deposit the money to that account. Bank will give cheque books to the
party and advice them to draw the money and use it as soon as possible, because whenever the

Prime Bank Limited

16

A Working Report on Credit Operation & Management of Prime Bank Ltd

money will transfer to the account interest will count from that time (PBL, 2005 November.
Credit Risk Management Policy).

2.12 Loan Classification-Provisioning

a. Classification: Classification of loan is mandatory for all scheduled commercial bank. It has
been observed that sometimes bank income is being calculated by showing the unrealistic
expected income. Loans are classified into 3 categories on the basis of the length of overdue.
These are
SMA: If the loan remains overdue for 3 months and above
Substandard: If the loan remains overdue for 6 months and above
Doubtful: If the loan remains overdue for 9 months and above
Bad or Loss: If the loans remain overdue for 12 months and above

b. Provisioning: To get real picture of the income, provisioning is made as under- 1% for all loans
- 5% for SMA
- 20% for Substandard loans
- 50% for Doubtful loans
- 100% for Bad loans

2.13 Recovery Policy of the Prime Bank

First of all PBL try to recover all loans and advances regularly. If any installment over due PBL
officers make phone calls to the customers and if it is overdue for two months they personally go
to customers mailing address. In the basis of overdue installments PBL categorize provision. In
case of SMA loans determined to have high probability of recovery within 6 months; recovery
efforts to continue on an on-going basis. In case of substandard loans determined to have
moderate probability of recovery within 1 year; review recovery efforts on a 3 months basis. For
doubtful loans it determined to have moderate probability of recovery within 1 year; review
recovery efforts on a 3 months basis. Loans determined to have low and remote probability of

Prime Bank Limited

17

A Working Report on Credit Operation & Management of Prime Bank Ltd

recovery; review case on a 6 months basis. Lastly for those loans have virtually no chance of
recovery: charge-off the books. However in these situations proper approval from the appropriate
approving authorities should be obtained and also shall be guided by Bangladesh Bank
instructions and subject to complete analysis of: Banking practice, Legal and tax implication and
Status of each individual credit (PBL, 2005 November. Credit Risk Management Policy).

2.14 Conclusion
Prime Bank Limited celebrates its 12th anniversary on 17th April 2007 (started its operation in
1995). Within this tangible period, the Bank is now graded as the top ranking Bank in the
country and it hold top position in CAMEL rating published by Bangladesh Bank in 2005. Credit
Management System of PBL is successful. This success lies on its selection of good borrower
and close credit monitoring system which reflects on its profitability.
Credit is an utmost important factor for a Bank and core income generating source as well as it is
involved with risk. So, decision regarding credit is very important in all respect of the Bank. PBL
has proper credit management policies that describes what type of loans protect the Banks
soundness and also help to meet the needs of the communities the Bank serves.
PBL should capitalize its present successful credit management system and try to give better
service to its stakeholders in days to come which can ensure its sustainable growth and
development.

Prime Bank Limited

A Working Report on Credit Operation & Management of Prime Bank Ltd

18

Chapter 3
3.0 Working Experience
3.1 Introduction
The BBA program is designed to focus on theoretical and professional development of people
open to take up business as a profession as well as service as a career. The course is designed
with an excellent combination of theoretical and practical aspects. This internship provides the
students to link up their theoretical knowledge into practical fields. In this connection, I was
assigned to Prime Bank Ltd. Narayangonj Branch credit operation for my practical orientation.
This chapter will give a brief idea about my duties and responsibilities over the three month in
Prime Bank Ltd Narayanganj Branch. From the first day of my joining in Prime bank I have
given some responsibilities. At first I started from the general banking and after that I was shifted
to different departments. Through this internship program I have gathered practical knowledge
about the corporate world.

3.2 General Banking Division

General banking is the starting point of all the banking operations. General banking is the frontside banking service department. It deals with those customers who come frequently and those
customers who come one time in banking for enjoying ancillary services. In some general
banking activities, there is no relation between banker and customers who will take only one
service from bank. It opens new accounts, remit funds, issues bank drafts and pay orders etc.

3.2.1 Account Opening

Prime Bank Ltd opens Savings, STD, Current and different deposit accounts. To open this
accounts they have account opening forms for each accounts. For Savings, STD and Current
accounts the form required detail information about the customer. My duty was to help the
customers to fill up the form. If the customer was not able to fill up the form I had to fill it on the
behalf of them.

Prime Bank Limited

A Working Report on Credit Operation & Management of Prime Bank Ltd

19

3.2.2 Issue Pay Orders and Demand Drafts

To issue pay orders and demand drafts first I have to receive the application form from the
applicant. Then I have to write the date, amount and the name to which these pay orders and DD
are issued on the block. In case of DD I have to write down the branch code and the branch name
to which these DD will be issue. I have also written the date, amount and commission on the DD
register in case of demand draft. Then I have to collect two signatures from two authorized
officer on the DD block. The general banking officer ensures the applicant deposit the amount
and after that I give the issued pay order or demand draft to the applicant with a signature on the
block.

3.2.3 Cheque Books and ATM cards

In the morning when the MICR check books come from the head office I have to sort out them
by the first character of the names. When the customers come to get their cheque book or ATM
card it was my responsibility to give them their check books or ATM card by taking their
signature in the received file.

3.2.4 Giving Information

When the customers come it was my responsibility to give them the proper information about the
deposit accounts. Like if a customer wants to open a savings account the required documents and
number of photos.

3.2.5 Daily Expenditure Voucher

It was my responsibility to write down the daily expenditure voucher of Prime Bank Limited like
local convince, refreshment, cash remittance account etc.

3.3 Cash Section

Cash section demonstrates liquidity strength of a bank. It is also sensitive as it deals with liquid
money. Maximum concentration is given while working on this section. As far as safety is
concerned special precaution is also taken. Tense situation prevails if there is any imbalance in
the cash account. For the safety reason I have no duties in the cash section.

Prime Bank Limited

A Working Report on Credit Operation & Management of Prime Bank Ltd

20

3.4 Credit Division

As the credit division of Prime Bank Limited is fully based on software system there was a little
scope for me to work. I have filled up some part of the retail loan form like the personal
information of the customer. I have to observe the proposals and documentation of different
types of credit.

3.5 Findings
While doing my Internship Program I could find some positive and negative aspect faced by the
customers. Those are:

1. Positive Aspect:
Strong manpower: The Bank has strong management system. As a result bank got skilled
employee and the all work properly.
Online Service: Now Bank has an online service in all their branches that also have a strong
network. Now client can transaction easily whichever branch they want within Bangladesh.
Through the online service client also can transfer their fund in all over the Bangladesh.
Branch network: Now presently Bank has almost 64 branches in all over Bangladesh, which is
a very impact for a bank to growing faster and increase reserve fund.

2. Negative Aspect:
Customer related problems: the Bank has no segmentation to handle different types of
customer. They are equally treating of all the customers to provided service. But high status
clients seek on extra honor from Bank or instituted.
Work Environment Problems: The work environment is noisy and full of crowd sometimes. It
is bad for any financial organization and also bad for security. There is no sitting arrangement for
a large number of people.
Administrative problem: the procedure to open an account is full of fast and regulations .But
compare to other Bank, Prime Bank is not as flexible as they are doing to open A/C or attract
customer.

Prime Bank Limited

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A Working Report on Credit Operation & Management of Prime Bank Ltd

Technological problem: The branches only one photocopy machine which is sometimes in
clients death. The output of this machine is not ensuring the quality of original documents. So it
is an image problem of the Bank. The most important problem is that most of the time clients
come with the problem that they punch their ATM card on the machine and it deduct money
from their account but they do not get any money. When they come to the bank they fill up a
form after that they get back their money in their account from the head office.
Product related problem: Compare to other Bank Prime Bank offer low interest rate to
depositor. So, they are not interested to keep their money in low rate of interest. The PBL
management is only hunting to ward low cost and no cost deposit.

Prime Bank Limited

A Working Report on Credit Operation & Management of Prime Bank Ltd

22

Chapter 4
4.0 Conclusion & Recommendations

4.1 Conclusion
Prime Bank is an emerging bank. The bank has only completed almost 15 years of banking
services. At the initial stage of business, every institution has to go through the difficult path of
survival. The main objectives of this study are to give a brief idea about credit operation and
management of Prime Bank and explain my duties and responsibilities in Prime Bank over this
three months. I have noticed some positive and negative aspects of Prime Bank Ltd. like strong
manpower, branch network, work environment problems, administrative problem and
technological problem. The bank should redesign all sorts of banking procedures to be more
user-friendly, attractive and impressive.

4.2 Recommendations
Considering the findings and analysis in the earlier chapters, PBL can do the following for
further growth and development:
Central monitoring system should be more active to maintain classified loan to a
minimum level.
PBL should establish ATM Booth countrywide as soon as possible.
PBL should open more new exchange houses abroad for enhancing remittance business.
PBL should reduce hierarchy of management to retain its employee.
PBL should give more emphasis on HR development that is vital for its overall success.
PBL should arrange job rotation in branch level to get overall banking knowledge for
their employee.

Prime Bank Limited

References
1. Prime Bank, (n.d.) The Bank
<https://www.primebank.com.bd/ the_bank.jsp> (5 February 2011)
2. Investorwords,( n.d.) Credit
<http://www.investorwords.com/> (6 February 2011)
3. Wikipedia, (n.d.) Credit Operation
<http://en.wikipedia.org/wiki/> ( 6 February 2011)
4. Wikipedia, (n.d.) Credit Operation
<http://en.wikipedia.org/wiki/> ( 6 February 2011)
5. PBL, 2005 November. Credit Risk Management Policy. Credit Operation and Management,
38-47.
6. Mishkin, F. S. (2008). The economic money, banking, financial markets. Pearson Addison
Wesley
7. http://www.iub.edu.bd/
8. Annual Report of PBL 2008 & 2009.

Appendix

Prime Bank Limited

Narayanganj Branch

Credit Risk Grading Model

Score Summary
Reference No.: Prime/NGJ/CR/
Name of the Borrower
Key Person
Group Name (if any)
Branch:
Industry
Sector
Date of Financials
Originated by (RO/SRO)
Completed by (RM/SRM)
Approved by (CO/SCO)

06.10.2010
Compact-O-Style Ltd.
Mr. X
N/A
Narayanganj
RMG
RMG
31.12.2009
Mr. A
Mr. B
Mr. C

Numeric Grade

Credit Risk Grading Model

Grade

Superior

2
3
4
5
6
7
8

Good
Acceptable
Marginal/Watchlist
Special Mention
Substandard
Doubtful
Bad/Loss

Aggregate Score:

75.50

Risk Grading:

Acceptable
]

Score
Fully cash covered, secured by
Bank
SUP Government/International
Guarantee
85+
GD
75-84
ACCPT
65-74
MG/WL
55-64
SM
45-54
SS
35-44
DF
BL
<35
Short

Score Calculation Sheet (Considering 31.12.2009)

Criteria
A. Financial Risk
A-1 Leverage
A-1.1 Debt-Equity (x) - Times

Weight
50%
10%
5%

Total Liabilities to Tangible Net worth

A-1.2 Debt-Total Asset (x)- Times

5%

Total Liability to Total Assets

A-2 Liquidity
A-2.1Current Ratio (x) -Times

10%
5%

Current Assets to Current Liabilities

A-2.2 Quick Ratio (x) -Times

5%

Quick Assets to Current Liabilities

A-3 Profitability
A-3.1 Operating Profit Margin (%)

(Operating Profit/Sales) X 100

Credit Risk Grading Model

Parameter

< 0.25 x
0.26 to
0.36 to
0.51 to
0.76 to
1.26 to
2.01 to
2.51 to
> 2.75
< 0.25
0.26 to
0.36 to
0.51 to
0.76 to
1.26 to
2.01 to
2.51 to
> 2.75

0.35
0.50
0.75
1.25
2.00
2.50
2.75

x
x
x
x
x
x
x

0.35
0.50
0.75
1.25
2.00
2.50
2.75

x
x
x
x
x
x
x

Score

Actual Parameter

Score
Obtained

5.00
4.50
4.25
4.00
3.50
3.25
3.00
2.50
0.00
5.00
4.50
4.25
4.00
3.50
3.25
3.00
2.50
0.00

0.60

0.37

4.25

> 2.74
2.50 to 2.74 x
2.00 to 2.49 x
1.50 to 1.99 x
1.10 to 1.49 x
0.90 to 1.09 x
0.80 to 0.89 x
0.70 to 0.79 x
< 0.70
> 2.00
1.75 to 2.00 x
1.50 to 1.74 x
1.25 to 1.49 x
1.00 to 1.24 x
0.75 to 0.99 x
0.50 to 0.74 x
0.25 to 0.49 x
Less than 0.25

5.00
4.50
4.25
4.00
3.50
3.25
3.00
2.50
0.00
5.00
4.50
4.25
4.00
3.50
3.25
3.00
2.00
0.00

1.71

0.71

> 25%
23% to 25%
20% to 22%
17% to 19%
14% to 16%
11% to 13%
8% to 10%
< 8%

5.00
4.50
4.00
3.50
3.25
3.00
2.50
0.00

11.12%

20%
5%

Criteria
A-3.2 Net Profit Margin (%)

Weight
5%

(Net Profit/Sales) X 100

A-3.3 Retrun on Asset

5%

(Net Profit/Total Asset) X 100

A-3.4 Return on Equity

5%

(Net Profit/Total Equity) X 100

A-4 Coverage
A-4.1 Interest Coverage () - Times

10%
5%

Earning before interest & tax (EBIT)

Interest on debt
A-4.2 Debt Service Coverage

5%

EBITDA/(Total Interest+CMLTD)

Parameter
> 15.00%
13% to 15%
11% to 12%
9% to 10%
7% to 8%
5% to 6%
3% to 4%
< 3%
> 30%
26% to 30%
22% to 25%
18% to 21%
14% to 17%
8% to 13%
5% to 7%
< 5%
> 15.00%
13% to 15%
11% to 12%
9% to 10%
7% to 8%
5% to 6%
2% to 4%
< 2%
> 2.00
1.51 to
1.25 to
1.00 to
< 1.00
> 2.00
1.51 to
1.25 to
1.00 to
< 1.00

18%
4%

Size of the borrower's business

measured by the most recent year's
total sales. Preferably audited numbers.

B-2 Age of Business

Number of years the borrower is
engaged in the primary line of business
B-3 Business Outlook
Critical assesment of medium term
prospects of industry, market share and
economic factors.

Credit Risk Grading Model

3%

2%

Actual Parameter

5.00
4.50
4.00
3.50
3.25
3.00
2.50
0.00
5.00
4.50
4.00
3.50
3.25
3.00
2.50
0.00
5.00
4.50
4.00
3.50
3.25
3.00
2.00
0.00

11.12%

Score
Obtained
4

17.59%

3.25

28.15%

5.00
4.00
3.00
2.00
0.00
5.00
4.00
3.00
2.00
0.00
50.00

3.00

3.00

> 60.00

4.00

5.06

30.00 59.99

3.50

11

Favorable

2.00
1.50
1.24

2.00
1.50
1.24

Total Score- Financial Risk

B. Business/ Industry Risk
B-1 Size of Business (in BDT crore)

Score

10.00 29.99

3.00

5.00 - 9.99

2.00

2.50 - 4.99

1.00

< 2.50

0.00

> 10 Years
6 - 10 Years

3.00
2.00

2 - 5 Years

1.00

< 2 Years

0.00

Favorable

2.00

Stable

1.50

Slightly Uncertain

1.00

Cause for Concern

0.00

40.50

Criteria
B-4 Raw Material Availability

B-5 Industry Growth

B-6 Market Competition

2%

3%

2%

Consider market share, demand supply

gap etc.
B-7 Entry/Exit Barrier

Score

Actual Parameter

Score
Obtained

Locally available

2.00

Locally available

Partially import dependent

1.00

Good (>5% - 10%)

Moderately Competitive

Difficult

Weight

2%

(Technology, capital, regulation etc)

Parameter

Fully import dependent

0.50

Scarce

0.00

Strong (10%+)

3.00

Good (>5% - 10%)

2.00

Moderate (1%-5%)

1.00

No Growth (<1%)

0.00

Dominant Player

2.00

Moderately Competitive

1.00

Highly Competitive

0.00

Difficult

2.00

Average

1.00

Easy

0.00

Total Score- Business Risk

C. Management Risk
C-1 Experience

18.00

12%
5

Total length of experience of the senior

management in the related line of
business.
C-2 Trackrecord

Reputation, commitment, trackrecrod of

onwers in business.

C-3 Second Line/Succession

C-4 Team Work

Total Score- Management Risk

Credit Risk Grading Model

14.00

More than 10 years

5.00

610 years

3.00

15 years

2.00

No experience

0.00

Very Good

2.00

Moderate

1.00

Poor

0.50

Marginal

0.00

Ready Succession

3.00

Succession within 1-2 years

2.00

Succession within 2-3 years

1.00

Succession in question

0.00

Very Good

2.00

Moderate

1.00

Poor

0.50

Regular Conflict

0.00
12.00

15 years

Very Good

Ready Succession

Very Good

9.00

Criteria

Weight

D. Security Risk

Score

Actual Parameter

Fully covered by underlying

assets/substantially
cash
covered

Simple hypothecation /
Negative lien on assets

Registered Hypothecation (1st

Charge/Pari passu Charge)

2nd charge/Inferior charge

No collateral

Personal Guarantee
with high net worth or
Strong Corporate
Guarantee

10%

D-1 Security Coverage (Primary)

4%

Simple
hypothecation
Negative lien on assets

No security
D-2 Collateral Coverage (Property
Location)

D-3 Support (Guarantee)

4%

2%

R/M
on
corporation/Prime
property

Municipal
Area

R/M on Pourashava/SemiUrban area property

E/M or No property but other

Plant
&
Machinery
as
collateral

Negative lien on collateral

No collateral

Personal Guarantee with high

net
worth
or
Strong
Corporate Guarantee

Personal
Guarantees
or
Corporate Guarantee with
average financial strength

No support/guarantee

0
10

10%

E-2 Utilization of Limit

(actual/projection)-Consider
revolving & non-revolving limits.

Criteria
E-3 Compliance of Covenants

E-4 Personal Deposits

Total Score- Relationship Risk

Grand Total - All Risk

1
0

Total Score- Security Risk

E. Relationship Risk
E-1 Account Conduct

10%
5%

2%
both

Weight
2%

1%

More than 3 years Accounts

with faultless record

5.00

Less than 3 years Accounts

with faultless record
Accounts having satisfactory
dealings with some late
payments.
Frequent
Past
dues
&
Irregular dealings in account

4.00

More than 80%

61% - 80%
40% - 60%
Less than 40%

More than 3 years

Accounts with faultless
record

2.00
1.50
1.00
0.00

90.00%

Score

Actual Parameter

Full Compliance

2.00

Full Compliance

Some Non-Compliance

1.00

Parameter

2.00

0.00

No Compliance

0.00

Personal accounts of the key

business Sponsors/ Principals
are maintained in the bank,
with significant deposits
No depository relationship

1.00

No
depository
relationship

Score
Obtained
2

0.00
10.00

9.00

100.00

75.50

Note: All calculations should be based on annual financial statements of the borrower (audited preferred).

Credit Risk Grading Model

Score
Obtained

Parameter