1.

1 Introduction:
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 word credit is derived from the Latin word
credere, which means to trust. The fundamental nature of credit is that an
element of trust exists between buyer and seller-whether of goods or money.
In a modern industrial society Banks are uniquely important because of their
ability to create money. Lending comprises a very large portion of a Banks
total assets and forms the backbone of the Bank and interest on lending
constitutes the highest proportion of income of a Bank. As such credit quality
remains the prime indicator of its commercial success. Unsound credit
reduces the ability of a Bank to provide credit towards profitable borrowers
and undermine liquidity and solvency. Therefore lending is very important for
the profitability and success of a Bank.
This report on Credit Management of NCC Bank Limited -A case study on
National Credit and Commerce Bank Limited (NCCBL), Anderkilla Branch is a
collaborated representation of the internship program at which is a partial
requirement of the Master of Business Administration (MBA) Program of
International Islamic University Chittagong. The Purpose of the report is to
contemplate the knowledge and experience accumulated from the internship
program. Modern banks play an important part in promoting economic
development of a country. Banks provide necessary funds for executing
various programs of economic development. They collect savings of large
masses of people scattered throughout the country, which in the absence of
banks would have remained idle and unproductive. These scattered amounts
are collected, pooled together and made available to commerce and industry
for meeting the requirements. Economy of Bangladesh is developing
economies. One of the reasons may be its underdeveloped banking system.
So Government as well as different international organizations have also

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identified some obstacles to the process of economic development. So they

have highly recommended for reforming financial sector.

1.2 Objectives of the study:

The main objective of the study is to analyze the Credit management of
National Credit And Commerce Bank Limited (NCCBL), Anderkilla Branch,
Chittagong.
The following are the specific objectives of the study:
1. To Know about the rules & regulations of credit management of a
bank
2. To discuss about the credit management of the sample bank.
3. To analyze the financial performance of credit management of the
sample branch.
4. To find out problems and to give some suggestions to overcome the
problems

1.3 Methodology:
The methodology of this report is totally different from conventional reports. I
have emphasized on the practical observation. Almost the entire report
consists of my practical observation. While preparing the report, I have taken
information from the following sources:
Primary sources of data

Practical Deskwork
Conversation with the bank
personnel.
Face to face conversation with
the clients.

Secondary sources of data

Manuals of NCCBL
Annual

report

of

NCC

Bank

Limited.
Credit manual of NCC Bank Ltd.

Various

books,

articles,

compilation etc
Various documents from the

2 | Page

Branch
Website of NCC Bank Limited

1.4 Scope:
This study is based on theoretical and practical analysis. However the scope
of the study is confined within the region of Anderkilla Branch, Chittagong.
The study will focus on the following areas ---

The kinds of credit facilities extended by National Credit And

Commerce Bank Limited (NCCBL).

General Procedure for getting different kinds of credit facilities.

How different kinds of projects are appraised at National Credit And

Commerce Bank Limited (NCCBL).

Present Scenario of Credit Policy.

Each of the above areas is critically analyzed in order to determine the

efficiency of National Credit And Commerce Bank Limited (NCCBL),
Anderkilla Branch.

1.5 Limitations:
In the bank I attained some limitations though I tried my level best to make the
report more informative & representative:

Time limitation is the main barrier for the study.

For the lack of our practical knowledge, some shortcoming may be

available in the report.

Bank is a busy organization with comparison to others. So it is very

much tough for them to allocate time for an internee.

It is mentioned that I had no opportunity to deal with those banking

activities deeply. I just observed what the bankers were doing & how.
3 | Page

Unavailability of sufficient written documents a required for making

comprehensive.

The bank has normally shown us some indifference connecting its

most confidential information.

My personal limitations also contributed greatly in making the study.

2.1 History:
National Credit and Commerce Bank Ltd. is as a private bank in Bangladesh.
It is facilitating real time online banking connecting all 87 branches
nationwide. Like other banks it is also practicing liability & investment
management.
The National Credit and Commerce bank Ltd. registered in 1993 under the
Companies Act 1913. This bank came into existence as an investment
company named National Credit Ltd. on 25/11/1985. The aim of the company
was to initiative taken by the members of the Board of directors and with the
permission of the central Bank, it was converted in to fully fledged private
commercial bank in the name of National Credit and Commerce Bank Ltd. on
17/05/1993 with paid up capital of Tk. 39.00 crore and authorized capital of
Tk.75 crore which opened the way to serve the nation from a broader
platform. It carries out all banking activities through 87 branches in
Bangladesh. The bank is listed with Dhaka Stock Exchange Limited and
Chittagong Stock Exchange Limited since the year 2000 as a publicly quoted
company for its shared. NCCBL has acquired commendable reputation by
providing sincere personalized service to its customers in a technology based
environment.

2.2 Corporate Mission of NCCBL:

To mobilize financial resources from within and abroad to contribute to
Agriculture's, Industry & Socio-economic development of the country and to
play a catalytic role in the formation of capital market.
4 | Page

2.3 Corporate Vision of NCCBL:

To become the Bank of choice in serving the Nation as a progressive and
Socially Responsible financial institution by bringing credit & commerce
together for profit and sustainable growth.

2.4 Corporate Information:

01.

NAME

National Credit and Commerce Bank Ltd. (NCCBL)

02.

STATUS

Private Limited Company

03.

SLOGAN

Where credit & commerce integrates..

04.

REGISTRATION

17th May ,1993

05.

Head Office

7-8 Motijhell C/A, Dhaka-1000

06.

ENLISTMENT IN DSE &

Year 2000

CSE
08.

MARKET CATEGORY

09.

Authorized capital

Tk. 10000 million

10.

Paid up capital

Tk. 5942 million

11.

Total No. of SECURITIES

594.165435 million

12

RESERVE & SURPLUS

476.723217 million

13.

Chairman

Alhaj Md. Nurun Newaz

14.

Managing Director

Mohammed Nurul Amin

15.

BOARD OF DIRECTORS

16.

BRANCH

87 branches all over the country Up to 2012

17.

EMPLOYEES

2000 above

26 Members

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18.

Website

www.nccbank.com.bd

2.5 Slogan of NCCBL:

Where

credit

&

commerce

integrates..
Social service products

2.6 Products & Services:

There are various types of products and services provided by NCC bank as
shown bellow

Lendin

International

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Busin

Detailed Products & Services NCC Bank Ltd.:

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2.7 Financial Highlights:

PARTICULARS

2011 (Million)

2012 (Million)

Authorized Capital

5000

10000

Paid up Capital

2284.9

4501.25

Reserve fund & Other Reserve

4371.62

5771

Equity Fund

6656.52

10272

Deposit

53900

67971

Loans & Advance

50388

63230

Investments

9672

10980

Import Business

33078

41245

Export Business

11904

16125

Operating Income

9333

10158

Operating Expenses

6195

6058

Operating Profit

3137

4100.2

Profit Before Tax

2687

3248.23

Profit After Tax

1720

2371.68

Retained Earning

46.47

388

Total Assets(Excluding contra)

65937

83554

Fixed Assets

849

1191.41

Number of Branches

65

79

Number of Employees

1496

1622

Earnings Per Share

7.53

5.33

Dividend: cash (%)

Nill

Nill

Dividend: Bonus (%)

47

32

Return on Equity (ROE) (%)

29

25.35

Return on Assets (ROA) (%)

2.61

2.84

Capital Adequacy Ratio

13.55

10.91

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Advance/Deposit Ratio (%)

93.48%

2.8 SWOT Analysis:

93.04%

SWOT stands for Strength, Weakness,

Opportunity and Threat. The SWOT of NCCBL has been shown in the next...
Internal factors
Strength

Weaknesses

Wide Banking services through 87 branches

Young Enthusiastic workforce

Strong Management team

Online Banking Services

Existence of strict and standard Foreign

Lack of trained and highly educated

officers.

Absence of modern equipment in banking

needs.

exchange department.

Experienced manpower in abroad in foreign

Lack of proper media presence.

Lack of proper advertisement of the

products

exchange department

Strong financial position

Various Products

Cordial relation with customers

Well Decorated Branches

24 hour ATM Booth service

Some officials are having attitude problem

at workspace.

External factors
Opportunities

Threats

Country wide Network

More Experienced and Managerial Know-

Govt. policies are not in favor of the

private banks.

How

Up Coming Bank

Debit Cards

Moderate levels of Customer Satisfaction

Can recruit fresh graduates and train them

Effects of the World Economic Slums

to bring up a team of talented officers.

Better service offer of others

Can take initiative for introducing Islamic

Threat from Non bank banking

Banking system.

Can

reduce

manpower

through

computerized system

9 | Page

3.1 Credit:
Credit is a contractual agreement in which a borrower receives something of
value now and agrees to repay with agreed terms. Credit risk, the possibility
of nonrepayment of credit amount, arises from the banks dealing with or
lending to corporate, individuals and other banks or financial institutions.

3.2 Credit management:

Credit management is the process of planning, forecasting, deciding, granting
& collecting the loans granted as well as formulating proper procedures to
minimize risk arising from loan. Credit risk management is the vital of most
commercial bank. Increase in credit risk will raise the managerial cost of debt
and equity which in turn increase the cost of fund of the loan.

3.3 Objectives of Credit management:

To provide the directional guidelines

Improve risk management culture

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Establish risk minimum standards

Segregation of duties and responsibilities
Assist the improvement of banking sector

3.4 Policy on Capital Adequacy of Banks:

To adopt the international best practices and to make the bank's capital more
risk-absorbent as well as to build the banking industry more shock resistant
and stable, all scheduled banks are obligated to comply with "Guidelines on
Risk Based Capital Adequacy (RBCA) for Banks Revised Regulatory
Framework in line with BASELII from January 01, 2010.
These guidelines have been structured on following three aspects:
Minimum capital requirement has been defined and to be maintained by a
bank on solo basis as well as consolidated basis against RWA for credit,
market, and operational risks.
Process for assessing the overall capital adequacy aligned with
comprehensive risk management of a bank.
Framework of public disclosure on the position of a bank's risk profiles,
capital adequacy, and risk management system.

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The following headings containing specific instructions are issued for

compliance by banks:

3.4.1 Definition of Capital:

Regulatory capital is categorized in three tiers:
A. Tier 1 capital called Core Capital comprises of highest quality of capital
elements:
a) Paid up capital
b) Non-repayable share premium account
c) Statutory reserve
d) General reserve
e) Retained earnings
f) Minority interest in subsidiaries
g) Non-cumulative irredeemable preference shares
h) Dividend equalization account
B. Tier 2 capital called Supplementary Capital represents other elements
which fall short of some of the characteristics of the core capital but contribute
to the overall strength of a bank:

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a) General provision
b) Revaluation reserves
Revaluation reserve for fixed assets
Revaluation reserve for securities
Revaluation reserve for equity instrument
C. Tier 3 capital called Additional Supplementary Capital, consists of shortterm subordinated debt (original maturity less than or equal to five years but
greater than or equal to two years) would be solely for the purpose of meeting
a proportion of the capital requirements for market risk.
D. For foreign banks operating in Bangladesh Tier 1 capital consists of the following items:
a) Funds from head office
b) Remittable profit retained as capital
c) Any other items approved by BB for inclusion in Tier 1 capital
Tier 2 capital consists of the following items:
a) General provision
b) Borrowing from head office in foreign currency in compliance with the

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regulatory requirement.
c) Revaluation reserve for securities
d) Any other items approved by BB for inclusion in Tier 2 capital.

3.4.2 Conditions for maintaining regulatory capital:

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The calculation of Tier 1 capital, Tier 2 capital, and Tier 3 capital shall be
subject to the following conditions:

a) The amount of Tier 2 capital will be limited to 100% of the amount of Tier
1capital.

b) 50% of revaluation reserves for fixed assets and securities eligible for Tier
2 capital.

c) 10% of revaluation reserves for equity instruments eligible for Tier 2 capital.

d) Subordinated debt shall be limited to a maximum of 30% of the amount of

Tier1 capital.

e) Limitation of Tier 3: A minimum of about 28.5% of market risk needs to be

supported by Tier 1 capital. Supporting of Market Risk from Tier 3 capital shall
be limited up to maximum of 250% of a banks Tier 1 capital that is available
after meeting credit risk capital requirement.

3.4.3 Policy on Loan Classification and Provisioning

The process of gradually upgrading the policies on loan classification and
provisioning to the international level is going on. Measures have been taken
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to strengthen the credit discipline and the process of classification has been
simplified. The following revised policies on loan classification and
provisioning has been issued amending the previous circulars in this regard: 3.4.3.1 Categories of Loans:
All loans and advances will be grouped into 4(four) categories for the purpose
of classification, namelyA. Continuous Loan: The loan Accounts in which transactions may be made
within certain limit and have an expiry date for full adjustment will be treated
as Continuous Loans. Examples are: CC, OD etc.
B. Demand Loan: The loans that become repayable on demand by the bank
will be treated as Demand Loans. If any contingent or any other liabilities are
turned to forced loans (i.e. without any prior approval as regular loan) those
too will be treated as Demand Loans. Such as: Forced LIM, PAD, FBP, and
IBP etc.
C. Fixed Term Loan: The loans, which are repayable within a specific time
period under a specific repayment schedule, will be treated as Fixed Term
Loans.

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D. Short-term Agricultural Credit: This will include the short-term credits as

listed under the Annual Credit Program issued by the Agricultural Credit
Department of Bangladesh Bank. Credits in the agricultural sector repayable
within less than 12 months will also be included herein. Short term MicroCredits will include any micro-credits for less than Tk.25,000/= and repayable
within less than 12 months, be those termed in any names such as Nonagricultural credit, Self-reliant Credit, Weaver's Credit or Bank's individual
project credit.

3.4.3.2 Basis for Loan Classification:

A. Objective Criteria:
A.1. Any Continuous Loan if not repaid/renewed within the fixed expiry date
for repayment will be treated as past due/overdue from the following day of
the expiry date. This loan will be classified as Sub-standard.
A.2. In case any installment(s) or part of installment(s) of a Fixed Term Loan
is not repaid within the due date, the amount of unpaid installment(s) will be
termed as defaulted installment'-

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A.3.The Short-term Agricultural and Micro - Credit will be considered

irregular if not repaid within the due date will be classified as 'Substandard '.
A.4. All unclassified loans other than Special Mention Account (SMA) will
be treated as Standard.
A.5. A Continuous credit, Demand loan or a Term Loan which will remain
overdue for a period of 90 days or more, will be put into the "Special Mention
Account (SMA)''
B. Qualitative Judgment:
B.1. If any uncertainty or doubt arises in respect of recovery of any
Continuous Loan, Demand Loan or Fixed Term Loan, the same will have to be
classified on the basis of qualitative judgment be it classifiable or not on the
basis of objective criteria.
B.2. loan was extended or if the capital of the borrower is impaired due to
adverse conditions or if the value of the securities decreases or if the recovery
of the loan becomes uncertain due to any other unfavorable situation, the loan
will have to be classified on the basis of qualitative judgment.

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B.3. Besides, if any loan is illogically or repeatedly re-scheduled or the

norms of rescheduling are violated or instances of (propensity to) frequently
exceeding the loan-limit are noticed or legal action is lodged for recovery of
the loan or the loan is extended without the approval of the proper authority, it
will have to be classified on the basis of qualitative judgment.
B.5. The concerned bank will classify on the basis of qualitative judgment
and can declassify the loans if qualitative improvement does occur.
B.6. But if any loan is classified by the Inspection Team of Bangladesh
Bank, the same can be declassified with the approval of the Board of
Directors of the bank. However, before placing such case to the Board, the
CEO and concerned branch manager shall have to certify that the conditions
for declassification have been fulfilled.

3.4.3.3 Accounting of the interest of classified loans:

A. If any loan or advance is classified as 'Sub-standard' and 'Doubtful',
interest accrued on such loan will be credited to Interest Suspense Account,
instead of crediting the same to Income Account.

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B. As soon as any loan or advance is classified as 'Bad Debt', charging of

interest in the same account will cease. In case of filing a law-suit for recovery
of such loan, interest for the period till filing of the suit can be charged in the
loan account in order to file the same for the amount of principal plus interest.
But interest thus charged in the loan account has to be preserved in the
'Interest Suspense ' account.
C. If classified loan or part of it is recovered i.e., real deposit is effected in the
loan account, first the interest charged and not charged is to be recovered
from the said deposit and the principal to be adjusted afterwards.
D. Interest accrued on "Special Mention Account (SMA)'' will be credited to
Interest Suspense Account, instead of crediting the same to Income Account.

3.4.3.4 Maintenance of provision:

A. Banks will be required to maintain General Provision in the following way:
A.1. @ 1% against all unclassified loans (other than- (i) loans under
Consumer Financing, (ii) loans against shares etc. and (iii) Special Mention
Account.)

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A.2. @ 5% on the unclassified amount for Consumer Financing whereas it

has to be maintained @ 2% on the unclassified amount for (i) Housing
Finance and (ii) Loans for Professionals to set up business under Consumer
Financing Scheme.
A.3. @ 2% against unclassified amount of any kind of funded loan disbursed
to stock dealers enlisted with Stock Exchange, separate subsidiary company
established by a bank company for dealing business in share brokerage and
merchant banking and any other company or institution or individual for
dealing such business.
A.4. @ 5% on the outstanding amount of loans kept in the 'Special Mention
Account' after netting off the amount of Interest Suspense.

B. Banks will maintain provision at the following rates in respect of classified

Continuous, Demand and Fixed Term Loans:
Sub-standard

20%

Doubtful

50%

Bad/Loss

100%

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C. Provision in respect of Short-term Agricultural and Micro-Credits is to be

maintained at the following rates:
C.1. All credits except 'Bad/Loss'(i.e. 'Doubtful', 'Sub-standard', irregular and
regular credit account
C.2. 'Bad/Loss'

: 5%
: 100%

D. Banks are required to maintain general provision against Off-balance sheet

exposures in the following manner:
D.1. @ 0.5% provision effective from December 31, 2007 and
D.2. @ 1% provision effective from December 31, 2008.
3.4.3.5 Base for Provision:
Provision will be maintained at the above rate on the balance to be
ascertained by deducting the amount of 'Interest Suspense' and value of
eligible securities from the outstanding balance of classified accounts.
3.4.3.6 Eligible Securities:
In the definition of 'Eligible Securities' as mentioned in the above paragraph
the following securities will be included as eligible securities in determining
base for provision:

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 100% of deposit under lien against the loan,

100% of the value of government bond/savings certificate under lien,
100% of the value of guarantee given by Government or Bangladesh Bank,
100% of the market value of gold or gold ornaments pledged with the bank,
50% of the market value of easily marketable commodities kept under
control of the bank,

3.5 POLICY ON SINGLE BORROWER EXPOSURE

As a prudential measure intended for ensuring improved risk management
through restriction on credit concentration, Bangladesh Bank has from time to
time advised the scheduled banks in Bangladesh to fix limits on their large
credit exposures and their exposures to single and group borrowers.
In general, and as practiced internationally, exposure ceiling is derived from a
bank's total capital as defined under capital adequacy standards (Tier I and
Tier II Capital). Following the same practice, Bangladesh Bank issued BRPD
Circular No. 08 dated March 18, 2003, recommending uniform exposure limits
for both local and foreign banks. In order to enable the banks to improve their
credit risk management further, Bangladesh Bank has issued this circular by

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consolidating all the instructions issued so far and incorporating some

amendments to the previous circular.

3.5.1 In general case, single borrower exposure limit is 35%

A. The total outstanding financing facilities by a bank to any single person or
enterprise or organization of a group shall not at any point of time exceed
35% of the bank's total capital subject to the condition that the maximum
outstanding against fund based financing facilities (funded facilities) do not
exceed 15% of the total capital.
B. Non-funded credit facilities, e.g. letter of credit, guarantee etc. be provided
to a single large borrower. But under no circumstances, the total amount of
the funded and non-funded credit facilities shall exceed 35% of a bank's total
capital.

3.5.2 In case of export sector, single borrower exposure limit

is 50%

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In case of export sector single borrower exposure limit shall remain

unchanged at 50% of the bank's total capital. But funded facilities in case of
export credit shall also not exceed 15% of the total capital.

3.5.3 Additional prudential norms:

A. Loan sanctioned to any individual or enterprise or any organization of a
group amounting to 10% or more of a bank's total capital shall be considered
as large loan.
B. In order to determine the above maximum rates of large loans, all nonfunded credit facilities e.g. letter of credit, guarantee etc. included in the loan
shall be considered as 50% credit equivalent. However, the entire amount of
non-funded credit facilities shall be included in determining the total credit
facilities provided to an individual or enterprises or an organization of a group.
C. The banks will be able to sanction large loans as per the following limits
set against their respective classified loans:
Rate of net classified loans

The highest rate fixed for large loan

against bank's total loans & advances

Upto 5%

56%

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More than 5% but upto 10%

52%

More than 10% but upto 15%

48%

More than 15% but upto 20%

44%

More than 20%

40%

D. A public limited company, which has 50% or more public shareholdings,

shall not be considered as an enterprise/organization of any group.
E. In the cases of credit facilities provided against government guarantees
and AAA rated Multilateral Development Banks (MDBs) guarantee, the
aforementioned restrictions shall not be applicable.
F. In the cases of loans backed by cash and encashable securities (e.g.
FDR), the actual lending facilities shall be determined by deducting the
amount of such securities from the outstanding balance of the loans.
G. Banks should collect the large loan information on their borrowers form
Credit Information Bureau (CIB) of Bangladesh Bank before sanctioning,
renewing or rescheduling large loans in order to ensure that credit facilities
are not being provided to defaulters.
H. Banks must perform Lending Risk Analysis (LRA) before sanctioning or
renewing large loans. If the rating of an LRA turns out to be "marginal", a bank

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shall not sanction the large loan, but it can consider renewal of an existing
large loan taking into account other favorable, conditions and factors.
However if the result of an LRA is unsatisfactory, neither sanction nor renewal
of large loans can be considered.
I. While sanctioning or renewing of large loan, a bank should judge debt
repayment capacity taking into consideration the borrower's Cash Flow
Statement, Audited Balance Sheet, Income Statement and other financial
statements to make sure that its borrower has the ability to repay the loan.

3.6 Policy for rescheduling of Loans:

Experience shows that the existing system of loan rescheduling has created
impediments in the way of realizing defaulted loans. Specially, a tendency has
been observed among the defaulted borrowers to avail the opportunity of loan
rescheduling again and again without any definite business rationale. Some
confusions have also cropped up relating to the condition of cash deposit as
down payment for loan rescheduling. After careful and overall review of the
aforesaid problems and in suppression of all previous instructions the

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following detailed policies for rescheduling of loans are being issued for
compliance by banks:

3.6.1

Guidelines for Consideration of Loan Rescheduling

Applications:
While considering loan rescheduling application the banks shall follow the
under mentioned guidelines:
3.6.1.1 When a borrower asks for rescheduling of loans the banks shall
examine the causes as to why the loan has become non-performing. If it is
found from such review that the borrower has diverted the funds elsewhere or
the borrower is a habitual loan defaulter the bank shall not consider the
application for loan rescheduling. Instead, the bank shall take/continue all
legal steps for recovery of the loans.
3.6.1.2 At the time of considering loan rescheduling proposal bank must
assess the borrower's overall repayment capacity taking into account the
borrower's liability position with other banks.
3.6.1.3 In order to ensure whether the borrower would be able to repay the
rescheduled installments/existing liability the bank shall review the borrower's

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cash flow statement, audited balance sheet, income statement and other
financial statements.
3.6.1.4 Bank officers should ensure, if required, by spot inspection of the
borrower's company/business place, that the concerned company/business
enterprise will be able to generate surplus to repay the rescheduled liability.
Such inspection reports should be preserved by the banks.
3.6.1.5 If a bank is satisfied after due diligence mentioned above that the
borrower will be able to repay, the loan may be rescheduled. Otherwise, bank
shall take all legal steps to realize the loan, make necessary provision and
take measures to write-off.
3.6.1.6 The rescheduling shall be for a minimum reasonable period of time.
3.6.1.7 At the time of placing the rescheduling proposal before the Board of
Directors the Bank shall apprise the Board in details, what would be
implications of such loan rescheduling on the income and other areas of the
bank.

3.6.2 Rescheduling of Term Loans:

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The loans which are repayable within a specific time period under a
prescribed repayment schedule are treated as Term Loans. For rescheduling
such loans following policies shall, henceforth, be followed:
3.6.2.1 Application for first rescheduling will be considered only after cash
payment of at least 15% of the overdue installments or 10% of the total
outstanding amount of loan, whichever, is less;
3.6.2.2 Rescheduling application for the second time will be considered
after cash payment of minimum 30% of the overdue installments or 20% of
the total outstanding amount of loan, whichever, is less;
3.6.2.3 Application for rescheduling for more than two times will

be

considered after cash payment of minimum 50% of the overdue installments

or 30% of the total outstanding amount of loan, whichever is less;
3.6.2.4 Explanation: If any loan is rescheduled once before issuance of this
policy the conditions set forth in this circular for second rescheduling shall be
applicable for rescheduling of such loans. Likewise, the terms for 3rd
rescheduling as per this circular shall be applicable for rescheduling of any
loan which has already been rescheduled twice.

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3.6.3 Rescheduling of Demand and Continuous Loan:

The loans which can be transacted without any specific repayment schedule
but have an expiry date for repayment and a limit are treated as Continuous
Loan. In addition, the loans which become repayable after those are claimed
by the bank are treated as Demand Loans. If any contingent or any other
liabilities are turned to forced loan (i.e. without any prior approval as regular
loan) those also are treated as Demand Loans. For rescheduling of Demand
and Continuous Loans the rates of down payment, depending on the loan
amount, shall be as follows
Amount of Overdue Loan

Rates of Down payment

Up to Tk.1.00 (one) crore

15%

Tk. 1.00(one) crore to Tk. 5.00 (five)

10% (but not less than Tk.15.00

crore

lacs)

Tk. 5.00(five) crore and above

5% (but not less than Tk.50.00 lacs)

If any Continuous or Demand Loan is rescheduled by restructuring/converting

partly or wholly into Term Loan and repayment installments have been fixed,

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application for rescheduling such loans shall be considered on cash payment

of minimum 30% of the overdue installments or 20% of the total outstanding
amount of loan, whichever is less. For subsequent rescheduling minimum
50% of the overdue installments or 30% of the total outstanding amount of
loan amount shall have to be deposited in cash.

3.6.4 Other Terms and Conditions of Rescheduling:

The Borrowers whose credit facility has been rescheduled will get new loan
facility subject to fulfillment of the following conditions:3.6.4.1 The defaulting borrower who has availed interest waiver must settle
at least 15% of the compromise amount to avail any further credit facility from
any Bank.
3.6.4.2. In case of borrowing from other Banks, the same rule will be
applicable, i.e. the borrower will have to settle at least 15% of compromise
amount (excluding the down payment on rescheduling as per present
guidelines), then, will be allowed to take regular facility from other Banks
subject to the submission of NOC (No Objection Certificate) from the
rescheduling bank.

32 | P a g e

3.6.4.3. Export borrowers may be granted further credit facility (after being
identified as not a willful defaulter), if required, subject to settle at least 7.5%
of the compromise amount (excluding the down payment on rescheduling as
per present guidelines) being paid.
3.6.4.4. If any such issue is already there (such fresh facility has already
been allowed after allowing waiver), the same will not fall under purview of
this circular.

3.7 POLICY FOR LOAN WRITE OFF

In course of conducting credit operations by banks the quality of a portion of
their loan portfolio, in many cases, deteriorates and uncertainty arises in
realizing such loans and advances. These loans are adversely classified as
per existing rules and necessary provision has to be made against such
loans. Writing off bad loans having adequate provision is an internationally
accepted normal phenomenon in banking business. Owing to the reluctance
of banks in Bangladesh in resorting to this system their balance sheets are
becoming unnecessarily and artificially inflated. In order to avoid possible
legal complications in retaining the claims of the banks over the loans written

33 | P a g e

off section 28 ka has been incorporated in 2001 in the Bank Company Act,
1991.

3.8 Interest Rates on Deposit and Lending:

Banks in general are free to charge/fix their deposit and lending rate.
However, the maximum cap of 7% interest rate on export credit has been
fixed since January 10, 2004 by Bangladesh Bank to facilitate export
earnings. The maximum rate of interest on agriculture and term loans to
industrial sector is 13%. The maximum rate of interest on import financing of
rice, wheat, edible oil (crude and refined), pulse, gram, onions, dates and
sugar (refined & raw sugar/raw cane sugar) is in force at 12%. The key
features of interest rate on deposit and lending are as follows:
In case of Fixed Term Loan and Continuous Loan, interest will be
calculated on the basis of the product of the day end balance but interest
must be charged on quarterly basis.
Banks are allowed to charge penal interest.
The loan accounts will be repaid according to Equal Monthly Installment
(EMI) method.

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 No additional charges shall be collected along with the rate of interest/profit

on loans other than the announced Schedule of Charges.

4.1 Meaning of Bank Products:

Bank is a financial institution, which mobilizes funds from surplus unit &
allocates it to deficit unit. Surplus unit means the people who have surplus
money & willingness to save. Deficit unit means the people who need money
for industry, trade, business or for personal use but dont have sufficient
money of them for such purpose. Bank mobilizes the fund by accepting
deposits from depositor & allocates the fund by providing loan to borrower,
which is known as Bank products.
NCC Bank Ltd mobilizes the fund by introducing various products. Efficient &
effective fund mobilization depends on individual bank capacity of designing
bank products. A good number of products came out in the market that was
out of imagination. Schemes innovated like Consumer Credit Scheme,
Housing Loan, Personal Loan; SME Loan etc. attracted the general public
which helps the bank in securing more business & thereby earning greater
profit.

4.2 Loan Products Offered by the NCCBL:

Generally the clients of NCCBL enjoy two types of Loan / Credit facilities.
These are:

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Loan
Product

Funded
facility

Funded facility includes:

1) Overdraft (Limit can enjoy within
* Cash Credit (HYPO +
Mortgage)
* Cash Credit (pledge)

Nonfunded
facility

Non-funded facility includes:

1) Export L/C
2) Import L/C
3) Back to Back L/C
4) Bank Guarantee

2) Term Loan
>> Personal Term Loan:
a) Personal secured
b) Personal unsecured
c) Auto loan
d) Staff loan
e)Consumer Credit Scheme
>> Corporate Term Loan:
a) Bills under Letter of Credit
b) TR- Trust Receipt
c) FBP- Foreign Bill Purchased
d) IBP- Inland Bill Purchased
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e) Past Due Loan

Deposits are invested in Trade, Commerce & Industries in term basis i.e.,
short, medium & long term. Deposits come from business, housewives,
institutions & small income group etc. who has excess or available money. It
may be said that though banks are performing social responsibilities by
securing both small & large depositors money & also helping industrial, social
& economical development, but like others, prime objective of the institute is
maximization it profit by optimization of resources.

4.3 Loans and Advances:

Loans and Advances are the core asset of a Bank. The Bank gives emphasis
to acquire quality assets and does appropriate risk analysis while approving
commercial and trade loans to clients. In NCCBL Anderkilla branch, a big
amount of loan and advances are sanctioned every year.

4.4 Interest Rates on Lending:

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SL. No. Particulars

Mid-Rate

Cash Credit

15.00%

Term loan (large & Medium Scale)

16.00%

Working Capital (Except Jute)

15.00%

Export Credit

16.00%

Commercial Lending (cash credit, hire purchase, PAD, 15.00%

TR, IBP, etc.)

Others Credit

7.1

i) SOD against work order/ Other Bank's FDR's/ ICB 16.00%

unit certificates/ Wage Earner's Development Bonds

7.2

i i) Urban Housing Loan & Transport loan

15.00%

Staff House Building Loan

9.00%

4.5 Principles of Lending:

Banks are profit oriented organization for which a bank invests its funds in
many ways to earn income. At the same time bank runs the risk of default in
repayment. Because of this problem, banks exercise a lot of precaution while
considering loan cases. They generally consider each loan proposal from four
angles.
These are:
(1) Banks point of view
(2) Borrowers standing
(3) Proposal of loan itself, and
(4) Social point of view.
These aspects are proposed to be discussed below:
Banks point of view:

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Banks generally examine four aspects of their own before granting any loan to
any customer. These are:
A. Profitability:
Profitability is one of the most important criteria of banks rating in the stock
exchange as well. Depending on it, the share prices of the banks rise or fall in
the stock exchange. Not only has the Stock Exchange, Bangladesh Bank also
used financial profitability as one of the indicators of assessment of the banks.
Profitability also enhances the image of the banks among the members of the
public. It is an indicator of good management of the banks as well. Therefore,
banks think twice about maximizing profit before lending.
B. Liquidity:
While lending commercial banks have to take liquidity into consideration.
Liquidity is related to deposits which are the life blood of the commercial
banks. Deposits are the borrowings by the banks from the depositors
repayable on demand or after expiry of a certain period. Everyday depositors
either deposit or withdraw cash. To meet the demand for cash all the
commercial banks have to keep a certain amount of cash in their tills. In the
absence of liquidity, banks may fail to meet the customers requirements of
cash. Then the credibility is seriously affected and they may face a run i.e.
failure to meet cash demand of depositors. That is why; banks are to keep
adequate funds, i.e. liquidity to meet customers need before lending. This is
also a legal requirement.
C. Safety of Funds:
No commercial bank can afford to keep its fund idle. Because they are earn
enough money to pay interest to the depositors as well as to meet their
administrative cost. That is why they are to lend and invest their money
profitably. While doing so, banks are to be very cautious as the money of
banks is the depositors money. These are payable on demand. Unless the
money lent out is safe, the banks cannot pay depositors money back. The
banks are, therefore, required to consider the aspects of safety of the lent out
money very seriously.
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D. Diversification of Risks:
Banks, while lending, always try to keep in mind the famous maxim do not
keep all the eggs in one basket. Since there is a risk in every advance, banks
spread the risk by lending to as many borrowers as possible instead of giving
the advances to a few large borrowers. Banks thus avoid concentration of
advances to a few big firms or a few industries. They spread advances for
various purposes amongst a number of firms and business located throughout
the country.
Borrowers Standing:
Borrowing customers are very important to a bank. Before lending, a bank
thoroughly assesses the customer who approaches the banks for loan. The
banks here judge five things to know financial soundness of the borrower
which are called FIVE Cs as shown bellow
1

Character

Customers willingness to meet credit obligation

Capacity

Capacity is the ability to meet credit obligation

Condition

Condition is general economic condition of borrower

Collateral

An asset pledged in the case of default

Capital

Capital is customers financial reserve

Proposal Itself:
Not only the borrower but also the proposal of the customer is very important
to a banker. He must be satisfied about both the customer and his proposal
before processing it. Normally, a bank wants to be sure about four things in
this case:
a. Purpose of the loan
b. Security against the loan
c. Sources of repayment
d. Period for which the loan is being sought.

40 | P a g e

A bank thoroughly examines these issues and when satisfied, they process
the loan.
Social Point of View:
Commercial banks work in a society and hence they are to consider and meet
the expectations of the members of the society. Society demands that the
commercial banks should contribute to the economic wellbeing of the people.
These can be done by savings mobilization, lending money to the priority
sectors and employing the unemployed. In many countries, the government
ensures that the commercial banks perform these functions. This implies that
profitability alone is not the criteria of commercial banks operations.

4.6 Forms of Bank Credit:

4.6.1 Secured Credit And Unsecured Credit:
Bank credit may theoretically be classified broadly under two categories,
namely:
1. Secured credit

2. Unsecured credit

Secured Credit:
Secured credit means loans or advances made against security of assets, the
market value of which is not at any time less than the amount of such loans or
advances. It is called so because security can be enforced in case of default
by the borrowers.
Unsecured Credit:
An unsecured or clean credit is one, which is granted to a borrower without
obtaining any security from him. These kinds of credits may include: Clean
overdrafts or clean loans.
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4.6.2 Other Forms of Credit:

Banks classify their credit into various categories having their own features.
Each has its own utility to the customers. Generally bank credit takes the
following forms:
4.6.2.1

Loans:

A sizeable amount of the credit of the banks is in the form of loans. These are
such advances which are made on lump sum or installment basis depending
on the purpose of loans. Similarly they are also repayable generally either by
fixed installments or by lump sum having no subsequent debits to the loan
account except by way of interest and incidental charges etc. House building
loans, Agricultural credit and Different kinds of small loans etc are the
examples of loans.
1. Overdrafts (OD):
Overdrafts constitute another important segment of the credit portfolio of the
commercial banks. This kind of advance in the form of Overdraft is always
allowed on a current account to be operated upon by cheques. The customer
may be sanctioned a certain limit within which he can overdraw his current
account within drawing power and a stipulated period. Balance of the
Overdraw account may fluctuate. It may increase by withdrawals by the
customers and may decrease if payment into the account is made by the
customers.
2. Temporary Overdraft (TOD):
Customer

who

maintains

satisfactory

conducted

accounts

may

be

accommodated at specific request to overdraw their balance in the current

account to meet unexpected and urgent requirements for credit facilities. The
amount up to which overdrawing is permitted is dependent on the need of the
customer, the previous conduct of his account with the Bank and turnover in
the account, average balance maintained etc. The overdraft must not be
allowed to continue beyond 7 days from the date of sanction. In case of
purchase of cheque, the maximum period may be five months.
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3. Overdraft against Securities (SOD):

Overdraft for longer periods is normally granted against the security of
tangible assets such as pledge/lien of FDR, Bonds (sanchay patra, wage
earners development bonds, ICB unit certified etc), called secured overdraft.
4. Loan against Packaging Credit (PC) :
A credit under this head is granted to exporter to facilitate purchase of raw
material for the purpose of manufacturing and exporting finished goods. The
credit is granted after the evidence of a letter of credit or firm contract in favor
of the borrower and in exportable package
5. Cash Credit (CC):
A very important credit portfolio of the commercial banks i.e. cash credit is
generally extended to the traders, industrialists and large farmers for meeting
their working capital requirement. Cash credit is an active and running
account to which deposits and withdrawals may be made frequently. The debit
balance of the account on any day cannot exceed the agreed limit.

6. Payment Against Documents (PAD):

Another important constituent of credit portfolio of the banks is Payment
against documents (PAD). The importers are to open letter of credit through
any bank for importing goods. Most of the time, the banks are to extend credit
to the importers, if not prohibited by Bangladesh Bank, for buying required
foreign exchange. This loan, on receipt of shipping documents from the
negotiating bank, is transferred and lodged to PAD.
7. Loan Against Imported Merchandise (LIM):
In the import sector Loan against imported merchandise (LIM) is an important
credit portfolio of the commercial banks. It often happens that a bank itself has
to clear the goods imported under letter of credit at the request of the
43 | P a g e

borrowers. When the importer does not come forward to retire the documents
in spite of repeated reminders banks also have to, on forced circumstances,
clear the imported consignment on arrival of the same to avoid heavy
demurrage at the port which adds to the burden of commitment.
8. Loan against Trust Receipts (LTR):
This is an arrangement under which credit is allowed against trust receipts.
Imported or exportable goods remain in the custody of the importer or
exporter. But he is to execute a stamped Trust receipt in favor of the bank
wherein a declaration is made that the goods imported or bought with the
banks financial assistance are held by him in trust for the bank.
9. Local Bill Purchased (LBP) :
Purchasing of local bills of exchanging arising out of commercial transactions
is called foreign bill purchased
10. Foreign Bill Purchased (FBP):
Purchasing of foreign bills of exchanging arising out of commercial
transactions is called foreign bill purchased.

11. Foreign Bill Discounted:

In this case the amount of interest calculated at the ruling rate from the date
of purchase to the expected date of return remittance is deducted from the
face value of the bill while granting the advance. The interest amount so
worked out is called the Discount.
12. Local Bill Discounted:
Same as in foreign bills of this title, except that local bills are classified under
this head.
13. Other Banks Acceptance Purchase:
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An advance granted against a bill, accepted by another bank, for the

remaining period of its tenure.
14. Demand Loan (DL) :
Demand loan is a short term loans which may be called by the Bank at any
time. Usually they are made for periods of three months to one year to cover
short term funding requirements. There is no principal reduction during the
loan term, the entire balance becoming due on maturity.
15. Staff Loan (SL) :
Advance to members of staff is granted according to the policies laid down by
the Bank. Advances are allowed to members of staff who are in the Banks
permanent employment only.

4.7 Different Securities for Different Advances:

Types of Advances

Securities
Lien of various kinds of sanchay patras,

Loan

government

debentures,

fixed

deposit

receipts, Pledge of gold/gold ornaments,

Hypothecation of vehicles and Collateral of
immovable properties.

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Sanchay

patras,

Non-resident

foreign

currency deposits (NFCD), Shares &

Overdraft (OD)

Debentures,

Life

insurance

Government

promissory

policies,

notes,

Fixed

deposit receipts, Gold & Gold ornaments;

and Work order.
Overdraft against Securities (SOD)

Pledge of FDR, Bonds, ICB Unit Certificate

Cash Credits (CC)

Pledges or Hypothecation of assets are

Payment Against Documents (PAD)

installed.
Shipping documents for imports.

Loan Against Imported Merchandise (LIM)

Pledge of imported merchandise.

Loan against Trust Receipt (LTR)

Trust receipt in lieu of import documents.

Local Bills Purchased (LBP)

Bill itself.

Foreign Bills Purchased (FBP)

Shipping documents for exports.

4.8 Modes of Charging Securities:

Charge means a right to make the security available for sale in order to adjust
the loan. We know that a person other than the owner cannot sell a property.
But if a charge is created, banks can sell property of others without being
owners for realization of their dues.
Some of the modes of charges adopted by the banks are as follows:
a) Lien:

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Lien is the right of a person to hold back or retain goods belonging to another
until the claims of the possessor are met. There are two types of lien, namely:
(i) Particular lien and (ii) General lien.
Particular lien relates to only the subject goods against which advances have
been sanctioned whereas a general lien entitles a person to retain all the
goods in his possession until all claims are satisfied. There is, however,
another kind of lien which is called Negative lien. In this case banks take a
declaration from the borrowers that the assets mentioned therein will be free
from any sort of charge.
b) Hypothecation:
Hypothecation is a charge against property for an amount of debt where
neither ownership nor possession is passed to the creditor. Under
hypothecation goods remain with the borrowers. But the borrowers by an
agreement bind themselves to hand over the possession of the goods if the
banks so desire.
c) Pledge:
Pledge is the bailment of goods as security for payment of a debt or
performance of a promise. In a pledge, goods remain under the possession of
the lenders. In case of pledge, the borrower is to take the repossession of the
goods after paying off the loan within the contracted period. On the other
hand, the banks are to take usual care of the goods pledged with them.

d) Mortgage:
A mortgage is the transfer of an interest in specific immovable property like
land and building for the purpose of securing the payment of money advanced
or, to be advanced by way of loan, existing or future debt, or the performance
of an engagement which may give rise to a pecuniary liability.

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4.9 Documents Obtained While Lending:

While advancing money, banks create a lot of documents which are required
to be signed by the borrowers before disbursement of the loan. Of them some
are technically called charge documents. Among the documents frequently
used, some are:
(1) Letter of Disclaimer: This is a letter given by the owner of a godown
which has been taken on rent by a bank borrower. The owner declares that he
has or will have no interest in the stock of goods or that may be stored therein
from time to time.
(2) Memorandum of Deposit of Title Deeds: This instrument signed by the
borrower is obtained by the banks along with the deposit of title deed of house
property, land etc. The borrower through the deposit confirms, admits,
acknowledges and records that he has deposited the title deed with the
intention of creating an equitable mortgage upon the property and interest
thereon for securitization of the advances made to him.
(3) Letter of Guarantee:
In consideration of extending any loan to a party, banks obtain a letter of
guarantee from a third party. The third party undertakes by this letter of
guarantee to repay all dues by the principal debtor in case the principal fails to
pay the banks money.

(4) Letter of Continuity:

This letter along with the demand promissory note is obtained by the banks
from the borrowers in case of overdraft/cash credit. We know that debit
balances in such accounts vary frequently. In view of this letter of continuity is

48 | P a g e

obtained with a view to making the party liable to pay the ultimate balance of
the account.
(5) Letter of Arrangement:
This is the letter signed by the borrower acknowledging the right of the lending
bank to call back the loan facility at any time with or without intimation to the
borrower.
(6) Letter of Request:
Through this letter the borrowers request the banks to clear the goods from
the ports on his behalf.
(7) Letter of Installments:
A letter by the borrower confirming that he will pay off the loan by installments,
if such loan is recalled, is called a letter of installment.

4.10 Credit Information Bureau (CIB):

All banks operating in the country are required by law to furnish all kinds of
credit information to the Central Bank. For this purpose, there are various
kinds of statements and returns which are to be sent regularly (weekly,
monthly, quarterly, half-yearly and annually) to the Central Bank. In addition,
the Central Bank may ask for any time any information with regard to any area
of operation including credit and borrowers. Information so collected are
maintained, analyzed and examined by a department specially created. This
department is called the Credit Information Bureau. It works as a common
source of information with regard to the borrowers and their financial status.

4.11 Credit Policies and Guidelines Maintain by

NCCBL:
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4.11.1 Credit Client Selection

The study of a borrower is a study of his character, capacity, capital, collateral
and condition often known as the five Cs with a view to consider his credit
worthiness and eligibility for a bank investment. In order to get a complete
picture of the borrowers credit worthiness, enquiries will have to be made
about his business, trade experience assets and liabilities, etc. from various
sources. His account with the bank or other banks will throw light on his
personal habits and business dealings. His financial statements and income
tax returns will have to be seen. Probably an interview with him will be
necessary to elucidate or supplement the information that may have been
collected. It would appear that banks could be in a better position to serve the
business community and themselves, if they evolve a system by which
detailed credit reports on customers are communicated to each other.

1) Status Report:
Status reports on borrowers are sometimes called credit reports, financial
reports, bankers opinion or confidential reports. All these terms carry more or
less the same meaning. A status report is an assessment of the borrowers
character, capacity and capital from the point of view of a banker.

2) Sources:
Banks get information on borrowers through various sources enumerated
below:
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Loan application.
Market reports mostly from the borrowers trade or business.
Mode of living.
Borrowers account with the banks or statement of accounts with
other banks.
Statement of assets and liabilities.
Income tax statements.
Wealth tax statements.
Sales tax returns.
Trade and other reports in the press.
Reports about actions and decrees in Government Gazettes.
Registration, revenue and/or municipal records.
Operations by a customer on his safe custody account or locker.
Bangladesh Bank Credit Information Bureau.
Personal Contact including personal interview.

3) Personal Interview:
After having collected all the information from outside sources, it is advisable
to arrange for a personal interview with the borrower. The interview should be
conducted in a free and pleasant atmosphere. The questions must be
suggestive and helpful to put him/her at ease so that he/she gives all
information required by the bank. It is not necessary for the banker to make
any commitments in a case which requires further analysis. Enquires may be
made to verify the information given by the customer.
Points Covered in an Interview:
The main points that will be covered in an interview with the borrower are:
His business.
His capital with particular reference to his working capital.
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 His experience in the line.

Working results.
Amount of the credit and period.
Purpose of the credit.
Source of repayment.
Terms of repayment.
Security offered.
Type of charge available.

4.12 Credit Marketing:

Many people think marketing only as selling and advertising. However, selling
and advertising is only the tip of the marketing iceberg. Today, marketing must
be understood satisfying customer needs. If the marketer does a good job of
understanding consumer needs, develops product that provide superior value
and prices, distributes and promotes them effectively; these products will sell
very easily. Bank sells their services. Here service is banks product which
needs to be sold to their customers. The range of services includes:
Import/export finance;
Short-term credit;
Retail banking;
Project financing through syndication with other co-lenders;
Corresponding banking; and
Treasury services.
Each of these areas may involve credit exposure to a client or to a third party,
providing both revenues as well as risks.

4.13 Credit Pricing:

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The interest rate on lending conforms to the prevailing rates offered by other
financial institutions. At the same time, the management has to keep in mind
the following points while pricing a loan:
1.

Risk exposure (obligor and industry);

2.

Cost of funds;

3.

Term of loan (maturity);

4.

Account balances and other relationship

There is a schedule of annual interest rates for different types of credit

allowing latitude to the management than would be true under the more rigid
schedules. This is reviewed by senior management and approved by the
Board of Directors time to time.

4.14 Credit Facility Parameters:

4.14.1 Maximum Size of Loan Portfolio:
Bangladesh Bank restricts maximum lending to any single obligor or a Group
of companies up to 50% of the total capital of the Bank. But the Bank can
extend funded facilities to any single obligor or a Group of companies to the
extent of 25% of the total capital of the Bank. The total capital is determined in
accordance with Section 13 of The Banking Companies Act 1991. NCC Bank
complies with the ceiling set by Bangladesh Bank.

4.14.2 Loan Portfolio Mix:

After annual reviewing the performance of existing loan portfolio of NCCBL as
well as market prospect of different sectors of the country, the senior
management prepares the annual budget at the beginning of the year giving

53 | P a g e

guidelines for limiting exposure to different sectors and term which is

approved by the Board of Directors.
Terms of lending are determined based on the following factors:
1) Deposit mix;
2) The volatility and seasonal fluctuation of the deposit base;
3) The amount of purchased funds;
4) The composition of investment portfolio; and
5) Liquidity of other bank assets.
Credit budget will be prepared having a diversified loan portfolio spreading
over a large number of obligors/sectors/purpose/location as well as different
term. As a prudential norm, Standard Bank will restrict large loan to maximum
two-third of its total loan portfolio
4.14.3 Security Structure:
NCC Banks position should not be subordinate to other lenders and second
liens, second mortgages, etc. should not be accepted as primary security for
lending, but should be in pari passu terms vis--vis with other lenders. In case
of corporate financing, maximum emphasis is given on companys Projected
Cash Flow Statement based on realistic assumptions.

4.15 The borrowers are the stake of the following risk:

The borrowers are also face some risks when got loan facilities from the bank:

The interest rate charged by the bank will be dependent on the bank
view of the borrowers credit worthiness.

A bank might decide to reduce customers borrowing facility.

Lending covenants on existing loan could restrict the ability of the

borrower to obtain further loans.

A bank might refuse to extend a loan to support a company with temporary

cash flows difficulties caused perhaps by a delay in payment on a major
contract or a delayed start to a major project.
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4.16 The problems faced by this bank in its lending process:

Almost every Commercial Bank have been faced some problem in its
lending process. This problem basically arises from misrepresentation by the
borrower, fake information by the people and information hidden by the
customer etc.
1) Misrepresentation by the borrower:
Sometimes the clients show the property by his name. But in real, the
property is not belongs to him at all. They just how it to get money from the
bank. So the bank faces such type of problems in its lending process by
misrepresent the information the information by the borrower.
2) Fake information by the people:
Sometimes bank itself evaluate the stock or property of the borrower which is
one of the important task of its lending process. But here also bank faces the
problems of showing overvalue or undervalue of the stock or property by the
area people. So this fake information creating problems when the bank
deciding about the loan giving to the borrower.
3) L/C Operation:
In the case of L/C operation, the client show over invoice or under invoice of
the L/C document. This is a severe problem faced by this bank.
4) Loan against Mortgage:
When bank sanctioned the credit facilities against mortgage, then it will be
very complex system in case of recovery process. In this situation, bank takes
a shelter of Law & filing a suit to Artha Rin Adalat for recovery.

4.17 Credit Risk Grading Model:

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Credit Risk Analysis is one of the modern concepts of loan analysis. To

measure the credit risk of the NCC Bank Ltd, the total grade point of all the
criteria is 100. The criteria and their assigned points are mentioned below:
SL. No

Components & Key parameters

Weight

1.

Financial Risk

50%

a. Leverage:

15%

b. Liquidity:

15%

c. Profitability: 15%
d. Coverage:
2.

5%

Business/ Industrial Risk

18%

a. Size of Business

5%

b. Age of Business

3%

c. Business Outlook

3%

d. Industry Growth

3%

e. Market Competition 2%

3.

4.

f. Entry/Exit Barriers
Management Risk:

2%
12%

a. Experience

5%

b. Second Line/ Succession

4%

c. Team Work
Security Risk

3%
10%

a. Security Coverage (Primary)

4%

b. Collateral Coverage (Property)

4%

c. Support (Guarantee)
5.

2%

Relationship Risk

10%

a. Account Conduct

5%

b. Utilization of Limit

2%

c. Compliance of Covenants /

2%

Conditions
d. Personal Deposits
Grand Total All Risk

1%
100%

4.17.1 Credit Risk Grading(CRG) Score:

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Numbe

Grading

Short

Score

r
1
2
3
4
5
6
7
8

Superior
Good
Acceptable
Marginal/Watch list
Special Mention
Substandard
Doubtful
Bad/Loss

SUP
GD
ACCPT
MG/WL
SM
SS
DF
BL

100% (Fully cash secured)

85+
75-84
65-74
55-64
45-54
35-44
<35

4.17.2 Function of Credit Risk Grading (CRG):

Well managed Credit Risk Grading system promotes safety & soundness by
facilitating informed decision-making. Grading system measures credit risk &
differentiates individual credits & groups of credit by the risk they pose. This
allows bank management to manage risk levels. The process also allows
bank management to manage risk to optimize returns.
4.17.3 Use of Credit Risk Grading:

The Credit Risk Grading (CRG) matrix allows application of uniform

standards to credit to ensure a common standardized approach to
assess the quality of individual obligor, credit portfolio of unit, line of
business, the branch or the bank as a whole.

As evident, the CRG output would be relevant for individual credit

section, wherein a borrower or a particular exposure / facility are rated.
The other decision would be related to pricing (credit spread) & specific
features of the credit facility. These would largely constitute obligor
level analysis

57 | P a g e

Risk Grading would also be relevant for surveillance & monitoring,

internal MIS & assessing the aggregate risk profile of a bank. It is also
relevant for portfolio level analysis.

4.18 Approval Authority:

The credit proposal moves through various management approval levels
according to the amount of risk. There are four approval levels:
1 Branch Manager;
2 Zonal Head of Dhaka & Chittagong;
3 Credit Commerce at Corporate Office;
4 Board of Directors of the Bank.
The approval limits for each of these sanctioning authorities are defined in
Business Discretionary power, which is also reviewed by senior management
and approved by the Board of Directors.

4.19 Documentation:
It is essential that the proposal defines clearly the purpose of the facility, the
sources of repayment, the agreed repayment schedule, the value of security
and the customer relationship consideration implicit in the Credit decision.
Where security is to be accepted as collateral for the facility all documentation
relating to the security shall be in the approved form. All approval procedures
and required documentation shall be completed and all securities shall be in
place, prior to the disbursement of the facilities.

General documentation, as required for different kinds of investment is

enumerated below:

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Facility Type

Primary Security
Pledge of WEDB, FDR or ICB Unit Certificate along
with Bank transfer form.

Secured Overdraft
(SOD)

Pledge of Share Certificate along with Bank

transfer deed.

Pledge of any other cash collaterals not

restricted by Bangladesh Bank.

Overdraft (as
working capital
finance)

Hypothecation of stocks.

Hypothecation of book debts and receivables.

Assignments of bills receivable against the Work

Order valued.

Overdraft (against
work order)

Assignments of bills receivable against the Work

Term Loan (vehicles)

Order valued.
Hypothecation of the vehicles.
Registered mortgage of land

Term

Registered Irrevocable Power of Attorney.

Loan

(house

building)

Equitable mortgage of land.

Notarized Irrevocable Power of Attorney.

Registered mortgage of land.

Term

Loan

(capital

finance)

Registered

Irrevocable

Power

of

Power

of

Attorney.

Equitable mortgage of land.

Notarized

Irrevocable

Attorney.
Loan against Trust Letter of Trust Receipt.
Receipt (LTR)

Hypothecation of goods.
Letter of Credit (L/C) Documents of title to goods.
facility

4.20 Classification of Loans:

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Loan and advances in whatever form, granted by the bank to its clients are
repayable on demand or at the expiry of fixed period or as per repayment
schedule agreed upon while granting the facilities. If a loan is repayable on
installment basis, default occurs if an installment is not repaid on due date. If
the borrower fails to adjust the liability within the date of expiry of the facility,
the loan will be called as classified loan & the liability should be transferred
to past due A/C.

Two types of stages of Past due A/CClassification of LOAN

Past Due (Unclassified)

Past Due (Classified)

Substandard (SS)
Doubtful (DF)
Bad & Loss (BL)

When the liability of the borrower transferred to the Past due A/C, the bank
must take the necessary actions to recover the loan as far as possible.

4.21 Procedural Guidelines:

There is A long procedural guideline have maintained done by the bank while
making a decision for granting a loan as shown in the following

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4.21.1

Approval Process:

1 The

approval

process

must

reinforce

the

segregation

of

Relationship Management (RM)/Marketing from the Approving

Authority. The responsibility for preparing the Credit Application
should rest with the RM within the Credit Department of a Branch.
Credit Applications should be recommended for approval by the RM
team and the recommendation of Branch Manager is required prior
to onward recommendation to Credit Risk Management (CRM) Unit
of Credit Department at Corporate Office for approval of the Credit
Committee.
2 Application forwarded to Zonal Head for approved/decline. Zonal
Head advises the decision as per delegated authority to Zonal
Head.
3 Zonal Head supports (if think fit) & forwarded the proposal to Head
of Credit of Corporate Office for onward submission of the same to
Credit Committee for approval/decline. CRM Unit will process the
proposal.
4 If the proposal is beyond the business discretionary power of the
President & Managing Director of the Bank, it is to be placed before
the Board for approval.
5 The Credit Committee will support the proposal for onward
submission of the same for the Boards approval. Head of
Operations and the President & Managing Director of the Bank
present the proposal to the Board.
6 The Company Secretary and President & Managing Director
advises the decision of the Board to Head of Operations / Head of
Credit.
7 Regardless of the limit, CRM Unit advises the decision of the Credit
Committee to the recommending branches with a copy of the same
to the Credit Administration Unit and Zonal Head.

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The following diagram illustrates the approval process:

Credit Application
Recommended by
RM/Marketing
Zonal Head

Head of Operations/Head of
Credit

Credit Committee

Board of Directors

Figure: 3.1 Approval Process

4.21.2 Credit Administration:

1) To ensure that all security documentation complies with the terms of
approval and is enforceable.
2) To control loan disbursements only after all terms and conditions of
approval have been met, and all security documentation is in place.
3) To monitor borrowers compliance with covenants and agreed terms
and conditions, and general monitoring of account conduct.

62 | P a g e

4) Timely corrective action is taken to address findings of any internal,

external or regulatory inspection.
5) Ensure accurate & timely submission of returns of Corporate Office
and Bangladesh Bank.

4.21.3 Disbursement:
1) Security documents are prepared in accordance with approval terms
and are legally enforceable. Standard loan facility documentation
that has been reviewed by legal counsel should be used in all
cases. Exceptions should be referred to legal counsel for advice
and authorization for the same should be obtained from CRM Unit.
2) Disbursements under loan facilities are only be made when all
security documentation is in place. A clean updated CIB report
(should not be more than 2 months old) must be obtained before
any disbursement of facility favoring the borrower. All formalities
regarding large loans & loans to Directors should be guided by
Bangladesh Bank circulars & related Section of Banking Companies
Act.

4.21.4 Custodial Duties:

1) Security documentation is held under strict control, preferably in a
fireproof cabinet in strong room. Storage of security documents
should be under dual custodian control at branch level and the
documents should be recorded in the Title deed/Security &
Document Register and Safe in Safe out Register.
2) Appropriate insurance coverage is maintained on hypothecated
stocks.

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4.21.5 Compliance Requirements:

1. All required Bangladesh Bank returns are submitted in the correct
format in a timely manner.
2. Bangladesh Bank circulars are maintained properly and advised to
all relevant departments to ensure compliance.

4.21.6 Credit Monitoring:

To minimize credit losses, monitoring procedures and systems should be in
place that provides an early indication of the deteriorating financial health of
a borrower. At a minimum, systems should be in place to report the following
exceptions to relevant executives in CRM and RM team.
1. Past due principal or interest payments, account excesses, and
breach of loan.
2. Loan terms and conditions are monitored, financial statements are
received on a regular basis, and any covenant breaches or
exceptions are referred to CRM and the RM team for timely followup.
3. Timely corrective action is taken to address findings of any internal,
external or Bangladesh Banks inspection.
4. All loan facilities are reviewed and approved through the
submission of a Credit Application at least annually.

4.21.7 Early Alert Process:

An Early Alert Account is one that has risks of a material nature requiring
monitoring, supervision or close attention by management. If these
weaknesses are left uncorrected, they may result in deterioration of the
repayment prospects for the asset or in the Banks credit position at some
future date with a likely prospect of being downgraded within the next twelve
months.
64 | P a g e

Early identification, prompt reporting and proactive management of Early Alert

Accounts are prime credit responsibilities of all Relationship Managers and
must be undertaken on a continuous basis. An Early Alert report should be
completed by the RM and sent to the approving authority in CRM for any
account that is showing signs of deterioration within seven days from the
identification of weaknesses.

4.21.8 Recovery Unit:

1. To determine Account Action Recovery Strategy.
2. To pursue all options to maximize recovery.
3. To ensure adequate and timely loan loss provisions are made
based on actual and expected losses.
4. To review of Grade 6 or worse accounts regular basis.
4.21.9 Non-performing Loan Account Management:
All Non-performing Loans should be assigned to an Account Manager within
the Recovery Unit, who is responsible for coordinating and administering the
recovery of the account, and should serve as the primary customer contact
after the account is downgraded to substandard. While some assistance from
Relationship Management may be sought, it is essential that the autonomy of
the Recovery Unit be maintained to ensure appropriate recovery strategies
are implemented.

4.21.10 Account Transfer Procedures:

Within 7 days of an account being downgraded to substandard (grade 6), the
account should be assigned to an account manager within the Recovery Unit,

65 | P a g e

who should review all documentation, meet the customer, and prepare a
Classified Loan Review Report within 15 days of the transfer. It should be

approved by the Head of Operations and copied to the Branch where the loan
was originally sanctioned. This report should highlight any documentation
issues, loan structuring weaknesses, proposed workout strategy, and should
seek approval for any loan loss provisions that are necessary.

4.21.11 Non-performing Loan Monitoring:

On a quarterly basis, a Classified Loan Review Report (CLR) should be
prepared by the Recovery Unit Account Manager to update the status of the
recovery plan, review and assess the adequacy of provisions, and modify the
Banks strategy as appropriate. The President & Managing Director of the
Bank should approve the CLR for Non-performing Loans.

4.21.12 Non-performing Loan Provisioning and Write Off:

The guidelines furnished by Bangladesh Bank for CIB reporting, provisioning
and write off of bad and doubtful debts, and suspension of interest should be
followed in all cases. The approval to take provisions, write offs, or release of
provisions of an account should be restricted to the President & Managing
Director of the Bank based on recommendation from the Recovery Unit of
Credit Department of Corporate Office.

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5.1 Operating Profit of Anderkilla Branch:

Year

Anderkilla Branch ( Crore )

2009

2,52,00,000

2010

3,02,00,000

2011

5,06,00,000

2012

6,79,00,000

Analysis

80000000
60000000
40000000
20000000
0

2009

2010

2011

2012

In the above graph, we see that the profit of Anderkilla branch is growing
moderately on average. The profit 8 was 2.85% of the total profit of the bank.
The profit of Anderkilla in 2010 was 1.76% of total profit. So we see that profit
67 | P a g e

was decreased by1.09% in compare with 2009. After that the profit of this
branch in 2011 was increased by 2.13%.In the same way, the % profit of the
branch was 2.28% in 2012. The reason for lowering profit in 2010 was that
increasing the number of competitors in that area.

5.2 Comparison between Target & Actual credit:

Particulars

2009

2010

2011

2012

Target (Crore)

40.

45.

85.

90.

Actual (Crore)

33.22

39.57

81.65

91.89

100
90
80
70
60
Target

50

Actual

40
30
20
10
0
2009

2010

2011

2012

Analysis :

In this graph, both the target and actual credit is increasing moderately. There
was relatively large difference between Target & Actual Loan in 2009 than
others. The target gap was (40-33.22) =6.88. In 2010 and 2011,The branch
could not fulfill their target like the year 2009.But the target was increased
68 | P a g e

suddenly from 2010 to 2011.The target was increased 45 to 85, almost

double. This was because of their familiarity and better performance. And, in
the year of 2012, the target was overfulfilled by over credit granted, that
means the target was 90 crore but the granted loan was 91.89 crore, that
shows high profitability than the expected.

5.3 Comparisons between yearly deposits:

2009

2010

2011

2012

40,12,96,870

46,00,87,796

90,43,75,000

98,30,45,000

1200000000
1000000000
800000000
600000000

total deposit

400000000
200000000
0
2009

2010

2011

2012

Analysis:

The graph shows that Bank deposits are in medium increasing position. In
every year the rate of deposit was same except 2010 to 2011. The rate of
interest in saving deposit is 6%.The main reason behind the strong deposit in
2010 & 2011 was the introduction of double scheme deposit i.e. one lac
equals to two lacs. The first effect of deposits is when deposits increase,
advances increase as well. In this bank the difference between rate of interest

69 | P a g e

of advance & deposit is (14-9) =5%. The loan is disbursed from the deposit
amount but sometimes, advance is given 70 crore but deposit has 60 crore
that is negative situation. In this situation money is brought out from the head
office. But Anderkilla branch did not face this situation.

2009

2010

2011

2012

33,86,00,000

39,57,00,, 000

81,65,00,000

91,89,00,000

5.4 Total Loan Disbursement:

Area of loan Disbursement
Year

Cash
credit

Interest

Security

Intere

Loan

Intere

Payment

Intere

rate

overdraft

st rate

against

st rate

against

st rate

trust

document

receipt

(LTR)

2012

34,89,00,0

14%

00

2011

28,00,00,0

10,00,00,0
00

15%

00
15%

5,65,00,0

15%

4,00,00,0
00

24,00,00,00

13%

16%

30,00,00,0

15%

00
16%

36,00,00,0

13%

00

00

00

2010

7,00,00,0

6,00,00,0
00

18,00,00,0

16%

00
15%

19,57,00,0
00

60,00,00,0
00

Analysis :

The loan disbursement position is in a moderately increasing position. The

rate of interest of cash credit was 15% in 2010, in 2011 the advance
70 | P a g e

15%

increased for credit systems flexibility. Again in 2012, when the rate of interest
reduced by 1% i.e. 14%, the amount of advances increased. As a result Bank
achieved more profit than previous years. In 2012, the interest rate of SOD
(security overdraft) was 15% which was comparatively lower than previous
two years. The loan which is given against document whose amount was
higher in 2010 than 2011. Since the rate of interest was lower in 2010 then
2011. Again in 2012, the rate of interest of payment against document
reduced by 3% i.e. brought to 13%. As a result advances also increased in
2012. In 2010 and 2011, LTR was given at rate of interest at 15% whereas in
2012 it was reduced by 2% & brought it to 13%. As a result advance also
increased.

5.5 Sectors of Loan Disbursement:

2011

2012

Private(for contractory)

8,00,00,000

14,50,00,000

Small & Medium Enterprise

4,00,00,000

6,90,00,000

Transport Loan

30,00,000

50,00,000

House Building

80,00,000

1,00,00,000

Staff loan

10,00,000

30,00,000

Total

13,20,00,000

23,20,00,000

SECTORs

Analysis :

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From the above list, we see that the total loan disbursement in 2012 was
increased by 75% than 2010. So its a great achievement for the bank in
2012. In 2012, Bank gave 14,50,00,000 for the purpose of contractors
business whereas in 2011 that was 8,00,00,000. Small & Medium enterprise,
they were also given higher amount in 2012 than 2011 that is 2,90,00,000
more. But the amount of transport loan has no big variation between 2012 &
2011 unlike Private & Small and Medium Enterprise. House building loan was
gradually increased that is 20,00,000 more in 2012 than 2011. In 2012 Staff,
they took 20,00,000. more advance than the previous year.

5.6 PERCENTAGE OF RECOVERY:

Types of Credit

2011
Overdue

Recovery

20 12
% of

Overdue

Recovery

Recovery

% of
Recovery

Cash Credit

13,00,000

1,80,000

13.85%

11,12,000

7,10,000

63%

Security Overdraft

7,00,000

2,50,000

35.7%

3,05,000

1,80,000

59%

PAD(Payment

15,56,000

5,00,000

32.14%

4,44,000

3,70,000

83%

35,56,000

17,60,000

49.5%

18,61,000

12,60,000

67.7%

Against Document)
Total

Analysis :
The classified loan was higher in 2011 than 2012. But we see the amount of
recovery was better in 2012 than 2011. Cash credit, Security Overdraft,
Payment against document - these three kinds of advances carried a small

72 | P a g e

amount of recovery, but we see the recovery of Cash Credit positioned worse
in 2011 than 2012.On the otherhand, position of Security overdraft was better
in both year. The reason is that if the customer didnt provide the loan
installment, the bank would seize the customers deposited amount.

6.1 Findings:
After conducting the study and the analysis the performance of credit
management of NCC Bank Anderkilla branch have been identified:
The amount of loan disbursement is moderately higher in 2012 than
previous years
The Operating profit is comparatively higher in 2012 than previous
years
Income & Expenditures as well as revenues is increased in 2012.
This bank has 10 accounts which is under bad & loss i.e. 97.35%.
The recovery amount is not so good enough in comparison to total
overdue amount.
Funded credit amount was less than that of non-funded.
NCCBL takes longer time to analyze CRG.
Sometimes the credit officers discourage the unsecured loan like Auto
Loan. For that reason so many borrowers switch to the other banks
for getting such loan.
The branch faces a problem to recover the loan amount at due date &
sometimes borrowers avoid the recovery officers by different
treachery.

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 Though this bank introduced Online Banking Services since three

years, there is a lack of proper implementation of online services.
Here still maintaining the traditional system of data entry.
The documentation is strictly followed at the time of credit
sanctioning.

6.2 Recommendations:
NCC Bank Limited is undoubtfully a successful bank. But there are some
limitations regarding credit policies. According to the findings the followings
are the recommendation of the study:
1. According to my observation, the bank delays to reply the Head
Offices credit query which reduce the efficiency of the activities of the
branch. So branch need to be improved in this area so that, faster
credit information can be observed.
2. To ensure the recovery satisfactory, the bank needs to take strong
necessary action soon. In this purpose the bank should- continuous
communication over telephone, sending letter or by face to face
contact with the clients
3. The bank should select good clients for granting loans so that credit
risk can be minimized as low as possible.
4. Bank should encourage their clients to buy loan product rather than
discourage. Because maximum profits have been gained from the
interest of loan they granted to the customers.
5. The possibility of recovery is too low when the loan falls into the
classification stage. So the bank ensure earlier about the regular
installment. For that regular contact is necessary.
74 | P a g e

6. The bank should update their online system faster & use modern
banking system for recording data & information so that faster efficient
client services can be provided.
7. The loan disbursement procedure should be shortened.
8. NCCBL can arrange some periodic training for its employees where
they will receive clear instruction regarding the Credit Management. It
might help the employees to allocate time and energy for other works.
9. 24 Hours Banking facilities of NCCBL need to be more upgraded
where a bank customer can perform different bank activities beyond
normal banking hours using online facilities including ATM, Phone
Banking, Debit Card, Credit Card or M-bridge Card services.

6.3 Conclusion:
The core part of Bank management is Credit management. The existence of a
bank depends on the credit management. Because if credit management fails
to have a well diversified loan portfolio than the bank may lose all its
investments which are the savings of the depositors and owners equity. The
Credit management does all sorts of the activities regarding the loans and
advances. To have a well diversified loan portfolio, the bank must screen out
the good borrowers from the loan applicants. Because, if the borrower is
good there is very few chance of default other than of systematic risk.
The NCC Bank Limited is doing its business successfully for more than 20
years which indicates their well performance in credit management. Because
of their well performing credit management, the bank was able to reduce its
bad debt every year. From the credit management of NCC Bank Ltd., I have
gained practical knowledge about the real world credit management which
would help me to relate my theoretical knowledge with the real world. For that
I am really grateful to International Islamic University Chittagong (IIUC) for
arranging such Internship program and the NCC Bank Limited.

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