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REPORT PREAMBLE

In present conditions of all kind of industries, SMEs are recognized as the thrust sector and a developing arena for the economy of Bangladesh. The center of attention on SMEs has been increasing because of playing a significant role in employment generation, poverty reduction and overall economic growth, especially for a developing economy like Bangladesh. In recognition of the strategic importance of the development of SMEs in promoting industrial growth, employment generation and poverty alleviation the SME sector has been declared as a priority sector in the Government Industrial Policy 2005 and various measures have been initiated to help maximizing the SMEs growth potential.

SME financing has been introduced so that expansion of SME growth will enhance the GDP of the economy as well as reduce poverty through expanding employment opportunities. As a result, all commercial banks and non-bank financial institutions (NBFI) are involved in providing SME financing services where as Bangladesh Bank (BB) has undertaken to refinance 18 Banks (out of 48) and 21 NBFIs (out of 29) to accelerate credit flows to the SME sector. But in case of SME lending, Banks considers it as unattractive and non-profitable undertaking because of its high risk constituting from low capitalization, insufficient assets and inability to comply collateral requirements of the banks. Even also administration cost for close monitoring and supervision the SME operation are also higher. Practice banks so that risk and in Credit risk management is such a division for of Loan & Advance other costs will be mitigated. The more efficient Credit risk management, the lower will be credit risks, and thus the higher lending to theMUTUAL TRUST BANK LTD.and the borrowers. And so, despite all the facts banks finance is showing an increasing trend. financial institutions have been providing finance to the SME sector and the volume of

CREDIT ANALYSIS

This report describes the SME opportunities as well as the SME banking facilities through credit risk management and the conditions of PCBs especially The City Bank Limited in contribution of SME lending along with its financial performance

Internship Report
On

CREDIT ANALYSIS
Practice of Loan & Advance in MUTUAL TRUST BANK LTD. Tongi Branch

Prepared for:
Professor Md. Ashraf Hossain Dean School of Business Asian University of Bangladeh Uttara, Dhaka-1230.

Prepared by:

Shohel rana ID # 200710183 Major in Marketing Department of BBA

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Asian University of Bangladesh


Date of submission:

ACKNOWLEDGEMENT
I am taking this privilege to deliver my gratefulness to each and every people who are involved with me in every phase of my life.

Firstly, showing the highest respect to almighty Allah, I am grateful to my parents without whom I cannot be here. They were beside me in every single situation and are still with me. Without the support of my parents, I could not be able to achieve my objectives and goals.

I am grateful to my academic supervisor, Professor Md. Ashraf Hossain , Dean, Asian University of Bangldesh, who encouraged me to make this report and also provided me all the necessary helps and guidance. He was very helpful and friendly person and been always there, whenever I needed him.

I am grateful to my job supervisor, Mr. Reaz Ahmed, SAVP & Manager, Tongi Branch, MTBL, under whose supervision I have done my Internship successfully. He was very generous and friendly with me. I am greatly thankful to him.

I am also thankful to the individuals who extended their supports in manifold ways to me. They are:
Mr. Khandaker Khalid Alam, Junior Officer, Credit & Advance,

MTBL, Tongi Branch.

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Mrs. Morgina Begum, Officer, General Banking, MTBL, Tongi

Branch. Finally, I am thankful to the entire people who helped me to make this report.

Letter of Transmittal
February 15, 2011 To Professor Md. Ashraf Hossain Dean School of Business Uttara, Dhaka-1230. Subject: Submission of Internship report. Sir, With best respect and honor, I would like to inform you that I have completed my internship report on Credit Analysis of Mutual Trust Bank Ltd. It is immense pleasure for me to place the same before you. I have tried my best to prepare this report in consistence with the optimal standard under your valuable direction. I made every endeavor to prepare this dissertation and tried my level best to accumulate relevant and insightful information. It is a great experience for me to work on this topic. I have tried to make the report vivid and comprehensive within the scheduled time and limited resources. Thanking you for your kind supervision. With best regards,

Shohel Rana ID: 200710183 Asian University of Bangladesh

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Uttara Main Campus Dhaka 1230

Declaration of the Student

I hereby announce that the extensive study Internship Report entitled Credit Analysis of Mutual Trust Bank Ltd.

(Conducted on the supervision of professor Md. Asraf Hossain) Is prepared in partial accomplishment of the requirement for the award of the Degree.

Bachelor of Business Administration From Asian University of Bangladesh

Shohel Rana ID: 200710183

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Certificate of Academic Supervisor

To Whom It May Concern


This is to certify that Mr. Shohel Rana, student of BBA program of our university bearing ID: 200710183, has successfully completed the internship report on Credit Analysis of Mutual Trust Bank Ltd. In this regard he practically worked in Tongi Branch of the Mutual Trust Bank Ltd from 29 September, 2010 to 31 January, 2011 under my supervision and instruction. This report supports the topic title and fulfils the entire requirements. I instructed him to prepare. Here by, I accept the report as the successful completion of the internship program. During the program he was sincere proactive and attentive to his work and I wish him every success in life.

Professor Md. Asraf Hossain Dean School of Business Asian University of Bangladesh Uttara, Dhaka-1230.

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Executive Summary
In Bangladesh, SMEs have occupied a unique position in our economy in respect to their combined contribution to technological development and poverty alleviation. This sector also playing a significant role for the development of our economy by creating employment opportunity and producing alternative machines and machinery parts for saving huge foreign currency for our country. So as a part of our development strategy, we should intensify our effort to develop this sector to grow industrial base and volume of foreign trade. As we know that in this age of globalization, it is impossible to stop the flow of foreign goods to any country. Only quality products can meet the challenges in global market. For meeting this situation SMEs need to upgrade their technological capabilities and production facilities in order to produce quality products at a competitive price. Although there is no concrete information with regard to the number and types of SMEs operating in Bangladesh, an estimate of the Bangladesh Small and Cottage Industries Corporation (BSCIC) says that there are over 40,000 small industrial units in the country. Of the total, the number of light engineering units is estimated at 12,500. The major problem is access to finance due to rigid collateral requirements by the exiting banking system and rampant malpractice in loan sanctioning process. Others include lack of material testing facilities required for quality production, inadequate skilled labor force and poor marketing know-how. Inadequate knowledge of many entrepreneurs about the existing lending system and absence of necessary training facilities for small enterprises, widespread corruption and extortion and high rates of value added tax (VAT) and unnecessary harassment from the tax/VAT officials and law enforcing agencies are also seen as impediments for the growth of SMEs. With a number of studies, In this informative report, SME banking and CRM procedure has been shown in relation from the situation of The Mutual Trust Bank Limited. First of all a general view on the topic and then actual scenario of the MTBLs procedure has been discussed.

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Table of Contents

Letter of transmittal Declaration of the student Acknowledgement Executive summary Chapter 1.0. REPORT PREAMBLE 1.1. Background of the report 1.2. Objectives of the report 1.3 Broad Objective 1.4 Specific Objectives 1.5. Scope of the report 1.6. Organization of the report 1.7. Rationale of the report 1.8. Methodology 1.9 Population and Sample 1.10 Data Collection 1.11 Types of Data 1.12 Data Collection Method 1.13 Sources of Data 1.14 Primary Source 1.15 Secondary Source 1.16 Variable Analysis Procedure 1.17 Limitation of the report

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Chapter 2.0. GENERAL VIEW - THE MUTUAL TRUST BANK LIMITED 2.1. Background of the Bank 2.2 Vission of MTBL 2.3 Mission of MTBL 2.4 Authorised Capital of MTBL 2.5 Services of MTBL 2.6. Facilities Provided by the Bank 2.7 General Activities 2.8.Corporate and Investment Banking 2.9 Retail Banking(Including Cards) 2.10 SME Banking 2.11 Tresury and Market Risks 2.12. Organizational Hierarchy

Chapter 3.0. SME in Bangladesh 3.1. SME-Background 3.2 Definations and Different forms 3.3 Different legal forms of SME 3.4 SME financing 3.5. Credit Risk Management 3.6. Banking Industry in Bangladesh 3.7. Several Studies on SME & CRM

Chapter 4.0. OVERVIEW ON SME BANKING & CRM

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4.1. SME & SME Banking 4.2 Scenario of SME and SME Banking In Bangladesh 4.3 Importance of SMEs 4.4 Issues and Challenges faced by SMEs 4.5 Risk involves in lending to SMEs 4.6 Recent Developments 4.7 Credit Risk Management-A General View on Procedure 4.8 Credit Analysis 4.9 Lending Guidelines 4.10 Credit Assessment 4.11 Risk Granding 4.12 Credit Disbursement and Approval 4.13 Credit Monitoring 4.14 Loan Classification and Provisioning 4.15 Early Alert Accounts 4.16 Credit Recovery Chapter 5.0. SME EVALUATION THROUGH CRM PROCEDURE 5.1. SME Banking- The Mutual Trust Bank Ltd.
5.2.

SME Evaluation through CRM Procedure of Mutual Trust Bank Ltd

5.3.Division and CRM Organogram 5.4.Different Policy Documents and Guidelines 5.5.Credit Assessment Process Of MTBL 5.6. SME Performance

Chapter 6.0. ANALYSIS

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6.1. Performance Analysis 6.2. Trend Analysis 6.3. SWOT Analysis Chapter 7.0. CONCLUSION PARTS 7.1. Findings 7.2. Recommendations 7.3. Conclusion

REFERENCES APPENDIX-A : PERFORMANCE ANALYSIS

LIST OF FIGURES

Figure:2-1 Functional Organogram. Figure 3-1: Different Legal Forms of SMEs (CRISIL Ratings) Figure 4-1: No of workers (% share of total SME contribution) Figure 4-2: Credit Risk Management Process (4 key Parts) Figure 5-1: CRM Organogram Figure 5-2: Assessment Steps of CRM for SME segment. Figure 5-3: Approval amount for SME in first 3 months 09.

Acronyms
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BB-Bangladesh Bank CRM-Credit Risk Management SMA - Special Mention Account NPL - Non Performing Loan FSS - Financial Spread Sheet KYC - Know Your Customer CIB - Credit Information Bureau CRG - Credit Risk Grading RM - Risk Manager/ Relationship Manager SME - Small & Medium Enterprise MTBL-Mutual Trust Bank Ltd CRGM- Credit Risk Grading Manual EAS - Early Alert System SS- Substandard DF- Doubtful Loan BL- Bad Loan

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Chapter 1.0

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R eport Preamble
1.1Origin of the Report

Credit is the central function, as it is known as the heart of financial institutions like Banks. Because through effective and efficient credit practice, overall risk of the institutions can be alleviated. As so, each banking institutions follows the policies and rules of CRM provided by Bangladesh Bank. Bangladesh Bank introduced new accounting policies with respect to loan classification, provisioning and interest suspense in 1989 with a view to attaining international standards over a period of time. As a result, all the financial and non-financial institutions are involved in credit practice and concentrating more to provide better service with maintaining a better credit policy to uphold its own financial growth.

Bachelor of Business Administration (BBA) program requires usually a three months attachment with an organization followed by a report assigned by the supervisor in the organization and endorsed by the faculty advisor. As a mandatory requirement, opportunity of doing the internship was derived from the organization The Mutual Trust Bank Limited. During the period of 10 weeks in Credit segment of CRM Division (assigned from the organization), the organizational works and other relevant works and facts of the division was worthy learning for me. With the help of my organizational supervisor, it was able to gather understanding on assessing the creditworthiness of the borrowers through different issues, terms and policies. Consequently, the topic for internship report Credit Analysis: Practice of Loan & Advance in MTBL has been chosen by me and approved by my Academic Supervisor to prepare. This report includes the learning of the Credit division that was

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experienced during internship period and also other relevant functional works on Credit.

1.2 Objective of the report This report emphasizes the importance of loan & Advance of banking in the context of Credit Risk Management of the commercial banks in Bangladesh along with the conditions of The Mutual Trust Bank Limited. A huge work has been performed for preparing this report. The objectives behind this research paper are pointed below:

1.3Broad Objectives

The broad objective of this report is to figure out the situation of banking sector along with credit policies governed by the CRM division of various commercial banks of Bangladesh like The Mutual Trust of the report. Bank Limited. In this report, to measure performance in lending of the commercial banks is another objective

1.4

Specific Objectives

Other specific objectives have also been determined for this report: To point out the opportunities of credit financing. To have a brief understanding on the CRM policies and procedures. To get an idea on the overall performance of The MTBL . To figure out The MTBLs position in the banking industry in SME context.

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In conclusion, through accomplishing of the stated objectives, the requirement of the internship program will be fulfilled.

1.5 Scope of the Report

The report focuses mainly the potentials of Credit practice deriving from the efficient Credit Risk Management. Besides the areas that the report is been prepared are Credit risk appraisal system under BB policies for credit risk

management. Credit risk management of the MTBL. Credit contribution in the economy.

1.6

Rationale of the Report

In present, Credit sector of commercial banks are grabbing the interest of all economists, scholars, as well as general people. Its rapid growth and increased contribution to the GDP of the economy motivated the financial and nonfinancial institutions to provide better credit services. But though there are some obstacles of credit financing like high risk as low capitalization, insufficient assets, inability of meeting collateral requirements etc. of the borrowers, an efficient Credit Risk Management can drive the institutions to provide financing to needy community.

Therefore, this report is prepared to work out that an efficient CRM can sustain the credit financing through the better services provided by the commercial banks in Bangladesh.

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1.7 Methodology of the Report

Methodology- including the data collection procedure to analysis is referred for preparation. Following methodology is pursued for this report is as given below:

1.8

Population & Sample

According to statistical measure, from the entire sets of objects of interest referred as population i.e. entire 48 commercial banks in Bangladesh, THE MUTUAL TRUST BANK LTD. as a commercial bank have been chosen as a Sample - portion or part of the population of interest to use in analysis especially in performance analysis.

1.9

Data Collection

Preparation for this report, data collection includes the types data that has been used, the sources and the collection method. The data are gathered from both primary and secondary sources through direct and indirect/secondary observation. These are described below:

1.9.1 Types of Data In this report, both types of data have been used for analysis-

Qualitative data Quantitative data

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Qualitative data as like the issues, risks of SMEs and practices of CRM and oppositely, statistical data of different issues and findings of analysis as quantitative data has been used in this report.

1.9.2 Data Collection Method

Among the methods of data collection, personal observation method and secondary data analysis method has been act upon.

In personal observation method, researcher observes only what it occurs and merely records without manipulating the occurrence. For this report, the data has been gathered through observing the works performed by the credit officer of MTBL.

In secondary data analysis method, researcher records or gathers data through analyzing on various research works done on same or relevant topic the researcher desires to accomplish. As so, here some research works on SME, SME banking, CRM and lending situations etc.

1.9 Sources of Data

As it is implied above, data has been collected from both primary as personal observation and secondary sources as evaluation on different research papers and policies etc. as given below:

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1.10

Primary Source

Primary sources are the materials upon which other researches are performed or it can be said the sources where raw data can be collected. Here, data have been collected through personal observation during internship program in Credit segment of Tongi Branch in The MTBL.

1.15 Secondary Source

Secondary source interprets and analyzes primary sources. These sources are one or more steps removed from the event. Secondary sources may have pictures, quotes or graphics of primary sources in them. Some types of secondary sources include: textbooks, magazines, articles, histories, criticisms, encyclopedias etc. From secondary following sources were used to collect necessary data: 1) Credit Policy Manual of the Banks. 2) Credit Instruction Manual of the Banks. 3) Circulars, letters and memos issued by the Banks and regulatory organization i.e. Bangladesh Bank and Govt. 4) Prudential Guidelines on Credit Risk Management issued by Bangladesh Bank.
5) Annual report of MTBL. 6) Annual report of Bangladesh Bank.

7) News papers and journals from websites.

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1.16

Variable Analysis Procedure

In this report analysis is done through both qualitative and quantitative secondary data. Basically, this report carries out a rational judgment on the Credit Financing that can be sustained through executing an efficient Credit Risk Management.

In this report, three types of analysis have been executed-

Performance Analysis loan related factors of MTBL in comparison with that of the industry. Trend Analysis MTBLs loan related factors trend for 5 years.
SWOT Analysis the strengths, opportunities, weaknesses and threats faced by MTBL

1.17 Limitations of the Report

While preparing this report some limitations were observed. Like,

the main limitation for conducting this report is time limitation and resources. The required time for internship was not enough to understand the overall activities of Credit and CRM division of the bank and how they handle their clients credit proposals.

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The resources for the report were hardly manageable and for lack of experience it acted as a limitation for the exploration of the topic.
Another limitation of the study is lack of sufficient work experience

in the credit division during the internship. However, the report has been brought about with hard work and all the necessary resources through prevailing over the above limitations.

Chapter 2

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General View
2.1. Background of the Bank:

In Bangladesh, according to recent surveys, about 48 commercial banks are operating in this industry successfully. Commercial banks of Bangladesh are divided according to the authorization of banking in four types- State owned banks, Private Commercial Banks, Specialized Banks, and Foreign Commercial Banks. Another division is made as Islamic Banks as these banks operations are Islamic Shariah based and different from others. Among these banks, 9 are Foreign Banks, 3 are Nationalized Banks, 6 are Islamic Banks, Specialized Commercial Banks are 4 and the rest are Private Commercial Banks. A general view on The Mutual Trust Bank Limited is the subject matter of this chapter. It includes the background, services it provides, the organ gram and especially the general activities. MUTUAL TRUST BANK is one of the private Commercial Banks, operating in Bangladesh. It is a top ranked organization among the oldest five Commercial Banks in the country which was incorporated in September 29, 1999 as a public limited company in Bangladesh under Companies Act, 1913. It commenced its banking business under the license issued by Bangladesh Bank. The Bank started its journey on October 24, 1999

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through opening its first branch at B. B. Avenue Branch in the capital, Dhaka city. As so, it is known as First Generation Bank.

Table 2-1: Information of The Mutual Trust Bank Limited at a glance Legal Status Date of Incorporation Formal Inauguration Purpose Number of Branches Total Manpower Authorized Capital Paid up Capital Reserves Total Asset Credit Deposit Ratio Net Profit Growth Rate Cost of Fund EPS Price Earnings Ratio Governing Law : To run banking business under the umbrella of Banking Company Act 1994 : 65 on December 31, 2010 : 2000 : Tk. 3,800.00 million : : : : : : : : : Tk. 2,120.00 million Tk. 1,564.00` million Tk. 52,774.00 million 84 : 16 (approximate) Tk. 820.00 million on November 30, 2009 28% 9.50% 17.65 2 times : Public Limited Company : September 29, 1999 : October 24, 1999

: Laws of Bangladesh

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2.2

Vision of MTBL

Mutual Trust Banks vision is based on a philosophy known as MTB3V. The vision of MTBL is to be: One of the Best Performing Banks in Bangladesh. The Bank of Choice. A Truly World Class Bank. 2.3 Mission of MTBL

MTBL aspires to be one of the most admired banks in the nation and be recognized as an innovative and client focused company, enabled by cutting-edge technology, a dynamic workforce and a wide array of financial products and services. 2.4 Overall Strategic Objectives

To ensure inflow of funds at combinations of least possible cost.

To maintain a discreet credit policy.


To enhance versatility and diversification through the penetration

of new market segments, thereby fulfilling unmet needs.


To extend financial assistance to the citizenry, living at dispersed

locations by expanding the network of branches.


To practice stronger IT-driven initiatives that will meet the

challenges and requirements of the bank and its clientele.


To improve administrative and organizational structures in order

to

prepare

the

platform

for

best

practices

of

corporate

governance.
To enrich the banking sector with improved awareness on

Corporate Social Responsibility.


To provide extensive career opportunities through competitive pay

and benefits and a flexible environment. 2.5 Authorized Capital of MTBL

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The MTBLs Authorized capital is Tk. 38, 00,000,000 divided into 38,000,000
ordinary shares of Tk.100 each. 2.6 Products & Services of MTBL

The MTBL concentrates the following categories of banking services Retail Banking: o Deposit Product o Loan Product o MTB Cards Corporate Banking: o Term Finance o Working Capital Finance o Trade Finance o Offshore Banking o Syndication & Structured Finance SME Banking: o MTB Bhagyobati o MTB Kishi o MTB Mousumi o MTB Revolving Loan o MTB Small Business Loan o MTB Digoon o MTB Green Energy Loan

NRB: o NRB Savings A/c Treasury:

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o Money Market o DIBOR o Foreign Exchange o Primary Dealers Business


2.9 Organization Hierarchy :

MUTUAL TRUST BANK LTD has introduced a strong organization structure under the guidelines of Credit risk Management of Bangladesh Bank. The Board of directors is the source of all power which is delegated by the Managing Director and CEO of the Bank. Every Divisions and Departments has a divisional and departmental heads, under the heads an adequate manpower are working there. Officers has to report to their line manager, Line Mangers has to report to their divisional heads, Divisional heads has to report to Deputy Managing Directors, Deputy Managing Director has to report to Managing Director and CEO. CEO has responsible to Board of Directors.

For the first time MTBL restructures its banking system from Branch Banking to Centralized Banking in the year 2007. A functional organ gram is shown in figure 2-2 where it shows that about 7 divisions are under MDs supervision. The Board of Directors have also approved an interim restructured organ gram and reporting lines for introduction in the bank. The functional organ gram and that is shown on Figure 2-1 given below-

Figure 2-1: Functional Organ gram

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Functional Organ gram Managing Director DMD Business Internal Control & Compliance DMD Legal & Recovery Legal Division Special Asset Management Division Human Resource Division Finance Division Credit Risk Management Division Brand Communication & Marketing

DMD Operation

Treasury & Market Risk Division Retail Banking Division Corporate & Investment Banking SME Banking

Operation Division IT Division

2.9 Five Year Statistical Review: SL # 1. Authorized Capital 3800.0 0 2. Paid up Capital 1766.3 2 3. Shareholders Equity 4. Total Capital 3684.5 1 3969.3 3800.0 0 1496.8 8 2483.0 9 2888.3 2044.3 0 2370.9 1904.8 0 2114.5 1560.9 4 1705.9 3800.0 0 997.92 1000.0 0 950.40 1000.0 0 864.00 Items 2009 2008 2007 2006 2005

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3 5. Total Assets 52774. 77 6. Total Deposits 42354. 07 7. Total Loans and Advance 8. Total Investments 33883. 92 9537.9 7 9. Export 19676. 38 10. Import 29720. 99 11. Total Contingent Liabilities 12. Operating Income 10061. 04 2544.0 2 13. Operating Expenditure 14. Profit before provision and tax 15. Profit after provision and tax 16. Total provision maintained 17. Earning assets 1139.8 2 46075. 04 18. Non-interest earning assets 6699.7 2 1626.9 2 820.61 917.10

3 38964. 97 33820. 41 28529. 35 5606.4 9 19463. 24 30381. 62 11467. 71 1839.5 7 644.49

5 32181. 90 24776. 92 22683. 23 3959.5 3 18282. 00 24866. 00 10916. 14 1188.3 4 424.48

3 25983. 92 22264. 05 18591. 52 2821.6 2 12943. 29 26255. 29 9671.3 9 1284.8 6 315.39

7 19306. 99 16098. 54 14373. 26 2495.9 8 8810.0 0 17660. 00 7498.2 7 877.01

225.17

1195.0 9 305.03

763.85

969.47

651.85

210.80

478.28

336.17

1236.0 7 33944. 60 5020.3 7

603.43

239.98

145.00

28470. 97 3710.9 3

23575. 83 2642.1 6

17419. 05 1887.9 5

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SL # 1.

Items

2009

2008

2007

2006

2005

Earning per share (Figure in Tk.)

46.46

17.27

14.80

47.93

35.37

2.

Book value per share (Figure in Tk.)

208.60

165.88

204.86

200.42

180.66

3. 4. 5.

Dividend-cash -Bonus Share Return on average equity 20% 26.61% 18% 25%

20% 5%

14% 10%

13.47% 10.68% 27.71% 24.32%

6.

Return on average assets

1.79%

0.86%

0.72%

2.10%

1.91%

7.

Classified loans as% of total credit

2.81%

4.92%

2.39%

1.03%

8.

Lending Deposit ratio

80.00%

84.36% 91.55% 83.50% 89.28%

9.

Capital adequacy ratio

13.16%

10.39% 10.19% 11.83% 12.55%

10.

Price Earning ratio (times)

8.86

18.52

40.30

7.14

11.12

11. 12.

No. of Branches No. of Employees

44 841

36 739

30 578

25 470

20 376

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2.10 SWOT Analysis: Not surprisingly, in the competitive arena of marketing era SWOT analysis is a must based on product, price, place and promotion of a financial institute like private bank. From the SWOT analysis we can figure out ongoing scenario of the bank. So to have a better view of the present SWOT contains 1) Internal factors

(a) Strength (b) Weakness


2) External factors

(a) Opportunity (b) Threats (a) Strength:

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Stable source of fund. Strong liquidity position. Concentrated market. Wide network of branches. Experienced top management. Diversified product line.

(b) Weakness: Deposit is lower than Advance. Small market share in banking business. Long term credit is not sufficient. Relatively high overhead expense. (c) Opportunity: Favorable regularity environment. Private sector development. Credit card business. SME and agro base industry loan. (d) Threats: Deposit as well as quality assets. Market pressure for lowering the interest rate.

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Shrinkage in export, import and guarantee. Poor business due to economic slump and war. Frequency in Currency Devaluation. Emergence of Competitors. Govt. pressures to reduce interest rate.

2.13 Achievements: The performance of Mutual Trust Bank Ltd has been satisfactory since its inception in respect of all the measurement parameters. The total assets of the Bank increased to Taka 38964.97million at the end 2008 from Taka 32181.90 million in the previous year. The growth rate was 21.08 percent. Deposit rose from Taka 24776.92 million in 2007 to Taka 24776.92 million in 2008 showing a growth rate of 36.50 percent. Loans and advances stood at Taka 28529.35 million as on December 31, 2008 against Taka 22683.23 million at the end of 2007, recording a growth rate of 25.77 percent. The total contingent liabilities increase taka 11467.71 million at the end of 2008 from taka 10916.14 million in the previous year. Lending deposit ratio is 84.36 percent in end of 2008 and 91.55 percent in the previous year. Classified loans as % of total loan & advance were 1.92 percent in 2008 and 2.39 percent in 2007. Profit after provision and term in end of 2008

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is 305.03 million taka one the other hand 210.80 in 2007. The earning asset of Mutual Trust Bank Ltd is 33944.60 million taka in the end of the period 2008 and 27929.33 million taka in the previous year. Non interest earning Asset was increased taka 5020.37 million in 2008 from 4252.57 million taka in 2007. Return of interest 8.11 percent in 2008 and 4.10 percent in previous years. Return of Asset of MTBL 78 percent in 2008 and 66 percent in 2007. In come from investment increase 451.84 million taka in 2008 from 162.41 million taka in 2007.

Chapter 3

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Practice of Loan & Advance


3.1 Practice of Credit According to the different product and services the bank has to provide to their customer, Loans & Advance has the major impact in respect of both bank and also for their customer. The making of loan and advance is always profitable for the bank. As banks assemble savings from the general people in the form of deposit, the most important task is to disburse the said deposit as loans and advance to the mass people for the development of commercial, industrial and the people who are in need of fund for investment. Like other financial institution, the main purpose of the commercial bank is to make profit. Because loans and advance is the main asset of the bank, from where the bank has their interest income, which is the main source of income for the financial institution like bank. Mutual Trust Bank also knows the debt financing is cheaper than equity financing. So, in this way the bank helps to build up the industrial infrastructure of the country by giving them opportunity of

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being financed by using the debt capital. Loans & advance also helps to pull up the operating and financial leverage. But to get the loans and advance the investors has to follow some terms and condition which falls under the policy and practice of the bank instruction booklet.

3.1.1 Policy & Practice 1. Aggregate loans and advances shall not exceed times the

Banks net worth or 65%of customers deposit whichever is lower (excluding loans and advance covered by specific counter -finance arrangements). 2. Within the aggregate limit of loans and advances as mentioned in (1) above 50% of lending will be small industry sector in accordance with prescribed norms of the government and the central bank in terms of the banks objectives with 50% to the commercial sector. No term loans will be approved for the commercial sector. Exceptions will be rare and will require approval of the Executive Committee. 3. All lending will be adequately secured with acceptable security and margin requirement as lay down by the Head office credit committee. 4. The bank shall not incur any uncovered foreign exchange risk (currency exposure) in the lending of funds. 5. The bank shall not incur any risk of exposure in respect of unmatched rates of Interest of funding of loans and advances

beyond 15% of outstanding loans and Advances.

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6. End- use of working capital facilities will be closely monitored to ensure lending used for the purpose for which they were advanced. 7. Country risk in loans and advances will be accurately identified and shall be within the country limits if any approved for the bank. The same treatment will be given to country risk arising out of contingent liabilities relating to Letters of credit and letters of guarantee.

3.2 Credit Facilities: MTBL is providing different attractive credit facilities to the different class in society. As credit is the heart of a bank MTBL has felt to develop its credit facilities to the various class of society on their extreme need. Figure 3 1: Credit products
Credit Products Retail

Corporate

SME

1. Term Finance. 1. MTB Home Loan. 2. MTB Auto Loan. 3. MTB Personal Loan. 4. MTB Home Equity Loan. 2. Working Capital Finance. 3. Trade Finance 4. Syndication & Structured Finance. 5. Offshore Banking

1. MTB Bhagyobati. 2. MTB Krishi. 3. MTB Mousumi. 4. MTB Revolving. 5. MTB Digoon. 6. MTB Small Business. 7. MTB Green Energy Loan

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3.2.1 Retail Products: Under the retail banking arena of MTBL, the organization is providing some awesome Loan products as financial facilities. The products are:

3.2.1.1 MTB Home Loan: Home Loan Scheme has been introduced to facilitate people to fulfill their dream of a home of their own. It has been designed o help people to get home loans on easy terms and without any hassle. Planning to own a home is one of lifes most rewarding challenges. Whether it is purchasing a new house or a new apartment, MTB has a wide range of home loan options that can be customized to customers specific need. An experienced, dedicated team of experts and a complete loan package is in place, to meet all customers housing finance needs. MTB Home Loan helps the customers to fulfill their dream.
Features: Loan for residential apartment/house purchase Loan amounts from BDT 5,00,000 to BDT 1,00,00,000 Loan tenor from 3 to 25 years Loan amount up to 80% of the property value Aggregation of co-applicants income Competitive interest rates Quick and simple processing and approval time Loan for apartment under construction Partial or early settlement options available

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Eligibility: Any financially able person Age: minimum 21 and maximum 65 years at loan maturity For 100% cash covered loan: Age- minimum 18 and maximum 70 years at loan maturity Minimum Income Range: Salaried person Tk. 25,000 Self employed Tk. 30,000 Businessperson/Land lord/Land lady Tk. 40,000 Experience Salaried person : 3 years Self employed : 3 years Businessperson : 3 years

Loan Takeover Plan: An exclusive offer for other banks credit worthy customers who can transfer their Home Loan outstanding to MTB with both preferential interest rate and waiver of processing fees. Eligibility: Minimum 12 months loan EMI repayment history with existing bank Property location and other eligibility criteria of general loan are applicable Benefits of Takeover Plan:

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1% reduced rate from regular interest rate Additional loan amount facility over takeover amount No processing fee for takeover loan amount Required documents: Loan application Applicants National ID/Driving License/Passport copy Photographs of applicants (studio photo) Salary certificate for salaried person Trade license for businessperson Personal and business account statement for last one year Applicants TIN certificate Copies of all existing loans sanction letter and repayment history for last one year Rental deed for rental income and ownership deed of rented property Apartment allotment letter/Deed of agreement/property ownership deed Other all property related documents copy

3.2.1.2 MTB Auto Loan: A person has desire to own a car to enhance his/her standard of living. MTBL has come to help those people who have kind of dream. MTBL offer lucrative interest rates that would pleasantly surprise its customers. MTB Auto Loans are built for utmost speed and competence. MTB Auto Loan is available for financing both new and reconditioned cars. Features: Loan amounts from Tk. 3,00,000 to Tk. 20,00,000 Financing up to 80% of vehicle price Flexible repayment of 12 - 60 months No hidden charges Competitive interest rate

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Easy documentation and quick processing Option for early settlement Eligibility: Age: minimum 21 and maximum 60 years at the end of loan maturity Experience: Salaried executive total - 2 years Business person/self employed - 2 years Monthly income: Minimum Tk. 30,000 Loan Amount 3,00,00 0 4,00,00 0 6,50,00 0 7,50,00 0 10,00,0 00 15,00,0 00 20,00,0 00 EMI schedule 24 36 48 14,475 10,327 8,274 19,300 31,363 36,188 48,250 72,375 96,499 13,769 22,374 25,816 34,421 51,632 68,842 11,032 17,926 20,684 27,578 41,367 55,156

12 27,007 36,010 58,515 67,517 90,023 1,35,0 34 1,80,0 46

60 7,059 9,412 15,294 17,647 23,529 35,293 47,057

3.2.1.3 MTB Personal Loan: MTBL has providing Personal Loan to its customers to fulfill their little needs with extreme emergency. Craving to buy a new laptop? Thinking of a wonderful holiday? Need financial assistance for childs higher education? Want to purchase home appliances? Require marriagerelated expenses? An MTB Personal Loan is one-stop-solution for all financial needs to fulfill any of desires like above examples. MTB Personal Loan is simple, convenient and quick. Features: Any purpose personal loan for salaried executives, business persons, land lord/ land lady and self employed individuals

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Loan amounts from Tk. 50,000 to Tk. 10,00,000 Flexible repayment option of 12 - 60 months No hidden charges Competitive interest rate Easy documentation and quick processing Option for early settlement

Eligibility: Age minimum 21 and maximum 60 years at loan maturity Experience: Salaried person : 1 year with 6 months permanent employment status Self employed : 1 year of practice in the profession Businessperson : 2 years of involvement in the same nature of business Minimum monthly income: Salaried executive Tk. 15,000 Self employed Tk. 30,000 Businessperson/Land lord/Land lady Tk. 40,000 Loan Balance transfer or Take over: Customers enjoying EMI based personal loan with other banks may enjoy the facility of Loan Balance Transfer. Eligibility: Minimum 6 loan EMI repayment with existing bank Minimum takeover loan amount is Tk. 200,000 and maximum Tk. 9,50,000 Benefits of Takeover Plan: No processing fee for loan takeover or balance transfer Interest rate will be 1% less than ongoing rate

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Approved loan amount may be higher than the takeover loan amount 3.2.1.4 MTB Home Equity Loan: MTB Home Equity loan provides a packaged financial assistance to individuals for fulfillment of their dream home. Its time to get customers coveted home by MTB Home Equity Loan. Features: Loan for house construction, extension, renovation, face upliftment, finishing work Loan amounts from BDT 5,00,000 to BDT 1,00,00,000 Loan tenor from 3 to 25 years Loan amount up to 80% of the property value Financing at different stages of construction work Partial disbursement facility of approved loan Aggregation of co-applicants income Competitive interest rates Quick and simple processing and approval time Partial or early settlement options available Eligibility: Any financially able person Age: minimum 21 to maximum 65 years at loan maturity For 100% cash covered loan: Age - minimum 18 to maximum 70 years at loan maturity Minimum Income Range: Salaried person Tk 25,000 Self employed Tk 30,000 Businessperson/Land lord/Land lady Tk 40,000 Experience Salaried person : 3 years Self employed : 3 years Businessperson : 3 years

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Loan Takeover Plan: An exclusive offer for other banks credit worthy customers who can now transfer their Home Loan outstanding to MTB with both preferential interest rate and waiver on processing fees. Eligibility: Minimum 12 months loan EMI repayment history with existing bank Property location and other eligibility criteria of general loan are applicable Benefits of Takeover Plan: 1% reduced rate from regular interest rate Additional loan amount facility over takeover amount No processing fee for takeover loan amount No processing fee for additional loan amount Required documents: Loan application Applicants National ID/Driving License/Passport copy Photographs of applicants (Studio photo) Salary certificate for salaried person Trade license for businessperson Personal and business account statement for last one year Applicants TIN certificate Copies of all existing loans sanction letter and repayment history for last one year Rental deed for rental income and ownership deed of rented property Deed of agreement/property ownership deed Other all property related documents copy

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3.2.2 Corporate Products: In terms of corporate products, MTBL has introduced some outstanding products to facilitate the business class people. Like: 3.2.2.1 Term Finance: MTBL provides loans that have specified repayment schedule and a floating interest rate with tenure more than one year but less than ten years. MTBL offers term loans for the following broader purposes: Project Finance Finance for Importing Capital Machinery Lease Finance House Building Finance 3.2.2.2 Working Capital Finance: MTBL takes special care in financing to meet its customers' running capital requirements by offering the following products: Secured Over Draft (SOD) Cash Credit (Hypo.) Cash Against Document Short Term Loan Inland Bill Purchase (IBP) Foreign Bill Purchase (FBP) 3.2.2.3 Trade Finance: MTBL offers export and import finance facilities for its customers depending on their requirements. Its trade finance service is a unity of funded and non-funded facilities. Export Finance facilities include: Back to Back L/C opening

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Export Bill Discounting (FDBP and IDBP) Secured Over Draft (SOD-general/export bill) Import Finance facilities include: Loan Against Trust Receipt (LTR) Term Loan (TR) Non-funded Trade Finance facilities: L/C Opening (Sight & Deferred) L/C Advising L/C Transfer Bank Guarantee Secured Over Draft (SOD) in the form of SOD (general/export bill) and SOD (Others-work order, FDR, land, etc.) Bank Guarantee in the form of Performance guarantee, Advance Payment guarantee, and Bidbond.Inland Bill Purchase (IBP) includes mainly government security bills and bonds. Foreign Bill Purchase (FBP) includes foreign drafts.

3.2.2.4 Syndication & Structured Finance: MTBL is active in the Syndication market with professional team having finest expertise and wide market network for enabling its corporate clients to access large loans through cost efficient structures. It offers tailor made solutions to fit the business requirements. It also facilitates its peer group in closing their syndicated deals by co-arranging or by taking large exposures in both Greenfield and Brownfield projects including Infrastructure Financing e.g. Power, Telecom, Hotels Aircraft Financing Manufacturing Project Financing e.g. Steel, Cement, Glass, Petrochemical Agro-based Project Financing Micro Financing

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MTBLs product basket contains Long Term Financing along with full range of product mix for Short Term Financing of day to day operations and non fund based facilities. It seeks to understand unique needs of customers business and incessantly strive to meet and to exceed their expectations.

3.2.2.4 Off-Shore Banking:

3.2.3 SME Products: Considering the potential growth and demand situation the Mutual trust Bank Limited has extended credit facilities to small and medium enterprises through SME Banking in the year 2006 and 2007.A separate division has established in the Head Office with collaboration of all branches to process and handle loans under SME for attaining a respectable market share and successful operation of the scheme. The bank has organized several training program for development of adequate human resources. MTBL SME Products are: 3.2.3.1 MTB Bhagyobati: MTB Bhagyobati loan is only for the SMEs owned by the women entrepreneurs. Features and Benefits: Loan amount range BDT 1.00 lac to BDT 50.00 lac Loan tenure up to 3 years Rate of interest 10% p.a (only in case of re-finance from BB) Up to BDT 5.00 lac is collateral free Easy repayment schedule No service charge or hidden charge Easy processing At least one year of business experience

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3.2.3.2 MTB Krishi: MTB Krishi is designed for direct lending in the agriculture sector. Only eligible farmers and agri SMEs may apply for the loan. Crops cultivation, fisheries, livestock & poultry are the priority sector of lending. Features and Benefits: Loan amount up to BDT 3.00 crore Loan tenure up to 5 years Rate of interest 10% p.a (only in case of re-finance from BB) Up to BDT 5.00 lac is collateral free Easy repayment schedule No service charge or hidden charge Easy processing Timely disbursement 3.2.3.3 MTB Mousumi: SME customers needs additional fund in some occasions, festivals and seasons. MTB Mousumi enables those SMEs which has seasonal type of business. Features and Benefits: Loan amount up to BDT 10.00 lac Loan period range 01 to 12 months Attractive Rate of interest Up to BDT 5.00 lac is collateral free Easy repayment schedule 1% service charge and no other hidden charge Minimum 02 years of business experience Easy processing 3.2.3.4 MTB Revolving Loan:

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Any SME, manufacturing, service, trading or farming, requires working capital for smooth operation of the business. This loan product enables those SMEs to meet their working capital requirements to support their operations and future growth. Features and Benefits: It is CC (H) and revolving type loan Loan amount up to BDT 50.00 lac Loan period 01 year and annually renewable Attractive rate of interest Minimum 02 years of business experience At least 02 years of bank account transactions Account turnover to be 03 times of the loan amount Easy processing No service charge or hidden charge Requires collateral support 3.2.3.5 MTB Digoon: It enables the SMEs to get loan double amount of their deposit. Features and Benefits: Loan amount range BDT 5.00 lac to BDT 20.00 lac Loan tenure up to 05 years Attractive rate of interest Monthly repayment Security 50% Fixed Deposit (FDR) of loan amount Easy processing 3.2.3.6 MTB Small Business Loan: It enables the SMEs to expand their business. Features and Benefits: Loan amount up to BDT 50.00 lac

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Loan period up to 5 years Attractive rate of interest Easy repayment schedule Minimum 02 years of business experience 1.00% service charge Up to BDT 5.00 lac is collateral free Easy processing 3.2.3.7 MTB Green Energy Loan: MTB Green Energy Loan is an environment friendly loan enables the prospective customers to set up renewable energy projects such as solar, biogas, wind, hydro and any other potential renewable plant. Any individual, business entrepreneurs, NGO, institutions having capacity to repay may apply for the loan. Features and Benefits: Loan amount up to BDT 3.00 crore Loan tenure up to 10 years Rate of interest 9% p.a (only in case of re-finance from BB) Easy repayment schedule Wholesale lending to eligible NGOs/service provide in case of home scale plant No service charge or hidden charge Easy processing

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Chapter 4

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A General View of Loan Procedure


There is no hard and fast procedure of managing credit, yet is should follow the instructions of the Bangladesh Bank, Central Bank of Bangladesh and the Circular of Head Office from time to tome. The first step of credit proceedings is the request for credit from the clients. Then scrutinizing and collection of information from primary (CIB) and secondary sources take place. Credit appraisal and evaluation is the most important part of credit management. On the basis of evaluation approval is given by the higher-authority with certain conditions to be fulfilled. Sanction of credit is done by the sanctioning officer, who has the authority to sanction the Credits. After fulfilling the conditions the credit is disbursed. Credit monitoring and reviewing start from the time of disbursement. In case of fault of repayment bank has some distinct rules of legal action to fix the problem.
Figure: 4-1 Loan procedure

Request from the Client Scrutinizing & Collection of Information

Credit Apprising & Presentation of Credit Proposal for Approval Approval of Credit

Sanction of Credit Mentioning Terms and Condition

Disbursement of Credit

Credit Administration Credit Monitoring and Classification of Accounts Taking Precaution/ Legal Action against Delinquent Clients

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4.1 Requests from the Client


Bank provides credit facilities to the people who are credit worthy to the bank. Credit worthiness depends on the credibility, financial capability, and feasibility of the project and management ability of the credits to earn profits. When bank is satisfied with all these then the client is provided with the requested credit. At this point it should be mentioned that the client has to go through an interview where his credit potentiality is justified through critical observation. When credit officer is satisfied with the customer he is asked to submit an application and to fill up a form with specific details. 4.1.1Credit Application: Completeness of information can best be obtained by requesting the applicant to fill out a comprehensive application. Psychological attitudes toward the seriousness of credit obligations are improved when the application is rather formal and complete. When the customer fills in the application, it is well for the interviewer to look over the form and to provide supplemental information, which will assure completion of the blanks not filled in, or which probes more deeply into the questionable areas. It is well to provide space on the form for the recording of more information after the customer has left. Points in favor of having the applicant fill out the form is that fewer skilled credit personnel are necessary and that more customers can be accommodated in the same space. 4.1.2 Submission of Application: The borrower are provided with an instruction paper, which help him or her to prepare the loan proposal properly Information for loan application should be furnished in prescribed First Information Sheet (FIS) in triplicate in each page / set should be duly sealed and signed by the applicant(s)/ sponsor(s).

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Complete information should be furnished in respect of each item supported by documentary evidences, wherever necessary, to avoid further

reference / delay/ rejection of the application. The Bank reserves the right to reject the application forthwith if the information given in the form is incomplete and not fully documented in all respects. Information may provide in additional sheet of papers, if required .How ever also ensure that all the fact / evidences has been enclosed properly including three feasibility reports/detailed study reports on loan proposal.

The client are required to deposit with the application the project examination fee and also apportion of the equity at the following rate either by cheque or pay order or demand draft drown in favor of Mutual Trust and payable in any scheduled Banks within the country. Memorandum and Articles of Association together with the certificate of registration /incorporation commencement of business of the company duly certified by the managing director of the company should be submitted. No objection certification from the appropriate authorities for setting up the project on land wherever required should be submitted. Title deed of land, together with non-encumbrance certificate from the District Register or SubRegister should be submitted. Certificates from the surveyor for determining the price of land of the project /price of adjacent land sold during last three years should be submitted. Also to be submitted are site/ mouza map. Machinery layout plan, price quotation of three suppliers together with illustrated brochures and literatures should be submitted for both import and local machinery.

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Consent letter from Power Development Board / Rural Development Board/ Gas Authority / Pollution Control Board should be submitted whatever required.

Soil Test / Water Test report (if required). Nationality certificate along with attested passport size photographs of the directors/ partners / proprietor should be submitted.

Declaration of asset and liability of the proposed directors / partners/ proprietor.

Declaration of payment of income tax should be submitted. Letter of prime banker of the company/ firm/ person should be issued with a copy to the Mutual Trust Bank as per given annexure.

Give

reason

for

seeking

additional

loan

for

expansion/

balancing/

repayment/ of the existing unit. Also provide information relating to existing line of products, rated/ actual/annual production capacity for the past operation years, sales performance and financial position of the company.

4.2 Scrutinizing and Collection of information


This is one of the most important parts of the loan procedure to collect information of clients to verify giving loan to them. Generally this portion is done by collecting CIB report from Bangladesh Bank. However information are gathered in two ways: (a)Direct Inquiry: Direct inquiry is one of the common methods of obtaining information to verify facts presented on the application of during the interview of an applicant for an initial credit transaction. A careful distinction is made between obtaining credit information directly form sources having such facts and between buying somewhat similar credit data in the form of prepared reports from the credit reporting bureaus and agencies.

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(b)In-file ledger fact: In-file ledger facts are one of the most important sources of information available to credit committee whether to accept or reject a larger amount of credit from an established credit customer. From the in-file records, credit analysts have at their disposal the experience of the concern with the customer. They know the customer's payment habits, the complaints registered, and the collection efforts, if needed to keep the customer in line with the established terms.

4.3 Credit Apprising & Presentation of Credit Proposal for Approval


When credit officer is satisfied with his credit worthiness, financial capability, management ability and feasibility of the project through credit appraisal of clients in a prescribed form, he can hope for credit from the bank. Credit appraisal is done through 'credit appraisal form'. Ratio analysis is give importance in case of project finance. But most of the medium quality loans are given on the basis of financial capability of repaying and credit worthiness of the client. Lending risk analysis is done in a prescribed form in case of large amount of loan, above 50 Lac. Credit officer prepares a credit proposal along with the prescribed 'Credit Proposal Form'. Credit officer measures the risk associated with the credit facility. No credit proposal can be put for approval unless there has been a complete written analysis. It is absolute responsibility of the Proposing Officer to ensure that all necessary proposal documentation have been collected before the facility request is sent to the Sanctioning Officer.

4.4 Approval of Credit


4.4.1 Branch credit committee: It is to be headed by the Branch Manager, other members to be selected by the manager in consultation with Head Office.

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4.4.2 Head Office credit committee: Head office credit in accordance with authority established and delegated by the Board of Directors. Reviewing, analyzing and approving extension of credit in accordance with authority established and delegated by the Board of Directors. Evaluate the quality of tending staff in the bank & take appropriate steps to improve upon. Recommending credit proposal to the Executive Committee/Board of Directors which are beyond the delegated authority. Ensuring, that all elements of Credit application i.e. Forms, Analysis of statements and other papers have been obtained and are in order. Confirming that the transaction is consistent with existing loan policy and Bangladesh Bank guidelines & if not the Committee may prepare a recommendation form an exception to or change in policy for consideration by the Executive Committee/Board of Directors.

4.4.3 Executive committee: Approving credit facilities as delegated by the Board of Directors. Supervising the implementation of the directives of the Board of Directors. Reviewing of each extension of credit approval by the Head Office Credit Committee/Managing Director. Keeping Board of Directors informed covering all these aspect.

4.4.4 Board of Directors: After establishing overall policies and procedures for approving and reviewing credits, delegating authority approves and review credits. Approving credit for which authority is not delegated. Approving all extensions of credit which are contrary to bank's written credit policies.

4.5 Sanction of Credit

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Most important step of providing credit facility is the sanctioning of credit. Because sanctioning authority is responsible for any discrepancy. In this step all the documentation is completed and the customer is sent an advising letter for the credit facility along with all the terms and conditions. Norms maintained in sanctioning of credits are described below:

Credit will be sanctioned and disbursed strictly in terms of the approved Credit Operational Manual of the Bank and Head Office Circulars issued from time to time. All norms informed through the Circulars of Credit Division in particular and all other relevant circulars in general, which are to be followed meticulously while exercising power. Credits will be subject of Bangladesh Bank restriction. The party to whom credit will be allowed should be as far as possible within the command area i.e. Area of operation of the Branch. Deviations, if any are to be explicitly explained in the proposal. No Sanctioning Officer can sanction any credit to any of his/her near relations and to any firm/company where his relations have financial interest. Such cases should be sent to the Head Office. All Sanctioning Officers maintain a Sanctioned Register for recording serially all the credits sanctioned by him. Sanctioning officer will accountable for non-recovery due to his injudicious decision. All approval of credit facilities must be conveyed under dual signature. Ideally both the signatories must have the required lending authority. If however, two lending officers of the required lending are not available, one of the signatories must have the required authority.

4.6 Disbursement of Credit


Disbursement of credits presupposes observance of all norms and procedures, which are conveyed through different Circulars of Head Office, issued from time to time.

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The disbursement procedures or timing of disbursement depend on the client or the progress of work of the construction. The disbursement can be made two or three stage or more depending on the above conditions. Mode of Repayment: The loan shall be adjusted by monthly installment basis. The repayment will start from months of the date of first disbursement ( it may charge according to the terms and conditions of the agreement. Collateral: The land and the construction on the land are normally given as collateral. It no changesCharge documents to be obtained: a) b) c) d) e) f) g) h) DP note Letter of disbursement Letter of Installment Letter of guarantee Letter of undertaking Latter of agreement Irrevocable general power of attorney Memorandum of deposit of title deed

4.6 Credit Administration and File Maintenance The credit file for each facility shall contain all information necessary to facilitate ready monitoring of that facility. It should contain a through history of the customer relationship to help credit officer': track any problems, assist a newly assigned credit officer in understanding the customer and make the lending process transparent. Primary items in Credit File include: A popular disbursement procedure is essential for implementing a project, small or big,

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within the essential time or cost. However the constant monitoring of the projects on the one hand and timely mobilizing the equity on the other hand cannot be under estimated for efficient implementation of a project. The following factors are taken into account. After machinery contract is finalized the bank will open irrevocable letter of credit on behalf of the borrower in the joint name of the bank and the borrower. Disbursement of the foreign currency loan is made automatically as soon as irrevocable letter of credit for import of machinery is established and the foreign supplier makes shipment of machinery. The local currency loans are to be made available to the project after satisfactory and full utilization of equity by the borrowers by creating by required physical facilities (tangible asset) for the project. The sponsor has to request for release of local currency loan to the bank supported to the paper like progress report, statement of account, documents. The local currency loan of the bank to be disbursed in one or more installment according to the nature of the project. The borrower must use the loan for the purpose for which the advance is extended. The borrower shall apply the proceeds of the loan exclusively to finance the cost of the goods and services required to carry out the project. Foreign currency shall be disbursed only for goods and services that have neither been paid for in Bangladeshi currency not were produced in. If the completion of the project or its successful operation is hindered or delayed because the fund s available are inadequate to ensure its completion. It should be the responsibility of the borrower to make prompt arrangements in accordance with financial plan approved by the bank to provide the necessary fund. Credit application and Credit approval notes/analysis. Evidence of credit approval and data upon which approval was granted together with any comments, if appropriate. Copy of sanction and loan agreement. A checklist along with copies of all legal & banking documents obtained / to be obtained. Details and 6

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monthly updated information of all related facilities to the name customer group, All supporting data such as financial statements and analysis, references, credit investigation results, CIB & other Bank reports and notes of all discussions with the borrower and other relevant parties with paper clipping. Correspondences call reports, site visit reports, stock report etc. each credit file shall be maintained in a secured location and where access restricted to authorized personnel's only. Copies of the information may be kept where regular access is required.

4.7 Credit Monitoring and Reviewing It is the responsibility of the Manager to monitor the over all profile and risk aspect of the credit portfolio in accordance with the criteria set down in the Bank Credit Policy. Such monitoring shall be evidenced from the comments of the Manager in monthly Call/Visit Report and be kept in the Credit File with a copy to the Head Office. This Review shall be formally performed at intervals prescribed by Head Office but it is the responsibility of the Manger to ensure at all times that the credit portfolio meets the standard set forth by the Bank.

4.7.1 Factor Analyzed in the Loan Mentoring


Credit policy of the Mutual Trust Bank Limited has set forth the guideline that must be followed in the time of loan review. After getting the review of the loan portfolio from the branch level the assigned officer of the head office credit department state stated the analyzing and preparing the report. The following factors are taken into consideration at the time of monitoring the loan and advance. The account has not excess over limit The terms and condition of the sanction letter are strictly followed The value of the collateral security of the loan is adequate

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There is not any unfavorable situation in market, economy and political conditions, which may endanger the reliability of the borrower account The analysis of the borrowers business performance and

comparison of the projected and actual to find any deviations.

4.8

Steps against Delinquent Clients

When a problem loan is detected the responsible loan officer takes the corrective action and tries to minimize the loan losses by allowing different facilities to the client. The steps are followed by the Mutual Trust Bank to manage the clients are: 4.8.1 Persuasion: This is to step practice at Mutual Trust Bank to manage the problem loan. This step involves: Open discussion with the borrower Discussion with third party to find out the underlying reasons. Issuing the 1st Reminder letter of inform the due date and due installments. If the party does not respond issuing the 2nd Reminder and then 3rd Reminder letter.

4.8.2 Negotiation: If the percussion failed, the loan officer negotiated a plan of action with the borrower to save both the bank and the borrower from possible loss. This calls for certain sacrificing on the part of the bank and borrower in their mutual interest. The plan of action in Mutual Trust Bank consists of the following: Revise the loan agreement Concession of interest (If the client is difficult to manage)

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Reschedule of the loan and giving installment facility to repay the overdue amount beside the regular installment.

4.8.3 Litigation: If the client failed to repay the loan even after rescheduling the loan, Mutual trust bank goes for the taking the legal action against the delinquent client to recover the loan. The branch manager sent a letter to the head office credit department informing the borrowers reluctance to repay the loan. Following measure is taken: Filing case against the client Assigning the loan officer for assisting the lawyer.

The Branches will submit a monthly statement of the credits allowed under the discretionary powers of the Manager to the Head Office irrespective whether the same are outstanding or not on the date of return. The responsibility for review and classification of credit facilities starts at Branch level. The frequency of the supervision and monitoring depends on the classification of credits.

Chapter 5
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Credit Risk Management


The Credit Risk Management Division is vital for the efficient functioning of MTBL. It critically scrutinizes the credit proposals from risk weighted point of view before sanctioning approvals ensuring a high quality credit portfolio. The goal of credit risk management is to maximize a bank's risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. Banks need to manage the credit risk inherent in the entire portfolio as well as the risk in individual credits or transactions.

Credit Risk:
Credit risk is the possibility of failure of a borrower to meet agreed obligation. With the present days de-regulation and globalization, the banks range of activities has increased. Expansion of the banks lending operations, covering a risk areas and therefore to work out robust credit risk management policy. At MTBL, credit risk may arise in the following forms Default Risk

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Exposure Risk Recovery Risk Counter Party Risk Related Party Risk Legal Risk Political Risk To mitigate credit risks, following measures are in place at MTBL: (a) Mission, Vision and objectives (b) Credit principles (c) General policy guidelines in conformity with BB guidelines and industry best practices. (d) Rigorous credit process (e) Sector wise lending caps (f) Lending policy and strategy to different areas (g) Collecting CIB of BB. (h) Critical assessment of repayment capacity in pre-investment analysis stage (i) Credit Risk Grading of the client (j) Provision for Insurance coverage (k) Taking Collaterals (l) Annual credit review (m) Vigorous monitoring follow up (n) Periodic review of market situation and industry exposure

Credit Principles:
In managing credit risk effectively MTBL: Maintains a judicious ratio between Loan and Deposit Pursues a credit that aims at credit expansion by maintaining credit quality Does not compromise with standards of excellence Ensures that all credit extensions comply with regulatory norms, prevailing laws, rules and regulations

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Extends credit facilities in such a manner that each extension become rewarding and ensures superior return on capital Extends credit facility upon adequate pre-investment analysis and repayment capacity of the client Avoids credit concentration through rational diversification of credit Avoid name lending. Credit is allowed on business consideration, after ascertaining viability, credit requirement, and quality of advance, security offered, cash flows and risk level Credit risk management is processed through various steps but mainly it is performed in four key parts. These are -

Credit Analysis

Credit Disburseme nt

Credit Monitoring

Credit Recovery

Figure 4-2: Credit Risk Management Process (4 key Parts)

These parts are performed through different steps starting from the collection obligors data to disbursement throughout various calculations, and then monitoring transaction through creating loan classification and provisioning and at last process of recovery. An important part of credit risk management is to measure it. This requires a credit assessment of loan applicants. The bank employ credit analyst who review the financial information of a corporation applying for loans and evaluate their creditworthiness. The evaluation should indicate the possibility of that a firm meet its loan payment so that the bank can decide whether to grant the loan. A brief description of Credit Risk Management from BB context is the main subject matter of this section.

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5.1 Credit Analysis


The term credit analysis is used to describe any process for assessing the credit quality of the borrower or obligor. While the term can encompass credit scoring, it is more commonly used to refer to processes that entail human judgment. One or more people, called credit analysts, will review information about the counterparty. This might include its balance sheet, income statement, recent trends in its industry, the current economic environment, etc. They may also assess the exact nature of an obligation. For example, secured debt generally has higher credit quality than subordinated debt of the same issuer. Based upon this analysis, the credit analysts assign the borrower (or the specific obligation) a credit rating, which can be used for making credit decisions.

When a customer requests for a loan, bank officers analyse all available information to determine whether the loan meets the banks risk-return objectives. Credit analysis is essentially default risk analysis in which a loan officer attempts to evaluate a borrowers ability and willingness to repay. In accordance with BB guidelines here are steps briefly discussed -

5.1.1 Lending Guidelines:


In credit analysis part, at first the loan officers/ risk managers have to judge the collected information through credit application from the RM (relationship manager) according to lending guidelines i.e. the credit policies of the banks. These policies should include the following: Industry and business segment focus - where a clear identification

of the business/industry should be provided so that it constitutes the majority of the banks loan portfolio. Types of loan facilities a clear identification of the types of loan

that should be permitted.

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Single Borrower/Group Limits/Syndication - details of the banks

Single Borrower/Group limits should be included as per Bangladesh Bank guidelines. Lending Caps - Banks should establish a specific industry sector

exposure cap to avoid over concentration in any one industry sector. Discouraged Business Types - Banks should outline industries or

lending activities that are discouraged. For example, as a minimum, the following should be discouraged o o o o Military Equipment/Weapons Finance Highly Leveraged Transactions Finance of Speculative Investments Logging, Mineral Extraction/Mining, or other activity that is ethically or environmentally sensitive o o o o o o Lending to companies listed on CIB black list or known defaulters Counterparties in countries subject to UN sanctions Share Lending Taking an Equity Stake in Borrowers Lending to Holding Companies Bridge Loans relying on equity/debt issuance as a source of repayment. Loan Facility Parameters - facility parameters (e.g., maximum size, maximum tenor, and covenant and security requirements) should be clearly stated. Cross Border Risk - Borrowers of a particular country may be unable or unwilling to fulfill principle and/or interest obligations. It is distinguished from ordinary credit risk because the difficulty arises from a political event, such as suspension of external payments, synonymous with

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political & sovereign risk and Third world debt crisis. For example, export documents negotiated for countries like Nigeria.

5.1.2 Credit Assessment:


In Credit risk assessment, RMs originate all the assessment results in the form of Credit Application prior to the granting of loans, and at least annually thereafter for all facilities which is approved by the CRM. The RM is held the owner of the customer relationship, and responsible to ensure the accuracy of the entire credit application submitted for approval. RMs must be familiar with the banks Lending Guidelines and should conduct due diligence on new borrowers, principals, and guarantors. All banks should have established Know Your Customer (KYC) and Money Laundering guidelines which should be adhered to at all times. Credit Applications should summaries the results of the RMs risk assessment and include, as a minimum, the following details: Amount and type of loan(s) proposed. Purpose of loans. Loan Structure (Tenor, Covenants, Repayment

o o o o

Schedule, Interest). Security Arrangements.

In addition, following risk areas are also addressedo Borrower Analysis - The majority shareholders, management team and

group or affiliate companies should be assessed. o Industry Analysis - Any issues regarding the borrowers position in the

industry, overall industry concerns or competitive forces should be addressed and the strengths and weaknesses of the borrower relative to its competition should be identified. o Supplier/Buyer Analysis - Any customer or supplier concentration

should be addressed, as these could have a significant impact on the future viability of the borrower.

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Historical Financial Analysis - An analysis of a minimum of 3 years

historical financial statements of the borrower should be presented. The analysis should address the quality and sustainability of earnings, cash flow and the strength of the borrowers balance sheet. Specifically, cash flow, leverage and profitability must be analyzed. o Projected Financial Performance - A projection of the borrowers

future financial performance should be provided for the term facilities (tenor > 1 year), indicating an analysis of the sufficiency of cash flow to service debt repayments, insufficient projected cash flow for repaying debts will not be granted. o Account Conduct - For existing borrowers, the historic performance in

meeting repayment obligations (trade payments, cheques, interest and principal payments, etc) should be assessed.

Adherence to Lending Guidelines - Credit Applications should clearly

state whether or not the proposed application is in compliance with the banks Lending Guidelines which should be approved by the Banks Head of Credit or Managing Director/CEO. o Mitigating Factors - Mitigating factors for risks identification in the to: margin sustainability and/or volatility, high debt load

credit assessment should be identified. Possible risks include, but are not limited (leverage/gearing), overstocking or debtor issues; rapid growth, acquisition or expansion; new business line/product expansion; management changes or succession issues; customer or supplier concentrations; and lack of transparency or industry issues. o Loan Structure - The amounts and tenors of financing proposed should

be justified based on the projected repayment ability and loan purpose. Excessive tenor or amount relative to business needs increases the risk of fund diversion and may adversely impact the borrowers repayment ability.

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Security - A current valuation of collateral should be obtained and the

quality and priority of security being proposed should be assessed. Loans should not be granted based solely on security. Adequacy and the extent of the insurance coverage should be assessed. o Name Lending - Credit proposals should not be unduly influenced by an

over reliance on the sponsoring principals reputation, reported independent means, or their perceived willingness to inject funds into various business enterprises in case of need. These situations should be treated with great caution. Rather, credit proposals and the granting of loans should be based on sound fundamentals, supported by a thorough financial and risk analysis.

5.1.3 Risk Grading:


Risk grading is a key measurement of a Banks asset quality and as such, it is essential that grading is a robust process. All facilities should be assigned a risk grade. Where deterioration in risk is noted, the Risk Grade assigned to a borrower and its facilities should be immediately changed. Borrower Risk Grades should be clearly stated on Credit Applications.

Credit risk grading is an important tool for credit risk management as it helps the Banks & financial institutions to understand various dimensions of risk involved in different credit transactions. The aggregation of such grading across the borrowers, activities and the lines of business can provide better assessment of the quality of credit portfolio of a bank or a branch. The credit risk grading system is vital to take decisions both at the pre-sanction stage as well as post-sanction stage. At the pre-sanction stage, credit grading helps the sanctioning authority to decide whether to lend or not to lend, what should be the loan price, what should be the extent of exposure, what should be the appropriate credit facility, what are the various facilities, what are the various risk mitigation tools to put a cap on the risk level.

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At the post-sanction stage, the bank can decide about the depth of the review or renewal, frequency of review, periodicity of the grading, and other precautions to be taken. In this risk grading tool, credit applicants aggregate risk factors are graded after grading and scoring each risk factors. Here is a table of risk grading and how the risk grading is calculated is shown in the appendix-A. Table 4-5: Scores of different risk grades Grading Short Name Superior Good Acceptable Marginal/Watch list Special Mention Sub standard Doubtful Bad & Loss SUP GD ACCPT MG/WL SM SS DF BL Number 1 2 3 4 5 6 7 8

The more conservative risk grade (higher) should be applied if there is a difference between the personal judgment and the Risk Grade Scorecard results. It is recognized that the banks may have more or less Risk Grades; however, monitoring standards and account management must be appropriate according to the assigned Risk Grade, the definitions of the risk grades are given in the appendix-B.

5.2 Credit Disbursement

Credit disbursement occurs after assessing all the formal documents like credit application, other business documents of the borrower, financial sheets, CIB

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report, CRG score sheet etc. According to BB guidelines the disbursement procedures take place in the following ways 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 based on authorization from an appropriate executive in CRM. Disbursements under loan facilities are only be made when all security documentation is in place. CIB report should reflect/include the name of all the lenders with facility, limit & outstanding. All formalities regarding large loans & loans to Directors should be guided by Bangladesh Bank circulars & related section of Banking Companies Act. A sample documentation and disbursement checklist is attached, which banks may wish to use to control disbursements.

After disbursement procedure the approval procedures take place. 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 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.

5.3 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

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borrower. At a minimum, systems should be in place to report the following exceptions to relevant executives in CRM and RM team: Past due principal or interest payments, past due trade bills, account excesses, and breach of loan covenants; 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 follow-up. Timely corrective action is taken to address findings of any internal, external or regulator inspection/audit. All borrower relationships/loan facilities are reviewed and approved through the submission of a Credit Application at least annually. Computer systems must be able to produce the above information for central/head office as well as local review. Where automated systems are not available, a manual process should have the capability to produce accurate exception reports. Exceptions should be followed up on and corrective action taken in a timely manner before the account deteriorates further. The exception covers the area of Loan Classification and Provisioning and the Early Alert Accounts if the account deteriorates.

5.3.1 Loan Classification & Provisioning


In order to strengthen credit discipline and bring classification and provisioning regulation in line with international standard, Bangladesh Bank issued a master circular on loan classification and provisioning through BRPD circular no 5 dated June 5, 2006. The revised policy covers an independent assessment of each loan on the basis of objective criteria and qualitative factors which is appended below:

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Table 4-6: Loan classification based on Qualitative factors & Objective criteria Loan Criteria Loan Classification Overdue SMA Interest Suspense Account Sub-Standard Doubtful Bad/Loss Defaulted Installment Sub-Standard Fixed term loans (within 5 years) Doubtful Bad/Loss Fixed term loans (more than 5 years) Short term Agriculture and Microcredit Sub-Standard Doubtful Bad/Loss Irregular Sub-Standard Doubtful Bad/Loss Loan Classification Requirement If not repaid/renewed within the fixed expiry date for repayment from the following day of the expiry date. If remains overdue for 90days or more. Interest accrued on Special Mention Account (SMA) will be credited to Interest Suspense Account. If it is overdue 6 months but > 9 months. If it is overdue for 9 months but > 12 months. If it is overdue for 12 months. If not repaid within due date. If the amount of Default installment is due 6 months installment. If the amount of installment is due 12 months. If the amount of installment is due 18 months. If the amount of Default installment is due 12 months installment. If the amount is due within 18 months. If the amount is due within 24 months. If not repaired within due date. If the irregular status continues after 12 months. If the status continues for 36 months. If the status continues for 60 months.

Continuous/ Demand loan/term loan

5.3.2 Early Alert Accounts


As a part of ongoing monitoring process, an account may be found to have some weakness, which clearly indicates the symptom of non-repayment of loan. This type of account should be reported in the Early Alert Account. The loan accounts excluding micro credit/scheme loan which have potential risk in deteriorating the quality of the assets and may cause nonpayment of the loans

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& advances and those loan accounts which require special care as well as monitoring in order to maintain the quality of the assets, will have to be reported in the Early Alert Account. The potential risk may be arisen from the following area: Industry concern. Ownership/Management concerns. Balance sheet weaknesses. Cash Flow Weaknesses. Poor Account Conduct. Expired Limit/Pending Documents. Therefore, all the credit officers will carefully and constantly monitor all the corporate (Business) clients who are enjoying credit facility from our bank and while monitoring, if any account is found to be showing weaknesses which may result in the non-performing of the loan, then immediately treat the account as Early Alert and accordingly report the same to the Head Office. How and when the account will be treated as Early Alert is briefly explained in the appendix-C.

5.4 Credit Recovery


The Recovery Unit (RU) of CRM should directly manage accounts with sustained deterioration (a Risk Rating of Sub Standard (6) or worse). Banks may wish to transfer EXIT accounts graded 4-5 to the RU for efficient exit based on recommendation of CRM and Corporate Banking. Whenever an account is handed over from Relationship Management to RU, a Handover/Downgrade Checklist should be completed. The RUs primary functions are: Determine Account Action Plan/Recovery Strategy. Pursue all options to maximize recovery, including placing customers into receivership or liquidation as appropriate. Ensure adequate and timely loan loss provisions are made based on actual and expected losses. Regular review of grade 6 or worse accounts.

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In RU, the RM experiences the Non-Performing loans. In such cases, assessment of NPLs are executed though following steps NPLs account management- through assigning an account manager who is responsible for coordinating and administering for action plan/recovery of the account. Account transfer procedures NPLs monitoring NPLs provisioning and write off. The management of problem loans (NPLs) must be a dynamic process, and the associated strategy together with the adequacy of provisions must be regularly reviewed. A process should be established to share the lessons learned from the experience of credit losses in order to update the lending guidelines.

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Chapter 6

Credit Analysis
In this chapter basically the credit has been analyzed into two variables. They are: i. Trend Analysis. (Based on last 5 (Five) years)

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ii. Performance Analysis. (Based on last 5 (Five) years) Also there are Portfolio Mix for last 2(Two) years.

6.1 Trend Analysis


Trend analysis is a forecasting technique that relies primarily on historical time series data to predict the future. For this research report the trends are discussed for the credit products of MTBL. For this Trend analysis related data of loans and advances of MTBL for 5 years are shown in below table

Table 6-1: Trends for last 5 years of and Advance (Tk. in million)
Items 2009 2008 2007 2006 2005

Local currency Advances Term Loans SME Financing Consumer Financing House Building Loans Trust Receipts Cash Credits Secured Overdrafts Lease Finance
Bills Purchased and Discounted

9353.37 549.99 1260.63 989.99 6156.53 5427.70 5906.17 254.55 2390.31 1560.64 33,849. 88

6072.42 301.47 668.40 805.40 7610.92 4656.65 3624.78 257.25 3027.34 1496.81 28,521. 44 7.90

3660.65 59.23 142.59 604.08 6465.68 3749.20 2946.37 251.07 2840.50 1962.69 22,682.0 6 1.17

2342.47 15.45 419.20 6209.07 2976.01 3021.60 178.32 2235.10 1182.87 18,580. 09 11.43

1243.48 13.04 199.69 4770.29 2660.72 2230.55 141.04 2165.71 766.87 14,371. 39 1.86

Other Loans and Advances

Sub Total

Foreign Currency Advances Total

34.04

33,883. 92

28,529. 34

22,683.2 3

18,591. 52

14,373. 25

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Above table is showing the performance of the MTBL according to the disbursement of Loan and Advances. The amounts of Term loan have increased in a huge extend. Consumer financing brought changes in the figure of credit disbursement, just because of its brilliant growth as the amount was 13.04m in 2005 which is converted into 1260.63m in 2009. There were good growth rate in House Building Loans, Trust Receipts, Cash Credit etc. In Secured Overdrafts and Foreign Currency Advances, there were fluctuations in regular growth. In case of Lease Financing, the growth was very steady as in 2005, the disbursement was TK.141.04m and in 2009 was Tk.254.55m.

6.2 Performance Analysis


Performance Analysis of Loan and Advance reflects the output over the years from this particular division. Here the performance analysis of five years is shown below in a graphical format Graph: 6 1: Five years Performance

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The above graph is showing that in terms of Loan and Advance, MTBL has been achieving a standard position at a high growth rate. In 2005 the amount was Tk. 14,373.25m, which is increased by Tk. 4218.27m in 2006. In 2007 the amount was Tk. 22,683.23m, which is increased by Tk. 5846.11m in 2008. The Banks exposure to loans and advances increased from Tk.28,529m(2008) to Tk.33,884m(2009) registering a 19% growth, which is showing a clear indication of standard policy practice of credit in MTBL.

MTBL provide credit facilities through its different segments as shown in the Graph 6-6. But the NPL position for 30th June 2009 shows deteriorate situation. Because, the Corporate and the SME-M segment has a highest amount of Bad/ loss loan respectively Tk. 80.45 million and Tk. 77.65 million. But others situations are not in danger. MTBL should take necessary action for recover the bad/loss loan amount.

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Graph 6-4: Business Segment-Wise NPLs position of

MTBL.

In total, the NPL amount in 30th June 2009 is Tk. 260.85 million. From comparing with each Business segment, Corporate has the highest NPL Tk. 137.99 million, then SME M Tk. 95.23 million and SME-S Tk. 10.81 million. The below Graph 6-6 shows the percentage of these NPLs to total NPL amount.

Graph 6-5: Business Segment-Wise NPLs position of MTBL in total

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The NPL target of MTBL was 5% in 2009. In 2008, MTBLs target was below 6% but unfortunately the ratio was at last 6.30%. 6.2 Portfolio Mix
MTBLs credit portfolio is mostly comprised of corporate, consumer and SME clients. The SME and consumer banking sectors constituted for 21 percent of total loans and advances. Portfolio realignment has been stressed for better risk management, primarily due to the fact that there has been a strong business demand in the SME sector while active initiatives have been taken to revamp the consumer banking sector.

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Year 2009

Above graph is showing that in 2009, among the loan products of MTBL, Term Loan was in good position containing 27.63 percent portion out of the 100 percent of total loans and advances. Trust Receipts, Secured Overdrafts and Cash credits and held good position also, containing consecutively 18.19 percent, 17.45 percent and 16.03 percent. The SME Financing was very low though better than the previous year but it is the most potential Financing Product of MTBL. Lease Finance had decreased by Rests of the products were steady according to their market demand.

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Year 2008

In 2008, among the loan products, Term Loans, Trust Receipts, Cash Credits and Secured Overdrafts were in good position. They hold consecutively 21.29 percent, 26.68 percent, 16.33 percent, 12.71 percent portion out of 100 percent. The SME contains 1.06 percent of financing. Consumer financing contains 2.34 percent, House Building Loans contains 2.82 percent. Lease Finances contains the very low portion of 0.90 percent.

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Chapter: 7

Conclu ding Part


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7.1 Findings Based on the previous chapter analysis segments and the brief description of credit risk management system of MTBL following findings are originated:

Converting traditional banking system to Centralized banking system will enhance to monitor all the departments under the heads of the departments.

An effective credit risk management procedure as it follows the BB rules for CRM procedure.

The bank has participated in many syndicated loan and project financing.

The Credit segment of CRM division of MTBL is not well efficient for making credit profits. As in the analysis chapter, the Lease Finance amount is observed to be decreasing comparing to the previous year. Moreover the percentage of Trust Receipts and Cash Credits are also decreasing compare to the previous year that indicates a danger of being default. Besides-

Insufficient time for risk assessment:

The risk managers have often insufficient time for credit risk management. Huge workload and hurries for loan approval prevent them from through assessment. So, it is very troublesome to manage the risk in a prudent manner for the risk managers.

Lack of Training: Training of the risk managers is extremely essential for better risk management. Most of the banks have not any regular training program. Lack of proper training on Credit Risk Management risk managers often does the mistakes on credit risk management.

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Lack of Co-ordination with other related Division:

Mutual Trust Bank has maintains a few co-ordinations with the related divisions and departments. Lack of co-ordination caused a lot of suffer of the risk managers as well as the customers.

Lack of information in the Credit Proposal: Risk Managers often could not found all necessary documents and information for credit risk assessment. Thats why risk managers use their assumption on risk management. Data collection checklists are not duly filled by the Relationship Managers.

Name lending:

Some credit proposals unduly influenced by an over reliance on the sponsoring principals reputation, reported independent means, or their perceived willingness to inject funds into various business enterprises in case of need. It is a major risk for the bank. Credit facility should be based on proper assessment.

Lack of Customer Banker relationship: Due to centralization of banking systems Mutual Trust Bank has maintain a very week relationship with the valued customer. The customers are very much dissatisfied with this worst situation.

Lack of follow-up and monitoring: Credit quality depends on close follow-up and monitoring of loans. The follow-up and monitoring of loans is not strong here. As a result Special Mention Accounts and deteriorating credit are increasing day by day. 7.2 Recommendation

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For effective Credit Risk Management of MTBL, credit monitoring & judgmental decision after efficient analysis is important that would result in good customer relationship with greater profit earning for the institution with fulfilling NPL target. Some Researchers have also drawn a sort of recommendations that should be considered necessary for effective credit risk management; these are as follows: Sufficient Workforce & allocate a standard Risk Assessment time: Sufficient risk managers should recruit in Credit Risk Management Division and a standard time should allocate for a credit proposal analysis. So that, risk managers could go through the credit proposal for risk managers and have sufficient time for better analysis and assessment. Development & Training: Training is the key factor for development of the risk managers skills. Banks should have a regular training and development program so that a risk manager does know every risk matter and assessment techniques. Development Management: Banks has a few numbers of tools and techniques for credit risk assessment i.e. CRG, FSS, CIB which are not sufficient for all kinds of risk management. So, new and effective credit risk management tools and techniques should be introduced by the help of IT Division. Build up Co-ordination with others related Division: Banks moves by a team effort. So, strong co-ordination with the related divisions and departments is very important. Adequate information & Documents: Adequate information and documents should prove in the credit proposal so that Risk Managers can make their decision with a very minimum time. of tools and techniques for Credit Risk

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Design a Form: A form should design for summarize the financials and necessary information of the clients. It would save the valuable time for the risk managers of head office.
Follow-up and monitoring: Credit quality depends on close follow-up and monitoring of loans. The followup and monitoring of loans is not strong here. As a result Special Mention Accounts and deteriorating credit are increasing day by day. Develop Customer Banker relationship: Today is the time for relationship banking & for better performance, customer satisfaction is very much important. So, Bank should develop the relationship with the customer. As various papers focuses on the SME evaluation of the banks are not appropriate and SME growth should be increased through financial assistance, the above recommendations can help in create efficiency in CRM procedure and so SME lending will be attractive for the institution

7.3 Conclusion
The entire policy of the bank is designed in a way which always tried to avoid default risk. Adequate power of the top management for monitoring credit operation makes the bank culminates in the banking sector. It takes some steps to minimize loss that is very good decision. The bank also supports

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development of trade, business and other commercial activities in the country. It also cover the full rang service to exporter and importer extending various facilities such as cash credit, short term loan, local bill purchase and foreign bill purchase and other facilities which also leads the bank.

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Internship Experience

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References 1. BB Annual Report. 2. MTBL Annual Report - 2009. 3. BB policy Guidelines for CRM. 4. MTBLs internal documents of CRM. 5. www.reportinternee.com

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