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Chapter One
1.1 Introduction
1.2 Origin of the report
1.3 Rationale of the study
1.4 Objectives of the report
1.5 Scope of the study
1. !ethodology of the study
1." #i$itations of the study
1.1 I%&RO'()&IO%
Banking system occupies an important place in a nation's economy. A banking
institution is indispensable in a modern society. Financial institutions are very much
essential for the overall development of a country. Especially banks play an important
role in the field of promotion of capital, encouragement of entrepreneurship, generation
of employment opportunities etc. Market economy or free economy is widely used
concept about the present economy of Bangladesh. !he country adopted the concept in
the late seventies with the privati"ation of significant number of enterprises. !he
practices of free market economy started from the eighties with the changing of the
world economy. A number of initiatives were taken from the nineties to increase the
competition and efficiency in money market, rela#ation of unwanted rules and
regulations, improvement of loan related law and other situations and improve the
financial base of the banks of the country. $n recent times the banking sector over the
world has been undergoing a lot of changes due to deregulation, technological
innovation, globali"ation etc. Banking sector in Bangladesh is lagging behind in
adopting these changes.
1.2 ORI*I% O+ &,- R-.OR&
!he report entitled %A &ase 'tudy on &redit Management of (anata Bank )td.* has
been prepared as a partial fulfillment of BBA +rogram authori"ed by the ,irector of
BBA +rogram, ,epartment of Accounting and $nformation 'ystems, -niversity of
1.3 R/&IO%/#- O+ &,- S&('0
,ue to the increased competition of the increased number of commercial banks and the
growing economy, the e#pectations of the customers have also increased than ever
before. .eali"ing the present condition, banks, especially the commercial banks are
trying to elevate their loan giving service as much as reachable to their customers. !he
most serious difficulty facing the financial sector is the high level of interest rate and
inflation rate. 'o it is the duty of the top management of the commercial banks to work
with the situation.
1.4 O12-)&I3-S O+ &,- R-.OR&
!he ob/ectives of the report are to determine how credit policy applied in sanctioning
and recovering loans and advances. &redit policy varies in terms of loan sector, status
of the organi"ation, government policy, fiscal budget and guidelines etc.
Specific objectives4
0 !o assess the credit structure of the bank in practice.
0 !o measure the effectiveness of the bank in the utili"ation of available resources.
0 !o identify the recovery performance of the bank.
0 !o point out the problems in fund utili"ation and recovery thereon.
0 !o make a critical reasoning in respect to the treatment of provision for bad and
doubtful credit.
0 !o assess and highlight on the legal actions followed by the bank.
0 !o find out the e#tent of similarities and dissimilarities in the course of action
followed by (anata Bank )td.
0 !o compare the credit management of the bank with the Bank &ompanies Act
0 !o evaluate the credit management of the bank with respect to $A'345.
0 !o compare the credit supervision of the bank.
0 !o compare the 6uantitative change from phase1 712289555: to phase9 79555
0 !o find out problems and suggesting recommendations for further improvement.
1.5 S)O.- O+ &,- S&('0
(anata Bank )td. is the second largest commercial Bank in Bangladesh. (anata Bank
)td. operates through <=< branches including = overseas branches at -nited Arab
Emirates. $t is linked with 1991 foreign correspondents all over the world. $ am
assigned to learn practical knowledge from (anata Bank )td., !'& Branch. $n this study
$ would try to concentrate on the theoretical aspect of credit management, that is, the
definition of credit management, policy of credit management, tools for managing
credit etc. $ would analy"e the data on the bank and various programs for loan recovery,
problems in loan in loan recovery, pattern of loan recovery and the performance of the
bank under study in loan recovery, the information in respect to the classification of
unsound credit and provision thereon and also concentrates on the performance of the
bank. And finally $ would conclude with the critical evaluation of the credit
management under the guidelines of the Bank &ompanies Act 1221, $A'345 and a
discussion on the ma/or findings and recommendations.
1. !-&,O'O#O*0 O+ &,- S&('0
!he report is descriptive in nature. !o fulfill the ob/ectives of this report total
methodology has divided into two ma/or parts>
/5 'ata )ollection .rocedure4
$n order to make the report more meaningful and presentable, two sources of
data and information have been used widely.
The Primary Sources are as follows:-
$ have made 6uestionnaire survey of both managers of credit department and the
customers who have taken loans from (anata Bank )td.
.elevant file study as provided by the officers concerned.
The secondary Sources are as follows:-
Annual report of (anata Bank )td.
+eriodicals +ublished by Bangladesh Bank
?ffice files and documents
'tudy related books and /ournals
@eb sites
b5 'ata .rocessing 6 /nalysis4
&ollected information have then processed A compiled with the aid of M' @ord,
E#cel A other related computer software. Becessary tables have been prepared on
the basis of collected data and various statistical techni6ues have been applied to
analyses on the basis of classified information. ,etail e#planation and analysis have
also been incorporated in the report.
1. #I!I&/&IO% O+ &,- S&('0
!o prepare a report on the topic like this in a short duration is not easy task. $n
preparing this report some problems and limitations have encountered which are as
a: !he main constraint of the study was insufficiency of information, which was
re6uired for the study. !here are various information that bank employee cannot
provide due to security and other corporate obligations.
b: As the data, in most cases, are not in organi"ed way, the bank failed to provide
all information.
c: ,ue to time limitation, many of the aspects could not be discussed in the present
d: 'ince the bank personnel were very busy, they could not pay enough time.
e: )ack of opportunity to access to internal data.
f: $ had to base on secondary data for preparing this report.
g: )egal action related information was not available.
h: All of them are not eager to give me any kind of legal action related
i: All the clients whom $ interviewed did not want to necessary information.

Chapter Two
2.1 '-+I%I&IO% O+ )R-'I& !/%/*-!-%&
2.2 .RO)-SS O+ )R-'I& !/%/*-!-%&
2.2.1. .olicy guidelines
2.2.2 !anage$ent structure and responsibilities
2.2.3. .rogra$ guidelines
2.3 &OO#S O+ )R-'I& !/%/*-!-%&
2.3.1 'efinition of )redit Ris7 *rading 8)R*5
2.3.2 +unctions of )redit Ris7 *rading
2.3.2 +unctions of )redit Ris7 *rading
2.3.3 (se of )redit Ris7 *rading
2.3.4 %u$ber and short na$e of grades used in the )R*
2.3.5 +inancial Spread Sheet in )redit !anage$ent
2.1 '-+I%I&IO% O+ )R-'I& !/%/*-!-%&
As 'onali Bank )td. is providing credit facility out of its total available
fundsC it has to manage these credits very efficiently. An efficient credit
management system comprises many things and this cover the presanction
activities to postsanction activities. &redit management is important as it
helps the banks and financial institutions to understand various dimensions
of risk involved in different credit transactions.
At the presanction stage, credit management helps the sanctioning
authority to decide whether to lend or not to lend, what should be the loan
price, what should be the e#tent of e#posure, 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.
At the postsanctioning stage, the bank can decide about the depth of the
review of renewal, fre6uency of review, periodicity of the grading, and
other precautions to be taken.
Daving considered the significance of credit risk, it becomes imperative
for the banking system to carefully develop credit management. For this
reason the bank is maintaining a new division that is well known as credit
2.2 .RO)-SS O+ )R-'I& !/%/*-!-%&
&redit Management +olicy for any commercial bank must have been
prepared in accordance with the +olicy Euidelines of Bangladesh BankFs
Focus Eroup on &redit and .isk Management with some changes to meet
particular bankFs internal needs.
&redit management must be organi"ed in such a process that the bank can
minimi"e its losses for payment of e#pected dividend to the shareholders.
!he purpose of this process is to provide directional guidelines that will
improve the risk management culture, establish minimum standards for
segregation of duties and responsibilities, and assist in the ongoing
improvement of concerned bank.
!he guidelines for credit management may be organi"ed into the following
2.2.1 .olicy guidelines>
a. )ending guidelines
b. &redit assessment and risk grading
c. Approval authority
d. 'egregation of duties
e. $nternal control and compliance
2.2.2 !anage$ent structure and responsibilities
2.2.3. .rogra$ guidelines4
a. Approval process
b. &redit administration
c. &redit monitoring
d. &redit recovery
Bow the guidelines are discussed in the following>
2.2.1. .olicy guidelines
a. Lending guidelines: !he lending guidelines include the following>
$ndustry and Business 'egment Focus
!ypes of loan facilities
'ingle borrowersG group limitsG syndication
)ending caps
,iscouraged business types
As a minimum, the followings are discouraged>
o Military e6uipmentG weapons finance
o Dighly leveraged transactions
o Finance of speculative investments
o )ogging, mineral e#tractionG mining, or other activity that is
ethically or environmentally sensitive
o )ending to companies listed on &$B black list or known
o &ounter parties in countries sub/ect to -B sanctions
o )ending to holding companies.
b. Credit Assessment and Risk rading:
A thorough credit and risk assessment should be conducted prior to the
granting of loans, and at least annually thereafter for all facilities.
&redit Applications should summaries the results of the risk assessment
and include, as a minimum, the following details>
Environment or social risk inputs
Amount and type of loan 7s: proposed
+urpose of loans
)oan structure 7tenor, covenants, repayment schedule, interest:
'ecurity arrangement
Any other risk or issue
.isk triggers and action plancondition prudent, etc.
.isk is graded as per )ending .isk Analysis 7).A:, Bangladesh BankFs
Euidelines of classification of loans and advances.
c. A!!ro"al Authority:
Approval authority may be as the following>
&redit approval authority has been delegated to Branch
Manager, &redit &ommittee by the M,G Board
M,G Board shall review delegated approval authorities
M,G Board>
Approvals must be evidenced in writing. Approval records must
be kept on file with credit application
!he aggregate e#posure to any borrower or borrowing group
must be used to determine the approval authority re6uired.
Any credit proposal that does not comply with )ending
Euidelines, regardless of amount, should be referred to Dead
?ffice for approval.
d# Segregation of $uties:
Banks should aim at segregating the following lending function>
&redit approvalG risk management
.elationship managementG marketing
&redit administration
e. %nternal Control and Com!liance:
Banks must have a segregated internal auditG control department
charged with conducting audits of all branches.
2.2.2. !anage$ent structure and responsibilities
!he following chart presents an e#ample of credit management
!anaging 'irector
,O 1usiness
'evelop$ent < )orporate
1an7ing < !ar7eting
)redit )o$$ittee ,O )redit < Ris7
1ranch !anager
!ar7eting )redit Officer )redit /d$n. #oan Recovery
2.2.3. .rogra$ guidelines
a. A!!ro"al !rocess: !he following diagram illustrates an e#ample of the
approval process>
b. Credit administration: !he credit administration function is critical in
ensuring that proper documentation and approvals are in place prior to the
disbursement of loan facilities.
c. Credit monitoring> !o minimi"ed credit losses, monitoring procedures
and systems should be in place that provides an early indication of the
deteriorating financial health of borrower.
d. Credit reco"ery: !he recovery unit of branch should directly manage
accounts with sustained deterioration 7a risk rating of substandard or
worse:. !he primary functions of recovery unit are>
H ,etermine account action planG recovery strategy
&redit application recommended by Branch Manager G
.elationship Manager G &orporate
Dead ?ffice, &redit ,ivision
Dead ?ffice &redit &ommittee
E#ecutive &ommittee of Board of ,irectors
H +ursue all options to ma#imi"e recovery, including placing customers
into receivership or li6uidation as appropriate.
H Ensure ade6uate and timely loan loss provisions are made based on
actual and e#pected losses.
2.3 &OO#S O+ )R-'I& !/%/*-!-%&
For credit management, a firm may use tools available to them. 'uch tools
include &redit .isk Erading 7&.E: and Financial 'pread 'heet 7F'':.
&redit risk grading is an important for credit risk management as it helps
the banks and financial institutions to understand various dimensions of
risk involved in different credit transactions. !he aggregation of such
grading across the borrowers, activities and the lines of business can
provide better assessment of the 6uality of credit portfolio of a bank or
!he )ending .isk Analysis 7).A: manual introduced in 1224 by the
Bangladesh Bank has been in practice for mandatory use by the banks and
financial institutions for loan si"e of B,! 1.55 crore and above. Dowever,
the ).A manual suffers from a lot of sub/ectivity, sometimes creating
confusion to the lending bankers in terms of selection of credit proposals
on the basis of risk e#posure. Meanwhile in 9554 end, Bangladesh Bank
provided guidelines for credit risk management of banks wherein it
recommended, interlay, the introduction of .isk Erade 'core &ard for risk
assessment of credit proposals.
Bangladesh Bank e#pects all commercial banks to have a welldefined
credit risk management system that delivers accurate and timely grading.
$n practice, a bankFs credit risk grading system should reflect the
comple#ity of its lending activities and the overall level of risk involved.
2.3.1 'efinition of )redit Ris7 *rading 8)R*:
I the &redit .isk Erading 7&.E: is a collective definition based on the
pre specified scale and reflects the underlying creditrisk for a given
I A &redit .isk Erading deploys a numberG alphabetG symbol as a
primary summary indicator of risks associated with a credit e#posure.
I &redit .isk Erading is the basic module for developing a &redit .isk
Management system.
2.3.2 +unctions of )redit Ris7 *rading
@ellmanaged credit risk grading systems promote bank safety and
soundness by facilitating informed decisionmaking. Erading systems
measure credit risk and differentiate individual credits and groups of
credits by the risk they pose. !his allows bank management and e#aminers
to monitor changes and trends in risk levels. !he process also allows bank
management to manage risk to optimi"e returns.
2.3.3 (se of )redit Ris7 *rading
I !he &redit .isk Erading matri# allows application of uniform
standards to credits to ensure a common standardi"ed approach to
assess the 6uality of individual obligor, credit portfolio of a nit, line
of business, the branch or the bank as a whole.
I As evident the &.E outputs would be relevant for individual credit
selection, wherein either a borrower or a particular e#posureG facility
is rated. !he other decisions would be related to pricing 7credit
spread: and specific features of credit facility. !hese would largely
constitute obligor level analysis.
I .isk grading also be relevant for surveillance and monitoring,
internal M$' and assessing the aggregate risk portfolio level
2.3.4 %u$ber and short na$e of grades used in the )R*
!he proposed &.E scale consists of < categories with short names and
numbers are provided as follows>
*rading Short %a$e %u$ber
'uperior '-+ 1
Eood E, 9
Acceptable A&&+! 4
MarginalG @atch list MEG @) =
'pecial Mention 'M ;
'ub 'tandard '' 8
,oubtful ,F J
Bad and )oss B) <
2.3.5 +inancial Spread Sheet in )redit !anage$ent
1. Financial 'pread 'heet provides a 6uick method of assessing business
trends and efficiency
H Assess the borrowers ability to repay
H realistically show business trends
H Allow comparisons to be made within industry
9. Borrowers that provide Financial 'pread 'heets are more likely to be
good borrowers
At two of the client banks the F'.+ consultants could not find
15 bad loans with 4 consecutive years of financial statements
?ut of 9; good loans reviewed by the F'.+ consultants, at two
of the client banks, 4 consecutive years of financial statements
were available on all of them.
!he willingness of the customer to provide detailed financial
information and to answer 6uestion regarding that information, is
indication of the cooperation the bank will receive in the future.
4. A Financial 'pread 'heet is an important tool in a discipline of
organi"ed approach to credit analysis.
=. !he historic financial reports of a company are a primary indicator of its
future financial position. 'preadsheets allow proper analysis of financial
Chapter Three
3.1 ,istory of 2anata 1an7 #td.
3.2 !ission of 2anata 1an7 #td.
3.3 Services provided by 2anata 1an7 #td.
3.4 )redit progra$
3.5 .erfor$ance of 2anata 1an7 #td.
3. #oans and advances
3.1 ,IS&OR0 O+ SO 1/%= #&'.
'onali bank limited was incorporated on 4 (une 955J as a public limited
company under companies act, 122= with its head office at ,haka and is
governed by the banking companies act.1221 and subse6uently on 1;
Bovember, 955J the bank took over the business of 'onali Bank with all
its assets, benefits, rights, powers, authorities, privileges, liabilities,
borrowings and obligations as a going concern under a vendorFs agreement
signed between the government of the +eopleFs .epublic of Bangladesh
and the 'onali Bank limited.
!he bank, through its 11<5 branches including 9 overseas branches in
Kolkata at 'iliguri in $ndia have been providing banking services to its
customers. ?ut of the total 11<5 branches, 81< are operating in rural areas
and the rest ;89 in the urban branches are performing speciali"ed functions
at different locations of the country.
3.2 !ISSIO% O+ SO%/#I 1/%= #&'.
,edicated to e#tend a whole range of 6uality products that support
divergent needs of people aiming at enriching their lives, creating value for
the stakeholders and contributing towards socioeconomic development of
the country.
L$''$?B ?F '?BA)$ BABK )!,.
'ocially committed leading banking institution with global presence.
3.3 S-R3I)-S .RO3I'-' 10 SO%/#I 1/%= #&'.
Bank )td. offers all the ma/or banking facilities and services to its
customers. !he Bank with its network spreading throughout the country
has a uni6ue feature of plough back savings from those places and then
investing them into different loan portfolios.
(anata Bank )td. with its wideranging branch network and skilled
personnel provides prompt and personali"ed services like issuing>
a. ,emand ,raft
b. !elegraphic !ransfer
c. Mail !ransfer
d. +ay ?rder
e. 'ecurity ,eposit .eceipt
f. !ransfer of fund by special arrangement,
i: Bormal transfer
ii: Electronic transfer through .eady &ash &ard.
!he Bank provides the following $nternet facilities>
&urrentG'avingsG'!, account status
F,. account status
Advance account status
)oan account status
.emittance services are available at all branches and foreign remittances
may be sent to any branch by the remitters favoring their beneficiaries.
.emittances are credited to the account of beneficiaries instantly or within
shortest possible time. (anata Bank )td. has correspondent banking
relationship with all ma/or banks located in almost all the countriesGcities.
E#patriate Bangladeshis may send their hard earned foreign currencies
through those banks or may contact any renowned banks nearby 7where
they resideGwork: to send their money to their dear ones in Bangladesh.
(anata Bank has already established a worldwide network and relationship
in international Banking through its = 7four: overseas branches and 1991
foreign correspondents. !he Bank has earned an e#cellent business
reputation in handling and funding international trade particularly in
boosting e#port A import of the country. !he Bank finances e#ports within
the framework of the e#port policy of the country.
3.4 )R-'I& .RO*R/!
!he bank has continued its lending operation in the productive and priority
sectors covering agriculture, industry, trade and commerce. !otal loans and
advances of the bank as on 955;, 9558, and 955J were tk. 99,J55.28crore,
tk. 9=159.24, tk. 9584=.J8 respectively.
Eeneral trade and working capital loans>
'onali Bank )imited plays a vital role in the economy by e#tending credit
facilities to both public and private sector organi"ations in different types
of commercial activities and trade. $n the year 955J, the bank disbursed tk.
J98.55 crore under in the public sector and tk.;1=.2< crore in the private
sector. !he outstanding loans and advances as on 41 ,ecember 955J was
tk.44=5.4J crore in this sector. &omparative position of general trade and
working capital loans are given below
Mear +ublic sector7in
sector7in crore:
955; 9;5.55 1=14.;J 1884.;J
9558 92=.44 14;5.;; 18==.<<
955J 921.59 ;1=.2< J98.55
AgriculturalGrural credit>
@ith an aim to augment agricultural output, create employment
opportunities and generate income of the rural people, 'onali Bank
continued to e#tend credit facilities to all sections of rural population and
offfarming activities. !otal disbursement of AgriG.ural credit at the end of
9558 and 955J stood at tk.J591.55 crore and J;19.=5 crore respectively.
!he outstanding amount of tk.9<=2.J9 crore in 955J while it was tk.
4542.<J crore in 9558. !he comparative position of rural credit are given
Mear !otal
955; 8;5=.J5 454J.82
9558 J591.55 9<=2.J9
955J J;19.=1 4542.<J
Micro credit
@ith a view to improving the socioeconomic condition through e#tending
trade and commerce and strengthening foundation of rural economy of our
country, .&, of head office has been performing a significant role since
its inception. )ater on due to increasing scope of the activities the micro
credit system has been accepted and recogni"ed worldwide as an effective
tool for poverty alleviation, selfemployment, and rural economic
development. -p to ,ecember 955J, tk.4922.=J crore has been disbursed
in this sector under various pro/ects whereas it was tk. 45;8.84 crore up to
,ecember 9558. !he comparative position of the micro credit are shown
Mear !otal
955; 9JJJ.28
9558 4548.84
955J 4922.=J
Agro based industrial finance>
Economic development of Bangladesh mainly depends on agriculture. A
large number of people of the country are directly or indirectly involved
with agriculture. As a largest commercial bank of the country, 'onali bank
is playing and important role in the economy through e#pansion of agro
based industries by e#tending credit facilities under Agro based industries
credit scheme. !he comparative position on agro based industries are given
Mear !otal
955; 98==.;=
9558 98;2.=J
955J 9J5<.54

Foreign trade finance>
!otal foreign e#change business of the bank for the year 955J is tk.
9;25=.4< crore as against tk. 9852=.55 crore in 9558. !he comparative
position of foreign e#change business for the year 955;, 9558, and 955J is
shown below
+articulars 955J7tk. $n
95587tk .in
955;7tk. $n
!otal import J8=2.8< 8JJ8.45 11<;9.<5
!otal e#port J<5=.;2 J282.;5 8=52.95
$nward remittance 291J.<4 2<==.25 J;=<.18
1949.9< 1;54.45 1141.;1
!otal 9;25=.4< 9852=.55 982=1.8J
$ndustrial finance>
@hile implementing govt. policies and goals to accelerate industrial
development program. 'onali Bank )imited has sanctioned a total term
loan of tk.492.J= crore to establish new industries in the year 955J through
its 2< designated branches. !he bank has thus created opportunity for
employment of 91855 persons by sanctioning credits in 955J.overall
industrial credit position of the bank as on 41 ,ecember, 955J are given
Bature of loan Amount
)arge and
488<.99 J<=.5; 9885.;<
'mall and &ottage 8=;.9; ;<9.=1 1J4.J<
@orking capital
to industries
242.J< J58.J= 1<;1.9;
3.5 .-R+OR!/%)- O+ 2/%/&/ 1/%= #&'.4
'onali Bank )td. is the largest commercial bank in Bangladesh. !he aim of
the Bank is to actively participate in the socioeconomic development of
the nation by operating a commercially sound Banking system. $t provides
credit to deserving borrowers and at the same time, protects depositorFs
!otal deposit of the bank as on 41 ,ecember is tk.49<22.J9 crore which
shows an increase of tk. 9882.=9 crore over that of the preceding year. !he
rate of increase in deposit was <.<4N. !otal deposit comprises demand
deposit tk.2=4J.9; crore and time deposit tk.94=89.=J crore. $n
government pubic and private sector, the deposits are tk 451=.92, 8<<9.45
and 94554.14 crore respectively. !he breakOup of total deposit by type
term and sector are presented in the following table>
&ype /s on
in crore5
/s on 31>12>
2;;8t7 in
/s on 31>12>
2;;58t7 in
+i?ed deposit ";"1.22 5;31.52 512;.4
Short ter$ deposit 213.55 21:4." 2;13.3
Savings deposit 11;99.14 1;419.2" :2;4.21
)urrent deposit "5"9.: 5:21."" 5:45.9
Other deposit 3:9".2 ;:;.35 5;;3.1
1ill payable 5;.23 5"3."2 42;.4;
&otal 329::."2 3;23;.3; 2"";".:;
1read>up deposits by type
1rea7 up deposits by ter$s
&er$s As on &'-'(-
As on &'-'(-
As on &'-'(-
'e$and ,(&,#&* ,-()#.. -.&,#(*
&i$e ().,)#** ((&)-#/+ (&.+(#.,
&otal (,,),#-) &)(&)#&) &(/--#,(
1rea7>up of deposits by sector
&ype As on &'-'(-
As on &'-'(-
As on &'-'(-
*ovt. (.+)#)) (/&.#)- &)'.#(-
.ublic ./&&#+, ./&*#.* +//(#&)
.rivate ().'.#(& ((*+)#,+ (&))&#'&
&otal (,,),#-) &)(&)#&) &(/--#,(
!otal investment of the bank stood at tk. <<<2.52 crore at the end of 955J.
Ma/or investments were made in treasury bills, treasury bonds shares and
debentures. !he sector wise summary of the investment as on 41
,ecember, 955J in Eovt. pubic and private sectors is shown below>
'escription *overn$en
public .rivate &otal
&reasury bills <;8.=<
1onds J<52.J2
4.;5 95.=8 J<44.J;
4.;5 95.;1 9=.51
.ri@e bonds 15.=5
Others 8security
deposit Aith reserve
ban7 of India5

.4; .4;
Shares in sonali >
"".53 "".53
ban78(=5 ltd.
1ranches overseas
87ol7ata 6 Siliguri5
> 11.14 11.14
'ebentures > 4.;4 11.3: "5.43
&otal 9"." "1.;4 141.39 999:.;:
Sector Aise invest$ent as on 31 'ece$berB 2;;5
public .rivate &otal &otal
&reasury bills 9445.55
1onds 1<55.J8
1;.55 95.55 1<4;.J8
4.;5 1<.1; 91.8;
.ri@e bonds 2.45
)all $oney
1<.55 1<.55
&er$ deposits >
> 2";.;; 2";.;;
'ebentures > "9.9 12.44 :1.3;
&otal 414;.; :".3 421.24 459.
I$port 1usiness4
For the very beginning the Bank has embarked on e#tensive foreign
e#change business with a view to facilitating international trade
transactions of the country. !he Bank has provided B,! J8;5 million loan
as of ,ecember 41, 955J. $mport mainly confined to consumer goods,
capital machineries and industrial raw materials.
Mear !otal
955; 11<;4
9558 8JJ8
955J J8;5
-?port 1usiness4
!he total e#port business handled by the bank amounted to tk. J<5=.;2
crore as of ,ecember 41, 955J as compared to tk. J282.;5 crore in 9558.
Ma/or e#port items were .eadymade Earments, 'hrimps, !ea A non
traditional items. $mport remained confined mainly to &onsumer's goods,
capital machinery A $ndustrial raw materials.
Mear !otal disbursement7in
955; 8=52.55
9558 J282.;5
955J J<5=.;2
Operating Revenue4
!he operating revenue of the bank stood to ==9.;9 as on ,ecember955J
against tk.455.;< crore in 9558.
!otal operating profit 7in
955; 428.48
9558 455.;<
955J ==9.;9
Chapter Four
4.1 !eaning of credit policy
4.2 Objective of credit policy
4.3 +or$ulation of credit policy
4.4 -ssential co$ponents of a sound credit policy
4.5 #ending guidelines4
4.5.1 Industry and business seg$ent focus
4.5.2 &ypes of credit facilities
4.1 !-/%I%* O+ )R-'I& .O#I)0
+olicy entails pro/ected course of action. (anata Bank )td. have its own policy granting
credit although credit is always a matter of /udgment applying common sense in the
light of oneFs e#perience.
A sound credit policy includes among other things safety of funds invested visPvis
profitability of the bank. Encouraging ma#imum number of small loans is better than
concentration in a particular type of advances, which ensures sufficient li6uidity with
least incidence of bad debts.
$t has to be borne in mind that a good loan allowed to a properly selected borrower is
half collected. $n order to make a good loan there should have a good loan policy.
4.2 O12-)&I3- O+ )R-'I& .O#I)0
!here are some ob/ectives behind a written credit policy of (anata Bank )td. that are as
!o provide a guideline for giving loan.
+rompt response to the customer need.
'horten the procedure of giving loan.
.educe the volume of work from the top level of management.
,elegation of authority of work from top level of management.
!o check and balance the operational activities
4.3 +OR!(#/&IO% O+ )R-'I& .O#I)0
?ne of 6uestions that should arise in a discussion of credit is who should formulate the
policy. Although the ultimate responsibilities lay at the highest level in the organi"ation
i.e. the board of directors. Met the actual drafting shall have to be done by the senior
lending office in consultations with the chief e#ecutive officer and with contribution
from senior officers, associates and subordinates. ?bviously the level of origin will
vary with the si"e and structure of the organi"ation. !he matter then referred to the
board for approval after careful e#amination consideration and discussion.
4.4 -SS-%&I/# )O!.O%-%&S O+ / SO(%' )R-'I& .O#I)0>
!here can be some variations based on the needs of a particular organi"ation, but at
least the following areas should be covered in any comprehensive statement of credit
policy and (B policy also covers these areas>
1. #egal consideration> !he bankFs legal lending limit and other
constraints should be set forth to avoid inadvertent violation of banking
9. 'elegation of authority4 Each individual authori"ed to e#tend credit
should know precisely how much and under what conditions he or she
may commit the bankFs funds. !hese authorities should be approved, at
least annually, by written resolution of the board of directors and kept
current at all times.
4. &ypes of credit e?tension4 ?ne of the most substances parts of a loan is
a delineation of which types of loans are acceptable and which type are
=. .ricing4 $n any profit motivated endeavor, the price to be charged for
the goods or services rendered is of paramount without it, individuals
have few guidelines for 6uoting retag or fees, and the variations
resulting from human nature will be a source of customer dissatisfaction.
;. !ar7et /rea4 Each bank should establish its proper market area, based
upon, among other things, the si"e and sophistication of its organi"ation
its capital standpoint, defining oneFs market area is probably more
important in the lending function than in any other aspect of banking.
8. #oan Standard4 !his is a definition of the types of credit to be
e#pended, wherein the 6ualitative standards for acceptable loans are set
J. )redit *ranting procedures4 !his sub/ect may be covered in separate
manual, and usually is in larger banks. At any rate, it should not be
overlooked because proper procedures are essential in loan establishing
policy and standards. @ithout proper procedure for granting credit and
constant policing to ensure that these procedures are meticulous carried
out, the best conceived loan policy will not function and inevitable,
problems will develop.
4.5 #-%'I%* *(I'-#I%-S4
As the bank have a high rate of nonperforming loans. Banks risk taking applied
should be contained and our focus should be to maintain a credit portfolio keeping in
mind of bankFs capital ade6uacy and recovery strength. !hus bankFs strategy will be
invigorating loan processing steps including identifying, measuring, containing risks as
well as maintaining a balance portfolio through minimi"ing loan concentration ,
encouraging loan diversification , e#panding product range , streamlining security ,
insurance etc. as buffer again une#pected cash flow .
4.5.1 Industry and business seg$ent focus
$ndustry segment focuses on !e#tile, +harmaceuticals, Agrobased, Food and allied,
!elecommunication, +ower generation and distribution, Dealth care, Entertainment
'ervices, &hemicals, !ransport, $nfrastructure development, )inkage industry,
$nformation technology, &eramics, ?thers as decided from tome to time. And business
segment focuses on ,istribution, Brick field, .ice millG flour millG oil mill, @ork order,
Marn trading, &loth merchant, $ndustrial spares, Dardware, Electronic and electrical
goods, &onstruction materials, Fish trading, Erocery, @holesaleG retail, ?thers as
dedicated from time to time
4.5.2 &ypes of credit facilities4 Bank will go for
!erm financing for new pro/ect had BM.E of e#isting pro/ects 7large,
medium, 'ME, '&$:.
@orking capital for industries, trading services and others 7large,
medium, 'ME, '&$:.
!rade finance for import and e#port
)ease finance
'mall loan for traders, micro enterprise and other productive small
&onsumer finance
Fee business
Chapter Five
5.1 Introduction
5.2 -cono$ic sector Aise distribution of fund
5.3 %ature Aise distribution of loans 6 advances
5.4 !aturity grouping of distribution loans 6 advances
5.5 Securities in credit $anage$ent
5.1 I%&RO'()&IO%
!he principal function of a bank is to lend. )ending is a dynamic activity. $t is through
the medium of lending the banking industry promotes economic activity, instills and
encourages, at the individual level, the principal of selfreliance, and yield earnings for
the bank. $t is lending alone that brings banking into a more meaningful and purposeful
contract with public and, therefore, has the greatest impact upon them.
+roper utili"ation of fund is an essential prere6uisite of successful bank management.
!he procurements of funds supported by an efficient deployment of that procured fund
lead a bank to the highest point of profitability. $ would try to concentrate on (anata
BankFs nature, pattern, and allocation of invested resources in this chapter. !he bank
under study has divergence in its investment portfolio, loan programs, advances and
recovery rate etc.
5.2 -)O%O!I) S-)&OR CIS- 'IS&RI1(&IO% O+ +(%'
(anata Bank )td. is engaged in e#tending long, medium and short term loans to various
economic sectors in the country. As (anata Bank )td. e#tends its credit programs all
over the economy such as agricultural credit program, industrial credit program and
commercial financingC the bank tries to achieve significant profit from its operations
and also to improve the economic conditions of the general public of the country.
&able4 econo$ic sector Aise distribution of loans and advances during 1::">2;;
.hase>1 .hase>2
1::" 1::9 1::: 2;;; 2;;1 2;;2 2;;3 2;;4 2;;5 2;;
(ute industries J1<.2 J12.=1 J=J.<J JJ<.9< <J5.48 <4J.15 <;;.25 <52.J
(ute trade 94.82 12.1< 18.45 1.49 19.48 19.;5 11.;5 15.8
;52.54 =94.28 ===.8; =42.85 481.85 4J8.;5 424.J
48J.;1 4J9.J8 482.2; 4;1.88 485.15 =2;.85 =28.;
!ransport 49.9J 92.1J 45.9J 9=.;= 9=.5= 48.55 ;.95 8.5J
'teel A
919.2< 941.51 95<.;< 98;.J5 22.<5 15;.95 2<.<;
!ea 1;.25 1=.55 1=.59 14.22 19.18 19.95 19.;5 19.4;
'ugar mills <<.=8 <5.51 2J.1J 22.;5 114.9= 14<.95 118.=5 1;5.<9
Douse building
=9<.<9 ;99.;2 ;<=.52 8;2.<9 J48.=5 <51.=5 1<9.8J
.ural credit
859.<1 88J.9< JJ<.;5 8;<.19 <41.45 21J.95 281.<9
Bricks =;.59 =1.;9. J2.8= <<.95 25.2; <;.25 <8.;5 11<.55
&old storage ;.54 <.=; 15.4< 2.;= 19.49 <.85 1;.J5 <.55
Food J=.9< <5.5J 185.1; 918.95 19=.9< 118.J5 19=.J5 198.2<
E#port credit
<;8.4< 1518.;5 1512.95 1995.J< 192;.55 119;.8 1=92.54
$mport credit
28=.2< 19J4.58 11;=.2< 1;5J.<; 181=.=5 9J45.;5 4=99.J4
$ndustrial credit
<2=.J9 1522.<9 11=8.4; 1=54.J< 14<1.25 1=4J.95 1=28.;4
9988.1; 9;88.81 4548.22 94J2.1J 9<;5.25 4992.15 =19=.J<
<52;.92 2492.42 22J=.<J 151=812.
5.3 %/&(R- CIS- 'IS&RI1(&IO% O+ #O/%S /%' /'3/%)-S
'anctioning advances to customers and others is one of the principal services of a
modern bank. Advances by the commercial banks are made in different forms>
Bills purchase and discounted
(anata Bank )td. sanctions loans under the above mentioning category. $t usually grants
shortterm advances which are utili"ed to meet the working capital re6uirements of the
borrower. ?nly a small portion of the bankFs demand and time liability are advanced on
longterm basis where the banker usually insists on a regular repayment by the
borrower in installments. @hile lending fund, a banker follows a very cautious policy
and conducts his business on the basis of wellknown principles of sound lending in
order to minimi"e the risk.
5.4 !/&(RI&0 *RO(.I%* O+ 'IS&RI1(&IO% #O/%S /%' /'3/%)-S
At the very beginning of taking decision for giving credit, (anata Bank mainly
concentrates mainly on li6uidity. As it is doing business by public deposits, it is bound
to pay the money when people want. A si"able portion of bank advances is, therefore,
granted to meet the working capital re6uirements of the borrower rather than to meet
the fi#ed capital re6uirement, i.e., construction of building or purchase of fi#ed
deposits. A banker would be failing in his duty to safeguard the interest of his
depositors and shareholders if his credit policy does not provide a method of gradual
repayment and final recovery of the money advanced.
For li6uidity reasons, (anata Bank5is giving credit on short period basis and against
security. 'hortterm loans ensure li6uidity to a greater e#tent than longterm loan. @e
can classify the bank loans and advances under the following maturity stage>
0 +ayable on demand
0 +ayable within 4 months
0 +ayable within 4 months to 19 months
0 +ayable within 1 year to ; years
0 +ayable in more than ; years
5.5 S-)(RI&I-S I% )R-'I& !/%/*-!-%&
?ne of the most important functions of a bank is to employ its fund by way of
loans and advances to its customers and a bankFs strength depends considerably on the
6uality of its loans and advances. $n order times, when the bankers knew the customers
personally and intimately and had complete confidence in the integrity and honesty of a
customer, they used to allow loans and advances without a security. !he position is
6uite different today. Banks having a large number of officers over a wide area cannot
allow loans and advances without retention of security in one form or the other.
!hough the banks are now e#pected to lay greater emphasis on the purpose for
which the borrower needs rather than security he can afford to give, security continues
to be one of the most important factors, which determines to a significant e#tent the
bankerFs willingness to lend money.
'ecurity is obtained as a line of last defense to fall back upon. $t is meant to be
an insurance against emergency. But taking security, bank ac6uires a claim upon the
assets of the borrower if repayment is not made as planned. But what should be the
significant securities of loans depends in the guidelines prescribed by the Bangladesh
Bank through B&, circular no. 1JG12JJ and also the negotiation of the respective
branch to its borrowers. !he most significant categories of security lodged are as>
Eoods and commodities
.eal estate
'tock e#change securities
)ife insurance policies
Eold and gold ornaments
,ocuments of title of goods
Book debts
'upply bills
(anata Bank )td. keeps sufficient security before final sanctioning of loans and
Chapter Six
.1 *etting credit infor$ation
.2 Infor$ation collection
.3 /naly@ing these infor$ation
.4 #ending Ris7 /nalysis 8#R/5
.5 .roposal analysis
. )ollateral evaluation
.9 .roper supervision of the project
." +inal decision about the project
.: 'ocu$entation of the loan
.1; )reation of charges for securing the loans
.1 *-&&I%* )R-'I& I%+OR!/&IO%
(anata Bank )td. collects credit information about the applicant to determine the credit
worthiness of the borrower. !he bank collects the information about the borrower from
the following sources>
+ersonal investigation.
&onfidential report from other bank Dead ?fficeGBranchGchamber of the commerce.
&$B .eport from &entral Bank.
.2 I%+OR!/&IO% )O##-)&IO%
!he loans and advances department gets a form filled by the party seeking a lot of
information. !he information is listed below>
Bame and address of the borrower 7present and permanent:.
&onstitution or status of the business.
,ata of establishment and place of incorporation.
+articulars of properties, partners and ,irectors.
Background and business e#perience of the borrowers.
+articulars of personal assets, name of subsidiaries, percentage of share
holding and nature of business.
,etails of liabilities in name of borrowers, in the name of any directors.
Financial 'tatement of the last three years.
Bature and details of businessGproducts.
,etails of securities offered.
+roposed debt e6uity ratio.
?ther relevant information.
.3 /%/#0DI%* &,-S- I%+OR!/&IO%
(anata Bank )td. then starts e#amination whether the loan applied for, is complying
with its lending policy. $f comply, then it e#amines the documents submitted and the
credit worthiness. &redit worthiness analysis, i.e. analysis financial conditions of the
loan applicant are very important. $f loan amount is more than ;5, 55,555, then bank
goes for )ending .isk Analysis 7).A: and 'preadsheet Analysis 7'A:, which are
recently introduced by Bangladesh Bank. According to Bangladesh Bank .ules, ).A
and 'A are a must for the loan e#ceed of one crore.
$f these two analyses reflect favorable condition and document submitted for the loan
appeared to be satisfactory, then bank goes for further action.
.4 #-%'I%* RIS= /%/#0SIS 8#R/5
).A is a very important and vital analysis for deciding whether the loan proposal is
potential or not. Many types of scientific, mathematical, statistical and managerial tools
and devices are re6uired to perform this analysis. (anata Bank )td. maintains a
prescribed format for )ending .isk Analysis, which includes a spreadsheet to analy"e a
lot of things. $t is not possible to discuss the entire ).A in this report.
#ending Ris7 /nalysis 8#R/5
01 %ndustry Risk:
i. 'upply .isk @hat is the risk of failure to disruption in the supply of
ii. 'ales .isk @hat is the risk of failure due to disruption salesQ
c: Com!any Risk>
1. &ompany +osition .isk>
i. +erformance .isk @hat is the risk if the company position is so
weak that it cannot perform well enough to repay the loan, given
e#pected e#ternal conditionQ
ii. .esilience .isk @hat is the risk of failure due to lack of
resilience to une#pected e#ternal conditionQ
9. Management .isk>
i. Management &ompetence .isk @hat is the risk of failure due to
lack of management competenceQ
ii. Management $ntegrity .isk @hat is the risk of failure due to
lack of Management $ntegrityQ
d: Security Risk>
i. 'ecurity &ontrol .isk @hat is the risk that the bank fail to reali"e the
ii. 'ecurity &over .isk @hat is the risk that reali"ed security value is
less than the e#posureQ
.5 .RO.OS/# /%/#0SIS
!he +ro/ect +roposal is analy"ed and decision about the pro/ect is taken. !he loans and
advance department is responsible for the analysis. After preliminary appraisal of the
loan pro/ect the final approval is obtain from the manager. $f the loan amount crosses a
certain amount 7no found:, managers send the loan pro/ect to the principal office for
final approval. !he e#perts in principal office find out different pro/ected ratios and
developed and understanding about the potentiality of the pro/ect. Bank evaluates a
loan proposal by considering few predetermined variables. !hese are>
+urpose of the loans
'ources of repayment
,iversification of risk etc.
!he most important measure of appraising a loan proposal is safety of proposal. 'afety
is measured by the security offered by the borrower and repaying capacity of the
borrower. !he attitude of the borrower is also important consideration. )i6uidity means
the inflow of cash into the pro/ect in course of its operation. !he profit is the blood of
any commercial institution. Before approval of any loan pro/ect the bank authority has
to ensure that the proposed pro/ect will be profitable venture. +rofitability is assessed
from the pro/ected +rofit and )oss 'tatement. !he security is the only tangible asset
remains with the banker. 'ecuring of collateral is the only weapon to recover the loan
amount. 'o bank has to see that the collateral is easy to sale and sufficient to recover
the loan amount. Bank cannot sanction loan by only depending on collateral.
!he sources of the payment of the pro/ect should be a feasible one. ,uring sanctioning
any loan Bank has to be attentive about diversification of risk. All money must not be
disbursed amongst a small number of people. $n addition any pro/ect must be
established for the national interest growth.
. )O##/&-R/# -3/#(/&IO%4
(anata Bank )td. is very cautious about valuation of the collateral. !he bank officials
simultaneously evaluate the collateral of the party offered by the private firm. !he
valuation of the collateral increases the accuracy of its value estimated. !hree types of
value of the collateral are assumed>
&urrent market price
,istressed price
+rice after five years
!he legal officers of the bank check the document ascertain their impurity.
." +I%/# '-)ISIO% /1O(& &,- .RO2-)&
$f the loan decision remains with the branch level, that branch sanctions the loan and if
the approving authority is Dead ?ffice then the decision comes to the branch by tele#
or fa#.
.9 .RO.-R S(.-R3ISIO% O+ &,- .RO2-)&
$f such provision is kept in the sanction contracts, the (anata Bank )td. officials go to
the pro/ect area to observe how the loan is utili"ed. $f no such clause to supervise the
loan is added, even then the bank can see the performance of the pro/ect.
.: 'O)(!-%&/&IO% O+ &,- #O/%
!hese are the most fre6uently used and common documents of above mentioned
charged and for other formalities for sanctioning the loan>
,emand +romissory Bote> Dere the borrower promises to pay the loan as and
when demanded by the bank to repay the loan.
)etter of Arrangement> Dere the written amount of the loan sanctioned to the
borrower is specified.
)etter of &ontinuity> $t is used to take continuous facilities as providing
continuous securities.
)etter of Dypothecation> $t is the written document of the goods hypothecated
thus to put in case of need.
'tock .eport> !his report is used for '?, and &&. $n this report information
about the 6uality and 6uantity of goods hypothecated have furnished.
+ersonal guarantee> $t is the additional confirmation of the borrower to repay.
Euarantee of the ,irectors of the company.
.esolution of the board of directors> $t is used to borrow the fund to e#ecute
documents and complete other documents.
)etter of disclaimer> By this letter, the borrower withdraws his all claim on the
)etter of Acceptance> )etter indicating the acceptance of the sanction proposal
by the borrower.
)etter of +ledge> $t is the written document of the goods pledge thus the
legality of holding the goods.
)etter of ,isbursement> !his is the document through which the payment of
sanctioned loan indicates.
)etter of partnership> $n case of partnership firm, the partnership deeds are to
be provided.
)etter of $nstallment> !he amount of installment that is to be paid at certain
!a# +aying &ertificate.
Any document if described, as essential in the sanctioned advice sanctioned
by the Dead ?ffice.
.1; )R-/&IO% O+ ),/R*-S +OR S-)(RI%* #O/%
For the safety of loan, (anata Bank )td. re6uires security from the loaner so that it can
recover the loan by selling security if borrower fails to repay. &reation of a charge
means making it available as a cover for an advance. !he method of charging should be
legal, perfect complete. $mportance of charging securities is as>
+rotection of interest.
Ensuring the recovery of the money lent.
+rovision against une#pected change.
&ommitment of the borrower.
'ecurities are of two types>
a: .ri$ary Security'ecurity deposited by the borrower himself to cover the loan
such as F,., cash, +'', +'+, easily cashable items.
b: )ollateral SecurityAny type of security on which the creditor has personal
right of action on the debtor in respect of advance.
Chapter Seven
".1 .rogra$s for loan recovery
".2 Recovery progra$s to be ta7en by 2anata 1an7 #td.
".3 Recovery patterns of loans 6 advances
".4 .roble$s in loans recovery
'ources of loans and advances, allocations of such available funds, efficiency in fund
allocations were disclosed. All theses are the one side of sound credit management.
Besides, the most important part of sound credit management is of disclosing the
recovery of loans and advances, problems thereon defaulter patterns, provisioning
against bad and doubtful loans and advances etc. usually bankFs credit management
performance represents the recovery performance of loans and advances as against the
utili"ation of funds. Besides, it has substantial impact on the bankFs ultimate profit

".1 .RO*R/!S +OR #O/% R-)O3-R0
As the recovery performance of the commercial banks in Bangladesh gradually
deteriorating overtime @hen (anata Bank )td. sanctions loans and advances to its
customers, they clearly state the repayment pattern in the loan agreement. But some
credit holders do not pay their credit in due period. !he nationali"ed and private sector
commercial banks have to face this sort of problems. !his situation is, especially severe
in (anata Bank )td.. !o overcome the problem of overdue loan, the bank need take
particular loan recovery program.
".2 R-)O3-R0 .RO*R/!S &O 1- &/=-% 10 2/%/&/ 1/%= #&'.
!o establish credit supervision and monitoring cell in the bank
!o restructure the loan sanctioning and distributing policy of the bank
!o sanction loans and advances against sufficient securities as best as
!o give more powers to the branch manager in credit management decision
making process
!o offer a package of incentives to the sound borrowers
!o give more emphasis on short term loans and advances
!o impose restrictions on loans and advances for sick industries
!o take legal actions 6uickly against unsound borrowers as best as possible
within the period specified by the law of limitations.
".3 R-)O3-R0 ./&&-R%S /%' #O/% /%' /'3/%)-S
Eenerally (anata bank )td. sanctions loans and advances to every sector of an
economy. Before going into details of recovery performance, we have to be familiar
with some terms used in recovery performance>
,isbursement> highest outstanding balance on any date during the reporting
period minus outstanding balance at the end of the preceding period.
,emand for recovery> overdue at the end of the reporting period plus recovery
during the reporting period.
.ecovery> highest outstanding balance on any date during the reporting period
minus outstanding balance at the end of the recovery period.
?utstanding> ?utstanding figures in the ledger at the end of the reporting
?verdue> ,emand for recovery minus recovery.
&able4 Recovery perfor$ance of 2anata 1an7 #td.
8!k in crore:
.hase>1 .hase>2
1::" 1::9 1::: 2;;; 2;;1 2;;2 2;;3 2;;4 2;;5 2;;
1<91 9415 9=8< 41=; 491= 4;=8 4849 ;=J8 ;29; 8;=9
,emand for
=9;J =48; =<9; ;1;= ;J28 ;2<8 8=J; 8<=2 J91= J;==
.ecovery 181< 1291 919J 94J1 9=29 9244 9;25 49<< 485J 482J
?verdue 9842 9=== 982< 9J<4 445= 45;4 4<<; 4;81 485J 4<=J
.ecovery as a
percentage of
4<N ==N =JN =8N =4N =2N =5N =<N ;5N =2N
?verdue as a
percentage of
89N ;8N ;4N ;=N ;JN ;1N 85N ;9N ;5N ;1N
?utstanding ;<J; ;92; ;J44 J4=1 <52; 2492 22J; 151=8 15JJ2 19==J
".4 .RO1#-!S I% #O/% R-)O3-R0
!here are a lot of reasons for which the loan recovery of the bank is very defective. $n
most cases, problems may be raised from sanctioning procedures of loan, investigation
of the pro/ect, and investigation of the loans etc. that is, the problem in loan recovery
proves the outcomes of the default process in loan disbursement. !he main reasons of
poor loan recovery are categori"ed in four broad types as follow>
A. Problems created by economic environment
!he following problems arise from the effect of economic environment>
1# Changing in the management !attern> &hanging of management patterns may
delay the recover of mature loan.
9. Changing in industrial !atterns> !he nationali"ed banks sometimes sanction
loan to the losing concern for further improvement of the respective sector, but
in most cases, they fail to achieve progress.
4# 2!eration of o!en market economy> $n our country mainly industries become
sick and also close their business on account of emerging of open market
economy. !he cost of production is high and the 6uality of goods is not of
re6uired of standard. As a result, they become the losing concerns and the
amount of bad loan increases.
=. Ra!id e3!ansion of 0usiness> !here are many companies, which e#pand their
business rapidly, but the e#pansion is for short time. $n the long run, the amount
of classified loan increases.
B. Problems created by government
!he following problems are arisen by the government>
1. 43ternal !ressure: (anata Bank )td. has also faced many problems in the
loan recovery process as a part of continuous pressure from various
interested groups.
9. Loan to go"ernment organi5ation> (anata Bank )td. is bound to sanction
loan to government organi"ation, though these are losing concern. For
this reason, banks faced problems in loan recovery.
4. Legal !ro0lems> E#isting rules and regulations are insufficient to cover
the legal aspects of loan recovery. As a result, defaulters can get release
easily from all charges against them.
=. Fre6uent changes in government policies in regard to recovery of loan.
). .roble$s created by the ban74
!he banks create the following problems>
1. Lack of analysis of 0usiness risk: Before lending, (anata Bank )td. does
not properly analy"e the business risk of the borrowers and the bank
cannot forecast whether the business will succeed or fail. $f it fails to run
well, the loan becomes classified.
9. Lack of !ro!er "aluation of security or mortgage !ro!erty: $n most
cases, bank fails to determine the value of security against the loan. As a
result, if the loan becomes classified, the bank cannot recover its loan
through the sale of mortgage.
'. Other general causes of poor loan recovery4
Apart from the specific reasons creating problems to recoup loan, there e#ists some
other general causes, which have a great impact on creating the problems, which are
faced by the (anata Bank )td. under study in the loan recovery process. !hese are>
4. Early sanction and disbursement of loan to the borrowers without proper
inspection of the pro/ect by the bank on account of pressure from
lobbying group.
=. )ack evaluation of technical and economic feasibility of the program.
;. ,elay in disbursement of credit.
8. &redit is not allowed to actual entrepreneurs.
J. )ack of proper supervision.
<. $lliteracy of borrowers.
2. Begative attitude of borrowers to repay the loan.
15. ,eterioration of the value system of the borrowers.
11. Money borrowers use their loanmoney other than specified pro/ect, i.e.,
if the loan is sanctioned for industrial purposeC they use the money in
house building or purchase of land for their own purpose.
19. 'ometimes borrowers invest their money outside the country. Many
borrowers transfer loan money to abroad where they deposited this
money in their own account or spent some other purpose.
14. 'ometimes local borrowers are found so much compelled to grant them
loan without proper study due to some une#pected reasons. 'ince these
borrowers are capable of getting loan by e#ercising their influence, they
can also escape the repayment liability.
1=. +roblems responsible for nonimplementation and delayed
implementation of pro/ect for which the entrepreneurs of the pro/ect
cannot repay the loan. !he causes of failure may be>
R Failure to ascertain the economic availability of the pro/ects
R !ime lag between approval and sanctioning of the pro/ects
R $mport of machinery and raw materials both are the problems of
paucity of foreign e#change and procedures of licensing.
All of these reasons discussed above are general reasons for problems loan recovery of
(anata Bank )td.. Besides these, there are some specific reasons for loan recovery
problems faced continuously by (anata Bank )td.. !hey are as>
)oans are given under fictitious names and enterprise
)oans are given without sufficient securities
Approval of the loans in e#cess of the branch managerFs power
$mproper monitoring and supervision of credit
+olitical misuse if loan programs operated by the public sector banks
)ack of timely action against willful defaulter
)oans are sometimes for economically unsound pro/ect.
+roblems in loan recovery are the outcome of the default on loans disbursements in the
earlier period.
Chapter Eight
9.1 Introduction
9.2 Signs for classification
9.3 #oan classification guidelines fro$ 1angladesh 1an7
9.4 .erfor$ance of 2anata 1an7 #td.
9.5 I$pact of provision for loan on 1an7Es profit
9.1 I%&RO'()&IO%
Banks are financial service firm, producing and selling professional management of the
publicFs funds as well as performing many other roles in the economy. But now adays
commercial banks are not performing their activities smoothly for a large burden of
default loan. Every year (anata Bank )td. distributes thousand crore taka among
individuals, organi"ations etc. but a large sum of these distributed fund cannot be
recovered in due time. !he Bank has to classify this loan. $n this chapter $ would like to
concentrate on classification procedure, provision making for particular classification,
performance of the bank regarding classified loan and recovery of such classified loan.
9.2 SI*%S +OR )#/SSI+I)/&IO%
First and foremost re6uirement for any and all credit managers is to identify a problem
credit in its earlier stages by recogni"ing the signs of deterioration. 'uch signs include
but not limited to the following>
1. Bonpayment of interest or principal or both on due dates or past dues beyond a
reasonable period or recurring past dues.
9. $n case of ?verdraft no movement in the account beyond a reasonable period.
4. ,eterioration in financial condition of the client, as gathered from clientFs latest
financial statement.
=. A shortfall in collateral coverage, particularly if the collateral was a key factor in
the decisionmaking.
;. ,eath or withdraw of keyowners or management personnel.
8. &ompany filing for bankruptcy or voluntary dissolution.
J. Adverse market report about the company itself or its principal owners.
9.3 #O/% )#/SSI+I)/&IO%>*(I'-#I%-S +RO! 1/%*#/'-S, 1/%=
&lassification of overdue loans and advances opened a new era in the credit
management of commercial banks in Bangladesh. Before 12<2 no specific guidelines
were followed by the commercial banks for this purpose. $n 12<2, Bangladesh Bank
issued B&, circular Bo.4=G12<2 stating specific rules and conditions of loan
After that each schedule banks e#cept BKB, .AK-B, and B'B would be responsible
for its own loan classification according to the guidelines are presented in the following

!AB)E> )?AB &)A''$F$&A!$?B 'M'!EMS
)ength of overdue
'tatus of
.ate of provision
Fre6uency of
/ll loans e?cept
/gricultural loans4
/nnual provision
)ess than 1 year -nclassified 1N
)oans overdue for 1 year but
less than 4 years
'ubstandard 15N
)oans overdue for 4 years
but less than ; years
,oubtful ;5N
)oans overdue for ; years or
BadGloss 155N
+or agricultural loan4
)oans not overdue for ;
years or more
)oans overdue for ; years or
BadG loss 155N
S'ource> B&, &ircular no. 12<2
According to this circular loans and advances were classified on a loanbyloan basis
rather sample classification. !his process was continued till 122=. Bangladesh Bank
further issued a circular in122; 7B&, circular395G122=:. !he title of the circular was
%.evised rules of classification and provisioning of loans and advances,* which came
into implementation from (anuary 1, 122;.

&able4 schedule of loan classification and provision progra$F
a. types of
stage 2
stage 3
stage 4
stage 5
)ess than
1< months
)ess than
19 months
)ess than
12 months
)ess than 8
)ess than 4
1< months
or more but
less than 48
19 months
or more but
less than 9=
2 months or
more but
less than 9=
8 months or
more but
less than 19
4 months or
more but
less than 8
48 months
or more but
less than =<
9= months
or more but
less than 48
19 months
or more but
less than 9=
2 months or
more but
less than 19
4 months or
more but
less than 8
More than
=< months
48 months
or more
48 months
or more
9= months
or more
19 months
or more
b. .ates of
-nclassified 1N 1N 1N 1N 1N
'ubstandard 15N 15N 1;N 1;N 95N
,oubtful ;5N ;5N ;5N ;5N ;5N
Bad 155N 155N 155N 155N 155N
c. +eriod of
Dalf yearly
Dalf yearly
S'ource> B&, circular no. 95 of 9JG19G122=
For loan classification Bangladesh Bank also issues circular time to time after
9JG19G122= like B+., circular no 18,2,9,2 and 1J of 8G19G122<, 1=G;G9551, 1;G4G955;,
9;G<G955;, and 8G19G955; respectively. 'ome of these are as follows>
&able4 statusB type and definition of classificationF
Status #oan type 'efinition of status
-nclassified. All current loan All current loans with
re6uired eligible security
'ub standard 7'':
@hen degree of risk for
nonpayable is high but
there is reasonable respect
that the loan condition can
be improved
&ontinuousGdemandG term
7)ess than ; years:
More than ; years
'hortterm agro. credit
and micro credit
?verdue is more than 4
months but less than 8
months if default amount
of installment is e6ual to
installment payable in 8
$f default amount of
installment is e6ual to
installments payable in 19
?verdue is more than 19
months but less than 48
,oubtful 7,F:
@hen chance of recovery
is uncertain
&ontinuous and demand
!erm loan less than ;
More than ; years
?verdue is more than 8
months but less than 2
$f default amount of
installment is e6ual to
installments payable in 19
$f default amount of
installment is e6ual to
'hortterm agro. credit
and micro credit
installments payable in 19
to 1< months.
?verdue is more than 48
months but less than 85
BadG loss 7B):
Bo security held, borrower
not traceable, time barred
loans, no hope of recovery
&ontinuous and demand
!erm loan
7-p to ; years:
More than ; years
'hortterm agro. credit
and micro credit
?verdue is more than 19
$f default amount of
installment is e6ual to
installment payable in1<
$f default amount of
installment is e6ual to
installment payable in 9=
?verdue is more than 85
'ource> Bangladesh Bank, B.+, &ircular Bo. 18 of 122<S
&able4 loan classification syste$B 2;;1F
)ength of overdue 'tatus of .ate of provision Fre6uency of
classification classification
)ess than 8 months -nclassified 1N Tuarterly
)oans overdue for
8 months but less
than 2 months
'ub standard 7'':
)oans overdue for
2 months but less
than 19 months
,oubtful 7,F:
)oans overdue for
19 months or more
BadG loss 155N
S'ource> Bangladesh Bank, B.+, &ircular Bo. 2 of 9551
&able4 loan classification syste$ 8international standard5
)ength of overdue
'tatus of
.ate of provision
Fre6uency of
)ess than 4 months -nclassified 1N;N
)oans overdue for
4 months but less
than 8 months
'ub standard 7'':
)oans overdue for
8 months but less
than 2 months
,oubtful 7,F:
)oans overdue for
2 months or more
BadG loss 155N
S'ource> 'tudies in Bangladesh Banking, B$BM, 9555
9.4 .-R+OR!/%)- O+ 2/%/&/ 1/%= #&'.
From my analysis it is found that during first phase 712289555: total loan of (anata
Bank )td. was !K ;19<; crore of which classified loan was !K <5;; crore. !hat is,
1;.J1N of total credit is classified. ,uring second phase 79551955;:, total loan of the
bank was !K ;98J8 crore of which classified loan was !K 19184 crore. !hat is 94.52N
of total credit is classified.
&able4 )lassified loan of 2anata 1an7 #td.
Mear 1228 122J 122< 1222 9555 9551 9559 9554 955= 955;
!otal =<J; ;92; ;J44 J4=1 <52; 2492 22J; 151=8 15JJ2 19==J
-nclassified BGA BGA 4==5 =;92 ;1=; 8=2J J541 J<<1 <2<1 11594
)oan 785: 789: 78=: 7J5: 7J5: 7J<: 7<4: 7<2:
&lassified BGA BGA 9924 9<19 92;5 9<49 92== 998; 1J2< 949=
)oan 7=5: 74<: 792: 745: 745: 799: 71J: 711:
'ource> annual report of (anata Bank )td. 1222, 9551, 9554, 955;
9.5 I!./)& O+ .RO3ISIO% +OR #O/% O% 1/%=GS .RO+I&
+rovisioning by the bank has not been isolated action, but represents one component in
an ongoing set of negotiations and relationships between borrowers and the banks,
while the borrowers wish to minimi"e their servicing obligations without damaging
their prospect of future market access, the lending bank wish to ma#imi"e their
receipts. 'uch ma#imi"ation may involve agreeing to terms which are not so stringent
as to encourage borrowers to opt for all out default. +rovisioning has the effect of
bringing the bankFs actual balance sheet more in line with the market perception of
what they should look alike.
Bangladesh Bank provides specific guidelines for loan provisioning and bases for
calculating such provisions. +rovisions for unclassified as well as classified loan are as
&able4 rates loan provision
(nclassified loan .rovision )lassified .rovision
'mall enterprise 9N 'ubstandard 95N
9N ,oubtful ;85N
E#cept 'EF, &F
and 'MA
1N Bad or loss 1555N
'pecial account Mention ;N
Bank and financial sector may be termed as the vital complementary power of the
economy. But the uncertainty in respect to effectiveness of this sector in the economy
continuously increases over time. Bow a days it open secret that (B is under direct
control of the Finance Ministry. &redit management of (B was so meaningless and
corrupted as it is now assumed that more than !k 45555 crore have become
unreali"able within the last 15 years.

Chapter Nine
)R-'I& R/&I%* O+ 2/%/&/ 1/%=
2.1 $ntroduction
2.9 Tuantitative Factors
2.4 Tualitative Factors
:.1 I%&RO'()&IO%
Bangladesh Bank has made mandatory from (anuary955J for all banks to have
themselves credit rated by a credit rating agency vide B.+, &ircular Bo.8 of (uly ;,
9558 for all banks. !he first rating by an e#ternal independent rating agency will have
to be completed by (une 955J. Accordingly, (B has appointed &redit .ating Agency of
Bangladesh 7&.AB: to conduct &redit .ating of the bank, which will be completed
invariably by 45th (une 955J. @ith this end and view memorandum of understanding
of signed in between our bank and &.AB on 1=May 955J.
&redit .ating of Banks provides opinion on the types of risks associated with the
relative ability of a bank for timely servicing its debts and other obligations. !he rating
e#ercise is done through a 6uantitative cum 6ualitative approach following a structured
:.2 H(/%&I&/&I3- +/)&ORS
a: &apital Ade6uacy
b: Assets Tuality
c: Funding A )everage
d: )i6uidity .e6uirements
e: Earning Tuality
f: Market 'ensitivity
:.3 H(/#I&/&I3- +/)ORS
a: ?wnership
b: Management Tuality
c: .isk Management
d: &ompliance with the 'tatutory
e: Accounting Tuality
f: 'i"e A Market +ressure
g: Eovt. 'upport etc.
Chapter Ten
)OR.OR/&ID/&IO% O+ 2/%/&/ 1/%=
)OR.OR/&ID/&IO% O+ 2/%/&/ 1/%= #I!I&-'
As per directives of the M?F (anata Bank )td. have completed all the processes
re6uired to corporatise the bank. !he detail chronological steps are as under>
&learance regarding the nomenclature of the U(anata Bank )imitedU has been
obtained from the .egistrar U(oint 'tock &ompanies A FirmsU as on 11G5=G5J.
UBo ob/ection certificate collected from Bangladesh BankU on 18G5=G5J.
?n 9=G5=G5J, 'E& accorded approval that the paid up capital for (anata Bank
)td. would be !k.9;2.42 crore.
All the related documents A papers including the Memorandum A Articles of
Association along with the prescribed fees were submitted to the offices of the
.egistrar within the fi#ed date 99nd April 955J.
!he certificate of $ncorporation Bo. &882447==9;:G5J dated 91G5;G5J A
&ertificate for commencement of Business dated 91G5;G5J for U(anata Bank
)imitedU approved A delivered on 91G5;G5J by the .egistrar (oint 'tock
&ompanies A Firms.
)icense for Banking Business issued by Bangladesh bank in favor of U(anata
Bank )imitedU on 41G5;G5J.
(B is now awaiting Lendor's Agreement A to issue a Ea"ette Botification as per
the Bangladesh Bank 7Bationali"ation: ?rder 12J9 7+.?.B?. of 12J9: &lause
71: of Article 9JA for which a letter has already been written to the M&F.
Chapter Eleven
.RO3ISIO% +OR #O/%S 6 /'3/%)-S
11.1 $nterest on loans A advances
11.9 -nclassified loans A advances
11.4 &lassified loans A advances
11.= 'ecurity against loans
11.; $nvestment
11.8 @rite off loans A advances
11.1 I%&-R-S& O% #O/%S 6 /'3/%)-S
$nterest on unclassified loans is calculated on a daily product basis
but charged A account for 6uarterly basis A in some cases half yearly
A yearly basis. Bo interest is charged on badGloss loans A advances.
$nterest is calculated on classified loans A advances as per
Bangladesh Bank B.+, &ircular nos. 18G122<, 52G955; A 5;G9558
A kept in interest suspense account A credited to income on
reali"ation. !he same procedure is followed for special mentioned
account 7'MA:.
11.2 (%)#/SSI+I-' #O/%S 6 /'3/%)-S
Eeneral provision maintained on unclassified loans A advances 1N
Eeneral provision maintained on DF A )+ 9N
Eeneral provision maintained on other than DF A )+ ;N
Eeneral provision maintained on 'hort !erm Agriculture &redit ;N
Eeneral provision maintained on 'mall Enterprise financing off 9N
Special !ention /ccount4
'pecial Mention account loans A advances ;N
11.3 )#/SSI+I-' #O/%S 6 /'3/%)-S
'ubstandard )oans A advances 95N
,oubtful )oans A advances ;5N
BadG)oss )oans A Advances 155N
11.4 S-)(RI&0 /*/I%S& #O/%S
.roject loan4 )and A building are taken as security against in the form of
mortgage. +lant A machinery are taken in the form of hypothecation.
Cor7ing capital 6 trading loan> Eoods are taken as security in the form of
pledge 7not less two times covering the loan: A also goods are taken as security
in the form of hypothecation along with land A building as mortgage 7Lalue not
less than 1.;5 times covering the amount: in the form of collateral security.
,ouse building loan> )and building is taken as security in the form of
Overdraft4 F,.s are taken as pledge, balance in ,+'G',+' AG&s are marked
as UlienU.
*ovt. loan> )oan against Eovt. guarantee A crop loan to agricultural sectorno
security is taken.
11.5 I%3-S&!-%&
$nvestments have been shown under two broad categories vi". government
securities A other investments.
$nvestments in shares A securities have not been revalued at the yearend.
!he current A long term investment in securities have been shown separately
analy"ing as per the remaining maturity grouping.
11. CRI&- O++ #O/%S 6 /'3/%)-S
)oans A advances have been written off which has no realistic prospect of recovery,
against which full have been kept A legal cases are pending e#cept the state owned
enterprises for which no legal actions have been initiated. Dowever, this write off will
not reduce the claim of the Bank against borrower in any way. ,etailed memorandum
records for all such written off accounts are maintained in note no. J.55 f 7#i: 7a, b, c:.

Chapter Twelve
)R-'I& RIS= !/%/*-!-%&
12.1 /pplication of credit ris7 $anage$ent
12.2 )oncentration on credit ris7
12.1 /..#I)/&IO% O+ )R-'I& RIS= !/%/*-!-%&
&redit risk is fundamental to (anata Bank )td. A specially the risk that a third party will
not comply with the terms A conditions of the loan A therefore could not meet its
obligations to the Bank. $t is a potential loss arising from the failure of a counter party
to perform as per contractual agreement with the Bank, basically failure in payment.
&redit constitutes 8JN of Banks assets A this portfolio is by far the most important
ob/ective of the Bank significantly of which about 19.<1N is classified. !he elaborate
status is as follows>
7Fig in &rore:
1# '+ SS S!/ Standard &otal
1422.81 11=.49 981.=8 1J<.28 11<2=.25 14<=2.9;

15.15N .<4N 1.<2N 1.45N <;.<<N 155N

!he e#posures to ma/or sectors are> 7Fig in &rore:
-?port I$port Industrial
credit 6
Staff #oan *eneral
6 other
152=.91 9J<5.;5 1=28.;4 281.J; J22.85 8J18.88
)oans A advances amounting to 7i: !k.41952.<5 million to Bangladesh +etroleum
&orporation 7B+&: 7ii: !k.J4<;.15 million to Bangladesh (ute Mills &orporation
7B(M&:, 7iii: !k.485.15 million to Bangladesh 'teel A Engineering &orporation
7B'E&: 7iv: !k.1;5.<5 million to Bangladesh 'ugar A Food &orporation 7B'F&: A 7v:
!k.189<.45 million to Bangladesh &hemical $ndustries &orporation 7B&$&: against
Eovernment guarantee of !k.411<8.=5. investments in public sectors A &orporations
amounting to !k.==9.15 million were made against government guarantee of the
amount of !k.1959.=5 million.
!he risk arises from loans A other transactions, some of which may not be recorded as
loans on the balance sheet. For e#ample, (anata Bank )td. issue guarantee to a client's
performance under a contract in return for a fee. Elements that increase risk to Bank
may include>
Alarming industries, economic sectors or countries
'ignificant amount due from related parties
)ending to recently established businesses without a UcreditU history, &redit
$nformation Bureau 7&$B: reports, etc.
)ending with poor securities A wrong or weak business analysis.
)ending parties without credit worthiness.
-nwillingness of the counter party or decline in his Gher financial condition.
12.2 )O%)-%&R/&IO% O+ )R-'I& RIS=
&oncentration of credit risk arises when a number of counter parties are engaged in
similar business activities or activities in the same geographical region, or have
economic features that would cause their ability to meet contractual obligations to be
similarly affected due to changes in economic, political or other conditions. Factors
mitigating credit risk may include>
'egregation of duties
.isk grading &redit analysis
&onservative management philosophy
,etailed welldocumented approval process prior to commitment to lending
,elivery by client of all documents prior to release of funds
Established counter partyGlending limits, etc.
'enior management monitoring process of the Bank's e#posure limits on
regular basis
$f applicable, effective security or insurance arrangements
Early Alert, 'pecial mentioned A Bon +erforming )oan 7B+):GBad accounts

Chapter Thirteen
13.1 Introduction
13.2 &he 1an7 )o$panies /ct 1::1
13.3 &he International /ccounting Standards 8I/S5>3;
13.4 *uidelines folloAed by ban7s under study
13.1 I%&RO'()&IO%
!here is no iron clad formula to fi# and determine the sound guidelines for
credit management. As a central bank Bangladesh bank sets the guidelines
for commercial banks in their operations. 'uch types of guidelines are
general in nature. &ommercial banks of Bangladesh are incorporated under
&ompanies Act 122= and Bank &ompanies Act 1221. But none of this act
clearly mentions guidelines for managing credit in commercial banks.
&entral bank is the controller of money market in any country. As central
bank, Bangladesh Bank controls money market in our country. Bangladesh
bank, time to time, issues some guidelines and regulations for operation of
a banking concern of the banks. )ending is most profitable business of a
commercial bank but at the same time it is highly risky. how 'onali bank is
following such guidelines in their credit management operations is
intended to be discussed in this chapter .
13.2 &,- )O!./%I-S /)& 1::1
According to the Bank &ompanies Act 1221, the following rules must be
followed by any commercial bank in our country>
Section )ontents
Any bank other than new or
speciali"ed bank will not declare
dividend on its share until the bank
as written off its previous losses
preliminary e#penses and other
deferred revenue e#penses.
Bank will declare dividend
whatever be stated elsewhere if and
only if bank will take proper steps
for their bad and doubtful credit in
accordance with the satisfaction of
their auditors.
,iscuss on some limitations and
restrictions on the distribution of
loans and advances
@ithout prior approval of the
Bangladesh Bank, commercial
banks will not e#tend its credit
policy any way.
4J Bangladesh Bank can disclose
collectively or in any other form
the information about the overdue
loans and advances, which fall due
to the BB that that information are
re6uired to be disclosed only in
public interests.
13.3 &,- I%&-R%/&IO%/# /))O(%&I%* S&/%'/R'S 8I/S5>
$n our country $nstitute of &hartered Accountants of Bangladesh 7$&AB:
has so far adopted 91 $A's out of =5 issued so far. !he original $A' 45 was
issued in (anuary 122;. $A' 45 is a Eenerally Accepted Accounting
'tandard intended for application in the financial statements of the bank
and similar financial institutions. $t is a special purposeC disclosure based
accounting standard catering to the need for proper presentation of
disclosures in the financial statements of bank. $t enumerates the
accounting principles and disclosure re6uirements of published financial
statements of banking companies. $t thereby provides definitive guidance
to corporate management with regard to the preparation and to independent
auditors for audit of financial information of banks.
Bangladesh Bank issued a circular entitled Amendment of First 'cheduled
Forms of the Bank &ompanies Act 1221, 7B.+, &ircular Bo. 54 dated 1<
April 9555:. -nder this circular, newly amended forms have been made
mandatory for all concerned banks and financial institutions since 45
March 9555 in Bangladesh. !he new forms have been introduced with a
view to ensuring the discipline in the banking sector, to minimi"e the
unforeseeable risk, to provide true, relevant and reliable information to the
depositors and shareholders and to meet the financial disclosures in
compliance with the $nternational 'tandards. Dowever, the financial
institutions should be easy to understand, informative and transparent. !he
new forms will reflect all these aspects in reporting financial information.
!he features of the newly introduced formats of $A' 45 are as follows>
a. !o provide vertical form of financial statements. !his form
complies with the international accounting standards though the
heads of accounts are same as those of the previous formsC
b. !o disclose the assets and liabilities according to their relative
c. !o bring more transparency in reporting financial position of
banks and financial institutions, it is re6uired to disclose gross
loans and advances and bills discounted and purchased after
charging the necessary provisions thereon. !he new format of
balance sheet provides the relevant policies for this practiceC
d. !o disclose the re6uired provisions on securities investments
under the new systemC
e. !o disclose the loan loss provisions on the profit and loss account
separately and then show the earning per share 7E+': of the
f. !o show the contingent and contra items 7i.e. off balance sheet
items: on separate statement and enclose with the balance sheetC
g. !o make comparison between the performance of two financial
years, the immediate previous yearFs financial statements to be
furnished along with the current yearFs financial statements in the
annual reportC and
h. !o furnish one additional statements vi". cash flow statements as
per international accounting standards.
13.4 *(I'-#I%-S +O##OC-' 10 SO%/#I 1/%= #&'.
'onali Bank )td. usually prepares its financial statements as per $A' 45
and forms prescribed by the bank &ompanies Act 1221. Before that they
usually follow the old format for preparing statements. 'onali bank
violates the regulations prescribed in Bank &ompanies Act 1221.
Eenerally public bankFs performance is worse than of private banks. +ublic
banks specially, 'onali Bank )td. shows in its profit and loss account but it
is found that if they make actual provisions on their unsound loan they will
incur loss. 'onali bank discloses some general guidelines that act as the
basis for calculation of provisions for bad and doubtful credit. !he
standard again states that the principal types of e#penses from the
operations of a bank include interest, commissions, losses on loans and
advances, charges relating to the reduction in the carrying amount of
investments and general administrative e#penses are separately disclosed
in order that users can assess the performance of the bank. 'onali bank
does not disclose relevant and comparable information about their credit
management operations.
Chapter Fourteen

-valuation of credit $anage$ent of 2anata 1an7 #td. fro$ the
custo$ersG point of vieA4
,uring my internship period in (anata Bank )td., $ asked a number of customers
regarding the credit management of the bank. !he interpretation of the data 7at a
glance: is given below>
'ub/ect of asking 6uestions>
1. $mage of the (anata Bank )td. to the customers is satisfactory.
9. BankFs relation with customers is good.
4 !he formalities followed by the bankproviding loan are necessary.
=. !he processing of providing loan is 6uick.
;. !he bank keeps customers informed about when loans and advances are provided.
8. !he bankFs authority tries to provide its services at the same time it promises to do so.
J. Mou feel safe in your loantransaction with (B.
<. @hen problems arising from loan facilities the (B authority shows sincere concern on it.
2. !he terms and conditions are fle#ible regarding loan sanction.
15. !he loan interest rate is competitive
11. !he amount of security against loan amount is tolerable.
19. &ircumstances arising from loan default are strict.
!otal number of sample is 15 in every sub/ect.
$n this table all the attributes are having specific points.
!he table ratings are as follows>
'trongly agree ;
Agree =
Beutral 4
,isagree 9
'trongly disagree 1
I$age of 2anata 1an7 #td. to the custo$er is satisfactory
S# %o. .ara$eters
%o. Of
1 'trongly agree 1 15
2 Agree J J5
3 Beutral 1 15
4 ,isagree 1 15
5 'trongly disagree 5 5
'ource> survey of primary data
!otal points V 15S;WJ5S=W15S4W15S9W5S1 V 4<5
!he weighted average is 4<5G1; V 9;.44
$nterpretation of the data>
$n the point %$mage of the (anata Bank )td. to the customers is satisfactory*, 15N of
the sample customers strongly agree, J5N agree, 15N neutral, 15N disagree with this.
&able> 2
1an7Gs relation Aith custo$ers is good
S# %o. .ara$eters
%o. Of
1 'trongly agree 1 15
2 Agree < <5
3 Beutral 5 5
4 ,isagree 1 15
5 'trongly disagree 5 5
'ource> survey of primary data
!otal points V 15S;W<5S=W5S4W15S9W5S1 V 425
!he weighted average is 425G1; V 98
$nterpretation of the data>
$n the point %BankFs relation with customers is good* as answer of this 6uestion, 15N
of the sample customers strongly agree, <5N agree, and 15N disagree with this.
&able> 3
&he for$alities folloAed by the ban7>providing loan are necessary.
S# %o. .ara$eters
%o. Of
1 'trongly agree 1 15
2 Agree 9 95
3 Beutral 8 85
4 ,isagree 1 15
5 'trongly disagree 5 5
'ource> survey of primary data
!otal points V 15S;W95S=W85S4W15S9W5S1 V 445
!he weighted average is 445G1; V 99
$nterpretation of the data>
$n the point %!he formalities followed by the bank providing loan are necessary* as
answer of this 6uestion, 15N of the sample customers strongly agree, 95N agree, 85N
neutral, 15N disagree with this.
&able> 4
&he processing of providing loan is Juic7.
S# %o. .ara$eters
%o. Of
1 'trongly agree 5 5
2 Agree 1 15
3 Beutral 1 15
4 ,isagree J J5
5 'trongly disagree 1 15
'ource> survey of primary data
!otal points V 5S;W15S=W15S4WJ5S9W15S1 V 995
!he weighted average is 995G1; V 1=.8J
$nterpretation of the data>
$n the point %!he processing of providing loan is 6uick* as answer of this 6uestion,
15N of the sample customers agree, 15N neutral, J5N disagree, and 15N strongly
disagree with this.
&able> 5
&he ban7 7eeps custo$ers infor$ed about Ahen loans and advances are provided.
S# %o. .ara$eters
%o. Of
1 'trongly agree 5 5
2 Agree 9 95
3 Beutral J J5
4 ,isagree 1 15
5 'trongly disagree 5 5
'ource> survey of primary data
!otal points V 5S;W95S=WJ5S4W15S9W5S1V 415
!he weighted average is 415G1; V 95.8J
$nterpretation of the data>
$n the point %!he bank keeps customers informed about when loans and advances are
provided* as answer of this 6uestion, 95N of the sample customers agree, J5N neutral,
and 15N disagree with this.
!he bankFs authority tries to provide its services at the same time it promises to do so.
S# %o. .ara$eters %o. of respondents .ercentage
1 'trongly agree 5 5
2 Agree 9 95
3 Beutral J J5
4 ,isagree 1 15
5 'trongly disagree 5 5
'ource> survey of primary data
!otal points V 5S;W95S=WJ5S4W15S9W5S1 V 415
!he weighted average is 415G1; V 95.8J
$nterpretation of the data>
$n the point %!he bankFs authority tries to provide its services at the same time it
promises to do so* as answer of this 6uestion, 95N of the sample customers agree, J5N
neutral, and 15N disagree with this.
0ou feel safe in your loan>transaction Aith 21.
S# %o. .ara$eters
%o. Of
1 'trongly agree 9 95
2 Agree J J5
3 Beutral 1 15
4 ,isagree 5 5
5 'trongly disagree 5 5
'ource> survey of primary data
!otal points V 95S;WJ5S=W15S4W5S9W5S1V =15
!he weighted average is =15G1; V 9J.44
$nterpretation of the data>
$n the point %Mou feel safe in your loantransaction with (B* as answer of this 6uestion,
95N of the sample customers strongly agree, J5N agree, and 15N neutral with this.
@hen problems arise from loan facilities, the (B authority shows sincere concern on it.
S# %o. .ara$eters
%o. Of
1 'trongly agree 5 5
2 Agree 5 5
3 Beutral J J5
4 ,isagree 4 45
5 'trongly disagree 5 5
'ource> survey of primary data
!otal points V 5S;W5S=WJ5S4W45S9W5S1V9J5
!he weighted average is 9J5G1; V 1<
$nterpretation of the data>
$n the point %@hen problems arise from loan facilities, the (B authority shows sincere
concern on it* as answer of this 6uestion, J5N is neutral, and 45N disagree with this.
!he terms and conditions are fle#ible regarding loan sanction.
S# %o. .ara$eters
%o. Of
1 'trongly agree 5 5
2 Agree < <5
3 Beutral 9 95
4 ,isagree 5 5
5 'trongly disagree 5 5
'ource> survey of primary data
!otal points V 5S;W<5S=W95S4W5S9W5S1 V 4<5
!he weighted average is 4<5G1; V 9;.44
$nterpretation of the data>
$n the point %!he terms and conditions are fle#ible regarding loan sanction*, as answer
of this 6uestion, <5N of the sample customers agree, 95N neutral with this.
&able> 1;
!he loan interest rate is competitive
S# %o. .ara$eters
%o. Of
1 'trongly agree 9 95
2 Agree < <5
3 Beutral 5 5
4 ,isagree 5 5
5 'trongly disagree 5 5
'ource> survey of primary data
!otal points V 95S;W<5S=W5S4W5S9W5S51V =95
!he weighted average is =95G1; V 9<
$nterpretation of the data>
$n the point %!he loan interest rate is competitive* as answer of this 6uestion, 95N of
the sample customers strongly agree, and <5N agree with this.
&able> 11
!he amount of security against loan amount is tolerable.
S# %o. .ara$eters
%o. Of
1 'trongly agree 5 5
2 Agree 5 5
3 Beutral 5 5
4 ,isagree 8 85
5 'trongly disagree = =5
'ource> survey of primary data
!otal points V 5S;W5S=W5S4W85S9W=5S1 V185
!he weighted average is185G1; V15.8J
$nterpretation of the data>
$n the point %!he amount of security against loan amount is tolerable* as answer of this
6uestion, 85N of the sample customers disagree, and =5N strongly disagree with this.
&able> 12
&ircumstances arising from loan default are strict.
S# %o. .ara$eters %o. Of respondents .ercentage
1 'trongly agree 9 95
2 Agree ; ;5
3 Beutral 4 45
4 ,isagree 5 5
5 'trongly disagree 5 5
'ource> survey of primary data
!otal points V 95S;W;5S=W45S4W5S9W5S1 V 425
!he weighted average is 425G1; V 98
$nterpretation of the data
$n the point %&ircumstances arising from loan default are strict* as answer of this
6uestion, 95N of the sample customers strongly agree, ;5N agree, and 45N neutral
with this.
From the survey, we can conclude that sometimes without proper investigation, the
management values the security randomly, which is less than the actual value of the
security. !he customers also critici"e the margin rate of the bank.
From my survey, $ also find that the customers, who are also involved in getting loan
from another private bank, complain the loan giving procedure of (anata Bank )td..
!hey comment that the procedure of getting loan is slower than the private bank. And
the cooperation of the private banks is comparatively better. 'ometimes the customers
need lobbying with top management to get loan.
!hough the customers complain the valuation process of security, which is pledged
against the loan, they choose (anata Bank )td. to get loan and advances because of its
competitive interest rate. !hough the customers face the problems, they prefer (anata
Bank )td. for its comparative lower interest rate, safety of their security, and
availability of the branches of the bank.
'o the decisionmaking body, i.e. B?,G !op Management should take proper steps in
all aspects of loan giving procedures and overall banking systems. !he security
valuation system must be transparent and accurate and verified by the independent and
the efficient persons. !he terms and conditions must be fle#ible from now. !he
authority may arrange different programs and publish bulletin for the loan providing
procedure and which sectors are emphasi"ed more as most of the people do not know
the loan procedure of the (anata Bank )td.. $n fine, all the employees must be more
amicable and cooperative.
+indings and analysis
Every bank has its own credit procedure. Bank under study possesses a standard credit
procedure. As the ob/ective of my study is to make a comment on the credit
management of (anata Bank )td., $ try my best to collect data for the study and find out
the reality. Based on the data generated during my study period $ will sum up my
findings here and $ think this will help me to achieve my ob/ectives.
1. $f we look at the historical background of (anata Bank )td., we see that, the
ob/ective of (B is to earn profit as well as to improve the economic welfare of
the people as a whole.
9. (anata Bank )td. has a significant role in long term pro/ect financing in both
agriculture and industrial sectors. Again (B has a deep concern for rural
4. +rivate sector usually concentrates in the urban areas where as public sector i.e.
(B spread their banking network all over the world.
=. @ith a view to implementing government policies, (B has been maintaining its
position in e#tending credit to government bodies, sector corporations and
private enterprises.
;. !hough bank re6uired both 6uantitative and 6ualitative analysis but for big
loans bank emphasi"es on the lending risk analysis 7).A:. But ).A is not a
perfect measure of credit analysis. Because businessmen in our society are
usually tempted to take resort of window dressing that means accounts are so
manipulated that the vital facts are concealed and facts presented are superficial.
'o banks have to go through both 6uantitative and 6ualitative analysis.
8. According to the standard and bankFs credit procedure, credit operation is
started from the customer application to the branch for the loan. But in most
cases, many customers go directly to the directors of the bank and directors
send them to the branch offices with hisGher reference. $n these cases, proper
appraisal is not possible as directors the most powerful persons and bank
management must give priority towards the decision of the directors. !his
phenomenon is very common in the bank, which hampers the spontaneous
procedure of credit appraisal.
J. Bangladesh Bank monitors all the policies of all the private and nationali"ed
banks of the country. According to the Bangladesh BankFs strategy, all banks
must possess the standard policies, which are designed by the central bank.
(anata Bank )td. also possesses a standard credit proposal form. $n that form all
necessary information are re6uired to fill up. But in practice credit officers do
not fill up the proposal form properly. Most of the cases, they use assumption
rather than e#act figure. !his practice might end up with bad or classified one.
<. A standard policy starts from the customerFs direct application for the loan in
the branch office. But itFs a common phenomenon that most of the customers
directly contact with Dead office and Dead office chooses the branch offices to
disburse the loan. $t hampers the normal procedure. Branches always stay under
pressure when they get order for disbursement from Dead office. @hen
branches get order from the head office, then appraisal system loses its formal
track. 'o Dead office should not send any order to the branch office without
prior appraisal.
2. Every bank has its own budget and plan regarding loan portfolio. !his loan
portfolio must be diversified so that bank could diversify its risk. A proper and
preplanned portfolio can eliminate the risk of huge classified loan or bad loans,
as this aspect is very much sensitive toward many e#ternal and internal factors.
!he bank under study i.e. (anata Bank )td. does not have any proper guide line
where to investC moreover they do not do any future plan to maintain a well
structured portfolio to decrease the possibility of classified loan. !his type of
practice is working as an obstacle in smooth credit disbursement as well as in
credit appraisal system.
15. Most of the loans that (B distributes are as cash credit hypothecation and (B
emphasi"es less on demand loan.
11. (B distribute loans without sufficient security in some cases. !his is violation of
the Bangladesh bank order.
19. $n many cases bank face this problem because bankFs credit officer fails to value
collateral property. +roper valuation means collateral will e#actly cover the risk
of bad loan. ?fficials must do it with due care.
14. !he recovery performance of (B is not in a satisfactory level at all and the
position of those in that respect deteriorated heavily during last two phases. !he
recovery performance in agriculture is worse than in other sectors. ?n the other
hand, as private sector banks distribute more loans on shortterm basis and
relatively better than public sector. But if we compare it from the efficiency
point, then it is clear that they are not still efficient in credit management as they
are unable to recover half of their distributed loan in different sectors.
1=. ,uring first phase 1;.J1N of the total loan of (B became classified and this
classified loan came down to 94N in the second phase.
1;. (B does not keep enough provisions against classified loans and advances.
18. +rivate sector banks are relatively efficient in processing and e#ecuting legal
actions against defaulters for their nonpayment of loans and advances in due
time that of public sector bank.
1J. !he credit management of (B are not fully conformity with the guidelines
prescribed in the bank companies Act 1221 and $nternational Accounting
'tanderd45 7$A'45:
Chapter Fifteen
Conclu!on "n#
()*( Conclu!on
()*+ R%co&&%n#"'!on
15.1 )onclusion
$ have discussed so far about the different aspects of credit management (anata Bank
)td.. For my report, $ have selected (anata bank )td. (B plays an important role in the
banking sector as well as in our economy. !he success of a bank depends largely on the
efficient credit management. A successful credit management is not only need for a
bankFs own performance but also it is needed for the smooth development of an
economy. $n any strategy of economic development, therefore, it is essential to
emphasi"e the evaluation of a sound and wellintegrated credit management system
from the viewpoint of both resources mobili"ation and efficient allocation of funds. $n
conclusion it can be suggested a number of recommendations in order to overcome the
problems and how to remove the causes of problem in credit management.
15.2 Reco$$endations
'ince this an e#ploratory research, hence the recommendation given are not decisions
rather they are only suggestions to improve the default rate. !he recommendations are
made on the basis of survey findings.
1. &entral bank should take proper actions for ensuring e6uivalent distribution of loans
and advances.
9. )ending policies in our country should be geared to growth potential rather than
being determined by the pree#isting collateral.
4. &hanges in lending policies will not suffice the purposes unless it is followed by a
change in the attitude and out look of both the borrowers and the bankers.
=. $mprovement of credit management depends on the development of relevant,
ade6uate, proper and reliable database at the public sector banks as well as private
sector banks in Bangladesh.
;. For developing a reliable credit management system for the commercial banks
specially (anata Bank )td., it should re6uire to introduce as improved information
system within bank as well as among the borrowers. Because ultimately it is what a
borrower does with money that should guide the credit plan, the borrowers also have to
know e#actly where they are going, what their opportunities and how fast they can
8. !he security must be valued properly by the independent values and constantly
watched so that the value of mortgage property becomes sufficient to recover the
default loan.
J. +ublishing the names of defaulter as well as good and regular payers in various
dailies and granting various sorts of facilities to good borrowers will create a moral
persuasion on the borrowers. !his may decrease the number of defaulters and the
volume of large outstanding loan amounts as well.
<. +ressure from outsider and influence e#torted by borrowers are also a great
impediment in the smooth functioning of loan recovery process. !he role of
government in this case is the most important factor re6uired to solve these sorts of
2. More and more competent personnel must be recruited to reduce the weakness of
credit management. &ompetent e#ecutives will ensure the reduction of wrong appraisal
and evaluation of pro/ects.
15. +rompt legal actions be taken against willful loan defaulters
11. !he new entrepreneurs should be encouraged in disturbing loans and those who
have the records of regular payment, should be given preference.
19. 'teps should be taken so that guarantors cannot avoid their responsibility.
14. $t is observed that the defaulters generally get various sorts of e#emptions as
declared by the government from time to time. Eovernment must not show any kind of
mercy to the defaulters in any way, which may encourage the default culture. !his type
of action may discourse the borrowers to become willful defaulters.
1=. !he e#isting huge amount of classified loans demand for special and corrective
attention for e#ample>
By obtaining suitable reduction on amount.
Additional security.
More complete financial data concerning the obligorFs condition or
?ther such action as the specific circumstances may re6uire.
1;. !he attempt to encourage banks to re6uire borrowers comply with banking laws and
regulations and clear up industrial properties prior to granting a loan.
18. (B should follow some straight ward mechanical procedures in assessing the risk of
a borrower.
1J. !he formulation of a sound credit policy in the possibility of default loans.
1<. !he formulation of a sound credit policy in the banking sector as a whole has to
take into account all these factors and each bank has to attempt to work out for itself
what it is capable of doing so as best as possible.
1. Annual .eport of (anata Bank )td., 95559558
9. &howdury, ).+C %A !e#tbook on BankerFs Advances*C 9
EditionC +aradise +rinterC
4. Managing &ore .isk in Banking> &redit .isk Management, (anata Bank )td., Dead
?ffice, ,haka.
=. Md. Maksudur .ahman 'arder A +rashanto Kumer Baner/ee 7,ecember 1228:C
(ournal of Business 'tudiesC %Break Even +oint> A +ro/ect Appraisal !echni6ue used in
Banking 'ector.*
;.Md. Maksudur .ahman 'arker, %&redit Management of &ommercial Banks> A
&omparative study of +ublic and +rivate 'ector Banks*, !he Bureau of Business
.esearch, -niversity of ,haka, August 1228

8..ose, +eter. 'C %commercial Bank Management*C Fourth EditionC $rwinMcEraw
DillC 1222
J. Xikmund @illiam, E., %Business .esearch Methods*C J
EditionC !homson 'outh
@esternC 9554
< Bangladesh Bank B&, AB+., circulars
Tuestionnaire for Managements of (anata Bank )td>
1. @hat is the main ob/ective of credit programQ
a: ?nly profit motive
b: +rofit motive as well as social welfare
c: ?thers
9. @hat kind of loans does (anata Bank provideQ
a: Eeneral credit
b: .ural credit
c: Foreign commercial loan
d: 'pecial program financing
4. $s there e#istence of delegation of authority in case of sanctioning loanQ
a: Mes
b: Bo
=. ,o you think that the credit policy is fle#ible to attract the customerQ
a: Mes
b: Bo
;. @ho are the target customers of (anata Bank )td.Q
a: Business man
b: Farmers
c: Entrepreneurs
d: ?thers
8. At what point G points will you give more emphasis in case of loan
disbursement procedureQ
a: &redit information of the customers
b: Bature of the security of the customers
c: )ending risk analysis
J. @ould you think that the procedure is more familiar with the customersQ
a: Mes
b: Bo
<. @hat are the basic tools of credit managementQ
a: E.E
b: Financial spreadsheet
c: ?thers
2: $s there any provision to calculate %B* score and %X* score in case of
choosing business or firm for giving loanQ
a: Mes
b: Bo
15. $s there any option to sanction personal loanQ
a: Mes
b: Bo
11. @hat are the sectors in which (B gives more priorityQ
a: $ndustrial Financing +rogram
b: $mport and E#port Financing +rogram
c: Agricultural financing program
d: Eeneral &redit +rogram
19. $n what maturing stages (B classifies the bank loans and advancesQ
a: According to Bangladesh Bank
b: ?wn procedure
14. ,oes (anata Bank )td. permit any loan without any collateral securityQ
a: Mes
b: Bo
1=. ,oes the credit department supervise and monitor recovery performance of
the distributed loans and advancesQ
a: Mes
b: Bo
1;. @hat are the main reasons to default loanQ
a: )oan given to fictitious name
b: )oan given without sufficient securities
c: +olitical misuse of loan program
18. $s $A' 3 45 strictly followed in preparing financial statementsQ
a: Mes
b: Bo
1J. Are the forms of financial statements prescribed by Bank &ompanies Act
1221 followedQ
a: Mes
b: Bo
1<. ,o you think that enough provision against classified loans and advances
are keptQ
a: Mes
b: Bo
12. $s there any latest loan programQ
a: Mes
b: Bo
95. 'tandard &redit +roposal Forms designed by &entral Bank are filled up
&redit ?fficer withY
a: E#act figure
b: Assumed figure
91. May the loan disbursement procedure be hampered arising from any
a: Mes
b: Bo