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DIFFERENT ASPECTS OF CREDIT POLICY OF PRIME BANK LIMITED

Supervised by:
Md. Abdullah Raihan Assistant Professor In Economics Department of Business Administration International Islamic University Chittagong Dhaka Campus

Prepared by:
Ekramul Hoque ID No: B061340 Batch: 22nd (A-2) Department of Business Administration International Islamic University Chittagong Dhaka Campus

Date of submission: 15th June, 2010

An Internship Report On
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DIFFERENT ASPECTS OF CREDIT POLICY OF PRIME BANK LIMITED
AN
INTERNSHIP REPORT SUBMITTED FOR THE SATISFACTION OF THE REQUIREMENTS FOR THE DEGREE

OF
BACHELOR OF BUSINESS ADMINISTRATION

Supervised by:
Md. Abdullah Raihan Assistant Professor In Economics Department of Business Administration International Islamic University Chittagong Dhaka Campus

Prepared by:
Ekramul Hoque ID No: B061340 Batch: 22nd (A-2) Department of Business Administration International Islamic University Chittagong Dhaka Campus

Date of submission: 17th June, 2010

Letter of Submission
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June 17, 2010

Md. Abdulla Raihan Internship Supervisor Assistant Professor In Economics Department of Business Administration International Islamic University Chittagong (Dhaka Campus)

Subject: Submission of the Internship Report.

Dear Sir, It is my great Pleasure to inform you that I have the opportunity to submit an elaborate report on Credit Operation of PBL. I have completed my practical Orientation in Banking from March 24, 2010 to Jun 23, 2010 as part of BBA curriculum. The report is mainly focused on “Credit Operation” with special reference of Satmasjid Road Branch. I am very much fortune that got the opportunity to work with some experienced and devoted professionals. I got acquainted about the banking environment by their helping hand. I sincerely believe that you find this study very much interesting, informative and enlightening. I will glad to furnish you with further explanations or classifications that you may feel necessary in this regard. I shall be obliged if you kindly approve this reports.

Sincerely yours, Ekramul Hoque Matric no: B061340 Batch: 22nd A-2, IIUC (Dhaka Campus)

Letter of Acceptance
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The Internship Report on “Different aspects of credit policy of prime bank limited” a study on Satmasjid Road Branch by Ekramul Hoque bearing ID No: B061340 Batch: 22nd (A-2) (Major in Finance & banking). The report seems to me authentic and is accepted.

The Report has been prepared under my guidance and is a record of bonafide work carried out successfully .

Md. Abdulla Raihan Internship Supervisor Assistant Professor in Economics Department of Business Administration International Islamic University Chittagong (Dhaka Campus)

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Preface
All praises almighty Allah the sustainer of the universes, who has bestowed us with the straight path of Islam. Peace is upon his last prophet Muhammad (S.M) the leader of the Muslims, who has left behind him The Quran and Sunnah of their guidance. In an attempt to uplift the practical knowledge, it is very much important to undertake the internship program offered by the Concern University. This is, because of the academic knowledge is not sufficient enough to equip a professional practical insight of the subject. After completion of BBA program, I was being placed in Prime Bank Limited (Satmosjid Road Branch) for my internship program. Theoretical discussion have sometimes differs with practical world and put there to have a practical working experience and have an understanding of the real from a close distance. One of the most tried and a proven method of combating the shortcomings in experience is the internship program. This type of curriculum is perhaps the best system yet devised to integrate education and experience. In the practical, BBA program is targeted to produce skilled “Business Executive” having an absolute professional out look. So, the graduates of this discipline should be programmatic and should have a first hand view of the real life business environment. The prime objective of internship program is to produce learners with the knowledge of practical working environment, so that, they can tune up themselves for the jobs in future and can get an opportunity to reconcile the theoretical knowledge with real life situation. For this reason internship program is an indispensable part of the BBA program. As a final year student of Business Administration of respective University I have been placed in the Prime Bank Limited & assigned to work on best to smake this report effective and realistic as well as at the same it may fruitful if any body is benefited from this one.

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Acknowledgement

Thanks to Al-mighty Allah for blessing in completing the report with in the scheduled time. No noble achievement can be achieved by an individual. We are indebted to a number of persons for their kind recommendation, submission, direction, cooperative, and their collaboration. For fear of sounding like a vote of thanks speech, I could not possibly thank all of those marvelous people who have contributed something of them to this report. There are of course some very special people who can not go without mention. First thanks my heartiest gratitude to my reverend teacher Prof. Dr. Jahirul Hoque Head of Department of Business Administration IIUC (Dhaka Campus), for his kind cooperation and suggest me prepared this Report. And thanks to honorable heartiest gratitude teacher Md. Abdulla Raihan supervisor of the internship program and Assistant Professor in Economics, Department of Business Administration (Dhaka-Campus) who’s enthusiastic guidance and comments during the entire phase of the study made it possible for me to prepare this report. My debt to him is warmly acknowledged. I would like to convey my sincerest gratitude to Md. Ehsan Habib, Senior Vicepresident and Manager of PBL Satmasjid Branch, for his kind permission to allow me for practical Banking. I would also like to thank Md. Mahiuddin Ahmed, Vice President and Second Officer of PBL Satmasjid Road Branch Branch. Grateful to Shah Mohammad Moshin Senior Executive Officer, Md. Masud Uddin Ahmed, First Assistant Vice President and other Employee of PBL Satmasjid Branch for guiding supervising my work in this matter I am truly very grateful from the bottom of my heart to all the employee of PBL Satmosjid Road Branch Branch for the expansion of their tremendous helping hand to me. And a sincere thanks to those helped me in giving information personally and institutionally regardless of their busy schedule.

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Executive Summary
Prime Bank Limited is a second-generation private commercial bank established in Bangladesh in the year 1995 under the Companies Act, 1994. Since inception, it is committed to provide high quality financial services to the countrymen with a view to accelerate economic development of the nation. As such, it has been working for stimulating trade and commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity, alleviating poverty, raising standard of living of the people etc and thereby contributing to the sustainable development of the country.

Since inception, the Bank has been making significant profit every year and positioning itself as second highest profit-making bank in the country for last five consecutive years. This has been possible due to significant credit growth of the bank. On an average, credit portfolio of the bank has been growing @ 40% every year. Present size of the credit portfolio is about Tk. 3100 crore with about 30000 loan accounts. However, asset quality of the Bank was never compromised for this high growth. It has been well maintained which is reflected in its classification rate that never exceeded 2% in its 10 (Ten) years of life. As the lion share of the total revenue comes from credit operation and the existence of the Bank depends on quality of asset portfolio, efficient management of credit risk is of paramount importance. . After analyzing the latest FY 2009 Financial Report of PBL, it was found that Consolidated Loans and advances/investments (credit under Islamic Shariah) of the Bank grew strongly by 18.97 percent and stood at Tk 89,946 million in 2009. Loans and advances of PBL increased by Tk 14,096 million showing a growth of 18.76 percent during 2009. Concentration of loans and advances was well managed. Ratio of non performing loan of PBL improved to 1.29 percent from 1.76 percent of previous year and the ratio is much below the industry average of 10.8 percent. It can be said undoubtedly that Prime Bank’s sound credit policy has a great impact on this success which has made Prime Bank one of the most profitable commercial Banks in the country.

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Table of Contents

SL NO.

PARTICULARS
CHAPTER : 1 INTRODUCTION

PAGE NO.
11 11 10 12 12 13 13

1.1 1.2 1.3 1.4 1.5 1.6

Introduction Objectives of the study Justification of the study Methodology of the study Scope of the study Limitation of the study

CHAPTER : 2 AN OVERVIEW OF PRIME BANK LIMITED
2.1 2.2 2.3 2.4 2.5 Background of PBL Mission & Vision of PBL Brief Profile of PBL Business Activities of PBL Products & Services of PBL 15-16 16 17 18-20 21-24

CHAPTER : 3 AN OVERVIEW OF LOANS AND ADVANCES PRODUCT OF PBL
3.1 3.2 3.3 3.4 Definition of Lending Types of Credit Facilities Lending Sector Credit Policy of PBL 26 26-28 29-31 32-34

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3.5 3.6 3.7 3.8

Credit Monitoring Policy of PBL Mode of Recovery Procedure of Sanction Loan Credit Risk Assessment (Credit Worthiness) & Grading

35 35-36 37 38-45

CHAPTER – 4 Contributions of Sound Lending Policy in PBL
4.1 4.2 4.3 Significance of Sound Lending Management of Credit Portfolio of PBL Financial Analysis 2009 47 48 48-49

CHAPTER – 5
5.1

Findings & Analysis Chapter – 6 Recommendation & Conclusion

51-52

6.1 6.2

Recommendation Conclusion

54 55

Appendix Bibliography

56-66 67

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Chapter - 1
Introduction

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1.1 Introduction
Like any other business organizations, commercial banks are established for the purpose of earning profit. The main profit earning activity of banks is to earn interest income or profit from extending loans of the funds mobilized as deposits. As such loan extended, both interest and principal must be recovered on time in order to keep the depositors’ money safe and also to maintain funds to be utilized as loans. Therefore, a sound lending policy is imperative for providing loans by properly analyzing the creditworthiness of an individual or organization for maximization of profit from its funds. In this connection, this report has been prepared to study the concept of sound lending policy and its contribution in banks as a requirement of my internship report which is mainly on “A Study of Different Aspects of Credit Policy in PBL”

1.2 Objectives of the study
The broad objective of the study is to explore the effect of sound lending policy in overall lending and credit operations of Banks. The specific objectives of the study are as follows:
• Focus on the Concept of Sound Credit Policy • Study the General guidelines of Bangladesh Bank on Credit

• Analyze the Prime Bank’s Credit Portfolio. • Assess the Prime Bank’s Lending Policy in evaluating the credit worthiness of the customers.

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1.3 Justification of the study
In our economy, there are mainly three types of schedule commercial banks are in operation. They are Nationalized Commercial Banks, Local Private Commercial Banks and Foreign Private Commercial Banks. Islami Bank has discovered a new horizon in the field of banking area, which offers different General Banking, Investments and Foreign Exchange banking system. So I have decided to study on the topic “A Study of Credit Operation Of Prime Bank Limited”. Because the Internship program of the university is an integral part of the BBA program. So it is obligatory to undertake such task by the students who desirous to complete and successfully end-up their BBA degree. This also provides an opportunity to the students to minimize the gap between theoretical and practical knowledge. During the internship program the teachers of the department are attached to actively and constantly guide the students. Students are required to work on a specific topic based on their theoretical and practical knowledge acquired during the period of the internship program and then submit it to the teacher. That is why I have prepared this report.

1.4 Methodology of the study
The methodology adopted for conducting the research is qualitative in nature. However, quantitative analysis has been provided from review of annual report of Prime Bank Ltd. As the study is qualitative in nature, secondary information containing relevant data have provided major input. The following types of data have been studied for analysis and findings: • • • • • Credit policy guideline by Bangladesh Bank (BB) Lending and Credit Policy of Prime Bank Ltd Annual report of Prime Bank Ltd. Interview with key resource persons related with lending and credit policy of Prime Bank Ltd.

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1.5 Scope of the report
The study has focused primarily on sound lending policy and principles in banking sectors specially in Prime Bank Ltd. Specifically, the funded credit and advance facilities have been studied in detail as lending is provided with fund of the bank.

1.6 Limitations of the study
Despite best efforts, the following limitations have been considered during conduction of the study: • Due to confidential nature of the lending policy, leading bank’s policy could not be consulted for comparison with Prime Bank’s lending policy The contribution cannot be measured in quantitative nature as it requires detail statistics of specific policy and its impact on prime bank’s lending performance The time allowed for conducting the study considering the subject matter is quite short and due to day long training primary data and information could not be collected through many interviewees.

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Chapter - 2
An overview of Prime Bank Ltd.

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2.1 Back ground of Prime Bank Limited
 During the booming years of the banking industry of Bangladesh a group of highly successful local entrepreneurs conceived an idea of floating a commercial bank with different outlook. As pre their views the idea was competence, excellence and consistent delivery of reliable service with superior value products. Consequently, Prime Bank Ltd. was created and commencement of business started on 17 - April 1995. The founders are well reputed tycoons of Bangladesh in the field of trade and commerce and their stake ranges from diversified business sectors of the country. So far as a full phased commercial bank, Prime Bank Ltd. is being managed by a team of professional team with dedication and long experience in banking sector. Prime Bank Ltd. constantly focuses on understanding and predicting customer needs and tends to be very customer oriented. As the banking scenario undergoes changes so is the bank and it repositions itself in the changed market condition to adapt even after the ever changeable field. The Bank offers almost all kinds of Commercial Corporate and Personal Banking services covering all segments of society within the framework of Banking Company Act and rules and regulations laid down by our central bank. Diversification of products and services include Corporate Banking, Retail Banking and Consumer Banking right from industry to Telecommunication, RMG, FMCG and so on. It has already made significant progress within a very short period of its existence. The bank has been graded as a top class bank in the country through internationally accepted CAMEL rating. The bank has already occupied an enviable position among its competitors after achieving success in all areas of business operations so far. Prime Bank Ltd. has consistently turned over good returns on Assets and Capital. Until the year 2007, the bank has achieved an operating profit of Tk. 3257 million and its capital funds stood at Tk 6382 million. Out of this, Tk. 2659.21 million represents reserves and retained earnings and Tk. 2275 million consists of paid up capital by shareholders. Even after the business environment and default culture, quantum of classified loan in the bank is very insignificant and stood at less than 1.35%. The bank’s current capital adequacy ratio of 11.50% is in the market.

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Since the opening of the Bank, it has attached more importance in technology integration. To retain competitive edge, investment in technology is always a top agenda and under constant focus. Keeping the network within a reasonable limit, its strategy is to serve the customers through capacity building across multi delivery channels. Prime Bank is better placed and poised to take its customers through fast changing times and enable them compete more effectively and efficiently. The Bank’s past performance gives an indication of the proper development and implication of its strength. Finally, Prime Bank Ltd. has already made significant progress within a very short period of its existence. The bank has been graded as a top class bank in the country through internationally accepted CAMEL (Capital, Asset, Management, Earnings and Liquidity) rating. The bank has already occupied an enviable position among its competitors after achieving success in all areas of business operation.

2.2 Company Vision
 Every Company has their own vision. By fixing vision they can set their future growth. Prime Bank Ltd has its own vision to be leader in the banking industry. To be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management and profitability having strong liquidity.

2.3 Company Mission
 To build Prime Bank limited into an efficient, market driven, customer focused institution with good corporate governance structure. Continuous improvement in business policies, procedure and efficiency through integration of technology at all levels.

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Brief Profile of Prime Bank

1. Date of Incorporation 2. Date of Inauguration of Operation 3. Name of the Chairperson of the board 4. Name of the Managing director 5. Number of Branches 6. Number of Employees 7. Publicly Traded Company 8. Credit Card 9. Banking Operation System 10. Technology Used

: 12th February, 1995 : 17th April, 1995 : Mr. Ajam J Chowdhury : Mr. M. Ehsanul Haque : 71 : 1400 : Share quoted daily in DSE & CSE : Member of Master Card : Both Conventional and Islamic Banking System. : Member of SWIFT On line Banking UNIX based Computer System

11. Head Office

: Adamjee Court Annex II, 119-120 Motijheel C/A, Dhaka-1000. Phone: 9567265 (PABX) Telex: 642459 PRIME BJ 671543 PBL MJ BJ Fax: 88-02-9567230/9560977 E-mail: primebank@bangla.net Web Site: www.prime-bank.com
SWIFT: PRBLBDDH

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2.5 Business Activities
Prime Bank Limited provides a full range of products and services to its customers, some of which are mentioned below with a brief overview of the major business activities.

Consumer Finance There are branches and finance centers under this division with a qualitative workforce of employees. Some of the services provided by this division are unsecured personal loans, credit cards, and vehicle related lease etc.

Personal Banking There are branches with highly qualified workforce provide various kinds of loans, various types of accounts, cheques, card money etc.

Islamic Banking Prime Bank Ltd. works under the correspondence with Bangladesh Bank regarding operation of Islamic Banking Branches through a Subsidiary.

Corporate Banking Prime Bank Limited provides a wide range of services to institutional clients, commercial, merchant and central banks; brokers and dealers; insurance companies; funds and managers, and others. It provides relationship managers who are close to their customers and speak local language. This wide network of corporate banking facilities includes transaction, introduction, problem solving and renders advice and guidelines on local trading condition.

International Trade Management This division is operational throughout the group and PBL’s core strength is trade finance and services. With an experience, Prime Bank has developed knowledge of
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trade finance, which is world class. Principle services to importers include imports letter of credit, import bills for collection and back-to-back letters of credit facilities. Services provide to exporters include export letters of credit, direct export bills, bonds, and guarantees.

Cash Management

Prime Bank recognizes the importance of cash management to corporate and financial institutional customers, and offers a comprehensive range of services and liquidity management.

Treasury

Treasury operations had been consideration as an important avenue for income generation purpose. The treasury division publishes daily and weekly currency newsletters, which provide analysis of currency trends and related issues. Prime Bank is one of the first local banks in Bangladesh to integrate treasury dealings of local money market and foreign currency under one Treasury umbrella. Prime Bank's Dealing Room is connected with Automated Reuters Terminal facility, thus enabling the bank to provide forward/future facilities to its corporate clients at a very competitive rate.

Electronic Banking

Electronic Banking provides various types of support through a wide range of operating systems, sweeping transactions accession with the provisions of reporting features or other special functions.

Foreign Exchange Business

Over the years, foreign trade operations of the bank played a crucial role in the overall business development of the bank. The bank has established relationship with as many as 110 new foreign correspondents abroad thereby raising the total number of correspondents to 350. The bank has also entered into remittance arrangements with several banks and exchange houses and expects to handle increased volume of remittance business over the near future.

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Online Branch Banking The bank has set up a Wide Area Network (WAN) across the country to provide online branch banking facility to its valued clients. Under this scheme, clients of any branch shall be able to do banking transaction at other branches of the bank. Under this system a client will be able to do following type of transactions:
• •

Cash withdrawal from his/her account at any branch of the bank. Cash deposit in his/her account at any branch of the bank irrespective of the location. Cash deposit in other’s account at any branch of the bank irrespective of the location. Transfer of money from his/her account with any branch of the bank.

Swift Prime Bank Limited has become member of SWIFT (Society for Worldwide Interbank Financial Telecommunication) in 1999. SWIFT is a member-owned cooperative system, which provides a fast and accurate communication network for financial transactions such as Letters of Credit, Fund Transfer etc. By becoming a member of SWIFT, the bank has opened up possibilities for uninterrupted connectivity with over 5,700 user institutions in 150 countries around the world.

Information Technology in Banking Operation Prime Bank Limited adopted automation in banking operation from the first day of its operation. The main objective of this automation is to provide efficient and prompt services to the bank's clients. At present, all the branches of the bank are computerized. At branch level, the bank is using server-based multi-user software under UNIX operating system to provide best security of automation.

Profitability and Shareholder Satisfaction

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Prime Bank Ltd. always tried to maintain strong customer relationship is of utmost importance. By giving quality service, PBL ensures higher profitability. Even though the capital market of the country has been suffering over the last few years, the good performance of Prime Bank made sure that the banks share price remained in a respectable position. Thus, they achieve greater shareholders satisfaction.

2.6 Products and Services
Prime Bank Limited offers various kinds of deposit products and loan schemes. The bank also has highly qualified professional staff members who have the capability to manage and meet all the requirements of the bank. Every account is assigned to an account manager who personally takes care of it and is available for discussion and inquiries, whether one writes, telephones or calls.

 Deposit Products

Contributory Savings Schemes (CSS)

Under this scheme Minimum size of the monthly installment is Tk.500.00 and multiples of Tk.1000.00. Maximum installment size shall be 25000.00 for five year period. Lump sum amount shall be paid after maturity or monthly pension shall be paid for the next 5 years according to size of deposit.

Lackhopati Deposit Scheme

Under this scheme size of the monthly installments are Tk.250.00, Tk.500.00, Tk1285.00, Tk.2400.00 depositor will receive Tk.1,00,000.00 after a number of period depending on installment size .Higher the installment size lower will be the maturity period .

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Prime Millionaire Scheme

This scheme is similar as Lackhopati deposit scheme only the installment amounts is larger and at maturity depositor will get 10, 00,000.00.

Education Savings Scheme (ESS)

Under this scheme parents can save for their children’s education by paying a certain amount of monthly installment and Lump sum amount shall be paid after maturity.

Monthly Benefit Deposit Scheme (MBDS)

Under this scheme customer can deposit a fixed amount of money for five years .The amount has to be 100,000 or multiple of 100,000 he / she will receive 900 per month as interest on every lac during those five years.

Double Benefit Deposit Scheme (DBS)

Under this scheme a customer can keep a fixed amount of money for six year end of the maturity period the amount will become double .The amount has to be multiple of 25000.

Fixed Deposit Receipt Scheme (FDR)

Under this scheme customer can devote a fixed amount of money for one month, three months, six months or twelve months for interest rate of 7.5%, 11% or 11.5%.

Current Account

Current Account is a non interest bearing checkable deposit (Demand Deposit) which allows the owner of the bank accounts to write checks to third parties.

Savings account
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Savings Account is an interest bearing checkable deposit (Negotiable order of withdrawal) which allows the owner of the bank accounts to write checks to third parties.

 Loan and Advances Products Loan and advances have primarily been divided into two major groups:

Fixed term

These are the loans made by the Bank with fixed repayment schedules. Fixed tern loans are categorized into three based upon its tenure which is defined as follows:

Short term Medium term Long Term

: Up to 12 months : More than 12 and up to 36 months : More than 36 month

Continuing Loans

These are the loans having no fixed repayment schedule, but have an expiry date at which it is renewable on satisfactory performance of the customer. Furthermore, all categories of loans are accommodated under the following prime sectors:

i.

Agriculture: Credit facilities to the customers of doing agro business falls under this category.

ii.

Term Loan to Large & Medium Scale Industry: This category of advances accommodate the medium and long term financing for capital formation of new Industries or for an existing units who are engaged in manufacturing of goods and services.

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iii.

Term Loans to Small & Cottage Industries: These are the medium and long term loans allowed to small & cottage manufacturing industries. No short term or continuous credits will be included in this category.

iv.

Working Capital: Loans allowed to the manufacturing units to meet their working capital requirements, irrespective of their size - big, medium or small, fall under this category. These are usually continuous credits and as such fall under the head "Cash Credit"

v.

Export Credit: Credit facilities allowed to facilitate export of all items against Letter of Credit and/or confirmed export orders fall under this category. It is accommodated under the heads "Export Cash Credit (ECC)", Packing Credit (PC), Foreign Documentary Bill Purchased (FDBP) etc.

vi.

Commercial Lending: Short term Loans and continuous credits allowed for commercial purposes other than exports fall under this category. It includes import financing for local trade, service establishment etc. No medium and long term loans are accommodated here. This category of advance is allowed in the form of (i) Loan against Imported Merchandise (LIM), (ii) Loan against Trust Receipt (LTR), (iii) Payment against Documents (PAD), (iv) Secured Overdraft (SOD), (v) Cash Credit etc. for commercial purposes.

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Chapter-3
An Overview of
Prime Bank Lending Policy

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3.1 Definition of Lending
According to the dictionary of Banking and Finance, loans can be defined as “The lending of a sum of money by a lender to a borrower to be repaid with a certain amount of interest.” According to Timothy W Koch “ A loan is a formal agreement between a bank and borrower to provide a fixed amount of credit for a specified period. So a profit oriented business such as bank provides its resources for lending or credit to its clients under certain conditions for specific durations.

3.2 Types of Credit Facilities
Depending on the various nature of financing, all the credit facilities have been brought under two major groups: (a) Funded Credit and (b) Non-funded Credit. Under non-funded credit, there are basically two major products namely Letter of Credit and Letter of Guarantee. Under Funded Credit, there are the following products:

Loan (General)

Short, Medium & Long term loans allowed to individual/firm/industries for a specific purpose but for a definite period and generally repayable by installments fall under this type. These are mainly allowed to accommodate financing under the categories (I) Large & Medium Scale Industry and (ii) Small & Cottage Industry.

Housing Loan (Commercial)

Loans allowed to individual/enterprises for construction of house for commercial purpose only fall under this type. The amount is repayable by monthly/quarterly installments within a specified period.

Home Loan

Loans allowed to individuals for purchase of apartment or construction of house for residential purpose fall under this type. The amount is repayable by monthly installments within a specified period.

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House Building Loan (Staff)

Loans allowed to the employees of PBL for purchase of apartment/construction of house shall be known as House Building Loan (Staff) or HBL (Staff).

Lease Financing

Lease Financing is one of the most convenient sources of acquiring capital machinery and equipment whereby a customer is given the opportunity to have an exclusive right to use an asset usually for an agreed period of time against payment of rental.

Consumer Credit Scheme (CCS):

It is a special credit scheme of the Bank to finance purchase of consumer durable by the fixed income group to raise their standard of living. The loans are allowed on soft terms against personal guarantee and deposit of specified percentage of equity by the customers. The loan is repayable by monthly installments within a fixed period.

SOD (Financial Obligation)

SOD (Financial Obligation) is allowed to individuals/firms against financial obligations (FDR, MBDS, and Scheme Deposits of PBL or similar products of other banks). This is a continuous loan having usual maturity period of 1 (one) year and renewable for further periods at maturity.

SOD (General)

SOD (General) is allowed to individuals/firms for miscellaneous purpose. This is a continuous loan having usual maturity period of 1 (one) year and renewable for further, periods at maturity.

SOD (Work Order)

Advances allowed against assignment of work order for execution of contractual works falls under this type. This advance is generally allowed for a definite period and specific purpose. It falls under the category "Others".

SOD (Export)

Advance allowed for purchasing foreign currency for payment of Back to Back (BTB) L/C liability where the exports do not materialize before due the date of import payment. This is an advance for temporary period and categorized "Export Finance".

PAD

Payment made by the Bank against lodgment of shipping documents of goods imported through L/C falls under this type. It is an interim advance connected with import and is generally liquidated against payments usually made by the customer

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for retirement of the documents towards release of imported consignment from the customs authority.

LIM

This is funded credit facility allowed for retirement of shipping documents and release of goods imported through L/C taking effective control over the goods by pledge in go downs under Bank's lock & key. This is a temporary advance connected with import which is known as post-import finance and falls under the category "Commercial Lending".

LTR

Advance allowed for retirement of shipping documents and release of goods imported through L/C falls under this type. The goods are handed over to the importer on trust with the arrangement that sale proceeds will be deposited to liquidate the loan account within the specific time.

ECC

Funded credit facility allowed to a customer for export of goods falls under this type and is categorized as "Export Cash Credit". The advances must be liquidated out of export proceeds within 180 days.

Packing Credit (P.C.)

Advance allowed to a customer against bills under BTB L/C and/or firm contract for processing/packing of goods to be exported falls under this type and is categorized as "Export Credit". Packing Credit must be adjusted from proceeds of the relevant exports within 180 days.

FBP made to a customer through Purchase or Foreign Currency

Payment

Cheques/Drafts falls under this type. This temporary advance is adjustable from the proceeds of the cheque/draft.

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3.3

Lending Sector

As initiated by Bangladesh Bank vide BCD Circular No. 33 dated 16-11-89 different kinds of lending were subdivided into 11 categories w.e.f. 01-01-90 which was subsequently reduced to 9 vide BCD Circular No. 23 dated 09-10-93 and again to 7 prime sectors vide BCD Circular No.8 dated 25.04.94. Loan and advances have primarily been divided into two major groups:

a)

Fixed term loan: These are the loans made by the Bank with fixed

repayment schedules. Fixed term loans are categorized into three based upon its tenure which is defined as follows: Short term Medium term Long Term : : : Up to 12 months More than 12 and up to 36 months More than 36 months

b)

Continuing Loans: These are the loans having no fixed repayment
of the customer. Furthermore all categories of loans are

schedule, but have an expiry date at which it is renewable on satisfactory performance accommodated under the 7 prime sectors which are as under:

3.1.1 Agriculture
Credit facilities provided to the customers for doing agro business falls under this category. It is divided into two major sub-sectors:

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a)

Loans to primary producers: This sub-sector of agricultural financing refers to Loans to processors or traders of agricultural products are not to be

the credit facilities allowed to production units engaged in farming, fishing, forestry or livestock. categorized as agricultural loans. Loans to tea gardens for production are treated as agricultural loan, but loans to tea gardens for export will be treated as "Export Credit". Similarly medium and long-term loans to tea gardens are categorized as industrial term lending. b) Loans to input dealers/distributors: It refers to the financing allowed to input dealers and (or) distributors in the agricultural sectors. Loan to Agriculture sector may include short, medium and long term loans as well as continuous credits. As a product, it may fa ll under Loan (Gen)/Hire-Purchase/Lease Finance/Cash Credit/Overdraft etc.

3.1.2 Term Loan to Large & Medium Scale Industry:
This category of advances accommodate the medium and long term financing for capital formation of new Industries or for BMRE of the existing units who are engaged in manufacturing of goods and services.Term loan to tea gardens may also be included in this category depending on the nature and size. As the financing under this category have fixed repayment schedule it may fall under the heads Loan (Gen)/Hire-Purchase/Lease Financing etc.

3.1.3 Term Loans to Small & Cottage Industries:
These are the medium and long term loans allowed to small & cottage manufacturing industries [Small industry is presently defined as those establishments whose total investment in fixed capital such as land, building, machinery and equipment (excluding taxes and duties) does not exceed TK 30 million and investment in machinery and equipment (excluding taxes and duties) does not exceed TK 10 million. Cottage industries also fall within this definition]. No short term or continuous credits will be included in this category. Medium & Long term loans to weaver are also included in this category. Like the Large & Medium Scale Industry it is also allowed in the form of Loan (Gen)/Hire Purchase/Lease Financing etc.

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3.1.4 Working Capital:
Loans allowed to the manufacturing units to meet their working capital requirements, irrespective of their size - big, medium or small, fall under this category. These are usually continuous credits and as such fall under the head "Cash Credit"

3.1.5 Export Credit:
Credit facilities allowed to facilitate export of all items against Letter of Credit and/or confirmed export orders fall under this category. It is accommodated under the heads "Export Cash Credit (ECC)", Packing Credit (PC), Foreign Documentary Bill Purchased (FDBP), Inland Documentary Bill Purchased etc.

3.1.6 Commercial Lending:
Short term Loans and continuous credits allowed for commercial purposes other than exports fall under this category. It includes import financing for local trade, service establishment etc. No medium and long term loans are accommodated here. This category of advance is allowed in the form of (I) Loan against Imported Merchandise (LlM), (ii) Loan against Trust Receipt (LTR), (iii) Payment Against Documents (PAD), (iv) Secured Overdraft (SOD), (v) Cash Credit etc. for commercial purposes.

3.1.7 Others :
Any loan that does not fall in any of the above categories is considered under the category "Others". It includes loan to (I) transport equipments, (ii) construction works including housing (commercial/residential), (iii) work order finance, (iv) personal loans, etc.

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3.4Credit Policy of Prime Bank Limited
Prime bank Limited is second generation Bank. It is committed to provide high quality financial services /products to contribute to the growth of G.D.P of the country through stimulating trade and commerce , accelerating the pace of industrialization , boosting up export, creating employment opportunity for the educated youth, poverty alleviation, raising standard of living of limited income group and overall sustainable socio-economic development of the country.

In achieving the aforesaid objectives of the Bank, Credit Operation of the Bank is of paramount importance as the greatest share of the total revenue of the bank is generated from it, Maximum risk is centered in it and even the very existence of the bank depends on prudent management of the credit portfolio .The failure of the commercial bank is usually associated with the problem in credit portfolio and is less often the result of shrinkage in the value of other assets. As such, credit portfolio not only features dominant in the assets structure of the Bank, it is critically important to the success of the bank also.

To provide a broad guide line for the Credit Operation towards achieving the objectives of this Bank, for efficient and profitable deployment of its mobilized resources and to administer the credit port-folio in the most efficient way, a clearly defined, well-planned, comprehensive and appropriate credit policy and control guidelines of the bank is prerequisite.

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Prime Bank

1. Loans and advances shall normally be financed from customers’ deposits and not out of temporary funds or borrowing from other banks. 2. Credit will be allowed in manner which will no way compromise the bank’s standards of excellence and customers who will complement such standards. 3. All credit extension must comply with the requirements of Bank’s Memorandum & Articles of Association, Banking companies Act 1991 as amended from time to time, Bangladesh Bank’s instruction & other applicable rules and regulations. 4. Interest on various lending categories will depend on the level of risk and type of security offered. It should be borne in mind that rate of interest in the reflection of risk in the transaction. The higher the risk, the higher is the interest rate. 5. Interest may be reviewed at least once in 6 month and more often when appropriate fixed interest rate should be discouraged. Preferably all rates should vary with cost of funds fluctuation based on a spread of profit. 6. Effective yield can be enhanced to the extent the borrowers are required to maintain deposits to support borrowing activities. Yield should be further improved by commitment fee and Service charges where possible .All pricing of loans should however have relevance with the market condition and be approved by the Executive committee / Managing Director from time to time. 7. Where repayment and interest servicing performance of a credit deteriorates it shall be identified at an early state and closely monitored in order to avoid loan losses. 8. It is recognized that there will be exceptions to the stated policy which can be justified. However,, these should be approved by the Executive Committee or by the Board and the circumstances must be fully documented din the credit file. 9. The aggregate of all cash facilities shall not exceed 80% of customer deposits. It is further governed by the statutory and liquidity reserve requirement of Bangladesh Bank.
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10. Aggregate long term facilities shall not exceed 20% of the total credit portfolio. Facilities shall not be allowed for a period exceeding 5 year. Any exceptions will require the approval of the Board of Directors. 11. Credit facilities in aggregate extended to any one customer group shall not normally exceed 15% of the capital Fund or Tk 16.50 crore whichever is lower. However, Board o f Directors may relax this limit in deserving cases. All proposals submitted to Head Office will also be required to indicate the extent of the Bank’s global exposure to that customer group. 12. Aggregate bank advance to corporate or individual customers (other than government or parastatal organizations) which are not secured by collateral and are allowed on the strength of customers’ personal integrity and financial standing or the corporate customer’s balance sheet ,with or without hypothecation stock shall not exceed 30% of the local credit portfolio. 13. For a unsecured credit facilities extended to a business dominated by one or two individuals, the bank shall insist on taking Life insurance Policies by the principals which is sufficient to repay the loan in the event of death or injury of 14. any one key individual. The policy to be assigned to the Bank and the premium to be paid by the customer through the bank under suitable arrangement. 15. Sector –wise allocation of Credit shall be made annually with the approval of Executive Committee /Board of Directors. This will be reviewed from time to time. 16. Collectivity of Loan 17. Effectiveness of security. 18. CIB report 19. CRG 20. Approval procedure 21. Post –facto approval

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22. Import of capital Machinery 23. Opening of BTB L/C 24. Collateral 1.5 times for LTR Doubles 25. Selection of Borrower 26. Safety 27. Security 28. Profitability 29. Purpose 30. Diversification 31. Paper dose 32. Director’s loans.

3.5 Credit Monitoring Process
Credit monitoring process starts immediately after disbursement of the facility. The customers start repayment the loan from the next month. Simultaneously, Branch relationship Officer starts monitoring the loan on site basis. If the officer finds any deviation to the terms and conditions of the loan or borrower’s wealth, he/she sends an Early Alert Report to the Corporate Banking Division. An Early

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Alert Account is the one that has risks or potential weakness requires monitoring, supervision or close attention of the management. After having the Early Alert Report, Credit Administrative Division monitors the loan on an off-site basis and thereby reports the Credit Risk Management Division to take necessary action. On the other hand, if any clients fail to pay three monthly installments simultaneously, the Relationship officers reminds the clients through phone calls, reminds later or visit in person where necessary.

3.6 Mode of Recovery
To remove the financial burden bank’s recovered the loan amount along with interest through monthly installment. Generally these amounts are round figure and during the determination of the installment amount bank consider the payment ability of the client. The entire loan amount shall be paid into equal monthly installment throughout the loan period. Any excess or shortage has adjusted with last installment. Dues shall be recoverable in the following manners:

a) In equal monthly installments.
b) The monthly installment shall be payable by the 8th of every month, but

the first installment shall be payable by the 8 th of the subsequent month of disbursement. c) Through deduction from the monthly salary of the client wherever applicable, by his employer. In this regard the concerned employee shall authorize irrevocably his employer to deduct the said amount from his monthly salary. The client can only revoke this authority with the concurrence of the bank. If the customer fails to repay three monthly installments, bank reserves the right to cancel or call back the entire outstanding loan liability of the concerned account irrespective of the validity of the account and bank can also take initiative for legal action under Artha Rin Adalot Ain Act-2003.
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3.7 Procedure of Sanction Loan:
Appraisal
    Interviewing the client’s CIB Preparing the credit proposal Landed property valuation

Pre-disbursement
   Issuing Sanction letter Acceptance from the client Completion of all documentation formalities as per Head Office.
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Disbursement
  Loan Input Voucher

Monitoring
    Ensure adjustment as per repayment Communicate with the clients. Physical visit. Obtain various reports regarding

Repayment

Installment realizes from the clients.

Flowchart 2: Processing of Credit

3.8Credit Risk Assessment (Credit Worthiness) and Grading
Credit Risk Grading:
While providing credit facility to a customer, Bank undertakes many risks among which credit risk is considered to be the most important one. As such, an in-depth study should be conducted on the borrower’s creditworthiness which will help the bank to identify all possible risks underlying in a particular credit transaction. A formal evaluation of borrower’s financial health and ability to repay debt obligation is called credit rating which helps the Bank to grade the concerned customer. As such, it is also called credit risk grading. And, risk identified through credit rating/risk

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grading is quantified for better understanding and taking appropriate mitigating technique. Besides, it helps the Bank to charge commensurate risk premium on a particular credit facility. Therefore, it is important to accurately measure the risks in a transaction and rate/grade the facility accordingly.

Prime Bank’s Risk Grading Framework:
All credit proposals must be supported by a comprehensive risk analysis. It will encompass the following three things: (a) Lending Risk Analysis (LRA), (b) Risk Grading Scorecard and (c) Risk Grading. No proposal can be put up for approval unless there has been a complete written analysis subject to the condition that LRA will be conducted where it is applicable as per Bangladesh Bank Guideline. It is the absolute responsibility of the proposal originating officer to conduct comprehensive risk analysis and affix its result e.g Risk Grading Score, Risk Grade etc in the proposal. He/she will also ensure that all necessary documents/papers/information in support of the proposed risk grading are annexed with the proposal before the facility request is sent to the competent approval authority.

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Prime Bank

Lending Risk Analysis (LRA):
Lending Risk Analysis (LRA) will be conducted for the credit facilities of Tk 50 lac or above in the prescribed form. The lending risk analysis tool concentrates on analysis of both the business risk and security risk. The important part of this analysis is the assessment of risk of failure to repay which deals with the overall lending risk composed of the business risks and security risks i.e (i) Suppliers risk, (ii) Sales risk, (iii) Performance risk, (iv) Resilience risk, (v) Management Competence Risk, (vi) Management Integrity Risk, (vii) Security Cover Risk and (viii) Security Control Risk. The overall matrix provides four kinds of lending risk for decision makers i.e. (i) Good, (ii) Acceptable, (iii) Marginal and (iv) Poor. Prime Bank will not approve any credit facility having overall risk at “Marginal” or “Poor” level without proper justification except for renewal of existing facilities under compelling circumstances.

Risk Grading Scorecard:
As per instruction of Bangladesh Bank, Prime Bank Limited has developed Risk Grading Scorecard which will be used to find out rating of all credit facilities and/or customers of the bank except the loans under Retail Credit Division. The score of the risk grading scorecard will be weighted one. There are 10 (ten) rating criteria and separate parameters have been set to measure borrower’s position against each criterion. After analyzing borrower’s financials or other relevant documents, the Relationship Officer will first find out the points the borrower earns against each criterion based on the parameters set and then multiply the points obtained by the relevant risk weight which will produce Weighted Score. A snapshot of criteria and weight assigned to each criterion is as follows: Sl. No. a) b) c) d) e) f) g) h) i) j) Criteria Gearing Liquidity Profitability Account Conduct Business Outlook Management/Key Person Age of Business Size of Business Personal Banking Relationship Security Weight (%) 15 10 15 10 10 15 5 5 5 10
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The Relationship Officer of the Branch will prepare Risk Grading Scorecard in case of new proposal, renewal and/or enhancement of existing facility, any deterioration in the borrower’s business position, any breach of contract by the borrower or as and when he/she feel it necessary. In addition, aggregate weighted score of the customer is to be affixed in the relevant field of the Credit Assessment Sheet.

Risk Grading:
After preparation of Risk Grading Scorecard, concerned Relationship Officer will assign risk grade to the customer within the following Credit Risk Grading Model:
Risk Grade Superior – Low Risk Letter Grade AAA Numeric Grade 1

Definition Facilities are fully secured by cash deposits, government bonds or a counter guarantee from a top tier international bank. All security documentation are in place.

Good – Satisfactor y Risk

AA

2

The repayment capacity of the borrower is strong. The borrower should have excellent liquidity and low leverage. should earnings demonstrate and cash The company strong an

consistently flow and

have

unblemished track record. documentation should be

All security in place.

Aggregate Score of 95 or greater based on the Risk Grade Scorecard. Acceptable – Fair Risk A 3 Adequate financial condition though may not be able to sustain any major or

continued setbacks. These borrowers are not as strong as Grade 2 borrowers, but should still demonstrate consistent

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Risk Grade

Letter Grade

Numeric Grade

Definition earnings, cash flow and have a good track record. A borrower should not be graded

better than 3 if realistic audited financial statements are not received. These assets would normally be secured by acceptable collateral (1st charge over stocks / debtors / equipment / property). Borrowers should

have adequate liquidity, cash flow and earnings. An Aggregate Score of 75-94 based on the Risk Grade Scorecard. Risk Grade Marginal Watch list B+ 4 Letter Grade Numeric Grade Definition Grade 4 assets warrant greater attention due to conditions affecting the borrower, the industry or the economic environment. These borrowers have an above average risk due to strained liquidity, higher than normal leverage, thin cash flow and/or inconsistent earnings. Facilities should be

downgraded to 4 if the borrower incurs a loss, loan payments routinely fall past due, account conduct is poor, or other untoward factors are present. An Aggregate Score of 65-74 based on the Risk Grade Scorecard. Special Mention B 5 Grade 5 assets have potential weaknesses that deserve management’s close attention. If left uncorrected, these weaknesses may result in a deterioration of the repayment prospects of the borrower. Facilities should be downgraded to 5 if sustained

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Prime Bank

Risk Grade

Letter Grade

Numeric Grade

Definition deterioration in financial condition is noted (consecutive losses, negative net worth, excessive leverage), if loan payments

remain past due for 30-60 days, or if a significant petition or claim is lodged

against the borrower.

Full repayment of

facilities is still expected and interest can still be taken into profits. An Aggregate

Score of 55-64 based on the Risk Grade Scorecard.

Risk Grade Substandar d

Letter Grade C

Numeric Grade 6

Definition Financial condition is weak and capacity or inclination to repay is in doubt. These weaknesses jeopardize the full settlement of loans. Loans should be downgraded to 6 if loan payments remain past due for 60-90 days, if the customer intends to create a lender group for debt restructuring purposes, the operation has ceased trading or any indication suggesting the winding up or closure of the borrower is discovered. Not yet considered non-performing as the correction of the deficiencies may result in an improved condition, and interest can still be taken into profits. An Aggregate Score of 45-54 based on the Risk Grade Scorecard. Full repayment of principal and interest is unlikely and the possibility of loss is extremely high. However, due to specifically identifiable pending factors, 43

Doubtful and Bad

D

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Prime Bank

Risk Grade (non0performin g)

Letter Grade

Numeric Grade

Definition such as litigation, liquidation procedures or capital injection, the asset is not yet classified as Loss. Assets should be downgraded to 7 if loan payments remain past due in excess of 90 days, and interest income should be taken into suspense (nonaccrual). Loan loss provisions must be raised against the estimated unrealizable amount of all facilities. The adequacy of provisions must be reviewed at least quarterly on all non-performing loans, and the bank should pursue legal options to enforce security to obtain repayment or negotiate an appropriate loan rescheduling. In all cases, the requirements of Bangladesh Bank in CIB reporting, loan rescheduling and provisioning must be followed. An Aggregate Score of 35-44 based on the Risk Grade Scorecard

Loss (nonperforming )

E

8

Assets graded 8 are long outstanding with no progress in obtaining repayment (in excess of 180 days past due) or in the late stages of wind up/liquidation. The prospect of recovery is poor and legal options have been pursued. The proceeds expected from the liquidation or realization of security may be awaited. The continuance of the loan as a bankable asset is not warranted, and the anticipated loss should have been provided for. This classification reflects that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future. Bangladesh Bank guidelines for timely write off of bad loans must be adhered to. An Aggregate Score of 35 or less based on the Risk Grade Scorecard

The Relationship Officer will insert the risk grade of the customer in the concerned

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field alongwith Risk Grading Score and forward the same through proper channel to the Credit Risk Management Unit for approval.

Subjective Grading:
The more conservative risk grade (higher) should be applied if there is a difference between the personal judgment and Risk Grading Scorecard result and Credit Risk Grading Model. This will remain at the absolute discretion of the concerned Relationship Officer(s) of the Branch or Corporate Banking Division, Head Office and Credit Officer of the Branch or Credit Risk Management Unit, Head Office.

Downgrading:
The Relationship Officer of particular customer shall continuously monitor the customer and bear the responsibility of rating/grading surveillance. If any deterioration in risk, whatever may be the reason, is noted or adverse information is received, the Relationship Officer will propose change(s) in the risk grading of the customer and prepare Early Alert Report and forward the same to the Credit Risk Management Unit, Credit Division for approval. Changes in the risk grade will be in effect only when it is approved by the Credit Risk Management Unit, Credit Division. Once a credit facility/customer is downgraded to a lower grade, it will not be postponed until the next annual review process. In case of downgrading, credit facility to the customer may be immediately changed/restructured, if possible.

Asset Migration:
Risk Grading Model will be used for assessing / measuring risk in the credit exposure taken on a particular customer. It is the key measurement of Bank’s asset quality. Therefore, all facilities will be assigned a risk grade. And, asset portfolio of the Bank will be reviewed quarterly. At each quarter end, Credit Risk Management

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Unit, Credit Division will report summarizing the migration of the assets with respect to risk grade and place before the management for review. The Management will ensure non-concentration of assets in lower grades.

External Rating:
At least top twenty five clients/obligors of the Bank may preferably be rated by an outside credit rating agency.

System Review:
Proper application of the Risk Grading Scorecard and Risk Grading Model in Credit operation shall reviewed at least once in a year. And, if change is required, it will be done at the year-end. Furthermore, accuracy and consistency of the concerned officers/executives will be reviewed annually.

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Chapter - 4

Contribution of Sound Lending Policy in Prime Bank

4.1 Significance of Sound Lending

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Prime Bank

Credit operation of Prime Bank is of paramount importance as the greatest share of total revenue of the bank is generated from credit operation, maximum risk is centered in it and even the very existence of Bank depends on prudent management of its credit port-folio. The failure of a commercial Bank is usually associated with the problem in credit port-folio and is less often the result of shrinkage in the value of other assets. As such, credit port-folio not only features dominant in the assets structure of the Bank, it is critically important to the success of the Bank also. The following graph shows the constituents of Assets of Prime Bank Limited:

From the above graph, it is evident that loans and advances rules the asset structure of the Bank and managing these loans & advances has a crucial impact on the overall success of the Bank. In doing so, it is mandatory to follow an effective lending policy to grab the success. In the following sub sections, focus will be given on the management of the credit portfolio of PBL, the impact of following a sound lending policy etc to give an idea of the contribution of following sound lending policy in the Banks.

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Prime Bank

4.2 Management of Portfolio of Prime Bank

Credit

Portfolio Management of Credit implies the deployment of loan able fund among alternative opportunities through proper allocation. The objective of portfolio management of credit is the best and efficient management of loan to ensure profitability. Designing the size and pattern of loan portfolio with accuracy is a tough job. Even then, a prudent loan portfolio management can be done by careful consideration of the factors mentioned in the following: • • • • • • Bank’s Capital position Deposit Mix (Tenure of Deposit) Credit Environment Influence for monetary and fiscal policies Credit needs of the respective commanding area Ability & experience of the bank personnel to handle the loan portfolio

In designing a loan portfolio, PBL always keeps three things in mind – first, the type of customers the bank wants to serve. Second, involvement of risks with various kinds of loans and finally, the relative profitability of various kinds of loans. With each and every coin of loan, there is an involvement of risk. So the quantum of risk should be spread over the various types of loan through diversification. Diversification of credit can be made by extending credit to different sectors, to different geographical areas, to different lines of product or business and allocating the loanable fund into different types of credit.

4.3

Financial Analysis 2009

Consolidated Loans and advances/investments (credit under Islamic Shariah) of the Bank grew strongly by 18.97 percent and stood at Tk 89,946 million in 2009. Loans and advances of PBL increased by Tk 14,096 million showing a growth of 18.76 percent during 2009. Investment of Islamic Banking Branches increased by 1,653 million and the growth rate was 21.25 percent during 2009. Outstanding loans and advances of Off Shore Banking Unit was Tk 694 million showing a growth of 55.61 percent. Yield on loans and advances of PBL decreased to 13.18 percent from the level of 13.49 percent of previuos year due to reduction of lending rates on corporate

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Prime Bank

and medium scale financing as imposed by Bangladesh Bank. Concentrattion of loans and advances was well managed. Ratio of non performing loan of PBL

improved to 1.29 percent to 1.76 percent of previous year and the ratio is much below the industry average of 10.8 percent. From the Financial analysis of year 2009, some important findings are pointed below: • Loans & Advances were well spread. Retail ans SME sector showed significant growth during 2009.

The pressure from Bangladesh Bank to keep the interest spread to 5 percent continued. In addition to indierect restrictions, Bangladesh Bank imposed the ceiling of maximum 13 percent interest on lending except for small and retail finacne. Later on maximum interest rate of 13 percent was ijmposed on housign loans. But the spread did not reduced that much as the Bank successfully improved its deposit mix along with reduction of interest rates on deposits. Non-performing laon decreased during the year by Tk. 184 million and stood at 1.29 percent. The ratio is much below the market average os 10.8 percent. As such the asset quality may be termed as strong. PBL made adequate provision against bad and doubtful debt as per Bangladesh Bank requirement. Despite the Bank could register significant grwoth of net profit.

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Chapter 5
FINDINGS & ANALYSIS

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5.1 FINDINGS:
A/ Executive and officer working and various levels in the bank to be groomed with clear understanding of the entire range of products and banking services ensuring quality of services help accomplished set target of customer satisfaction. The techniques those to be pursued for transforming of strategies into action through “Mode Marketing Plan – (MMP)” to achieve the goal of higher customer satisfaction along with sustained growth of profitability for the bank are :-

• Proper grooming of employees through classroom and hands of training. • Receive the customers with smile. • Improve office atmosphere to give customer friendly feeling. • Provide intimate attention to your customers need. • Customer’s convenience will receive priority. • Evaluate customers needs in shortcoming be explained logically. proper perspective and

• Time consumed in servicing customers is minimized. • Deeply familiarize customers with benefits of offered financial services. • Use modern tools and techniques and evaluate customers credit needs professionally. • Decision making process should be free of ambiguity and be time conscious. • Alternative solutions should be explored and evaluate. • Develop communication skills.

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• Develop effective management system (MIS). • Diagnose macro and micro environment niches and explore the prospects. • Help new entrepreneurs to formulate business plans. • Fresh entrepreneurs should be providing with counseling. • Understand customers funding needs and create “Total solution”. • Monitoring of disbursement and need based use of loans. • Recycling of credit ensuring recovery as per repayment schedule. • Ensure reasonable spread and return on assets. • Build good value for sponsors and shareholders.

B/ In managing the credit operation, PBL, Satmasjid Road Branch face the following problem:

• Loan processing time is little bit lengthy because of shortage of skilled people. • Interest rate is high from the borrower’s perspective. • Legal advisers take so much time before giving their legal opinion. • Shortage of skilled man power in the branch and credit division. • Rules and regulations are not so much flexible in case of lending money

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Chapter 6
Recommendations & Conclusion

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6.1 Recommendation
A banker can not sleep well with bad debts in his portfolio. The failure of commercial banks occurs mainly due to bad loans, which occurs due to inefficient management of the loans and advances portfolio. Therefore any banks must be extremely cautious about its lending portfolio and credit policy. So far Prime Bank Limited has been able to manage its credit portfolio skillfully and kept the classified loan at a very lower rate ---thanks goes to the standard and stringent credit appraisal policy and practices of the bank. But all things around us are changing at an accelerating rate. Today is not like yesterday and tomorrow will be different from today. Given the fast changing, dynamic global economy and the increasing pressure of globalization, liberalization, consolidation and disintermediation, it is essential that Prime bank limited has a robust credit risk management policies and procedures that are sensitive to these changes. To improve the risk management culture further, Prime Bank limited should adopt some of the industry best practices that are not practiced currently. These are • The lending guideline should include Industry and Business Segment Focus, Types of loan facilities, Single Borrower and group limit, Lending caps, Discouraged Business Types, Loan Facility Parameters and Cross boarder Risk. • It should adopt a credit grading system All facilities should be assigned a risk grade. And the borrowers risk grades should be clearly stated on credit application. • Approval authority should be delegated to individual executives rather than Executive Committee/ Board to ensure accountability. This system will not only ensure accountability of individual executives but also expedite the approval process.

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The organization structure should have to be changed to put in place the segregation of the Marketing/ Relationship Management function from Approval / Risk Management / Administration function.

An Early Alert Account system should be introduced to have adequate monitoring, supervision or close attention by management

There should be a Recovery Unit to manage directly accounts with sustained deterioration. To encourage Recovery Unit incentive program may also introduced.

6.2 Conclusion

Researchers support the fact that economic and financial development of a country are highly correlated to the development of its banking and financial system. The more developed and efficient the banking sector of a country is, the more developed is the business industry sectors will be. We hope that PBL will lead by example by continuing its efficient lending policy in keeping the bank’s financial performance indicators at above industrial average and contribute to country’s economic developmentthus attaining a middle income status in the world.

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APPENDIX

Performance of PBL:
Performance at a glance Taka in Million

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Particulars Income Statement Interest Income Interest Expense Net Interest Income Non-interest Income Non-interest Expense Net Non-interest Income Profit before provision and tax Provision for loans and assets Profit after provision before tax Tax including deferred tax Profit after tax Balance Sheet Authorized Capital Paid-up Capital Total Shareholder's equity Deposits Long-term liabilities Loans and advances Investments Property, Plant and Equipment Earning Assets Net current assets Total assets Current ratio

2005

2006

2007

2008

2009

3446 9 2271 1175 1232 886 346 1520 320 1201 633 568

519 3698 1500 1732 1101 631 2131 390 1741 689 1052

7170 5267 1903 2913 1559 1354 3257 910 2347 946 1401

9096 7126 1970 3808 1931 1877 3847 1384 2463 1232 1232

10831 8426 2405 5790 2907 2883 5289 700 4589 1805 2784

4000 1400 2808 36022

4000 1750 3860 5472 4

4000 2275 5273 70512 15267 57683 12698 66

4000 2844 6697

4000 3555 11745

88021 106956 31044 75156 23103 1375 100261 9962 38209 89252 19934 1573 109905 3435

11406 16877 31916 3940 372 37439 31 45010 7844 412 0 55458 5286

72798 1338 79588 .97

41506 60899 1.00 .88

110437 124806 0.88 0.96

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Comparison of Profit of Different Banks Main Office (source Manager’s conference 2009)
Area Dhaka Bank Southeast Bank Exim Bank Mercantile Bank Dutch Bangla Bank Prime Bank 2008 47.11 42.01 40.35 42.40 34.01 33.46 2009 54.45 43.85 43.66 52.00 36.39 42.29 Growth 16 4 8 23 7 26

Deposits VS Advances of Different Banks-2009 (Source Manager’s conference 2009)

Banks

Crore Taka Deposits 2009 Advances 2009
3997 4816 5761 2940

DBL SEB PBL DBBL

4958 5547 7054 4211

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Prime Bank

EXIM MBL EBL

4159 3933 3170

4020 3140 2910

Deposits & Advances 2009 of Different Banks
8000 7000 6000 5000 Crore Taka 4000 3000 2000 1000 0 DBL SEB PBL DBBL EXIM MBL EBL 5547 4958 3997 4816

7054 5761 4211 2940 41594020 3933 3140 3170 2910

Deposits 2008 Advances 2008

Deposit Advance GAP-2009 of Different Banks (source Manager’s conference 2009)

Banks

Crore Taka

DBL SEB DBL DBBL EXIM MBL

956 731 1293 1271 139 793
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Prime Bank

EBL

260

Deposits Advances Gap 2009
EBL MBL EXIM DBBL PBL SEB DBL
731 956 139 1271 1293 260 793

0

200

400

600
CRORE TAKA

800

1000

1200

1400

Profit 2009 of Different Banks (Source Manager’s conference 2009)

Banks

Crore Taka

DBL SEB EXIM PBL EBL MBL DBBL

205 294 205 351 190 157 151

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Prime Bank

Profit 2009
400 350 300 250 Crore Taka 200 150 100 50 0 DBL SEB EXIM PBL EBL MBL DBBL

351 294 205 205

190 157 151

Import 2009 Of Different Banks (Source Manager’s conference 2009)

Banks

Crore Taka

DBL EXIM PBL MBL EBL SEB DBBL

4950 7026 9645 4038 3782 3847 3567

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Prime Bank

Import 2009
10000 7000 6000 5000 Crore Taka 4000 3000 2000 1000 0 EXIM PBL MBL EBL SEB DBBL DBL 4038 3782 3847 3567 6140 4950

9645

Export 2009 Of Different Banks (Source Manager’s conference 2009)

Banks

Crore Taka

EXIM DBL DBBL MBL PBL SEB EBL

5579 3108 3406 3267 5132 2877 3357

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Prime Bank

Export 2009
6000 5000 4000 Crore Taka 3000 2000 1000 0 EXIM DBL DBBL MBL PBL SEB EBL 3406 3267 3357 2877 5579

5132

3108

Rate of Return on Advance 2009 of Different Banks (Source Manager’s conference 2009)

Banks

Crore Taka

DBBL DBL EBL EXIM MBL PBL SEB

3406 3108 3322 5579 3267 5132 2877

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Prime Bank

Rate of Return on Advance 2009
6000 5000 4000 Rate(%) 3000 2000 1000 0 DBBL DBL EBL EXIM MBL PBL SEB 3406 3322 3267 5579

5132

3108

2877

Cost of Deposits 2009 of Different banks (Source Manager’s conference 2009)

Banks

Crore taka

DBBL DBL EXIM MBL PBL SEB

3406 3108 5579 3267 5132 2877

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Prime Bank

Cost of Deposits 2009
6000 5000 4000

5579

5132

3406

Rate(%)

3108 t

3267

3000 2000 1000 0 DBBL DBL

2877

EXIM

MBL

PBL

SEB

Bibliography
1.Ahmed Nasiruddin. (1989), Banking And Finance Compendium: 1st edn. Standard Printing and Packages: Dhaka 2.Hill, Charles, W. & Jones, Gareth, R. (2007), Strategic Management: An Integrated Approach. 7th edn. Houghton Mifflin Company: Boston 3. Karajewski, Lee, J. & Ritzman, Larry, P... (2005), Operations Management: Process and Value Chain. 7th edn. Pearson Education Inc.: India 4. Wheelen, Thomas, L. & Hunger, J., David.(1995), Strategic Management and Business Policy. 5th edn. Addison-Wesley Publishing Company Inc: United States of America 5. Credit Rating Information and Services Limited. Retrieved August 5, 2008, from CRISL Official Web site: http://www.crislbd.org/ 6. Star Business News. (2008). Prime Bank Launches Training Programme
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7. Prospectus of Prime Bank Ltd. 8. Leaflet, Booklet and department published documents. 9. Bangladesh Institute of Bank Management. “Appraisal of Customers Services of Scheduled Banks of Bangladesh”. Bank Parikrama, 2005. 10. Report on “Banker – Customer Relationship”, of National Bank Training Institute. 11. Ahmed, Fariuquddin. “Nationalized Commercial Banks in Bangladesh – An analysis of their Operational and Functional Performance”. Bank PariKrama, Vol. XV & XVI (1990-91). 12. Internet Web site –www.prime-bank.com

Other Reference

Brochures of products of Prime Bank Ltd Annual Report 2005-2009, Prime Bank Ltd

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