Professional Documents
Culture Documents
4 Chapter
4 Chapter
4.1 Introduction
Credit facilities, principals, procedures and lending guidelines should provide a clear and
consistent point of reference for all employees and prevent misunderstanding, confusion
or omission by personal dealing with credit issues. Additionally, credit policies help
prevent deviation from the overall lending principles and credit culture.
Credit procedures support the delivery of credit products, help to avoid undue process
and serve as an efficient mechanism in granting of facilities and the administration of the
risk asset portfolio.
Credit Facilities
Letter of Credit
Industrial Finance and Other Project
Letter of Guarantee
Loans
Syndicate Loan
Personal credit
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Project loan normally has fixed maturity and it relates to term investment. As such it
requires appraisals of those proposals to have a rational decision. Appraisal may be
termed as assessment of viability over a period of time.
Over Draft
Over draft facility is also a continuous loan arrangement on a customer’s current account
permitting him/her to overdraw up to a certain approved limit for an agreed period. Here
the withdrawal of deposits can be made any number of times at the convenience of the
borrower, provided that the total overdrawn amount does not exceed the agreed limit.
Customer can return any amount at any time within the pre-fixed time of the facility.
Turn over of an Over Draft facility is the most important phenomenon on which renewal
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of the facility depends. Over Draft facility is given to the businessmen for financing
working capital requirement and high net worth individual to overcome temporary
liquidity crisis.
Term Loan
Terms loans are given to finance the acquisition of capital assets. Loan agreements often
contain restrictive covenant and loan is repayable in accordance to amortization schedule.
Collateral is must for term loan. Under term loan there are three categories:
Short term loan- loans having maturity less than one year falls under this
category.
Midterm loan- this loan facility is extended for loans having maturity more than
one year but less than three years.
Long term loan- tenure of long term loans is more than three years.
Personal Credit
Bank Asia also offers personal credit facility to its customers for buying household
appliances. No securities are kept for such type of credit facility but a guarantee from
third party is required who ought to be a prominent person or government service holder.
Anyone with continuous employment for a reasonable length of time in an organization is
entitled to enjoy this facility. A quotation needs to be submitted on the office pad from
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where the goods will be purchased. Limit of personal credit ranges from Tk. 50,000 to
Tk. 3, 00,000 and interest rate is 16.25%, which is subject to change.
The objective of this loan is to provide essential Household durables to the fixed income
group (Service holders) and other eligible borrowers under the scheme.
Items of Investment
i. Refrigerator / Deep Freeze
ii. Television / VCR / VCP / Dish Antenna
iii. Music Center
iv. Motor Car / Motor Cycle
v. Air –Cooler / Air – Conditioner
vi. Personal computer
vii. Washing Machine
viii. Household Furniture & Fixtures
ix. Sewing Machine
x. Kitchen appliances like Oven, Toaster, Pressure Cooker, Blender etc.
xi. Any other item not specified above but considered essential.
Eligibility
The criteria to become eligible for availing the facility under the scheme are given below.
The borrower must be confirmed official of any of the following organizations:
a) Government Organization.
b) Semi-Government Organization / Autonomous body.
c) Multinational Organizations.
d) Banks & Insurance Companies.
e) Reputed Commercial Organizations.
f) Professions.
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Any arrangement however named or described, whereby a bank (the “issuing bank”),
acting at the request and on the instructions of a customer (the “applicant”) or on its own
behalf,
1) Is to make a payment or to the order of third party (the Beneficiary), or is to
accept and pay bills of exchange (Drafts) drawn by the Beneficiary, or
2) Authorized another bank to effect such payment, or to accept and pay such bills
of exchange (Drafts),
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Guarantee
Bank Asia offers guarantee for its reliable and valuable customer as per requirements.
This is also a credit facility in contingent liabilities.
Syndicate Loan
A Bank can lend upto 15% of its paid up capital without any approval by Bangladesh
Bank. If the loan amount exceeds 50% of the paid up capital then Bank goes for
Syndicate loan. Lead Bank makes the arrangement and Head Office makes the facility
agreement by the Bank’s lawyer. All terms and conditions such as security sharing, mode
of creating charges, mode of repayment, covenants of the loan are written on the facility
agreement.
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Know Your Customer: Know Your Customer (KYC) is the most important
guiding principle of Bank Asia for extending credit facilities to its prospective
borrowers. Complying with this principle helps the bank to avoid money
laundering crime and adverse selection of borrowers.
Safety: Safety depends first upon (i) the security and its value offered by the
borrower and (ii) the repaying capacity and willingness of the borrower to repay
the loan with interest.
Liquidity: It refers to the ability of an asset to be converted into cash without
loss and within a short time to meet depositor’s demand for cash.
Profitability: Bank Asia must employ its fund in such a way that they will bring
adequate return for the bank, which should be more than cost of the funds.
Purpose: The purpose for which Bank Asia will provide loan should be
productive so that the money not only safe but also provides a definite source of
repayment.
Spread: It refers to the diversification of advance. So far Bank Asia could
maintain considerable margin on its disbursed loan but recently Bangladesh Bank
has imposed restriction on lending rate and to comply with Bangladesh Bank
policy guidelines, Bank Asia lowered its lending rate.
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Unclassified
4.5.1
Loan
Unclassified Loans
An unclassified loan or commitment is one that is set by Bangladesh Bank or the Head
Classified
Office of the Bank. Unclassified loans are those loans in which repayment is regular.
Loan Classification means to categorize the debt information in a systematic manner. But
in true sense it is defined in terms of degree of risk associated with these loans. The
objectives/importance of loan classification are:
To find out Net Worth of a bank;
To assess financial soundness of a bank;
To calculate the required provision and the amount of interest suspense;
Strengthen credit discipline;
To improve loan recovery position and
To put the bank on sound footing in order to develop sound banking practice in
Bangladesh.
Position of classified loans and advances and other assets should be placed before the
Board of directors of the bank.
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The loan mix of the bank is very conventional. It has been observed that the existing loan
products are insufficient to meet up the existing borrower’s need. The bank has no loan
products for the religious Muslim borrowers. It has caused the bank to lose a large
segment of the potential borrowers. The bank has yet to establish credit card facility
which could pull a large number of borrowers because due to safety need, increasing
number of people are being interested in having this facility. Bank Asia is still lagging
behind the other private commercial banks in terms of product diversity in credit.
But Bank Asia has promised to incorporate new loan products in its loan mix portfolio.
Lease financing and credit card are under processing. The bank has established WAN
(Wide Area Network) to bring all the branches under online banking system. The bank
can use its online system for easy access of the customer to the loan products like
personal credit and credit card.
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At the same time the bank was able to remain profitable in terms of interest income
maintaining a higher spread. So far Bank Asia was able to perform well in its loan
portfolio but the scenario is changing very rapidly. Lending rate is being decreased under
the policy guidelines of the Bangladesh Bank and the bank has to adopt necessary
strategy to maintain its profitability from the loan portfolio.
Bank Asia also finances SME (Small and Medium Enterprise), provides personal credit,
export and import finance. Bank Asia is in constant search of profitable business sector
for extending credit line. Bank has also taken safe guard against predicted alteration in
the world trade policy. As MFA (Multi Fiber Agreement) was phased out from December
2004, many of the country’s garments factories were under the threat of lay off. The
experts of the bank are anticipating that the situation after last year were seriously
jeopardize the banking sector because most of the banks have heavily financed in the
export oriented RMG (Ready Made Garments) sector. Bank Asia, keeping in mind the
impact of the phasing out of MFA has reduced its reliance on RMG sector.
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