INTERNSHIP REPORT

ON
CREDIT RISK MANAGEMENT OF
JANATA BANK LIMITED
 Internship Report
On
Credit Risk Management of Janata Bank Limited

Submitted to
Mr. Badruzzaman
Controller of Examinations
National University
Gazipur-1704

Supervised By
Mohammad Mosharraf Hossain
Assistant Professor
Department of Business Administration
Dhaka City College

Submitted By
Md. Rezvi Basher
National University Roll No. 1061692
National University Registration No: 1068033
Department of Business Administration
Dhaka City College

Date of Submission: March 2nd, 2015

 Letter of Transmittal

March 2nd, 2015

Professor Md. Shahjahan Khan

Principal
Dhaka City College
Dhanmondi, Dhaka – 1205

Subject: Submission of Internship Report.

Dear Sir,
This is my pleasure that I have completed my internship report and hereby ready to
submit my report on “Credit Risk Management of Janata Bank Limited”.
According to the instruction I have worked on the actual loan operation & credit
management of JBL. I have really enjoyed the working environment of the Janata
Bank Limited, Kalir Bazar Branch, A.C. Dhar Road, Narayanganj - 1400. I have
tried my best to present all those things that I have experienced over there while
preparing my report.

I have thoroughly enjoyed the overall work during my internship period which is
carrying vast description of practical knowledge. This report along with all kinds of
necessary information regarding the internship is being submitted to you for your
evaluation. I sincerely hope that you will appreciate my effort.

Sincerely yours,

__________________
Md. Rezvi Basher
National University Roll No. 1061692
National University Registration No: 1068033
Department of Business Administration
Dhaka City College
 Acknowledgement

I wish to acknowledge the immeasurable grace and profound kindness of almighty

Allah, the supreme ruler of the universe, who enables me to make my report in reality.

I acknowledge my immeasurable gratitude to Mohammad Mosharraf Hossain,

Assistant Professor, Department of Business Administration, for his helpful
supervision, suggestion, guidance and encouragement. In fact, he guided me as my
teacher and motivator to make me understand and conduct a complete report like this
one. I note his contribution with high dignity.

I am also very much grateful to our Coordinator Mr. Md. Shahinur Sobhan and our
Principal Prof. Md. Shahjahan Khan for their scholarly and consecutive suggestions
which were of much assistance to prepare the report.

I sincerely express my deepest gratitude to Department of Business administration

and all the officials of department for their relentless help and caring attitude and to
many others whose names I failed to mention here, I thank you all.
.
 Certificate of Supervisor

This is certified that, Md. Rezvi Basher, National University Roll No : 1061692,
Registration No : 1068033, Academic session: 2009-2010, Major in Marketing, is a
regular student of 8th semester (Final Semester) of BBA program, Department of
Business Administration, Dhaka City College, under the National University of
Bangladesh. He has completed an internship program on “Credit Risk Management
of Janata Bank Limited.”. Under my supervision which is fulfillment of partial
requirement of obtaining BBA degree.

I wish his success in all his future endeavors.

____________________
Mohammad Mosharraf Hossain

Assistant Professor

Department of Business Administration

Dhaka City College

 Executive Summary

The internship report is based on the credit risk management process of Janata Bank
Ltd. In the beginning of the report the scope, origin, objectives, methodology,
limitations are discussed. The main objective of this report is to present an overview
of credit risk magement activities of Janata Bank Ltd. Primary sources of data are
discussion with the officers and staffs and work experience in different desk. The
secondary data is collected from the annual report, different text books and several
web pages. The scope of this report is limited to the credit risk management activities
of Janata Bank Ltd. In spite of some limitations such as lack of adequate information,
lack of proper experience, I have tried my best to make this report as informative as
possible.
The overview of Janata Bank Ltd. is given in this report. It covers the origin of the
bank, organizational profile and present situation of the bank. The bank is established
in 1971. The bank has various products and services for its customers. It has a huge
number of clients for different types of products. Janata Bank Ltd. also has four
overseas branches. The products and services JBL are also discussed. The values and
philosophies of the bank are discussed in brief too.
In this report the overall credit risk management activities of Janata Bank Ltd. are
discussed. It covers the credit appraisal. Credit sanction for the borrowers. Various
credit documentation procedures followed by the bank. The report also covers credit
administration activities of credit risk administration unit. The report describes
disbursement of the loans and advances in prerequisite ways. It describes the
monitoring and control of individuals’ credits. It explains how the bank manages the
credits and to minimize financial losses. This report describes the classification of
loans. The recovery process implies that a borrower will be treated leagally in case of
failure in repayment of loans.
In the ending, the findings, recommendations and conclusions are discussed. In
findings it is reviewed that the credit officers do not fill up the proposal form properly
in most of the cases. It can be recommended that the bank should concentrate more on
proper documentation of all types of loans. Besides, the documents supporting the
security against the loan have to be verified properly. These recommendations will
reduce the problems of credit risk management of Janata Bank Ltd.
 Acronyms

BB Bangladesh Bank

CRG Credit Risk grading

CRM Credit Risk Management

FDR Fixed Deposit Receipt

JBL Janata Bank Limited

L/C Letter of Credit

GM General Manager

DMD Deputy Managing Director

DGM Deputy General Manager

 Table of Contents

Serial Particulars Page

no. no.

Letter of Transmittal i

Acknowledgement ii

Certificate of Supervisor iii

Executive Summary iv

Acronyms v

CHAPTER 1 : INTRODUCTION

1.1 Origin of the Report 1

1.2 Objectives of the Report 1

1.3 Methodology of the Report 2

1.4 Scope of the Report 2

1.5 Limitations of the Report 3

CHAPTER 2: OVERVIEW OF THE JANATA BANK LTD.

2.1 Historical Background of Janata Bank Ltd. 4

2.2 Vision of Janata Bank Ltd. 4

2.3 Mission of Janata Bank Ltd. 4

2.4 Main objectives of Janata Bank Ltd. 5

2.5 Business Philosophy of Janata Bank Ltd. 5

2.6 Values of Janata Bank Ltd. 5

2.7 Key Milestones of Janata Bank Ltd. 6

2.8 Services of Janata Bank Ltd. 12

2.9 Branches of Janata Bank Ltd 21

2.10 Organizational Structure of Janata Bank Ltd. 22

2.11 Principal Activities of Janata Bank Ltd. 24

2.12 Present Situation of Janata Bank Ltd. 31

2.13 Future Plans of Janata Bank Ltd. 31

2.14 CSR Activites of Janata Bank Ltd. 32

2.15 Automation and Online Banking of Janata Bank Ltd. 33

2.16 SWOT Analysis of Janata Bank Ltd. 34

CHAPTER 3 CREDIT RISK MANAGEMENT PROCESS OF

JANATABANK LTD.

3.1 Credit Processing/Appraisal 37

3.2 Credit Approval/Sanction 38

3.3 Credit Documentation 39

3.4 Credit Administration 39

3.5 Disbursement 40

3.6 Monitoring and Control of Individual Credits 42

3.7 Monitoring the Overall Credit Portfolio (stress testing) 42

3.8 Credit Classification 43

3.9 Classified Loans 44

3.10 Recovery of Loan 47

CHAPTER 4: FINDINGS, RECOMMENDATIONS &

CONCLUSION
4.1 Findings of the Report 50

4.2 Recommendations 51

4.3 Conclusion 52

Bibliography 53
 List of Tables

NO. Tables Name Page no.

1 Export Trend of Janata Bank Ltd. 14

2 Import Trend of Janata Bank Ltd. 19

3 Branches of Janata Bank ltd. 22

4 Portfolio Wise Investment 26

5 Different products under Rural Credit, Micro Ent. & SP Program 28

6 Industrial Credit 30

7 Loan Classification Systems 45

8 Summary of Loans and Advances with Risk Status 46

 CHAPTER - 1
INTRODUCTION
1.1 Origin of the Report:

It is said that without theory, practice is blind and without practice theory is
meaningless. An internship is designed to bridge the gap between the theoretical
knowledge and real application. The prime reason of this report is to learn about
credit risk minimization process of a Bank. This report has been prepared based on
one selected listed Bank in Bangladesh, named Janata Bank Limtied. The report has
been prepared based on the information of this bank which has been gathered during
the internship period. The report titled “Credit Risk Management of Janata Bank
Limited”. No knowledge is fully complete unless it is fully supported by events on
ground. Whatever may be the quality of theoretical knowledge, it is not complete
without practical implication on ground. This realization is more pronounced in the
study of Business Administration where experience on ground plays a dominant role.

Internship program is essential for all BBA students because it helps him/her acquit
with real life situation. Bank is a one of the important financial institutions, so I have
selected Janata Bank Limited, which is one of the leading private commercial banks
in Bangladesh. For this reason I have prepared my internship report on Credit Risk
Management of Janata Bank Limited. Throughout the last few years Bangladesh has
been experiencing a rapid and significant change in the banking sector. Not only in
our country, all over the world the dimension of banking has been changing rapidly
due to the technological innovation, globalization and deregulation. Janata Bank Ltd
is a state owned scheduled bank in Bangladesh. It has a vital contribution towards
lending and investment in economy because Janata Bank Ltd. has been participating
in all sectors (from industrial sector to microfinance).

1.2 Objectives of the Report

The main objective of the report is to identify and evaluate the credit risk management
system of Janata bank limited, which includes the following specific objectives:

 To know the practices of credit structure of the bank Janata Bank Limited.

 To identify the recovery system performed by the bank.

  To asses and highlight the legal actions followed by the Branch in terms of
credit recovery.

1.3 Methodology of the Report

The report is descriptive in nature. To fulfill the objectives of this report the total
methodology has divided into two major parts. They are:

a) Data Collection Procedure: To conduct the completion of this report data were
collected from both primary & secondary sources.

i. Primary Source:

 Personal observation
 Desk work in different section, of the bank.
 Conversation with bank’s employees.

ii. Secondary Source:

 Annual report of Janata Bank Limited

 Variety of books, articles & journal related to banking.

 Information from the internet.

b) Data Processing & Analysis:

The collected information have then processed & complied with the aid of MS Word
& other computer software. Necessary tables have been prepared on the basis of
collected data. Detail explanations and analysis have also been incorporated in the
report.

1.4 Scope of the Report

Janata bank is the second largest commercial bank in Bangladesh. It has 916 branches
and four overseas branches. It is liked with 1203 foreign correspondents all over the
world. I was assigned to learn practical knowledge from Janata bank Ltd. Here I tried
to learn about how to manage credit risk management, tools of credit risk
management, loan recovery system, facing problems in loan recovery system,
performance of the bank in loan recovery system etc. All things comes under the
theory of credit risk management and finally I would conclude with the critical
evaluation of credit risk management under the guidelines of bank companies act
1991 and a discussion on major findings and recommendations.

1.5 Limitations of the Report

To prepare a report on the topic like this in a short duration is not easy task. In
preparing this report some problems and limitations have encountered which are as
follows:

 The main constraint of the study was insufficiency of information, which was
required for the study. But the employees do not provide due to security and
other corporate obligations.

 Lack of opportunity to access to internal data.

 Due to time limitation, many of the aspects could not be discussed in the
present report.

 Since the bank personnel were very busy, they could not give enough time.

 Based on secondary data in most cases for preparing this report.

 As the data, in most cases, are not in organized way, the bank failed to provide
all information.

 Legal action related information was not available.

 CHAPTER - 2
OVERVIEW OF JANATA BANK
LTD.
2.1 Historical Background of Janata Bank Ltd.

‘Janata’ means ‘People’. So Janata Bank means ‘People’s Bank’. Janata Bank Limited
(JBL) is the 2nd largest state owned commercial bank in Bangladesh. Immediately
after the emergence of Bangladesh in 1971, the erstwhile United Bank Limited and
Union Bank Limited were named as Janata Bank. It was established under the
Bangladesh Bank order 1972. During the privatization process it was incorporated as
a public Limited Company on 21, May 07 vide certificate of incorporation No-
C66933(4425)07. The Bank has taken the over the business of Janata Bank at a
purchase consideration of Tk. 2593.90 million as a going concern through a vendor
agreement signed between the Ministry of Finance of the Peoples’ Republic of
Bangladesh and the Board of Directors on behalf of Janata Bank Limited on 15th
November 2007.

Janata Bank Limited operates through 897 branches including 4 overseas branches at
United Arab Emirates and a subsidiary company named Janata Exchange Company
started in Italy. It is linked to 1202 foreign correspondents all over the world

2.2 Vision of Janata Bank Ltd.

To become the effective largest commercial bank in Bangladesh to support socio-

economic development of the country and to be a leading bank in South Asia.

2.3 Mission of Janata Bank Ltd.

Janata Bank Limited will be an effective commercial bank by maintaining a stable

growth strategy, delivering high quality financial products, providing excellent
customer service through an experienced management team and ensuring good
corporate governance in every step of banking network.
2.4 Main objectives of Janata Bank Ltd.

The main objective of JBL is to provide all types of banking service at the doorsteps
of the people. The bank participates in various social and development programs and
also takes part in implementation of various policies and promises made by the
government.

2.5 Business Philosophy of Janata Bank Ltd.

JANATA Bank Ltd, a full service commercial bank with Local and International
Institutional shareholding, is primarily driven by creating opportunities and pursuing
market niches not traditionally met by conventional banks. Today JANATA Bank is
one of the fastest growing banks in the country to support the planned growth of its
distribution, network and for its various business segments.

The reason JANATA Bank is in business is to build a profitable and socially

responsible financial institution focused on markets and businesses with growth
potential, thereby assisting JANATA and stakeholders build a “just, enlightened,
healthy, democratic and poverty free Bangladesh”. That means to help make
communities and economy of the country stronger and to help people achieve their
dreams as well. They fulfill the purpose by reaching for high standards in everything
we do. For their customers, their shareholders, their associates and their communities
upon, which the future prosperity of their company rests.

2.6 Values of Janata Bank Ltd.

Janata Bank Ltd. holds the following values and will be guided by them as they do
their jobs.

Creating an honest, open and enabling environment.

Have a strong customer focus and relationships based on integrity, superior

service and mutual benefit.
 Strive for profit & sound growth.

Work as a team to serve the best interest of their owners.

Relentless in pursuit of business innovation and improvement.

Value and respect people and make decisions based on merit.

Base recognition and reward on performance.

Responsible, trustworthy and law-abiding in all that they do.

2.7 Key Milestones of Janata Bank Ltd.

International Awards

Recently The Bank has been recognized nationally and internationally for its
outstanding performance.

Janata Bank Limited achieves '2013 Performance Excellence Award' by Citi Bank
N.A.

Citi Bank N.A recently recognized Janata Bank Limited with '2013 Performance
Excellence Award'.

The awarding ceremony was held on 11 September, 2013 at the Head Office premise
of the Bank. S M Aminur Rahman, CEO and Managing Director, Janata Bank Ltd.
received the award from Khd. Rashed Maqsood, Managing Director and Citi Country
Officer, Bangladesh. DMDs of the Bank Md. Golam Sarwar, A K M Ashraf Uddin
Khan and Omar Farooque and GMs of the Bank Abdus Salam Azad and Md.
Monjerul Islam and High officials of Citi Bank, N. A. were also present at the
awarding event.

Janata Bank Ltd achieved this award for solidifying leadership in the payment space.
Janata Bank Limited wins 'The Asian Banking & Finance Wholesale Banking Awards
2013 & Retail Banking Awards 2013'

It is a matter of great pleasure for us that Janata Bank Limited has once again been
awarded by Asian Banking and Finance (ABF) Magazine, a concern of Carlton Media
Group (CMG), Singapore. Evaluating Janata Bank Limited's last year's performance
in different fields the magazine has judged JBL winner of three awards in two
following categories:

A. Asian Banking & Finance Wholesale Banking Awards 2013

i. Bangladesh Domestic Project Finance Bank of the Year

ii. Bangladesh Domestic Trade Finance Bank of the Year

B. Asian Banking & Finance Retail Banking Awards 2013

iii. Domestic Retail Bank of the Year Bangladesh

The awarding ceremony was held on 18 July, 2013 in Singapore. Md. Shirajul Islam,
GM(BDMD), Md. Afzalul Bashar, GM(RPD), Sk. Md. Zaminur Rahman,
DGM(MISD) and Md. A.K.M Shamsul Alam AGM(MISD) received the awards on
the podium as representatives of Janata Bank Ltd.

JBL's Position in the Banker's Global Ranking of Banks-2012

"The Banker"- a magazine of Financial Times Group, London ranked JBL in its
Global Ranking of Banks-2012 as follows:

i. Top 5 ROC, Asia pacific- 1st

ii. Top 25 top 1000 ontenders,Tier-1 growth- 4th

iii. Top 1000 Contenders by region, Asia Pacific- 7th

iv. Top 25 top 1000 Contenders, ROC -16th

v. Top 100 of the top 1000 Contenders-23rd

The Banker" selected winning banks based on their overall performance.

Business Asia Most Respected Company Awards-2012

Janata Bank Limited has been awarded 'Business Asia Most Respected Company
Awards-2012' by Business Asia. Business Asia has selected winning banks based on
Overall performance.

Janata Bank Limited wins ‘The Asian Banking & Finance Awards 2012’

It is a matter of great pleasure for us that Janata Bank Limited has once again been
awarded by the Asian Banking and Finance Magazine (ABF), a leading financial
magazine in Asia . For several years the magazine has been recognizing the best
performers in bank business of different countries in Asia with these esteemed
awards. Evaluating Janata Bank Limited's last year's performance in different fields
the magazine has judged JBL winner of two awards in three following categories:

A. The Asian Banking & Finance Wholesale Banking Awards 2012

i. Bangladesh Domestic Project Finance Bank of the Year

ii. Bangladesh Domestic Trade Finance Bank of the Year

B. The Asian Banking & Finance Retail Banking Awards 2012

iii. Domestic Retail Bank of the Year Bangladesh

The awarding ceremony was held on 23 August, 2012 in Singapore . Md. Afzalul
Bashar, General Manager and Md. Mosaddake-Ul-Alam, Company Secretary
received the awards on the podium as representatives of Janata Bank Ltd.

International Award-The Bank of the year-2011 in Bangladesh

Janata Bank Limited has been awarded ‘The Bank of the Year-2011 in
Bangladesh’ by the London based Financial Magazine The Banker of the Financial
Times Group. This is for the sixth time the bank has been awarded ‘The Bank of the
Year’ award. Janata Bank Limited achieved remarkable progress in the year 2010.
ICMAB Best Corporate Award-2011

Janata Bank Limited has been awarded ICMAB Best Corporate Award - 2011 by the
Institute of Cost and Management Accountants of Bangladesh. This Bank secured
first position among the State Owned Commercial Banks in Bangladesh.

International Award -"World's Best Bank Award-2009 in Bangladesh

Janata Bank Limited was awarded Best Bank-Bangladesh in the Global Finance,
World's Best Bank Awards, 2009 by New York based Financial Magazine "Global
Finance". "Global Finance" has selected winning banks based on number of criteria
including growth in Assets, Profitability, Strategic relationships, Customer Service,
Competitive pricing and innovative products.

International Award -"World's Best Bank Award-2008 in Bangladesh

Janata Bank Limited was awarded Best Bank-Bangladesh in the Global Finance,
World's Best Bank Awards, 2008 by New York based Financial Magazine "Global
Finance". "Global Finance" has identified winning banks based on number of criteria
including growth in Assets, Profitability, Strategic relationships, Customer Service,
Competitive pricing and innovative products.

International Award -"World's Best Bank Award-2007 in Bangladesh

Janata Bank Limited was awarded Best Bank-Bangladesh in the Global Finance,
World's Best Bank Awards, 2007 by New York based Financial Magazine "Global
Finance". "Global Finance" has identified winning banks based on number of criteria
including growth in Assets, Profitability, Customer Service, Product innovation and
Advanced Technology.

International Award -"World's Best Bank Award-2006 in Bangladesh

Janata Bank Limited was awarded Best Bank-Bangladesh in the Global Finance,
World's Best Bank Awards, 2006 by New York based Financial Magazine "Global
Finance". "Global Finance" has identified winning banks based on number of criteria
including growth in Assets, Profitability, Customer Service, Product innovation and
Advanced Technology.
International Award –The Bank of the year-2005 in Bangladesh

Janata Bank Limited has been awarded ‘The Bank of the Year-2005 in
Bangladesh’ by the London based Financial Magazine The Banker of the Financial
Times Group. This is for the fifth time the bank has been awarded ‘The Bank of the
Year’. The award has been given considering the growth and performance measure of
the bank.

Janata Bank Limited receives "Asian Banking Awards 2005" on Credit Scheme for
Handicapped People:

The Awards were presented by the Asian Bankers Association (ABA) and Bank
Marketing Association of the Philippines (BMAP) in the Asia Pacific Bankers
Congress (APBC) 2005 on June 17, 2005 in Manila, Philippines.

International Award -The Bank of the Year-2004 in Bangladesh

Janata Bank Limited has been awarded as 'The bank of the year 2004 in Bangladesh'
by the London based Financial Magazine “The Banker of the Financial Times
Group”. This is for the second consecutive year that the Janata Bank Limited has been
awarded 'Bank of the year'. Janata Bank Limited shows a remarkable progress in the
year 2003. Its return on assets was 1.36% and return on investment was 6.47%
respectively. Janata Bank Limited is also emerging as the strong and innovative bank
within the country. The profile of its success is enriched by a package of new
qualitative product lines, prudent liability and assets management and others. Most of
the key financial indicators of the bank showed a very positive improvement at the
year ended December 2003.

Janata Bank Limited receives "Asian Banking Awards 2004" on Financing Program
for Women Entrepreneurship

Financing program for Women Entrepreneurship of Janata Bank Limited has highly
been commended as a Runner-Up in the Micro-Finance Product or Program category
of the Asian Banking awards 2004. The Awards were presented by the Asian Bankers
Association (ABA) and Bank Marketing Association of the Philippines (BMAP) in
the Asia Pacific Bankers Congress (APBC) 2004 on March 26, 2004 in Manila,
Philippines.
Janata Bank Limited gets “The Banker Award-2003”

The Banker, an International Banking Magazine of the Financial Times group in

London has selected Janata Bank Limited as “The Bank of the Year, 2003” among all
other banks in Bangladesh. The Banker’s assessment for award is based on a number
of criteria. Besides core data and results, the criteria include key growth and
performance measures, the use of technology and particular achievement in the past
and overall strategy, it may be mentioned that Janata Bank Limited could achieve the
same award for the year 2001.

International Award-The Bank of the Year-2002

The Banker, a magazine of the London based Financial Times Group of Companies,
has voted Janata Bank Limited as the bank of the year for Bangladesh for 2002. While
making this selection the panel has recognized the efforts made by Janata Bank
Limited in recent times for Improving IT based performances.

International Award-The Bank of the Year-2001

The Banker, a magazine of the London based Financial Times Group of Companies,
has voted Janata Bank Limited as the bank of the year for Bangladesh for 2001. While
making this selection the panel has recognized the efforts made by Janata Bank
Limited in recent times for improving its performances. The bank has also been
included in the listing of top 200 Asian Banks for the year 2001. This listing will be
available to delegates attending the forthcoming IMF/Word Bank meeting in
Washington. The September edition of the Banker will also highlight the recent
achievements of Janata Bank Limited. Besides, a certificate of merit and a bank of
the year logo will be given to Janata Bank Limited for exclusive use on all publicity
and advertising.

It may be noted here that Janata Bank Limited has been working hard in improving
the customer services in recent times by introducing a number of IT-based reform
measures.
2.8 Services of Janata Bank Ltd.

Janata Bank Ltd. offers all the major banking facilities and services to its customers.
The Bank with its network spreading throughout the country has a unique feature of
ploughingback savings from those places and then investing them into different loan
portfolios.

Janata Bank Ltd. with its wide ranging branch network and skilled personnel provides
prompt and personalized services like issuing:

1. Demand Draft

2. Telegraphic Transfer

3. Mail Transfer

4. Pay Order

5. Security Deposit Receipt

6. Transfer of fund by special arrangement

a. Normal transfer

b. Electronic transfer through Ready Cash Card

7. Foreign Remittance Payment

The Bank provides the following Interest facilities:

 Current/Savings/STD account status

 FDR account status

 Advance account status

 Loan account status

 NRB Accounts
International Banking

 Janata Bank Limited has already established a worldwide network and

relationship in international Banking through its 4 (four) overseas branches
and 1239 foreign correspondents.

 The bank has earned an excellent business reputation in handling and funding
international trade particularly in boosting export & import of the country.

 The bank finances exports within the frame-work of the export policy of the
country.

 It is one of the pioneers in promoting back to back Letter of Credit for the
RMG (Ready Made Garments) sectors.

Export Finance

 To boost up country's Export, Janata Bank Limited has been providing

different kinds of assistance to exporters. Some of which are as below:-

 Providing Pre-Shipment and Post-Shipment Finance, Export Guarantee and

bonding facility etc.

 Concessional rate of interest for exports Finance.

 Back to Back L/C under bonded Warehouse facility

 Sight & Unasked L/C against Firm Contract for import of raw materials.

 Sight L/C under EDF

 Exporter's Retention Quota A/C both interest bearing and non-interest bearing.

 Export incentive Program.

 Banking at Export Processing Zone

 Scope for establishment of export oriented industry by 100% foreign

investment and by joint-venture
  The sole bank to disburse Government Export Promotion Fund against export
of computer software & data entry processing

 Undergone to an agreement with Bangladesh Bank to obtain fund from

Government EEF (Equity & Entrepreneurship Fund) to build up entrepreneur's
equity.

 Consultancy and advisory services by an expert group of officials.

 Special export financing program towards computer software data entry and
service export.

Salient Features:

The salient features of International Banking are:-

A. A Firm or Company having valid ERC, necessary infrastructural and

technical facilities and sufficient skilled man power related computer.

B. Member of BASIS or BCS.

C. Having Computer Literacy or related professional background.

D. Preference to the firm/company having prior experience

E. Satisfactory performance Certificate/Acceptance Letter from Counterpart

abroad.

F. Valid Export Orders are in hand.

Export Trend

Year Taka in Crore

2009 8,865

2010 11,851

2011 15,375
 2012 15,652

2013 15,325

Table 1: Export Trend of Janata Bank Ltd

Source: Janata Bank Limited, Annual Report 2009-2013 (page 21)

Scope of Further Expansion

The Janata Bank Ltd. has the following scopes for further expansion in international
banking:-

 Software and data entry

 Jewellery

 Frozen fish

 Dry & dehydrated fish

 Processed and semi-processed food fishes and shrimps

 Electrical and electronics item

 Toys and Luggage

 Fashion item

 Leather goods

 Stationary goods

 Diamond cutting and polishing

 Orchid

 Gift item

 Bamboo, Cane and Wooden furniture

 Janata Bank Limited also provides the following loans:

  Working Capital Loan from EPB under Government Export Promotion Fund
(EPF),

 Government Equity and Entrepreneurship Fund from Bangladesh Bank

Working Capital Loan from Epb Under The Government Export Promotion
Fund

The eligibility for obtaining this loan is:-

 Limited Company, Partnership or Proprietorship firm having valid ERC and

members of BASIC or BCS.

 Commercially & technically viable and profitable as per assessment of EPB.

 Latest one among the Entrepreneurs should be computer literate having a

degree or diploma in computer.

 Number of programmers will be at least 5 among which at least 3 having

degree or diploma in computer science.

 An established computer software firm which has at least 5 PC and necessary

Printers, UPS, IPS, Generator, Voltage Stabilizer etc with LAN and E-
mail/Internet facility.

Salient Features of the above Loan

 Minimum loan amount will be 50% of export order or Tk. 2.5 million
whichever is lower,

 Export order will remain valid upto one year. Rate of interest @6.00% simple
& service charge @2.5%. In case of default to repay in due time, additional
0.50% service charge will be realized.

 Export proceeds to be repatriated through the designated bank i.e. Janata Bank
Limited, Janata Bhaban Corp. Branch.

 Loan amount including interest will be adjusted from the export proceeds.
  Loan sanctioning authority is EPB and as per their sanction letter Janata
Bhaban Corp. Branch will disburse the loan applying all the formalities as per
MOU made between Janata Bank Limited and EPB.

Government Equity and Entrepreneurship Fund from Bangladesh Bank

Eligibility for obtaining the fund and Salient Features:

 New project, registered as Private Limited Company under company Act

1994.

 Total project cost including net working capital will not be less than Tk. 15
million.

 The project should be viable in consideration of its technical, management &

economical aspect.

 Equity participation will be 1/3 of the total project cost, out of which
Bangladesh Bank equity participation will not be more than 49%.

 Bank's loan if any and entrepreneurs own contribution to be fully utilized

before utilizing EEF.

 The company will issue equal amount of share against EEF in favour of
Peoples Republic of Bangladesh and to be submitted to the concern bank. The
EEF share will be entitled to get dividend as declared by the company or 5%
P.A, whichever is higher,

 The entrepreneur will buy back the share within first three years face value
plus 5% P.A.

 In case of default to repay the fund due to genuine loss, 90% of the EEF will
be borne by Bangladesh Bank and remaining 10% by the concerned financial
institution.

Financial assistance to boost up export:

 Concessional rate of interest.

 Export incentive programs

  Export Processing Zone facility.

 Scope of establishment of export oriented industry by 100% foreign

investment and by joint venture.

 Fully fledged infrastructural and logistic support for export i.e. project finance,
working capital, pre-shipment & post-shipment export finance, guarantee,
bonding facility, etc.

 Consulting facility by an expert group of officials.

Import Finance

Through quite a good number of Authorized Dealer Branches and 1198 nos. foreign
correspondents world wide Janata Bank Limited has been extending full range import
and relevant finance facilities.

Import Items:

 Capit Fuel & Lubricants.al Machineries and Industrial raw materials.

 Intermediate goods.

 Consumer durable, spare parts and equipments.

 Consumer goods : Food & Food Grains, Baby food, Petroleum, CDSO
(Crude Degummed Soya bean Oil), CPO (Crude Palm Olin) Oilseeds, Cement
Clinker, Construction Materials, Fertilizer, Chemicals and many other goods
permissible by Import by Import Policy of the country.

Facilities Offered:

Opening of L/C at competitive/ reasonable margin and commission

Interest at concession rate on import finance to the prime customers & interest rebate
facilities.
Import Trend

Setting Industrial vision to facilitate optimally, bank's involvement has been showing
sharp rising trend as under:

Year Taka in Crore

2009 11,852

2010 18,374

2011 19,728

2012 18,828

2013 17,667

Table 2: Import Trend of Janata Bank Ltd

Source: Janata Bank Limited, Annual Report 2009-2013 (page 21)

Correspondent Banking

Janata Bank Limited always aims to increase its foreign exchange business The Bank
has been doing international banking with all major Banks of the world. It has been,
however, handling bulk of the international businesses with the following
multinational Banks:

i. Citibank N. A.

ii. American Express Bank Ltd.

iii. Standard Chartered Bank

iv. HSBC.
 v. The Chase Manhattan Bank

Utility Services of Janata Bank Ltd.

Besides normal banking operation, Janata Bank Limited offers special services to a
large number of clients/agencies throughout the country. Under the network of utility
service, customers of different govt. organizations, corporate bodies, local bodies,
educational institutions, students, etc are continuously getting benefits from the Bank.
Janata Bank Limited's utility services are:

Bills Collection:

a. Gas bills of Titas, Bakhrabad and Jalalabad Gas Transmission and

Distribution Companies.

b. Electricity bills of Dhaka Electricity Supply Authority, Dhaka Electricity

Company, Bangladesh Power Development Board and Rural Electrification
Board.

c. Telephone bills of Telegraph and Telephone Board.

d. Water/Sewerage bills of Water and Sewerage Authority.

e. Municipal holding tax of City Corporation/Municipalities.

f. A pilot scheme is underway to provide personalized services to our clients.

Payments made on behalf of Govt. to:

a. Non- Govt. teachers salaries

b. Girl Students scholarship/stipend & Primary Student Stipend.

c. Army pension

d. Widows , divorcees and destitute Women Allowances

e. Old-age Allowances

f. Food procurement Bills

Issuance of Television License: The only Bank providing this service in Bangladesh.
2.9 Branches of Janata Bank Ltd.

There are 897 branches of Janata Bank Limited in home and abroad. Among them
450 branches are situated in urban areas including four foreign branches and 443
branches are in rural areas. And all foreign branches are situated in United Arab
Emirates.
Division Urban Rural Zone Total

Dhaka 171 91 262

Chittagong 100 102 202

Rajshahi 53 93 146

Sylhet 22 37 59

Khulna 52 59 111

Barisal 22 19 41

Rangpur 30 42 72

Overseas 4 0 4

Total 454 443 897

Table 3: Branches of Janata Bank Ltd

Source: Janata Bank Limited, Annual Report 2009-2013 (page 109)

2.10 Organizational Structure of Janata Bank Ltd.

Like every other business organization, the foremost duty of the top management is to
makes all the major decisions of Janata Bank. The boards of directors are being at the
topmost level of organizational structure plays an important role in policy formulation
and successful execution, but it is not a direct concern of the day-day operations of the
bank. The duty was delegated to the management committee. The board mainly sets
the objectives and policies of the bank. The management consists of one chairman,
eleven directors, one CEO & MD and one company secretary. Mid and lower level
employees get the direction and instruction from the Board of Directors about the
tasks they have to meet. The chief executive provides the guideline to the managers
and employees, but bears the responsibility for determining how tasks and goals are to
be attained.

Organogram of Janata Bank Ltd.

Chairman

Managing Director

General Manager

Deputy General Manager

Assistant General Manager

Senior Principal Officer

Principal Officer

Senior Officer

Officer

Sub Accountant

Senior Clerk

Graph 1: Organogram of Janata Bank Ltd.

Board of Directors

Chairman of the Board of Directors

Professor Dr. Abul Barkat

Members of the Board of Directors

Dr. Jamaluddin Ahmed, FCA

Mr. Md. Emdadul Hoque

Mr. Nagibul Islam Dipu

Dr. R M Debnath

Syed Bazlul Karim, B.P.M.

Prof. Mohammad Moinuddin

Mr. Md. Abu Naser

Mrs. Sangita Ahmed

Prof. Dr. Nitai Chandra Nag

Mr. A.K.M Kamrul Islam, FCA

Mr. Md. Mahabubur Rahman Hiron

Mr. S M Aminur Rahman, CEO & Managing Director

2.11 Principal Activities of Janata Bank Ltd.

Janata Bank Ltd. is the second largest commercial bank in Bangladesh. The aim of the
bank is to actively participate in the socio-economic development of the nation by
operating a commercially sound banking system. It provides credit to deserving
borrowers and at the same time, protects depositor’s interest.
Deposits:

Janata Bank Ltd. mobilized total deposit of BDT 478535.57 million as of December
31, 2013 as compared to BDT 409767.01 million in 2012. Comparative interest rates
deposit mobilization efforts of the bank and confidence reposed by the customer in
the bank contributed to the notable growth in deposit. The bank evolved a number of
attractive deposit schemes to care to the requirement of small and medium services.

This improved not only the quantum of deposits, it also brought about qualitative
change in the depositors structure.

Deposit and Deposit Mix:

600,000.00

500,000.00 478,535.57

409,767.01
400,000.00
361,676.69

300,000.00 286,556.84 Deposit

246,175.04

200,000.00

100,000.00

0.00
2009 2010 2011 2012 2013

Graph 2: Deposits of seven Years (TK. In Millions)

Source: Janata Bank Limited, Annual Report 2009-2013 (page 73)

Investment:

To earn profit, the bank prudently invests its fund to different sectors. The investment
portfolio of the bank is comprised of Treasury bill, Other bonds, Debenture, Shares
etc. The bank earns a handsome profit from this investment portfolio.
 250000

193269.66
200000

150000
108342.04 Investment
95257.29
100000
72533.2
57514
50000

0
2009 2010 2011 2012 2013

Graph 3: Investments of seven years Tk. In Million

Source: Janata Bank Limited, Annual Report 2009-2013 (page 73)

Portfolio Wise Investment is described below:

(Taka in millions)

SL.# Particulars 2013 (Tk.) % 2012 (Tk.) %

1 Govt. Securities (Treasury 175955.25 90 92587.97 84.29

bill, Note/Bond, Prize
bond)

2 others 19357.35 10 17259.51 15.71

Total 195312.6 100 109847.48 100

Table 4: Portfolio Wise Investment

Source: Janata Bank Limited, Annual Report 2009-2013 (page 71)

Net Profit after tax:

9551.39
10000
4907.97 4444.91
2804.25
5000

-5000
Net Profit

-10000

-15000
-15280.34
-20000
2009 2010 2011 2012 2013

Graph 4: Net Profit (Figures in millions)

Source: Janata Bank Limited, Annual Report 2009-2013

2009 (page 72)

Loans to Directors

Directors are allowed to take loan from the recipient bank for their private subject to
certain terms and conditions imposed by Bangladesh Bank.

Rural Credit, Micro Enterprise & SP. Program Financing:

Loan is provided to the rural people for agricultural production and other off
off-farm
activities.

 Loan pricing system is customer friendly.

 Prime customers enjoy prime rate in lending and other services.

 Quick appreciation,
appreciation, appraisal, decision and disbursement are
ensured.

Credit facilities are extended as per guide-lines

guide lines of Bangladesh Bank (Central Bank of
Bangladesh) and operational procedures of the Bank. The rates may, however, change
from time to time depending on
on the level of competition in the financial sector.

As a nationalized Bank it has a social responsibility to improve the financial condition

of the poor/unemployed people. With a view to perform that social responsibility,
Bank has initiated rural credit program since 1974. Now under this rural portfolio
there are 34 products.

Information related to important products under this program are shown below:

Different Products under the Program

(Taka in millions)

Outstanding
Sl. No. Name of Products No. of Loans %
on Dec, 2013

1 Cyber-cafe loan 13 2.70 0.01

2 Credit for forestry/horticulture nursery 751 32.90 0.13

3 Credit program for employees 78,368 3814.20 14.82

4 Financing “ women entrepreneurship” 267 86.92 o.34

5 Financing goat and sheep farming 11,370 154.70 0.60

6 Gharoa project 3,812 148.80 0.58

7 Crop loan program 3,46,528 1130.20 44.79

8 Doctor’s loan 66 24.96 0.10

9 Small business Dev. Loan 161 28.63 0.11

10 Credit for disable people 113 2.59 0.01

11 Consumer’s credit 1,069 90.80 0.36

12 Agro-based project/industry 1,567 1080.90 4.20

13 Fisheries &Shrimp Culture Credit 321 260.30 1.01

 14 Agricultural & irrigation equipment 229 26.90 0.11

15 Others 1,40,699 8450.20 32.83

Total 5,85,328 25744.70 100.00

Table 5: Different products under Rural Credit, Micro Ent. & SP Program

Source: www.janatabank-bd.com/jb15.htm

SME Financing Scheme

Small and Medium Enterprise (SME) Financing Scheme has been introduced to assist
new or experienced entrepreneurs to invest in small and medium scale industries.
Small business development loan, Gharoaproject, credit for
forestry/Horticulture/Nursery, crop loan project all are designed for this purpose.
Light engineering, cottage industry, handy craft, CNG station, power loom, garments
accessories etc. are considered as thrust segment under this sector. The Bank
disbursed TK.25, 500 million in SME sector during the year 2013.

Doctors’ Credit Scheme

Doctors’ credit scheme is designed to facilitate financing to fresh medical graduates

and established physicians to acquire medical equipment’s and set up clinics and
hospitals. Total loan outstanding in 2013 was Tk12.96 million. The no. of loans was
66.

Women Entrepreneurs Development Scheme

Women Entrepreneurs Development Scheme has been introduced to encourage

women in doing business. Under this scheme, the bank finances the small and cottage
industry projects sponsored by women. Total loan outstanding in 2013 was Tk. 43.92
million. The no. of loans was 267.
Industrial Credit

Janata Bank Ltd. has been playing a vital role in supporting rapid industrialization in
the industrialization in the country. The Bank continues to provide medium and long
term as well as working capital finance to the industrial projects. The amount of
industrial credit sanctioned, disbursed and outstanding as on 31 December 2013 are
given in the following table:

Sl No. Particulars 2013 2012

1 Sanctioned project (No.) 130 1158

2 Sanction (TK.) 18,123 19,930

3 Disbursement(TK.) 13,239 15,491

4 Outstanding(TK.) 9,633 11,600

Table 6: Industrial Credit

Source: Janata Bank Limited, Annual Report 2009-2013 (page 245)

Foreign Trade

In the pace of resurfacing the economy from world financial crisis, import and export
financing business was not so good in 2013.During the year, the Bank achieved
export credit growth reduced by 2.03% while import credit growth reduced by
6.24%.

Loan, Loss and Other Provisioning

The aim of loan-loss provision is to create fund against future probable loss. At
present, the bank is required to make a general provision @ 1% of the total
unclassified loan for meeting any risk of unexpected losses. The Bank has also made
specific provision for loan loss @5%, 20%, 50% and 100% against SMA, Sub-
standard, Doubtful and Bad/Loss respectively.

2.12 Present Situation of Janata Bank Ltd.

  Authorized Capital: The authorized capital of the bank at present remained at
Tk.20000 million (approx. US$ 283.33 million).

 Paid up capital: Tk.5000.00 million.

 Reserve fund & other fund: Reserve fund Tk.10823.01 million and retained
surplus Tk. 5167.18.

 IPO Size: Tk.10,000 million.

 Face Value: Tk.100.00.

 Offer Price: Tk.1000.00 (including a premium of Tk. 900).

 Net interest income: Tk.3,646.71 million and Tk.4,490.98 millionn year

ended on 31.12.10 and 31.12.11.

 Profit/ (Loss) after tax: Tk.(9,968.18) mn, Tk.1,094.44 million, Tk.3,145.38

million and Tk.2,981.87 for the year ended on 31.12.08, 31.12.09, 31.12.10
and 31.12.11 respectively.

 Retained Earnings: Tk.3,252.47 million as on 31.12.11.

 Total Liabilities: Tk.279,802.41 million as on 31.12.11.

 NAV per share: Tk.341.83 as on 31.12.11.

 EPS (As per prospectus): Tk.100.62 as on 31.12.11.

 EPS (restated): Tk.78.02 (considering bonus & rights issue).

2.13 Future Plans of Janata Bank Ltd.

Janata Bank Ltd has some specific future plans for future operations of the
organization. Some are stated here:

 Changes in fiscal policies

 Changes in economic and financial conditions

  Changes in regulatory guidelines

 Changes in accounting standards

 Changes in corporate tax structure

 Changes in legislation and regulation of VAT on banking services

 Volatility of interest rate

 Instability in capital market

 Volatility in money market

 Changes in socio-economic condition arise from natural calamity and political

disturbance

 Adverse impact of inflationary pressure

 Increases of business competitor

 Fluctuation of exchange rate

 Increase of provision requirements.

2.14 CSR Activities of Janata Bank Ltd.

Since inception, Janata Bank is playing a leading role in CSR (Corporate Social
Responsibilities) activities among the state owned commercial banks. Janata Bank
Limited distributed BDT 113.38 million in the year 2012 and BDT 292.20 million in
2013 as assistance to different sectors comprising down trodden people. Number of
beneficiaries in 2013 is 3995. Among the recipients, health care and education have
been considered as thrust sectors. Information technology has also been emphasized.

Janata Bank Limited can boast of being the pioneer in publishing an extra ordinary
directory comprising the life stories and other necessary information of 626 valiant
Freedom Fighters who have been conferred different titles for their heroic
contributions in the liberation war under the title ‘Ekattorer Birjoddader
Obishworonya Jibongatha- Khetabprapto Muktijodda Sommanona Smarakgrantho’ in
the year 2013. Grandeur reception with Crest and financial grants has been provided
in the honor of titled freedom fighters at 10 towns all over the country including
Dhaka. Preparation of a list of insolvent freedom fighters who took part directly in the
liberation war is under way through the network of branches to provide them financial
support. These freedom fighters will be given assistance from CSR Fund as far as
possible. It may be mentioned that education, poverty alleviation, history of libaration
war, arts and culture has been given sufficient importance in the case of assistance
from this fund.

2.15 Automation and Online Banking of Janata Bank Ltd.

JBL is keen to reap the benefits of modern technology in banking. In keeping with the
Government’s ‘Digital Bangladesh’ policy for technological development, the bank as

undertaken pragmatic work plan to computerize the branches and implement online
banking system. Real time online banking activities had already started in 42 branches

using deposit, advance and local remittance modules by the real time centralized
online core banking system (CBS) software TEMENOS -24 (T24). Live operation in
all inland branches (893) of the bank are conducted using off – line systems. JB
cheque payment and JB cash deposit system through cheque have been developed in
all inland branches (893) by its own software. Speedy foreign remittance system has
been implemented in all inland branches. As a result, it is now possible to send money
from abroad within fastest possible time which hed increase the flow of remittance.
Customers are notified through mobile messages as soon as they receive foreign
remittance. 93 branches (each district has at least 1 branch) of Janata Bank Limited
are operating the payment system of electronic Government procurement. tenderer
registration fee / renewal fee, tender document fee and other fees of tender (tender
security, performance security) are collected under this service. On the other hand,
expansion of online banking activities will be gradually expanded among the
remaining branches. As part of these expansion activities, central data centre (CDC)
& disaster recovery site (DRS) is going to be modernized and made more powerful
progressively. Apart from inland branches, four foreign branches (Abu Dhabi, Dubai,
Sharjah, Al - Ain) are conducting online core banking activities.
2.16 SWOT Analysis of Janata Bank Ltd.

SWOT analysis refers to analysis of strengths, weaknesses, opportunities and threats

of an organization. For all of these, SWOT analysis is considered as an important tool
for making changes in the strategic management of an organization.

2.13.1 Strengths of Janata Bank Ltd.

 Top Management consisting efficient management group.

 Company Reputation with positive image in the banking industry.

 Many Branches to satisfy customer needs.

 Various Products and Services for clients.

2.13.2 Weaknesses of Janata Bank Ltd.

 Heavily depended on head office for decision making.

 Absence of upgraded website.

 Low remuneration package.

 Low promotional campaign.

 Not fully computerized.

2.13.3 Opportunities of Janata Bank Ltd.

 Product line proliferation for introducing more branches

 Introducing special corporate scheme

 Developing new products and services.

2.13.4 Threats of Janata Bank Ltd.

 The default risks of all terms of loan have to be minimizing in order to sustain in
the financial market. Because default risk leads the organization towards to
bankrupt.

 The low compensation package of the employees from mid-level to lower level
position threats the employee motivation.

 Some commercial/ foreign as well as private banks.

 Customer awareness of pricing and services.

 CHAPTER - 3
CREDIT RISK MANAGEMENT
PROCESS OF JANATA BANK
LIMITED
Credit Risk Management Process

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

 Credit Processing/Appraisal

 Credit Approval/Sanction

 Credit Documentation

 Credit Administration

 Disbursement

 Monitoring and Control of Individual Credits

 Monitoring the Overall Credit Portfolio (stress testing)

 Credit Classification

 Disbursement of Loan

 Classified Loans

 Recovery of Loan
3.1 Credit Processing/Appraisal

Credit processing is the stage where all required information on credit is gathered and
applications are screened. Credit application forms should be sufficiently detailed to
permit gathering of all information needed for credit assessment at the outset. In this
connection, financial institutions should have a checklist to ensure that all required
information is, in fact, collected. Financial institutions should set out pre-qualification
screening criteria, which would act as a guide for their officers to determine the types
of credit that are acceptable. For instance, the criteria may include rejecting
applications from blacklisted customers. These criteria would help institutions avoid
processing and screening applications that would be later rejected. The next stage to
credit screening is credit appraisal where the financial institution assesses the
customer’s ability to meet his obligations. Institutions should establish well designed
credit appraisal criteria to ensure that facilities are granted only to creditworthy
customers who can make repayments from reasonably determinable sources of cash
flow on a timely basis.

As a general rule, the appraisal criteria will focus on:

 amount and purpose of facilities and sources of repayment;

 integrity and reputation of the applicant as well as his legal capacity to

assume the credit obligation;

 risk profile of the borrower and the sensitivity of the applicable industry
sector to economic fluctuations;

 physical inspection of the borrower’s business premises as well as the

facility that is the subject of the proposed financing;

 current and forecast operating environment of the borrower;

 management capacity of corporate customers.

3.2 Credit Approval/Sanction
A financial institution must have in place written guidelines on the credit approval
process and the approval authorities of individuals or committees as well as the basis
of those decisions. Approval authorities should be sanctioned by the board of
directors. Approval authorities will cover new credit app
approvals,
rovals, renewals of existing
credits, and changes in terms and conditions of previously approved credits,
particularly credit restructuring, all of which should be fully documented and
recorded. Prudent credit practice requires that persons empowered with the credit
approval authority should not also have the customer relationship responsibility.

Depending on the size of the financial institution, it should develop a corps of credit
risk specialists who have high level expertise and experience and demonstra
demonstrated
judgment in assessing, approving and managing credit risk. An accountability regime
should beestablished for the decision-making
decision making process, accompanied by a clear audit
trail of decisions taken, with proper identification of individuals/committees involved.
involv
All this must be properly documented.

Graph 5: Net Profit (Figures in millions)

Source: Credit Risk Management Guideline, Bangladesh Bank (page 18)

3.3 Credit Documentation

Documentation is an essential part of the credit process and is required for each phase
of the credit cycle, including credit application, credit analysis, credit approval, credit
monitoring, and collateral valuation, and impairment recognition, foreclosure of
impaired loan and realization of security. The format of credit files must be
standardized and files neatly maintained with an appropriate system of cross-indexing
to facilitate review and follow up.

The Bangladesh Bank will pay particular attention to the quality of files and the
systems in place for their maintenance. Documentation establishes the relationship
between the financial institution and the borrower and forms the basis for any legal
action in a court of law. Institutions must ensure that contractual agreements with
their borrowers are vetted by their legal advisers.

For security reasons, financial institutions should consider keeping only the copies of
critical documents (i.e., those of legal value, facility letters, and signed loan
agreements) in credit files while retaining the originals in more secure custody. Credit
files should also be stored in fire-proof cabinets and should not be removed from the
institution's premises.

Financial institutions should maintain a checklist that can show that all their policies
and procedures ranging from receiving the credit application to the disbursement of
funds have been complied with. The checklist should also include the identity of
individual(s) and/or committee(s) involved in the decision-making process.

3.4 Credit Administration

The Credit Administration function is critical in ensuring that proper documentation

and approvals are in place prior to the disbursement of loan facilities. For this reason,
it is essential that the functions of Credit Administration be strictly segregated from
Relationship Management/Marketing in order to avoid the possibility of controls
being compromised or issues not being highlighted at the appropriate level.
A financial institution’s credit administration function should, as a minimum, ensure
that:

 Credit Administration procedures should be in place to ensure the

following. credit files are neatly organized, cross-indexed, and their
removal from the premises is not permitted;

 the borrower has registered the required insurance policy in favor of the
bank and is regularly paying the premiums;

 credit facilities are disbursed only after all the contractual terms and
conditions have been met and all the required documents have been
received;

 collateral value is regularly monitored;

 the borrower is making timely repayments on interest, principal and any

agreed to fees and commissions;

 the established policies and procedures as well as relevant laws and

regulations are complied with; and

 On-site inspection visits of the borrower’s business are regularly

conducted and assessments documented.

3.5 Disbursement

Once the credit is approved, the customer should be advised of the terms and
conditions of the credit by wa5y of a letter of offer. The duplicate of this letter should
be duly signed and returned to the institution by the customer. The facility
disbursement process should start only upon receipt of this letter and should involve,
inter alia, the completion of formalities regarding documentation, the registration of
collateral, insurance cover in the institution’s favor and the vetting of documents by a
legal expert. Under no circumstances shall funds be released prior to compliance with
pre-disbursement conditions and approval by the relevant authorities in the financial
institution.
 Getting Credit Information

Information Collection

Analyzing these Information

Lending Risk Analysis

Proposal Analysis

Collateral Evaluation

Final Decision about the Project

Proper Supervision of the Project

Documentation on the Loan

Creation of Charges for Securing Loan

Graph 6: Credit Disbursement Process

Source: Credit Risk Management Guideline, Bangladesh Bank (page 20)

3.6 Monitoring and Control of Individual Credits

To safeguard financial institutions against potential losses, problem facilities need to

be identified early. A proper credit monitoring system will provide the basis for taking
prompt corrective actions when warning signs point to deterioration in the financial
health of the borrower. Examples of such warning signs include unauthorized
drawings, arrears in capital and interest and deterioration in the borrower’s operating
environment. Financial institutions must have a system in place to formally review
the status of the credit and the financial health of the borrower at least once a year.
More frequent reviews (e.g at least quarterly) should be carried out of large credits,
problem credits or when the operating environment of the customer is undergoing
significant changes.

In broad terms, the monitoring activity of the institution will ensure that:

 funds advanced are used only for the purpose stated in the customer’s
credit application;

 financial condition of a borrower is regularly tracked and management

advised in a timely fashion;

 collateral coverage is regularly assessed and related to the borrower’s

financial health;

 The institution’s internal risk ratings reflect the current condition of the
customer.

3.7 Monitoring the Overall Credit Portfolio (stress testing)

An important element of sound credit risk management is analyzing what could

potentially go wrong with individual credits and the overall credit portfolio if
conditions/environment in which borrowers operate change significantly. The results
of this analysis should then be factored into the assessment of the adequacy of
provisioning and capital of the institution. Such stress analysis can reveal previously
undetected areas of potential credit risk exposure that could arise in times of crisis.

Possible scenarios that financial institutions should consider in carrying out stress
testing include:

 Significant economic or industry sector downturns;

 Adverse market-risk events; and

 Unfavorable liquidity conditions.

Financial institutions should have industry profiles in respect of all industries where
they have significant exposures. Such profiles must be reviewed /updated every year.
Each stress test should be followed by a contingency plan as regards recommended
corrective actions. Senior management must regularly review the results of stress tests
and contingency plans. The results must serve as an important input into a review of
credit risk management framework and setting limits and provisioning levels.

3.8 Credit Classification

It is required for the board of directors of a financial institution to “establish credit

risk management policy, and credit impairment recognition and measurement policy,
the associated internal controls, documentation processes and information systems;”

Credit classification process grades individual credits in terms of the expected degree
of recoverability. Financial institutions must have in place the processes and controls
to implement the board approved policies, which will, in turn, be in accord with the
proposed guideline. They should have appropriate criteria for credit provisioning and
write off. International Accounting Standard 39 requires that financial institutions
shall, in addition to individual credit provisioning, assess credit impairment and
ensuing provisioning on a credit portfolio basis. Financial institutions must, therefore,
establish appropriate systems and processes to identify credits with similar
characteristics in order to assess the degree of their recoverability on a portfolio basis.
Financial institutions should establish appropriate systems and controls to ensure that
collateral continues to be legally valid and enforceable and its net realizable value is
properly determined. This is particularly important for any delinquent credits, before
netting off the collateral’s value against the outstanding amount of the credit for
determining provision. As to any guarantees given in support of credits, financial
institutions must establish procedures for verifying periodically the net worth of the
guarantor.

3.9 Classified Loans

Banks are financial service firm, producing and selling professional management of
the public’s funds as well as performing many other roles in the economy. But now-
a-days commercial banks are not performing their activities smoothly for a large
burden of default loan. Every year Janata Bank distributes thousand crore taka among
individuals, organizations etc. but a large sum of these distributed fund cannot be
recovered in due time. The Bank has to classify this loan.

 Signs for Classification

First and foremost requirement for any and all credit managers is to identify a
problem credit in its earlier stages by recognizing the signs of deterioration. Such
signs include but not limited to the following:

 Non-payment of interest or principal or both on due dates or past dues beyond

a reasonable period or recurring past dues.

 In case of Overdraft no movement in the account beyond a reasonable period.

 Deterioration in financial condition of the client, as gathered from client’s

latest financial statement.

 A shortfall in collateral coverage, particularly if the collateral was a key factor

in the decision-making.

 Death or withdraw of key-owners or management personnel.

 Company filing for bankruptcy or voluntary dissolution.

  Adverse market report about the company itself or its principal owners.

 Loan Classification Guidelines from Bangladesh Bank

Classification of overdue loans and advances opened a new era in the credit
management of commercial banks in Bangladesh. Before 1989 no specific guidelines
were followed by the commercial banks for this purpose. In 1989, Bangladesh Bank
issued BCD circular No.34/1989 stating specific rules and conditions of loan
classification. After that each schedule banks except BKB, RAKUB, and BSB would
be responsible for its own loan classification according to the guidelines are presented
in the following table:

Loan Classification Systems

Rate of
Length of overdue Status of classification
provision

All loans except

Annual provision
Agricultural loans

Less than 1 year Unclassified 1%

Loans overdue for 1 year but less than 3

Substandard 10%
years

Loans overdue for 3 years but less than 5

Doubtful 50%
years

Loans overdue for 5 years or more Bad/loss 100%

For agricultural loan: Classified, substandard,

5%
Loans not overdue for 5 years or more doubtful

Loans overdue for 5 years ormore Bad/ loss 100%

 Table – 7 Loan Classification Systems
*Source: BCD Circular no. 34/1989

According to this circular loans and advances were classified on a loan by loan basis
rather sample classification. This process was continued till 1994. Bangladesh Bank
further issued a circular in1995 (BCD circular#20/1994). The title of the circular was
“Revised rules of classification and provisioning of loans and advances,” which came
into implementation from January 1, 1995.

 Summary of Loans and Advances with the Risk Status

The summary of loans and advances of Janata Bank Ltd. with the risk status is given
below:

Position as on
Particulars Change (%)
2013 2012

Total Loans and

285,747.65 305,339.58 (6.42)
Advances

Less: Total
Provision for
22,291.78 34,012.05 (34.46)
Loans and
Advances

Net Loans and

Advances 263,455.87 271,327.53 (2.9)
Classified Loans

Substandard 7,076.52 12,958.26 (45.39)

Doubtful 4,296.11 8,081.13 (46.84)

Bad/Loss 20,394.23 32,162.3 (36.59)

Total Classified
Loans and 31,766.86 53,201 (40.29)
Advances

Classified loans as
percent of total
loans

Substandard 2.48% 4.24% (1.77)

Doubtful 1.50% 2.65% (1.14)

Bad/Loss 7.14% 10.53% (3.4)

Total 11.12% 17.42% (6.31)

Net Classified
31,766.86 53,201.69 (40.29)
Loans

Net Classified
Loans as % of 11.12% 17.42% (6.30)
Total Loans

Table 8: Summary of Loans and Advances with the Risk Status

Source: Janata Bank Limited, Annual Report 2009-2013 (page 119)

3.10 Recovery of Loan

The Recovery procedure of Janata Bank is the ultimate combination of time, effort of
money. It follows several procedural steps to recover the lending amount, which is
joint effort of Bank, society and legal institutions. There are several programs taken
by the bank to recover the disbursed loans. They are discussed hereafter.

 Programs for Loan Recovery

When Janata Bank 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. The nationalized and private sector commercial banks have to
face this sort of problems. This situation is especially severe in Janata Bank. To
overcome the problem of overdue loan, the bank needs to take some particular loan
recovery programs. They are:

 Establishing credit supervision and monitoring cell in the bank

 Re-structuring the loan sanctioning and distributing policy of the bank

 Sanctioning loans and advances against sufficient securities as best as possible

 Giving more powers to the branch manager in credit management decision

making process

 Offering a package of incentives to the sound borrowers

 Giving more emphasis on short term loans and advances

 Imposing restrictions on loans and advances for sick industries

 Taking legal actions quickly against unsound borrowers as best as possible

within the period specified by the law of limitations.

 Steps for Loan Recovery Against Defaulters

The following steps are taken by Janata Bank Ltd against the defaulters for recovery
of loan:
Reminding the party to repay the loan after validity dates: First of all, the Credit
Administration division reminds the borrower about the remaining days to repay the
loan mentioning the validity dates from time to time.

i. Send final notice: If the borrower fails to repay the loan within the sanctioned
period for repayment then he or she is given an additional period for the
repayment of the loan attaching a final notice for the repayment as well.

ii. Send legal notice: When the borrower fails to repay the loan even after the
additional period and the final notice, the credit administration of JBL sends a
legal notice to the borrower mentioning that if he or she is not capable to repay
the loan within a specific time then the bank will file a suit in the court against
him or her.

iii. Eventually sue a case against the party: Finally, the bank, not getting any
repayment from the borrower, suits a case against the defaulter according to
the respective law. Then the decision of the court will be final for the recovery
process and both the party and bank will have to abide by the law.

These are the general procedures for recovery of loan followed by Janata Bank Ltd.
 CHAPTER - 4
FINDINGS, RECOMMENDATIONS &
CONCLUSIONS
4.1 Findings of the Report

Every bank has its own credit procedure. The Janata Bank Ltd possesses a standard
credit procedure. As the objective of my report is to make a comment on the credit
risk management of Janata Bank Ltd, I tried my best to collect data for the report and
find out the reality. Based on the data generated during my internship period I have
summed up my findings here and I think this will help me to achieve my objectives.

 The bank follows the overall credit assessment and risk grading process
according to the rules of Bangladesh Bank in a somewhat manner.

 With a view to implementing government policies, JBL has been maintaining

its position in extending credit to government bodies, sector corporations and
private enterprises.

 But in practice credit officers do not fill up the proposal form properly. Most
of the cases, they use assumption rather than exact figure. This practice might
end up with bad or classified one.

 JBL distribute loans without sufficient security in some cases. This is violation
of the Bangladesh bank order.

 Some time the document verification is done after loan sanctioning the loan.

 There is shortage of manpower and lack of proper training for the employees
in credit section.

 The credit proposal evaluation process is lengthy .Therefore, sometimes

valuable clients are lost.

 The website of JBL does not contain all required information about loan and
advance.

 In many cases bank face the problem of recovery because the credit officer
fails to value collateral property. Proper valuation means collateral will
exactly cover the risk of bad loan. Officials must do it with due care.

 JBL is not efficient in processing and executing legal actions against

defaulters for their nonpayment of loans and advances.
4.2 Recommendations

To improve the risk management culture further, Janata Bank Limited should adopt
some of the industy’s best practices that are not practiced currently. These are:

 Continuous monitoring of the customer should be conducted so that loan

cannot be classified.

 The bank should emphasis more on loan diversification like loans on different
promising sectors and newly invented thrust sectors in the economy.

 Political intervention should be avoided while approving and sanctioning loan.

 Every day the business environment is changing and so the risk. So the bank
should be developed as a dynamic organization to adapt with the changing
circumstances.

 All the loan documentations have to done honestly. The bank should
concentrate more on proper documentation of all types of loans to make the
department trustworthy & healthy.

 The documents supporting the security against the loan have to be verified
properly by the bank before sanctioning the loan.

 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 the accounts with

sustained deterioration. To encourage Recovery Unit, incentive program may
also be introduced.
4.3 Conclusion

It goes without saying that credit policy cannot be isolated from the broader monitory
policy of the country. Like any other segment of the economic policy, credit is very
important for any financial institution as it generates profit and gear up economic
activities of the country. In other words, credit is business and it is input in the
production process of the country. Since credit has an inherent risk, therefore proper
utilization of the loans are essential to meet the requirements of the borrower. The
loan applied for by the borrower must not be employed for unproductive purpose. In
this regard, the Janata Bank Limited must closely follow the progress of the loan and
the way the borrower is utilizing the funds. In this way the Janata Bank Limited will
deter any fake activities on the part of the borrower Credit evaluation system of Janata
Bank Limited is very lengthy process. It has been revised time to time in response to
the respective circular of Bangladesh Bank. The overall credit activity of Janata Bank
Limited is composed of corporate credit division and credit administration. The credit
management system of Janata Bank Limited is more or less effective as recovery
position of classified loan is high and classified loan has been decreasing gradually
during the year. They always trying to improve their credit policy for minimizing loss
and maximizing profit and various measures are undertaken to develop the credit
management system.
Bibliography

Books and Articles

Chowdury, L.R; “A Textbook on Banker’s Advances”; 2nd Edition; Paradise

Printer; 2002.(Page No. 302-303)

DR. A R Khan: Bank Management A fund Emphasis. 3rd Print; Brothers’

Publications. (Page No. 168-175)

“Functions of Bank and Other financial institution” published by Bangladesh

Bank, 2008.

CRM Guideline by Bangladesh Bank, 2005. (Page No. 1-4, 18-25)

Annual Report Janata Bank Limited 2012-2013 (Page No. 14, 15, 17, 18, 71-
73, 245)

Annual Report Bangladesh Bank 2012 (Page No. 65-71)

Journals of the bank from time to time credit risk & recovery.

Web References

 www.janatabank-bd.com/jb15.htm

 http://www.mof.gov.bd/en/budget/dsl/dsl2011/08

 http://www.bb.org.bd/openpdf.php

 http://en.wikipedia.org/wiki/Janata_Bank

 http://www.janatabank-bd.com/csr/csr_policy_2013.pdf