Chapter 01

Background of the
Study

1.1 Introduction 2
1.2 Objectives of the study 2
1.3 Methodology of the study 2
1.4 Limitations of the study 3

1|Page
1.1 Introduction
Credit management in a bank is a dynamic sector where a certain standard of long-
range planning is needed to allocate the fund in diverse field and to minimize the risk
and maximizing the return on the invested fund. The objective of the credit
management is to maximize the performing asset and the minimization of the non-
performing asset as well as ensuring the optimal point of loan and advance and their
efficient management. The credit policy of United Commercial Bank Limited is a
combination of certain accepted, time tested standards and other dynamic factors
dictated by the realities of changing situations in different market places. United
Commercial Bank Limited aims to become one of the leading banks in Bangladesh by
prudence, flair and providing quality of credit operations in the banking sectors.
United Commercial Bank Limited intends to meet the needs of their clients and
enhance their profitability by providing best credit facilities. The study is an effort to
evaluate the credit management performance of United Commercial Bank Limited.

1.2 Objectives of the study

The main objective of this study is to evaluate the credit management performance of
United Commercial Bank Limited, Bahaddarhat Branch. In order to achieve the main
objective the specific objectives are:
i. To examine the loan products of UCBL;
ii. To observe the credit procedure of UCBL;
iii. To evaluate the credit performance of UCBL
iv. To provide some suggestions regarding this study.

1.3 Methodology of the study

The study is mainly based on secondary data. The sources of secondary data are as
follows:
 Annual reports.
 Official documents.
 Affairs of Branch.

2|Page
1.4 Limitations of the study
The report is subject to some limitations during its preparation. These are as follows:
 Lack of sufficient data.
 In-depth information as well as collection of quantitative data was not possible
because of organizational confidentiality.
 The busy schedule of the bank officials was an obstacle in the collection of
data.
 Most of the questions have been aimed to collect qualitative data and state of
mind of the respondents. Analyzing such qualitative data is difficult and often
produces inconclusive results.
 The time frame of the research was only limited to two months.
 My inexperience was one of the notable limitation

3|Page
 Chapter 02
Overview of UCBL

2.1 Historical Background 5

2.2 Vision 5
2.3 Mission 5
2.4 Values 6
2.5 Slogan 6
2.6 Goals and Objectives 6
2.7 Corporate Profile 7
2.8 Organizational Structure 8
2.9 Last five Years Positions at a glance 9
2.10 Products & Service Offer by UCBL 10
2.11 Branch Overview 11

2.1 Historical Background

4|Page
With a firm commitment of the economic and social development of Bangladesh,
United Commercial Bank (UCB) started its journey in mid 1983 and has since been
able to establish itself as one of the largest first generation banks in the country. With
a vast network of 158 branches the Bank has already made a distinct mark in the
realm of Private Sector Banking through personalized service, innovative practices,
dynamic approach and efficient Management.

The Bank has expanded its arena in different and diverse segments of banking like
Retail Banking, SME Banking, Corporate Banking, Off-shore Banking, and
Remittance etc. Besides various deposit and loan products of Retail Banking, the
Bank caters export and import loan to deserving candidates which in turn helps the
overall economy of the country through increased earning of foreign exchange

With a firm commitment to promote SME sector, the Bank is also assessing and
monitoring business loans, managing business financing risks, pricing products and
working for further development of SME. Its Corporate banking service consists of
simple business of issuing loans to more complex matters, such as helping minimize
taxes paid by overseas subsidiaries, managing changes in foreign exchange rates or
working out the details of financing packages necessary for the construction of a new
office, plant or other facility.

The Bank, aiming to play a leading role in the economic activities of the country, is
firmly engaged in the development of trade, commerce and industry by investing in
network expansion and new technology adoption to have competitive advantage.

2.2 Vision
To be the Bank of first choice through maximizing value for our clients, shareholders
& employees and contributing to the national economy with social commitments.

2.3 Mission
To offer financial solutions that create, manage and increase our clients' wealth
while improving the quality of life in the communities we serve.

2.4 Values

5|Page
 We put our customers first.
 We emphasize on professional.
 We maintain quality at all levels.
 We believe in being a responsible corporate citizen.
 We say what we believe in.
 We foster participative management.

2.5 Slogan
“UNITED WE ACHIEVE”

2.6 Goals and Objectives

Goals:

• Develop a plan for offering better customer service.

• Foster a realistic deposit mobilization plan.
• Develop appropriate lending risk assessment system.
• Enhance capital plan.
• Generate a system to make good advances.
• Invent appropriate management structure, system, procedures and
approaches.
• Cultivate scientific MIS to monitor banks activities.

Objectives:

• Ensure full recovery of all advances.

• Ensure a satisfied work force.
• Make sound loan and investment.
• Build up a low cost fund base.
• Meet capital adequacy requirement at all the time.
• Focus on fee based income.
• Install a scientific MIS to monitor banks activities.
• Adopt an appropriate management technology.
2.7 Corporate Profile

6|Page
Name of the Company : United Commercial Bank Ltd.
Legal Form : A public limited company.
Commencement of Business : 27 June 1983
Website : www.ucb.com.bd
SWIFT : UCBL BDDH
Chairman : Mr. M. A. Sabur
Managing Director : Mr. Muhammed Ali
Auditors : Hoda Vasi Chowdhury & Co. Chartered
Accountants
Tax Consultants : Mr. Md. Mosharrof Hossain, Advocate
Legal Consultant : T.I.M Nurun Nabi Chowdhury
No. of Branches : 158
No. of ATM Booth : 135
No. of SME Centers :2
Off-Shore Banking Unit :1
No. of Employees : 3,374 (31.12.2012)
Stock Summary
Authorized Capital : Tk. 15,000 million
Paid up Capital : Tk. 10,541.31 million
Face Value per Share : Tk. 10
Registered Office : Bulus Center
Plot - CWS- (A)-1
Road No - 34
Gulshan avenue, Dhaka-1212
Phone : +88-02-55668070
               +88-09611999999
E-Mail : info@ucb.com.bd
Web site : www.ucb.com.bd

Chairman's Office : Plot - CWS- (A)-1 Road No - 34

Gulshan avenue, Dhaka-1212
E-Mail : chairman@ucb.com.bd

2.8 Organizational Structure

7|Page
2.9 Last Four Years Position at a Glance

8|Page
 Income Statement ( Figure in Millions )
Particulars 2012 2013 2014 2015
01 Net Interest Income 6,613.71 7.079.50 7,930.59 7.723.38
02 Non-interest income 3.563.95 5,319.08 7.278.80 7.824.62
03 Net profit after tax 1,586.13 3,065.41 3.668.73 3.977.34
Balance Sheet
04 Authorized capital 15,000.00 15,000.00 15,000.00 15,000.00
05 Paid up capital 8.366.12 8,366.12 8.366.12 10.039.34
06 Shareholders' equity 18,171.02 20,504.97 22,491.54 25.588.82
07 Deposits 170,530.54 184,896.85 211.072.06 220,866.48
08 Loans and advances 136.071.65 148,664.86 174,146.10 197.413.64
09 Investments 26,090.32 35,587.25 44.288.60 44.345.73
10 Fixed assets 5.222.78 7,957.31 8,510.00 8.586.73
11 Total assets 207,448.38 226,333.13 266,100.74 293,847.23
12 Total liabilities 189,277.37 205,828.17 243.609.20 268,258.41
13 Off-balance sheet exposure 52.153.26 67.094.06 144,554.47 150,713.79
Other Business
14 Import 94,843.80 117,542.90 155282.4 169,577.70
15 Export 148,229.30 130,447.20 94,288.50 78,309.10
16 Remittance 11,098.50 16,667.90 10,788.07 14,848.30
Share Information
17 Earnings per share 3.96 4.39 3.66 1.90
18 Net asset value per share 25.49 26.88 24.51 21.72
19 Market price per share 21.30 29.30 25.10 23.60
20 Price earnings ratio 5.38 6.68 6.85 12.42
21 Dividend 25.00 30.00 20.00 10.00
Financial Ratio
22 Credit-deposit ratio 84.57 78.92 79.81 79.79
23 Return on equity 16.54 1707 15.85 9.29
24 Return on assets 1.42 1.49 1.41 0.84
Capital Measure
25 Total Risk Weighted Assets 273,327.11 243,250.40 197,380.55 177,900.41
26 Total Capital 33,226.45 25,691.18 22,758.76 18,455.74
27 Capital Adequacy Ratio 12.16 10.56 11.53 10.37

2.10 Products & Service Offer by UCBL

9|Page
 UCB Multi Millionaire Travelers Cheques

UCB Money Maximizer Import Finance

UCB Earning Plus Export Finance

UCB DPS Plus Working Capital Finance

Western Union Money Transfer Loan Syndication

SMS Banking Service Underwriting and Bridge Financing

Online Service Trade Finance

Credit Card Industrial Finance

One Stop Service Foreign Currency Deposit A/C

Non Resident Foreign Currency

Time Deposit Scheme
Deposit Account

Resident Foreign Currency Deposit

Monthly Savings Scheme
Account

Deposit Insurance Scheme Consumer Credit Scheme

Inward & Outward Remittances Locker Service

10 | P a g e
2.11 Branch Overview
Name of the branch : United Commercial Bank Limited,

Bahaddarhat Branch, Chittagong

Brach In-Charge : Kamal Uddin Faruquee

Total Number of employees : 21

Location : Rahmania Shopping Complex (1st Floor),

63/A, Chandgaon, Chittagong

Phone : +88-031-652370, 2551185

Mobile : 01711-883742

Email : bdh@ucb.com.bd

Routing Number : 245150799

UCBL Bank, Bahaddarhat Branch at a glance

Items 2012 2013 2014 2015

Deposit 1330 1390 1440 1510

Loans
270 285 302 313
&Advances

Profit 43.90 44.72 45.20 46.89

(Amount in million taka)

11 | P a g e
 Chapter 03
Bank Loan Products

3.1 UCBL Products and Services 13

3.2 UCBL Loan Products 14-20
3.3 Rate of Interest on Loan 20

12 | P a g e
3.1 UCBL Products and Services
Services & Products of United Commercial Bank Limited

Keeping pace up with the head office instruction and to fulfilling the perfect needs of
the customers, the UCB provides the following services.

i. Account Related Services

ii. Corporate Banking
iii. Remittance
iv. Correspondent Banking
v. Personal Banking
vi. Foreign Trade
vii. Capital Market Services

THE DIFFERENT BANKING SERVICES & PRODUCTS OF UCBL

Categories of Account Related Services:

Current Account Savings Account STD Account

FDR Account DPS Account UCB Multi Millionaire

UCB Money Maximizer UCB Earning Plus UCB DPS Plus

Categories of Services Under personal Banking:

Personal Loan SME Loan ATM / VISA Card

Excel Account Draft Against DPS Locker & Safe Custody

Credit Card Car Loan

Corporate Banking Products:

Letter of Credit Guarantee Leasing

Import & Export
Syndicate Loan Project Financing
Finance
Working Capital
One Stop Service
Financing

13 | P a g e
Remittance Related Services:

a) Local Remittance:

 PO /DD / TT
 Collection of PO / DD/ TT
 Purchase/Discount of cheque -Inland Bill

b) Foreign Remittance:

 Encasement of any Foreign TT

 Purchase of Foreign Draft
 Collection of clean Bill
 Student file opening
 Cancellation of foreign currency draft
 Issuance of foreign currency draft
 Encasement of any foreign currency draft

3.2 United Commercial Bank Limited Loan Products

The general loan products that are available for client enumerated below:-

 Home Loan:

Purpose:
• Purchasing apartment/ House (if old not older than 10 years)
• Construction of Building
• Renovation of Existing House/Flat
Customer Segment: Any Bangladeshi (Singly or jointly with other co-owners/co-
borrowers e.g. spouse/son). Employees of Govt./ Semi Govt./ Autonomous body,
Employees of financial institution Employees of different Public Limited Company/
Private Limited company having Corporate Structure, Teachers of any school/
college/ university, Doctor, Engineer, Accountants, Businessman (having two years of
experience both salaried individual and businessman), Land lord having significant
rent income.

14 | P a g e
Minimum Income: Tk. 25,000 for Salaried Individual and Tk.50,000 for
Businessman.
Age Limit: Min 25 Years and maximum 65 years (On Loan Maturity)

Loan Limit: BDT 1 crore (maximum) but not exceeding 70% of the property value.

Maximum Term Loan: 10 ( Ten ) years.

Service Charges: Below 10 lac 1.50% & above 10 lac 1.00% on loan amount + VAT
applicable as per Govt. rule.

Early Settlement/ Partial Payment: Allowed anytime without any charges.

 Auto Loan
Purpose: Purchase of non-commercial new and reconditioned vehicles for personal
use only by an individual.
Customer Segment: Any Bangladeshi individual who has the means and capacity to
repay the loan. In specific terms, the target customers should cover salaried
executives of multinational Companies, middle to large size local corporate,
Government officials, Officials working in Semi- Government, Autonomous and
reputed NGOs (Non-Government Organizations), international aid agencies & UN
bodies, any tax paving businessmen of repute and self-employed tax-paying
individual having a reliable source of income.
Minimum Income: TK. 20,000 for salaried individuals and Tk. 40,000 for
businessman.
Age Limit: Minimum age 25 years and maximum 65 years at the time of loan
maturity.
Loan Size: Tk. 2,000,000 for both Brand new & reconditioned vehicle but not
exceeding 30% of the vehicle price.
Maximum Term of Loan: 05 (Five) years.
Service charges: 1% on loan amount + VAT applicable as per Govt. regulation.
Early settlement/Partial Payment: Allowed anytime without any charges.

15 | P a g e
 Personal Loan
Purpose: Any lawful purpose.

Customer Segment: For permanent/confirmed service holders of Govt., Semi-Govt.,

Autonomous Organizations, Banks, Insurance Companies, Public Limited
Companies, Multinational Companies, NGOs, Employees of Private Limited
Companies, acceptable to the bank, covered by guarantee of another employee of
equal or higher grade. Teachers of Universities, Colleges & Schools (Affiliated).
Professional persons like Doctors, Engineers, Chartered Accountants, and Architects.

Age Limit: Minimum age 25 years and maximum age 55 years. But loan tenor shall
not exceed 60 years of age.

Minimum Income: Net Income should be at least Tk. 40,000/- per month, (To be
substantiated by evidence).

Loan Size: Minimum 2.00 Lac, Maximum Tk. 20.00 Lac.

Maximum Term of Loan: 5 years.

Early settlement/Partial Payment: Allowed anytime without any charges.

 House Hold Durable Loan

Purpose: Purchase of household durables like Television, Refrigerator, Air
Conditioner, Washing Machine, Computers, other household furniture etc. for
personal use only.

Customer Segment: Any Bangladeshi individual who has the means and capacity to
repay the loan. In specific terms, the target customers should cover salaried executives
of multinational Companies, middle to large size local corporate, Government
officials, Officials working in Semi- Government, Autonomous and reputed NGOs
(Non-Government Organizations), international aid agencies & UN bodies, any tax
paying businessmen of repute, any employed / self-employed taxpaying individual
having a reliable source of income.

Minimum Income: TK .15, 000 for salaried individuals and Tk. 35,000 for
businessman.
16 | P a g e
Loan Size: Maximum Limit of Tk. 500,000.

Minimum Service/length of business: For salaried individual, minimum service

length of 2 year and must be a confirmed employee. For self-employed/ business man
having 3 years of experience.

Age Limit: Minimum 25 years and maximum 60 years at the time loan maturity.

Maximum Term of Loan: 05 (Five) years.

Service charges: 2% on loan amount + VAT as per Govt. regulation.

Early settlement/Partial Payment: Allowed anytime without any charges.

 Education Loan
Purpose: For educational purposes.

Customer Segment: Employees of reputed Multinational Companies and large local

corporate. Employees of medium sized or mid-range local companies such as reputed
schools &. colleges, pathology labs, hospitals, restaurants, hotels, newspapers,
airlines, real-estate developers of repute, insurance & leasing companies. NGOs. aid
agencies, UN bodies, reputed trading firms and business establishments and all other
salaried employees including employees of Government, Semi-government &
Autonomous bodies. Any tax paying businessmen of repute, any employed / self-
employed tax-paying individual having a reliable source of income.

Minimum Income: TK 12,000 for salaried individuals and Tk. 25,000 for
businessman. Tk. 10,000 for employees of Government, Semi government and
Autonomous bodies.

Minimum Service length: For salaried individual, minimum service length of 2 years
Govt. employees must be confirmed on job.

Age Limit: Minimum 20 years and maximum age 65 years at the time of loan
maturity.

Maximum Term of Loan: 05 Years.

17 | P a g e
Service charges: 1% of loan amount + VAT as per Govt. regulations.

Early settlement/Partial Payment: Allowed anytime without any charges.

 Doctors Loan:
Purpose: Small scale purchase of different medical equipment’s, machineries, tools or
other relevant items to support professional needs (e.g. run or set up a
Clinic/Hospital/Dispensary).

Customer Segment: Any Bangladeshi Citizen who is a graduate in Medical

Science/Dentist/Eye/Allopathic as self-employed or salaried people has the means and
capability to repay the loan.

Minimum Income: TK .10, 000/- for salaried doctor and Tk. 25,000 for practitioners.

Minimum Service/Length of business: For salaried individual, must be confirmed

employees of an established organization. For self-employed individual, a
professional experience of minimum 2 years.

Loan Size: Tk. 5,00,000/- for General Practitioner. Tk. 10,00,000/- for specialist
doctors i.e. holding post-graduation degree.

Age Limi: Minimum age 25 years and maximum age 65 years at the time of loan
maturity.

Maximum Term of Loan: 05 Years.

Service charges: 1 % of loan amount +VAT as per Govt. regulations.

Early settlement/ Partial Payment: Allowed anytime without any charges.

 Advanced Against Salary Loan:

Purpose: To meet the financial need of any acceptable purpose.

Customer Segment: Employees of reputed Multinational Companies and large local

corporate. Employees of medium sized or mid-range local companies such as reputed
schools & colleges, pathology labs, hospitals, restaurants, hotels, newspapers, airlines,

18 | P a g e
real-estate developers of repute, insurance & leasing companies, NGOs, aid agencies.
UN bodies, reputed trading firms and business establishments and all other salaried
employees including employees of Government, Semi-government & Autonomous
bodies.

Age Limit: Minimum 21 years and maximum 65 years at the time of loan maturity.

Minimum Income: TK .10.000 for salaried individuals.

Loan Limit: BDT- 10, 00,000.

Minimum Service length: For salaried individual, minimum total service length of 2
years Govt. employees must be confirmed on job.

Maximum Term of Loan: 05 (Five) years.

Service charges: 1 % of Loan amount VAT as per Govt. regulations.

Early settlement/Partial Payment: Allowed any time without any charges.

 Overseas Loan:
Purpose: Travel expenses, marital expenses. Educational expenses. Festival expenses,
Home construction. House renovation. Land purchase. Transport purchase, Office
equipment, Professional equipment purchase, office space purchase, shop space
purchase, Office decoration. Household durables/equipments/electronics purchase.

Customer Segment: Person having valid Job Offer/Akama7Green Card-Business

Visa/ Resident Visa/Work Permit Visa. Person moving overseas for on the job
training with subsequent Job Prospect. Person having business overseas evidenced by
business documents.

Age Limit: Minimum age 25 years / Maximum age 57 years. But loan tenor shall not
exceed 62 years of age.

Minimum Income: Net Income should be at least Tk. 50,000/- per month. (To be
substantiated by evidence).

Loan Size: Minimum 2.00 Lac, Maximum Tk. 50.00 Lac.

19 | P a g e
Maximum Term of Loan: 5 years.

Early settlement/Partial Payment: Allowed anytime without any charges.

3.3 Rate of Interest on Loan

Categories Rates
1 Agriculture 11.00(Highest)
Term Loan to Large & Medium Scale
2 11.50(Mid Rate)
Industry
3 Term Loan to Small Scale Industry 12.00(Mid Rate)
4 Working Capital Industrial Sector 12.00(Mid Rate)
5 Exports Credit (PC) 7.00(Highest)
6 Commercial Lending / Import Financing 11.50(Mid Rate)
House Building Loan Commercial (Except
7 12.50(Mid Rate)
Retail)
8 Home Loan and Auto Loan 12.00(Mid Rate)
9 Advance Against Salary and Doctors Loan 13.00(Mid Rate)
Home Mortgage (Restricted), Education Loan,
10 Household Durable Loan and Others
13.50(Mid Rate)
11 Advance Against Salary of Employee (UCB) 10.00(Mid Rate)

12 Credit Card 2.50 per month (Highest)

13 Non-Banking Financial Institution 11.00(Mid Rate)

Retail Cash Secured Term Loan against
14 11.00(Mid Rate)
FDR
15 Home Mortgage (Imperial) 13.00(Mid Rate)
16 Education Loan and Household Durable 14.00(Mid Rate)
Loans/Advances against ICB
17 units/WEDBs /FDRs and other term deposit 13.00(Mid Rate)
Receipts issued by other Banks
18 Transport Loan (SME and Retail) 13.00(Mid Rate)
19 LBPD/FBPD 11.50(Mid Rate)
2.00 % above the rate of
Force Loan (OAP/ Converted Term Loan/
20 relevant Loan
Converted Time Loan)
account(Highest)
21 Short Term Loan to Corporate 9.00(Mid Rate)

20 | P a g e
 Chapter 04
Credit Risk Management

4.1 Credit Risk 22

4.2 Risk Management 22-23
4.3 Approaches of Credit risk Assessment 23
4.4 Risk Evaluation/Measurement 24
4.5 Risk Management Process 25-27
4.6 Management of Core Risks in Bank 27-30
4.7 Credit Risk Assessment 31-35
4.8 Risk Acceptance Criteria 35
4.9 Risk Grading 36-38
4.10 Risk Grading Scorecard 39-42
4.11 Credit Risk Grading Model 43-49
4.12 Recovery Process of Problem Account 50
4.13 Credit Recovery Steps 51
4.14 Credit Recovery Steps Credit Card 52

4.1 Credit Risk

21 | P a g e
Credit risk refers to the risk that a borrower will default on any type of debt by failing
to make payments which it is obligated to do. The risks are primarily that of the
lender and include lost principal and interest, disruption to cash flows, and increased
collection costs. The loss may be complete or partial and can arise in a number of
circumstances. For example:

 A consumer may fail to make a payment due on a mortgage loan, credit card, line
of credit, or other loan.
 A company is unable to repay amounts secured by a fixed or floating charge over
tile assets of the company.
 A business or consumer does not pay a trade invoice when due.
 A business does not pay an employee's earned wages when due.
 A business or government bond issuer does not make a payment on a coupon or
principal payment when due.
 An insolvent insurance company does not pay a policy obligation.
 An insolvent bank won't return funds to a depositor.
 A government grants bankruptcy protection to an insolvent consumer or business.

To reduce the lender's credit risk, the lender may perform a credit check on the
prospective borrower, may require the borrower to take out appropriate insurance,
such as mortgage insurance or seek security or guarantees of third parties, besides
other possible strategies. In general, the higher the risk, the higher will be the interest
rate that the debtor will be asked to pay on the debt.

4.2 Risk Management

Risk Management is a discipline at the core of every financial institution and
encompasses all the activities that affect its risk profile. It involves identification,
measurement, monitoring and controlling risks to ensure that

a) The individuals who take or manage risks clearly understand it.

b) The bank’s risk exposure is within the limits established by Board of Directors.
c) Risk taking decisions are in line with the bank strategy and objectives set by Board of
Directors.
d) The expected payoffs compensate for the risks taken.

22 | P a g e
e) Risk taking decisions are explicit and clear.
f) Sufficient capital as a buffer is available to take risk.

4.3 Approaches of Credit Risk Assessment

Approaches of Investment Risk Assessment are divided into two categories such as:

i. Qualitative approach
ii. Quantitative approach

Qualitative approach:
In this approach five C s are used to assess the prospective client’s risk. To select
good borrowers UCBL examines some specific criteria of those borrowers. The Bank
analyses customer’s character, capacity, capital, collateral, and condition (5 C s) to
justify credit worthiness and eligibility for a bank investment, those are described
below:

Character:
The bank analyses past track record of loan transactions of borrowers in DBBL and in
other banks. Also, the accuracy of the information provided in the loan application is
examined. Moreover, the customer’s quality of integrity, responsibility,
trustworthiness, and industry goodwill and credit character is scrutinized.

Capacity:

The customer’s credit repayment capacity and ability is justified before

sanctioning loan. The Bank examines cash inflows, outflows, net profit, and
liquidity from customer’s financial statements. Also, the Bank forecasts about
customers earning and stability of the financial condition.

Capital:
The bank analyses current financial position of the potential customer's organization.
The total amount of net asset, debt-equity ratio and capital are examined by the Bank.
If capital structure shows that the firm is highly levered, then the Bank marks it
negatively.

Collateral:

23 | P a g e
Marketability of collateral is important to bank; if customers become defaulter the
bank can sell quickly that collateral which is easily marketable. The Bank justifies
whether the collateral is safe, secured and sufficient or not.

Condition:
Respective officer forecasts the economic and business conditions during the loan
period. And also analyzes the stability of the forecasted source of income of the loan
applicant.

Quantitative approach:
In this approach, financial data are used in assessing client's risk.

4.4 Risk Evaluation/Measurement

Until and unless risks are not assessed and measured it will not be possible to control
risks. Further a true assessment of risk gives management a clear view of bank s
standing and helps in deciding future action plan. To adequately capture banks risk
exposure, risk measurement should represent aggregate exposure of bank both risk
type and business line and encompass short run as well as long run impact on bank.
To the maximum possible extent banks should establish systems / models that
quantify their risk profile, however, in some risk categories such as operational risk,
quantification is quite difficult and complex. Wherever it is not possible to quantify
risks, qualitative measures should be adopted to capture those risks. Whilst
quantitative measurement systems support effective decision-making, better
measurement does not obviate the need for well-informed, qualitative judgment.
Consequently the importance of staff having relevant knowledge and expertise cannot
be undermined.

4.5 Risk Management Process

24 | P a g e
0
2
3
1
5
4
UCBL always try to manage above risk by various steps like risk analysis, evaluation,
acceptance and management of some risk or combination of risks. Risk management
is emphasized not only for regulatory purpose but also to improve operational and
financial performance of the Bank. The objective of the risk management is that the
Bank takes well calculative business risks while safeguarding the Bank’s capital, its
financial resources and profitability from various risks.
In order to streamline risk control features in a more effective manner, UCBL has put
in places all manuals as suggested in the core risk management guide lines of
Bangladesh Bank. Its Standard Operating Procedure (SOP) contains all the guidelines
and also includes some of the internationally accepted best practices.
To manage the risk, united commercial Bank Limited takes some steps. They actively
involve analysis, evaluation, acceptance and management of some risk.
Risk management is not only for regular process but also improve financial
performance of the Bank.

UCBL manage their bank’s risk by taking following steps:

The Risk management policy of the Bank operates under some broad principles:


Oversight by the Board /Executive Committee. Board approves policies and
processes of risk management recommended by the management and Executive
Committee approves the credit proposals submitted by the management.
Audit Committee of the Board reviews the internal audit reports of the Bank and
risk management covering credit risk, operational risk including money
laundering risk, market risk and liquidity risk.

25 | P a g e
 Dedicated independent risk management units viz. Credit Risk Management units,
Credit Administration Unit, Credit Monitoring and Recovery Unit, Internal
Control and Compliance Unit are responsible for implementation of the risk
policies and monitoring of compliance with risk policies. They are also
responsible for identification of and measuring risks.
 Dedicated committee at management level has been set up to monitor risk viz.
credit risk through Credit Review Committee/and Risk Management Division,
Operational Risk through Management Committee and Internal Control and
Compliance Division, Market and Liquidity risk through Asset Liability
Committee (ALCO); Information risk through MRS Committee and Reputation
risk arising out of money laundering through Chief Compliance Officer of the
Bank and Compliance Officers of the branches;
 In order to streamline risk control features in a more effective manner, UCBL has
put in places all manuals as suggested in the core risk management guide lines of
Bangladesh Bank. Its Standard Operating Procedure (SOP) contains all the guide
lines and also includes some of the internationally accepted best practices.
Departments including corporate banking, SME banking, retail banking, credit
card, foreign exchange, treasury, human resources and financial administration.
The SOPs include all processes related to the initiation, maintenance,
settlement/closure and recording for the entire range of products offered by the
Bank. SOPs will help the bank maintain control over its operations, clarify the
links with the IT system, act as an effective communication tool that will reduce
training time, improve risk management and work consistency.

Board and senior Management oversight:

UCBL’s board of director and senior management must concern following things to
reduce risk:

a) To be effective, the concern and tone for risk management must start at the top.
While the overall responsibility of risk management rests with the BOD, it is the
duty of senior management to transform strategic direction set by board in the
shape of policies and procedures and to institute an effective hierarchy to execute
and implement those policies. To ensure that the policies are consistent with the
risk tolerances of shareholders the same should be approved from board.

26 | P a g e
b) The formulation of policies relating to risk management only would not solve the
purpose unless these are clear and communicated down the line. Senior
management has to ensure that these policies are embedded in the culture of
organization. Risk tolerances relating to quantifiable risks are generally
communicated as limits or sub-limits to those who accept risks on behalf of
organization. However not all risks are quantifiable. Qualitative risk measures
could be communicated as guidelines and inferred from management business
decisions.
c) To ensure that risk taking remains within limits set by senior management/BOD,
any material exception to the risk management policies and tolerances should be
reported to the senior management/board who in turn must trigger appropriate
corrective measures. These exceptions also serve as an input to judge the
appropriateness of systems and procedures relating to risk management.
d) To keep these policies in line with significant changes in internal and external
environment, BOD is expected to review these policies and make appropriate
changes as and when deemed necessary. While a major change in internal or
external factor may require frequent review, in absence of any uneven
circumstances it is expected that BOD re-evaluate these policies every year.

4.6 Management of Core Risks in Bank

Risks involved in different operational area are under control of the management,
taken appropriate measures to enforce and follow all approved risk manuals/
guidelines covering the following risk area in order to control and minimize the
business as well as financial risks at an acceptable level.
1. Policy Guidelines on Asset Liability Management.
2. Policy Guidelines on Credit Risk Management.
3. Policy Guidelines on Foreign Exchange Risk Management.
4. Policy Guidelines on Money Laundering Prevention.
5. Policy Guidelines on Internal Control and Compliance.

UCBL has formed a Management Committee to review proper implementation and

regular monitoring of core areas of Risk Management.

27 | P a g e
 Credit Risk
Credit risk is one of the major risks faced by the Bank. This can be described as
potential loss arising from the failure of a counter party to perform according to
contractual arrangement with the Bank. The failure may arise due to unwillingness of
the counter party or decline in economic condition etc. The risk of loss of principal or
loss of a financial reward stemming from a borrower’s failure to repay a loan or
otherwise meet a contractual obligation. Credit risk arises whenever a borrower is
expecting to use future cash flows to pay a current debt. Investors are compensated
for assuming credit risk by way of interest payments from the borrower or issuer of a
debt obligation to repay. The higher the perceived credit risk, the higher the rate of
interest that banks will demand for lending their capital. Credit risks are calculated
based on the borrowers’ overall ability. This calculation includes the borrowers’
collateral assets, revenue-generating ability etc. Credit risk emanates from a bank’s on
and off balance sheet dealings with an individual, firm, company, corporate entity,
bank, financial institution or a sovereign. Credit risk may take the following forms:

 In the case of direct lending: principal and/or interest may not be repaid.
 In the case of guarantees or letters of credit: funds may not be forthcoming from
the constituents upon crystallization of the liability
 In the case of treasury operations: the payment or series of payments due from the
counter parties under the respective contracts may not be forthcoming or cease.
 In the case of security trading business: funds/securities settlement may not be
effected.
 In the case of cross border exposure: the availability and free transfer of foreign
currency funds may either cease or restrictions may be imposed by the sovereign.

Principles to Reduce Credit Risk: UCBL follow some principles to reduce their
credit risk. These principles set by board of director and senior management. Every
branch follows these principles in a very proper way. These principles are:

Repayment Capacity: Credit facilities will be extended to those customers who can
make best use of them thus helping maximize Bank’s profit as well as economic

28 | P a g e
growth of the country. To ensure achievement of this objective the Bank bases its
lending decision mainly on the borrower’s ability to repay.

Compliance: All credit extension must comply with the requirements of Bank’s
Memorandum and Articles of Association, Banking Companies Act, 1991 as amended
from time to time, Bangladesh Bank’s instruction circulars, guidelines and other
applicable laws, rules and regulations, Bank’s Credit Risk Management Policy, Credit
Operational Manual and all relevant circulars in force. The officer originating a credit
proposal shall specifically declare that it complies with all above mentioned rules,
regulations, policy etc. Credit officer have to check that all of the information is
properly verified. And mentioned document is in the given to the Bank is correct.

Loan-Deposit Ratio: Loans and advance are financed from customer deposits some
time from capital fund of the Bank. United Commercial Bank Limited financed the
loan less then their deposits. Another thing is that bank does not finance their loan
from short term money market or out of temporary fund.

Deviation: Any deviation from the internal policy of the Bank must be justified and
well documented. Specially, all credit assessment form shall invariably include the
deviations from the policy, if any. However, no external regulations shall be
compromised.

Return: Credit operation of the Bank should contribute at optimum level within the
defined risk limitation. In other words, credit facilities should be extended in such a
manner that each deal becomes a profitable one so that Bank can achieve growth
target and superior return on capital. Besides, credit extension shall focus on the
development and enhancement of customer’s relationship and shall be measured on
the basis of the total yield for each relationship with a customer.

Credit Quality: Credit facilities shall be allowed in a manner so that credit expansion
goes on ensuring optimum asset quality i.e. Bank’s standard of excellence shall not be
compromised. Credit facilities will be extended to customers who will complement
such standards.

Diversification: The portfolio shall always be well diversified with respect to sector,
industry, geographical region, maturity, size, economic purpose etc. Concentration of
credit shall be carefully avoided to minimize risk.

29 | P a g e
Proper Staffing: Proper credit assessment is complex and requires high level of
numerical as well as analytical ability of the concerned officer. To ensure effective
understanding of the concept and thus to make the overall credit portfolio of the Bank
healthy, proper staffing shall be made through placement of qualified officials having
appropriate background, right aptitude, formal training in credit risk management,
familiarization with Bank’s credit culture and required experience as well.

Name Lending: No credit facility shall be allowed simply considering the name and
fame of the key person or corporate image of the borrowing company. The Bank shall
carefully avoid name lending. Credit facility shall be allowed absolutely on business
consideration after conducting due diligence. In all cases, viability of business, credit
requirement, security offered, cash flow and risk level will be meticulously analyzed.

Single Customer Exposure Limit: UCBL will always comply with the prevailing
banking regulation regarding “Single Customer Exposure Limit” set by Bangladesh Bank
from time to time. As per prevailing regulation, Bank will take maximum exposure
(outstanding at point of time) on a single customer (Individual, Enterprise, Company,
Corporate, Organization, Group) for the amount not exceeding 35 percent of Bank s
total capital subject to condition that the maximum outstanding against funded
facilities does not exceed 15 percent of the total capital. However, for single customer
of the export sector maximum exposure limit shall be 50 percent of the total capital
subject to the condition. Total funded facility shall not exceed 15 percent of the total
Capital of the Bank at any point of time.

Security: Security taken against facilities shall be properly valued and affected in
accordance with the laws of the country. When any loan taker was unable to repay the
loan then can recover the loan by realizing the security.

Large Loan: Credit facility to a single customer (Individual, Enterprise, Company,

Corporate, Organization, and Group) shall be treated as Large Loan if total
outstanding amount against the limit at a particular point of time equals or exceeds 10
percent of the total capital of the Bank. UCBL’s total Large Loan Portfolio exposure
shall not exceed 56 percent of the total outstanding loans and advances at any point of
time.

30 | P a g e
4.7 Credit Risk Assessment
Risk assessment or analysis is all about understanding the risk associated with lending
money. Until and unless risks are not assessed and measured it will not be possible to
control risks. The primary factor determining the quality of the Bank’s credit portfolio
is the ability of each borrower to honor, on timely basis, all credit commitments made
to the Bank. This must be accurately determined by the authorized Credit Officers/
Executives prior to approval. Therefore a thorough credit risk assessment shall be
conducted prior to the sanction of any credit facilities. While assessing a credit
proposal total emphasis shall be given on repayment potential of loans out of funds
generated from borrower's business (cash flow) instead of realization potential of
underlying securities. A thorough credit and risk assessment should be conducted
prior to the granting of loans, and a. least annually thereafter for all facilities. The
results of this assessment should be presented in a Credit Application dra, originates
from the relationship manager/account officer (“RM”), and is approved by Credit
Risk Management (CRM). The RM should be the owner of the customer relationship,
and must be held responsible to ensure the accuracy of the entire credit application
submitted for approval. RMs must be familiar with the bank’s Lending Guidelines
and should conduct due diligence on new borrowers, principals, and guarantors. It is
essential that RMs know their customers and conduct due diligence on new
borrowers, principals, and guarantors to ensure such parties are in fact who they
represent themselves which should be adhered to at all times. Credit Applications
should summaries the All banks should have established Know Your Customer
(KYC) and Money Laundering guidelines which should be adhered to at all times.
Credit Applications should summaries the results of the RMs risk assessment and
include, as a minimum, the following details:

 Amount and type of loan(s) proposed.

 Purpose of Loan(s).
 Results of Financial analysis.
 Loan structure (Tenor, Covenants, Repayment schedule, Interest).
 Security Arrangements.

In addition, the following risk areas should be addressed:

31 | P a g e
Borrower Analysis: The majority shareholders, management team and group or
affiliate companies should be assessed. Any issues regarding lack of management
depth, complicated ownership structures or intergroup transactions should be
addressed, and risks mitigated. - Industry Analysis. The key risk factors of the
borrower’s industry should be assessed. Any issues regarding the borrower’s position
in the industry, overall industry concerns or competitive forces should be addressed
and the strengths and weaknesses of the borrower relative to its competition should be
identified.

Supplier/Buyer Analysis: Any customer or supplier concentration should be

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

Historical Financial Analysis: An analysis of a minimum of 3 years historical

financial statements of the borrower should be presented. Where reliance is placed on
a corporate guarantor, guarantor financial statements should also be analyzed. The
analysis should address the quality and sustainability of earnings, cash flow and the
strengths of the borrower’s balance sheet. Specifically cash flow, leverage and
profitability must be analyzed.

Projected Financial Performance: Where term facilities are being proposed, a

projection of the borrower’s future financial performance should be provided,
indicating an analysis of the sufficiency of cash flow to service debt repayments.
Loans should not be granted if projected cash flow is insufficient to repay debts.

Account Conduct: For existing borrowers, the historic performance in meeting

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

Adherence to Lending Guidelines: Credit Applications should clearly state whether

or not the proposed application is in compliance with the bank’s Lending Guidelines.
The Bank’s Head of Credit or Managing Director/CEO should approve Credit
Applications that do not adhere to the bank’s Lending Guidelines.

Mitigating Factors: Mitigating factors for risks identified in the credit assessment
should be identified. Possible risks include, but are not limited to: margin
sustainability and/or volatility, high debt load (leverage/gearing), overstocking or

32 | P a g e
debtor issues; rapid growth, acquisition or expansion; new business line/product
expansion; management changes or succession issues; customer or supplier
concentrations; and lack of transparency or industry issues. The Bank must assess the
critical risks of facilities given / to be given and ways / factors of mitigation of those
risks. Some of the critical factors are:

 Volatility
 High debt
 Overstocking
 Rapid growth
 Acquisition
 Debtors issues
 Succession

Loan Structure: The amounts and tenors of financing proposed should be justified
based on the projected repayment ability and loan purpose. Excessive tenor or amount
relative to business needs increases the risk of fund diversion and may adversely
impact the borrower’s repayment ability.

Security: A current valuation of collateral should be obtained and the quality and
priority of security being proposed should be assessed. Loans should not be granted
based solely on security. Adequacy and the extent of the insurance coverage should be
assessed.

Name Lending: Credit proposals should not be unduly influenced by an over reliance
on the sponsoring principal’s reputation, reported independent means, or their
perceived willingness to inject funds into various business enterprises in case of need.
These situations should be discouraged and treated with great caution. Rather, credit
proposals and the granting of loans should be based on sound fundamentals,
supported by a thorough financial and risk analysis.

Credit Assessment System: Commercial banks and financial institutions intermediate

between lenders and borrowers. These financial intermediaries collect deposit and
disburse it as loan and advance to the individual people, business, commercial,
industrial entity. The loan and advance should be given to them who has the certain
and predicted cash flow to repay the credit. If the credit officer fail to analyze the

33 | P a g e
clients viability of repaying the loan and the projects cash flow possibility of default
may arise due to the information. In sanctioning the loan, is the key to identify the
borrowers’ ability, expertise, efficiency, and industry analysis, business performance
to ensure the recovery of the credit along with the good supervision, monitoring and
the relationship. The purpose of appraisal is to be sure that the proposed advance will
be safe, liquid, and profitable and for acceptable purpose covered by adequate
security.

Allocation of Authority: To assure proper and orderly conduct of the banking

operation, the board of directors empowered the Managing Directors and executives
of the bank to lend up-to certain under certain terms and conditions at their discretion.
Important point is that an officer will not be delegated certain power on the basis of
his position. In other words, an officer does not automatically get lending authority by
virtue of his corporate /functional title. Specified lending authority will be delegated
by the Managing Director to various Executives after taking into consideration his
proven credit judgment, Knowledge, and experience.

Approving Authority: UCBL credit proposal go through certain steps that are ordered
in terms of hierarchy. The board of directors is the ultimate authority and it delegates
different power to the different committees. In UCBL there are following hierarchies
in approving credit facilities.

Branch Credit Committee: The branch credit department is maintained by the branch
manager and the other members are second man or manager operation, credit in-
charge, and other member are nominated by the branch manager and the credit officer
who prepares the proposal calls them relation officer. As the ultimate performance of
the branch depends on the loan all of the members are give importance. If the credit
amount wanted is not under the sanctioning authority of the branch committee, it is
sent to the Head Office Credit Committee for approval.

Head office Credit Department: After receiving the loan proposal from different
branches, credit committee (HO) seats after certain interval for analyzing the
proposal. The credit officers review the proposal and look for what other information
is needed to provide with it to present before the executive committee. Here they also
appraise the loan proposal in the same way the branch does. The Head office credit

34 | P a g e
committee is headed by the Managing Directors of the bank and other members are
selected by him. Mainly the head office credit department is responsible for the
following activities:

 The committee evaluates the quality of the lending staff posted in the branch and
take appropriate steps to made them efficient and effective.

 Ensuring that all the required information and documents are collected and are in
order.

Executive Department: If the limit of the loan proposal exceeds the authority
delegated to the head office credit committee, the loan proposal is forwarded to the
executive committee for sanction. Approving the credit facility as delegated by the
Board of Directors.

 Supervising implementing the directives of the Board of Directors.

 Reviewing of each extension of the credit approval by the HO credit committee or

Managing Director.

 Communicate the result of all the above function to the Board of Directors.

Board of Directors: If the credit demand of the client crosses the delegated power of
the executive committee, the proposal is sent to the board of directors for approval.
The Board of Directors has, in the UCBL retain the following credit related
responsibilities in their hand:

 Delegating authority to approve and review credit.

 The board of directors will approve the credit foe which authority is not delegated
to anybody.

 The board of directors will establish the credit-related policy and procedures.

4.8 Risk Acceptance Criteria

The Management will review and prepare periodically Risk Acceptance Criteria
(RAC) duly approved by the Executive Committee/Board and disseminate to the
concerned executives at operational level. In preparation of RAC the following area
would be covered with flexibility for deviations by the competent authority:

a) Maximum amount in each type of facility line.

35 | P a g e
b) Maximum limit to a single obligor and group.
c) Acceptable Leverage, Current ratio, Interest coverage, Operating margin for an
industry.
d) Geographical location.
e) Security & Support.

United Commercial Bank will extend credit only to qualified borrowers where the
amount and intended purpose are clear and legitimate. Credit facilities shall be
allowed in a manner that the expansion in credit does not compromise the asset
quality of the Bank.

4.9 Risk Grading

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

Significance of Credit Risk Grading: Credit risk grading is an important tool for
credit risk management as it helps the Banks & financial institutions to understand
various dimensions of risk involved in different credit transactions. The aggregation
of such grading across the borrowers, activities and the lines of business can provide
better assessment of the quality of credit portfolio of a bank or a branch. The credit
risk grading system is vital to take decisions both at the pre-sanction stage as well as
post-sanction stage.

 At the pre-sanction stage, credit grading helps the sanctioning authority to decide
whether to lend or not to lend, what should be the loan price, what should be the
extent of exposure, what should be the appropriate credit facility, what are the
various facilities, what are the various risk mitigation tools to put a cap on the risk
level.

 At the post-sanction stage, the bank can decide about the depth of the review or
renewal, frequency of review, periodicity of the grading, and other precautions to

36 | P a g e
 be taken

Having considered the significance of credit risk grading, it becomes imperative for
the banking system to carefully develop a credit risk grading model which meets the
objective outlined above.

Credit Risk Grading

Credit Risk Grading is an important tool for credit risk management as it helps a Bank
to understand various dimensions of risk involved in different credit transactions. The
credit risk grading system is vital to take decisions both at the pre-sanction stage as
well as post-sanction stage. At the pre-sanction stage, credit grading helps the
sanctioning authority to decide whether to lend or not to lend, what should be the
pricing for a particular exposure, what should be the extent of exposure, what should
be the appropriate credit facility and the various risk mitigation tools. At the post-
sanction stage, the bank can decide about the depth of the review or renewal,
frequency of review, periodicity of the grading, and other precautions to be taken.
Having considered the significance and necessity of credit risk grading for a Bank, it
becomes imperative to develop a credit risk grading model which meets the objective
outlined above.

 The Credit Risk Grading (CRG) is a collective definition based on the pre-
specified scale and reflects the underlying credit-risk for a given exposure.

 A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary summary

indicator of risks associated with a credit exposure.

 Credit Risk Grading is the basic module for developing a Credit Risk
Management system.

Function of Credit Risk Grading: Well-managed credit risk grading systems promote
bank safety and soundness by facilitating informed decision-making. Grading systems
measure credit risk and differentiate individual credits and groups of credits by the
risk they pose. This allows bank management and examiners to monitor changes and
trends in risk levels. The process also allows bank management to manage risk to
optimize returns.

Use of Credit Risk Grading: The Credit Risk Grading matrix allows application of
uniform standards to credits to ensure a Common standardized approach to assess the

37 | P a g e
quality of an individual obligor and the credit portfolio as a whole. As evident, the
CRG outputs would be relevant for credit selection, wherein either a borrower or a
particular exposure/facility is rated. The other decisions would be related to pricing
(credit spread) and specific features of the credit facility. Risk grading would also be
relevant for surveillance and monitoring, internal MIS and assessing the aggregate
risk profile. It is also relevant for portfolio level analysis.

Number and Short Name of Grades Used in the CRG: The CRG scale consists of
eight categories with Short names and Numbers are provided as follows:
Grading Short Name Number
Superior SUP 1
Good GD 2
Acceptable ACCPT 3
Marginal / Watch list MG / WL 4
Special Mention SM 5
Sub Standard SS 6
Doubtful DF 7
Bad & Loss BL 8

UCBL Risk Grading Framework:

Effective risk management requires an accurate and forward looking estimation of the
probability of default over the next 12 months. It should be noted that Credit Risk
Grading is not a replacement of comprehensive credit appraisal. Credit Risk Grading
is a dynamic process for measuring credit risk to help the sanctioning authority in
taking decisions. All credit proposals whether new or renewal must be supported by
Credit Risk Grading. It will encompass the following two things:
a) Risk Grading Scorecard and

b) Risk Grading Sheet.

No proposal will be processed until Risk Grading is completed, submitted for

approval and the result is shown in proposal. It is the responsibility of the originating
officer to ensure that analysis has been carried out with authentic and reliable
information.

38 | P a g e
4.10 Risk Grading Scorecard
As per instruction of Bangladesh Bank, Risk Grading Score Card has been developed
for all exposures of IJCBL (irrespective of amount) other than those covered under
Consumer and Small Enterprise Financing Prudential Guidelines and also under The
Short-Term Agricultural and Micro-Credit. The Score Card will be updated if
required. The score of the risk grading scorecard will be weighted one. There are 5
(five) broad head rating components and separate parameters have been set to
measure borrower's position against each component. Score Cards are tools to
determine a borrower’s aggregate score based on assessment of quantitative and
qualitative factors. Score Cards shall records the Assigned rating through a
combination of the Aggregate Score as well as exercise of judgment. Judgment plays
an important role in the scoring of qualitative factors as well as recommendations
made to change the risk rating in case of disagreement. It should be noted that
Industry volatility is a key driver in the Risk Grading as it has been proved that the
probability of default is higher in industries with higher volatility. However, since
there is no acceptable industry average of key financials and industry volatility factor
is absent, the matter has not been included in the present Risk Grading Score Card. A
snapshot of Principal Risk components and corresponding Parameters and weight
assigned to each Component is as follows:

Serial No Components Parameters Weight(%)

a) Leverage
01 Financial Risk b) Liquidity 50
c) Profitability
d) Coverage

a) Turnover of Business
b) Age of Business
c) Business Outlook
02 Business Risk d) Technology/Resource 18
e) Industry Growth
f) Inventory/Receivables
g) Market Competition
h) Entry/Exit Barriers

a) Business experience
b) Expertise of the
03 Management Risk Management 12
c) Second line
/Succession
d) Team Work

39 | P a g e
 a) Security
Coverage(Primary)
b) Security Coverage
04 Security Risk (FSV) 10
c) Security Coverage
(Location)
d) Support/Guarantee
a) Account Conduct
05 Relationship Risk b) Utilization of limit 10
c) Compliance of
Covenants/Conditions

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.

A clear definition of the different categories of Credit Risk Grading is given

below :

After preparation of Risk Grading Scorecard, concerned Relationship Officer will

assign risk grade to the customer within the following definition of Credit Risk
Grading:

 Superior (SUP)

 Credit facilities, which are fully secured i.e. fully cash covered.
 Credit facilities fully covered by government guarantee.
 Credit facilities fully covered by the guarantee of top tier international bank.

Good (GD)

 Strong repayment capacity of the borrower.

 The borrower has excellent liquidity and low leverage.
 The company demonstrates consistency strong earnings and cash flow.
 Borrower has well established, strong market share.
 Very good management skill and expertise.
 All security documentations are in place.
 Credit facilities fully covered by the guarantee of a top tier local bank
 Aggregate score of 85 or greater based on Risk Grade Score sheet.

40 | P a g e
 Acceptable (ACCPT)

 These borrowers are not strong as good grade borrowers, demonstrate

earnings, cash flow and have a good track record.
 Borrowers have adequate liquidity, cash flow and earnings.
 Credit in this grade is secured acceptable collateral (1 st charge over
inventory/receivables/equipment/property).
 Acceptable management.
 Acceptable parent/sister company guarantee.
 Aggregate score of 75-84 based on Risk Grade Score sheet.

 Marginal/Watch list (MG/WL)

 This grade warrants 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.
 Weaker business credit and early warning signals of emerging business credit
detected.
 The borrower incurs a loss.
 Loan repayment routinely falls past due.
 Account conduct is poor, or other untoward factors are present.
 Credit requires attention.
 Aggregate score of 65-74 based on Risk Grade Score sheet.

 Special Mentioned (SM)

 This grade has potential weakness that deserves management’s close attention.
If left uncorrected, this weakness may result in a deterioration of the
repayment prospects of the borrower.
 Severe management problems exist.
 Facilities are downgraded to this grade if sustained deterioration in financial
condition is noted (consecutive losses, negative net worth, excessive leverage).
 Bangladesh Bank criteria for Special Mentioned (SM) shall apply.
 Aggregate score of 55-64 based on Risk Grade Score sheet.

41 | P a g e
 Sub Standard (SS)

 Financial condition is weak and capacity or inclination to repay is in doubt.

 These weaknesses jeopardize the full settlement of loans.
 Bangladesh Bank criteria for Sub Standard (SS) shall apply.
 Aggregate score of 45-54 based on Risk Grade Score sheet.

Doubtful (DF)

 Full repayment of principal and interest is unlikely and the possibility of loss
is extremely high.
 However, due to specifically identifiable pending factors, such as litigation,
liquidation procedures or capital injection, the asset yet is not classified as Bad
& Loss.
 Bangladesh Bank criteria for Doubtful Credit shall apply.
 Aggregate score of 35-44 based on Risk Grade Score sheet.

Bad and Loss (BL)

 Credit of this grade has long outstanding with no progress in obtaining

repayment or on the verge of wind up/ liquidation.
 Prospects of recovery are poor and legal options have been pursued.
 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 valueless asset even though partial recovery may be affected
in the future. Bangladesh Bank guidelines for timely write off of bad loans
must be adhered to. Legal procedures/ suit initiated.
 Bangladesh Bank criteria for bad and loss (BL) shall apply.
 Aggregate score of less than 35 based on Risk Grade Score sheet.

42 | P a g e
4.11 Credit Risk Grading Model
United Commercial Bank Limited
Credit Risk Grading Model
Score Summary
Reference No.:
Name of the
Borrower
Key Person
Group Name (if
any)
Branch:
Industry Aggregate Score:
Sector
Date of
Financials
Originated by
Risk Grading:
(RO/SRO)
Completed by
(RM/SRM)
Approved by
(CO/SCO)
.
Numeric Grade Grade Short Score
Fully cash covered,
secured by
1 Superior SUP
Government/Internati
onal Bank Guarantee
2 Good GD 85+
ACCP
3 Acceptable 75-84
T
Marginal/Watchl MG/W
4 65-74
ist L
5 Special Mention SM 55-64
6 Substandard SS 45-54
7 Doubtful DF 35-44
8 Bad/Loss BL <35
Score Calculation Sheet
Weig
Criteria Parameter Score Actual Parameter
ht
A. Financial
50%
Risk
A-1 Leverage 10%
A-1.1 Debt-
Equity (x) – 5% < 0.25 x 5.00 3.81
Times
Total Liabilities 0.26× to 0.35 x 4.50

43 | P a g e
 0.36× to 0.50 x 4.25
0.51× to 0.75 x 4.00
0.76× to 1.25 x 3.50
to Tangible Net
1.26× to 2.00 x 3.25
worth
2.01× to 2.50 x 3.00
2.51× to 2.75 x 2.50
> 2.75× 0.00
A-1.2 Debt-
Total Asset (x)- 5% < 0.25× 5.00 0.79
Times
0.26× to 0.35 x 4.50
0.36× to 0.50 x 4.25
0.51× to 0.75 x 4.00
Total Liability 0.76× to 1.25 x 3.50
to Total Assets 1.26× to 2.00 x 3.25
2.01× to 2.50 x 3.00
2.51× to 2.75 x 2.50
> 2.75× 0.00
A-2 Liquidity 10%

A-2.1Current
Ratio (x) – 5% > 2.74× 5.00 0.66
Times

2.50× to 2.74 x 4.50

2.00× to 2.49 x 4.25
1.50× to 1.99 x 4.00
Current Assets
1.10× to 1.49 x 3.50
to Current
0.90× to 1.09 x 3.25
Liabilities
0.80× to 0.89 x 3.00
0.70× to 0.79 x 2.50
< 0.70× 0.00
A-2.2 Quick 
Ratio (x) – 5% > 2.00× 5.00 0.54
Times
1.75× to 2.00 x 4.50
1.50× to 1.74 x 4.25
1.25× to 1.49 x 4.00
Quick Assets to 1.00× to 1.24 x 3.50
Current 0.75× to 0.99 x 3.25
Liabilities 0.50× to 0.74 x 3.00
0.25× to 0.49 x 2.00
Less than 
0.00
0.25×
A-3
20%
Profitability
A-3.1 Operating 5% > 25% 5.00 9.02%
Profit Margin

44 | P a g e
 (%)
23% to 25% 4.50
20% to 22% 4.00
(Operating 17% to 19% 3.50
Profit/Sales) X 14% to 16% 3.25
100 11% to 13% 3.00
8% to 10% 2.50
< 8% 0.00
Weig
Criteria Parameter Score Actual Parameter
ht
A-3.2 Net Profit
5% > 15.00% 5.00 2.99%
Margin (%)
13% to 15% 4.50
11% to 12% 4.00
(Net 9% to 10% 3.50
Profit/Sales) X 7% to 8% 3.25
100 5% to 6% 3.00
3% to 4% 2.50
< 3% 0.00
A-3.3 Retrun on
5% > 30% 5.00 1.77%
Asset
26% to 30% 4.50
22% to 25% 4.00
(Net 18% to 21% 3.50
Profit/Total 14% to 17% 3.25
Asset) X 100 8% to 13% 3.00
5% to 7% 2.50
< 5% 0.00
A-3.4 Return on
5% > 15.00% 5.00 8.52%
Equity
13% to 15% 4.50
11% to 12% 4.00
(Net 9% to 10% 3.50
Profit/Total 7% to 8% 3.25
Equity) X 100 5% to 6% 3.00
2% to 4% 2.00
< 2% 0.00
A-4 Coverage 10%
A-4.1 Interest
Coverage (×) – 5% > 2.00× 5.00 1.50
Times
1.51× to 2.00× 4.00
Earning before
interest & tax 1.25× to 1.50× 3.00
(EBIT)
Interest on debt 1.00× to 1.24× 2.00
< 1.00× 0.00
A-4.2 Debt 5% > 2.00× 5.00 1.41
Service

45 | P a g e
 Coverage
1.51× to 2.00× 4.00
EBITDA/(Total
1.25× to 1.50× 3.00
Interest+CMLT
1.00× to 1.24× 2.00
D)
< 1.00× 0.00
Total Score-
50.00
Financial Risk
B. Business/
18%
Industry Risk
B-1 Size of
Business (in 4% > 60.00 4.00 12.53
BDT crore)
Size of the 30.00 – 59.99 3.50
borrower’s 10.00 – 29.99 3.00
business 5.00 – 9.99 2.00
measured by 2.50 – 4.99 1.00

the most recent

year’s total
< 2.50 0.00
sales. Preferably
audited
numbers.
B-2 Age of
3% > 10 Years 3.00 1
Business
Number of 6 – 10 Years 2.00
years the 2 – 5 Years 1.00
borrower is
engaged in the
< 2 Years 0.00
primary line of
business
B-3 Business
2% Favorable 2.00 Favorable
Outlook
Critical Stable 1.50
assessment of Slightly
1.00
medium term Uncertain
prospects of
industry, market
Cause for
share and 0.00
Concern
economic
factors.
Weig
Criteria Parameter Score Actual Parameter
ht
B-4 Raw
Locally
Material 2% 2.00 Locally available
available
Availability
Partially import
1.00
dependent
Fully import 0.50
dependent

46 | P a g e
 Scarce 0.00
B-5 Industry
3% Strong (10%+) 3.00 Strong (10%+)
Growth
Good (>5% –
2.00
10%)
Moderate (1%-
1.00
5%)
No Growth
0.00
(<1%)
B-6 Market Dominant
2% 2.00 Dominant Player
Competition Player
Moderately
Consider market 1.00
Competitive
share, demand
Highly
supply gap etc. 0.00
Competitive
B-7 Entry/Exit
2% Difficult 2.00 Difficult
Barrier
(Technology, Average 1.00
capital,
Easy 0.00
regulation etc)
Total Score-
18.00
Business Risk
C.
Management 12%
Risk
More than 10
C-1 Experience 5 5.00 1–5 years
years
Total length of 6–10 years 3.00
experience of 1–5 years 2.00
the senior
management in
No experience 0.00
the related line
of business.
C-2 Track
2 Very Good 2.00 Very Good
record
Reputation, Moderate 1.00
commitment, Poor 0.50
track record of
owners in
business.

Marginal 0.00

C-3 Second 3 Ready 3.00 Ready Succession

47 | P a g e
Line/Successio
Succession
n
Succession
2.00
within 1-2 years
Succession
1.00
within 2-3 years
Succession in
0.00
question
C-4 Team
2 Very Good 2.00 Very Good
Work
Moderate 1.00
Poor 0.50
Regular
0.00
Conflict
Total Score-
Management 12.00
Risk
Weig
Criteria Parameter Score Actual Parameter
ht
D. Security
10%
Risk
Fully covered
Fully covered by
D-1 Security by underlying
underlying
Coverage 4% assets/substanti 4
assets/substantially
(Primary) ally cash
cash covered
covered
Registered
Hypothecation
3
(1st Charge/Pari
passu Charge)
2nd
charge/Inferior 2
charge
Simple
hypothecation /
1
Negative lien
on assets
No security 0
R/M on
D-2 Collateral
Municipal
Coverage
4% corporation/Pri 4 No collateral
(Property
me Area
Location)
property
R/M on
Pourashava/Se
3
mi-Urban area
property
E/M or No 2
property but

48 | P a g e
 other Plant &
Machinery as
collateral
Negative lien
1
on collateral
No collateral 0
Personal
Guarantee with Personal Guarantee
D-3 Support high net worth with high net worth or
2% 2
(Guarantee) or Strong Strong Corporate
Corporate Guarantee
Guarantee
Personal
Guarantees or
Corporate
Guarantee with 1
average
financial
strength
No
support/guarant 0
ee
Total Score-
10
Security Risk
E. Relationship
Risk              10%
10%
More than 3
More than 3 years
E-1 Account years Accounts
5% 5.00 Accounts with
Conduct with faultless
faultless record
record
Less than 3
years Accounts
4.00
with faultless
record
Accounts
having
satisfactory
2.00
dealings with
some late
payments.
Frequent Past
dues &
Irregular 0.00
dealings in
account
E-2 Utilization
2% More than 80% 2.00 80%+
of Limit
(actual/projectio 61% – 80% 1.50

49 | P a g e
 n)-Consider 40% – 60% 1.00
both revolving
& non- Less than 40% 0.00
revolving limits.
Weig
Criteria Parameter Score Actual Parameter
ht
E-3
Full
Compliance of 2% 2.00 Full Compliance
Compliance
Covenants
Some Non-
1.00
Compliance
No Compliance 0.00
Personal
accounts of the
Personal accounts of
key business
the key business
Sponsors/
E-4 Personal Sponsors/ Principals
1% Principals are 1.00
Deposits are maintained in the
maintained in
bank, with significant
the bank, with
deposits
significant
deposits
No depository
0.00
relationship
Total Score-
Relationship 10.00
Risk
Grand Total –
100.00
All Risk
Note: All calculations should be based on annual financial statements of the
borrower (audited preferred).

4.12 Recovery Process of Problem Account

It is important that once a credit is classified it should be monitored and administered
properly with a clear action plan for recovery/upgrade. Once an account is classified
following:

Regulatory definition or objective criteria by the concerned Relationship

Manager/Branch Manager or independently by the Head of credit Risk Review
Department in the normal course of inspection of a branch’s portfolio, recovery of the
outstanding of NPL accounts will not be the responsibility of SAM Department alone,
but concerned RM/BM will also be accountable for recovery. If the bank feels that
legal action is warranted at any stage, then the account will directly be referred to

50 | P a g e
Legal Division in consultation with Head of SAM Department and Head of Credit
Risk Management Division. As soon as the account is downgraded to Sub-Standard
status from SMA, the same should be transferred to the SAM Department under
Credit Risk Management Division, Head office in the following manner:

a) Within 7 days of an account being classified to Sub-Standard (grade 6), shall be

transferred to Recovery Department.
b) Recovery Department would get the copy of the credit files from the branch of
classified account for formulating necessary action.
c) Representative of SAM Department would review the documentation following
Documentation Checklist to ensure that all Credit documentation is in place.
d) Representative of SAM Department would meet the customer, and if required,
review the stock report and conduct Stock Inspection of accounts to arrive at an
effective action plan for recovery/upgrade.
e) Representative of SAM Department will prepare a Classified Credit Review
Report (CCR), within 15 days of the transfer. The CCR should be approved by the
Head of Credit Risk Management Division and copied to the Head of Corporate
Banking and to the Branch office where the Credit proposal was originating.
f) The SAM Department of Credit Risk Management Division will manage accounts
with sustained deterioration. Sometimes, as per recommendation of the Credit
Administration Department and Corporate Banking Division the management may
decide to transfer some SMA Accounts for effective supervision or Exit accounts
graded 4-5 to the SMA Department for efficient exit. Whenever an account is
handed over from Corporate Banking Division/ Relationship Management to
Recovery Department, a classified Account Transfer form will be prepared. Down
grading process should be done immediately and should not be postponed until the
annual review process.

4.13 Credit Recovery Steps

Days Past Due (DPD) Collection Action

Letter, Follow up & Persuasion over phone

1-14
(Annexure V)

51 | P a g e
 15-29 1st Reminder letter & SI. No. 1 follows
30-44 2nd reminder letter + Single visit

 3rd reminder letter (Annexure VI)

 Group visit by team member
 Follow up over phone
45-59
 Letters to Guarantor, Employer, Reference all
above effort follows
 Warning on legal action by next 15 days

 Call up loan (Annexure VII)

 Final Reminder & Serve legal notice
60-89
 legal proceedings begin
 Repossession starts

 Telephone calls/Legal proceedings continue

90 and above  Collection effort continues by officer & agent
 Letter to different hanks/Association
Source: ( prudential regulations for consumer financing 2012, Bangladesh Bank )

4.14 Credit Recovery Steps Credit Card

Days Past Due (DPD) Collection Action

 Letter reminding payment past due

X
 Soft call requesting payment

 Block card with “decline” response

30-59  Call insisting payment
 Letter advising account status (blocked)

 Block card with “decline” response

 Call insisting payment
60-89
 Letter advising a/c status (blocked) and
threatening card cancellation if not regularized

52 | P a g e
  Call insisting immediate payment
 Letter advising cancellation & surrender of card
90-119
 Hot-list & circulate within the merchants
 Employ recovery agent where appropriate

 Call threatening litigation

 Threatening letter to employer (for salaried only)
 Publish name & photograph in newspaper
120-149
 Personal visitation by recovery agent. Set-off SCB
Account(s), if any
 Serve legal notice where appropriate

 Bad debt allocation

 Account handed over to recovery agency
150+  Stop interest accrual
 Personal visitation by recovery agent
 Legal action
Source: (Prudential regulations for consumer financing 2012, Bangladesh Bank )

53 | P a g e
 Chapter 05
Performance Analysis of
Credit Management

5.1 Loans and Advances 54

5.2 Loan and Deposit Ratio 55
5.3 Income from Loans & Advances 56
5.4 Credit in different sectors 57
5.5 Credit Exposure of UCBL 58
5.6 Loan Recovery of UCBL 59
5.7 Profit of UCBL 60

Introduction
54 | P a g e
This chapter contains the evaluation of the last five years performance of the bank. It
represents the performance on loans & advances, loans & deposit ratio, income from
loans & advances and credit in different sectors. The following are as follows:

5.1 Loans and Advances

Year 2011 2012 2013 2014 2015

Loans and
Advances(In 265 270 285 302 313
millions)
Figure 5.1 Loans and Advances of UCBL, Bahaddarhat Branch during the period 2011 to
2015 (in million taka)

320
313
310
302
300

290 285
280
270
270 265
260

250

240
2011 2012 2013 2014 2015

For steady growth of Loans & Advances as well as inclusion of new ventures in the
clientele base of the bank towards steady and sustainable development, Bank’s
prudent and continuous credit operation gradually increased from 2011 to 2015.

5.2 Loans & Deposit Ratio

55 | P a g e
 Year 2011 2012 2013 2014 2015
Loan &
Deposit 82.81% 79.79% 79.81% 78.92% 84.57%
Ratio
(Figure 5.2 Loan and Deposit Ratio of UCBL, Bahaddarhat Branch during the period from
2011 to 2015)

Loans & Deposit Ratio

85
84
83
82
81 Loans & Deposit Ratio
80
79
78
77
76
2011 2012 2013 2014 2015

The above table and graph shows that the ratio of Loan & Deposit of United
Commercial Bank Limited, Bahaddarhat Branch is fluctuated year by year. The loan
& Deposit Ratio was highest in 2015 and the percentage was 84.57%. However in
2014 it was lowest and the percentage was 78.92%.

5.3 Income from Loans & Advances

Year 2011 2012 2013 2014 2015

56 | P a g e
 Amount
(In 30.58 31.72 32.78 33.66 34.91
million)
Figure 5.3: Income from loans and Advances of UCBL, Bahaddarhat Branch during the
period from 2011 to 2015 (in million taka)

Income from Loans & Advances

35 34.91
34 33.66
33 32.78

32 31.72
30.58 Income from Loans & Advances
31
30
29
28
2011 2012 2013 2014 2015

Above table and graph shows the performance of Income from Loans & Advances of
United Commercial Bank Limited, Bahaddarhat Branch are increasing year by year
from 2011 to 2015. Income from Loans & Advances was highest in 2015 and the
figure was 34.91 million taka. However, in 2011 it was lowest and the figure was
30.58 million taka.

5.4 Credit in different sectors

57 | P a g e
UCBL continued its participation in different credit programmers for financing new
industrial projects, working capital, trade financing, international trade etc.
Consequently total credit sector (2014-2015) are as follows (Amount in millions)

Whole
Commercial House Staff
Sectors Industry sale/retai others
Lending Building Loan
l

2014 87.09 110.44 52.88 16.68 5.75 33.17

2015 81.27 120.62 59.86 19.91 10.11 21.28

Figure 5.4: Credit in different sector of UCBL, Bahaddarhat Branch during the period from
2014 to 2015 (in million taka)

140
120
100
80
60
2014
40
2015
20
0
l y l s
ia str in
g ai an r
er
c u i ld r et Lo the
d /
m In Bu le St
aff O
m e sa
Co ous le
H ho
W

From above table and graph we can see that in every sector the amount of credit is
increased in 2015 compared to 2014 except commercial lending sector.

58 | P a g e
5.5 Credit Exposure of UCBL in 2015
Types of Credit
BDT in Million %
Exposure
Industrial Loan 120.62 38.53%
Commercial Lending 81.27 25.96%
House Building Loan 59.86 19.12%
Retail Loan 19.91 6.36%
Staff Loan 10.11 3.23%
Others 21.28 6.80%
Total 313 100.00%
Figure 5.5: Credit Exposure of UCBL, Bahaddarhat Branch during the period of 2015 (in
million taka)

Credit Exposure of UCBL, Bahaddarhat Branch

3% 7%
6% Industrial Loan
Commercial Lending
39% House Building Loan
Retail Loan
19% Staff Loan
Others

26%

Above table and pie chart shows the different credit exposure of United Commercial
Bank Limited, Bahaddarhat Branch. In 2015, Industrial Loan sector was in highest
position occupying 38.53% of total credit exposure and figure was 120.62 million
taka. The lowest sector was Staff loan which occupy 3.23% of total credit exposure
and the figure was 10.11 million taka.

59 | P a g e
5.6 Loan Recovery of UCBL, Bahaddarhat Branch

Loan Recovery of UCBL, Bahaddarhat Branch

87% 89%
90%
78%
80% 70%
67%
70%

60%

50%

40%

30%

20%

10%

0%
2011 2012 2013 2014 2015

Figure 5.6: Loan Recovery of UCBL, Bahaddarhat Branch during the period from 2011 to
2015 (in percentage)

On the above, the graph showing the recovery position of UCBL, Bahaddarhat Branch
as on 31, Dec 2015. In 2015 recovery rate was highest and rate was 89%. But in 2014
recovery rate was lowest; in that year recovery rate was 67%, which are way less than
2015. From 2011 to 2014, we can see recovery rate was gradually decreased year by
year. The recovery rate was poor in that period as economy hampered a lot due to
political crisis in recent years.

60 | P a g e
5.7 Profit of UCBL, Bahaddarhat Branch

47

46
amount in million

45
46.89
44
44.72 45.2
43 43.9

42
2012 2013 2014 2015
Year

Figure 5.7: Profit of UCBL, Bahaddarhat Branch during the period from 2012 to 2015 (in
million taka)

From The above graph it can be said that the profit is increasing year by year in
UCBL at Bahaddarhat Branch which proves a very good situation of this branch. In
2015 profit was highest and figure was 46.89 million taka. However, in 2011 it was
lowest and the amount was 43.90 million taka.

61 | P a g e
 Chapter 06
Findings,
Recommendations &
Conclusion

6.1 Summary of Findings 62

6.2 Recommendations 63
6.3 Conclusion 64
6.4 References 65

62 | P a g e
6.1 Summary of Findings
While working at United Commercial Bank Limited, Bahaddarhat Branch, I have
attainted to the newer kind of experience. After the collecting and analyzing of data I
have got some findings. Those findings are completely from my personal point of
view.

Those are:

1. The highest amount invested in industrial sector which is 38.53% of total

amount of loan.
2. House building loan of the branch was 19.12% in 2015 and commercial
lending was second priority & rate was 25.96% of total amount of loan.
3. Retail loan is not sound in the branch.
4. The bank uses some modem technology such as CBS. So, their service is
better than most of the bank.
5. The credit analysts have a strong background in accounting financial statement
analysis, business law and economics along with good negotiating skills. This
lessens the possibility of bad debt.
6. A systematic loan approval process is maintained.
7. The most popular loan product is personal loan.
8. Sometimes bank prepares CRG score based on un-audited balance sheet.
9. There are eight grades of credit risk. Actually they follow Good- Satisfactory
model for grading the risk.
10. The total amount of loans & advances is increasing from year to year (Figure
5.1).
11. The total income from loans and advances is in increasing trend (Figure 5.3).
12. Loan recovery rate has been improved compared to previous years (Figure-
5.6)
13. There is no agricultural investment.
14. Sometimes bank prepares CRG score based on un-audited balance sheet.

6.2 Recommendations

63 | P a g e
United Commercial Bank Limited is one of the potential banks in the banking sector.
The credit department of United Commercial Bank Limited, Bahaddarhat Branch is a
large and busy branch. Therefore it is not an easy job to find so many things during
the very short period of internship program. Though now 1 would like to present my
recommendations improve the banking service and make the customer more satisfied.

1) Bank should prepare the CRG score sheet based on audited balance sheet.
Because it shows appropriate position of the firm. So it reduces the credit risk.
2) UCB’s liquidity position is better than other banks. So management should
hold this position for the future.
3) Effective decision should be taken by the trust for the more deposit because
the more deposit, the more loans, the more profit & the more investment.
4) Effective and efficient initiative is necessary to recover the default loans.
5) The loan documentation and verification should be done fairly and properly.
6) They should diversify their Loan products.
7) The credit department, strict supervision is necessary to avoid loan defaulters.
The bank official should do regular visit to the projects.
8) UCBL should take initiative for agricultural sectors.
9) UCBL should attract customer to provide loan at minimum rate compare to
other bank.
10) UCBL should improve the recovery rate of Loan & Advances.

6.3 Conclusion

64 | P a g e
Credit management is the process that begins with accurately assessing the credit
worthiness of customer, consists of functions performed by financial institutions
within a company to improve and control credit policies that will lead to increased
revenue and lower risk besides increasing collection, reducing credit cost, extending
more credit to creditworthy customers and developing competitive credit term. The
success of a bank depends on its sound credit management techniques. If the bank
fails to do the same it will face the situation of insolvency. The more non-performing
loan in the bank’s loan portfolio, the less its profitability. The present study takes into
consideration the analysis of Credit Management of United Commercial Bank
Limited, Bahaddarhat Branch. It fails to cover the aspect of non-performing loan in
analysis due to insufficiency of data. As the report does not cover non-performing
loan for which it is not possible to say whether credit management of United
Commercial Bank Limited, Bahaddarhat Branch is good or bad. The researcher is
hopeful that the findings obtained from the analysis will help to bank, academician as
well as the interested body to some extent. It is worth mentioning that there exists
further research scope on the same topic by considering the nonperforming loan.

References:
65 | P a g e
 Flora Banking Software
 UCBL Corporate Intranet
 Annual Report of UCBL 2014-2015
 Statement of Affairs, Prepared by accounts section of Bahaddarhat Branch.
 Various information’s supplied by United Commercial Bank Limited,
Bahaddarhat Branch, Chittagong
 Websites:
 www.ucbl.com.bd
 www.bangladesh-bank.org
 Websites of other banks

66 | P a g e