Professional Documents
Culture Documents
Executive Summary
In the modern era of banking, loans and advances are very important issues. A bank collects deposits
from the customers and lends them as loans to the other customers. It is an essential thing for a bank
to identify suitable sources for giving loans. A profitable source earns money for the bank, while an
improper selection of sources causes the bank to lose money. So, for having a successful utilization of
collected deposits, every bank should have a sound Credit Sanctioning Process, which includes:
Credit Sanctioning
Source Identification
Justification
Implementation
Credit Administration
Documentation
Credit Monitoring
Credit Recovery
In this project, we will try to see how Export Import Bank Limited operates using these mechanisms to
manage the Credit Sanctioning and Administration.
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
Company Profile
Export Import Bank of Bangladesh Limited was established in the year 1999 under the leadership of
Late Mr. Shahjahan Kabir, Founder Chairman who had a long dream of floating a commercial bank
which would contribute to the socio-economic development of our country. He had a long experience
as a good banker. A group of highly qualified and successful entrepreneurs joined their hands with the
founder chairman to materialize his dream. Indeed, all of them proved themselves in their respective
business as most successful star with their endeavor, intelligence, hard-working and talent
entrepreneurship. Among them, Mr. Nazrul Islam Mazumder who is an illuminated business tycon in
the Garments business in Bangladesh became the Honorable Chairman after the demise of the
honorable founder chairman. He is also the chairman of Bangladesh Association of Banks (BAB).
Under his leadership, BAB has emerged as an effective forum for exchanging views on problems
being faced by the banking sector of Bangladesh and for formulating common policy guidelines in
addressing such problems.
The Bank starts functioning from 3rd August, 1999 with its name as Bengal Export Import Bank
Limited. On 16th November 1999, it was renamed as Export Import Bank of Bangladesh Limited with
Mr. Alamgir Kabir as the Founder Advisor and Mr. Mohammad Lakiotullah as the Founder Managing
Director respectively. Both of them have long experience in the financial sector of our country. By
their pragmatic decision and management directives in the operational activities, this bank has earned
a secured and distinctive position in the banking industry in terms of performance, growth, and
excellent management.
Islamic Banking
Under the leadership of Mr. Lakiotullah, the Bank has migrated all of its conventional banking
operation into Shariah Based Islami Banking on the 1st of July of 2004. For smooth operations the
Board of Directors established a Shariah Board, which decides on the banking principles according to
which the bank will operate its business.
In the year 2006, Mr. Kazi Masihur Rahman became the Managing Director of the bank when Mr.
Lakiotullah left the bank after completion of his successful 7 years as MD. Mr. Kazi served in the
bank for next five years. Under his leadership, the bank has been placed on a state of the art
centralized IT platform with two modern data centers where world renowned core banking software
TEMENOS T24 is running along with some alternate delivery channels like ATMs and SMS banking.
Vision
The gist of its vision is “Together towards Tomorrow”. Export Import Bank Bangladesh Limited
believes in togetherness with its customers, in its march on the road to growth and progress with
services. To achieve the desired goal, there will be pursuit of excellence at all stages with a climate of
continuous improvement, because, in EXIM Bank, they believe, the line of excellence is never
ending. The objective of the bank is “To be the best performing bank in Bangladesh through secure,
modern, diversified and excellent service”. The bank accomplishes this gradually by offering the
financial services linking with the expectation of their clients while providing a return to its
proprietors. Thereby undertaking this mission, moreover the bank has now been free from all the
natures of a delinquent bank as well as it fulfill all the conditions given by the central bank.
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
Mission
The bank has chalked out the following corporate objectives in order to ensure smooth achievement of
its goals:
To be the most caring and customer friendly and service oriented bank.
To create a technology based most efficient banking environment for its customers.
To ensure ethics and transparency in all levels.
Eventually the Bank emphasizes on:
To provide high quality financial services in export and import trade.
To provide excellent quality service.
To maintain corporate and business ethics.
To become a trusted repository of customers money and their financial advisor.
To make our stock superior and rewarding to the shareholder.
To display team spirit and professionalism.
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
Chapter I
Investment Policies
1.1 (i) Loan
In a financial system of any economy, we know that financial surplus mobile from surplus economic
unit to the deficit economic unit. Bank mobilizes the fund from surplus economic unit as deposit and
makes the fund available to the deficit unit. After that process loan/Credit is create.
Loan is a formal agreement between a bank and borrower to provide a fixed amount of credit for a
specified period. A Loan may be defined as money lent at interest. Bank can provide loan in different
ways. Loan can be in cash or in non-cash form.
According to the Islamic shariah one cannot lend money to other expecting some more in return. But
one can invest money to other business under various modes and that will be discovered clearly
before starting a business. In that point Islamic shariah prohibited credit. In conventional system
interest may be defined as the amount of money generated by a particular amount of money at a
particular rate after a particular period. But according to the Islamic shariah principle of financing is
related with buying& selling, partnership, lease of iteams which is associated with risk. The extra
amount of money that comes from the trade is profit and it is acceptable for investment. So
Investment means trading a fixed amount of money to client for a certain period of time. The client
must repay the venture amount with profit within the given time period. In Investment, the
disbursement will take place only for one time. The client can repay the Investment all at a time or by
installment.
(i) Mudaraba
(ii) Musharaka
Mudaraba: Mudaraba means partnership business. He who supplies capital is called `Shaheb-e-mal'
(financer) and the organizer of the business is called 'Mudarib' (manager). Mudarib run the business
independently without any wages. If any loss incurred in the business, Shaheb-e-mal bears the entire
loss and profit of the business, if any, will be distributed among them as per predetermined agreed
ratio.
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
There should be two parties: Bank & Businessman as per written agreement. Bank is called
Shaheb-e-mal (Financer/Investor) and businessman is Mudarib (Manager).
There should be written agreement/contract between the Bank and the businessman which
includes nature of business, period/time, sharing of profit etc.
Bank will finance and the businessman will run the business.
The Bank will not interfere in the business.
Mudaraba Mutlak: the place of business, time, nature of business, number of business
partners etc. are not specific - is called Mudaraba Mutlak. Here the Mudarib get full liberty
about the business.
Mudaraba Muqqayada: The natures of business, time, place etc. are specific in Mudaraba
Muqqayada.
1.6. Musharaka:
Musharaka is a contract of partnership between Bank & client in which both the partners provide
capital, participate in the management, share the profit as per agreement and bear the loss as per
equity.
Shirkat-al-Mufawada:
Shirkat-al-Shanai:
Shirkat-al-Wazuh:
1.7 Bai-Murabaha
Bai-Murabaha means sale on agreed upon profit. It is a system of investment by which Bank
purchases goods as per terms of contract with the client from the market take the possession of the
goods as pledge in the godown of the Bank or godown of the client under Bank's control duly insured
and sale these to the client on partly or wholly in cash after fixing price with profit & other
expenditures.
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
There must be three parties: (a) Bank, (b) Client, (c) Seller of commodities.
Commodity should be Halal, not perishable and easily marketable
Bank never handover/deliver cash money to the client. Payment to be made to the Seller of
goods / Supplier through PO/DD.
Purchase price and profit amount to be informed to the client.
1.8. Bai-Muajjal:
Bai-Muajjal-Bai means purchase & sale, while Ajl means a fixed time or fixed period. In this process
bank purchases goods from market as per order/contract and sale on credit to the investment client
duly fixing the sale price adding profit & other expenditures with the purchase amount repayable
within a fixed period in lump sum or at a time or by installments.
There must be three parties: Bank, client and the seller of the goods.
Bank under no circumstances will handover cash money to the investment client.
Payment for the price of the goods to be made to the seller through PO/DD.
Bank will purchase goods as per specification order of the client in the name of the Bank.
After taking delivery for at least a moment, the goods will be delivered to the client
determining the sale price which includes purchase price, profit and other expenses.
Purchase price, other expenses and profit amount are not necessarily to be informed the client.
Investment allowed against assignment of work order for execution of contractual work falls under
this head. This investment is generally allowed for a definite period and specific purpose. It is not a
continuous investment. Formalities are to be observed as per Bai-Muajjal investment.
Investment allowed for purchasing foreign currency for payment against L/Cs (Back to Back) where
the exports do not materialize before the date of import payment. This is also an investment for
temporary period, which is known as Export finance and falls under the category 'Commercial
lending'.
1.11. Bai-Salam:
Bai refers to purchase & sale while Salam means advance. Payment of Bai-Salam transaction is made
in advance. This is a system of investment where price of the goods (agricultural products)
determined by the buyer and seller, paid earlier at the time of contract and took delivery of the goods
as per specification, size, quality, quantity at a future time in a particular place. In other words,
forward sale of goods.
There should be a written agreement between the buyer & seller includes price profit, quality,
quantity, date, place of delivery/supply, sample, transportation cost, time of delivery etc.
The price of the goods to be made payment at the time of agreement.
The buyer must take of the goods on due date as per contract.
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
Parallel Salam is a Salam contract whereby the seller depends, for executing his obligation, on
receiving what is due to him - in his capacity as purchaser from a sale in a previous Salam contract,
without making the execution of the second Salam contract dependent on the execution of the first
one.
1.13. Istisna:
The word Istisna means Industry. Istisna is an investment procedure by which price of the
construction/assembling/packaging or manufactured commodity may be paid in advance fully or
partly and goods will be delivered later on. There should be a written contract about the product,
price, payment mode, delivery time with date, quantity, quality etc. Here the goods may be fungible or
non-fungible. A contract executed between a buyer and a seller under which the seller pledges to
manufacture and supply certain goods according to specification of the buyer is called Istisna. An
Istisna agreement is executed when a manufacturer or a factory owner accepts a proposal placed to
him by a person or an Institution to produce/manufacture certain goods for the latter at a certain
negotiated price. Here, the person giving the order is called Mustasni, the receiver of the order is
called Sani and the goods manufactured as per order is called Masnu.
1.14. Ijara:
The mode under which any asset owned by the bank, by creation, acquirement /or building-up rented
out is called Ijara or leasing. In this mode, the leasee pays the Bank rents at a determined rate for
using the assets/properties and returns the same to the Bank at the expiry of the agreement. The Bank
retains absolute ownership of the assets/ properties in such a case. However, at the end of the leased
period, the asset may be sold to the client at an agreed price.
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
Chapter II
Investment (Loan) Sanctioning
Procedure
Initial Customer Contract
Loan application
Bazar reports through friends or rivals of same trade
Mode of living
Statement of account of the borrower for at least a year
Audited Balance sheet of the Company for last three years
Income tax return
Sale tax return
Confidential report collected from Banks
Personal interview
Reports of the press/media
Registration office
Revenue or Local Gov't records
Government Gazettes
Investment/Credit Information Bureau (IIB/CIB) of Bangladesh Bank.
Character
Collateral
Capital
Capacity
Condition
Family background
Associates & friends
Sincerity & commitment
Sense of responsibility
Business experience
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
Purpose
Safety
Marketability
Prospect of the related business
Profitability
Knowledge, prudence, intelligence
Security
Personal/company assets & liabilities
Liquidity
Dealings in Current account for at least last twelve months.
Confidential report from other banks
Past performance
Audited Balance sheet for last three years.
CIB report
Adherence to religion
National interest.
CIB Evaluation
CIB means Credit Information Bureau. It is a department of Bangladesh Bank, formed on 18/8/1992.
Full particulars of all borrowers/investment clients & Guarantors (individual/firm/company) of all
banks and non-banks financial institutions in Bangladesh and whose outstanding balance is
Tk.50000/- & above and defaulter Credit Card borrower of Tk.10,000/-& above are maintaining in the
computer of CIB department.
Importance of CIB
In Bangladesh there is investment default culture exists. At present about 10% amount of investment
is classified. This type of investment is called stuck up / unproductive / non-performing. To arrest the
worst situation of default investment, Bangladesh Bank has taken some measures. CIB is one the
measure. Before sanction any investment, clean report on the borrower, and Guarantors is compulsory
to obtain for the Banking and non-banking financial institutions of Bangladesh. So, there is no
possibility of concealment of facts by any bad elements. As a result old bad borrowers are not getting
fresh investment/ loan from any Banks and Financial Institutions and ultimately the percentage of bad
investment/loan is reducing. Defaulter borrowers/investment clients will not be eligible to participate
in the Parliament election, be a CIP, be a Director of Bank & non-bank financial institution, joint
venture entrepreneur and member of Stock exchange etc.
Users of CIB
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
Board of Investment
National Board of Revenue (NBR)
Enquiry purpose:
Security is a cover against investment. It ensures recovery of Investment Securities play an extremely
important role in an investment granting decision. Bank will try to have as much security coverage as
possible against each and every investment facility sanctioned to the customers. Security taken against
investment facilities shall be properly valued and legally enforceable in accordance with the laws of
the country. Security requirement will be determined on case to case basis based on customer’s
business strength, level of risk bank is undertaking. However, Bank will always prefer to have
security equivalent to 1.25 times of the total funded limit. Security may be in the following forms
subject to restrictions of regulatory authority:
Bank deposit.
Government Bond.
Guarantee given by Government or Bangladesh Bank.
Bank Guarantee.
Land and Building.
Share.
Stock.
Machinery and Equipment.
Charge on the fixed and floating asset.
Corporate Guarantee of another company backed by Board Resolution.
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
50% of the average market value for last 06 months or 50% of the face value, whichever is less, of the
shares traded in stock exchange.
Investment/Credit Risk Grading (IRG/CRG) is an important tool for investment/ credit risk
management as it helps the Banks and 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 investment/credit
portfolio of a branch or a bank - both at the pre-sanction stage as well as post sanction stage.
In a nutshell, The Investment/Credit Risk Grading is a collective definition based on the pre-specified
scale which reflects the underlying investment/credit risk for a given exposure.
The purposes of IRM/CRM are to provide directional guidelines to the Banking sector that will
improve the risk management culture, establish minimum standards for segregation of duties &
responsibilities and assist in the ongoing improvement of the Banking sector in Bangladesh. It is
important that for smooth and transparent investment operation of the bank, investment marketing,
approval process, documentation, disbursement and recovery process should not be amalgamated
within one or two units/ divisions in the organization.
IRG is a dynamic process for identifying risk involved with the Investment clients based on five Risks
(Financial Risk, Business Risk, Management Risk, security Risk, relationship Risk) associated with
that client.
Score of IRG
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
The Investment/Credit assessment should be done by the Relationship Manager who will give
importance in the following areas:
Project Appraisal
Project appraisal means pre-investment analysis of project with a view to determining its commercial
and Socio-economic feasibilities. In other words, project appraisal means pre-investment analysis as
to whether a proposed project which is going to be implemented is (i) Commercially profitable, (ii)
Economically viable and (iii) Socially desirable, In a project, there is a SWOT (Strength, Weakness,
Opportunity and Threat) analysis for appraisal.
Commercial feasibility
Economic feasibility or Socio-economic feasibility
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
Approval Authority
To ensure proper and orderly conduct of the business of the Bank, the Board of Director will
empower the Managing Director and other Executives of the Bank to lend up to certain amount under
certain terms and conditions at their discretion. The lending authority are broadly categorized as
follows:
Board/Executive Committee.
Managing Directors.
Head of Investment Division
Facility Offer
After getting the approval from the authority, at this stage, the bank gives the customers different
kinds of investment packages. EXIM Bank has the following investment offers:
Mudaraba
Musharaka
Acceptance
Credit Documentation
Documentation is a written statement of facts evidencing certain transaction covering legal aspects
duly signed by the authorized concerned person(s) having legal status. Obtaining a all concerned
documents properly & correctly as per sanction letter and practice of the Bank, from the particular
investment client is called documentation.
It is essential that the proposal define clearly the purpose of the facility, the sources of repayment, the
agreed repayment schedule, the value of security and the customer relationship consideration implicit
in the investment decision. Where security is to be accepted as collateral for the facility all
documentation relating to the security shall be in the approved form. All approval procedures and
required documentation shall be completed and all securities shall be in place, prior to the
disbursement of the facilities. General documentation, as required for different kinds of investment is
enumerated below.
There may be requirement of specific banking or legal documents to secure an investment according
to sanction terms and conditions, which should also be obtained in addition to the following:
Investment:
D.P. Note.
Letter of Pledge (in case of pledge of goods).
Letter of hypothecation (in case of hypothecation of goods).
Trust Receipts (in case of TR facility).
Letter of lien and ownership/share transfer from (in case of investment against Shares).
Letter of Lien for Musharaka Pre-shipment (in case of Musharaka Pre-shipment-PC).
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
Overdrafts:
D.P. Note.
Letter of partnership (in case of partnership concerns) or resolution of the Board of
Directors (in case of Limited Companies).
Letter of Lien (in case of Investment against MTDR).
Letter of Lien and ownership/share transfer from (in case of investment against Shares)
Letter of Lien and transfer authority (in case of investment against PSP, BSP etc.
Bai-Muazzal:
D.P. Note.
Letter of partnership (in case of partnership concerns) or resolution of the Board of
Directors (in case of Limited Company
Letter of Hypothecation (in case of Bai-Muazzal)
Letter of Pledge/Agreement of Pledge (in case of Murabaha).
Legal documents for mortgage of property (as drafted by Legal Adviser).
Bill Purchased:
D.P. Note.
Letter of partnership (in case of partnership concerns) or resolution of the Board of Directors
(in case of Limited Companies).
Letter of arrangement.
Letter of Hypothecation of bill.
Letter of Acceptance, where it calls for acceptance by the drawee.
All required documents, as enumerated above, should be obtained before any investment is disbursed.
Disbursement of any investment facility requires approval of the authorized official of the Branch
who should ensure, before exercising such authority, that all the required documentation’s have been
completed.
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
Chapter III
Investment Administration
The Investment Administration function is critical in ensuring that proper documentation and
approvals are in place prior to the disbursement investment facilities.
Disbursement
Disbursement under Investment facilities is only made when all security documentations are in place,
all formalities regarding investment approval have been completed, all Investment Approval terms
have been met and sanction letter in duplicate copies detailing the terms and conditions under which
the sanction has been made and the same has been obtained from the customer duly signed by him.
Custodian Duties
Investment disbursements and the preparation and storage of security documents are
centralized in the regional investment centers.
Appropriate insurance coverage is maintained (and renewed on a timely basis) on assets
pledged as collateral.
Security documentation is held under strict control, preferably in locked fireproof storage.
Investment Monitoring
To minimize Investment losses, the bank put in place monitoring procedures and systems that provide
an early indication of the deteriorating financial health of a customer. The bank officials monitor the
followings:
Past due principal or profit payments, past due trade bills, account excesses, and branch of
investment covenants.
Investment terms and conditions, financial statements on a regular basis, and any covenant
breaches or exceptions for timely follow up.
Timely corrective action to address findings of any internal, external or regular
inspection/audit.
Computer systems and where automated systems are not available manual processes are used to
produce accurate exception reports. Exceptions are followed up on and corrective action taken in a
timely manner before the account deteriorated further.
Investment Recovery
The bank has a Recovery Unit (RU) under IRM. It directly manages account with sustained
deterioration (a Risk Rating of Sub Standard (6) or worse).
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
Investment/loan rescheduling
Rescheduling (also known as prolongation or evergreening) means the process, as per Bangladesh
Bank BRPD Circular no. 15 a stuck up or classified investment/loans regularized through refixing
repayment terms and expiry date etc. Simply, it’s an agreement between a lender and a borrower
towards repayment of long debts. When a bank's investment/loan becomes stuck-up, an agreement to
reschedule debts between lender and borrower/investment client is seem as a method to recover the
stuck-up dues.
When a borrower repaid his full dues with bank and intend to get back all his property documents
duly redemption of registered mortgage, in that case bank will execute a deed of redemption with the
help of the BLA showing exact schedule of the redeem property and mortgage deed. The redemption
deed will execute by the branch manager or his authorized officer at a cost of the borrower.
Objective Criteria
Continuous Investment
A continuous Investment will be treated as irregular/overdue if the advance has not been renewed,
that is expiration date is passed. Criterions for investment classification are given here:
Sub-standard Doubtful Bad/loss
Irregular for 3 months or more Irregular for 6 months or more Irregular for 9 months or
but less than 6 months. but less than 9 months. above.
Term Investment
If any installment of a term Investment is not repaid within as per repayment schedule the unpaid
amount will be treated as overdue installment. Criterions for investment classification are given here:
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
Qualitative Criteria
The Investment (continuous, demand, and term Investment ) are classified by the bank whenever it
has reason to believe the borrower may not be able to repay the investment due to change is the
circumstances under which the Investment was originally sanctioned.
The investment is classified as sub-standard on the basis of qualitative judgment, if there is a
possibility to change the present situation by taking appropriate steps, although there is a possibility to
become loss of the Investment. When the Investments are categorized as sub- standard it means the
repayment of Investment are irregular but has reasonable prospect of improvement.
But if there is no possibility of recovery of investment after taking adequate steps, then the Investment
is treated as doubtful.
But it is not possible to recovery the Investment even after taking all out efforts then the investment is
treated as bad/loss.
Recovery Units ensure that the followings are carried out when an account is classified as Sub
Standard or worse:
Facilities are withdrawn or repayment is demanded as appropriate. Any drawings or
Investment are restricted, and only approved after careful scrutiny and approval.
CIB reporting is updated according to Bangladesh Bank Guidelines and the borrower's Risk
Grade is changed as appropriate.
Investment loss provisions are taken based on Forced Sale Value (FSV).
Investments are only rescheduled in conjunction with the Large Investment Rescheduling
guidelines of Bangladesh Bank. Any rescheduling is based on projected future cash flows and
is strictly monitored.
Prompt legal action is taken if the borrower is uncooperative.
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Investment (Credit) Sanctioning and Administration Process: EXIM Bank Limited
Conclusion
Now-a-days banking sector is more competitive. To achieve a proper reward about performance, it is
essential to satisfy its customer by providing them different valuable and dynamic services. Because a
satisfied customer will talk to others about the services those he/she is very justifiable enjoying and a
satisfied customers statement is more effective than a thousand of commercial advertisement. People
depend on the people – is the mode of human civilization. Therefore, the importance to satisfy
customer is increasing day by day in the private commercial sector especially in the private banks.
As all the activities those are required to provide valuable services to its customers to make them
satisfy, are related with the fund management system, EXIM BANK is so much careful about its
investment management system. EXIM BANK always gives its highest attention in monitoring and
managing the bank fund, which is consists of fund, capital, reserve, deposit, and investment. At
present EXIM BANK is successful in effectively and efficiently managing these vital issues. In spite
of that, in order to keep its success continue and reach at the pinnacle of success it, its managers,
board of directors and employee must have the comprehensive and clear idea about the reserve, fund,
investment , capital, deposit and liquidity regarding the smooth control of bank and continue its vital
operation toward country’s economic development.
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