Bangladesh Army University of Science and Technology,

Saidpur
Faculty of Business Studies
Department of Business Administration

An Internship Report
on
“A analysis of Credit Management of Sonali Bank Limited, A Study on
Rangpur Branch”.
This Internship report is submitted for the partial fulfillment of the requirement for the degree of
Bachelor of Business Administration (BBA) of Bangladesh Army University of Science and
Technology (BAUST).

Hasan Al Ashad
ID No-220113038
MBA (Major in Human Resources Management)
Bangladesh Army University of Science and Technology (BAUST), Saidpur.
Semester: Winter, 2022
Date of Submission
Date of Submission-Murch 27,2023
 An Internship Report
on
“Credit Management of Sonali Bank Limited, A Study on
Rangpur Branch”.

Supervised By:
Md. Zaber Hossain, Assistant Professor
Department of Business Administration
Bangladesh Army university of Science and Technology,Saidpur.
Submitted By:
Hasan Al Ashad
ID No-220113038
MBA (Major in Human Resources Management)
Bangladesh Army University of Science and Technology, Saidpur.
Submitted To:
Department of Business Administration
Faculty of Business Studies
Bangladesh Army University of Science and Technology
Date of Submission- Murch 27,2023
 Letter of Transmittal

Murch 27,2023
To
Md. Zaber Hossain
Assistant Professor
Department of Business Administration
Faculty of Business Studies
Bangladesh Army University of Science and Technology

Subject: Submission of Internship Report on “Credit Management of Sonali Bank Limited, A

Study on Rangpur Branch”.
Dear Sir,
With due respect, it is stated that I am submitting my internship report on “Credit Management
of Sonali Bank Limited, A Study on Rangpur Branch”, which has been prepared as per
requirement for obtaining the degree of MBA offered by Bangladesh Army University of Science
and Technology, Saidpur, Bangladesh. It was a pleasure experience on my part to go through the
process that reaffirms my classroom knowledge into practice. Despite my insufficient knowledge,
I hope the internship report has attained its purpose to a considerable extent.
Please find enclosed here with one copy of internship report for your perusal and kind consideration. It
will be pleasure to me if you kindly accept my Internship report.
Thanking you for your valuable advice and co-operation.

Sincerely yours.

Hasan Al Ashad

ID No.: 220113038
BBA (Major in Human Resources Management)
Department of Business Administration
Bangladesh Army University of Science and Technology
Saidpur, Bangladesh

i
 Acknowledgement
I am grateful to many individuals for the completion of the report successfully. First of all, I would
like to offer my heartiest thanks to Almighty to complete my internship period and to prepare this
report without facing noteworthy trouble.
Then, I would like to take the opportunity to express my heartfelt gratitude to my honorable
supervisor, Md. Zaber Hossain , Assistant Professor, Department of Business Administration,
Bangladesh Army University of Science and Technology, Saidpur for his expert supervision,
constant guidance, and inspiration during the preparation of the report.
I would like to convey my sincere gratitude to my organizational supervisor Nandita Sarker,
Deputy General Manager and Tamanna Islam, Principal officer of Sonali Bank, Rangpur branch,
who helped me a lot by providing all the necessary internal information about Sonali bank,
Rangpur branch. Furthermore, I want to thank all the concerning officials of the organization for
furnishing me with all the vital information and advice.
I am also thankful to my peer colleagues for providing important documents and their supports,
which has helped me a lot in preparing this report. I am heartily apologizing of any omitted name
whose contribution was also complimentary for any possible aspect.

There might be some mistakes for my limited knowledge and scarcity of time though I had no lack
of wish to do that, I hope that readers of this report will consider it with kind heart.

………………...

Hasan Al Ashad

ID No. 220113038

MBA (Major in Human Resources Management)

Department of Business Administration
Bangladesh Army University of Science and Technology
Saidpur, Bangladesh.

ii
 Executive Summary

Sonali Bank Ltd. Is the largest state owned commercial bank in Bangladesh with a total of 1230
branches. Total of 747 branches in rural and 466 branches in urban area. The function of the bank
covered a wide range of banking and functional activities to individual, firms, corporate bodies,
Multinational agencies and the rural area. The bank provides more than 21 types of free services
on behalf of the government of Bangladesh through its rural and urban branches as part of their
commitment to society.

Sonali bank Ltd. follows the rules and regulation prescribed by the Bangladesh bank. To manage
credit risk, the bank applies credit limits to its customers and obtains adequate collaterals. Credit
risk in the sonali Lid’s portfolio is monitored, reviewed and analyzed by the Credit Risk
Management (CRM). Sonali Bank Ltd. has established Asset-Liability Management Committee
(ALCO) to determine the maximum risk exposure. Management is aware about guidelines of
Bangladesh Bank and implemented new capital accord BASEL- II. Sonali Bank Ltd. constantly
monitors, reviews and analyzes its credit portfolio to minimizing potential losses and ensuring
efficient credit process. To manage the Non-Performing Loans (NPL), Sonali Bank Ltd. has a
comprehensive remedial management policy, which includes a framework of controls to identify
weak credits and monitoring of these accounts constantly.

A through credit risk assessment is done by analyzing borrower, industry, demand/buyer, historical
financial statement etc. Bank review documents like loan applications, financial statements,
market reputation, CRG, CIB report etc. to investigate credit risk. Managers have to enquiry about
loan applicant. Proper documentation is required before sectioning loans. They must conduct
necessary KYC (Know You Customer) part on the customer and Money Laundering Guidelines
must be followed. On the basis of investigation the branch manager will prepare a credit report as
per format provided by their head office.

Sonali bank Ltd. Rangpur branch is where I did my internship. Loan and advances are sanctioned
according standard procedure. In this particular branch consumer loan and SHBL are most popular.
Credit risk is relatively low. Recovery rate is 100% in consumer loans and SHBL. Performance of
other loans is also good. As most of it’s credits are related only to two kinds of loans, it’s credits
are not well diversified. So it faces credit concentration risk. As it is a rural branch opportunity for
sanctioning large scale or industry loan is very limited. Most of the deposits are added to Sonali
bank general account. To understand the effectiveness of CRM practice, I analyzed some key
aspects which include process of credit risk management in Sonali Bank, Credit risk management
practices followed in Sonali Bank, the credit risk faced by the bank and methods used to mitigate
credit risk. I found the credit risk management practice of Sonali Bank Ltd. is quite admirable.
However the credit sanctioning procedure is quite lengthy compared to today’s business world.
Systematic and timely monitoring and appropriate documentation are tried to be maintained.

iii
Scams like “Hall-Mark” exposed major weakness in top management. The bank should emphasize
on reducing the classified and non-performing credits by concerted efforts. Filing has to be dealt
with importance and salary scale should be revised.

iv
 TABLE OF CONTENTS

CHAPTER TOPIC NAME PAGE

NAME
NO:

Letter of Transmittal i

Acknowledgement ii

Executive Summary iii- iv

CHAPTER INTRODUCTION 1-5

ONE
1.1 Origin of the report 3
1.2 Objective of the study 3
1.3 Methodology of the report 3-4
1.4 Organization of the study 4-5
1.5 Scope of the study 5
1.6 Limitation of the study 5
CHAPTER ORGANIZATIONAL PROFILE 6-17
TWO
2.1 Status of the Organization 6
2.2 Introduction 6-7
2.2.1 Vision and Mission 8
2.2.2 Branches and Employees 9

2.2.3 Principal Activities of Sonali Bank 10

2.2.4 Product and Service offered 10

2.3 Implementation of BASEL-II 11

2.4 Implementation of BASEL- II 12
2.5 Credit Risk management 12

2.6 Organogram: (Functional Wise) 14

2.7 Organogram: (Position Wise) 15

2.8 Organogram (Branch Wise) 16
2.9 Short Review of SBL, Branch of Rangpur 16
2.10 S.W.O.T analysis 17

CHAPTER DICUSSION OF CREDIT POLICY 18-27

THREE
3.2 Definition of Credit 19
3.3 Importance of Credit 20
3.4 Credit Management 21
3.5 The guidelines of credit policy 21

3.6 Objective of the Credit Policy 22

3.7 Principals of Credit Policy 22

3.8 Classification of Loans & advances of SBL 25

3.9 Causes Behind the Credit Risk 26

3.10 Credit Risk Policy 26

3.11 Interest Policy 27

CHAPTER LOAN DISBRUSEMENT PROCESS OF SONALI 28-33
BANK LIMITED
FOUR

4.1 Factors Considered for Sanctioning Credit 29

4.2 Credit Proposal and Sanction Process of SBL 30

4.3 Sanctioning Procedure of SBL Rangpur Branch 31

4.4 Borrower͛ Preparation of Loan Proposal 31

4.5 Necessary Instrument for Issuing Debt 32

4.6 Credit Administrations of SBL 33

4.7 Loan Documents Check Lis 33
CHAPTER LOAN RECOVERY OF SONALI BANK 34-37
FIVE
5.1 Security 35
CHAPTER ANALYSIS & INTERPRETATION 38-43
SIX
CHAPTER FINDINGS 44-45
SEVEN
CHAPTER RECOMMENDATION & CONCLUSION 46-48
EIGHT
8.1 Recommendation 47

8.2 Conclusion 48
Reference 49
 CHAPTER
ONE
INTRODUCTION

1
 INTRODUCTION

1.1 Introduction
Sonali Bank Limited monitors the procedures and instruction arranged by the Bangladesh Bank.
To manage credit Management activities, Bank put on credit restrictions to its clients and gets
acceptable collaterals. Credit management in the Sonali Bank Ltd.'s portfolio is practical and
investigated by the Credit Management Activities (CM). Sonali Bank Ltd. has recognized Liability
Management Group to checker the extreme risk contact. Management guidelines of Bangladesh
Bank and realized new money agreement. Sonali Bank Ltd. regularly observers, reviews and
evaluates its credit group to minimalize probable losses and ensure efficient credit process. To
achieve the Non-Performing Finances (NPL), Sonali Bank Ltd. has an inclusive corrective
management policy. Credit management Activities assessment is done by analyzing borrower,
industry, demand/buyer, ancient financial statements etc. Bank reviews documents like loan
applications, financial statements, market status, to study credit risk. Manager has to enquiry about
loan candidate. the basis of inquiry, the branch manager motivation makes a credit report as per
preparation if by their head office. Sonali Bank Ltd. Rangpur Branch is where I did my internship.
Loan and advances are authorized according standard procedure. The specific branch purchaser
loan and SHBL are most standard. Credit management Activities is rather low. Rescue rate is
100% in consumer loans and SHBL. Performance of other loans is also good. Such as maximum
of its credits are linked only to two kinds of loans, its credits are not well expanded. So it faces
credit attention risk. As it is a rural branch chance for authorizing large scale or industry loan is
very limited. Record of the credits are added to Sonali Bank general account. To know the
effectiveness of CM practices, I considered some key aspects which include Process of credit
management activities in Sonali Bank, Credit Management follows in Sonali Bank, the credit
administration met by the bank and Methods used to mitigate credit risk. I found the Credit
Management activities practice of Sonali Bank Ltd. is quite worthy. However, the credit
sanctioning procedure is quite extended compared to today's business world. Regular and
appropriate inspection and suitable certification are tried to be preserved. Scams like "Hall-Mark"
exposed major softness in top management. The bank should stress on reducing the classified and

2
non-performing credits by concerted efforts. Filing has to be dealt with meaning and Salary scale
should be studied.

1.1 Origin of the report

To support my internship report I worked as an intern in Sonali Bank Ltd.
RANRPUR branch and my topic of the report is "Credit management practices in
Sonali Bank Ltd." as part of the fulfillment of internship requirement. One of
most significant challenges for a bank is to strongly manage its credits. Since the
largest slice of income generated by a bank and a major percentage of its assets
is subject to this credit, it is obvious that sensible management of this credit is
fundamental to the sustainability of a bank.

1.2 Objective of the study

his study is designed to focus on loan disbursement and recovery system of
Sonali Bank Limited, Rangpur branch.

To achieve this main objective, the study seeks to realize the following specific
objectives:
1. To have a sound understanding of credit management system and
procedure followed in the Sonali Bank Ltd.
2. To gain knowledge about the credit related operations and
maintenance in this bank.
3. To analyses in detail the credit management process of the bank and to make
recommendations if needed.
4. To get knowledge about the effectiveness of loan and sanction
procedure that is conducted on the evaluation of credit risk.
5. To have a general idea about the credit risk management performance of
this bank.

1.3 Methodology of the study

To successfully complete my study I followed a methodical way. I visited the
bank every day, inspected the references, talked with employees and customers.
I collected data from primary and secondary sources. The report has been

3
prepared on the basis of data provide from two sources; namely primary and
secondary data. the methodology of collecting data is as follows:

➢ Primary Data:
Primary data has been collected in the following ways:
• Direct interview method: I arranged a direct interview and collected my required
data.
• Personal communication method: I tried to contact personally with the employees
and customers to have actual and accurate data.

➢ Secondary Data
Secondary data has been collected in the following ways:
• Audited annual of journals.
• Circular letters and journals.
• Published papers on loan recovery.
• Historical records and documents of the branch.
• Other published documents of Sonali Bank.
• Annual report.
• Financial report.
• Website of Sonali Bank.

1.4 Organization of the study

In this study I made an attempt to demonstrate the credit risk management
practices in Sonali Bank Ltd. The study is carried out in a widely practiced
manner. In chapter 2 I tried to give an overview of the bank. Here I summarized
current status of the bank, main services it offers, practice of CSR as well as
government agendas etc. Disclosures that are made under BASEL-II relating to
Credit risk of the bank and credit rating are also presented here. In the end I tried
to do an SWOT analysis on overall position of the bank. I also tried to illustrate
CRM practice that I experienced during my internship period. I tried to show the
performance of this particular branch from the data I collected during my
internship. Though it is near impossible to judge overall CRM practice of such
big organization from working in a small branch for short period of time. In the
last chapter I made some recommendations that I think the management should
look into.

4
1.5 Scope of the study
The scope of the study is limited to Sonali Bank Limited, Rangpur branch only.
the scope of the report is very confined and concentrates on the measurement of
loan recovery and litigation procedure of loan recovery, Rangpur branch
generally covers.

1.6 Limitation of the study

The presented study was not out of limitations. But it was a great opportunity for
me to know the banking activities of Bangladesh specially Sonali Bank Ltd.
I tried hard to successfully complete my internship. But there are some failures
for some cause:

❖ As a new practitioner in Internship field, I have no practical experience in

data collection, processing, analyzing, interpreting, presenting.
❖ There are very short time to complete this study program properly,
therefore I had to conduct with all functions within short time.
❖ To operate thus study program, there was no availability of fund. That is,
there was no source of financial support. Therefore, I couldn’t able to take
interview with more respondent and covering survey area.
❖ Form the secondary sources I do not get available relevant data.
Moreover, I have no proper knowledge in this regard.
❖ Some responded conservatively and they didn’t express their opinion
freely.
❖ Lack of free access to all the sectors dye to strategic reason of the
organization.
❖ Lack of published materials.
❖ All available data couldn’t be verified.
❖ Lack of sophisticated knowledge.

5
 CHAPTER
TWO
ORGANIZATIONAL
PROFILE

6
 ORGANIZATIONAL PROFILE

2.1 Status of the Organization

Name of the Company : Sonali Bank Limited

Chairman : Mr. Ziaul Hasan Siddiqui
CEO & Managing Director : Mr. Md. Afzal Karim
Company Secretary : Mr. Tauhidul Islam
Legal Status : Public Limited Company
Emerged as Nationalized Commercial Bank in 1972,
Genesis : following the Bangladesh Bank (Nationalization) Order No.
1972 (PO No.26 of 1972)
Date of Incorporation : 03 June, 2007
Date of Vendor's Agreement : 15 November, 2007
Registered Office : 35-42, 44 Motijheel Commercial Area, Dhaka, Bangladesh
Authorized Capital : Taka 6000.00 Crore
Paid-up Capital : Taka 4530.00 Crore
Number of Employee : 18,115
Number of Branches : 1230
Phone-PABX : 0257161080-88
FAX : 88-02-9561410, 9552007
SWIFT : BSONBDDH
Website : https://www.sonalibank.com.bd
E-mail : info@sonalibank.com.bd

2.2 Introduction
After independence of the country Sonali Bank emerged as the largest and
leading Nationalized Commercial Bank by proclamation of the Banks'
Nationalization Order 1972 (Presidential Order-26) liquidating the then National
Bank of Pakistan, Premier Bank and Bank of Bhwalpur. As a fully state owned
institution, the bank had been discharging its nation-building responsibilities by
undertaking government entrusted different socio-economic schemes as well as money market

7
activities of its own volition, covering all spheres of the
economy.
The bank has been converted to a Public Limited Company with 100%
ownership of the government and started functioning as Sonali Bank Limited
from November 15, 2007 taking over all assets, liabilities and business of Sonali
Bank. On September 14 of 2009 Sonali Bank started business activities of
merchant banking by establishing a subsidiary company named ‘Sonali
Investment Limited’. Islamic banking activities were introduced by the bank in
Dhaka, Chottogram, Khulna, Sylet, Bogura, Rangpur from 29th June of 2010 through
‘Islamic banking window’. Sonali bank has already engaged in the duty of
maintaining corporate social responsibilities; by establishing ‘Sonali
foundation’. After corporatization, the management of the bank has been given
required autonomy to make the bank competitive & to run its business
effectively.
To meet the excellence and success there is no alternative 0f training, that helps
the employees of the bank to develop their skills and work efficiently. To
provide necessary training to the employees the bank has established ‘Sonali
bank staff college’ in Dhaka. Moreover there are also training institutions of
Sonali bank in Chottogram, Rajshahi, Khulna, Bogura and Moymonsingh.
In order to develop in the field of international banking, Sonali bank established
a full subsidisry company in United States of America; named „Sonali Exchange
Company Incorporate (SECI). At present it has 9 branches of its own. Also in
2001 sonali bank successfully started its banking activity in United Kingdom as
Sonali Bank (UK) Limited. This bank was established by joint ownership of
sonali bank and Bangladesh government. At present it has 6 branches in all over
UK. Even sonali bank has their own agent’s office in Riad, Jeddah and kuet of
United Kingdom of Saudi Arabia. Sonali bank is also engaged in „Remittance
businesses‟ with 55 banks and exchange houses of different country, including
Middle East. Sonali bank also provides its foreign trade facilities to its
customers through its authorized 45 branches and also with 617 foreign
correspondence of different countries across the world.
Sonali Bank Limited is governed by a Board of Directors consisting of 11
(Eleven) members. The Bank is headed by the CEO & Managing Director, who
is a well-known Banker and a reputed professional. The corporate head quarter
of the bank is located at Motijheel, Dhaka, Bangladesh, the main commercial
center of the capital.

8
2.2.1 Vision and Mission
Vision:
Socially committed leading banking institution with global presence.

Mission:
Dedicated to extend a whole range of quality products that support divergent needs of people
aiming at enriching their lives, creating value for the stakeholders and contributing towards socio-
economic development of the country.

Slogan:
Your trusted partner in innovative banking.

2.2.2 Branches and Employees

At present the number of sonali bank can be identified with the number of
1230 in total. 1228 branches represent the countries inward banking activity and
the rest of 2 branches are situated in foreign country. Sonali bank maintains
there inward activity through 1230 branches, in which 747 branches are
providing banking activities in villages and rural area. And the rest numbers of
466 branches are established to cover the cities and towns of the country.
Between these 1216 branches, 47 branches are declared as ‘Authorized dealer’
(AD) branches; through which sonali bank performs its foreign trade activities
for its customers. For the record the two foreign branches are carrying the
banking activities in Kolkata (West Bengal) and Shiliguri in India.
Sonali bank has a well-defined number of employees of 18,115 in total.
According to the record 17,420 are well skilled office and the rest of 1416
employees are in different rank of post.
To support countries internal banking activity there are 11 general manager
(GM) offices, 46 principal offices and 16 regional branch offices in all over
Bangladesh. Sonali bank is performing its official activities under the direction
of 45 different department of its head office.

9
2.2.3 Some notable feature of the Bank

Authorized Capital :Tk. 6000.00 Crore

Paid up Capital :Tk. 4530.00 Crore
Branches and Subsidiaries:
1 Total Branches 1230
a. No of Foreign branches 2
b. No of local branches 1228

i. No of Rural Bangladesh 747

ii. No of Urban Branches 466
2. No of Regional offices 16
3. No of Principal offices 46
4. No of G.M offices 11

Subsidiaries:
1. Sonali Exchange Company Incorporated (SECI) having 10 (Ten) branches
in USA.
2. Sonali Investment Limited (Merchant Banking) having 4 (Four) branches
at Motiiheel, Paltan, Uttara, Mirpur in Dhaka and 1 (One) branch in Rangpur, Bangladesh.
3. Sonali Bank (UK) Limited having 2 (Two) branches in UK.
4. Sonali Polaris FT Limited.

2.2.4 Principal Activities of Sonali Bank

The principal activities of the bank are to provide a comprehensive range of
financial services, personal and commercial banking, trade and services, cash
management, treasury, securities and custody services and perform Government
treasury functions as an agent of the Bangladesh Bank. It offers various banking
services such as personal banking, rural banking, international banking,
industrial financing as well SME banking and Islamic banking (saving for Hajj).
For its retail customers it offers savings, remittance and deposit products

10
including savings accounts, daily profit accounts as well as education deposit,
Medicare deposit, marriage savings deposit and rural deposit schemes.

2.2.5 Product and Service offered

Core Business:

• Corporate Banking.
• Project Finance.
• SME Finance.
• Remittance.
• Lease Finance.
• Consumer Credit.
• Trade Finance.
• Loan Syndication.
• Foreign Exchange Dealing.
• International Trade.
• NGO-Linkage Loa.
• Investment.
• Government Treasury Function.
• Money Market Operation.
• Rural and Micro credit.
• Capital Market Operation.
• Special Small Loa.

Other Business:

• Government treasury bills.

• Locker Service.
• A.T.M card.
• Utility Bills Collections.
• Ancillary Services.
• Merchant Banking.

2.3 Implementation of BASEL-II

11
To comply with International best practices and to make the Bank's capital more
risk-sensitive as well as to build the Banking industry more shock absorbent and
stable, Bangladesh Bank provides revised regulatory capital framework "Risk
Based Capital Adequacy for Banks" which is effective from 1st January 2009.
According to the BRPD Circular no-09 dated 31st December 2008, following
specific approaches are suggested for implementing BASEL-II:

▪ Standardized Approach for calculating Risk Weighted Assets (RWA)

against Credit Risk;
▪ Standardized (Rule Based) Approach for calculating RWA against Market
Risk;
▪ Basic Indicator Approach for calculating RWA against Operational Risk.
Under the Standardized Approach of the Risk Based Capital Adequacy
Framework (Basel II), Credit Rating is to be determined on the basis of risk
profile assessed by the External Credit Assessment Institutions (ECAIs) duly
recognized by Bangladesh Bank.

Along with the existing capital adequacy rules and reporting Bangladesh Bank
(ref. BRPD Circular no.10 dated 25.11.2002) Banks will start quarterly reporting
as per the set of the reporting formats provided by Bangladesh Bank. Sonali
Bank Ltd. Management is aware about guideline of Bangladesh Bank and
prepared for implementing new capital Accord BASEL-II.

2.4 Implementation of BASEL- II

Banks Operating In Bangladesh are maintaining capital since 1996 on the basis
of risk weighted assets in the line with Basel committee on banking supervision
(BCBS) capital Framework published in 1988.Considering present complexity
and diversity in the banking industry and to make the bank’s capital more risk sensitive as well as
to improve the banking sectors ability to absorb shocks
arising from Financial and economic stress, Bangladesh bank provides revised
regulatory capital framework “Risk based capital adequacy for banks”, which is
effective from 1 january,2009. Both the existing capital requirement rule on the
basis of risk weighted assets and revised risk based capital adequacy framework
for banks as per Basel-II were followed simultaneously initially for 1 year. For
the purpose of statutory compliance during the period of parallel run i.e.
2009,the computation of capital adequacy requirement under existing rules
prevailed. On the other hand revised „Risk Based Capital Adequacy‟ framework
as per Basel-II had been practice by the banks during 2009 so that Basel-II
recommendation could effectively be adopted from 2010. From January

12
2010,Risk Based Capital Adequacy framework as per Basel-II have been fully
practice d by the banks replacing the previous rule of Basel-I. Bangladesh bank
adapted “Guidelines on Risk Based Capital Adequacy (Revised Regulatory
Capital Frameworks for the banks in line with Basel-III)” as per BRPD circular
no. 18 dated 21 December, 2014 replaced of “Guideline on Risk based Capital
Adequacy (Revised regulatory Capital framework for the banks in line Basel-II)” . This circular
shall come into force with effect from January 01, 2015. This new global regulatory and
supervisory stands mainly addressed the following
areas:

• Pillar 1
• Pillar 2
• Pillar 3

2.5 Credit Risk management

Credit risk is the risk that one party to a financial instrument will fail to
discharge an obligation and cause the other party to incur a financial loss.
Concentration of credit risk arises when a number of counter parties are engaged
in similar business activities, or activities in the same geographical region, or
have similar economic features that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic, political or other
conditions. To manage credit risk, the Bank applies credit limits to its customers
and obtains adequate collaterals. Credit risk in the Sonali Bank Ltd.'s portfolio is
monitored, reviewed by the Credit Risk Management (CRM).
CRM determines the quality of the credit portfolio and assists in minimizing
potential losses. To achieve this objective, CRM formulates appropriate credit
policies and procedures for the Bank to ensure building and maintaining quality
credits and an efficient credit process
Sonali Bank Ltd. has established Asset-Liability Management Committee
(ALCO) determine the maximum risk exposure. ALCO also assesses
recommends and controls cross border/country risk.
To manage the Non-Performing Loans (NPL), Sonali Bank Ltd. has a
comprehensive remedial management policy, which includes a framework of
controls to identify weak credits and monitoring of these accounts.

13
2.6 Organogram: (Functional Wise)

Head Office

G.M Office

Principle Office

Regional Office

Branch

14
2.7 Organogram: (Position Wise)

Board of Directors

CEO &Managing Directors

Deputy Managing Deputy Managing Deputy Managing

Directors-1 Directors-2 Directors-3

General Managers at Head at General Managers Field GM office

office-6 at Divions-7

Deputy General Managers at Deputy General Managers at Field

office
Divisional Head of Head office
(GMO,PO and Corp.Br.)

Assistant General Managers at

Head office Assistant General Managers at Field
office

Other Executive SEO,EO,SO

Other Executive SEO,EO, SO officer
officer at Head office
at Field office

Other Staffs at Head office Other Staffs at Field office

15
 2.8 Organogram (Branch Wise)

Head

General General
Manager’s Office Manager’s Office

Divisions at Head
Corporate Branch Principle office office

Overseas Branch
Branch

2.9 Short Review of SBL, Branch of Rangpur

In order to complete my Internship, I worked in Sonali Bank Limited, Rangpur
Branch As an Intern. The branch is the Head branch or Regional head branch of
all other Branches of Sonali bank limited in Rangpur. Its Located near Press club road,
Rangpur.
Total number of employees are 53 in this branch. In which 41 employees are
well skilled officer, including the Manager. And the rest of 12 employees are
staffs.
This Branch is not a Corporate Branch, but yet the regional or main branch of
Rangpur. Like the all other branches, this branch also performs almost same
activities and services to the customers under Sonali Banks managements and
Bangladesh Banks regulations.

16
2.10 SWOT analysis
Swot stands for Strength, Weakness, Opportunity and Threat analysis. The swot
analysis of Sonali Bank is shown here:

Strengths:
• Branches throughout the country to serve its customer.
• Very strong relation with Bangladesh bank.
• They have corresponded relationship with other banks so the bank can
provide services of their customers.
• Strong local remittance management systems
• They have strong relation between every team.

Weakness
• The services are very slow.
• Slow modernization due to its huge size.

Opportunities
• The bank can offer more innovative types of services then other banks.
• Since Sonali Bank Ltd. has so many branches it can easily influence the
banking sector.
• Being a large Bank it can provide large investment.

Treats
• Increase in the competition in banking sector
• Increase in the use of modern technology and services like online
banking, mobile banking, internet banking etc.
• About remittance business these days many banks are showing greater
interest in the remittance business.
• Recent events like frauds and stealing where employees were found
involved.

17
 CHAPTER
THREE
DISCUSSION OF CREDIT
POLICY

18
This is the survival unit of the bank because until and unless the success of this
section the survival is a question to every bank. This is important because this is
the earning unit of the bank. Bank credit is an important catalyst for bringing
about economic development in a country. If this section is not properly works
the bank may become bankrupt. No growth of maintenance of a stable
economy is possible without adequate financial supporting banks are accepting
deposits from the depositors in condition of providing interest to them as well
as safe keeping their interest. Now the question may gradually arise how the
bank will provide interest to the clients and the simple answer is advance. Why
the bank does provides advances to the borrowers.

1. To earn interest from the borrowers and give the deposits interest back.
2. To accelerate economic development by providing different industrial as
well as agricultural advances.
3. To create employment by providing industrial loans.
4. To pay the employees as well as meeting the interest groups.

The credit policy pursed by Bangladesh Bank is to be aimed at ensuring

development of scare Bank resources in the best possible manner for
increasing Production, employment and Real income within its objectives. Both
selective and qualitative credit can't were adapted to the socio-economic
priorities, distributive and justice need for containing money supply within a
safe limit.

Sonali Bank Limited takes the policies, which help the development of several
sectors of the country under general credit division and for achieving the
proposed goals of the principles of Agricultural, Economical, Industrial and
Trade following the guide lines of Bangladesh Bank. this is the credit policy of
Sonali Bank Limited. This policy is changeable. If Bangladesh Bank resists
providing credit in any sector Sonali Bank Limited does not provide any credit in
those sectors.

3.2 Definition of Credit

The word credit derived from Latin word "CREDO' means I believe. Credit is a
contractual Agreement, in which a borrower receives something of value now,
with the agreement to repay the lender at some date in the future. The term
credit also refers to the borrowing capacity of an individual or company. A bank

19
can invest its funds in many ways. Bank makes loans and advances to traders,
businessmen, and industrialists. Moreover nature of credit may differ in terms
of security requirement, disbursement provision, terms and conditions etc. One
of the basic functions of the bank is to deposit extraction and credit extension.
And managing credit operations are the crying need for any bank. Recovery of
one credit gives rise to another credit.

Credit is continuous process. Recovery of one credit gives rise to another credit.
In this process of revolving of funds, bank earns income in the form of interest.
A bank can invest its funds in many ways. Bank makes loans and advances to
traders, businessmen, and industrialists. Moreover nature of credit may differ
in terms of security requirement, disbursement provision, terms and conditions
etc.
In banking terminology, credit refers to the loans and advances made by the
bank to its customers or borrowers.

So Credit refers to

• Short Term Loans & Advances.

• Medium / Long Term Loans.
• Off-Balance Sheet Transaction.

Loan Management
The management of bank’s assets must be conducted in a profitable and safe
manner. Safety is essential to commercial banking since banks hold billions of
taka of deposits of individuals, business and governments. Profit is also
necessary for the successful operation of a bank. Lending is the most profitable
and the most risky function performed by banks. Therefore, it must be done
efficiently and with a minimum of loss so credit management is essential for
the bank.

3.3 Importance of Credit

• It provides working capital for industrialization.
• It helps to create employment opportunities.
• Credit controls almost all kinds of production activities of the country.
• It brings social equity.

20
 • Cash generation occurs for its successful performance.
• Business cycle can run well only by the help of lending system.

3.4 Credit Management

Credit management, also known as credit control, is activity aimed at serving
the dual purpose of-

• Increasing sales revenue by extending credit to customers who are

deemed a good credit risk, and
• Minimizing risk of loss from bad debts by restricting or denying credit to
customers who are not a good credit risk.

Effectiveness of credit control lies in procedures employed for judging a

prospect's creditworthiness, rather than in procedures used in extracting the
owed money. A function performed within a company to improve and control
credit policies that will lead to increased revenues and lower risk including
increasing collections, reducing credit costs, extending more credit to
creditworthy customers, and developing competitive credit terms. 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 loans and advances and their efficient management. It’s also called
credit control.

3.5 The guidelines of credit policy

Our Vision: Socially committed leading banking institution with global
presence.

Our Mission: Dedicated to extend a whole range of quality products that

support divergent needs of people aiming at enriching their lives, creating
value for the stakeholders and contributing towards socio-economic
development of the country. Continuous development of Information and
Technology to meet the demand and challenges of the time.

21
3.6 Objective of the Credit Policy
As guidelines of credit policy, the bank is to maintain their policy to provide
loans of the customer.

• Credit analysis.
• Security.
• Minimum level of risk.
• Liquidity.
• Selection of borrower.
• Selection of risk in lending.
• Risk management.
• Credit rating.
• Loan pricing.

3.7 Principals of Credit Policy

• Safety

The first guiding principles of a Banker should be "Safety First", so far as his
advances are considered, because the very existence of a Bank depends of the
Safety of its outstanding which should never, therefore, he sacrificed to the
profit earning capacity of its advances. Consequently to maintain a Banking concern in sound
condition, it is very essential that the safety of its advances to
customers should be above suspicion. Extreme care should be taken that the
fund rent out are not subject to any risk or being lost. The Banker is to ensure
in the best possible manner that the money advanced by him goes to the right
type of borrower and is utilized in such way that it will not only be safe at the
time of lending but will remain so throughout, and after a useful purpose in the
trade or industry where it is employed, is repaid with interest.

• Liquidity

Banks can invest in two types of terms viz. Long term and Short term. Banks
feel very risky in long-term investment. So, they normally invest in Short term
investment to maintain the liquidity of the Bank. The Liquidity of an Advance

22
means its repayment on demand or on due date or after a short notice. The
loan must stand fair chances or repayment according to the requirement
achieve. It is almost important that Bank loan must be repaid as they become
due otherwise the liquidity position of the Bank is endangered. The major
cause of Bank's failure has been had liquidity. The period of the advance and
the case with which it will be repaid are very important. Even in the case of
fully secured advances if it is feared from the very beginning that the advances
would only he recovered by selling the securities it is not considered a good
advances. It must, therefore, always ensure that the advance will be repaid
from resources other that the securities pledged.
The basic problem in advance Viz. Graduate Reeducation and eventual
repayment is the crux of the whole matter. A Banker would be failing in his
duty to safeguard the interest of his depositors and the shareholders if his
credit policy does not take full cognizance of this problem and not provide a
method for gradual repayment and final recovery of the money advance.

• Profitability

Equally important is the principle of profitability in Bank advances. Like other

Commercial institutions, Banks must make profit where there is no profit banks
don't invest. Firstly, they have to pay interest on the Deposits received by
them. They have to incur expenses on establishment stationery etc. They have to make provision
for depreciation of their fixed assets and also for any
possible bad or doubtful debts. After meeting all these items of expenditure,
which enter the running cost or Bank, a reasonable profit must be made. The
landing rate of Bank is based on all these considerations. It is sometimes
possible that a particular transaction may not appear profitable in itself, but
there may be some ancillary business available, such as deposit from the
borrower other concerns or his foreign exchange business, which may highly
remunerative. In this way, the transaction may on the whole be profitable for
Bank.

• Purpose

Another significant principle which is to be kept in view when advancing is the

Purpose. The purpose for which lending is made should he productive as to
ensure definite source or repayment. Banks discourage advances for Harding
Stocks or for Speculative activities.

There are obvious risks involved therein apart from the antisocial nature of
such transactions. The Banker must closely scrutinize the purpose for which the

23
money is required and ensure as far as he can, that the borrower applies the
money borrowed for a particular purpose accordingly. Purpose has assumed a
special significant in the present-day concept or Banking.

• Diversification of risk

The security consciousness of a Banker and the integrity of the Borrower are
not adequate factors to keep the Banker on safe side. What is more important
is the diversification of Risk. This means, he should not lend a major portion of
his loan able funds to any single Borrower or to an Industry or to one particular
Region. In fact, the entire Banking business is one of taking calculated risks and
a successful banker is an expert in assessing such risks. He is keen on spreading
the risks involved in lending over a large number of Borrowers, over a large
number of Industries and Areas, and over different types of securities; the
advances must not be in one particular Industry. Too many eggs should not be
placed in one basket, because any adversity faced by that particular Industry will have a serious
effect on the Bank. Slump does not normally affect all
Industries and business simultaneously.

• Security

Whenever a money lender lends money he must be consider carefully the

changes of his being repaid by the Borrower and is therefore not normally
content to rely on the obligation or the Borrower alone but wants some
tangible security from which he can obtain repayment in case the Borrower is
unable to meet his obligations. Without taking such security the business of
money lending would be too speculative. The Banker also making advances and
loans naturally wants to secure him by some reliable security. Security is
considered as insurance or a caution to fall back upon in case of emergency.
Bankers may realize it and reimburse themselves if the well calculated and
certain source of repayment unexpectedly fails. It is, however, incorrect to
consider an advance proposal from the point of view of security alone. An
advance is granted by a good banker on its own merits, that is to say with due
regard to its safety, capacity liquidity purpose etc. and after looking in to the
character, capacity and capital or the Borrower and not only because the
security is good.

• Sources of Repayment

A sound credit is one where timely repayment is assured. So, before giving
financial accommodation, a Banker should consider the source from which

24
repayment is promised. In some instances, debentures, which are to be
redeemed in few month times or a lire policy, which is to mature in near future,
may be offered as security. Advances against such security give no trouble.
Sometimes customers may apply for loans for additional Working Capital for
their business and undertake to repay out of the profits over a period. In such
cases, the Rate at which the customer can reasonably hope to repay should be
ascertained. An examination of the audited accounts may guide the Banker in
knowing the repayment capacity of the customer.

• Suitability

Even when an Advance satisfies all the aforesaid principles it may still not be
suitable. The Advance may be encountered to National interest. These
Principles may have to be amended to a certain extent. Suitability of Advance
from National viewpoint has therefore come to be regarded as a basic principle
of Lending

• Pledge

According to the section 172 of the Contract Act, when a borrower surrenders
his business goods to the banker’s custody as the security of loan given by the
bank then it is called pledge. The pledged goods remain with the possession
and control of the bank and the client draw the goods in case of need with the permission of the
bank by repaying adequate amount of loan. Bank usually
permits drawing power (DP) to the borrower to draw the goods from its
custody after checking the stock report. In case of default, bank deserves the
right to realize the loan by selling the pledged goods. Bank creates this charge
based upon the letter of pledge which has been taken from the bank borrower
before disbursement.

3.8 Classification of Loans & advances of SBL

Sonali bank offers following types of loans and advances;

1.Secured Overdraft (SOD).

2.Cash – Credit (CC).
3.Mid-term loan.
4.Demand loan.
5.Small loan.
6.Customer loan.
7.Industrial loan.

25
 8.Bills purchased & discounted.
9.Staff loan
10.House building loan.
11.Transport loan.

3.9 Causes Behind the Credit Risk

• 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 asset-secured fixed or floating charge debt.
• 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.

3.10 Credit Risk Policy

Every financial institute should have a credit risk policy document that should
include risk identification, risk measurement, risk grading/ aggregation
techniques, reporting and risk control mitigation techniques, documentation,
legal issues and management of problem facilities. The senior management of
the FI should develop and establish credit policies and credit administration
procedures as a part of overall credit risk management framework and get
those approved from Board. Such policies and procedures shall provide
guidance to the staff on various types of lending including Corporate, SME,
Consumer, Housing etc. Credit risk policies should:

• Provide detailed and formalized credit evaluation/ appraisal process.

• Provide risk identification, measurement, monitoring and control.
• Provide risk identification, measurement, monitoring and control.
• Be communicated to branches/controlling offices.
• Clearly spell out roles and responsibilities of units/staff involved in
origination and management of credit.

26
In order to be effective, these policies must be clear and communicated down
the line. Further any significant deviation/exception to these policies must be
communicated to the top management/Board and corrective measures should
be taken. It is the responsibility of senior management to ensure effective
implementation of these policies duly approved by the Board.

3.11 Interest Policy

• Interest is calculated on unclassified loans and advances and recognized
as income during the year;
• Interest calculated on classified loans and advances as per Bangladesh
Bank circular is kept in interest suspense account and credited to income
on realization;
• Interest is calculated on daily product basis but debited to the parties
loan account quarterly, no interest is charged on loans and advances
which are classified as bad and loss.
• Interest suspense and penal interest, if any calculated on classified loans
and advances are taken into income in the year of its receipt from the
defaulting borrowers.

27
 CHAPTER
FOUR
LOAN DISBRUSEMENT
PROCESS OF SONALI
BANK LIMITED.

28
4.1 Factors Considered for Sanctioning Credit
Though off balance sheet activities play a vital role in a bank’s earnings, still
income earned out of lending accounts for major portion of income of it? This
lending in other words advance may raise the standard of success of a bank to
the highest possible level and at the same time can be a sole instrument for
liquidation (i.e. premature death of a bank) depending on how this portfolio is
handled. So following factors should be given great emphasis.

Who shall get credit?

It is easier to find out a depositor than finding out a good borrower. Public
money in hands of a bad borrower is never safe and secure. Then the question
comes whom to lend? In a nut shell the answer is the entrepreneur who, for
attaining his own pecuniary interest as well as mental satisfaction together
with offering additional services and well being to the society at large,
undertakes efforts to collect together various types of necessary goods, labor
materials, other wealth etc and by means of application of his wisdom,
foresight, creativity, devotion and self confidence, takes initiative to add
additional utility and value to the collected materials and wealth by bringing
change and or modification in their form. It is widely accepted that a good
entrepreneur is a good borrower.

How much to lend?

Over financing and under financing is very common phenomenon in credit

portfolio; neither of which is desirable as a sound principal of advance. The
highest priority of consideration is that bank credit must not be extended for
speculative purpose and sound credit policy always finds out actual credit need
depending on nature, volume, turnover of business as well as capability of the
prospective borrower, which in turns depends on the test of good
entrepreneurship. The most important aspects for consideration is how much a
bank can lend taking into consideration its liquidity position, loan-SBL fund and
commitment already made.

Why to lend?

The recommending as well as sanctioning authority must ascertain and

satisfy himself that all advance are for productive purpose, genuine
business and trade need based and neither for speculative nor for
unproductive purpose. It is primary responsibility of recommending
officer to visualize whether the loan, he is recommending for will
generate cash to desired extent benefit to the bank, to the borrower and

29
to the society at large. Bank cannot afford a loan turning bad to the
detriment of institution and the society and for this purpose, the
recommending and sanctioning officer must be acquainted with sound
principles of advance and the ways and means to analyze the risks
involved with the proposal processes and the limit sanctioned.

4.2 Credit Proposal and Sanction Process of SBL

The total process of proposal and sanction is a continuous process. In a
particular stage the describe loan is sanctioned or rejected by the authority.
The total process consist maximum of 6 steps:

Step-1: The client applies for a certain amount of loan in a prescribed form
which is available in the branch office. He has to mention the amount; the
purpose, the mortgage property that he can assure and the time when he wish
to enjoy the amount.

Step-2: The branch manager and the cashier then take the responsibility to visit
and evaluate the concern. They have to prepare a credit report mentioning the
present condition, assets and liabilities ratio, and reputation along with the
origin of the concern. He should be some recommendation about the
dependency of the firm.

Step-3: Then the credit report is forwarded to the original office for approval.
In the regional office two dealing officer under the direct supervision of AGM
made some other recommendations by considering the credit report and direct
investigation. Then they will justify the net worth of the concern and its
economic position. Here if the amount is with the ability of the regional head
(AGM) he can sanction the loan. Otherwise the proposal file will be forwarded
to the principal office. If the dealing officers found something dissatisfied they
can reject the proposal.

Step-4: The head of the corporate branch (DGM) can sanction a certain level of
amount greater than the regional office. Here the file is strictly observed by the
dealing officers under the direct supervision of DGM. He may sanction the

30
 mentioned amount or reject for the logical cause or send to the GM office or
Head office for the further consideration.

Step-5: After reviewing every aspect of the loan proposal the GM can approve
the proposal up to certain level. He may reject or send the file to the managing
director for the directors approval.

Step-6: After the approval of the proposal in any of the stage region to the
board of directors. Bank send the proposal file along with the necessary papers
of the mortgage and to verify the validity of the ownership of the property for a
little dissatisfaction of the solicitor the proposal may be rejected. Otherwise he
will request the bank to disburse the amount.

4.3 Sanctioning Procedure of SBL Rangpur Branch

The conditions which are mentioned in this branch for issuing loan are:

• Name and address of the borrower

• Nature of debt.
• Amount of debt.
• Primary deposit
• Term of loan.
• Margin.
• Interest rate.
• Special conditions.

4.4 Borrower͛ Preparation of Loan Proposal

To get Advances or loans from Banks, it is not very easy way to acquire. It
demands some preparation from the Borrower. Because which the amount is
sanctioning by the banks is not of its own. The public deposits this amount, so it
is very risky for Bank to lend this to the Borrower. If the Bank fails to recover
that money than it should be paid from its own fund. As a result, Banks fixed a
systematic way to minimize this lending risk and try to proper use of the money.
Proposal requires:

• Loan Application.
• Required Paper as per Ownership of the Industry.
• Schedule of Mortgage Properties and Relevant Papers.

31
 • Market reputation.
• Other Bank opinion about the previous money Lending.
• Feasibility Study.
• Lending Risk Analysis.
• Financial spread sheet analysis.
• Credit scoring.
• Forwarding
• Valuation of Certificate
• Trade License & CIB Report
• Commercial Invoice
• Mutation Certificate.
• Affidavit and Personal Guarantee.
• General Irrevocable Power of Attorney

Loan Sanction, Disbursement and Recovery Procedure almost same as General

Advances.
Working Capital Management involves the financial and Management of the
Current assets of the Firm/industry. A Firms/industries ability to properly
manage Current assets and the associated liability obligations may be determine
how well it is able to survive in the short run, When a Firm/industry is unable to
meet its current assets (payment of labor, raw materials etc.) then the Firm/Industry to the Bank
for Working Capital. After proper investigation, Bank
sanctions Working Capital for that Firm.

Since 1973-74 Sonali Bank Limited started to disburse in Agricultural Credit

Program. The lion share of the disbursed credit goes for crop; the credit is being
disbursed in a limited scale for the income group under various programs.

4.5 Necessary Instrument for Issuing Debt

• DP note unlading stamp.

• Letter of continuity.
• Letter of arrangement.
• Letter of disbursement.
• Letter of hypothecation.
• Statement of monitoring signed by manager.
• Memorandum of deposit title deed.

32
 • Power of attorney in case of failure to repay debt.
• Guarantee of owner of property.
• A passport size photograph.

4.6 Credit Administrations of SBL

The board of directors being at the highest level of organization structure plays
an important role on the credit administration. The board of directors is not
directly concerned with the day to day operation of the bank. The board has
delegated the authority to the managing director. The Head Office credit
committee and other assigned credit officers under the guidance of the managing
director approve, direct, monitor and review lending operations throughout the
bank and ensure that the credit policies are adhered to and the credit operation is
conducted in an effective way. In order to ensure the effective credit portfolio,
the board, in turn, monitors the credit department and ensures placement of
qualified officials who have got the right aptitude, formal training in finance,
risk analysis, bank credit procedures as well as required experience.

4.7 Loan Documents Check Lis

The Loan Documentation Check List (LDCL) covers the matter relating to
security documentation in respect of sanctioning and draw-down credit facilities
to ensure that prescribed documentation formalities have been observed and
required securities have been obtained as per sanction terms and conditions to
safeguard Bank’s legal protection and to avoid credit risk in the exposure. The
Loan Documentation Check List (LDCL) should be prepared and duly signed by
the concerned person and reviewed by the designated person and filed as per
circular. Moreover, copy should be forwarded to controlling office/head office
for further checking as per requirement of circular. It should also be preserved
by the respective office properly for further audit/review by internal auditor,
controlling office, Bangladesh Bank Inspection Team, etc.

33
 CHAPTER
FIVE
LOAN RECOVERY OF
SONALO BANK LIMITED

34
5.1Security
Some loans and Bank advance are issued to the customers against security.
Sonali bank also grants loans in term of security. Security is a policy that helps
the bank to recover the loan from the borrower, even if the borrower is unable to
repay the borrowed loan.

Financing loan is the key investment for bank with keeping collateral as
security. As a result bank has to concern when loan is disbursed and consider the
security as bank financial performance based on that. Security creates an
obligation on the borrower to make the payment on time. Sometimes bank wants
some tangible security from which he can obtain repayment in case the borrower
is unable to meet his obligations. Without taking such security the business of
money lending would be too speculative.

Security is considered as insurance or a cushion to fall back in case of

emergency. Bankers may realize it and reimburse themselves if the well
calculated and almost certain source of repayment unexpectedly fails. It is,
however, incorrect to consider an advance proposal from the point of view of
security. An advance is granted by a good banker on its own merits, that is to
say with due regard to its safety, capacity liquidity purpose etc. and after looking
in to the character, capacity and capital or the borrower and not only because the
security is good. Adequate securities to be obtaining while sanctioning and
disbursing loan and advances stand for the banker as the last resort for recovery
in case of loans and advances being inactive and stuck-up.
Security can be classified as personal as well as primary security.

• Personal Security
In all advances the banker has a right if action against the borrower personally.
Still then bank takes demand promissory notes from the borrower. Sometimes
the banker in addition to borrower’s personal security obtains guarantee from a
respectable third party as personal security. These securities may be termed as
personal security.

35
 • Primary and collateral Security
Primary security is that security which is regarded as the primes cover for an
advance and ordinary is tendered by the borrower himself. The term’s collateral
security is applied to security tendered by the first party or third party to secure
as advance.

The common methods of charging security are:

➢ Pledge:
When goods are bailed as security against advance of performance of a promise
then it is called pledge. Ownership remains with the pledge and profession lies
with the pledge that acquires and special priority and lien so long his loan is not
repaid.
➢ Hypothecation:
It creates a charge on property or goods for the amount of the debt. The owner
retains his ownership as well as possession. But in case of default bank will be
the legal owner of the goods.
➢ Mortgages:
Transfer of an interest in specific immovable property for the purpose of
securing the payment of money advanced or to be advanced by way of loan,
existing or future debt, and the performance which may give rise to a pecuniary
liability. Usually there are two types of mortgage such as registered mortgage &
equitable mortgage.
• Assignment:
An assignment means transfer of right, property or debt or to make it over to
another person. It is same as mortgage with the difference that in mortgage there
is always a right of redemption but in the assignment it is provided by a separate
agreement. Assignment relates to actionable claims. Actionable is a claim to any
debt other than a debt secured by mortgage of immovable property or by
Hypothecation or pledge of movable assets.
• Lien:
Lien is a right to retain goods/ properties belonging to the debtor given to the
creditor as security until he has discharged the debt due. Lien entitles the
retainer to only retain the goods. He cannot sell the goods in the absence of a
contract to the contrary.

36
 • Set off:
Right of set is the right of debtor to the total or partial of a claim of a creditor
against him in his counter claim against the latter. It is the combining of
accounts between a debtor & a creditor so as to arrive at the net balance payable
to one or the other. The right of set off enables a banker to adjust wholly or
partly, a debit balance in a customer’s account with any balance lying at his
credit in any other account.
• Insurance
Insurance is a written and definite contract between two parties under which one
party pays the other party, the insurer, a definite sum of money called premium
in consideration of which the insurer agrees to indemnify the losses, under
agreed terms and conditions. This insurance policy can be a security for the bank
in the time for sanctioning loans.
• Guarantee:
Guarantees are obtained from third parties to secure advances under different
situations such as in case of clean advances which are subject to credit
restrictions. Or in case of advances to a partnership firm, limited company,
advances where collateral security in the form of real estate/ FDR BSPs are
owned by third person etc. Guarantee should never be accepted from minors and
persons of unsound mind, insolvent person who cannot enter in to a valid
contract.

5.2 Loan Recovery Procedure

Sonali Bank’s profitability and sustainability mostly depends on the recovery of
its outstanding amount. Outstanding amount includes both principal and interest because, 80% of
bank’s earnings comes from advances. A poor recovery rate
indicates the weak condition of the banking operation and vice versa.
Recovery procedure is a lengthy one that requires efforts of the bank, society
and legal institutions. It also takes time and money. The main responsibility of
bank manager and advance / loan officer is to recover the outstanding loan in
Sonali Bank. The loan recovery procedure is divided into several steps.

37
 CHAPTER
SIX
ANALYSIS & INTERPRETATION

38
 6.1 Deposit Performance 0f 5 Years (Rangpur main branch)

CONTENT 2022june 2021 2020 2019 2018

Fixed Deposit 2,88,49,076.04 4,74,26,371.10 3,81,62,215.09 2,37,82,262.30 3,72,91,625.86

A\C

Special Note 2,25,52,71,825 3,74,86,817 2,62,13,352 2,98,87,132 3,98,27,172

deposit

Savings 54,87,25,132 63,42,82,561 34,74,47,241 23,82,18,342 34,87,98,252

deposit

Sonali deposit 2,87,82,349 3,87,83,827 4,37,35,389 2,83,93,621 3,87,34,129

Scheme

Educational 23,23,527 21,42,526 25,42,981 25,18,182 24,91,261

deposit
Scheme
Medicare 3,63,35,263 4,52,26,292 2,92,82,162 3,82,15,261 3,26,29,182
deposit
Scheme
Monthly 70,68,362 68,93,484 73,03,383 56,93,038 56,82,372
Earning
Scheme

Marriage 45,29,112 42,18,282 41,92,123 39,93,903 34,92,145

Earning
Scheme
Double 7,98,27,134 9,82,91,279 9,82,01,722 9,52,81,252 7,91,23,342
Benefit
Scheme
School 45,47,352 62,82,927 56,28,356 - -
banking
scheme

39
Sonali Bank 1,16,15,142 1,15,26,192 1,92,18,162 1,28,16,182 -
Retirement
Saving
Scheme
Triple Benefit 63,73,298 45,82,726 76,82,271 62,82,182 52,271,291
Scheme

Millionaire 5,73,28,243 5,26,16,912 6,91,28,291 5,92,29,281 3,92,71,921

Scheme
(SBMS)
DPS Pension 6,12,162 7,18,241 8,91,261 8,18,281 5,19,181
Payment A/C
Deposit - - - 8,91,726 7,72,162
Pension
Scheme
Short Term - - - 7,82,736 2,91,281
Deposit
TOTAL 93,24,52,092 96,91,82,817 94,91,71,626 87,81,62,817 75,98,12,981
TIME
DEPOSIT
Current 1,35,27,82,152 1,26,61,17,281 1,81,17,17,172 98,72,19,615 86,98,98,091
Deposit
Call Deposit 76,98,790 62,91,838 71,92,291 61,81,837 71,92,192

SUB TOTAL 1,36,04,81,542 1,27,30,09,119 1,81,89,10,063 99,34,61,512 87,70,90,883

Margin on 23,72,879 56,17,812 - - -

Letter of
Credit
S.B 12,25,271 -
Employees
prov. Fund
(contributory).

40
S.B 23,91,261 - - -- -
Employees
prov. Fund
S.B 22,81,261 - - - -
Employees
pension fund
S.B 15,27,182 - - - -
Employees
PDCR benefit
fund
TOTAL 1,37,02,79,396 1,27,86,26,931
DEPOSIT

[Source: Weekly/Monthly Statement of Affairs]

[Principal/Regional Office, Rangpur]
[For 2012 the amount is shown till June]

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 6.2 Loans and Advance Performance of 5 Years (Rangpur main
branch)

CONTENT 2022june 2021 2020 2019 2018

General - - - - -
Advances

Cash Credit: 46,64,209.00 40,33,877.00 44,37,586.79 24,72,237.79 56,72,961.79

General
Hypothecation

Cash Credit - - - - -
General
Pledge
Demand Loan - - - 54,20,556,00 48,79,615.00

Overdraft 1,53,13,672.00 1,36,76,719.00 1,63,22.935.00 2,01,32,899.00 1,63,72,311.00

Small Loan - - - - -

House - - - - -
Building Loan
(General)
House 41,47,31,801.11 40,72,17,337.15 38,28,20,895.73 35,86,60,382.00 34,55,59,081.75
Building Loan
(staff)
Other Staff 41,47,31,801.11 40,72,17,337.15 38,28,20,895.73 35,86,60,382.00 34,55,59,081.75
Loans

Special Small - - - -- -
Loan
Small 2,82,04,464.00 2,24,17,494.00 2,20,31,650.00
Business Loan
Scheme
Term Loan To
freedom
Fighters
Personal Loan 53,81,701.00 55,28,750.00 64,25,396.00

SUB TOTAL 48,39,78,672.16 47,03,64,060.20 44,82,26,947.57 40,01,23,249.84 38,79,42,498.59

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 6.3 Loans and Advance Performance of Sonali Bank Limited
(2019- 2022)

CONTENT 2022 2021 2020 2019

Loans &
Advances Total
Amount 423,218,353,943.00 384,538,118,238.00 346,346,340,867.00 337,554,433,143.00

6.5 Maturity Analysis of SBL 2022

CONTENT Up to 1 1-3 Month 3-12 Month 1-5 Years More Than Total
Month Maturity Maturity Maturity 5 Years
Maturity Maturity
Loans 31,186,831, 6,790,552, 168,437,475 89,917,062, 126,886,431 423,218,353
And 527.00 380.00 ,623.00 916.00 ,497.00 ,943.00
Advance

43
CHAPTER
SEVEN
FINDINGS

44
7.1 Summary of Findings

• The standard loan and advances of Sonali Bank is increasing year

by year. And it carries positive sign for Sonali Bank. It also induces
trust ability among its stakeholders.
• The interest income from loan and advances of Sonali Bank limited
is increasing year by year. This means the bank’s net profit will
increase further and it can expand more widely.
• Total Deposit is increasing which represent the positive sign for the
bank as deposits are increasing than the bank can use more
proportion of deposit for loans and advances.
• Before granting loans the bank officials clarify the borrower’s
information, his/her financial position, securities against loans &
advances and make analysis on his/her business and so on.
• Customer satisfaction level is quite good. Informal conversation
with some customers reveals that they approve the credit evaluation
and management process of Sonali Bank Ltd.
• Systematic and timely monitoring and appropriate documentation
are tried to be maintained.
• Sonali Bank Limited undertakes continuous monitoring, inspection,
periodical review of project implementation schedule, early alert
system etc. to recover loan on schedule.
• The loan portfolio of the bank spreads among small and medium
enterprises, general business and industries.

45
 CHAPTER
EIGHT
RECOMENATION & CONCLUTION

46
8.1 Recommendation

• Sonali Bank should strictly follow the Bangladesh Bank guideline for
credit deposit ratio as its credit deposit ratio was quite higher than
Bangladesh Bank guideline.
• Make sure the stability of the loan collection.
• The credit sanction procedure should be made quicker since competition is very
hard in today's business world. People do not want to wait for three to four weeks
on an average to get a loan which is even protected by security.
• Decision making process can be made more decentralized.
• Credit officers must be skilled enough to understand the manipulated and distorted
financial statements.
• Central monitoring system should be more active to maintain classified
loan to a minimum level.
• Sonali Bank should maintain a written guideline for credit management. If all
documents are available than it will help to analyze their client.
• Filing is a very important component of proper documentation. It has to be dealt
with importance.
• Vaults security should be increased.
• An uninterrupted network system has to be ensured. It will save the
officials from much hassle and will save time.
• Politically influenced Lending or project finance should be checked.
• Politically influenced Lending or project finance should be checked.
• Update the Banking system with green banking.

47
8.2 Conclusion
I have focused and analyzed on Credit Management in Sonali Bank Limited.
The banking sector in any country plays an important role in economic
activities. Bangladesh is no exception of that as its financial development and
economic development are closely related. That is why the private commercial
banks are playing significant role in this regard.

This report focused and analyzed on Credit Management in SBL. In the past
decade there has been a revolution in the communication media through the
introduction of internet and other forms of secure dial-up media. This had an
immense impact on all the sectors of the industry specially the banking sector.
Traditionally in order to execute banking transaction a customer would require
coming at the bank.

Sonali Bank Ltd. is much different in any terms. Its activities are vast and in
cases unique to any other bank. Its deposits and loans are huge compared to
other banks. It finances government projects, provides unique services to people
in need, even in places it works as central bank. This Bank often makes decision
for the welfare of general public despite risk of credit exposure.
The bank has established a sound credit management and credit risk mitigation
policy. Compliance with Basel II & Basel III norms helps the Bank to improve
their profitability through better credit risk management systems.

The writer would like to suggest, a bank requires some special personal traits
that not every bank possesses. Among the most important of these are honesty,
reliability, thoroughness and willingness to always be open to new ideas and
new ways of meeting customer needs.

Today is not like yesterday and tomorrow will be different from today. Given
the fast changing, dynamic global economy and the increasing pressure of
globalization, liberalization, consolidation and disintermediation, it is essential
that Sonali Bank limited has a robust credit risk management policies and
procedures that are sensitive to these changes.

48
Reference

• Sonali Bank Limited Annual report, 2021 & 2022.

• Sonali Bank limited Regional Branch, Rangpur (2021-2022). Unpublished
Report, Rangpur Branch.
• Sonali Bank limited Regional Branch, Rangpur (2021-2022). Unpublished
Report, Rangpur Branch.
• Auditors Report of Sonali Bank Limited 2020 to 2021
• Websites:
http://www.sonalibank.com.bd/profile.php
http://www.ecadima.edu.com
www.wikipedia.org/wiki/creditmanager
http://www.assignmentpoint.com/business/internship-report-oncredit-risk-
management-of-sonali-bank.html
http://www.academia.edu/9842363/Credit_risk_Management_of_S
onali_Bank_BD_Gias_Uddin_and_Daloar_Comilla_University
https://www.sonalibank.com.bd/PDF_file/noc/ICC_POLICY-
2020_OF_SONALI_BANK_LIMITED_(PDF)_opt.pdf
https://www.bb.org.bd/econdata/intrate.php
 https://www.bb.org.bd/fnansys/interestlending.php
• Loans and Advance department- Sonali Bank Limited, Regional head
Branch, Rangpur.

49