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Welcome

to
Our
presentation
Group Profile

Name ID

Majbah Uddin M160201553

Sabbir Ahammad Galib M160201554


Suvro Das M160201541

Md. Shahadad Hossain Bhuyan M160201513

Swarna Roy M160201596


Loan Default

Loan delinquency is a failure to make loan payments when they are


due. Extended delinquency can result in loan default.
Loan default is the failure to repay a loan according to the terms
agreed to in the promissory note. A lender may take legal action to
get the money back.
Core Risk Management

As per Bangladesh Bank guidelines there are seven core risks in


Banking Sector These are:
Credit Risks
Asset and Liability / Balance Sheet Risks
Internal Control & Compliance Risks
Money Laundering Risks and
Foreign Exchange Risks
It risks
Environment risk
Core Risk Management

1 Credit Risk
Risk is inherent in all aspects of a commercial operation, however for
Banks and financial institutions, credit risk is an essential factor that needs
to be managed.
Policy guidelines
Preferred organizational structure & responsibilities
Procedural guidelines
2 Asset and Liability/ Balance Sheet Risk
Asset and liability management is the most important function of Bank
management. Asset Liability Management ensure balanced fund
mobilization and their deployment with respect to their maturity profile,
cost, yield as well as risk exposure.
Loan Deposit Ratio (LD)
Wholesale Borrowing Guidelines (WBG)
Core Risk Management

Commitments
Medium Term Funding Ratio (MTF)
Maximum Cumulative Outflow
Liquidity Contingency Plan
Local Regulatory Compliance
3 Internal Control & Compliance Risks
Internal control is the process, effected by a company's board of directors,
management and other personnel, designed to provide reasonable assurance
regarding the achievement of objectives in the effectiveness and efficiency
of operations, the reliability of financial reporting and compliance with
applicable laws, regulations, and internal policies
Organization Structure
Process Guidelines
Internal Control Process
Core Risk Management
4 Money Laundering Risks
Properties acquired or earned directly or indirectly through illegal means.
Illegal transfer, conversion, concealment of location or assistance in the
above act of the properties acquired or earned directly or indirectly through
legal or illegal means.
Identification procedures
Anti-money laundering processes
5 Foreign Exchange Risks
The globalization process has made the foreign exchange market a worldwide
network. The market is open around the clock and follows the sun around the
globe with the help of communication satellites. There is none statutory
international body that regulates the activities of foreign exchange market.
Therefore, it has been emerged as a self-regulated market.
Policy
Organizational structure
Process
Core Risk Management

6 It risks
Information technology (IT) plays a critical role in many businesses. IT
risks include hardware and software failure, human error, spam, viruses and
malicious attacks, as well as natural disasters such as fires, cyclones or
floods.
7 Environment risk
Environmentally Derived Risks for the Bank:
Inability of the client to make payments due to unexpected
environmental costs.
Over valuation of assets offered for security
Decrease in the value of security due to environmental impairment
during the term of the investment.
Legal liability for clean-up.
Loan Classification and Provisioning Rules
All loans and advances will be grouped into four (4) categories
(a) Continuous Loan (b) Demand Loan (c) Fixed Term Loan and (d) Short-term
Agricultural & Micro- Credit.
Provisioning Rules
General Provision: Banks will be required to maintain General Provision in the
following way:
@ 0.25% against all unclassified loans of Small and Medium Enterprise (SME)
as defined by the SME & Special Programmes Department of Bangladesh
Bank from time to time and @ 1% against all unclassified loans (other than
loans under Consumer Financing, Loans to Brokerage House, Merchant Banks,
Stock dealers etc., Special Mention Account as well as SME Financing.)
@ 5% on the unclassified amount for Consumer Financing whereas it has to be
maintained @ 2% on the unclassified amount for (i) Housing Finance and (ii)
Loans for Professionals to set up business under Consumer Financing Scheme.
@ 2% on the unclassified amount for Loans to Brokerage House, Merchant
Banks, Stock dealers, etc.
Loan Classification and Provisioning Rules
@ 5% on the outstanding amount of loans kept in the 'Special Mention
Account'.
@1% on the off-balance sheet exposures. (Provision will be on the total
exposure and amount of cash margin or value of eligible collateral will
not be deducted while computing Offbalance sheet exposure.)
Specific Provision: Banks will maintain provision at the following rates in
respect of classified Continuous, Demand and Fixed Term Loans:
Sub-standard: 20%
Doubtful: 50%
Bad/Loss: 100%
Provision for Short-term Agricultural and Micro-Credits:
All credits except 'Bad/Loss' (i.e. 'Doubtful', 'Sub-standard', irregular and
regular credit accounts): 5%
'Bad/Loss: 100%
Credit Information Bureau (CIB)
Credit Information Bureau (CIB) is a credit record of an individual, which
contains the repayment history of liability. The CIB is generated from central
bank of a country. In the previous time, the CIB was generated manually but
now a day it is generated through online from the server of Central Bank. In
manual process it was a lengthy process which took about 15 to 20 days to
generate, but now it requires only few seconds.
CIB (Credit Information Bureau) Process
File receiving from Branch/DST with CIB inquiry and Undertaking form
Log-in to Bangladesh Bank CIB online Module/Server (www.bbcib.org.bd)
Applicants Information input to the Bangladesh Bank CIB online Module
or Server
1 Contract Data:
2 Subject Data (Borrower/Co-Applicant/Guarantor)
Receiving the PDF document from Bangladesh Bank CIB online server
Analyze the Loan Status
Guidelines for loan rescheduling

The bank must have a policy approved by its Board of Directors in


place that defines the circumstances and conditions under which a
loan may be rescheduled, consistent with this circular.
When a borrower asks for rescheduling of loan, the bank shall
meticulously examine the causes as to why the loan has become
non-performing.
If a borrower while applying for rescheduling, pays the required
down payment in cash at a time, the bank must address the
application within 03 (three) months upon receipt.
Banks while considering loan rescheduling, must consider overall
repayment capability of the borrower taking into account the
borrower's liability position with other banks and financial
institutions.
Guidelines for loan rescheduling

Banks shall review the borrower's cash flow statement, audited


balance sheet, income statement and other financial statements in
order to ensure whether the borrower would be able to repay the
rescheduled installments/existing liability or not.
If required, bank officers shall conduct spot inspections of the
borrower's company/business place to ensure that the concerned
company/business enterprise would be able to generate a surplus
to repay the liability of rescheduling
If a bank is satisfied after due diligence as mentioned above that
the borrower will be able to repay, the loan may be rescheduled.
Otherwise, bank shall take all legal steps to realize the loan and
make necessary provision.
Rescheduling of any loan must be justified in written statement
by the bank's Credit Committee.
Techniques of Handling Problem Loans

A loan default occurs when borrower failed to make repayment as agreement or


violates some other conditions of loan agreement. When borrower defaults, the
lender usually gives borrower an opportunity to repay the defaulted loan. Bank
usually uses the following techniques to handle the problem loan when borrower
faces trouble to service the loan:
Provide advisory/counseling services
Deputing representatives in the management position of borrower
organization;
Rescheduling of loan;
Waiver of interest;
Compromise settlement;
Legal action against borrower;
Sale of loan to independent organization; and
Appointment of an organization to recover the problem loan
Credit Risk Grading Manual
The Credit Risk Grading (CRG) is a collective definition based on the pre-
specified scale and reflects the underlying credit-risk for a given exposure.
A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary
summary indicator of risks associated with a credit exposure.
Credit Risk Grading is the basic module for developing a Credit Risk
Management system.
The following step-wise activities outline the detail process for credit risk
grading.
Identify all the Principal Risk Components
Allocate weightages to Principal Risk Components
Establish the Key Parameters
Assign weightages to each of the key parameters.
Input data to arrive at the score on the key parameters.
Arrive at the Credit Risk Grading based on total score obtained.
Legal Environment and Non-Performing Loans

Legal action against borrower is the last weapon bank uses to recover
dues. But in most cases, legal environment in Bangladesh becomes a
barrier instead of being helpful to recover bank dues. The commercial
law dealing with loan recovery overwhelmingly favors the delinquent
customers. The legal system makes it difficult for the NCBs to
repossess and sell many securities (LRA Manual, 1-2). The borrowers
are confident that they would not be touched for at least 10-15 years
due to cumbersome, inefficient and time consuming procedural law,
over burdened judges and most of all, ingenuity of their lawyers in
adopting dilatory tactics. Bangladeshi legal system provides an
elaborate system of appeals, reference, reviews and revisions, which
causes abnormal delays in the legal process. Present scenarios of legal
environment will discuss in the following subsections
Present Status of Law Relating to Recovery of Loans

Bank lends money to borrowers in the hope that it will be repaid at


the end of its tenure. If borrowers fail to repay the loans as
agreement, bank takes recovery drive. When bank recovery drives
fail, bank file case against borrowers as the last weapon. At present,
bank can take legal actions under the following laws:
(1) Filing certificate cases under the Public Demands Recovery
Act, 1913;
(2) Filing bankruptcy cases under the Bankruptcy Act, 1997;
(3) Filing money suit/title suit under the Artha Rin Adalat 2003;
and
(4) Other legal actions
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