Retail Credit Risk Management

RETAIL BANKING AND BUSINESS DEVELOPMENT DIVISION

NRBC BANK LTD

KAZI ZUNAID ZAMAN

FVP, RETAIL CREDIT MANAGER
WHY RETAIL BANKING ?
 Retail Banking target the small and individual needs of the customers largely the
consumers needs.
 Caters a wide range of customer group like service holders, landlord , business
persons.
 Opportunity for financial inclusion of wide group of customers and increase the
accounts.
 Opportunity to earn maximum interest spread in business.
 Cross selling options.
 Relatively easy to manage the customers.
 Innovation in Product development.
WHY RETAIL BANKING?
 Retail Exposure- Homogenous Portfolios consisting of a large number of small
and Low value loans either consumer or Business focus. The increments credit
default risk is small.
 Small in Value – the loan is smaller which never exposes bank in high credit risk.
 Not concentrated in geographic areas.
 Credit risk is diversified in different industry sector.
RETAIL BANKING PRODUCTS OF
NRBC BANK – loan products
 NRBC LIFE STYLE LOAN – targeted to cater the basic consumer needs. Max limit upto Tk.20.00 lac.

 NRBC AUTO LOAN- financing the to purchase car for individual. Max limit upto Tk.40 lac or 50% of
the vehicle value which ever is lower.
 NRBC Commercial Vehicle Loan- for commercial purpose and business use. Max limit Tk3 crore.

 NRBC HOME LOAN – targeted to finance construction of house, purchase of apartments, semi paka
house. Max limit upto Tk.2.00 crore.
 NRBC Commercial Construction – for commercial construction like business hub, Market, hospital etc.
Max. limit upto Tk.5 crore.

 NRBC BUSINESS LOAN- cater the financial needs of Small and medium enterprise. Max limit upto
Tk.75 lac.
MARKET PROSPECT

 Micro Credit/Small loan total loan outstanding Tk.22603.6 Crore

Sector Total Lon Outstanding (fig in Classified Loan (fig. in crore)

crore)

Manufacturing 3954.45 512.05

Trading 14,981.69 1492.93

Service 3667.49 113.02

MARKET PROSPECT

SME Loan outstanding totaling Tk.1,39, 506.02 as of March,2020

Sector Total Lon Outstanding (fig in Classified Loan (fig. in crore)

crore)

Manufacturing 32026.64 5203.08

Trading 86,806.52 12,542.79

Service 20,672.86 1644.42
MARKET PROSPECT

Particulars Amount in crore Tk.

Housing Commercial 24140.44
(developer/contractor)
Housing Residential urban individual 29476.15

Housing Residential rural individual 2135.70

House Renovation 6202.48

Consumer Finance (personal loan, Car 6825.43
loan, Any purpose Loan)
WHAT IS CREDIT RISK??
 Credit Risk – Credit risk arises from the potential that a bank’s borrower will fail
to meet its obligations in accordance with agreed terms, resulting in a negative
effect on the profitability and capital of the bank.
CREDIT RISK – ABLITY TO REPAY
THE LOAN ???
KNOW YOUR CUSTOMER (KYC)
 CHARACTER
 RELATIONS
 REFERANCES
 SOCIAL STATUS
 PREVIOUS LOAN PERFORMANCE
 DEPENDENTS
 ANY OTHER JURISDICTIONS THAT CERTIFIES
CAPACITY JUDGMENT OF THE
BORROWER
For Job Holders & Landlord under Retail loans– transparent source of income
 Current employer status- Industry status, Company reputation, years of operation, PL & BL position.
 Age
 Income form salary or rent and asset of the customer.
 Work experience
 Personal Net Worth statement (PNS) of the customer signed and verified by the customer.
 Salary statement analysis - Salary payment date, expenditure behavior, EMI payment, other fund source
reflection.
 Other Income – Spouse income, Business income.
 Family expenditure – if the customer is residing in his own house or rented.
CAPACITY JUDGMENT
 Repayment Period – normally shorter period I preferred for retail loans.
 Relation with the bank - The older your relationship with the bank, the higher are
your chances of getting the loan approved. Banks value their old customers due to
familiarity with the financial past.
 Debt burden ratio check.
 Repayment Behavior which will be checked through CIB and discussing with the
peer group and surroundings.
 Security – guarantor, reference.
KNOW YOUR CUSTOMER’S
BUSINESS
Industry

Govt. Policy Tecknowlodgey

Balance
sheet, Profit
loss and cash
flow

Successors Customers Taste

Competitors
Strength
CAPACITY JUDGMENT FOR BUSINESS LOAN

 Sole/ Partnership/ Public ltd. – NRBC Business loan is designed to cater the financial need of
Small and Medium enterprise. SME business in Bangladesh is contributing a major portion of GDP.
NRBC Business loan is targeted entertain the financial needs to this segment.
 As this loan is designed with or without collateral requirement potential default risk involves in
financing segments. Emphasizing on the financial strength of the business and the repayment
behavior of the customer we take the cushion for financing under this category.
FINANCING NRBC BUSINESS LOAN
Length of the Business – More than 3 years of trade license but preferred more than 6 years.
Business location – Center of the business point with good customer transition.
Nature of business and industry competition- If completion is very high
and easy entry and exit barrier possess more risk.
Demand of the product – Demand of the product is very important point to
consider. Some times technological change possess potential threat for the
business.
Business Experience of the customer- Customer must have enough
knowledge and experience I the business.
Business Capital and Debt structure of the business- Adequate capital to
support the business. Debt should not exceed more that 50% of the equity.
FINANCING UNDER NRBC BUSINESS
LOAN
 Stock Position of the Business - maintaining good stock represents healthy business
position. But in case if the product is obsolete due to competition stock may go slow
as sales fall. In such case we will have to check the inventory turnover of the concern.
 Receivable position with valid documents - high receivable in comparison to the
sales is a red flag for the business.
 Payable of the business
 Income Justification through sales documents and Bank statement transaction
analysis – Income of the customer will be the net income derived form business.
Normally to calculate we can consider 7 to 10 % as net margin of sales. In such case
try to justify the sales of the business form sales documents , stock position and bank
statement.
 Repayment behavior – CIB status, late payment behavior have to observe through
bank statement.
ACCOUNTING INSIGTS – WHAT IS INSIDE
THE BUSINESS??
 IS the Business Profitable?
 Is the business well Capitalized (Equity)?
 What is debt level of the Business?
 Is the cash flow of the business positive?
ACCOUNTING INSIGTS – WHAT IS
INSIDE THE BUSINESS??

EQUITY + LIABLITY = ASSET

OWNER INVESTMENT BANK LOAN Machine
Hand Loan Land Building
Accounts Payable Stock/ Inventory
Accounts Receivable
Cash in Hand
ACCOUNTING INSIGTS – WHAT IS
INSIDE THE BUSINESS??
Balance Sheet of XYZ Company
ASSETS 2018
Cash and Equivalents $ 200,000

Accounts Receivable, Net 3,000,000

Stock/ Inventory 5,000,000

Total Current Assets 8,200,000

Gross Property, equipment 9,800,000

Total Assets $ 18,000,000

LIABILITIES & EQUITY

Accounts Payable $ 1,500,000

Loan 6,000,000

Total Current Liabilities 7,500,000

Total Liabilities 7,500,000

Total Equity 10,500,000

Total Liabilities and Equity $ 18,000,000

ACCOUNTING INSIGTS – WHAT IS INSIDE
THE BUSINESS??
Income Statement 2018

Sales $ 120,000,000

Cost of Goods Sold 102,000,000

Gross Profit 18,000,000

Selling, General, and Admin Exp 10,200,000

Operating Income before Depr 7,800,000

Depreciation and Amortization 0

Operating Profit 7,800,000

Interest Expense 200,000

Other Gains and Losses 0

Pretax Income 7,600,000

Income Tax Expense 200,000

Net Income $ 7,200,000

ACCOUNTING INSIGTS – WHAT IS
INSIDE THE BUSINESS??
Some Important Ratio Analysis to check if business in good shape
 Sales figure is positive with the market growth
 Inventory Turnover is more than 3 times
Inventory Turnover Ratio = Cost of Goods sold/ Avg. Stock (higher the ratio
better is the business)
 Receivable Turnover Ratio is More than 4 times
Accounts Receivables Turnover = Sales / Avg. Accounts Receivable
(higher the ratio better for business)
 Debt Equity Ratio is less than 1.
ACCOUNTING INSIGTS – WHAT IS
INSIDE THE BUSINESS??
 Debt to Equity = Total Liabilities / Total Stockholders’ Equity . Higher the ration
indicates more debt for the business.
 Interest Coverage = Operating Income before Depreciation / Interest Expense
 Cash flow from the business = Sales – Accounts receivable. If receivable is too
high it indicates that cash collection is low.
THIRD EYE OBSERVATION FOR SUCCESS
 Over financing is injurious for Business Health
 Fund diversion should be traced before any loan decision
 Try to assess the actual need of the money that you will lend.
 The money you are lending is a Public money which is entrusted to the banker for
investment.
 Strong follow up of the customer is a key point for retail business success.
 Be aware for potential threat and opportunities of business sectors
 Never overestimate your customer.
 Be Professional while dealing.
PROPOSAL PREPARATION
 Back ground of the customer – nature and product , length of business, Age, social
status any other information's justifies the status of the customer
 Authenticate the customer through proper documentation and verification.
 Personal Net worth Statement – declared and signed by the customer. (IT 10B form)
 Lability declaration
 Financial declaration with proof of documentation.
 Justification for finance –SWOT analysis
 Reason for recommendation
 Regulatory permissions related documents- trade license, tin certificate and other
documents required for business.
PROPOSAL PREPARATION
 Construction of Residential and Commercial projects area Justification as per
plan.
 Project costing estimation
 Loan to value estimation of the project.
 Preparation of valuation report of Branch
NRBC HOME LOAN DOCUMENTATION
 HOME loans are mortgage loans
 Before entering into the deal check the authentication of the land documents like
Bia deed, Khariza, Khotian, DCR, Mouja Map, Approval Plan, Dcree copy, Rent
receipt.
1. Title deed is valid through searching in sub registry office
2. Searching of the authentication of mutation, khazna through searching.
3. Acquire legal opinion from enlisted lawyer panel.
4. Valuation report make sure the land is not overvalued.
5. Permission from proper authority.
6. Approved plan from proper authority.
7. Upto date rent receipt.
 THANK YOU ALL FOR YOUR
PATIENCE AND PERSIVERANCE