“Credit Management and performance evaluation of National Bank Limited”

Chapter – 01
Introduction OF THE REPORT

1.1 Introduction
National bank limited (NBL) is a full service scheduled commercial bank. It has both local and International Institutional Shareholder. The bank is primarily driven with a view of creating opportunities and pursuing market niches not traditionally meet by conventional banks. National Bank has been motivated to provide “best-in-the-class” services to its diverse assortment of customers spread across the country under an on-line banking dais. Today, National Bank is one of the fastest growing banks in the country. In order to support the planned growth of its distribution, network and its various business segments, National Bank is currently looking for impressive goal oriented, enthusiastic, individuals for various business operations. The bank wants to build a profitable and socially responsible financial institution. It carefully listen to the market and business potentials, It is also assisting stakeholders to build a progressive, healthy, democratic and poverty free Bangladesh. It helps make communities and economy of the country stronger and to help people achieve their financial goals. The bank maintains a high level of standards in everything for our customers, our shareholders, our acquaintances and our communities upon, which the future affluence of our company rests.

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. Credit risk is the possibility that a borrower or counter party will fail to meet its obligations in accordance with agreed terms. Credit risk, therefore, arises from the bank’s dealings with or lending to corporate, individuals, and other banks or financial institutions. Credit risk management needs to be a robust process that enables banks to proactively manage loan portfolios in order to minimize losses and earn an acceptable level of return for shareholders. It is essential for banks having robust credit risk management policies and procedures that are sensitive and responsive to these changes.

1.2 Rationale Through the Project in Mohammadpur branch of National Bank Limited I tried to bridge the gap between the theoretical knowledge and real life experience as part of Masters of Business Administration (MBA) program. This project report has been designed to have a practical experience through the theoretical understanding.

This project report titled “Credit Management and performance evaluation of National Bank Limited” is prepared to fulfill the degree requirement of BBA program. In this regard I had been assigned in Mohammadpur branch of National Bank Limited just immediately after the completion of the course requirement of the program. I had been supervised there by the management of the bank to gather information which was necessary to prepare my report.

1.3 Objective of the Study:
There are two objectives. These are general objectives and specific objectives.

1.3.1General objective:
General objective is to analyze the credit risk management policy of National Bank ltd.
1.3.2 Specific objective: * To understand the credit policy guide of National bank ltd. * To get idea about the credit assessment * To get idea about the credit risk grading system of National bank ltd. * To get idea about the credit approval process * To idea about the overall credit risk management & credit recovery system of National bank ltd.
1.4 Limitation of the study:
The main problem faced in preparing the paper was the inadequacy and lack of availability of required data. This report is the Credit management of National Bank Limited. But there is some limitation for preparing this report. These barriers, which hinder my work, are as follows. * The duration was not enough to cover all aspect of banking. * There some information which are confidential for collecting the data. So some data could not been collected for confidentiality or secrecy of management. * The data & information related with the topic was not easily available because of confidentiality of the concern. * The main constraint of the study was insufficiency of information that was highly required for the study. Since the bank officials are very busy with their activities, as a result it was thought to have proper knowledge as was required for the study.

With all of this limitation I tried my best to make this report as best as possible. So readers are requested to consider these limitations while reading and justifying any part of my study.

Chapter – 02

2.1 Methodology
Sources of information: Both primary and secondary sources of information were used to complete this report. * Primary source: Primary source of information were collected by interviewing relevant person of national bank ltd. * Secondary source: Annual report of the National bank ltd, Website and other published prospectus.

2.2 Study place
As a part of the Internship Program of Bachelor of Business Administration course requirement, I took the opportunity to do my internship in National Bank Limited, Mohammadpur Branch.

2.3 Study period It was started on September 26th and I was worked in credit department. The Study period is three month (September 26th to December 26th).

2.4 Data Collection Technique
Data have been collected from two sources. These are as under- * Primary sources * Secondary sources
Both the sources have been used for collecting data for the research.
2.4.1 Primary Sources:
Primary data are those which do the researcher collect for particular purpose. The primary sources of data include the followings- * Face-to-face conversation with the Executives & officers of the Bank: * Informal conversation with the clients. * Practical work exposures form the different desks of the various departments of the Branch covered. * Relevant file study as provided by the officers concerned. * Different manuals of National Bank.
2.4.2 Secondary Sources: The data about the organization and short term plan was collected from some secondary sources. The secondary sources of data include as under: * Annual Reports of National Bank Limited. * Different publications of National Bank Ltd. * Information from the employees of the organization. * Unpublished data received from the branch. * Various books, articles, compilations etc. regarding financial statement.

2.5 Ethical considerations
I do hereby declare that the internship report “Credit Management and performance evaluation of National Bank Limited “has not been submitted by me before, for any degree, diploma, title or recognition. I do not copy from others.

Chapter – 03
PROFILE OF THE ORGANIZATION

3.1 Background
National Bank Limited has its prosperous past, glorious present, prospective future and under processing projects and activities. Established as the first private sector bank fully owned by Bangladeshi entrepreneurs, NBL has been flourishing as the largest private sector Bank with the passage of time after facing many stress and strain. The members of the board of directors are creative businessmen and leading industrialists of the country. To keep pace with time and in harmony with national and international economic activities and for rendering all modern services, NBL, as a financial institution, automated all its branches with computer networks in accordance with the competitive commercial demand of time. Moreover, considering its forth-coming future, the infrastructure of the Bank has been rearranging. The expectation of all class businessmen, entrepreneurs and general public is much more to NBL. At present we have 171 branches under our branch network. In addition, our effective and diversified approach to seize the market opportunities is going on as continuous process to accommodate new customers by developing and expanding rural, SME financing and offshore banking facilities. The emergence of National Bank Limited in the private sector was an important event in the Banking arena of Bangladesh. When the nation was in the grip of severe recession, the government took the farsighted decision to allow the private sector to revive the economy of the country. Several dynamic entrepreneurs came forward for establishing a bank with a motto to revitalize the economy of the country.

National Bank Limited was born as the first hundred percent Bangladeshi owned Bank in the private sector. From the very inception, it was the firm determination of National Bank Limited to play a vital role in the national economy. We are determined to bring back the long forgotten taste of banking services and flavors. We want to serve each one promptly and with a sense of dedication and dignity. The then President of the People's Republic of Bangladesh Justice Ahsanuddin Chowdhury inaugurated the bank formally on March 28, 1983 but the first branch at 48, Dilkusha Commercial Area, Dhaka started commercial operation on March 23, 1983. The 2nd Branch was opened on 11th May 1983 at Khatungonj, Chittagong.

At present, NBL has been carrying on business through its 145 branches and 26 SME / Agra Branches (total 171 service locations) spread all over the country. Since the very beginning, the bank has exerted much emphasis on overseas operations and handled a sizable quantum of home bound foreign remittance. It has drawing arrangements with 415 correspondents in 75 countries of the world, as well as with 37 overseas Exchange Companies located in 13 countries. NBL was the first domestic bank to establish agency arrangements with the world famous Western Union in order to facilitate quick and safe remittance of the valuable foreign exchanges earned by the expatriate Bangladeshi nationals. This has meant that the expatriates can remit their hard-earned money to the country with much ease, confidence, safety and speed. NBL was also the first among domestic banks to introduce international Master Card in Bangladesh. In the meantime, NBL has also introduced the Visa Card and Power Card. The Bank has in its use the latest information technology services of SWIFT and REUTERS. NBL has been continuing its small credit programmed for disbursement of collateral free agricultural loans among the poor farmers of Barindra area in Rajshahi district for improving their livelihood.

NBL focused on all key areas covering capital adequacy, maintaining good asset quality, sound management, satisfactory earning and liquidity. As a consequence, the operating income stood at Tk. 25722.25 million in 2012 which was Tk. 21932.2 million in the previous year registering a 17.28 percent rose in 2012. Operating profit go down 61.16% in 2012.The net profit before tax and provision fall at Tk. 3725.20 million in 2012 which was Tk. 9591.94 million in the previous year. The net profit after tax and provision stood at Tk. 1487.91 million which was Tk. 6085.70 million in the previous year. The total deposits increased to Tk. 157,331.73 million being 33.37 percent increase over the preceding year. Loans and advances stood at Tk.126, 169.79 million in the year under report which was Tk. 115,388.89 million representing 31.26 percent rise over the preceding year. Foreign trade stood at Tk. 163,200.3 million in 2012 compared to Tk. 165,464.80 million, decreased by 4.42 percent compared to that of the previous year. During 2012, the bank handled inward remittance of Tk. 66,513.90 million, 22.11 percent higher than that of the previous year. Return on Equity (ROE) registered a 6.784 percent rise over the preceding year. National Bank, has now acquired strength and expertise to support the banking needs of the foreign investors.

3.2Mission
Efforts for expansion of our activities at home and abroad by adding new dimensions to our banking services are being continued unabated. Alongside, we are also putting highest priority in ensuring transparency, account ability, improved clientele service as well as to our commitment to serve the society through which we want to get closer and closer to the people of all strata. Winning an everlasting seat in the hearts of the people as a caring companion in uplifting the national economic standard through continuous up gradation and diversification of our clientele services in line with national and international requirements is the desired goal we want to reach.

3.3Vision
Ensuring highest standard of clientele services through best application of latest information technology, making due contribution to the national economy and establishing ourselves firmly at home and abroad as a front ranking bank of the country are our cherished vision.
3.4 Slogans:
A bank for performance with potential
3.5 Strategies of NBL * Utilize all available resources to develop various plan, policies and procedures in each of the objectives and goal areas. * Synchronized and steady growth of the bank. * Implement plans, policies and procedures. * Utilize team of professional employees. * Search for a total customized solution of IT. For the purpose of full automation step.
3.6 Goals of NBL * Develop a plan for offering better customer service. * Foster a realistic deposit mobilization plan. * Develop appropriate lending risk assessment system. * Enhance capital plan. * Generate a system to make good advances. * Invent appropriate management structure, system, procedures and approaches. * Cultivate scientific MIS to monitor banks activities.
3.7 Objectives of NBL * Objective may be defined as a specific desired result to be achieved. * The objectives of NBL have outlined hereunder: * Ensure full recovery of all advances. * Ensure a satisfied work force. * Make sound loan and investment * Build up a low cost fund base. * Meet capital adequacy requirement at all the time. * Focus on fee based income. * Adopt an appropriate management technology
3.8 National Bank Limited at a Glance Date of incorporation | 23rd March, 1983 | Commencement of operation | 28th March, 1983 | Authorized capital(2012) | TK. 17500 million | Paid up capital | TK. 14196.03 million | Slogan | Performance With The Potential | Industry | Banking industry of Bangladesh | Nature of Business | Financial Banking System | Target customers | Corporate customers and salaried person | Deposits, accumulated | TK. 157331.73 million | General Investment | TK. 54326.46 million | Foreign Remittance | TK.66513.90 million | Operation Profit | TK. 3725.20 million | Net Profit | TK. 1487.91 million | Number of branches | 171* | Total manpower | 3,919 | Chairman | Zainul Haque Sikder | Managing Director | Neaz Ahmed | Web address | www.nblbd.com | Head Office address | 18, Dilkhusa C/A, Dhaka-1000 | 3.9 The Hierarchical StructureAdvisor

Board of Directors
Chairman

Managing Director (MD)

Assistant Managing Director(AMD) | Deputy Managing Director (DMD)

Senior Executive Vice President(SEVP) |
Executive Vice President (EVP)
Vice President (VP)
Assistant Vice President (AVP)
Senior Principal Officer (SPO)
Principal Officer (PO)

Senior Vice President (SVP)

Senior Assistant Vice President (SAVP)

Senior Executive Officer

Executive Officer

Probationary Officer

Junior Officer (JO)

3.10 Division of NBL

Audit & Inspection Division. | ATM Card Division | Board Secretariat | Budget & Monitoring Division. | Credit Division-1. | Credit Division.-2. | Credit Card Division. | Classified Loan Recovery Division. | Financial Administration Division. | General Banking Division. | Human Resources Division. | International Division. | Information System & Technology Division. | Law & Recovery Division. | Marketing Division. | Merchant Banking Division. | Public Relations Division. | Audit & Inspection Division. | ATM Card Division | Board Secretariat | Protocol Division. | Reconciliation Division. | System & Operations Division. |

3.11 Deposit Products of NBL

Current Deposit. | Savings Banks Deposits. | Short Term Deposit. | Monthly Savings Scheme (MSS). | NBL Monthly Scheme. | Special Deposits Scheme (SDS). | Fixed Deposits. | Sundry Deposits. | Foreign Currency Deposits. | Exporter’s FC A/C (RETN QUOTA). |
3.12 Loan Products of NBL * Secured Overdraft (SOD) * Cash Credit * loan (general) * House Building loan * Lease finance * Loan against Trust Receipt (LTR) * Payment Against Document (PAD) * Consumer credit scheme * Credit card * Term loan. * Margin loan * Other loan and advance * Loan against Imported Merchandise (LIM) * Export Cash Credit * Cash Credit (Hypo) * Cash Credit (pledge) * Foreign Documentary Bill Purchase (FDBP) * Local Documentary Bill Purchase (LDBP)

Figure: Product wise Loan Exposure (Tk. in millions)

3.13 Five years overall performance at a glance on national bank:

NBL Performance at a Glance (five Years)BDT Million | SL # | Item | 2008 | 2009 | 2010 | 2011 | 2012 | 1 | Authorized Capital | 2450.00 | 7450.00 | 17500.00 | 17500.00 | 17500.00 | 2 | Paid up Capital | 1872.72 | 2845.54 | 4412.13 | 8603.65 | 14196.03 | 3 | Reserve Fund & Surplus | 4253.55 | 6070.22 | 14693.47 | 12918.92 | 8178.24 | 4 | Deposit | 60187.89 | 76834.13 | 102471.83 | 128215.97 | 157331.73 | 5 | Loan & Advances | 50665.07 | 65129.29 | 92003.56 | 115388.89 | 126169.78 | 6 | Investment | 9156.61 | 12315.20 | 24993.33 | 30334.63 | 54326.46 | 7 | Import Business | 78226.32 | 77539.77 | 96442.57 | 104570.90 | 94137.40 | 8 | Export Business | 36284.44 | 38398.85 | 47812.47 | 60893.90 | 69062.90 | 9 | Gross Income | 8893.07 | 11006.15 | 18612.11 | 21932.47 | 10253.36 | 10 | Gross Expenditure | 5769.24 | 7608.45 | 9670.80 | 12339.52 | 6528.17 | 11 | Profit Before Tax | 2828.82 | 3197.50 | 8809.40 | 9591.94 | 3725.19 | 12 | Profit After Tax | 1517.43 | 2070.47 | 6860.34 | 6085.70 | 1487.91 | 13 | Fixed Assets | 1981.60 | 2200.85 | 2609.46 | 2310.94 | 2340.18 | 14 | Total Assets | 72205.50 | 91931.63 | 134732.31 | 169037.38 | 205207.32 |
Amount shown in million

ChapteR-4
CREDIT MANAGEMENT

4.1 Introduction
National Credit and Commerce Bank Limited is a new generation Bank. It is committed to provide high quality financial services/products to contribute to the GDP of the country through stimulating trade and commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the educated youth, poverty alleviation, raising standard of living of limited income group and over all sustainable socio-economic development of the country. The word credit derived from Latin word “CREDO” means Believe. If we analyze, it stands for trust & relationship between banker and customers. Each & every bank has got their own credit policy which generally formulated on the basis of prevailing countries socio economic condition, political & other aspects from time to time and as per guidelines of Central bank.
Credit extension or lending is the principal business of a bank. Credit Constitute more than 60% of a bank’s asset and remain the main source of its income .But credit is also the most risk bearing asset and if not managed prudently, it may cause server financial losses to the bank. This conflicting characteristic of credit provides all the significance to credit management. Strong and effective credit management is essential to ensure the financial health of a bank. The dominant objective of credit management is to maximize profit within a consistent framework of risk and credit discipline. Credit management involves credit planning, credit policies, credit producer, credit administration, and credit monitoring and credit recovery.
4.2 Credit
In banking terminology, credit refers to the loans and advances made by the bank to its customers or borrowers. Bank credit is a credit by which a person who has given the required security to a bank has liberty to draw to a certain extent agreed upon. It is an arrangement for deferred payment of a loan or purchase. Credit means a provision of, or commitment to provide, funds or substitutes for funds, to a borrower, including off-balance sheet transactions, customers’ lines of credit, overdrafts, bills purchased and discounted, and finance leases.
4.3 Credit Risk
Risk may be defined in terms of the variability of possible outcomes from a given investment. If the outcome is certain and there is no variability-hence no risk. Another way Risk means the exposure to a chance of loss or damage. Risk is the element of uncertainty or possibility of loss that exist in any business transaction. Credit risk is the likelihood that a borrower or counter party will be unsuccessful to meet its obligation in accordance with agreed terms and conditions. Also we can say credit risk means as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms.
4.4 Amount of Total Loans and Advances at NBL (Last 5 Years) Year | Amount (Fig in Tk. in millions) | 2008 | 50665.07 | 2009 | 65129.29 | 2010 | 93003.56 | 2011 | 115388.89 | 2012 | 126169.78 |

Last 5 years given loan is shown below in chart.

Figure: Loan & advances (Tk. in millions) Their total loan and advance is growing year by year. But it was not satisfactory. In 2011 their total loan and advances was approximately 115388.89 and up to June 2012 there total loan and advance was approximately126169.78.
4.5 Sector wise loans & advance
National bank has formulated befitting credit risk management criteria and strategies for creation of balanced lending mix in its portfolio both short and long term with the bottom line objective to ensure risk adjusted rate of return in its credit transactions. During the year the management of the bank was very much vigilant on sanctioning fresh advance. Due to different factors the capacity of the banking sector has reduced to finance in the other avenues of business. As a result of liquidity crunch credit growth of the bank was not remarkable. Loan and advances in the year 2012 registered an increase by 9.34% to BDT 126,169.79 million from BDT 115,388.89 million in 2011.The bank as a matter of policy prioritizes to make lending in the thrust sectors of the economy so as to make distinctive value addition in overall economic uplift of the country including SME and Agro business.

Figure: Sector wise loans & advance (Tk. in millions) 2012.

4.6 Loan items of NBL
4.6.1 General Loan:
When an advance is made in a lump sum repayable either in fixed monthly installment or in lump sum and no subsequent debit is ordinarily allowed except by way of interest, incidental charges, etc it is called a loan. The whole amount of loan is debited to the customer’s name on a loan account to be opened in the ledger and is paid to the borrower either in cash on by way of credit to his current/ savings account. It is given against Personal guarantee, hypothecation of goods and land & building.
Eligibility: Loans are normally allowed to those parties who have either fixed source of income or who desire to pay it in lump-sum.
Interest Rate: 16%
Loan disbursement system: One time.
Terms and Conditions: * Disbursement will be made after * Bank reserve the right to cancel or amend the terms and conditions partly or wholly at its directions without assigning any reason whatsoever. * When the principal debtor fails to fulfill this obligation or promise, liability bestow on guarantor.

4.6.2 Cash Credit (CC)
Cash credit is another method of lending by NBL. A Cash Credit (CC) is an arrangement by which the customer is allowed to borrow money up to a limit. This is a permanent arrangement and the customer need not draw the sanctioned amount at once, but draw the amount as and when required. They can put back any surplus amount, which they may find with them. Thus Cash Credit (CC) is an active and running account, which deposits and withdrawals may be affected frequently. Interest is charged only for the amount withdrawn and not for the whole amount charged. If the customer does not use the Cash Credit (CC) limit to the full extent, a commitment charge is made by the bank. This charge is imposed on the unutilized portion of Cash Credit (CC) only.
Hence, Cash Credits are of two types- A. Cash Credit (Hypothecation) B. Cash Credit (Pledge)

A. Cash Credit (Hypothecation):
This type of credit is allowed to the traders and industrial borrowers for promoting trade and commerce and industries. The mortgage of movable property for securing loan is called hypothecation. Hypothecation is a legal transaction where goods are made available to the lending banker as security for a debt without transferring or possession of the property. The banker has only equitable charge on stocks, which practically means nothing. Since the goods always remain in the physical possession of the borrower, there is much risk to the bank.
Eligibility: Hypothecation advances are normally allowed by bank to limited companies and businessmen for their working capital and not for any capital investment.
Interest Rate: 16%-17.5%which depends on the relationship between the banker and the client.
Renew System: It can be renewed after one year
Terms and Conditions: * Insurance policy to be obtained against the stocks to be hypothecated to cover in fire and RSD at the cost of the customer. * Stock report to be submitted on monthly basis. * Bank reserve the right to cancel or call back the sanctioned credit limit.

B. Cash Credit (Pledge):
In case of Cash Credit (Pledge), the bank acquires the possession of the goods or a right to hold goods until the repayment of credit. The borrower has no right to deal with them. If loan is not repaid in due time then bank sells goods to collect money. But at present, bank didn’t give this loan because it has to maintain warehouse which creates extra burden on officers. Interest rate is 17% under SME.

4.6.3 House Building Loan
Another form of consumer credit is house building loan. The main objectives of the bank is to provide financial assistance for the construction, repair and remodeling of residential houses. Loan is also allowed to buy apartment. The feature of this loan is that the customer get 50% loan of the land value. Usually a deposit has to be paid the customer and the rest of the purchase price is spread over in a period of six months, two years or sometimes even longer; the article being regarded as the property of the bank until the final payment has been made.
Eligibility: This loan is allowed for the business person and service holder.
Interest Rate: 15.5%

House building loans (HBL) are two types;
1. Commercial
2. Resident or non commercial
Residents or non commercial loans are also two types
A. Employees house building loan (EHBL)
B. house building loan (HBL)
Purpose of the Housing Loan * To help service holders, self employed persons, businessmen, professional and also those who have the capability to repay loan for purchase of flat/house/construct buildings and thereby improve their quality of life. * To contribute to the reduction of acute housing problems of the country. * To help the prospective clients get housing loans on easy terms and without any handles. * To strengthen the bank’s lending base. * To increase profitability of the bank.
Employees house building loan (EHBL)
The employee of NBL can take house-building loan from bank but the range of loan amount depends on person’s designations. Simple interest rate is charge on employee’s house building loan and interest rate is 8%.
4.6.4 LTR (Loan against Trust Receipt)
NBL has given the facility of LTR under this arrangement, credit is allowed against trust receipt and the exportable goods remain in the custody of the exporter but he is required to execute a stamped export trust receipt in favor of the bank. Where in declaration is made that he holds goods purchased with financial assistance of bank in trust for the bank.
Eligibility: Loan against trust receipt are generally granted to Exporter for exportation of good.
Interest Rate: 14.5%-15.5% which depends on relation and frequency of taking loan.
Terms and Condition: * Disbursement will be made after completion of all formalities as per sanction terms. * Supplier credit report to be obtained before opening of L/Cs. * Excess drawing over the sanction limit is strictly prohibited. * Customer will maintain effective and constant supervision and follow up to ensure timely adjustment of the loan to avoid overdue. 4.6.5Any purpose loan: Any purpose loan is actually an unsecured personal loan. Purpose might be considered * House renovation * Interior decoration * Marriage in the family * Advance rental payment * Hospitalization or others emergency medical appliances * Trips aboard * Purchase of miscellaneous household appliances * Purchase of personal computer * Purchase of audio video equipment * Purchase of furniture * Education expenses * Training expenses * Other legitimate purpose Loan amount minimum tk.50, 000/= and maximum Tk 10, 00,000/= Interest rate at 17% in simple rate per annual Repayment tenure: min 12 month and max 36 month. 4.6.6 Education loan: Education loan provide for student who is not afford their academic fees.NBL provide loan for student and when a student full fill their study and get any types job after repayment to bank. Requirements of NBL are public university, private university, college, undergraduate postgraduate level. Professional degrees: CA, ACCA, FIA, MBA so an. Loan amount: Min: 50000 Max: 500000Interest rate: at 16% per annum. Repayment: Min: 12 months Max: 36 months
4.6.7 PAD (Payment against document)
A loan facility provided by the banks to the customers against document/bills, like, Bill of Lading, Warehouse keepers Certificate/receipts, Railway receipt. Deliveryorder, Dock Warrant. In other word, payment made by the Bank against lodgment of shipping documents of goods important through L/C falls under this head. It is an interim advance connected with import and is generally liquidated shortly against payments usually made by the party for retirement of the documents for release of imported goods from the customer’s authority. If falls under the category "Commercial Lending".
Eligibility: This type of credit facilities is given generally Exporter and importer.
Interest Rate: 15.5%
Terms and Conditions: * In the of default by the borrower bank has the right to sell the goods. * Insurance policy to be obtained against the goods covering fire and RSD risk at the cost of customer. * Bank reserve the right to cancel or amend the terms and conditions partly or wholly at its direction without any reason whatsoever.
4.6.8 Secured Overdraft (SOD):
It is a continuous advance facility. By this agreement, the banker allows his customer to overdraft his current account up to his credit limits sanctioned by the bank. The interest is charged on the amount, which he withdraws, not on the sanctioned amount. When a current account holder is permitted by the banker to draw more than what stands to his credit, such an advance is called an overdraft. The banker may take some collateral security or may grant such advance on the personal security of the borrower. MBL has given this overdraft facility to clients.
Eligibility: Overdraft facilities are generally granted to businessmen for expansion of their business, against the securities of FOR, MSP, MUDS, DBDS, SSS, against earnest money, work orders and general/others.
FDR, MSP, MBDS, DBDS are together called secured overdraft against Financial Obligation. For this, it can be classified in three types of SOD. These are follows: i. SOD Financial Obligations ii. SOD against Earnest Money iii. SOD Work Order
4.6.9 Car Loan:
Car loan is a kind of consumer credit scheme. But the maximum limit on this specified type is different from others. The maximum limit is higher than other types of consumer credit scheme.
Eligibility: This is one kind of consumer credit scheme. So the qualification should be the same as required for consumer credit scheme.
Interest Rate: 16%
4.6.10 Staff Loan:
National bank Limited provides advances to the staff for purchasing house building, SanchayPatras, and meeting up certain requirements like family medical, personal medical, wedding purposes. Bank provides this facility under installments. Loan able amount varies on the basis of purpose.
Eligibility: The borrower must be executive and staff of this Bank.
Interest Rate: 16%
4.6.11 Lease Finance:
This scheme has been designed to assist and encourage the genuine and capable entrepreneurs and professionals for acquiring capital machineries, medical equipments, computers and other items which may help them to be economically self-reliance.
Eligibility: Help the entrepreneurs to buy Capital Machinery, Medical Equipment, Automobiles, Lift and Generator etc.
Interest Rate: 17. %
4.6.12 Micro Credit:
The credit program that promotes small credit to the poor people for creating self-employment with a view to alleviating their poverty and attaining sustainable development is referred here as micro-credit program. It is especially related to micro level development. But NBL thinks about micro-credit in different way. They are providing micro-credit facilities (mainly) among the mid level people. NBL has some strong reason behind it. Their main objective for providing micro-credit program in banking sector are given below-
• To small entrepreneurs for developing his business,
• Newly established doctors-for better treatment in the society,
• Purchase household equipment's- for leading comfort life and fulfill the hope of humanity,
• Rural development.
• Increase self employment.
4.6.13 Small Loan Scheme (SLS)
This scheme has been evolved especially for small shopkeepers who need credit facility for their business and cannot provide tangible securities. Maximum loan amount of this program is to TK. 2 lac, which is payable within 2 years (extensional). Creditors have to pay 15% interest, Risk Fee 0.5% and Supervision fee 1% (for one time).
Eligibility: Small and Medium Entrepreneur are financed this loan.
Interest Rate: 16%
4.6.14 Personal Loan Scheme
Personal loan is another method of lending by NBL. Under this system, the banker specifies a limit called the credit limit, for each customer, up to which the customer is permitted to borrow against the security of tangible assets of guarantees.
Eligibility: To have personal loan scheme, the loan applicant should be – * Government Officials * Semi-Government Officials * Employees of Autonomous Bodies * Employees of Banks and other Financial Institutions * Employees of Multinational Companies * Employees of reputed private Organizations * Teachers and staff of public/private Universities * Teachers of recognized Schools and Colleges
Interest Rate: 16%.
4.6.15 Letter of Credit
Opening or issuing letter of credit is one of the important services provided by NBL. A letter of credit is a document authorizing a bank to pay the bearer a specified sum of money; it provides a useful means of settlement for a foreign trade transaction, the purchase establishing a credit in favor of his credit at a bank. Letters of credit are of two types: * Traveler's letter of credit issued for the convenience of the traveling public. * Letter of commercial credit issued for the purpose of facilitating trade transaction.
Eligibility: Letter of Credit facilities are given to exporter/manufacturer/producer and importer for exportation and importation of good.
Interest Rate: 17.5%
Terms and Conditions: * It should stipulate the name of the loan . * It should bear the name of the designated bank. * Items mentioned in LCA form must contain with the permissible items. * The bank officer periodically inspect the goods and verify that they conform the top quality and quantity etc. as mentioned in the particular letter of credit.
In case of first class customer, the facility may, however, be granted against firm’s contracts with overseas buy.

4.6.16 SME Loan:
NBL offers financial support to small businessmen/enterprise with new products named "Festival Small Business Loan" and "NBL Small Business Loan" has been introduced in the Bank.
Benefits:
* Maximum Tk.3.00 lac (Festival Scheme) and Maximum Tk.5.00 lac (Small Business Scheme) . * 3 Months (Festival Scheme) and 5 years (including 1 month grace period (Small Business Scheme)) * Collateral Free Advance.
Eligibility:
Any genuine and small businessmen/ entrepreneurs/enterprise have honesty, sincerity, and integrity.
4.7 Credit management
Credit management is the part of bank management which decides what type of lending product will be offered, to whom it will be offered, how much it will be offered and analyze and measure the credit risk on loans and manage all the activities regarding the loans. The aim of the credit management is to have a secured loan portfolio so that the bank can earn profit by keeping the depositors savings secured. The entire job regarding that consist the credit management.
4.8 Principles of Credit Management:
The management of credit risk is central to a sound credit management process. The basic principles a bank has to follow in its credit risk management are:
* Selection.
* Limitation.
* Diversification.
4.8.1 Selection:
Selection of borrower is the most important aspects of credit risk management. The quality of the credit portfolio of bank depends to a large extent on the quality of its borrowers. To judge the quality of borrower the bank takes into a borrower the bank takes into consideration the following.
* Character (borrowers’ honesty, willingness and commitment to pay debts).
* Capacity (the success of business).
* Capital (financial condition).
* Collateral. * Condition (economic).
4.8.2 Limitation:
A system of limits for different types and categories of lending have to be set. The essential requirement is to establish maximization amount that may be loaned to any borrower or a group of connected borrowers and to any one industry or type of industries. Lending limits have been set taking the bank’s capital and resources into account.
4.8.3 Diversification:
In finance, diversification means reducing risk by investing in a variety of assets. It is another important aspect of credit risk management. The bank exposure policy is to diversify risk to the extent possible in order to minimize potential losses in the overall portfolio .The bank has the difficult task to meet its strategic objectives.
4.9 Lending guidelines:
Lending guidelines should clearly outline the senior management’s view of business development priorities and the term and condition that should be followed for loans to be approved. The lending guidelines should provide the key foundations to formulate recommendations for loan approval and should include the following:
* Industry and business segment focus
* Types of loan facilities
* Singles borrower/group exposure limit
* Lending caps for a specific sector
* Discouraged business types
* Loan facility parameter (e.g. maximum size, maximum tenor, security requirement).
4.10 Principle of Sound Lending:
In appraising a credit proposal, every banker follows a few general principles of goods lending, these are stated below:
4.10.1 Safety:
Safety first is the main slogan of principle of good lending. While lending a banker must feel certain that the money will definitely come back. The banker is to ensure that the money advanced by him will be employed in a productive field and repaid with interest.

4.10.2 Liquidity:
Money will come back is not all? That must come back within a reasonable time or on demand. Employment of funds for shirt-term requirements and not locked up in long term schemes is desirable. The repayment through definite, but slow in coming back does not serve the purpose of liquidity. Recovery of mortgage money of much higher value than advance money through court process involving few years is safe but not liquid.
4.10.3 Purpose:
The banker should ensure practicably that the borrower applies the money borrowed for a particular purpose accordingly. Advances for personal expense, say, marriages, pleasure tours or repayment of a previous outstanding debt are ordinarily refused by banks. Banks also discourage advance for hoarding stocks or speculative activities.
4.10.4 Profitability: Banks must make profit to meet up the expenses of deposit interest, establishment, staff salary, rent, stationery etc and then make reserve or pay dividend to shareholders. After considering all these factors a bank decides upon its lending rates. A particulars transaction may not appear profitable in itself. But borrowers some ancillary business may be highly remunerative to the lending bank. In this way, the transaction may on the whole be profitable for the bank.
4.10.5 Security:
Banks lend out of borrowed money against security. Security serves as a safety valve for an emergency. Apart from this character, capacity, and capital of the borrower are well looked into when an advance is granted.
4.10.6 Spread:
Risk is always inherent in every advance. A successful banker is an expert in assessing such risk. He is keen on spreading/ dispersing lending risks over a large number of borrowers, industries, areas and different types of securities. For example, advancing against only one type of security will run if that class of security steeply depreciates.
4.10.7 National interest:
An advance satisfying all the aforesaid principles may run counter to national interest. In the changing concept of banking, advancing to priority sectors such as agriculture, small industries and export-oriented industries are assuming greater importance than security. 4.11 Tools for Appraisal Credit: In formulating a credit judgment and making Quality Credit Decisions, the lending officer must be equipped with all information needed to evaluate a borrower’s character, management competence and capacity, ability to prove collaterals and external conditions which may affect his/her ability in meeting financial obligations. * Capital:
The evaluation of the applicant’s capital refers to an analysis of the applicant firm’s financial position. What are the applicant firm’s financial strengths and weaknesses?To assess the capital denomination, the credit analyst considers the data obtained from the applicant’s financial statements. The usual procedure is to perform an extensive ratio analysis, comparing the applicant’s financial ratios to ratios for the applicant’s industry and performing trend analysis of the applicant’s ratios over time. * Character:
In assessing character, the credit analyst considers all the information that relates to willingness to pay by the applicant’s management. What is the applicant’s history of payments to the trade? Has the firm defaulted to other trade suppliers? Does the applicant’s management made a good- faith effort honor debts as they come due? Information in these areas assists the analyst’s assessment of the applicant’s character. * Collateral:
If the applicant experiences financial difficulty, it may be forced to liquidate. In such a situation, the recoveries to trade creditors will depend on- * The recoveries on assets sold * The amount of debt owned by the firm * The extent to which these debts are secured
If the firm liquidates, the recoveries on assets that are security for debt will go to the holders of that secured debt. That is the secured creditors get paid first from the revenues of selling the assets that have been granted to them as security. Since, in general, it is very difficult for trade creditors to obtain secured positions, this means that the recoveries to trade creditors are significantly lower when the applicant has financed by using secured borrowings. Information on secured borrowing sis gleaned from the applicant’s financial statements, from the applicant’s bank, from credit reports on the applicant, or directly from conversations with the applicant. * Capacity:
This dimension has two aspects- * Managements capacity to run the business * The applicant firm’s plant capacity
Management’s capacity to run the business relates to the competency of the management personnel in the applicant’s operation. Any information relevant to this capacity is assessed, including personal impressions, the history of success or failure by the managers running the applicant’s business, the number of years the applicant has been in business, and so forth. The better is management’s capacity to run the firm; the lower is the chance of default.
Physical capacity refers to the value and technology of the applicant’s production or service facilities. The more up-to-date and well maintained are the applicant’s facilities, the more likely that the applicant will be able to stay in business and to take advantages of business upturns. * Conditions:
These are the economic conditions in the applicant’s industry and in the economy in general. If there is a good deal of foreign and domestic competition in the applicant’s industry, the possibility of failure and default to trade creditor is larger, since profit margins are likely to be lower. If the economy in general is passing a recession, failure are more likely to occur than during an expansionary period.

4.12 Credit Proposals are prepared in the approved format of the Bank enclosing/furnishing documents/papers/information: * Pre-sanction Inspection Report containing KYC. * Request for Credit limit of customers. * Project Profile/Profile of Business. * Copy of Trade License duly attested. * Copy of TIN Certificate. * Certified copy of Memorandum and Articles of Association, Certificate of Incorporation, Certificate of Commencement of Business, Resolution of Board of Director, Partnership Deed (where applicable). * Personal Net worth Statement of the Owner(s) in Bank's format. * Valuation Certificate in Bank's format along with photograph of collateral security with detail particulars on the back duly authenticated by the Branch Manager. * Three (3) years Balance Sheet and Profit and Loss A/C. * CIB Enquiry Form duly filled in. * Credit Risk Grading for credit facilities irrespective of amount other than consumer loan and SME loan covered under consumer and SME guidelines. * Stock Report duly verified. * Credit Report from other Banks. * Indent/ Pro–forma Invoice/ Quotation (where applicable). * Price Verification Report (where applicable). * Statement of A/C for the last twelve months. * In case of renewed/enhancement of credit facility Statement of A/C showing Debit Turnover, Credit Turnover, highest drawing, lowest drawing, total income earned, detailed position of existing liabilities of the customer i.e. Date of sanction, Date of Expiry, Present outstanding and Remarks. 4.13 Credit Sanctioning Authority of NBL:
Delegated powers are expected to be exercised by the authorized executives sensibly keeping the bank’s interest in mind. In exercising the power so delegated authorized Executive’s shah also have credit restriction, tools and regulations .as governed by Banking Company Act, Bangladesh Bank, and other usual credit norms. However, the following guidelines are laid down before the executives of NBL. * The borrower must be a man of integrity and must enjoy good reputation in the Market. * The borrower must have the capacity and capability for utilizing credit. * The enterprise of the borrower must be viable and profitable i.e. proposal of (lie borrower must be evaluated properly and carefully so as to ascertain its profitability. The enterprise must generate sufficient fund for debt and servicing." * A customer to whom credit is to be allowed should be far as possible within the command area. . * No sanctioning officer can sanction any credit to any of his near relatives and to * Any company where his relatives have financial interest. 4.14 Process of Loan: Heads | Characteristics | 1.Application | Applicant applies for the loan in the prescribed form of the bank describing the types and purpose of loan. | 2.Sanction | 1. Collecting credit information about die applicant to determine the credit worthiness of the borrower. * Sources of information. * Personal investigation, confidential report from other bank. Head office/ Branch/ chamber of commerce. * CIB (central information bureau) report from central bank.i) Evaluation of compliance with its lending policy.ii) Evaluating the proposed security.2. LRA is must for the loan exceeding one crore as ordered by Bangladesh Bank.3. If everything is in accordance the loan is sanctioned. | 3.Documentation | * Then bank prepare a loan proposal which contains terms and conditions of loan for approval of manager. * Takes the necessary papers and signatures from borrower |
4.15 Flow chart for the approval process of loans & advances:

Credit Application processed by credit officers and recommended by Credit in charge of the branch.

Branch Credit Committee

Branch Manager

Regional Office

Regional Office Credit Committee

Regional head

Head Office, Credit Division

Head Office Credit Committee

Deputy Managing Director (Credit)

Managing Director

Executive Committee (EC).

4.16 Security: Banks lend out of borrowed money against security. Security serves as a safety valve for an emergency. Apart from this character, capacity, and capital of the borrower are well looked into when an advance is granted. Our banks’ lending will generally be adequately securities. Securities to be obtained will be acceptable, valuable, and easily marketable and defect less (in title). Valuation of security will be properly assessed. Security will comprise primarily and collateral and will be adequately insured (where applicable).

4.17 Credit Risk Assessment
Before extension of loans, a comprehensive credit risk appraisal is done and annual reviews are made. A credit memorandum (CM) is prepared by the Relationship Manager (RM) which includes the findings of such assessment. The RM used to be the owner of the customer relationship and he / she is held responsible for complying with all the policies and guidelines of Bangladesh bank, bank laws, NBL policies and guidelines etc.
The credit assessment procedure can be segregated into two segments: * Call report * Credit Memorandum
4.17.1 Call report
At the time inception of a relationship, the relationship manager tries to gather more and more information about the client. He / she sometimes visit the business premises to get an idea about the financial and operational condition of the prospective client. The market reputation, competitive position etc. are also duly assessed. Branch manager along with the relationship manager is also connected in this process. These initial visits or enquiries are referred to as 'calls’. Based on the findings of such calls, RM and the branch manager send a call report to the Head of Marketing, Head of Credit and Managing Director for initial review.
The call report contains some basic information about the client such as: a. Client's background b. Business c. Market share d. Reliability e. Credit exposure f. Existing banking relationships g. Credit requirements h. Pricing of the proposed credit facility
4.17.2 Credit Memorandum (CM)
If the Head Office conveys positive sign for a call report, then only the branch RM goes for preparing a CM. The preparation of CM includes the in-depth analysis of credit risk factors, critical assessment of the client in the light of credit policy guidelines of the bank. Then it is sent to the Head of Marketing to enclose the necessary recommendations and to commence the credit approval process. The CM has to be accompanied with all the required legal documents and the financial information of the prospective client.
The CM generally contains the followings: a) A specific control number and base number for each client. b) The credit risk grading score. c) The authorization for the approval process. d) The description of the proposed facility. e) Rationale behind the loan extension. f) Financial information of the client mainly the income statements for the past years, earnings forecasts in normal and adverse conditions. g) Forecasted earnings from the relationship to be established. h) Lending agreement. i) Compliance of the policies and guidelines of Bangladesh Bank and NBL.

The CM also contains the assessment of the following areas: * Borrower analysis
The majority shareholders, management team and group or affiliate companies are assessed. Any issues regarding lack of management depth, complicated ownership structures or intergroup transactions are addressed, and risks mitigated. * Industry Analysis
The key risk factors of the borrower’s industry are assessed. Any issues regarding the borrower’s position in the industry, overall industry concerns or competitive forces are addressed and the strengths and weaknesses of the borrower relative to its competition are identified. * Supplier/Buyer Analysis
Any customer or supplier concentration is addressed, as these could have a significant impact on the future viability of the borrower. Lending decision will be preceded by an intensive analysis on whether the borrower depends on a single or a very few customer or gets the supply of the materials/dealing items from a single supplier. Such sales and supply concentration will be given careful consideration, because it may have significant Impact on the future viability of the borrower. * Historical Financial Analysis
An analysis of a minimum of 3 years historical financial statements of the borrower is presented. Where reliance is placed on a corporate guarantor, guarantor financial statements are also analyzed. The analysis addresses the quality and sustainability of earnings, cash flow and the strength of the borrower’s balance sheet. Specifically, cash flow, leverage and profitability are analyzed. * Projected Financial Performance
Where term facilities (tenor > 1 year) are being proposed, a projection of the borrower’s future financial performance is provided, indicating an analysis of the sufficiency of cash flow to service debt repayments. Loans are not granted if projected cash flow is insufficient to repay debts. * Account Conduct
For existing borrowers, the historic performances in meeting repayment obligations (trade payments, cheques, interest and principal payments, etc) are assessed. * Adherence to Lending Guidelines
Credit Applications should clearly state whether or not the proposed application is in compliance with the bank’s Lending Guidelines. The Bank’s Head of Credit or Managing Director/CEO approve Credit Memorandum that does not adhere to the bank’s Lending Guidelines. * Mitigating Factors
Mitigating factors for risks identified in the credit assessment are identified. Possible risks include, but are not limited to: margin sustainability and/or volatility, high debt load (leverage/gearing), overstocking or debtor issues; rapid growth, acquisition or expansion; new business line/product expansion; management changes or succession issues; customer or supplier concentrations; and lack of transparency or industry issues.

* Loan Structure
The amounts and tenors of financing proposed are justified based on the projected repayment ability and loan purpose. Excessive tenor or amount relative to business needs increases the risk of fund diversion and may adversely impact the borrower’s repayment ability. * Security
A current valuation of collateral is obtained and the quality and priority of security being proposed are assessed. Loans are not granted based solely on security. Adequacy and the extent of the insurance coverage are also assessed.
4.18 Credit Risk Grading
Credit Risk Grading (CRG) system is an important tool of CRM to understand dimensions of risk in credit transactions. Aggregation of grading across the borrowers, activities and line of business reflects the quality of credit. Bangladesh Bank introduced a integrated CRG model which is simple and user friendly and hence, followed by all financial institutions. Usually there includes five steps for CRG. This are -
Step-1: Identify all the principal risk components
At the first step all the principal risk such as financial risk, business risk, management risk, security risk and relationship risk are identified. These principal risks cover all possible uncertainty that may occur.
Step-2: Distribute weight to risk components
In this step, weight is distributed to the risk components. Risk factors have to be evaluated and weighted on the basis of updated & reliable data and complete objectivity. Principal risk components | Weight | Financial risk | 50% | Business risk | 18% | Management risk | 12% | Security risk | 10% | Relationship risk | 10% |

Step-3: Identify the key parameters of principal risk
In this step, key parameters of principal risk are identified. The parameters are shown on table below: Risk components | Key parameters | Financial risk | Leverage, liquidity, profitability,& coverage ratio | Business risk | Size & age of business, business outlook, industry growth, competition & barriers to business | Management risk | Experience, Succession & team work | Security risk | Security coverage, collateral coverage & support | Relationship risk | Account conduct, utilization of limit, compliance of covenants & personal deposit |

Step-4: Assigning weight to key parameters
After identifying key parameters, weight is given to each parameter of principal risk components. In this case also, high weight is given to the risky parameters. For examples, in financial risk greater weight is assign to leverage, liquidity & profitability ratio and lower weight to coverage ratio.
Step-5: Input data to arrive at score
Finally, data is put on Excel based CRG matrix for finding the score. Number | Grading | Short | Score | 1 | Superior | SUP | Fully cash secured, secured by govt. guarantee/international bank guarantee | 2 | Good | GD | 85+ | 3 | Acceptable | ACCPT | 75-84 | 4 | Marginal/Watch list | MG/WL | 65-74 | 5 | Special Mention | SM | 55-64 | 6 | Substandard | SS | 45-54 | 7 | Doubtful | DF | 35-44 | 8 | Bad/Loss | BL | <35 |

4.19 Appeal Process
Any declined credit may be represented to the next higher authority for reassessment/approval. However, there should be no appeal process beyond the President & Managing Director.

4.20 Credit Risk Management
The credit risk management process of NBL has the function of consistent monitoring of the transactions within approved limits and recovering the bank's dues in time. The key responsibilities of the credit risk management process are as follows: a) Oversight of the bank’s credit policies, procedures and controls relating to all credit risks arising from corporate/commercial/institutional banking, personal banking, & treasury operations. b) Oversight of the bank’s asset quality. c) Directly manage all Substandard, Doubtful & Bad and Loss accounts to maximize d) Recovery and ensure that appropriate and timely loan loss provisions have been made. e) To approve (or decline), within delegated authority, Credit Applications recommended by RM. Where aggregate borrower exposure is in excess of approval limits, to provide recommendation to MD/CEO for approval. f) To provide advice/assistance regarding all credit matters to line management. g) To ensure that lending executives have adequate experience and/or training in order to carry out job duties effectively.

The credit risk management process of NBL includes the following operations: * Loan Administration * Documentation * Disbursement * Credit Monitoring
4.20.1 Loan Administration
The main responsibilities performed by the loan administration department are as follows: a) To ensure that all security documentation complies with the terms of approval and is enforceable. b) To monitor insurance coverage to ensure appropriate coverage is in place over assets pledged as collateral, and is properly assigned to the bank. c) To control loan disbursements only after all terms and conditions of approval have been met, and all security documentation is in place. d) To maintain control over all security documentation. e) To monitor borrower’s compliance with covenants and agreed terms and conditions, and general monitoring of account conduct/performance.
4.20.2 Documentation
Credit administration department ensures the following in connection with documentation:
All approvals and documents are in place. * Documents are prepared in accordance with the approved terms and conditions and are legally enforceable * Vetting of required documents is done. * Protection of the bank's security interest. * Any exception from the standard loan facility is duly authorized from the Head of Credit.
4.20.3 Disbursement
The loan administration department performs the following responsibilities in connection with the disbursement to ensure that: * All standard security and charge documents are in place. * Documentation check list has been prepared. * Credit administration department has duly authorized the disbursement. * Disbursement authorization form is documented as an evidence of document. * A proper back up of all the documents is maintained in the computer system. * Incomplete documentation has received temporary waiver from the authority. * Pricing of the facility is appropriate. * All disbursements / drawings are in the form of approved credit facility. * Excess over limit are allowed under pre-fact approval. * A clean updated CIB report is obtained before disbursement. * The lending cap of the bank is duly maintained.

4.20.4 Credit Monitoring
To minimize credit losses, monitoring procedures and systems are in place that provides an early indication of the deteriorating financial health of a borrower. Credit monitoring process at NBL tries to monitor the following: * Past due principal or interest payments, past due trade bills, account excesses, and breach of loan covenants * Loan terms and conditions are monitored, financial statements are received on a regular basis, and any covenant breaches or exceptions are referred to CRM and the RM team for timely follow-up. * Timely corrective action is taken to address findings of any internal, external or regulator inspection/audit.

4.21 Branch Monitoring
Credit monitoring activities in the branch performs the following responsibility: a) Monitor transactions in accounts to ensure turnover and utilization of limits. b) Thoroughly review all past dues, collateral short fall, covenant breach and other irregularities. c) Rectify all audit objections and follow their suggestions. d) Periodic client calls and review by branch head. e) Formal periodic review of all relationships. f) Factory visit / stock inspection and progress of work against work / implementation of projects are to be recorded and reviewed. g) Borrower to be communicated about past dues, overdue installments, expiry of insurance, guarantee, limits etc. h) Early alert reports are prepared within 7 days of identification of weakness in the business and financial weakness of the client and sent to Head Office Loan Administration.
4.22 Loan Review Committee:
The IT system of NBL produces overdue positions on 3 period’s viz. 30 days, 60 days and 90 days and above. It also produces expired limits and excess over limits (EOLs). The loan MIS are duly distributed to branches, HOM, HOC, HOO, HOCA and MD. A designated loan admin officer follows up the position on a daily basis. Besides, the loan review committee of the bank formally follows up the overdue positions, expired limits and
EOL with the branches on a monthly basis which is minute for taking actions at the earliest, before the account further deteriorates.

4.23 Early Alert Process:
An Early Alert Account is one that has risks or potential weaknesses of a material nature requiring monitoring, supervision, or close attention by management. If these weaknesses are left uncorrected, they may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date with a likely prospect of being downgraded to CG 5 or worse (Impaired status), within the next twelve months. Early identification, prompt reporting and proactive management of Early Alert Accounts are prime credit responsibilities of all Relationship Managers and must be undertaken on a continuous basis.
An Early Alert report is completed by the RM and sent to the approving authority in CRM for any account that is showing signs of deterioration within seven days from the identification of weaknesses. The Risk Grade is updated as soon as possible.
Despite a prudent credit approval process, loans may still become troubled. Therefore, it is essential that early identification and prompt reporting of deteriorating credit signs be done to ensure swift action to protect the Bank’s interest.

4.24 Credit Recovery
The credit division performs the following recovery related functions: * Directly managing accounts with sustained deterioration (a risk rating of sub standard or worse) * Determining work out plan / Recovery strategy. * Pursuing all avenues to maximize recovery, including placing customers into receivership or liquidation as appropriate. * Ensuring adequate and timely loan loss provisions are made based on actual and expected losses. * Keeping top management appraised of grade 6 or worse accounts.

National Bank Ltd follows some recovery steps: Days Past Due (DPD) | Collection Action | 1-14 | Letter, Follow up & Persuasion over phone (Annexure V) | 15-29 | 1st Reminder letter & Sl. No. 1 follows | 30-44 | 2nd reminder letter + Single visit | 45-59 | * 3rd reminder letter (Annexure VI) * Group visit by team member * Follow up over phone * Letters to Guarantor, Employer, Reference all above effort follows * Warning on legal action by next 15 days | 60-89 | * Call up loan (Annexure VII) * Final Reminder & Serve legal notice * legal proceedings begin * Repossession starts | 90 and above | * Telephone calls/Legal proceedings continue * Collection effort continues by officer & agent * Letter to different banks/Association |

CHAPTER -5 Performance Evaluation of the NBL

5.1 Introduction The overall performance of NBL is in line with the first generation banks. Besides, the bank has been facing decline trend in some of the performance parameters compared to its previous performance up to 2012.However, some of the parameters has again shown upward trend in 2011 performance. The overall Performance of the bank is analyzed below: 5.2 Investment:

Year | 2008 | 2009 | 2010 | 2011 | 2012 | NBL | 9142.3 | 12315.2 | 24953.97 | 30334.63 | 54326.46 | The bank’s investment grew from TK 30334.63 million in 2011 against Tk.54326.46 million to year 2012. It mostly invested in high yield long-term government securities to cover the increased statuary liquidity ratio (SLR) requirement arising from the growth of deposit liabilities. Figure: Investment (Tk. in millions) 5.3 Net Profit before Tax: NBL generated an operating profit of Tk. 3725.19 in 2012 which was Tk. 9591.94 in 2011. Year | In million amount | 2008 | 2828.82 | 2009 | 3197.50 | 2010 | 8809.40 | 2011 | 9591.94 | 2012 | 3725.19 |

Figure: Net Profit before Tax (Tk. in millions) 5.4 Net Profit after tax (NPAT): NBL generated an operating profit of Tk. 1487.91 in 2012 which was Tk.6085.70 in 2011.The same trend here as we observed on the above bar chart of operating income. NBL recorded a stable growth till 2009 and then hopped to a considerable registering of a growth rate of 192 percent compared to the preceding year. This can be ascribed because of heavy profits from stock market and other investment income. The decline of profits in the following year 2011 is mainly due to a fall in deposits and interest income and also a depreciation of investment in capital market. By the look of things taking into consideration the NPAT of 2012(forecasted) it can be said that the NPAT will be a lower due to high operating expense and provision. Year | In million amount | 2008 | 1517.43 | 2009 | 2070.47 | 2010 | 6860.34 | 2011 | 6085.70 | 2012 | 1487.91 |

Figure: Net Profit after tax (NPAT) (Tk. in millions) 5.5 Deposit Year | In million amount | 2008 | 60187.89 | 2009 | 76834.13 | 2010 | 102471.83 | 2011 | 128215.97 | 2012 | 157331.73 | The bank’s investment grew from TK 128215.97 in year 2011 against Tk.157331.73 to year 2012. It mostly invested in high yield long-term government securities to cover the increased statuary liquidity ratio (SLR) requirement arising from the growth of deposit liabilities. Figure: Deposit (Tk. in millions)

5.6 Capital
The paid up capital of the bank was increased from Tk. 14196.03 million in 2012 that was in
2011 Tk.8603.65 million, while it’s authorized capital was Tk.17500.00 million. The reserve enhanced byTk.8178.24 million in 2012. The total equity of shareholders of the bank stood at TK.22374.27 million at the end of the year 2012.

Figure: Capital (Tk. in millions) 5.7 Foreign Trade 5.7.1 Imports: Imports trade finance by NBL fall in 9.98% year 2012, which was Tk104570.9 in 2011. Large LCs was opened mainly for importing old ships, rice, wheat, edible oil, fertilizer, capital machinery, fabrics and accessories, petroleum products and other consumer’s products.

Figure: Imports (Tk. in millions) 5.7.2 Exports: NBL successfully handled export documents of 69062.9 million during the reporting year compared to 60893.9 million in the year 2011. Readymade garments, knitwear, frozen food, fish tanned leather, handicraft and tea were the major export finance sectors.

Figure: Exports (Tk. in millions)
5.7.3 Foreign Remittance:
National bank has remittance arrangements with different banks and exchange houses in various countries throughout the world. The bank has earned the confidence and reputation as a reliable organization of paying hard-earned money of the expatriate Bangladeshis to their beneficiaries in the country safely and quickly. The bank handled 66513.9 Tk in million remittance in 2012, which was 54469.4 Tk million higher than that of 2011.

Figure: Foreign Remittance (Tk. in millions) 5.8 Liabilities Liabilities is increased by Tk. 12885.85 million in 2012 than in 2011 that was Tk 5838.84 million .This was mainly due to increase in customer’s deposit and making provision for income tax, gratuity and loan losses.

Figure: Liabilities (Tk. in millions)

5.9 Ratio Analysis:
Ratio analysis is a fundamental means of examining the health of company by studying the relationships of key financial variables. Many analysts believe ratio analysis is the most important aspect of analysis process, a firm’s ratio are normally compared to the ratios of other companies in that firm’s industry or tracked over time internally in order to see trends. For example, the debt ratio compares a company’s to fall debt to its total assets. If a firm’s debt ratio is low relative to its competitor’s ratio or has decreased since last year, the firm is less dependent on debt and is therefore perhaps a less risky investment.
5.9.1 Return on Asset: The rate of return on assets (ROA) measures the ability of management to utilize the real and financial resources of the bank to generate returns. ROA is most commonly used to evaluate bank management. Year | 2008 | 2009 | 2010 | 2011 | 2012 | NBL | 2.36% | 2.52% | 6.05% | 4.01% | 2.34% |

Figure: Return on Asset Ratio Return on Asset is higher more than other Years in 2010. In 2012 ROA was not good than 2010 but was so good than 2008& 09.

5.9.2 Return on Equity:
The return on equity can be used internally by a company or can be used by an investor to evaluate how well the company is turning a profit relative to its stockholder's equity. This ratio is a measure of the percentage of net equity shareholder’s fund. Year | 2008 | 2009 | 2010 | 2011 | 2012 | NBL | 28.38% | 27.53% | 48.96% | 29.96% | 25.45% |

Figure: Return on Equity Ratio
Every year Return on Equity were good but in 2010 Return on Equity of NBL had incredible growth and this is 48.96%.

5.9.3 Price Earnings Ratio:
Price earnings ratio shows how much investor is willing to pay per dollar of reported profits. Price earnings ratio is higher for organization with strong growth prospects, other things held constant, but they are lower for riskier organization. The higher Price earning ratio helps the greater in investor’s confidence. The ratio is not meaningful. The firm has very little or negative earning. From the graph we see that Price earning ratio of NBL in 2011 is 15.88 times & in 2012 it was 21.05.It means the organization has positive earning. Year | 2008 | 2009 | 2010 | 2011 | 2012 | NBL(Times) | 13.95 | 13.78 | 24.04 | 15.88 | 21.05 | Figure: Price Earnings Ratio

5.9.4 Earnings per Share:
The formula for earnings per share, or EPS, is a company's net income expressed on a per share basis. Net income for a particular company can be found on its income statement. It is important to note that the earnings per share formula only references common stock and any preferred stock dividends is subtracted from the net income, if applicable.

Year | 2008 | 2009 | 2010 | 2011 | 2012 | NBL | 7.27 | 4.69 | 7.97 | 7.07 | 2.10 |

Figure: Earnings per Share
Here we view; NBL EPS were 7.07 and 2.10 in the year 2011 to 2012 respectively. In 2010 it was twice than 2009.But in 2012, EPS is decreased this is not a very good sign for investors of share market.
5.9.5 Capital Adequacy Ratio:
It is a measure of a bank's capital. This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. Capital adequacy ratio is the ratio which determines the bank's capacity to meet the time liabilities and other risks such as credit risk, operational risk, etc .It is also known as "Capital to Risk Weighted Assets Ratio (CRAR)."
Capital adequacy ratio=
TIER 1 CAPITAL - 1.Equity Capital. 2. Disclosed Reserves.
TIER 2 CAPITALS - 1.Undisclosed Reserves. 2. General Loss reserves. 3. Subordinate Term Debts. Year | Total Capital | Risk Weighted Asset | CAR | 2008 | 6519.14 | 48562.76 | 13.42% | 2009 | 9124.62 | 105986.2 | 8.61% | 2010 | 17838.2 | 145142.52 | 12.29% | 2011 | 19190.79 | 156148.6 | 12.65% | 2012 | 19198.53 | 150105.6 | 12.79% |

Figure: Capital Adequacy Ratio Here, we view Capital Adequacy ratio of NBL was in a good position in 2010 comparing with years. That means NBL has good capacity to meet the time liabilities and other risks.B ut Capital Adequacy ratio of NBL is not in a good position in 2012.
The loan to deposit ratio may be used to ensure that any money needed is immediately available. Here loan deposit ratios are 81.06%, 76.05%, 84.18%, 84.77%, and 89.78% from the year 2007-2011.
5.9.6 Loan Deposit Ratio
More money the bank has loaned out generates more interest income provided the loans are to secure borrowers. Deposits are obligations (debts) the bank has to the depositors. So, a healthy bank has lots of secure loans generating lots of income (interest) to cover depositor's accounts.

Year | 2008 | 2009 | 2010 | 2011 | 2012 | NBL | 84.18% | 84.77% | 89.78% | 90.00% | 92% |

Figure: Loan Deposit Ratio
The loan to deposit ratio may be used to ensure that any money needed is immediately available. NBL loan deposit ratios are 84.18%, 84.77%, 89.78%. 90.00% and 92% from the year 2008-2012.
5.9.7 Debt equity ratio Debt equity Ratio = Year | 2008 | 2009 | 2010 | 2011 | 2012 | NBL(Times) | 6.99 | 9.31 | 6.05 | 6.85 | 8.17 |

Figure: Debt equity ratio
Debt to equity ratio, as we know, debt is paid on the face value against market value of common equity, so all are in good position. However as risk point of view confidence is in better position because it has lower debt equity ratio.

Chapter -6 FINDINGS, recommendation AND Conclusion

6.1 Findings of the Study
Based on analysis and brief description of credit risk management policy of NBL following findings are originated:

* The credit risk management process of National Bank Limited is quite commendable. Systematic and timely monitoring and appropriate documentation are tried to be maintained.

* Sometime risk manager cannot find necessary documents and information for credit risk assessment. That’s why risk managers use their assumption on risk management. Data collection checklists are not duly filled by the Relationship Managers.

* Credit quality depends on close follow-up and monitoring of loans. The follow-up and monitoring of loans is not strong here.

* The Banks in Bangladesh has faces a lot of illegal pressure from Political persons, Directors and Management of the Bank for approval of loan. in that cases Risk managers are bound to approve the loan without any assessment and rationality.

* The risk managers have often insufficient time for credit risk management. Huge workload and hurries for loan approval prevent

* Credit allocation is set-up by the Head Office Credit committee. The Head of the Branch can authorize credit up to Tk.20 Lac.

* Some big credit facilities recommended by the Head Office credit Committee which is processed with fast monitoring and screening.

6.2 Recommendations
National Bank Limited is a second generation private commercial bank in the country with commendable operating performance. Some recommendations regarding bank’s betterment are described below. The recommendations given below are not decisions; rather they are only suggestions to improve the performance in order to fulfill the customer satisfaction so that clients give more preference to National Bank Limited. The recommendations are made on the basis of findings and analysis and these are: * National Bank should have clear written lending guidelines. The lending guideline should include Industry and Business Segment Focus, Types of loan facilities, Single Borrower and group limit, Lending caps, Discouraged Business Types, Loan Facility Parameters and Cross boarder Risk
It should adopt a credit grading system all facilities should be assigned a risk grade. And the borrowers risk grades should be clearly stated on credit application. * The responsibilities of the key persons of the above function must also be clearly specified. * Bank should make proper and exhaustive documentation before disbursement and to ensure proper supervision, monitoring and follow up of each credit * An Early Alert Account system should be introduced to have adequate monitoring, supervision or close attention by management.( An early Alert Account is one that has risk and potential weaknesses of a material nature)

* There should be a Recovery Unit to manage directly accounts with sustained deterioration. To encourage Recovery Unit incentive program may also introduced. * 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.

6.3 Conclusion:
Bank is the blood of present financial system. Deposit Mobilization is the bread & butter of any bank. The endurance of any bank depends on how competently it can administer its customers with its services & facilities through Credit Management. I have work with National Bank as an internee for three months & found many positive reasons of people trust on NBL.I have acquainted with the Credit Management procedure of the NBL as it was the part of my internship program. It is an institution which is not only serving people with quality & special service but also serving with great courage.
A banker cannot sleep well with bad debts in his portfolio. The failure of commercial banks occurs mainly due to bad loans, which occurs due to inefficient management of the loans and advances portfolio. Therefore any banks must be extremely cautious about its lending portfolio and credit policy. So far National Bank Limited has been able to manage its credit portfolio skillfully and kept the classified loan at a very lower rate.

All things around us are changing at an accelerating rate. Today is not like yesterday.
And tomorrow will be different from today. The Credit Management system that may seem fit today but may not work tomorrow. So, by taking consideration the fast changing, dynamic global economy and the increasing pressure of globalization, liberalization, consolidation and disintermediation, it is essential that National Bank limited has a robust credit risk management policies and procedures that are sensitive to these changes.

From the discussion in this report, it has become clear that credit risk management is a complex and ongoing process and therefore financial institutions must take a serious approach in addressing these issues. They have to be up to date in complying with all the required procedures and must employ competent people who have the ability to deal with these complex matters. Utmost importance should be given to the improvement of the networking system which is essential for modern banking environment and obviously for efficient and effective credit risk management process.

References

* Annual Report 2012. * Credit Risk Grading Manual bangladesh-bank.org * Credit Risk Grading Manual National Bank Ltd. * www.nblbd.com * en.wikipedia.org/wiki/Bank * .Bangladesh bank -http://www.bangladesh-bank.org * National Bank Limited-http://www.nblbd.com * Stanley B. Block & Geoffrey A. Hirt,Foundations of financial management * Bedi, H.L. “Practical Banking Advances” UBS Publishers Distribution Ltd. New Delhi. * Edward W. Reed and Edward K Gill “Commercial Banking” Practice Hall, New Jercy, 1989. * Frederic S. Miskhin, “The Economics of Money Banking & Financial Market” Sixth Edition, 2003, Boston * Anthony Saunders, Credit Risk Measurement, New approaches to Value at Risk and other Paradigms . * www.bis.org/publ/bcbs54.htm * Credit Policy and risk management guide (Revised In 2012) of National Bank Ltd.

Annexure Credit Rating of National Bank Limited. Long Term AA3 Short Term ST-1 2010 | Long Term AA2Short Term ST-1 2011 | Long Term AA- Short Term ST-12012 |

Data is put on Excel based CRG matrix for finding the score. Number | Grading | Short | Score | 1 | Superior | SUP | Fully cash secured, secured by govt. guarantee/international bank guarantee | 2 | Good | GD | 85+ | 3 | Acceptable | ACCPT | 75-84 | 4 | Marginal/Watch list | MG/WL | 65-74 | 5 | Special Mention | SM | 55-64 | 6 | Substandard | SS | 45-54 | 7 | Doubtful | DF | 35-44 | 8 | Bad/Loss | BL | <35 |

CRG System review
CRG system should be reviewed by the respective loan officer regularly. Frequencies of review of CRG are mentioned below; Risk grading | Frequency (at least) | Superior | Annually | Good | Annually | Acceptable | Annually | Marginal/Watch list | Half yearly | Special Mention | Quarterly | Substandard | Quarterly | Doubtful | Quarterly | Bad/Loss | Quarterly |

* * * Status and types of classification Length of overdue | Status ofclassification | Rate of provision | Frequency of classification | All current loans overdue for less than 3 months. | Unclassified | 1% | Quarterly | Loans overdue for 3 months but less than 6 months. | Special Mention A/C(SMA) | 5% | | Loans overdue for 6 months but less than 9 months. (When degree of risk for non-payment is high but there is reasonable prospect that the loan condition can be improved) | Sub-standard (SS) | 20% | | Loans overdue for more than 9 months but less than 12 months. ( When chance of repayment is uncertain but there is little hope of recovery) | Doubtful (DF) | 50% | | Loans overdue for 12 months or more. (When chance of recovery is remote) | Bad/loss (B/L) | 100% | |