crg procedure of dbbl

3.7 Methodology . 34

3.7.1 Approach ... 34

i. primary sources ii. secondary sources

3.7.2 Sampling . 35

i. population ii. Sample units iii. Sampling frame iv. Sampling design v. Sample size

3.7.3 Data collection methods .. 36

3.7.4 Data analysis ... 36

3.8 Limitations of the study 37

3.9 Qualitative analysis ... 38

3.10 Findings .. 43

3.11 Recommendations .. 43

3.12 Conclusions. 44

Part 4: References

Part 5: Appendixes

List of Figures & Charts

Page no. Figure 1.1.5: Corporate Hierarchy at Dutch Bangla Bank, Bangladesh 06

Figure 1.1.7.a: Corporate Hierarchy of Credit Division, DBBL 09

Figure 1.1.7.b: General Procedure for Loans and Advances 15

Figure 1.1.7.c: Loan appraisal and approval process 21

Figure 2.2: Business Credit Application Form of DBBL. 28

Chart 1.1.5: Board of directors (Corporate governance) 07

Evaluation of Credit Assessment & Risk grading management of Dutch Bangla Bank Ltd.

Prepared by:

Moazzem Hossain ID: 0920489

An Internship report presented in partial fulfillment of the requirements for the degree

Bachelor of Business Administration

Independent University, Bangladesh September 2012


Prepared by:

Moazzem Hossain

ID: 0920489

Has been approved

Md. Monzoor Morshed

Lecturer

School of Business

Independent University, Bangladesh

September 2012

For Evaluation Only.Copyright (c) by Foxit Software Company, 2004 - 2007Edited by Foxit PDF Editor

Md. Monzoor Morshed

Lecturer


Sub: Submission of the Internship Report

Dear Sir,

I have the pleasure to submit my Internship report on Evaluation of Credit Assessment & Risk grading management of Dutch Bangla Bank Ltd as requirement for my graduation. You are aware that I completed my internship program in Dutch Bangla Bank Ltd (DBBL) from 10th June 2012 to 30th August 2012, in the banana branch of DBBL. I feel most privileged to be associated with an experienced, efficient and professional team in one of the most reputed Banks of Bangladesh. I strongly believe that this report will satisfy your requirements and expectations.

I have tried my best to make this report as informative, practical, reliable and relevant as possible. In preparation of this report, I have reviewed few books, journals, articles from internet, taking few interviews and on the basis of these available information I drew a set of recommendation which I believe will help the credit department to improve their competence.

I appreciate your kind advice, cooperation, patience and suggestions regarding this report, which will definitely help me to follow as a guideline in future endeavors.

I will be available for any further query and clarification regarding this report whenever necessary.

Sincerely,

Moazzem hossain

ID: 0920489

Dept: BBA


Acknowledgement

Firstly, I would like to thank my honorable faculty, Md. Monzoor Morshed for his kind patience, guidance and support for the preparation of this report. I will always be indebted to him for the valuable suggestion and the time that he had spent for guiding me through the report

I would also like to acknowledge my great appreciation toward Mr. Shariar kabez, the head of credit department and Shuhash Chowdhury (Associate) for being patient and supporting me throughout my 3-month long internship program. They have provided their time and effort to direct me throughout my time at DBBL.

My peers and colleagues at the bank had also been very kind and helpful and they made my internship a more comfortable one. I would like to specially thank MD.Anwarul Alam (Associate), Bulbul Ahmed (Associate) for being there whenever I needed their support.

Last but not the least; I also want to thank all the employees for being patient in taking part in the survey that has been so crucial for my report.

Executive Summary Dutch-Bangla Bank is a second generation commercial private Bank. The Bank commenced its banking business with one branch on July 4, 1996. As a part of my under graduation program, I have completed my internship in this organization. Throughout the period of my internship, I had been working in several departments. However, I was officially appointed to work in the credit department. The report will reveal the background of the company, description of the loans, findings and recommendations based on the experience gathered. One of my major responsibilities was to assist the clients in opening new accounts. Alongside, my work was limited to Account opening section, Bills and clearing section and Local Remittance section. I had been given access to unique software, called Flexcube. I would be required to log in with username and password, and then search for specific clients. In one hand, I was assigned to provide account opening related information to the new customers. Every day, one of my responsibilities was to capture new or existing information related to account opening and then, disseminate those information to the clients who are interested to open accounts in DBBL. On the other hand, I was assigned to keep a database of the information collected. Alongside, I prepared and fill up new and existing files for the department.

The report is based on my critical observation while working in the credit division of DBBL. Lending is one of the principal functions of the bank. Sound lending practice therefore, is very important for profitability and success of a bank. For the sake of sound lending, it is necessary to develop a sound policy and modern credit management techniques to ensure that loans/ advances are safe and the money will come back within the time set for repayment. For this purpose, proper and prior analysis of credit proposals is required to assess the risk. The success of a bank depends on the quality of the services it offers. All the commercial banks, therefore, try to provide quality services with competitive interest rates. DBBL is not an exception. Although, the comparative analysis shows that DBBL is in better position, but there are some obstacles it faces to sustain the position. However, the continuous improvement of the services will certainly place the bank in the best position in one decade.

Table of contents Page no.

Part One: Organization Profile & Overview

1.0 Banking Sector in Bangladesh 1.0.1 Overview of banking sector .. 01 1.0.2 Current structure of banking system in Bangladesh.. 02 1.1 Dutch-Bangla Bank Limited 1.1.1 History. 03 1.1.2 An over view of DBBL... 04 1.1.3 Mission ... 05 1.1.4 Vision.. 05 1.1.5 Organizational structure and management .. 06-07 1.1.6 Business and support activities 08 1.1.7 Credit Management of Dutch Bangla Bank Ltd... 09-26 Part 2: My Roles & Responsibilities 2.1 General Banking department 27 2.2 Credit Division . 28 2.3 Other activities . 29 2.4 Experience 29 Part 3: Research 3.1 Introduction .. 30 3.2 Statement of the problem .. 30 3.3 Purpose of the study .. 30 3.4 Objective of the study ... 31 3.5 Literature review ... 31 3.6 Conceptual Framework . 33

3.7 Methodology . 34

3.7.1 Approach ... 34

i. primary sources ii. secondary sources

3.7.2 Sampling . 35

i. population ii. Sample units iii. Sampling frame iv. Sampling design v. Sample size

3.7.3 Data collection methods .. 36

3.7.4 Data analysis ... 36

3.8 Limitations of the study 37

3.9 Qualitative analysis ... 38

3.10 Findings .. 43

3.11 Recommendations .. 43

3.12 Conclusions. 44

Part 4: References

Part 5: Appendixes

List of Figures & Charts

Page no. Figure 1.1.5: Corporate Hierarchy at Dutch Bangla Bank, Bangladesh 06

Figure 1.1.7.a: Corporate Hierarchy of Credit Division, DBBL 09

Figure 1.1.7.b: General Procedure for Loans and Advances 15

Figure 1.1.7.c: Loan appraisal and approval process 21

Figure 2.2: Business Credit Application Form of DBBL. 28

Chart 1.1.5: Board of directors (Corporate governance) 07

Part 1 Organization Profile & Overview

1

Organization Profile & Overview

1.0 THE BANKING SECTOR IN BANGLADESH

1.0.1 OVERVIEW OF THE BANKING SECTOR There is no denying the fact that the financial system plays a significant role in the economic

development of a country. The importance of an efficient financial sector lies in the fact that, it

ensures domestic resources mobilization, generation of savings, and investments in productive

sectors. In fact, it is the system by which a countrys most profitable and efficient projects are

systematically and continuously directed to the most productive sources of future growth.

Financial sector in Bangladesh, like most in developing countries, is dominated by banking

institutions. With recent gains in financial fronts Bangladesh's financial sector is now

comparable with most of the countries in South and East Asia in terms of financial deepening.

Bangladesh, like other developing countries, still has an underdeveloped financial system and is

facing serious problems with the operation of its financial system and poor financial

intermediation presents significant disincentives to foster economic growth.

Nevertheless, the banking sector occupies an important place in Bangladesh because of its

intermediary role; it ensures allocation and relocation of resources and keeps up the momentum

of economic activities. It plays a pivotal role in the economic development of the country and

forms the core at the money market.

Banks can be defined in various ways. In Bangladesh, any institution which accepts for the

purpose of lending or investment, deposits of money from the public, repayable on demand or

otherwise, and is transferable by checks, draft order or otherwise, can be termed as a bank. The

purpose of banking is thus to ensure transfer of money from surplus unit to deficit units or in

other words, to work as the repository of money.

2

1.0.2 CURRENT STRUCTURE OF BANKING SYSTEM IN BANGLADESH At present, the financial system in Bangladesh is mainly composed of two types of institutions -

banks and non-bank financial institution (NBFIs).

The formal financial sector in Bangladesh includes:

(a) Bangladesh Bank as the central bank;

(b) 47 commercial banks, including 4 Government owned commercial banks (SOCB), 30

domestic private banks (PCBs) (of which 7 banks are operating under Islamic Shariah), 9 foreign

banks (FCBs) (of which 1 bank is operating as Islamic bank); and 4 government-owned

specialized banks (DFIs);

(c) 31 non-bank financial institutions (NBFIs) licensed by the Bangladesh Bank;

(d) 2 large government- owned insurance companies (life and general) and 62 private owned

(18 life and 44 general) insurance companies;

(e) 2 stock exchanges and;

(f) Some co-operative banks

(Source: http://www.bangladesh-bank.org/fnansys/bankfi.php)

Besides, a good number of semi-formal micro finance institutions (MFIs) also are operating in Bangladesh. Among the nine FCBs, one such well-known multinational bank operating in Bangladesh is Dutch BanglaBank, which will be the next focus of my report

For Evaluation Only.Copyright (c) by Foxit Software Company, 2004 - 2007Edited by Foxit PDF Editor

3

1.1 Dutch-Bangla Bank Limited

1.1.1 HISTORY Dutch-Bangla Bank Limited is a scheduled commercial bank. The Bank was established under

the Bank Companies Act 1991 and incorporated as a public limited company under the

Companies Act 1994 in Bangladesh with the primary objective to carry on all kinds of banking

business in Bangladesh. The Bank is listed with Dhaka Stock Exchange Limited and Chittagong

Stock Exchange Limited. DBBL- a Bangladesh European private joint venture scheduled

commercial bank commenced formal operation from June 3, 1996. The head office of the Bank

is located at Senakalyan Bhaban (4th floor), 195, Motijheel C/A, Dhaka, Bangladesh. The Bank

commenced its banking business with one branch on 4 July 1996.

Dutch Bangla Bank Limited (DBBL) a public company limited by shares, incorporated in

Bangladesh in the year 1995 under companies Act 1994. With 30% equity holding, the

Netherlands Development Finance company (FMO) of the Netherlands is the international

cosponsor of the Bank. Out of the rest 70%, 60% equity has been provided by prominent local

entrepreneurs and industrialists & the rest 10% shares is the public issue. During the initial

operating year (1996-1997) the bank received skill augmentation technical assistance from ABN

Amro Bank of the Netherlands.

DBBLs focus is to provide one counter service to clients covering: Commercial Banking

(Deposit Accounts), Consumer Banking (Retail Baking) - Traveler Cheques- Foreign & Inland

Remittances, Financial Services, Corporate Banking, Asset & liability management, Liquidity &

capital Resources Management, Information technology, Human Resources. DBBL Internet

banking enables customer to access his/her personal or business accounts anytime anywhere

from home, office or when traveling. Internet Banking gives customer the freedom to choose

his/her own banking hours. It can save time, money and effort. It's fast, easy, secure and best of

all. DBBL, since its inception was active in various social activities, which increased manifold

over the period of time and its growth. It is one of the fast growing leading online banks in

private sector. The emergence of Dutch-Bangla Bank Ltd. in the private sector is an important

event in the banking area of Bangladesh. The Netherlands Development Finance Company

(FMO) of the Netherlands is the international sponsor of the Bank. The FMO is the Dutch

4

development bank of the Netherlands specialized in the financing of private enterprises in Asia,

Africa, Latin America and Eastern Europe. Dutch-Bangla Bank Ltd. came into existence with

joint venture as a public limited company incorporated in Bangladesh on June 26, 1995 with the

primary objectives to carry on all kinds of banking business in and outside of Bangladesh. DBBL

has started its business with foreign bank. DBBL commenced its business as scheduled bank

with effect from July 04, 1995 with one branch-Motijheel Branch, Dhaka, with a motto to grow

as a leader in the banking arena of Bangladesh through better counseling and effect service to

clients and thus to revitalize the economy of the country. All the branches are currently providing

truly On-Line banking facility. DBBL resumed its operational activities initially with an

authorized capital of Tk.400 million and paid up capital of Tk.202.14 million.

1.1.2 An over view of DBBL (CURRENT POSITION) Dutch-Bangla Bank started operation is Bangladesh's first joint venture bank. The bank was an

effort by local shareholders spearheaded by M Sahabuddin Ahmed (founder chairman) and the

Dutch company FMO.

From the onset, the focus of the bank has been financing high-growth manufacturing industries

in Bangladesh. The rationale being that the manufacturing sector exports Bangladeshi products

worldwide. Thereby financing and concentrating on this sector allows Bangladesh to achieve the

desired growth. DBBL's other focus is Corporate Social Responsiblity (CSR). Even though CSR

is now a clich, DBBL is the pioneer in this sector and termed the contribution simply as 'social

responsiblity'. Due to its investment in this sector, DBBL has become one of the largest donors

and the largest bank donor in Bangladesh. The bank has won numerous international awards

because of its unique approach as a socially conscious bank.

DBBL was the first bank in Bangladesh to be fully automated. The Electronic-Banking Division

was established in 2002 to undertake rapid automation and bring modern banking services into

5

this field. Full automation was completed in 2003 and hereby introduced plastic money to the

Bangladeshi masses. DBBL also operates the nation's largest ATM fleet and in the process

drastically cut consumer costs and fees by 80%. Moreover, DBBL choosing the low profitability

route for this sector has surprised many critics. DBBL had pursued the mass automation in

Banking as a CSR activity and never intended profitability from this sector. As a result it now

provides unrivaled banking technology offerings to all its customers. Because of this mindset,

most local banks have joined DBBL's banking infrastructure instead of pursuing their own.

Even with a history of hefty technological investments and an even larger donation, consumer

and investor confidence has never waned. Dutch-Bangla Bank stock set the record for the highest

share price in the Dhaka Stock Exchange in 2008.

1.1.3 Mission Each business unit needs to define its specific mission within the broader company mission.

Dutch-Bangla Bank engineers enterprise and creativity in business and industry with a

commitment to social responsibility. "Profits alone" do not hold a central focus in the Bank's

operation; because "man does not live by bread and butter alone. Mission statements are at their

best when they are guided by a vision.

1.1.4 Vision

To become a leading banking institution and play a pivotal role in the development of the

Country

Vision, a compelling view of a future yet to be, creates meaning and purpose which catapults

both individuals and organizations to high levels of achievement. Dutch-Bangla Bank dreams of

better Bangladesh, where arts and letters, sports and athletics, music and entertainment, science

and education, health and hygiene, clean and pollution free environment and above all a society

based on morality and ethics make all our lives worth living. DBBL's essence and ethos rest on a

cosmos of creativity and the marvel-magic of a charmed life that abounds with spirit of life and

adventures that contributes towards human development.

6

1.1.5 ORGANIZATIONAL STRUCTURE AND MANAGEMENT Dutch Bangla Bank follows a hierarchy of command. The following organization chart shows the chain of command that is followed at the Head Office of the Dutch Bangla Bank in Bangladesh.

Figure 1.1.5: Corporate Hierarchy at Dutch Bangla Bank, Bangladesh

(Source: Human Resource Department of Dutch Bangla Bank)

Managing Director

Deputy Managing Director (Administration)

Deputy Managing Director (Operation)

Senior executive vice president

Executive vice president

Senior vice president

First vice president

Vice president

Senior assistant vice president

First assistant vice president

Assistant vice president

Senior executive officer

Executive officer

Senior officer

Officer Assistant officer

Traniee officer

Aditional Managing Director

7

Corporate governance

Board of directors

Designation

1 Mr. Abedur Rashid Khan Chairman

2 Mr. Sayem Ahmed Director

3 Mrs. Frey-Tang Yuen Mei Barbara Director

4 Mr. Md. Fakhrul Islam Director

5 Dr. Irshad Kamal Khan Independent Director

6 Dr. Syed Fakhrul Ameen Director from the Depositors

7 Mr. Chowdhury M. Ashraf Hossain Director from the Depositors

8 Mr. K. Shamshi Tabrez Managing Director

Chart 1.1.5: Board of directors (Corporate governance) Source: Intranet Site of Dutch Bangla Bank (http://www.dutchbanglabank.com/about_us/board.html)

8

1.1.6 BUSINESS AND SUPPORT ACTIVITIES Dutch Bangla Bank operations consist of two sets of activities. One is the business segment and

the other is the support segment. The business segment represents the business activities of the

bank - their products, services and solutions that they offer their clients and the support segment

represents the services that the bank provides the business segment internally and helps them

operate efficiently.

Services offered by Dutch Bangla Bank have been customized to suit the needs of the people in

Bangladesh. The services fall under the following business segments:

Electronic Banking

SME Banking

Retail Banking

Corporate Banking

9

1.1.7 Credit Management of Dutch Bangla Bank Ltd:

---My designated department--- Credit flow of DBBL: Credit Risk Management is basic to risk management and controlling, as it is the major risk

factor in most bank business. Therefore, a bank should assess the degree of risk associated with

each loan and its profitability. Bangladesh bank has undertaken a project to install a core risk

management system in every bank. DBBL Bank Ltd has also installed the same system in respect

to asset liability management, foreign exchange management, internal control & compliance, anti

money laundering. The bank prudently controls asset allocation through limiting exposure to

industry sector & setting client limit. Moreover, the bank approved a new organization structure

to accommodate core risk management perspective. In this connection prior assessment of and

follow up on a loan transaction constitute essential ingredients of the credit risk control process.

An in-depth analysis of the borrower financial conditions, expected usage of funds, ability to

repay, willingness to repay and sources of repayment all together constitute step one in the risk

control processes. The overall success in credit management depends on the banks credit policy,

portfolio of credit, monitoring, supervision and follow-up of the loan and advance.

The organogram for the Credit Division of the Dutch Bngla Bank (Banani Branch) is given

below:

Figure 1.1.7.a: Corporate Hierarchy of Credit Division, DBBL

Mohammad Shahriar Kabez

(Head of credit division)

MD.Anwarul Alam (Associate)

Shuhash Chowdhury (Associate)

Bulbul Ahmed (Associate)

I work Here !!!

10

Types of loans and advances offered by DBBL:

The making of loan and advance is always profitable to a bank. As the bank mobilizes savings

from the general people in the form of deposit, the most important task of it is to disburse the

said deposit as loan or advance to the mass people for the development of commercial, industrial

who are in need of fund for investment. Like other business firm, the main purpose of the

commercial bank is to make profit. The profitability of the banks depends on the efficient

manner and avenues in which the resources are employed. DBBL has made so far efficient use of

the deposit and has the classified rates under control. The Bank disburses loan in different form.

It varies in purpose wise, mode wise and sector wide. The varieties used by DBBL are briefly

described below with the common terms and condition and performance in each mode.

Classification of Advance: Commercial & Industrial Credit:

Corporate Credit Scheme. Retail Credit Scheme

Corporate Credit Scheme:

The bank is entrusted with the responsibility of providing short, medium and long term loans and other financial assistance for promotion of industrial sectors. There are 3 types of corporate credit scheme:

Cash Credit

Over Draft

Secured Over draft

Retail Credit Scheme:

The bank also provides retail loan to individual customer. There are different types of retail loan

which helps customer to fulfill their dream. Like car loan, educational loan, travel loan etc

Lending Policies of Dutch Bangla Bank Ltd:

A loan policy gives loan officers, relationship managers and the Banks management specific

guidelines in making individual loan decisions and in shaping the Banks overall loan portfolio.

One of most important ways a Bank can make sure its loans meet regulatory standard and are

profitable is to establish a written loan policy.

11

Dutch Bangla Bank Ltd. also has a good loan policy and the most important elements of the

policy arc stated below:

A goal statement for the Banks loan portfolio (in terms of types, maturities, sizes, and

quality of loans).

Specification of the lending authority given to each loan officer and loan committee

(measuring the maximum amount and types of loan that each person and committee can

approve.)

Lines of responsibility in making assignments and reporting information within the loan

department.

Operating procedures for soliciting, reviewing, evaluating, and making decisions on

customer loan applications.

The required documentation that is to accompany each loan application and what must be

kept in the Banks credit files (required financial statements, security agreements etc.)

Lines of authority within the bank regarding who is responsible for maintaining and

reviewing the Banks credit files.

Guidelines for taking, evaluating and perfecting loan collateral.

A presentation of policies and procedures for setting loan interest rates and fees and the

terms for repayment of loans.

A statement of quality standards applicable to all loans.

A statement of the preferred upper limit for total loans outstanding (i.e. the maximum

ratio to total loans to total assets allowed.)

A description of the Banks principal trade area, from which most loans should come.

A discussion of the preferred procedures for detecting, analyzing and working out

problem loan situations.

A written loan policy statement carries a number of advantages for the bank adopting it. It

communicates to employees working in the loan department what procedures they must follow

and what their responsibilities are. It helps the Bank moves forward a loan portfolio that can

successfully blend multiple objectives such as promoting the banks profitability, controlling its

exposure and satisfying regulatory requirements.

12

Lending Procedure of Dutch Bangla Bank Ltd:

The lending procedure starts with building up relationship with customer through account

opening. The stages of credit approval are done both at the branches and at the corporate office

level. The various stages of credit approval are described sequentially

Step-1

A loan procedure starts with a loan application from a client who must have an account with the

Bank. At first it starts from the branch level. Branch receives application from client for a loan

facility. In the application client mention what type of credit facility he/she wants from the bank

including his/her personal information and business information. Branch Manager or the Officer-

in-charge of the credit department conducts the initial interview with the customer.

Step-2

After receiving the loan application from the client, the bank sends a letter to Credit Information

Bureau of Bangladesh Bank for obtaining a credit inquiry report of the customer from there. This

report is called C1B (Credit Information Bureau) report. This report is usually collected the

credit information of customer. The purpose of this report is to be informed that whether or not

the borrower has taken loans and advances from any other banks and if so, what is the status of

those loans and advances i.e. whether those loans are classified or not.

Step-3

If Bangladesh Bank sends positive CIB report on that particular borrower and if the Bank thinks

that the prospective borrower will be a good one, then the bank will scrutinize the documents.

Required documents are:

In case of corporate client, financial documents of the company for the last three to five

years. If the company is a new one, projected financial data for the same duration is

required.

Personal net worth of the borrower(s).

In this stage, the bank will require whether the documents are properly filled up and

duly signed. Credit in charge of the relevant branch is responsible enquire about the ins

and outs of the customers business through discussing with him/them.

13

Step-4

Bank officials of the credit department will inspect the project for which the loan is applied.

Project existence, its distance from the bank originating the loan, monitoring cost and

possibilities are examined.

Step-5

Any loan proposal needs to be evaluated on the basis of financial information provided by the

loan applicant. Financial spread sheet analysis which consists of a series of quantitative

techniques is employed to analyze the risks associated with a particular loan and to judge the

financial soundness and worthiness of the borrower. Besides lending risk analysis is also

undertaken by the bank to measure the borrowers ability to pay considering various risks

associated the loan. These quantitative techniques supported with qualitative judgment are the

most important and integral part of the credit approval process used by DBBL. This is the credit

analysis phase.

Step-6

Obtain legal opinion on the collateral provided by the applicant, whether those are properly

submitted- regular and up to date or else those documents will be asked to regularize by the

applicant.

Step-7

The branch starts processing the loan at this stage. Based on the analyses (credit analysis) done

by the branch, the branch prepares a loan proposal. The proposal contains following important

and relevant information:

Name of the borrower (s). Nature of credit. Purpose of the credit. Extent of the credit. Collateral. Margin. Rate of interest. Repayment schedule Validity

14

Step-8

If the proposal meets DBBLs lending criteria and is within the managers discretionary power,

the credit line is approved. The manager and the sponsoring officer sign the credit line proposal

and issue a sanction letter to the client.

If the value of the credit line is above the branch managers limit then it is send to head office or

zonal office for final approval with detailed information regarding the client (s), credit analysis

and security papers.

Step-9

Head office processes the credit proposal and afterwards puts forward an office notice if the loan

is within the discretionary power of the head office credit committee or board memorandum if

the loan requires approval from the board of directors.

Step-l0

If the zonal office, credit committee of the head office or the board as the case may be approves

the credit line, an approval letter is sent to the branch. The branch then issues a sanction letter to

the borrower with a duplicate copy. The duplicate copy duly signed by the borrower is returned

to the branch of the bank.

Step-11

After issuing the sanction advice, the bank will collect necessary charge documents. Charge

documents vary on the basis of types of facility, types of collateral.

Step-12

Finally loan is disbursed by the branch through a loan account in the name of the borrower and

monitoring of the loan starts formally.

15

General Procedure for Loans and Advances:

Figure 1.1.7.b: General Procedure for Loans and Advances

First information sheet (FIS)

First information sheet (FIS) is the prescribed from provided by the respective branch that

contains basic information of the borrower. It contains following particulars.

1. Name of the concern with its factory location, office address and Tel no.

2. Name of the main sponsors with their educational qualification.

1. Business experience of the sponsors, details of past and present business, its achievement and failures, name of ill the concerns wherein the sponsors have involvement.

4. Income tax registration no. With the amount of tax paid for the last three years.

5. Details of unencumbered assets (movable & immovable) personally owned by the sponsors.

16

6. Details of liabilities with other banks and financial institutions including securities held there against.

7. Purpose of loan sought from DBBL.

8. Estimated cost of the project & means of finance.

Application for credit line

After receiving the first information sheet from the borrower Bank official verifies all the

information carefully. He also checks the account maintains by the borrower with the Bank. If

the official become satisfied then he gives application to the bank prescribe format supplied by

the bank called Credit for request limit (CRFL).

Credit Sanction & Appraisal Process

Borrowers Credit Worthiness Analysis by DBBL following 6 Cs:

The question that must be dealt with before any other whether or not the customer can service

the loan that is pay out the loan when due with a comfortable margin of error. This usually

involves a detailed study of six aspects of the loan application: character, capacity, cash,

collateral, conditions and control. All must be satisfied for the loan to be a good one from the

lenders (DBBL) point of view.

Character: The loan officer must be convinced that the customer has a well defined

purpose for requesting credit and a serious intention to pay. Responsibility,

truthfulness, clean past record, true purpose and honest intention to repay the loan

make up what a loan officer calls character.

Capacity: The customer requesting credit must have the authority to request such

and the legal standing to sign a binding loan agreement.

Cash: The borrower should have the ability to generate enough cash flow to repay

the loan. This cash flow can be generated from sales or income from the sales or

income, from the sale of liquidation of assets or funds raised through debt or equity

securities.

17

Collateral: The borrower must possess adequate net worth or enough quality assets

to provide adequate support for the loan. The value of the collateral security must

cover the loan exposure.

Conditions: The recent trend of borrowers line of work or industry must be taken

into considerations by the lender.

Control: The lender should be careful about whether changes in law and

regulations could adversely affect the borrower and whether loan request meets the

Banks and regulatory authorities standards for loan quality.

Collecting CIB Report from Bangladesh Bank

After receiving the application for credit line, Bank sends a letter to Bangladesh Bank for

obtaining a report from there. This report is called CIB (Credit Information Bureau) report.

Basically branch seeks this report from the head office for all kinds of loans. The purpose of this

report is to being informed that whether the borrower the borrower has taken loan from any other

bank; if yes, then whether the party has any overdue amount or not.

Making Credit proposal (CP)

Branch then has to find the right borrower by considering the following 6 Cs. These are

character, capital, capacity, cash, collateral, condition (economic). If the branch thinks that the

project is feasible then he will prepare a Proposal. Bank prepares the proposal in a specific from

called credit proposal. Significance the proposal branch sends it to head office for approval.

Credit assessment

A thorough credit and risk assessment should be conducted prior to the granting of loans, and at

least annually thereafter for all facilities. The results of this assessment should be presented in a

credit application that originates from the Relationship Manager, and is recommended by Branch

Credit Committee (BCC). The RM should be the owner of the customer relationship, and must

be held responsible to ensure the accuracy of the entire credit application submitted for approval.

RMs must be familiar with the banks Lending Guidelines and should conduct due diligence on

new borrowers, principals and guarantors.

18

Credit Applications should summarize the results of the RMs risk assessment and include as a

minimum, the following details:

Amount and type of loan(s) proposed

Purpose of loans

Loan structure (Tenor, Covenants, Repayment Schedule, Interest)

Security arrangements

In addition, the following risk areas are analyzed:

Borrower analysis

Industry analysis

Supplier/ Buyer analysis

Historical financial analysis

Projected financial performance

Account conduct

Adherence to lending guidelines

Mitigating factors

Loan structure

Security

Risk Grading

All Banks should adopt a credit risk grading system. The system should define the risk profile of

borrowers to ensure that account management, structure and pricing are commensurate with the

risk involved. Risk grading is a key measurement of a Banks asset quality, and as such, it is

essential that grading is a robust process. All facilities should be assigned a risk grade. Where

19

deterioration in risk is noted, the Risk Grade assigned to a borrower and its facilities should be

immediately changed. Borrower Risk Grades should be clearly stated on Credit Applications.

Project Appraisal

It is the pre-investment analysis done by the officer before approval of the project. Project

appraisal in the banking sector is needed for the following reasons:

1. To justify the soundness of an investment

2. To ensure repayment of bank finance

3. To achieve organizational goals

4. To recommend if the project is not designed properly

Head Office Approval

The respective officer of Head Office appraises the project by preparing a summary named Top

Sheet or Executive Summary. Then he sends it to the Head Office Credit Committee (HOCC)

for the approval of the loan. The Head Office Credit Committee (HOCC) considers the proposal

and takes decision whether to approve the loan or not. If the loan is approved by the HOC C, the

HO sends the approval to the concerned branch with some conditions. These are like.

Drawing will not exceed the amount of bill receivables. The tern over in the account during the tenure of the limit should not be less than four

times of the credit limit. All other terms and conditions, as per policy and practice of the bank for such advance to

safeguard the bankers interest shall also be applicable for this sanction also. Branch shall not exceed the sanctioned limit. Required charge documents with duly stamped should be obtained. Drawing shall be allowed only after completion of mortgage formalities and other

security arrangement.

20

Sanction letter

After getting the approval from the HO, the branch issues the sanction letter to the borrower. The

borrower receives the letter and returns a copy of this letter duly signed by him as a token of

having understood and acceptance of the terms and conditions above.

Documentation of loans and advances

In spite of the fact that banker lends credit to a borrower after inquiring about the character,

capacity and capital of the borrower, he must obtain proper documents executed from the

borrower to protect him against willful defaults. Moreover, when money is lent against some

security of some assets, the document must be executed in order to give the banker a legal and

binding charge against those assets. Documents contain the precise terms of granting loans and

they serve as important evidence in the law courts if the circumstances so desire. That is why all

approval procedure and proper documentation shall be completed before the disbursement of the

facilities. The documents for loans and advances can be classified into two categories, namely

Charge documents & Security documents

Disbursement

After verifying all the documents the branch disburses the loan to the borrower. A loan

repayment schedule is also prepared by the bank and given to the borrower.

Follow-up

After the disbursement of the loan bank officials time to time monitor the loan by physical observation of the activities of the party. It is done in the following manner.

Constant supervision

Working capital assessment

Stock report analysis

21

Diagrammatically the whole loan appraisal and approval process is:

Figure 1.1.7.c: Loan appraisal and approval process

Request for credit from the client to a branch

Credit application from filled up by the customer & collection of document

Scrutinizing the document

Analyzing the information

Sanctioning the credit

Preparing the proposal

The proposal; goes to the head office through other necessary steps

The proposal; goes to the head office through other necessary steps

22

Loan classifications

Classifications Scale

1. Unclassified: Repayment is regular

2. Substandard: Repayment is irregular or stopped but has reasonable prospect of improvement.

1. Doubtful Debt: Unlikely to be repaid but special collection efforts may result in partial recovery.

4. Bad/loss: Very little chance of recovery.

Credit Monitoring

Monitoring is a process of taking case of loan cases starts from the selection of the borrower and

remains live throughout the life of a loan.

To minimize credit losses, monitoring procedures and systems should be in places that provide

an early indication of the deteriorating financial health of a borrower. At a minimum, systems

should be in place to report the following exceptions to relevant executives in CRM and RM

team:

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.

All borrower relationships/loan facilities are reviewed and approved through the submission of a

Credit Application at least annually.

23

Credit Risk Grading

Manual of Bangladesh Bank was circulated by Bangladesh Bank vide BRPD Circular No. 18

dated December 11, 2005 on Implementation of Credit Risk Grading Manual which is primarily

in use for assessing the credit risk grading before a bank lend to its borrowing clients.

Well-managed credit risk grading systems promote bank safety and soundness by facilitating

informed decision-making. Grading systems measure credit risk and differentiate individual

credits and groups of credits by the risk they pose. This allows bank management and examiners

to monitor changes and trends in risk levels. The process also allows bank management to

manage risk to optimize returns.

The following step-wise activities outline the detail process for arriving at credit risk grading.

Step I : Identify all the Principal Risk Components Step II : Allocate weight ages to

Principal Risk Components

Step III : Establish the Key Parameters

Step IV: Assign weight ages to each of the key parameters.

Step V: Input data to arrive at the score on the key parameters.

Step VI: Arrive at the Credit Risk Grading based on total score obtained.

(Source: CREDIT RISK GRADING MANUAL of Bangladesh Bank)

24

PRINCIPAL RISK COMPONENTS:

KEY PARAMETERS: WEIGHT:

Financial Risk

Leverage

Liquidity

Profitability

Coverage

15%

15%

15%

5%

50%

Business/Industry

Risk

Size of Business

Age of Business

Business Outlook

Industry growth

Market Competition

Entry/Exit Barriers

5%

3%

3%

3%

2%

2%

18%

Management Risk

Experience

Succession

Team work

5%

4%

3%

12%

25

Security Risk

Security coverage

Collateral coverage

Support

4%

4%

2%

10%

Relationship Risk

Account conduct

Utilization of limit

Compliance of covenants

Personal deposit

5%

2%

2%

1%

10%


26

The following is the proposed Credit Risk Grade matrix based on the total score obtained by an applicant.


Part 2: My Roles & Responsibilities

27

My Roles & Responsibilities

2.1 General Banking department:

I started my internship in General banking department. General Banking department generally deals with five sections. However, my work was limited to Account opening section, Bills and clearing section and Local Remittance section. I had been given access to unique software, called Flexcube. I would be required to log in with username and password, and then search for specific clients. . A view of the software platform is availed in the appendix for a better understanding.

The truly online core banking software, Flexcube has been running since 2004 in DBBL.

Meantime, the number of customers, accounts, ATMs, Point of Sales (POS) terminals and

cards has increased enormously. To ensure better customer service, the bank is upgrading

its core banking software from its present version to Flexcube Universal Banking

Solution (UBS). In parallel, the whole setup of hardware is being upgraded to cope with

the increased volume of transactions from different delivery channels. The core team

formed in this regard is working day-night in configuring & testing of the new system

which is expected to go live soon.

(Source: Report on Automation of Dutch Bangla Bank)

28

2.2 Credit Division:

During my internship, I spend around two months in credit division. During this period, my specific responsibilities were as follows:

Creating Spread and updating previous spreads:

In case for a new client, whose financial records has not previously been entered into the system, I would be required to create new spread for specific clients based on the company financials provided.

Entering reported figures:

Sometime I assist them to verify their old reports as well as completed those by entering the PIN code, passport and National ID of their clients. I prepared some spread sheet of their loan classification, SOD account information and etc.

Business Credit Application (BCA):

Business Credit Application (BCA) is a document that allows a business to apply for credit privileges with a company. The information the business provides in a business credit application allows for an investigation into its credit worthiness.

Dutch Bangla Banks BCA are designed to facilitate better understanding of customers risk assessment and needs identification for both Relationship Manager (RMs) and the approvers.

I used to assist them to fill up their BCA form. During my internship period, banks internal audit was on, so I helped them to fill up their incomplete forms

Figure 2.2: Business Credit Application Form of DBBL.

29

Factory visit report:

Factory visit is part of the process in evaluating clients operational activities and granting credit approval. A general template is used to record information upon a visit to a clients factory. I have worked on such template to record information based on the notes taken by an associate of local corporate, while gathering additional information from the clients company websites.

2.3 Other activities

Writing business letters to clients

Using spreads to create database of clients

Use of spread sheet system to prepare labels of a large list of clients

Organizing and updating local corporate database and previous reports.

2.4 Experience:

During the period of my internship, my responsibilities were diverse in nature. At first, I was assigned to learn different phases of work. Then, I start working in different sections. Through this internship, I got a chance to be a part of our corporate sector.

As I spent most of my time in credit division, I want to share one of my personal observations One day I was working beside, Mr. Shariar kabez, the head of credit department, two clients came in. The way they were taking, it indicates that they have a sound relationship with this bank. One of them is a guarantor of a loan. The borrower of that loan was not repaying, so bank was claiming that guarantor. Guarantor was worried about his record and asking bank to claim the borrower and get that car back (it was a car loan). As borrower is a son of a politician, bank was failed to reach him.

So in this case, it shows that clients past record and rating have a major influence in our banking sector and the unrest situation of our politics is affecting our economy.

Part 3: Research


30

3.1 Introduction

The increased number of bankruptcy cases worldwide, both corporate and personal, is the main reason for the renewed interest in credit risk management. A bad loan situation often arises from a combination of factors, amongst which the major one is the absence of an adequate system to classify loans properly and to identify problem loans promptly so as to minimize the potential defaults and consequent losses. More defaults mean more missed loan payments and a reduction in profitability for banks. Poor management of credit risk is considered to be the major cause of banks bad performance and often the reason for their bankruptcy.

3.2 Statement of the Problem

Credit risk rating systems are becoming an increasingly important element of commercial banks measurement and management of credit risk. Such an importance has in fact been highlighted in the proposed Credit Risk Grading Manual of Bangladesh Bank was circulated by Bangladesh Bank vide BRPD Circular No. 18 dated December 11, 2005,that includes the internal rating approach to credit risk as one of its cornerstones. This paper attempts to investigate the extent to which the credit rating systems are used in DBBL based on a recent survey.

3.3 Purpose of the Study

The report is based on my critical observation while working in the loans and advancement division of DBBL. The report reveals the various types of loan scheme and the criterion to get the loan and the risk grading system.

This report will not only help the management of the bank, but also the stakeholders on a whole. Different financial institutions can be motivated to consider the study conducted in this report, in order to improve the various offerings of the transaction banking services for clients.

31

3.4 OBJECTIVES OF THE STUDY

I. Broad/General Objective of the report are:

To achieve a wide knowledge of the various types of loan scheme, credit assessment procedure and risk grading system of DBBL bank.

II. Specific Objectives of the report are:

To examine the knowledge level of clients regarding the services of credit division. To

investigate employees views regarding the quality and standard of the services offered by

credit division.

To identify the gaps between the services and solutions that clients want from this

segment and those which are actually being provided by credit division.

To suggest ways of improving the services and solutions offered by credit division to

accommodate the rapidly growing client base of Dutch Bangla Bank.

3.5 Literature Review

Banks manage a wide range of assets, liabilities, and equity capital that support their operations and activities. Proper risk management is therefore a vital and integral part of effective bank operation. Widely cited risks include credit risk, interest risk, liquidity risk and operational risk. All these risks are derived from banks most fundamental and traditional roles of lending and borrowing. Among those risks, credit risk, which is associated with the potential variability of the stream of cash flows from an asset, is one of the most crucial ones, as it is often appointed as the cause of a bank failure. To perfect its credit risk assessment, monitoring and management, banks use a variety of methods and tools. In the past few years, banks have been adopting and improving credit scoring system so as to evaluate certain types of loans more objectively, accurately and efficiently. Recently, the industry has started implementing credit rating as a mechanism to better manage its credit risk and to improve its overall portfolio performance.

Credit risk rating is a summary indicator of risk for banks individual credit exposures and is generally assigned at the time of each underwriting or credit approval and reassessed during the credit review process. It functions as the barometer for the banks to measure their credit risk exposure to each individual customer, either in isolation or as part of their loan portfolio. The rating allows banks to measure the relevant default probabilities at different rating levels more accurately. It helps banks to reduce their risk exposure and to improve their profitability by

32

reducing the number of potential default loans as well as minimizing the cost associated with bad debt recovery.

Although the major objective of credit rating is to determine the ability and willingness of a borrower to pay at the agreed terms, the rating does a bit more than just classifying the borrowers into pass and fail categories. The most important benefits for banks in using the rating system to assess their loans include:

Credit Risk Rating System in the Banking Sector

Identify and decline potential risky applicants Reduce losses due to defaults Price the loan properly Increase liquidity Maximize the profit Improve monitoring process Reduce monitoring cost Minimize administrative costs with debt collection Help banks to achieve their objectives Allow allocation of resources where they are more productive Avoid loan concentration

Treacy and Carey (2000) suggest that in designing a credit rating system, a bank should consider numerous factors, including cost, efficiency of information gathering, consistency of rating produced, staff incentives, nature of a banks business, and uses to be made of the internal ratings. They notice that the proportion of grades used to distinguish among relatively low-risk credits versus the proportion used to distinguish among riskier pass credits tend to differ with the business mix of a bank. A rating system with more rating categories is better than a system with just a few categories.

Finer distinctions of risk, especially among riskier assets, can enhance a banks ability to analyze its portfolio risk exposure. However, an internal rating system with larger number of grades is costly to operate because of the extra work required to distinguish finer degrees of risk.

When assigning a loan applicant to a particular grade, Crouhy et al. (2001) suggest that banks should analyze three different categories of variables quantitative, qualitative and legal. The quantitative analysis concentrates mainly on financial analysis and is often based on a firms financial reports. The four main quantitative factors used in the assessment model include net income, total operating income, total equity capital and total asset values. These factors allow the banks to calculate a variety of ratios including return on assets (ROA), return on equity (ROE) and assets utilisation (AU), etc. Once computed, these ratios would be compared with the Credit Risk Rating System in the Banking Sector industry standard. In addition to the information disclosed in the financial statements, the rating also includes information about the quality of

33

collateral and the third party support. For certain type of loans like overseas loans or loans for customer in import/export business, country risk is also another important factor to take into account.

3.6 CONCEPTUAL FRAMEWORK

Hypothesis:

There is a major influence of reliability and responsiveness of a client on credit sanction, because the loan officer must be convinced that the customer has a well defined purpose for requesting credit and a serious intention to pay. As well as accessibility, assurance factor of the client and credit monitoring policy of the bank have major impact on credit risk.

Credit Sanction Credit Risk

Dependent Variable

Reliability Responsiveness Accessibility Assurance Factor Credit Monitoring

Independent Variable

34

3.7 METHODOLOGY

3.7.1 APPROACH

My objective was to find out specific correlations between the independent and dependent variables associated in this research subject matter. Therefore, my objective was to look at the relationship between various services provided by Credit department as well as proper and prior analysis of credit proposals of the same sector.

For the purpose of my research, I initially designed a descriptive- correlational study to assess whether there is any correlation among the variables. This method would be most effective as I am trying to find out the extent of the associations between the variables, whether any exists, as well as their statistical significance on my overall research. However, due to time constraints and imitational length of the project, only qualitative study has been made over the findings from this research.

The research has been carried out over a one period of time through questionnaires answered by the employees using the conventional method of personal interview.

Further information used to prepare this report has been collected from both primary and secondary sources. The primary sources have provided the report with reliable data and information relating to Local clients and the banks operations. On the other hand, the secondary sources have been an indispensable source of information regarding the historical background of the bank, its functions, and descriptions of its various departments and products.

i. PRIMARY SOURCES

Data collected from the employees by personal interview conducted through questionnaires.

Informal discussion with the banks staff, especially the credit division managers of the corporate segment.

Relevant data from the banks reports, presentations and other documents.

35

ii. SECONDARY SOURCES

Annual reports of the Dutch Bangla Bank. Various product and service brochures. Intranet Site of the Dutch Bangla Bank. Official local website of the Dutch Bangla Bank. Various web researches.

3.7.2 SAMPLING

i. POPULATION

The population targeted for this research was mainly the employees of the bank.

ii. SAMPLE UNITS

The sampling unit in case of this research consisted of the employees taken from the population of the bank.

iii. SAMPLING FRAME

The sampling frame usually contains a list of elements from which the sample is drawn. The survey has been conducted among different levels of employees representing industries like manager, senior officer, officer etc. Also, all levels of managers have been considered starting from associate to associate directors of this segment.

iv. SAMPLING DESIGN

The sampling frame usually contains a list of elements from which the sample is drawn. The survey had been conducted among different levels of of employees representing industries like manager, senior officer, officer etc.

v. SAMPLE SIZE

The sample size consisted of 20 respondents who are the employees of the bank. Employees may not reveal information through online survey due to confidentiality concerns. Also, because of time constraint it will not be possible to go to every employee and take the survey. For this research, those employees will be chosen who has maximum possibilities of answering the survey questions. So, keeping limitations in mind, a sample size of 20 has been chosen from the banana branch of Dutch bangla bank.

36

3.7.3 DATA COLLECTION METHODS

Employees are usually less in number at the same time corporate clients may not reveal information through online survey due to confidentiality concerns. The questions were prepared in such a way keeping their confidentiality concerns in mind. Also, because of time constraint it was not possible to go to every employee and take the survey. Therefore, data for this report was collected through structured questionnaires from employees, who were asked by personal interview with the help of the respective relationship managers of the credit division. Also, informal discussions with the relationship managers of the segment provided invaluable data for the report. Published statistics relating to the bank and Local clients was also used in this report.

3.7.4 DATA ANALYSIS

Analysis can be done for both qualitative and quantitative data. Due to time constraints and many other limitations, only qualitative research has been done to limit the research to a reduced length as required by the internship program in the university. To analyze the data collected in the survey through questionnaires, analysis was conducted mainly through the use of Microsoft Excel.

3.8 LIMITATIONS OF THE STUDY

The survey was limited to the local clients of the wholesale banking division only.

Lack of comprehension and responsiveness of the clients was a major problem in the collection of data.

Large-scale research was not possible due to constraints and restrictions posed by the bank as well as the university.

Confidentiality of data acted as a barrier during the study, as banks have confidential data related to its operations and clients which they did not want to reveal.

Time constraint was also one of the factors that curtailed the scope of the study. Rush banking hours and hectic schedules of the banking staff was another obstacle to the

scope of the study. The Mangers of the concerned department were busy meeting their targets and it was very difficult for me to get some practical ideas regarding their ideas, expectations and opportunities regarding my topic.

37

3.9 QUALITATIVE ANALYSIS

Qualitative questions were relatively less in the questionnaire that has been prepared for the

credit officers. Through questionnaire respondents had a chance to express their views openly

about credit assessment and credit rating policies. Unfortunately, not many respondents had clear

views about the qualitative questions and only few responses were fit to be recorded. Also, some

responses were found to be repetitive and therefore only some responses were suitable to be

presented as part of the analysis.

Which credit reporting agency does your bank use?

Credit Rating Information and Services Ltd (CRISL)

Credit Rating Agency of Bangladesh Ltd (CRAB)

National Credit Ratings Ltd

Emerging Credit Rating Ltd

Most of the officers responded with CRAB as credit rating agency for the bank. Few were

skipped this question as they were not sure about the agency.

0123456789

10

CRISL CRAB National CreditRating Ltd

EmergingCredit Rating

Ltd

No Response

Credit Rating Agency of Bangladesh (CRAB) Limited has assigned A1(Pronounced Single A One) rating in the Long Term and ST-2 in the Short Term to Dutch-Bangla Bank Limited in view of the performance of the Bank for the last business Year. (Source: Rating Report -Dutch Bangla Bank Limited)

38

Did the Bank update its credit rating for the last financial year within six months from the date of close of the financial year?

Yes

No

Not Always.

Credit Rating report of a bank is an important tool for the borrower. To do a sound practice, bank

should update their important data on time. According to the response bank is concern about

updating their credit rating but sometime, due to pressure of other work, they fail to do that.

0

2

4

6

8

10

12

Yes No Not Always

39

Did the Bank fully secure itself against all guarantees issued for the conditions mentioned in the Regulation of Bangladesh Bank?

Yes

No

Not Always.

The borrower must possess adequate net worth or enough quality assets to provide adequate

support for the loan. The value of the collateral security must cover the loan exposure. The recent

trend of borrowers line of work or industry must be taken into considerations by the Bank.

0

2

4

6

8

10

12

14

16

Yes No Not Always

40

If bank uses a credit rating score that results in an adverse effect on qualification or rating of the applicant, do you advise the applicant?

Yes, in all cases Yes, in some cases No, not at all Not applicable

The Credit Risk Grading Manual released by Bangladesh Bank earlier was applicable only in

case of lending to commercial clients. Now its mandatory for all borrowers. So having a sound

credit rating is important in business culture. Bank always updates their data, so if they find any

downward indication about their clients they notify them.

0

1

2

3

4

5

6

7

8

9

Yea, inall case Yes, in some case No, not at all Not applicable

41

Does factory visits are made before approved the loan?

Yes

No

Not Always.

Factory visit is part of the process in evaluating clients operational activities and granting credit

approval. According to their response bank does a factory visit most of the time, especially in

case of a new business project. But some time, if the client has a good past record and a sound

relationship with bank, they skipped this segment.

0

1

2

3

4

5

6

7

8

9

10

Yes No Not Always

42

Does the officers well aware of different business type?

Yes

No

Not Always.

The loan officer must be convinced that the customer has a well defined purpose for requesting

credit and a serious intention to pay. To clarify clients project, loan officer should have a sound

knowledge about that project. But according to their response, officers are not well aware of all

type of projects.

0

1

2

3

4

5

6

7

8

9

Yes No Not Always

43

3.10 Findings:

Bases on observation and interpretation I found some positive and negative side in DBBL. Those are given below:

Bank Follow the overall credit assessment and risk grading process according to

Bangladesh Bank at maximum case.

Loan and the advances are vital to finance the projects. An appropriate credit

distribution system and monitoring will ultimately lead to the profit maximizing of

banks. It is evident from that the size of DBBL loans and advances are increasing over

the years. It indicates mire earning for the bank. It shows a positive growth rate.

DBBL has a positive growth rate in Net profit.

PROBLEM IDENTIFICATIONS:

The Bank does not go through back ground investigation all parties.

Some time the loan documentation is not fairly done.

Some time the document verification is done after loan sanction.

The SME loan section is very poor because they focused on corporate loan.

3.11 RECOMMENDATIONS

The Bank can organize more training program and workshop to make the employees

more efficient in their sector.

The Bank has to establish a strong Credit Manual.

The Bank has to go through back ground investigation of all partys.

All the loan documentations have to done honestly.

All the document verifications have to done before loan sanction.

The Bank has to construct a long term strong investment policy.

The Loan and Advance section has to make strong and the employees have to be devoted

to the Bank.

The Bank has to give emphasis the SME loan section.

The Bank should introduce more loan section.

44

3.12 Conclusion Dutch-Bangla Bank Limited is one of the most potential Banks in the banking sector. It has a large portfolio with huge assets to meet up its liabilities and management of this bank is equipped with the export bankers and managers in all level of management. So it is not an easy job to find out the drawbacks of this branch. It has been observed that DBBL started its banking services with a view to minimize the customers needs by offering different products and services which are easy and affordable for all level of customers. To that extent, DBBL always emphasizes its customer services, product development, resource management, branch networking and the contribution to the economic development of the country. The bank also provides social services through DBBF as their social responsibility. The success of a bank depends on the quality of the services it offers. All the commercial banks, therefore, try to provide quality services with competitive interest rates. DBBL is not an exception. Life line package has been developed with the same purpose. Although, the comparative analysis shows that DBBL is in better position, but there are some obstacles it faces to sustain the position. However, the continuous improvement of the services will certainly place the bank in the best position in one decade.

PART 4: References

Books

Cooper, Donald R. Schindler, Palmer. S. (2009) Business Research Methods (9th Ed). McGraw Hill.

Journals and Reports

Internal Credit Risk Rating Systems in the Macao Banking Sector.

http://www.amcm.gov.mo/publication/quarterly/Jan2007/!%20InternalCredit_en.pdf%20

(20070214)

A Loan Assessment System for Centenary Rural Development Bank.

http://dspace.mak.ac.ug/bitstream/123456789/617/3/nassali-josephine-cit-masters-

report.pdf

Focus group, 2007. Credit Risk Management Industry Best Practices. Available at: http://www.bangladesh-bank.org/mediaroom/corerisks/creditrisk.pdf

Crouhy, M., D. Galai, and R. Mark (2001), Prototype Risk Rating System, Journal

of Banking and Finance, No. 25, 47-95.

Treacy, W. F. and S. M. Carey (2000), Credit Risk Rating System at Large U.S.

Banks, Journal of Banking and Finance, No. 24, 167-201.

Rating Report of Dutch Bangla Bank Limited

Report on automation of DBBL.

Guidelines for Credit Management of Bangladesh Bank 1996.

Credit Management Policy Order: 2008 2009

Websites:

http://www.dutchbanglabank.com http://www.bangladesh-bank.org http://www.e-mortgages.com.au/credit-assessment/default.aspx www.thefinancialexpress-bd.com

Part 5: Appendixes Questions (Used For Qualitative Analysis) 1. Did the Bank get itself credit rated by a credit rating agency, which is on the approved by Bangladesh Bank? # Yes # No # Not Always. 2. Did the Bank update its credit rating for the last financial year within six months from the date of close of the financial year? # Yes # No # Not Always. 3. Did the Bank submit the credit rating report complete in all respects to the Bangladesh Bank within seven days of its receipt from credit rating agency? # Yes # No # Not Always. 4. Did the Bank make public the credit rating report within seven days of its receipt from the credit rating agency? # Yes # No # Not Always. 5. Did the Bank disclose prominently its credit rating in its published annual and quarterly financial statements? # Yes # No # Not Always. 6. Did the Bank fully secure itself against all guarantees issued for the conditions mentioned in the Regulation of Bangladesh Bank? # Yes # No # Not Always. 7. In Banks view, is the credit rating score of an applicant a valid predictor about future credit loss experience? # Yes # No # Not Always.

8. Which credit reporting agency does your company use?

Credit Rating Information and Services Ltd (CRISL) Credit Rating Agency of Bangladesh Ltd (CRAB) National Credit Ratings Ltd Emerging Credit Rating Ltd

9. What type of Credit rating score does Bank use?

A credit score provided by a credit reporting agency. A third party report. Credit information or history only, no credit score provided by a credit reporting

agency. Others.

10. How long has bank been using any form of credit rating score in the evaluation of personal property risks?

3 years or less 4 to 10 years More than 10 years

11. When there is more than one applicant, which credit rating score does bank use in the qualification of new business if the scores are different?

Highest CIB score

Lowest CIB score

Do not use

Other:

12. Does your company use CIB scores as a factor in deciding whether or not to underwrite or renew a personal property insurance policy?

Yes No Do not use

13. How is the consent obtained? Select all that apply.

Verbally On-line application On the paper application Companys own specific consent document Do not obtain consent Other:

14. If bank uses a credit rating score that results in an adverse effect on qualification or rating of the applicant, do you advise the applicant?

Yes, in all cases Yes, in some cases No, not at all Not applicable

15. Does bank provide credit agency information to the applicant so that the applicant can verify the information?

Yes Yes, upon request No Not applicable

16. If an applicant has credit information corrected or changed by the credit agency and informs you, will bank make rating changes?

The changes will be made as of the most recent effective date The changes will be made as of the date we are notified The changes will be made at the next effective date The changes will be made when the next credit rating score is obtained No changes will be made

17. How often is the credit rating score updated?

More than once a year Annually Every two or more years Only on request Never

18. When your company accesses a CIB score, does its inquiry have an impact on the applicant/policyholders credit rating?

Yes, hard hit No, soft hit Not at all Do not know Not applicable

19. Is a credit rating score shared with other insurers?

Yes, on a request basis only Yes, only within the group of affiliated companies No

20. Does factory visits are made before approved the loan? # Yes # No # Not Always. 21. Does the officers well aware of different business type? # Yes # No # Not Always.

Figure: Flexcube

List of the employees

Md. Mahbubul Alam

Deputy Manager

Md. Shariar kabez Head of Credit Division

Md. Anwar Alam Associate officer

Shuhas Chowdhury Associate officer

Bulbul Ahmed Associate officer

Md. Mahbubur Rahman Executive officer

Mrs. Tania Haq Associate officer

Md. Jashim uddin Associate officer

Tanvir Alam Associate officer

Mizanur Rahman Associate officer

Aminur Rahman Officer

Manun al Hasan Officer

Kamrul Chowdhury

Officer

Saim Chowdhury Officer

BORROWER / CLIENT ELIGIBILITY FORM