Credit Management of Premier Bank (Part-4)

6.POLICY RECOMMENDATIONS

The following measures may be considered to eliminate the problems from Premier Bank’s credit portfolio:

1.Officers signing a memorandum recommending approval of a credit must reasonably expect the credit to be a low risk one. This expectation is to be founded on:

a. A through knowledge of the borrower’s business by the officer recommending the credit.

b. A thorough analysis of the credit by all officers signing the credit memorandum. This must include a good understanding of the credit taker’s environment, including the economy, the industry, the credit taker’s business or personal strategy, and the credit taker’s capacity to successfully implement that strategy.

2.Owners, managers, and individual credit takers must be people of integrity with substantial relevant business experience. The character of the people to whom a bank is lending money is the single most important determinant of its credit quality. It is also most difficult to analyze. Experience in business and competence can often be judged by track record. Experience in the successful operation of a business under adverse conditions as well as normal ones are important. Attitude toward risk and reward, change and tradition, and short- term and long-term profitability is significant.

3.The bank’s position as creditor should as good as or better than that of any other significant creditor with respect to collateral security, guarantees, default clauses, and similar matters. If a borrower should experience difficulty, negotiations will encompass not only the borrower and the bank but also other creditors. It is important for the bank’s bargaining position that it not be in a weaker position than other creditors.

4.The bank must have sufficient qualified staff, facilities, and procedures in place to ensure professional administration of the documentation, continuing credit evaluation, and operational support of the credit throughout its life. No matter how good the initial decisions, if the credit is not professionally followed, the bank is asking for trouble.

5.Proper Documentation of Credit Policy: The bank should prepare a formal credit policy in a documentary or manual form. This should cover the legal and operational aspects of lending as well as the strategic intent of the bank. For instance, it may identify the economic sectors towards which credit can be directed more profitably. The credit policy should be of an evolving nature, reflecting the changes and trends taking place in the economic sphere.

6.Quick Loan Processing: Instead of relying heavily on manual paper work, skillful use of computers and sophisticated & advanced financial software can shorten the loan processing time quite considerably.

7.Less Centralization of Loan Disbursement Authority: The Head Office should allow its branches to sanction project loans up to certain limits. It should deal with projects requiring large amounts of loan.

8.To combat the problem of mobilizing deposit in the form of credit, Premier Bank should focus on intensive marketing effort.

9.The Bank should recalculate its lending rate on a periodic basis to cope with changing lending scenario.

10.At the branch level credit department must be adequately capable of collecting the correct and relevant information and analyzing the financial statements quickly and precisely.

12.Credit officer must be skilled enough to understand the manipulated and distorted financial statements.

13.Credit committees at all levels must work in co-ordination with each other for quick approval of loans and to reduce the loan processing cost.

14.To faster the lending process, Premier Bank should facilitate online loan application submission and personal credit processing.

Credit Proposal Format

The Premier Bank Limited

Head Office, Banani, Dhaka

Memo No# / 2008 Dated:

From: The Managing Director, The Premier Bank Limited.

To: The Executive Committee/ Board, The Premier Bank Limited.

Subject: Proposal for approval of:

Company Name: Industry Types(As Per CIB Guideline)Address : Factory:Business:

Phone: Mob: Fax: E-mail: Customer ID No:

Lending

Category:

Sector Code:

Purpose Code

Group Name

Organizing Office:

Major Ownership

Name

Share %

Personal Net Worth (Lac Take)

Position/ Designation

Total

Date of Establishment Account opened on: Account No:Customer Code (CIB): TIN: Paid –up Capital:Total New worth: Investment in Business:Banking with the Premier Bank Limited since in the name of

Original Limit: Sanctioned by Head Office/ Branch on.

Comments in last HO/ BB inspection report, if any:

Deposits (Fig. In Lac Tk.)				Originating Reason
Type	Encumbered	Unencumbered	Total	Marketed by the Bank □Customer approached the Bank □Part of Special Scheme Bank/Govt. □ Referred by individual □ Name of Person who Marketed


Total

Volume of Import L/Cs (Foreign and local)
Volume of Export Bills
Volume of L/Gs
Volume of Remittances

* Lending Category:

i. Agricultural (AG)ii. Large and Medium Scale Industry (Term Loan)-LMiii. Small & Cottage Industry (Term Loan)- SCIiv. Working Capital-WCL

v. Working Capital (Small Industry)- WCS

vi. Export-Ex

Commercial Lending (Com)
Ready Made Garments (RMG)
Housing-Commercial (HC)
Housing –Residential (HR)
Other (OT)

(Fig. in Lac Taka)

Facilities Summary New □ Renewal □ Increase □ Delinquent □

Existing facility

Proposed Facility

Security Value

Nature

Limit

Outstanding

Overdue

Expiry

Adj. times

Recycle Times

Limit

Expiry

FDR/SDR

Property

Others (Specify)

Total

L/C Limit (at Sight)

LTR Limit

Overdraft

CashCont.

Total

Classification Information:Existing past due at our Bank.Existing past due at other Banks:	Current Classification
	Unclassified □ Sub Std □ Doubtful □ Bad loss □
	CIB Report:	Report from other Banks:
Findings of Trades Checking:

Other Group Liabilities With the Premier Bank Limited:

(Figure-in Lac Taka)

Company/ Trade Name	Existing Facilities						Security Value
	Nature	Limit	Outstanding	Expiry	Overdoes	CL status	FDR	Property	Others	Total



Total
Total
Total (Group)
Total (Group)

Income during last 12 months (In case of new customer Projected income for the next 12 months to be furnished)

Financial

Audited Un-audited

(a) Commission/ Exchange/ Fees:

(b) Interest Income net of Cost of Fund:

Total:

2008

(Audited)

2007

(Audited)

2006

(Audited)

Sales/Revenue Net profit Total Debt Total Assets Tangible Net worth

Allocation of Credit for this Sector:		(To be filled in by Head Office
	Total Allocation for the year
	Sanctioned Limit
	Outstanding

Fig. in Tk. Lac

Liabilities with other Banks:
Bank Name	Name of Account	Nature of facility	Limit	Outstanding	Overdue	Cl. Status	Remarks







Grand Total

Fig. in Tk. Lac

Group Liabilities with other Banks:
Bank Name	Name of Account	Nature of facility	Limit	Outstanding	Overdue	Cl. Status	Remarks







Grand Total

Risk					Overall Borrowing Quality
	Good	Acceptable	Marginal	poor	Good	Acceptable	Marginal	Poor
Business Risk	□	□	□	□

□

Security Risk

□

Date of Customer’s request:Proposal Received at Head Office on:Analysis completed on:Level of Approval Required:

Details of the proposed facilities:

a) Nature of Credit Facility	:
b) Limit	:
c) Margin	:
d) Commission	:
e) Validity / Expiry	:
f) Repayment	:
g) Purpose	:
h) Interest on PAD	:
i) Security	:
j) Condition	:

Securities against all the facilities

Credit Analysis

History of Relationship with the premier Bank Limited:
Management/ Sponsors
Details of business of venues steel mills Limited.
Description of the project
Distribution
The production process flowchart
Infrastructural Facilities
3 years financial information with ratio analysis: (Audited and/or Management signed Balance sheet & Income Statement to be attached. In case of new project forecasted financials of at least 3 years should be submitted)

(a) Income statement: Audited Un-audited

Fig. in BDT Lac

Particulars
1.0	Sales Revenues (Less return, Vat etc.)
1.1	Cost of Good Sold:
1.2	Gross profit (1.0-1.1)
1.3	General and Admin. Expenses
1.4	Maintenance/ Selling Expenses
1.5	Total Admin. & Selling Exp. (1.3+1.4)
1.6	Operating profit (Loss) (1.2-1.5)
1.7	Other Income
1.8	Other Expenses
1.9	Financial Expenses (Interest)
2.0	Net profit (Loss) (1.6+1.7-1.8-1.9)

(b) Balance Sheet: Audited Un-audited

Fig. in BDT Lac

	Assets		Liabilities & Owner’s Equity
	Current Assets:		Current Liability:
2.1	Cash in hand	3.5	Accounts payable/ Sundry Creditors
2.2	Cash at Bank	3.6	Bank Loan (under 1 year)
2.3	Accounts Receivable	3.7	Long term Loan Installment due for 1 year.
2.4	Inventory/ Stock	3.8	Other Current Liabilities
2.5	Advance Deposit	3.9	Total Current Liabilities (3.5 to 3.8)
2.6	prepaid Expenses		Non-current Liabilities:
2.7	Other Current Assets	4.0	Long term Loan
		4.1	Other non-current liability
2.8	Total Current Assets(2.1 to 2.7)	4.2	Total Non-current Liability (4.0+4.1)
	Fixed Assets / Non Current Assets:	4.3	Total Liabilities (3.9+4.2)
2.9	Land & Building (net of dep.)		Equity /Net Worth:
3.0	Plant and Machinery (net of dep.)	4.4	Capital/Paid-up Capital
3.1	Furniture and Fixtures (net of dep.)	4.5	Retained Earnings
3.2	Other Fixed Assets/ Non current Assets (net of dep.)	4.6	Reserves
3.3	Total Fixed Assets/ non Current Assets (2.8 to 3.2)	4.7	Less Intangible Assets (i.e. Goodwill, Trade Mark, patent etc.)
		4.8	Tangible Net worth/ equity (4.4+4.5+4.6-4.7)
3.4	Total Assets (2.8 + 3.3)	4.9	Total Liabilities and equities (4.3+4.8)

(c) Ratio Analysis:

Formula	Major Ratios
	Profitability Ratios:
(1.2/1.0) ´100	Gross Profit Margin (%)
(2.0/1.0) ´100	Net Profit Margin (%)
(2.0/3.4) ´100	Return on Assets (%)
(2.0/4.8) ´100	Return on Equity (%)
	Liquidity Ratios:
(2.8/3.9)	Current Ratio
(2.1+2.2+2.3)/3.9	Quick Ratio

Formula	Major Ratios
	Asset Utilization Ratios:
(1.0/3.3)	Sales to Fixed Assets (times)
(1.0/3.4)	Sales to Total Assets (times)
(1.0/2.8-3.9)	Sales to Working Capital (times)
(2.3/1.0) ´365	Receivable Turnover in days
(2.4/1.1) ´365	Inventory Turnover in days
(3.5/1.1) ´365	Payable Turnover in days
	Debt Utilization Ratios:
(4.3/4.8) ´100	Debt to Equity (%)
(4.3/3.4) ´100	Debt to Total Assets (%)
(2.0+1.9)/(1.9+3.6+3.7)	Debt Service Coverage (times)

(d) Financial Analysis and comments on above financials

6. Working capital assessment

Item	Daily requirements			Tied up period In days	Amount Tk (Lac)
	Unit	Rate	Amount
	(a)	(b)	(c)=(a´b)	(d)	E=(c´d)
Imported raw-material
Local raw materials (Chemical)
Stores & Spares
Work in Process
Stock of Finished
Goods
Accounts Receivables
Other Exp.
Total

7. Marketing prospect/ Demand-Supply:

Justification for the proposed Facility

Strength and weaknesses:

Strengths:

Weaknesses:

Declaration:

The proposal does not contradict to any objective clause of the Bank.
The matter is in compliance with rules and regulations of the Bank (Any exception from Banks Rules be clearly mentioned here)
The proposal does not contradict with rules and regulations of Bangladesh Bank and Banking companies Act.
Due diligence have been done in processing the proposal and all facts relating to the proposal which had come to out knowledge have been revealed in the Credit proposal.

Recommendation:

CIB INQUIRY FORMS

To be Filled in Capital Letter/ Type

Inquiry From -1

(Debtor/Borrower only)

Segment-1 (CIB-01 Form) related information.

New

Renew

Enhancement

Others.

Amount of Loan applied for

1.	Name of the Bank	:
2.	Name of the Branch	:
3.	Under District of	:	Branch Code:
4.	Reference Nos. of Branch	:
5.	Reference Nos. of Head Office	:
6.	Borrower Code: (if available)	:
7.	Name of the Borrower in full	:
8.	Abbreviated Name(In case of individual)	:
9.	Father’s Name(In case of Individual)	:
10.	Mater’s Name(In case of Individual	:
11.	Husband’s Name(In case of married woman)	:
12.	Address:	:
	a) Permanent Address	:
	b) Business Address	:
	c) Factory Address	:
13.	Telephone Nos.	:	14. Voter ID Card No.
14.	Tin No.	:

To the best of our knowledge the above borrower obtained the credit facilities from different Banks/ financial/ institutions as mentioned below:- NIL

Name of the Banks/ Financial Institution	Name of Branch with District
N/A	N/A

Signature,

Name:

Designation:

Telephone:

Mobile:

Note: Suppressing or Distortion of any information (related to borrower/ owner) by the Bank is Punishable Under Bangladesh Bank Order 1972, Chapter IV Art. 48

To be Filled In Capital Letter/ Type

Inquiry Form-2

(Owner’s only)

Segment-2 (CIB-01 Form) related information

1.	Name of the Bank	:
2.	Name of the Branch	:
3.	Under District of	:	Branch Code:
4.	Reference Nos. of Branch	:	Date:
5.	Reference Nos. of Head Office	:	Date:
6.	Borrower Code: (if available)	:
7.	Full Name of the Borrower	:
8.	Full Name of Owner	:
9.	Abbreviated Name of owner
10.	Father’s Name	:
11.	Mater’s Name	:
12.	Husband’s Name(In case of married woman)	:
13.	Address:	:
	a) Permanent Address	:
	b) Business Address	:
	c) Factory Address	:

Statue of the Owner (Tick appropriate Box)

Proprietor	ڤ Partner	ڤ Chairman	ڤ Sponsor Director	ڤ
Elected Director	ڤ Nominated Director	ڤ Other	ڤ Managing Director

1.5

Voter ID Card No.

Name of the Bank/ Financial Institution\ Insurance Company of which the above owner is chairman/ Director.

To the best of our knowledge the above owner:

a) obtained credit facilities in individual name:

b) Has got other business which obtained credit facilities from the banks/ financial institutions as mentioned below:

Name of the owner’s related business/ firm with address	Name of the Banks/ Financial Institution	Name of the Branch with District
i.
ii.
iii.
iv.
V
Vi
vii.
viii.

To the best of our knowledge the above information is Correct.

Signature,

Name:

Designation:

Telephone:

Mobile:

Note: Suppressing or Distortion of any information (related to borrower/ owner) by the Bank is Punishable Under Bangladesh Bank Order 1972, Chapter IV Art. 48

To be filled in Capital Letter/ Type

Inquiry Form-3

(Group/ Related Business)

1.	Name of the Bank	:
2.	Name of the Branch	:
3.	Under District of	:	Branch Code:
4.	Reference Nos. of Branch	:	Date:
5.	Reference Nos. of Head Office	:	Date:
6.	Full Name of Borrower
7.	Full Name of Group	:
8.	Address:	:
9.	a) Permanent
10.	b) Business	:

9.Subsidiaries/ Sister Concern:

Name	Business Address
i.
ii.
iii.
iv.
v.

Please write NA or Not Applicable if the concerned Borrower is neither a group nor a subsidiary/ sister Concern under declared a group. To the best of our knowledge the above information is Correct.

Signature,

Name:

Designation:

Telephone:

Mobile:

Note: Suppressing or Distortion of any information (related to borrower/ owner) by the Bank is Punishable Under Bangladesh Bank Order 1972, Chapter IV Art. 48

Company name: Venus Steel Mills LimitedAddress: House# 329, Road# 8/A, Dhanmondi, Dhaka

Industry Name: Corrugated iron or Galvanizing plain sheet manufacturer.Code:

Group name (in company is part of group): Venus

Originating Office: Corporate Marketing Division, Head Office, Banani, Dhaka-1213.

Current exposure to this customer: Venus Steel Mills Limited

Current exposure to group: N/A

Why was this analysis conducted?

Application for new facility

Increases to existing facility

Renewal of existing facility

Delinquent customer

Risk Category: Good Acceptable Marginal Poor

Business

Security:

Overall

Type of facility sought:i) Term Loan: Revolving L/C (at sight) limit of BDT 3,500.00 Lac.ii) Subsequent LTR Limit of BDT 1,600.00 Lac

Purpose: To Import raw materials, to retire import documents under L/C facility and payment of duty and at through pay orders in favor of customs authorities.

Amount sought: 3,500.00 Lac

Loan category:

Voluntary givenby Bank

Part of governmentScheme

—————————-

(name of scheme)Directed by

Individual

———————————

(name of person directing this loan)

Level of approval required:EC of The Board: 15.30.2008

Date of Customer made request:25.01.2008

Originating:Credit Officer

RecommendationAccept Decline

Date analysis completed: 07.03.2008

Recommending Officer( S):(Branch Management Committee)

Date of recommendation made:

Board Advisory CommitteeSub-Manager

Date decision made

ApprovingAuthority: EC/ Board

DecisionAccept Decline

Date loan disbursed

Officer authorizing disbursement

Date disbursement Authorized

Supplies risk

Cost item

% of total costs

What is the risk of disruption?Average Average

Comments

Labor

Skilled and relatively cheep

Raw materials:CR Coil and Zinc

Mainly imported which is supported by locally produced raw material.

EquipmentsPower

Dependent on PublicUtility as well as own utilities

Premises

Own premises

Others

N umber of Day’s production lost in past 12 months due to strikes? N/A

Power Supply Independent power supply dependent on public utilities

Explain any significant risks of disruption to production.

The company has its own power supply facility with 1,100 KVA Waukesha Gas Generator. No significant risks of disruption to production regarding power supply.

What is the risk of failure due to disruption Low Average High Excessive

in the supply of inputs?

(Tick one box)

Sales Risk

Industry growth:Give industry size figures for the latest 3 years that are available

Year

2008

2007

2006

Estimated total industry turnover

271,400

371,400

563,400

Strong Weak No Small largeGrowth growth change decline decline

Over the next few years, what is the most likely trend in industry turnover?

Raw material (CR Coil) of this industry now produced in the country which will ultimately reduce the cost of procurement raw material. The consequence will result a high industry turnover over the next few year.

Competitive pressure: Obtain performance data from two major competitors for three (3) years.Major competitor 1: PHP Cold Rolled Mills Ltd. …………………………………. Market share ……….. 11%

(Name)

Year	2008	2009	2010
Turnover	Data not Available	Data not Available	Data not Available
Capital	Data not Available	Data not Available	Data not Available
Profit	Data not Available	Data not Available	Data not Available

Les about the faster

Fast same than our customer

This competitor is growing

What prevents customers from switching to this competitor?

Venus Group is fully a Bangladesh owned enterprise, superior quality, good management, competitive pricing & goodwill prevents their satisfied customers from switching to other competitors.

Major competitor 2: KIY Steel Mill Ltd. ………………………….. Market share ………9 ……….%(Name)

Year	2008	2009	2010
Turnover	Data not Available	Data not Available	Data not Available
Capital	Data not Available	Data not Available	Data not Available
Profit	Data not Available	Data not Available	Data not Available

Les about the faster

Fast same than our customer

This competitor is growing

What prevents customers from switching to this competitor?

Venus Group is fully a Bangladesh owned enterprise, superior quality, good management, competitive pricing & goodwill prevents their satisfied customers from switching to other competitors.

Sales Risk (Continued)

Barriers to Entry:

Difficult Average Easy

How easy is it for new competitors to enter this industry?

What barriers prevent new competitors from entering this industry?

To set up a steel and engineering industry require huge amount of fund, skilled workforce and high category technological support.

Regulatory Changes:

Low Average High

What are the risk changes in regulations will damage sales?

Explain your answer.

In General Govt. policy of our country is to encourage steel Industries to reduce pressure on importing steel goods.

Customer Concentration: List 5 largest customers of the Borrower.

Customer Names	% of total sales
Bangla & Co.	15%
Brother’s Co.	10%
Chittagong Steel	8%
Azimuddin & Sons	5%
Sayed Co.	5%

Regulatory Changes:

Low Average High

What is risk that a single customer representing significant

Proportion of sales, switches to a competitor?

Explain your answer:

Company has established a long term relationship among customers with its low price, good quality and schedule time delivery.

What is the risk of failure due to disruption of sales?Low Average High Excessive

(Tick one box)

Performance risk:

Performance Risk (Continued)

Resilience Risk:

Resilience risk (Continued)

Liquidity (Continued)What proportion of costs is fixed? 48.90% Very average witheasily difficulty

How easily will this company be able to reducecosts if sales fall?

Explain your answer:

Fixed cost is fixed for certain constrain of time. Because of the nature of Business, Major costs are related to the sales. If sales fall then obviously, major costs will fail.

How resilient is the company to liquidity Highly average not at allwhich may cause repayment failure? resilient resilient

Connections:Do the owners or managers have any connections/ affiliations which may benefit or damage the company?Companies Share holders are very much influential in the society, which may benefit the company all the way.

How resilient is the company to the liquidity Highly average not at allwhich may cause repayment failure? resilient resilient

Resilience risk:liquidity Highly average not at allCopy your assessments of resilience to resilient resilientbankruptcy, illiquidity and adverse effects of (low risk) (high risk)

political changes, from above

How resilience is the company to bankruptcy?How resilience is the company to illiquidity?

How resilience is the company to the adverseeffects of political change?

Now, use your assessment of resilience to resilience tobankruptcy, illiquidity and the adverse effects ofpolitical changes, to answer the following questionLow Average High Excessive

What is the risk of failure due to lack of resilience to unexpected external conditions?

(tick one box)

Management ability

QUESTIONNAIRE

The following questions were asked to the Officers of the Bank:

1. What types of credit Premier Bank is offering?

2. What is the credit policy of Premier Bank?

3. What credit guidelines does Premier Bank fallow?

4. What is the lending process followed by Premier Bank?

5. How a credit application is processed in Premier Bank?

6. How a credit proposal is evaluated?

7. What are the standards to evaluate a credit proposal?