Credit Risk Grading(CRG) in Southest Bank Limited (Part-3)

Type Of Credit Risk Grading

The main objectives of calculating the Credit Risk Grading to minimize risk. In our country all banks and financial institutes maintain and calculate The CRG in two ways

First to calculate CRG for manufacturing, Trading, Sole proprietorship, Real Estate and Individual.
Second to calculate CRG for NBFI (Non-Banking Financial Organization).

Top Ten Clients

¡ Bashundhara Import & Export Limited.

¡ Islam Trading Consortium Limited.

¡ Rangs Industries Limited.

¡ Deshbandhu Sugar Mills Limited.

¡ Amber Cotton Mills Limited.

¡ Metro Spinning.

¡ Yeasmin Spinning.

¡ S. Alam Cold Rolled Steels Limited.

¡ Thai Poly Shawn BD Limited.

¡ Guamati Filling Station & Service.

Southeast Bank limited, Principal Branch: Dhaka

CRG Position on 15.07.2008

Capture

Case-1 ( S.Alam Cold Rolled Steels Limited)

Analysis from Financial Statement:

S. ALAM COLD ROLLED STEELS LIMITED
Balance Sheet as on 30.09.2007 (as submitted by the client)

Particulars	Details Amount in BDT	Total amount in BDT
Current Assets calculation
Stock	2,465,526,662.00
Book Debt	879,296,451.00
Advance, deposit and Pre-payments	142,239,277.00
Cash and Bank Balances	21,451,930.00
Total Current Assets		3,508,514,320.00

Fixed Assets Calculation
Tangible Fixed Assets	1,437,114,119.00
Preliminary Fixed Assets	298,040.00
Share Issue Expense	6,341,498.00
Total Fixed Assets		1,443,753,657.00

Current Liability Calculation
Creditors and Accruals	684,666,844.00
Advance against sales	37,778,901.00
Short term Bank loan	2,390,974,361.00
Provision for workers profit participation fund	6,144,665.00
Unclaimed Divident	3,973,500.00
Current portion of term loan	107,248,800.00
Lease finance due within 01 year	11,829,052.00
Propsoed Divident	80,017,200.00
Deffered Income Tax	70,004,579.00
Total Current Liability		3,392,637,902.00

Loag term liability calculation
Term Loan (secured)	788,289,421.00
Lease Finance (secured)	–
Loan from Associated Companies (unsecured)	216,640,519.00
Long term Loan		1,004,929,940.00

Total Loan Liability	Current & fixed liability	4,397,567,842.00

Share Holders Equity calculation
share Capital	533,448,000.00
Ratained Earnings	21,252,135.00
Total shareholders equity		554,700,135.00

TOTAL ASSETS		4,952,267,977.00

TOTAL LIABILITIES AND OWNERS EQUITY		4,952,267,977.00

Profit & Loss Account
Net Sales		1,339,096,004.00
Less: Cost of goods sold		984,819,715.00
Gross Profit		354,276,289.00
Less: Operating expenses		34,226,135.00
Less: Financial Expenses		197,156,847.00
Less: WPPWF		6,144,665.00
Less : Amortization of preliminary Expanses		149,020.00
Less: Amortization of Share Issue Expanses		2,113,833.00
Net profit before tax		114,485,789.00
Less: Provision for income tax		42,916,841.00
Profit after Tax		71,568,948.00

Calculation of EBITDA
Profit after tax		71,568,948.00
Add: provision for tax		42,916,841.00
Add: Financial Expenses		197,156,847.00
Add: Amortization		2,262,853.00
Add: Depreciation		59,547,892.00
EBITDA		373,453,381.00

Summery for Financial Risk Measurement as a part of CRG:
1. Total Liabilities		4,397,567,842.00
2. Shareholders Equity		554,700,135.00
3. Current Assets		3,508,514,320.00
4. Current Liabilities		3,392,637,902.00
5. EBITAD		373,453,381.00
6. Interest on debt		197,156,847.00
7. Sales		1,339,096,004.00

Debt-Equity Ratio		7.93
Current Ratio		1.03
Operating Profit Margin		27.89%
Interest Service Coverage Ratio		1.89

Year of Establishment in 1996. (To get from proposal)
Business outlook is Favorable. His or her market condition is very well because sales, profit, productivity has remarkable growth.
He/she can’t enter/exit easily
To count the each Director experience
The scenario of private Ltd. Co. is good but may be opposite its public Ltd.
Security risk depends on Collateral coverage. And guarantee
S Alam Cold Rolled Steels Ltd. obtains the CRG number total 69. and we finance this organization because their sales, profit, product quality, payment of installment and overall company image is well.

CREDIT RISK GRADING SCORE SHEET

Reference No.:			Date:	16-Jul-08
Borrower	S Alam Cold Rolled Steels Ltd.
Group Name (if any)	N/a	Aggregate Score:		69
Branch:	Principal Branch
Industry/Sector	Manufacturing	Risk Grading:	Marginal/Watch List
Date of Financials	30/09/2007 (Audited)	Risk Grading:	Marginal/Watch List
Completed by	Emran Ahmed, EO
Approved by	Mr. Giash Uddin Ahmed, SEVP & HoB
Number	Grading	Short	Score
1	Superior	SUP	Fully cash secured, secured by government guarantee/international bank guarantee
2	Good	GD	85+
3	Acceptable	ACCPT	75-84
4	Marginal/Watchlist	MG/WL	65-74
5	Special Mention	SM	55-64
6	Substandard	SS	45-54
7	Doubtful	DF	35-44
8	Bad/Loss	BL	<35

Criteria Weight	Parameter	Score	Actual Parameter	Score Obtained
A. Financial Risk 50%
1. Leverage: (15%)	Less than 0.25×	15	7.93	0
Debt Equity Ratio (×) – Times	0.26× to 0.35 x	14
Total Liabilities to Tangible Net worth	0.36× to 0.50 x	13
	0.51× to 0.75 x	12
All calculations should be based on	0.76× to 1.25 x	11
annual financial statements of the	1.26× to 2.00 x	10
borrower (audited preferred)	2.01× to 2.50 x	8
	2.51× to 2.75 x	7
	More than 2.75×	0
2. Liquidity: (15%)	Greater than 2.74×	15	1.03	10
Current Ratio (×) -Times	2.50× to 2.74 x	14
Current Assets to Current Liabilities	2.00× to 2.49 x	13
	1.50× to 1.99 x	12
	1.10× to 1.49 x	11
	0.90× to 1.09 x	10
	0.80× to 0.89 x	8
	0.70× to 0.79 x	7
	Less than 0.70×	0
3. Profitability: (15%)	Greater than 25%	15	27.89	15
Operating Profit Margin (%)	20% to 24%	14

(Operating Profit/Sales) X 100	15% to 19%	13
	10% to 14%	12
	7% to 9%	10
	4% to 6%	9
	1% to 3%	7
	Less than 1%	0
4. Coverage: (5%)
Interest Coverage Ratio (×) – Times
Earning before interest & tax (EBIT)	More than 2.00×	5	1.89	4
Interest on debt	More than 1.51× Less than 2.00×	4
	More than 1.25× Less than 1.50×	3
	More than 1.00× Less than 1.24×	2
	Less than 1.00×	0
Total Score- Financial Risk		50		29

B. Business/ Industry Risk 18%
1. Size of Business (in BDT crore)	> 60.00	5	133.90	5
	30.00 – 59.99	4
The size of the borrower’s business	10.00 – 29.99	3
measured by the most recent year’s	5.00 – 9.99	2
total sales. Preferably audited numbers.	2.50 – 4.99	1
	< 2.50	0
2. Age of Business	> 10 Years	3	12	3
	> 5 – 10 Years	2
The number of years the borrower	2 – 5 Years	1
engaged in the primary line of business	< 2 Years	0
3. Business Outlook	Favorable	3	Favorable	3
Critical assessment of medium term	Stable	2
prospects of industry, market share	Slightly Uncertain	1
and economic factors.	Cause for Concern	0
4. Industry Growth	Strong (10%+)	3	Strong (10%+)	3
	Good (>5% – 10%)	2
	Moderate (1%-5%)	1
	No Growth (<1%)	0
5. Market Competition	Dominant Player	2	Dominant Player	2
	Moderately Competitive	1
	Highly Competitive	0
6. Entry/Exit Barriers	Difficult	2	Difficult	2
	Average	1
	Easy	0
Total Score- Business/Industry Risk		18		18

C. Management Risk 12%
1. Experience	More than 10 years in the related line of business	5	More than 10 years in the related line of business	5
Quality of management based on total	5–10 years in the related line of business	3
# of years of experience of the senior	1–5 years in the related line of business	2
management in the Industry.	No experience	0
2. Second Line/ Succession	Ready Succession	4	Ready Succession	4
	Succession within 1-2 years	3
	Succession within 2-3 years	2
	Succession in question	0
3. Team Work	Very Good	3	Very Good	3
	Moderate	2
	Poor	1
	Regular Conflict	0
Total Score- Management Risk		12		12

D. Security Risk 10%
1. Security Coverage (Primary)	Fully Pledged facilities/substantially cash covered / Reg. Mortg. for HBL	4	Registered Hypothecation (1st Charge/1st Pari passu Charge)	3
	Registered Hypothecation (1^st Charge/1st Pari passu Charge)	3
	2nd charge/Inferior charge	2
	Simple hypothecation/Negative lien on assets	1
	No security	0
2. Collateral Coverage (Property Location)	Registered Mortgage on Municipal corporation/Prime Area property	4	No collateral	0
	Registered Mortgage on Pourashava/Semi-Urban area property	3
	Equitable Mortgage or No property but Plant and Machinery as collateral	2
	Negative lien on collateral	1
	No collateral	0
3. Support (Guarantee)	Personal Guarantee with high net worth or Strong Corporate Guarantee	2	Personal Guarantee with high net worth or Strong Corporate Guarantee	2
	Personal Guarantees or Corporate Guarantee with average financial strength	1
	No support/guarantee	0
Total Score- Security Risk		10		5
E. Relationship Risk 10%
1. Account Conduct	More than 3 years Accounts with faultless record	5	Accounts having satisfactory dealings with some late payments.	2
	Less than 3 years Accounts with faultless record	4
	Accounts having satisfactory dealings with some late payments.	2
	Frequent Past dues & Irregular dealings in account	0
2. Utilization of Limit	More than 60%	2	100.00%	2
(actual/projection)	40% – 60%	1
	Less than 40%	0
3. Compliance of Covenants /	Full Compliance	2	Some Non-Compliance	1
Conditions	Some Non-Compliance	1
	No Compliance	0
4. Personal Deposits	Personal accounts of the key business Sponsors/ Principals are maintained in the bank, with significant deposits	1	No depository relationship	0
	No depository relationship	0
Total Score- Relationship Risk		10		5
Grand Total – All Risk		100		69

S Alam Cold Rolled Steels Ltd. obtains the CRG number total 69. and we finance this organization because their sales, profit, product quality, payment of installment and overall company image is well.

Case-2 (Furnitec Industries Lt d.)

Furnitec Industries Limited

Analysis from Financial Statement

4.FURNITEC INDUSTRIES LIMITED,DHAKA
FINANCIAL RISK	2007
1.Leverage
Liability
Long Term Loan
SEBL/PB	31,796,730
Current Liability
Bank Overdraft	34,817,332
Provision for Tax	2,249,130
Sundry Creditors	135,468
Outstanding Loan
Wages	375,200
Staff Salary & Allowance	82,950
Showroom & Office Rent	152,500
Electricity Bill	6,915
Telephone & Fax Bill	16,232
Audit Fee	5,000
Leagal Fee	10,000
	37,850,727
Total Liability	69,647,457
Equity
Paid up Capital	10,000,000
Share Money Deposit	17,000,000
Profit & Loss A/C	7,966,634
Total Equity	34,966,634

Total Liability/Total Equity	1.991826179

2.Liquidity
Current Assets
Priliminary Expenses	20,500
Advance Deposit & Pre-Payment	7,105,000
Unallocated Revenue Expenditure	1,209,865
Closing Stock	47,364,075
Raw materials	30,962,868
Finish Goods	16,401,207
Bills Receivable	4,499,302
Cash & Bank Balance	498,465
Total Current Assets	60,697,207
Current Liability
Bank Overdraft	34,817,332
Provision for Tax	2,249,130
Sundry Creditors	135,468
Outstanding Loan
Wages	375,200
Staff Salary & Allowance	82,950
Showroom & Office Rent	152,500
Electricity Bill	6,915
Telephone & Fax Bill	16,232
Audit Fee	5,000
Leagal Fee	10,000
	37,850,727

CA/CL	1.603594219

3.Profitability
Net Profit	5,622,825
Add:Bank Interest & Charge	4,185,383
Add:Depreciation (Admin)	27,708
Add:Depreciation (Factory)	4,900,083
EBITAD	14,735,999
Sales	48,875,325

(EBITAD/Sales)*100	30%

4.Coverage
EBITAD	14,735,999
Interest/Financial Charge	4,185,383

EBITAD/Interest	3.520824498

CREDIT RISK GRADING SCORE SHEET

Reference No.:			Date:	24-Jul-08
Borrower	Furnitec Industries Ltd
Group Name (if any)	N/a	Aggregate Score:		75
Branch:	Principal Branch
Industry/Sector	Manufacturing,Trading	Risk Grading:	Acceptable
Date of Financials	30-Jun-07	Risk Grading:	Acceptable
Completed by	Sayeed Sikder, Internee
Approved by	Habibur Rahman Molla, SPO
Number	Grading	Short	Score
1	Superior	SUP	Fully cash secured, secured by government guarantee/international bank guarantee
2	Good	GD	85+
3	Acceptable	ACCPT	75-84
4	Marginal/Watch list	MG/WL	65-74
5	Special Mention	SM	55-64
6	Substandard	SS	45-54
7	Doubtful	DF	35-44
8	Bad/Loss	BL	<35
Criteria Weight	Parameter	Score	Actual Parameter	Score Obtained
A. Financial Risk 50%
1. Leverage: (15%)	Less than 0.25×	15	1.99	10
Debt Equity Ratio (×) – Times	0.26× to 0.35 x	14
Total Liabilities to Tangible Net worth	0.36× to 0.50 x	13
	0.51× to 0.75 x	12
All calculations should be based on	0.76× to 1.25 x	11
annual financial statements of the	1.26× to 2.00 x	10
borrower (audited preferred)	2.01× to 2.50 x	8
	2.51× to 2.75 x	7
	More than 2.75×	0
2. Liquidity: (15%)	Greater than 2.74×	15	1.60	12
Current Ratio (×) -Times	2.50× to 2.74 x	14
Current Assets to Current Liabilities	2.00× to 2.49 x	13
	1.50× to 1.99 x	12
	1.10× to 1.49 x	11
	0.90× to 1.09 x	10
	0.80× to 0.89 x	8
	0.70× to 0.79 x	7
	Less than 0.70×	0
3. Profitability: (15%)	Greater than 25%	15	30%	15
Operating Profit Margin (%)	20% to 24%	14
(Operating Profit/Sales) X 100	15% to 19%	13
	10% to 14%	12
	7% to 9%	10
	4% to 6%	9
	1% to 3%	7
	Less than 1%	0
4. Coverage: (5%)
Interest Coverage Ratio (×) – Times
Earning before interest & tax (EBIT)	More than 2.00×	5	3.50	5
Interest on debt	More than 1.51× Less than 2.00×	4
	More than 1.25× Less than 1.50×	3
	More than 1.00× Less than 1.24×	2
	Less than 1.00×	0
Total Score- Financial Risk		50		42

B. Business/ Industry Risk 18%
1. Size of Business (in BDT crore)	> 60.00	5	4.88	2
	30.00 – 59.99	4
The size of the borrower’s business	10.00 – 29.99	3
measured by the most recent year’s	5.00 – 9.99	2
total sales. Preferably audited numbers.	2.50 – 4.99	1
	< 2.50	0
2. Age of Business	> 10 Years	3	4	1
	> 5 – 10 Years	2
The number of years the borrower	2 – 5 Years	1
engaged in the primary line of business	< 2 Years	0
3. Business Outlook	Favorable	3	Stable	2
Critical assesment of medium term	Stable	2
prospects of industry, market share	Slightly Uncertain	1
and economic factors.	Cause for Concern	0
4. Industry Growth	Strong (10%+)	3	Good (>5% – 10%)	2
	Good (>5% – 10%)	2
	Moderate (1%-5%)	1
	No Growth (<1%)	0
5. Market Competition	Dominant Player	2	Moderately Competitive	1
	Moderately Competitive	1
	Highly Competitive	0
6. Entry/Exit Barriers	Difficult	2	Difficult	2
	Average	1
	Easy	0
Total Score- Business/Industry Risk		18		10

C. Management Risk 12%
1. Experience	More than 10 years in the related line of business	5	1–5 years in the related line of business	2
Quality of management based on total	5–10 years in the related line of business	3
# of years of experience of the senior	1–5 years in the related line of business	2
management in the Industry.	No experience	0
2. Second Line/ Succession	Ready Succession	4	Ready Succession	4
	Succession within 1-2 years	3
	Succession within 2-3 years	2
	Succession in question	0
3. Team Work	Very Good	3	Very Good	3
	Moderate	2
	Poor	1
	Regular Conflict	0
Total Score- Management Risk		12		9

D. Security Risk 10%
1. Security Coverage (Primary)	Fully Pledged facilities/substantially cash covered / Reg. Mortg. for HBL	4	Registered Hypothecation (1st Charge/1st Pari passu Charge)	3
	Registered Hypothecation (1^st Charge/1st Pari passu Charge)	3
	2nd charge/Inferior charge	2
	Simple hypothecation/Negative lien on assets	1
	No security	0
2. Collateral Coverage (Property Location)	Registered Mortgage on Municipal corporation/Prime Area property	4	Registered Mortgage on Pourashava/Semi-Urban area property	3
	Registered Mortgage on Pourashava/Semi-Urban area property	3
	Equitable Mortgage or No property but Plant and Machinery as collateral	2
	Negative lien on collateral	1
	No collateral	0
3. Support (Guarantee)	Personal Guarantee with high net worth or Strong Corporate Guarantee	2	Personal Guarantee with high net worth or Strong Corporate Guarantee	2
	Personal Guarantees or Corporate Guarantee with average financial strength	1
	No support/guarantee	0
Total Score- Security Risk		10		8
E. Relationship Risk 10%
1. Account Conduct	More than 3 years Accounts with faultless record	5	Accounts having satisfactory dealings with some late payments.	2
	Less than 3 years Accounts with faultless record	4
	Accounts having satisfactory dealings with some late payments.	2
	Frequent Past dues & Irregular dealings in account	0
2. Utilization of Limit	More than 60%	2	80.00%	2
(actual/projection)	40% – 60%	1
	Less than 40%	0
3. Compliance of Covenants /	Full Compliance	2	Full Compliance	2
Conditions	Some Non-Compliance	1
	No Compliance	0
4. Personal Deposits	Personal accounts of the key business Sponsors/ Principals are maintained in the bank, with significant deposits	1	No depository relationship	0
	No depository relationship	0
Total Score- Relationship Risk		10		6
Grand Total – All Risk		100		75

Furnitec Industries is a manufacturing and Trading Company. Their need minimum paid up Capital Tk.1 corer and Sales minimum Tk. 50-70 lac. But we consider about their Business.

Case-3 ( Thai Poly Shawn)

THAI POLY SHAWN
	2007	2006
A.FINANCIAL RISK
1.Leverage
Liability
IPDC Loan	6,606,812	9,394,486
South Bank Ltd (Term Loan)	2,498,656	7,527,884
South Bank Ltd (Other)	49,456,284	53,052,999
	58,561,752	69,975,369
Current Liability
Creditors for Expenses	2,877,112	2,535,871
Sundry Creditors	3,004,300	1,165,850
Bank Overdraft (SEBL)	4,981,699	5,175,977
	10,863,111	8,877,698
Total Liability	69,424,863	78,853,067
Equity
Paid up Capital	5,600,000	5,600,000
Share money Deposit	18,252,264	18,252,264
Profit And Loss A/C	1,486,755	975,398
Tax Holyday Reserve	998,635	657,731
	26,337,654	25,485,393

Total Liability/ Total Equity	2.63595471	3.094049482

2.Liquidity
Currene Asset
Cash in Hand	52,226	48,334
Cash in Bank	5,196,757	6,777,948
L/C Advance	593,907	290,311
Security Deposit	354,640	354,640
Stock and Stores	46,385,202	51,127,541
Bank Guarantee	124,150	61,365
Salary Advance	180,998	125,164
Total Current Assets	52,887,880	58,785,303
Current Liability
Creditors for Expenses	2,877,112	2,535,871
Sundry Creditors	3,004,300	1,165,850
Bank Overdraft (SEBL)	4,981,699	5,175,977
	10,863,111	8,877,698

CA/CL	4.86857586	6.621683121

3.Profitability
Operation profit
Net Profit	852,261	470,815
Add: Depreciation	96,936	100,114
Add: Financial Charge	5,824,949	7,840,655
Interest on Term Loan (SEBL)	430,773	1,673,173
Interest on Loan (IPDC)	926,558	1,816,729
Interest on Short Term Loan(SEBL)	3,476,290	3,046,037
Interest on SEBL C/C A/C	349,379	629,659
Bank Charge & Commission	641,949	675,057
EBITAD	6,774,146	8,411,584
Sales	229,681,344	348,441,361

(EBITAD/Sales)*100	3.00%	2.41%

4.Coverage
EBITD	6,774,146	8,411,584
Interest/Financial Charge	5,824,949	7,840,655

EBITD/ Interest	1.1629537	1.072816493

CREDIT RISK GRADING SCORE SHEET

Reference No.:			Date:	23-Sep-07
Borrower	Thai Poly Shawn (BD) Ltd.
Group Name (if any)		Aggregate Score:		76
Branch:	Principal
Industry/Sector	Manufacturer of plastic based packages wrapping	`	Acceptable
Date of Financials	31.08.2007	`	Acceptable
Completed by	Md. Habibur Rahman Mollah
Approved by
Number	Grading	Short	Score
1	Superior	SUP	Fully cash secured, secured by government guarantee/international bank guarantee
2	Good	GD	85+
3	Acceptable	ACCPT	75-84
4	Marginal/Watchlist	MG/WL	65-74
5	Special Mention	SM	55-64
6	Substandard	SS	45-54
7	Doubtful	DF	35-44
8	Bad/Loss	BL	<35

Criteria Weight	Parameter	Score	Actual Parameter	Score Obtained
A. Financial Risk 50%
1. Leverage: (15%)	Less than 0.25×	15	2.46	8
Debt Equity Ratio (×) – Times	0.26× to 0.35 x	14
Total Liabilities to Tangible Net worth	0.36× to 0.50 x	13
	0.51× to 0.75 x	12
All calculations should be based on	0.76× to 1.25 x	11
annula financial statements of the	1.26× to 2.00 x	10
borrower (audited preferred)	2.01× to 2.50 x	8
	2.51× to 2.75 x	7
	More than 2.75×	0
2. Liquidity: (15%)	Greater than 2.74×	15	4.87	15
Current Ratio (×) -Times	2.50× to 2.74 x	14
Current Assets to Current Liabilities	2.00× to 2.49 x	13
	1.50× to 1.99 x	12
	1.10× to 1.49 x	11
	0.90× to 1.09 x	10
	0.80× to 0.89 x	8
	0.70× to 0.79 x	7
	Less than 0.70×	0
3. Profitability: (15%)	Greater than 25%	15	3.00%	7
Operating Profit Margin (%)	20% to 24%	14
(Operating Profit/Sales) X 100	15% to 19%	13
	10% to 14%	12
	7% to 9%	10
	4% to 6%	9
	1% to 3%	7
	Less than 1%	0
4. Coverage: (5%)
Interest Coverage Ratio (×) – Times
Earning before interest & tax (EBIT)	More than 2.00×	5	1.16	2
Interest on debt	More than 1.51× Less than 2.00×	4
	More than 1.25× Less than 1.50×	3
	More than 1.00× Less than 1.24×	2
	Less than 1.00×	0
Total Score- Financial Risk		50		32

B. Business/ Industry Risk 18%
1. Size of Business (in BDT crore)	> 60.00	5	35.00	4
	30.00 – 59.99	4
The size of the borrower’s business	10.00 – 29.99	3	Sales position as per financial statement as of 31.08.07 is Tk.22.96 crore. We assume that sales position at the end of this year will be more than Tk.35.00 crore. Their last years sales was Tk.34.84 crore.
measured by the most recent year’s	5.00 – 9.99	2
total sales. Preferably audited numbers.	2.50 – 4.99	1
	< 2.50	0
2. Age of Business	> 10 Years	3	10	3
	> 5 – 10 Years	2
The number of years the borrower	2 – 5 Years	1
engaged in the primary line of business	< 2 Years	0
3. Business Outlook	Favorable	3	Favorable	3
Critical assesment of medium term	Stable	2
prospects of industry, market share	Slightly Uncertain	1
and economic factors.	Cause for Concern	0
4. Industry Growth	Strong (10%+)	3	Strong (10%+)	3
	Good (>5% – 10%)	2
	Moderate (1%-5%)	1
	No Growth (<1%)	0
5. Market Competition	Dominant Player	2	Dominant Player	2
	Moderately Competitive	1
	Highly Competitive	0
6. Entry/Exit Barriers	Difficult	2	Difficult	2
	Average	1
	Easy	0
Total Score- Business/Industry Risk		18		17

C. Management Risk 12%
1. Experience	More than 10 years in the related line of business	5	More than 10 years in the related line of business	5
Quality of management based on total	5–10 years in the related line of business	3
# of years of experience of the senior	1–5 years in the related line of business	2
management in the Industry.	No experience	0
2. Second Line/ Succession	Ready Succession	4	Ready Succession	4
	Succession within 1-2 years	3
	Succession within 2-3 years	2
	Succession in question	0
3. Team Work	Very Good	3	Very Good	3
	Moderate	2
	Poor	1
	Regular Conflict	0
Total Score- Management Risk		12		12

D. Security Risk 10%
1. Security Coverage (Primary)	Fully Pledged facilities/substantially cash covered / Reg. Mortg. for HBL	4	Registered Hypothecation (1st Charge/1st Pari passu Charge)	3
	Registered Hypothecation (1^st Charge/1st Pari passu Charge)	3
	2nd charge/Inferior charge	2
	Simple hypothecation/Negative lien on assets	1
	No security	0
2. Collateral Coverage (Property Location)	Registered Mortgage on Municipal corporation/Prime Area property	4	No collateral	0
	Registered Mortgage on Pourashava/Semi-Urban area property	3
	Equitable Mortgage or No property but Plant and Machinery as collateral	2
	Negative lien on collateral	1
	No collateral	0
3. Support (Guarantee)	Personal Guarantee with high net worth or Strong Corporate Guarantee	2	Personal Guarantee with high net worth or Strong Corporate Guarantee	2
	Personal Guarantees or Corporate Guarantee with average financial strength	1
	No support/guarantee	0
Total Score- Security Risk		10		5
E. Relationship Risk 10%
1. Account Conduct	More than 3 years Accounts with faultless record	5	More than 3 years Accounts with faultless record	5
	Less than 3 years Accounts with faultless record	4
	Accounts having satisfactory dealings with some late payments.	2
	Frequent Past dues & Irregular dealings in account	0
2. Utilization of Limit	More than 60%	2	>60%	2
(actual/projection)	40% – 60%	1
	Less than 40%	0
3. Compliance of Covenants /	Full Compliance	2	Full Compliance	2
Conditions	Some Non-Compliance	1
	No Compliance	0
4. Personal Deposits	Personal accounts of the key business Sponsors/ Principals are maintained in the bank, with significant deposits	1	Personal accounts of the key business Sponsors/ Principals are maintained in the bank, with significant deposits	1
	No depository relationship	0
Total Score- Relationship Risk		10		10
Grand Total – All Risk		100		76

Thus way I had calculated various types of clients CRG with financial statements and to gather practical experience.

Findings

There were some problems while I conducting the orientation program.

Lacking Of The Report

Proprietorship, Private (Home) Limited companies are not interested to maintain their Balance Sheet and they have no accounts department or not healthy because they have no accountability.

Audit firm prepare their Balance sheet basis on favor them. Such as,

Profitable organization———– Show the Banks or Financial Institute, when needs funded.

Loosing organization————- Show the NBR (National Board Revenue), when they provide Tax.

Actual or real B/S—————– Prepares internally for own satisfaction

In particular area can not find out actual Business growth. Because, there have no institute to maintain or collect up to date data.

Small and Medium Entrepreneurs has minimum pain-up capital Tk.1 corer and sales or turnover 50 to 70 lac in a year but CRG manual show, sales must be increased which maximum Tk.60 corer and minimum Tk.2.50 corer. So, they can’t obtain good number.

Most of the time Private (Home) Limited company has no ready succession. This is uncertainty for the Banks.

Most of the banker marking the qualitative judgments depend on own opinion.

A particular business economic situation affected by the Political and natural situation.

As a result, the main objectives of the CRG to minimized the risk, it will be quite destroy

Improvement Of The CRG

Any Banks or financial institute can change or improve The CRG manual depends on their strategy. I am also discuss with the officer about the improve CRG manual and I think,

Proprietorship, Private (Home) Limited companies must be provided Tax return certificate to banks or financial institutes for funded.

NBR (National Board Revenue) should collect information about financial statement of the client from the Banks.

To established an institute by state for collecting latest information.

Strict regulations should be made to ensure transparency and accountability of activities the audit firms.

Conclusion

I have focused and analyzed on Credit Risk Grading system of Southeast Bank Ltd. The Banking sector in any country plays an important role in economic activities. Bangladesh is no exception of that. As because it’s financial development and economic development are closely related. That is why the private commercial banks are playing significant role in this regard.

The Credit Risk Grading minimize this problem because include this methods provide a specific guideline about lending criteria. 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.

Bangladesh Bank expects all commercial banks to have a well defined credit risk management system which delivers accurate and timely risk grading. This manual describes the elements of an effective internal process for grading credit risk. It also provides a comprehensive, but generic discussion of the objectives and general characteristics of effective credit risk grading system. In practice, a bank’s credit risk grading system should reflect the complexity of its lending activities and the overall level of risk involved.

Some More Parts-

Credit Risk Grading(CRG) In Southest Bank Limited (Part-1)

Credit Risk Grading(CRG) In Southest Bank Limited (Part-2)