Credit Risk Management of AB Bank Limited

Main purpose of this report is to analysis Credit Risk Management of AB Bank Limited. Report also observe observe the general banking and advance operation of ABBL and their services. Other objectives are analysis the pros and cons of the conventional ideas about credit operation and compare the existing credit risk management policy of AB Bank with that of best practices guideline given by Bangladesh Bank. Finally identify and suggest scopes of improvement in credit management of AB Bank Limited.

Objective of the report

The study has been undertaken with the following objectives:

General objective:

• Achieve experience about credit risk of banking system and theoretical application of knowledge in the real life
• To observe the general banking and advance operation f ABBL, and their services
• To get an overall practical knowledge concerning banking activities as a financial institution.
• How a bank operates their activities in different areas being a single organization.
• What a bank is doing for Bangladesh to develop national economy.

Specific objective:

• How Credit control authority work inside the bank, to know about that
• Details about Credit risk management of banking system.
• Framework of credit risk management.
• To analysis the pros and cons of the conventional ideas about credit operation of a Bank.
• To have better orientation on credit management activities specially credit policy and practices, credit appraisal, credit-processing steps, credit management, financing in various sector and recovery, loan classification method and practices of AB Bank Limited.
• To compare the existing credit policy of AB Bank limited with that of best practices guideline given by Bangladesh Bank, the central bank of Bangladesh.
• To identify and suggest scopes of improvement in credit management of ABBL
• To get an overall idea about the performance of AB Bank Ltd.

Methodology of the study

Methodology indicates that from where I gathered data about my topics. There have no primary sources of data to prepare this report. The secondary sources of data are only use to prepare this report.

Secondary sources of data:

• Searching information through the internet.
• Using some of the text book.
• Some international articles.
• Annual report of AB Bank and national bank.
• Bangladesh institute of bank management (BIBM).
• Web site of AB bank.

Background of AB Bank Limited

Limited, the first private sector bank was incorporated in Bangladesh on 31st December 1981 as Arab Bangladesh Bank Limited and started its operation with effect from April 12, 1982.

AB Bank is known as one of leading bank of the country since its commencement 28 years ago. It continues to remain updated with the latest products and services, considering consumer and client perspectives. AB Bank has thus been able to keep their consumer’s and client’s trust while upholding their reliability, across time.

During the last 28 years, AB Bank Limited has opened 77 Branches in different Business Centers of the country, one foreign Branch in Mumbai, India and also established a wholly owned Subsidiary Finance Company in Hong Kong in the name of AB International Finance Limited. To facilitate cross border trade and payment related services, the Bank has correspondent relationship with over 220 international banks of repute across 58 countries of the World. In spite of adverse market conditions, AB Bank Limited which turned 28 this year, concluded the 2009 financial year with good results. The Bank’s consolidated profit after taxes amounted to Taka 3300 cr which is 43.44% higher than that of 2008. The asset base of AB grew by 27.20% from 2008 to stand at over Tk 10691 cr as at the end of 2009.

The Bank maintained its sound credit rating in 2009 to that of the previous year. The Credit Rating Agency of Bangladesh Limited (CRAB) awarded the Bank an AA₃ rating in the long term and ST-1 rating in the short Term.

AB Bank believes in modernization. The bank took a conscious decision to rejuvenate its past identity – an identity that the bank carried as Arab Bangladesh Bank Limited for twenty five long years. As a result of this decision, the bank chose to rename itself as AB Bank Limited and the Bangladesh Bank put its affirmative stamp on November 14, 2007.The Bank decided to change its traditional color and logo to bring about a fresh approach in the financial world; an approach, which like its new logo is based on bonding, and trust. The bank has developed its logo considering the contemporary time. The new logo represents our cultural “Sheetal pati” as it reflects the bonding with its clientele and fulfilling their every need. Thus the new spirit of AB is “Bonding”. The Logo of the bank is primarily “red”, as red represents velocity of speed and purity. Our new logo innovates, bonding of affiliates that generate changes considering its customer demand. AB Bank launched the new Logo on its 25th Anniversary year.

AB Bank commits to nation to take a lead in the Banking sector through not only its strong financial position, but also through innovation of products and services. It also ensures creating higher value for its respected customers and shareholders. The bank has focused to bring services at the doorstep of its customers, and to bring millions into banking channels those who are outside the mainstream banking arena. Innovative products and services were introduced in the field of Small and Medium Enterprise (SME) credit, Women’s Entrepreneur, Consumer Loans, Debit and Credit Cards (Local & International), ATMs, Internet and SMS Banking, Remittance Services, Treasury Products and Services, Structured Finance for Corporate, strengthening and expanding its Islamic Banking activities, Investment Banking, specialized products and services for NRBs, Priority Banking, and Customer Care. The Bank has successfully completed its automation project in mid 2008. It envisages enabling customers to get banking services within the comfort of their homes and offices.

AB Bank has continuously invests into its biggest asset, the human resource to drive forward with its mission “to be the best performing bank in the country.” The bank has introduced Dress Code for its employees. Male employees wear designed ties and females wear Sharee or Salwar Kamiz, all the dresses are consisted with the unique AB Bank logo. AB is recognized as the people’s choice, catering to the satisfaction of its cliental. Their satisfaction is AB’s success.

Human Resources Management

The valuable contributions made by the employees for the continuous growth of the Bank have always been acknowledged. Human Resources Division of ABBL worked with the business as the core strategic partner through performing the job of recruitment, training, placement, and through introduction of the performance management tools. The Bank has its own Training Institute for training of its staff internally. The Bank has planned to restructure the Training Institute to a fully fledged Training Academy within this year. The Bank also sends its employees to the Bangladesh Institute of Bank Management (BIBM), Bangladesh Bank and other professional institutions in home and abroad for training purposes.

In 2009, total numbers of employees were 1952. Total 185 were recruited in that year, of which 147 were at entry levels, 30 in mid levels and 8 in management level. The recruitment examination is managed by both internal and external agencies. The Bank has Employees’ Service Rules followed from 1991.

According to the HR division, the Bank is the top player in the industry for the SVP & above rank. And for Probationary to VP rank, the Bank provides salary according to industry practice.  The employees also get other facilities like gratuity, provident fund, festival bonus, incentive bonus, medical facilities etc from the Bank. Employee turnover at mid and executive level is very low. Lower mid level employee turnover is little high.

Credit Management     

In October 2003, Bangladesh Bank advised all banks to put in place an effective risk management system focusing on five core areas. In response to that, ABBL developed a Core Risk Manual on the five core risk areas approved by the Board. During 2004, as per BB guidelines, Credit Risk Management was given a new shape. A new CRM Division was created in June 2005 with identified responsibilities for managing credit risks.

Products and services

AB Bank currently provides the following product and services to its customer:

Depository product

AB Bank Limited is now offering different types product for mobilizing the savings of the general people.

• Current Deposit
• Saving deposit
• Foreign Currency Deposit
• Fixed deposit

Current deposit:

Current account is an account where a customer can deposit money and withdraws several times in a working day. In this account there is no interest rate. Customers are just maintaining this kind of account for transaction. This account is open for the industrials or for the business purpose. Individuals are not interested to open this kind of account. Customer can withdraw money by the cheque. For the current account there are 2 types of cheque book. Those are:

• 20 leafs cheque book and
• 50 leafs cheque book.

Savings deposit:

Savings accounts are open for the purpose of savings. Generally, Customer can deposit and withdraws money one time in a single working day. Now a days in the savings account deposit and withdraws money more than one time by the permission. Customers receive the interest against their savings. They get the rate of interest of 6% in an economic year. For the maintaining of savings account the AB Bank deduct Tk.250 in half yearly, if the balance falls below 10,000.For open a savings account customer will have to deposit at least Tk.10,000. To closing the account, bank charges Tk.300 of the account holder.

Table: Interest Rates of Deposit Accounts

Foreign currency:

Following the liberalization of exchange controls Bangladesh Bank has authorized the banks to maintain different types of foreign currency accounts and convertible taka accounts. The following are the regulations laid down by Bangladesh in respect of these accounts.

Who can open the accounts?

Branches of AB Bank limited may open Foreign Currency Accounts in the names of:

• Bangladesh nationals residing abroad
• Foreign nationals residing abroad or Bangladesh and foreign firms operating in Bangladesh or abroad.
• Foreign missions and their expatriate employees.

Fixed deposit:

Fixed Deposit account or FDR accounts are open for certain amounts of money are fixed for a certain period of time. The time period or tenure should be for a month, 3months, 6 months, 1 year or 2 years. The interest rate for the (FDR) tenure is the following:

Table: Fixed Deposit Rates

From the chart of the rate sheet we can see the frequent decrease in the rate for FDR account. After the maturity 10% income tax are deducted from the interest amount

Services of AB Bank

AB Bank Provide the following services to its customer

• Retail Banking
• Unsecured loan
• Secured loan
• Corporate banking
• SME banking
• Loan syndication
• Islami banking
• Other Services
• AB investment banking
• Card service
• Money Transfer (western Union)Locker service
• Remittance service
• ATM service
• Foreign trade
• Internet Banking

Retail banking:

In the point of view of AB Bank retail banking are divided into two broad categories. Those are given bellow as detail:

Unsecured loans

AB Bank provides the following types of unsecured loan to its customer:

a) Personal loan:

Target Customer:

Employees of reputed Local Corporate, MNCs, NGOs, Airlines, Private Universities, Schools and Colleges, International Aid Agencies and UN bodies, Government Employees, Self-employed Professionals (Doctors, Engineers, Chartered Accountants, Architects, Consultants), Businessmen.

Purpose:

Marriages in the family, Purchase of office equipment / accessories, Purchase of miscellaneous household appliances, Purchase of Personal Computers, Purchase of audio-video equipment, Purchase of furniture.

Loan Amount: Minimum Tk. 25,000.00, Maximum Tk. 5, 00,000.00

Charges: Application fee: Tk. 500.00Processing fee: 1% on the approved loan amount or Tk. 2000.00 whichever is higher.

Tenor: Min 12 months, Max 36 months

Rate of Interest:  14.50% p.a-17.50% p.a

Security: Hypothecation of the product to be purchased. Two personal guarantees (as per our list of eligible guarantors)

b) Auto loan

Target Customer:

Employees of reputed Local Corporate, MNCs, NGOs, Airlines, Private Universities, Schools and Colleges, International Aid Agencies and UN bodies, Government Employees, Self-employed Professionals (Doctors, Engineers, Chartered Accountants, Architects, Consultants), Businessmen.

Purpose:

To purchase Brand new vehicle, non-registered reconditioned vehicle. Loan Amount:70% for the brand new car60% for the reconditioned car but must not exceed BDT 10, 00,000.00

Charges: Application fee: Tk. 500.00 Processing fee: 1% on the approved loan amount or Tk. 5000.00 whichever is higher.

Tenor: For Reconditioned Car: Max 36 months For Brand new Car: Max 60 months.

Rate of Interest: 14.50% p.a -17.50% p.a.

Security: Hypothecation of the vehicle to be purchased. Two personal guarantees (as per our list of eligible guarantors)

c) Easy loan (for executives)

Target Customer:

The loan is specially designed for salaried people who are employed in different reputed companies

Purpose: Marriages in the family, Purchase of office equipment / accessories, Purchase of miscellaneous household appliances, Purchase of Personal Computers, Purchase of audio-video equipment, Purchase of furniture, Advance rental payment, Trips abroad, Admission/Education fee of Children etc.

Loan Amount: Minimum Tk. 50,000.00, Maximum Tk. 3, 00,000.00

Charges: Application fee: Tk. 500.00, Processing fee: 1% on the approved loan amount or Tk. 1000.00 whichever is higher.

Tenor: Min 12 months, m ax 36 months

Rate of Interest: 16.00% p.a

Security:

Letter of confirm at ion from the employer. One personal guarantee (as per our list of eligible guarantors)

d) Gold grace Jewellery loan:

Target Customer:

Both female & male employees may apply viz. employees of reputed Banks & Leasing companies, reputed Local Corporate, MNCs, NGOs, Airlines, Private Universities, Schools and Colleges, International Aid Agencies and UN bodies. Government Employees, Self-employed Professionals(Doctors, Engineers, Chartered Accountants, Architects, Consultants) businessmen with a reliable regular source of income.

Purpose: To purchase ornaments/ Jewellery for personal use.

Loan Amount: Minimum Tk. 50,000.00, Maximum Tk. 3, 00,000.00

Charges: Application fee: Tk. 500.00, Processing fee: 1% on the approved loan amount or Tk. 1000.00 whichever is higher.

Tenor: Min 12 months, Max 36 months

 Rate of Interest: 16.00% p.a

Security: Letter of confirmation from the employer. Personal guarantee from the parents and spouse (if married)

e) House / Office furnishing / Renovation loan:

Target Customer:

Expatriate Bangladeshi nationals who are in business or service holders .Employees of reputed Banks & Leasing companies, reputed Local Corporate, MNCs, NGOs, Airlines, Private Universities, Schools and Colleges, International Aid Agencies and UN bodies, government Employees, Self-employed Professionals (Doctors, Engineers, Chartered Accountants, Architects, Consultants).Reputed and highly respectable Businessmen with a reliable source of income.

Purpose: House/Office Furnishing/ Renovation, for interior decoration / Titles Stones, Electrical fittings, wooden cabinets / Overall furnishing and all types of House/Office Renovation, purchase/furnishing of apartments etc.

Loan Amount:  Minimum Tk. 1, 00,000.00, Maximum Tk. 10, 00,000.00

Charges: Application fee: Tk. 500.00, Processing fee: 1% on the approved loan amount or Tk. 2000.00 whichever is higher

Tenor: Min 12 months, Max 48 months

Rate of Interest: 16.50% p.a

Security:  Title deed of the House/Office to be furnished/renovated along with memorandum of deposit of title deed duly supported by a notarized power of attorney to be kept by the bank as a matter of comfort. Two personal guarantees (as per our list of eligible guarantors) Registered mortgaged of the property if the loan amount is more than Tk. 5.00 lac

f) Staff loan

Target Customer: All permanent employees of ABBL

Purpose: Marriages in the family, Purchase of office equipment / accessories, Purchase of miscellaneous household appliances, Purchase of Personal Computers, Purchase of audio-video equipment, Purchase of furniture

Loan Amount:

According to the debt burden ration and other criteria

Charges: Processing fee: 1% on the approved loan amount

Tenor: Min 12 months, Max 36 months

Rate of Interest: 15.50% p.a

Security: Hypothecation of the product to be purchased

g) Education loan

Target Customer: Student criteria: Students of reputed educational institutes, such as Public Private Universities, Medical Colleges & Engineering Institute. Undergraduate & Post graduate Level Professionals degrees (Chartered Accountants (CA), Cost & management Accountants (CMA), Marine, MBM, MBA) Doctorate degree (PhD), FCPS etc. Occupation: Student Minimum Age: 17 years Maximum Age: 40 years

Educational Qualification:

Minimum HSC/A level pass.

Parents Criteria: Service Holder:

Individuals with ranks equivalent to Senior Assistant Secretary or higher would qualify guarantor Bank officials (Equivalent to Senior Principal Officer of NCBs, AVP / Branch Manager of Local and Foreign banks) and Department Head of Multinational Company or established Local Corporate. Guarantors must be accepted by the Branch Manager / Head Office

Businessman:

Well reputed and widely respected Se employed professionals

Purpose: To Financially Assist the Parents: Admission/Education Fees, Semester Fees, and Study abroad

Loan amount:

Minimum Tk. 50,000.00, Maximum Tk. 3, 00,000.00

Charges: Application fee: Tk. 500.00, Processing fee: 1% on the approved loan amount or Tk. 1000.00 whichever is higher

Tenor: Min 12 months, max 36 months

Rate of interest: 14.50% p.a. – 16.00% p.a

Security: One personal guarantee (as per our list of eligible guarantors)

Secured loans:

Secured Loans are divided into the following type:

 a) Personal loan

Target Customer: All Clients of ABBL

Purpose: To meet personal requirement of fund

Loan Amount: Maximum 95% of the present value of the security

Charges: Processing fee: Tk. 1000.00

Tenor: Min 12 months, Max 36 months

Rate of Interest: 13.50% p.a.- 16.50% p.a. (subject to type of the security). 2% spread must be maintained in case of own bank FDR

Security: Lien over FDR, BSP, ICB Unit Certificate, RFCD, NFCD, and CD account(s) etc. One personal guarantee in case of third party cash collateral (as per our list of eligible guarantors)

b) Personal overdraft

Target Customer: All Clients of ABBL

Purpose: To meet personal requirement of fund

Loan Amount: Maximum 95% of the present value of the security

Charges: Processing fee: Tk. 1000.00

Tenor: Revolving with annual review

Rate of Interest: 13.50% to16.50 % p.a. (subject to type of the security).2% spread must be maintained in case of own bank FDR

Security:

Lien over FDR, BSP, ICB Unit Certificate, RFCD, NFCD, and CD account(s) etc. One personal guarantee in case of third party cash collateral (as per our list of eligible guarantors

Corporate banking:

AB Bank provides complete range of solutions to meet Corporate Customers’ requirement. AB’s Corporate Banking solutions include a broad spectrum of products and services backed by proven, modern technologies.

Corporate lending

AB’s specialist teams offer a comprehensive service providing finance to large and medium-sized businesses based in Bangladesh.

Structured finance

AB have a specialist Structured Finance Team who arrange and underwrite finance solutions including Debt and Equity Syndication for financial sponsors, management teams and corporate. AB also provides corporate advisory services.

The aim of structured finance is to provide tailored financing solutions with a dedicated team who can rapidly respond to client needs.

Following are some of the products and financial tools of Corporate Banking:

• Project Finance
• Working Capital Finance
• Trade Finance
• Cash Management
• Syndicated Finance, both onshore & off-shore
• Equity Finance, both onshore & off-shore

SME Banking:

The Small and Medium Enterprises worldwide are recognized as engines of economic growth. In recent days the Small and Medium Enterprise (SME) Financing has become an important area for Commercial Banks in Bangladesh. To align its corporate policy with the regulation of Central Bank, banks have become more concerned about SME and opened windows to conduct business in this particular area. According to the latest circular of Bangladesh Bank (Date – 26/05/2008), the definition of Small and Medium Enterprise sector is given below:

Small enterprises:

Small enterprises refer to those enterprises which are not any Public Limited Companies and which fulfill the following criteria-

Service Concern:

Having an investment of Tk.50,00 to Tk. 50, 00,000 excluding land & building And / or employing up to 25 workers.

Business Concern:

Having an investment of Tk. 50,000 to Tk. 50, 00,000 excluding land & Building and / or employing up to 25 workers.

Manufacturing Concern:

Having an investment of Tk. 50,000 to Tk. 1, 50, 00,000 excluding land & Building and / or employing up to 50 workers.

Medium enterprises

Medium enterprises refer to those enterprises which are not any Public Limited Companies and which fulfill the following criteria:

Service Concern:

Having an investment of Tk.50, 00,000 toTk.10,00, 00,000 excluding land & building and / or employing up to 50 workers.

Business Concern: Having an investment of Tk. 50, 00,000 to Tk. 10, 00, 00,000 excluding land & building And / or employing up to 50 workers.

Manufacturing Concern:

Having an investment of Tk.1,50, 00,000 to Tk.20, 00, 00,000 excluding land & building And / or employing up to 150 workers.

SME products offer by AB Bank Limited:

The following Loan schemes under the category of Small & Medium Enterprise (SME) have been introduced:

Loan syndication

Syndication or club financing is a growing concept in Banking Arena of Bangladesh. Syndicated finance diversifies the risk of one bank on a single borrower and increases the quality of loan through consensus or cumulative judgment and monitoring of different banks / financial institutions.

AB Bank, the first bank in the private sector also took initiative to adapt to this growing concept.

In 1997, AB Bank for the first time arranged a club financing with AB Bank Ltd to raise Tk. 6700 lac – out of which ABBL financed Tk. 5700 Lac and Dhaka bank financed Tk. 1000 Lac.

In 1999, AB Bank arranged its second syndicated credit facility with IPDC to raise Tk 3563 Lac.

Since then AB Bank did not look back.

Since 1997 to 2007 (till date), AB Bank has raised total Tk. 25989.56 Lac as Lead Arranger. The following banks from time to time have been our partners in these syndications:  Dhaka Bank, IPDC, EXIM Bank, Bank Asia, Oriental Bank, NCC Bank, The City Bank, Trust Bank, Bank Asia.

AB Bank has also participated in different syndications arranged by other Banks, out of which till date 6 (six) syndication has successfully been completed. AB Bank exposure in these completed syndications was   Tk. 4700 Lac.

Islami banking

Islami banking to provide the Islami banking services in accordance with the principles of Islami Shariah, AB Bank has established Islamic Banking Wing and started its functioning by opening full-fledged Islamic banking branch on 23.12.2004. The branch is known as AB Bank Islami Banking Branch, Kakrail, and is situated at 82, Kakrail, Ramna, and Dhaka. Prominent Islami Banker Mr. M. Azizul Huq has joined the Bank as its Islami Banking Consultant. A dedicated team of experienced Islamic bankers is working under his active guidance both at head office and branch level. A competent Shariah Council consisting of Islami scholars, Ulema, Fukaha and Islamic bankers headed by Mr. Shah Abdul Hannan, a prominent Islamic scholar and former Secretary, Government of Bangladesh has also been formed to guide the Islamic banking affairs. Board of directors as well as management of the bank are very much interested to promote Islamic banking system in the bank aiming at opening more Islamic branches in the near future. AB Bank has already obtained membership of Islamic Banks Consultative Forum (IBCF) and Central Shariah Board for Islamic Banks of Bangladesh.

Under this wing AB Bank extends the following Islamic banking services:

• Deposit services
• Investment services

Under Deposit services the following services are being rendered:

• Mudaraba Savings Account
• Mudaraba Short Noticed Account
• Mudaraba Term Deposit Account (with different terms)
• Mudaraba Monthly Profit Account
• Al-Wadiah Current Deposit Account
• Mudaraba Deposit Pension Scheme

Other services

Above all AB Bank also provides the following services to its customer:

a) AB Investment Bank Limited (ABIL), a subsidiary of AB Bank Limited incorporated under the company’s act 1994 and running its Merchant Banking operations being licensed by the securities and exchange commission.

ABIL’s head office is located at 30-3 Dilkusha C/A, Dhaka. ABIL has two branch offices at Agrabad, Chittagong and Chowhatta, Sylhet.  Necessity of valued clients in view and upholding the principle of Islamic Shariah Custodial Service

 b) Card service AB Bank Limited is one of the leading first generation private sector commercial banks with Branch Network all over the country. The Bank started issuing VISA Credit Cards from the end of year 2004 as a principal member of VISA International.

AB Bank Visa EASI Credit Card

Who can apply for a card?

Anyone between 21 and 60 years of age and have a steady job or income that pays at least BDT 120,000 annually (gross), can apply for an AB Bank Visa EASI Credit Card.

Card Annual Fees

ABBL Visa EASI Credit Gold: BDT 1,500 and ABBL Visa EASI Credit Classic: BDT 1000.

These prices are exclusive of VAT charges.

Card Activation

After receiving the card, sign the acknowledgement slip and send it to card division or any branch of ABBL or call Card Division for activation. Sign the signature panel, back of the card.

PIN Maintenance

Destroy the PIN mailer after memorizing don’t write the PIN on the card Change the PIN every month

C) Western union

Western Union Financial Services Inc. U.S.A. is the number one and reliable money transfer company in the world. This modern Electronic Technology based money transfer company has earned worldwide reputation in transferring money from one country to another country within the shortest possible time.

AB Bank Limited has set up a Representation Agreement with Western Union Financial Services Inc. U.S.A. Millions of people have confidence on Western Union for sending money to their friends and family.

Through Western Union Money Transfer Service, Bangladeshi Wage Earners can send and receive money quickly from over 280,000 Western Union Agent Locations in over 200 countries and territories worldwide- the world’s largest network of its kind, only by visiting any branches of AB Bank Limited in Bangladesh.

For Inward Remittance, AB Bank established extensive drawing arrangement network with Banks and Exchange Companies located in the important countries of the world.

d) Locker service

A Safe Deposit Locker with AB Bank is the solution to your concern. Located at select branches in cities all over the country, our lockers ensure the safe keeping of your valuables.

Terms & Condition

• For obtaining a Locker at AB Bank you must be an account holder with our Bank.
• Lockers can be allotted individually as well as jointly.
• The Locker holder is permitted to add or delete names from the list of persons who can operate the Locker and can have access to it.
• Loss of Key is to be immediately informed to the concerned Branch.

Charges for lockers of AB Bank

Table-: Charges of Lockers of ABBL

e) Foreign remittance:

ABBL provides premium quality service for repatriation and collection of remittance with the help of its first class correspondents and trained personnel. By introducing on-line banking service and becoming a SWIFT Alliance Access Member, which enable its branches to send and receive payment instruction directly, which helps provide premium services. Remittance services provided by ABBL are:

• Inward Remittance: Draft, TT
• Outward Remittance: FDD, TT, TC and Cash (FC)

f) ATM Services:

We can find ABBL ATMs beside our home, in our office premise, nearby market, university, college & school premises, Airport, Railway stations etc., throughout the country. Using any of the ABBL ATM pools anywhere in the country, you can perform the following:

• Account balance enquiry
• Cash withdrawal – 24 hours a day, 7 days a week, 365 days a year
• Cash deposit to a certain number of ATMs any time
• Mini statement printing
• PIN (Personal Identification Number) change

All the ATMs can accept ABBL Easy ATM / POS card and ABBL Credit card

g) Foreign trade:

ABBL extends finance to the importers in the form of:

• Opening of L/C (Foreign/Local)
• Credit against Trust Receipt for retirement of import bills.
• Short term & medium term loans for installation of imported

Import Finance:

ABBL extends finance to the importers in the form of:

• Opening of L/C
• Credit against Trust Receipt for retirement of import bills.

Export Finance:

ABBL extends finance to the exporters in the form of:

• Pre-Shipment finance
• Post-Shipment finance

h) ABBL internet banking:

ABBL 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.

Using any of the ABBL ATM pools anywhere in the country, you can perform the following:

• Securities with ABBL Internet Banking
• A/c Opening & Accessing Internet Banking
• Internet Banking Features
• Terms & Conditions of Internet Banking

Credit Risk

The word credit comes from the Latin word “Credo” meaning “I believe”. It is a lender’s trust in a person’s/ firm’s/ or company’s ability or potential ability and intention to repay. In other words, credit is the ability to command goods or services of another in return for promise to pay such goods or services at some specified time in the future. For a bank, it is the main source of profit and on the other hand, the wrong use of credit would bring disaster not only for the bank but also for the economy as a whole.

The objective of the credit management is to maximize the performing asset and the minimization of the non-performing asset as well as ensuring the optimal point of loan and advance and their efficient management. Credit management is a dynamic field where a certain standard of long-range planning is needed to allocate the fund in diverse field and to minimize the risk and maximizing the return on the invested fund. Continuous supervision, monitoring and follow-up are highly required for ensuring the timely repayment and minimizing the default. Actually the credit portfolio is not only constituted the bank’s asset structure but also a vital factor of the bank’s success. 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. Therefore, while analyzing the credit management of ABBL, it is required to analyze its credit policy, credit procedure and quality of credit portfolio.

Risk management framework

Risk is defined by ABBL as risk of potential losses or foregone profits that can be triggered by internal and external factors. Therefore, the objectives of risk management are identification of potential risks in .Our operations and transactions, in our assets, Liabilities, income, cost and off-balance sheet Exposures and independent measurement and assessment of such risks and taking timely and adequate measures to manage and mitigate such risks within a risk-return framework. In ABBL, only calculated risks are taken while conducting banking business to strike a balance between risk and return.

Risk management producer

To ensure that risks are properly addressed and protected for sustainable development of the Bank, there are approved policies and procedures covering all the risk areas i.e. credit risks, operational risks and market risks. These are formulated taking into account Bangladesh Bank’s Guidelines on managing Core Risks on Credit Risk Management, Internal & Compliance, Asset and Liability Management, Foreign Exchange Risk Management, Information Technology Risk Management and Money Laundering Risk Management as well as the business environment in which the Bank operates, specific needs for particular type of operations or transactions and international best practice. These policies are regularly reviewed and updated to keep pace with the changing operating environment, technology and regulatory requirement. Meticulous compliance with the established procedures are ensured to satisfy that the Bank is operating within approved procedures limits and that risks are within tolerable limits to effectively ensure long term solvency and sustainable growth of the Bank.

How credit risk is measured

Credit risk is usually measured on a comparative scale. As per BRPD (Banking Regulation and Policy Department), CRG (credit Risk Grading) score sheet, a scale, is used to summarize risk assessments. Since there is no accurate way to combine the different risk factors, credit professionals either examine and weigh the underlying risks directly, or confirm the track record over time of a credit rating system to discriminate effectively between high and low-risk lending in a particular bank.

The term credit analysis is used to describe any process for assessing the credit quality of a company or individual. Credit analysis includes credit scoring, it is more commonly used to refer to process that entail human judgment. Credit professionals in banks review the client’s balance sheet, income statement, recent trends in its industry, the current economic environment, etc. from this they can also assess the exact nature of an obligation. Based on this analysis, the credit manager assigns the client a credit rating, which can be used for making credit decision.

Many banks, investment managers and insurance companies hire their own credit analysts who prepare credit ratings for internal use. In Bangladesh there are two rating agencies one is Credit Rating Agency of Bangladesh Limited (CRAB) and another is Credit Rating and Information Services Limited (CRISL). These two do the rating of all organizations.

Lending Risk Analysis (LRA): Modern technique of credit appraisal

The Financial Sector Reform Project (FSRP) has designed the LRA package, which provides a systematic procedure for analyzing and quantifying the potential credit risk. Bangladesh Bank has directed all commercial bank to use LRA technique for evaluating credit proposal amounting to Tk. 10 million and above. The objective of LRA is to assess the credit risk in quantifiable manner and then find out ways & means to cover the risk. However, some commercial banks employ LRA technique as a credit appraisal tool for evaluating credit proposals amounting to Tk. 5 million and above.

Evaluation of financial risk:

Financial analysis of leverage, liquidity, profitability and interest coverage ratios will help to analyze the risk that borrower might fail to meet obligation due to financial distress.

Evaluation of Business/Industry Risk:

Analyzing the business outlook, size of business, industry growth, market completion and barriers to entry or exit to understand the industry situation or unfavorable business condition that might have an impact on borrower’s capacity to meet obligation. This capitalizes on the risk of failure due to low market share and poor industry growth.

Evaluation of Management Risk:

Due to poor management skill, experience of the management, its succession plan and teamwork might cause the borrower to default. Evaluation of Security Risk: Risk that the bank might be exposed due to poor quality or strength of the security in case of default. This may involve the strength of security and collateral, location of collateral and support.

Security risk:

This sort of risk is associated with the realized value of the security, which may not cover the exposure of loan. Exposure means principal plus outstanding interest. The security risk is subdivided into two major heads i.e. security control risk and security cover risk.

Evaluation of Relationship Risk:

These risk areas cover evaluation of limits utilization, account performance, conditions/covenants compliance by the borrower and deposit relationship.

Credit risk management of AB Bank

In October 2003, Bangladesh Bank advised all banks to put in place an effective risk management system focusing on five core areas. In response to that, ABBL developed a Core Risk Manual on the five core risk areas approved by the Board. During 2004, as per BB guidelines, Credit Risk Management was given a new shape. A new CRM Division was created in June 2005 with identified responsibilities for managing credit risks. The Key feature of CRM in ABBL is the segregation of the relationship function from the credit approval function, in accordance with the core risk guidelines set by the Central Bank. Besides, an independent department, Risk Asset Management (RAM) has been established to deal with the credit

Disbursement and recovery process . Basel II guidelines require banks to accurately measure credit risk to hold sufficient capital to cover such risks. According to the management of ABBL, the Bank is under preparation to implement Basel II.

Credit risk policy of ABBL

AB Bank have a credit risk policy document that  include risk identification, risk measurement, risk grading/ aggregation techniques, reporting and risk control/ mitigation techniques, documentation, legal issues and management of problem facilities. The senior management of AB Bank develops and establishes credit policies and credit administration procedures as a part of overall credit risk management framework and gets those approved from Board. Such policies and procedures shall provide guidance to the staff on various types of lending including Corporate, SME, Consumer, Housing etc. Credit risk policies should:

• Provide detailed and formalized credit evaluation/ appraisal process
• Provide risk identification, measurement, monitoring and control
• Define target markets, risk acceptance criteria, credit approval authority, credit origination/ maintenance procedures and guidelines for portfolio management
• Be communicated to branches/controlling offices. All dealing officials should clearly understand the FI’s approach for credit sanction and should be held accountable for complying with established policies and procedures.
• Clearly spell out roles and responsibilities of units/staff involved in origination and management of credit In order to be effective.

Further any significant deviation/exception to these policies must be communicated to the top management/ Board and corrective measures should be taken. It is the responsibility of senior management to ensure effective implementation of these policies duly approved by the Board.

Credit risk strategy

The very first purpose of AB bank’s credit strategy is to determine the risk appetite of the financial institution.  AB Bank develops a plan to optimize return while keeping credit risk within predetermined limits. It is essential that AB Bank give due consideration to their target market while devising credit risk strategy. The credit procedures should aim to obtain an in-depth understanding of ABBL clients, their credentials & their businesses in order to fully know their customers.

• AB Bank should develop, with the approval of its Board, its own credit risk strategy or plan that establishes the objectives guiding the bank’s credit-granting activities and adopt necessary policies/ procedures for conducting such activities. This strategy should spell out clearly the organization’s credit appetite and the acceptable level of risk-reward trade-off for its activities
• The strategy would, therefore, include a statement of the ABBL’s willingness to grant facilities based on the type of economic activity, geographical location, currency, market, maturity and anticipated profitability. This would necessarily translate into the identification of target markets and business sectors, preferred levels of diversification and concentration, the cost of capital in granting credit and the cost of bad debts
• The strategy should delineate ABBL’s overall risk tolerance in relation to credit risk, the institution’s plan to grant credit based on various client segments and products, economic sectors, geographical location, currency and maturity
• The strategy should provide pricing strategy and ensure that overall credit risk exposure is maintained at prudent levels and consistent with the available capital
• The strategy should provide continuity in approach and take into account cyclic aspect of country’s economy and the resulting shifts in composition and quality of overall credit portfolio. While the strategy would be reviewed periodically and amended, as deemed necessary, it should be viable in long term and through various economic cycles
• Senior management of ABBL shall be responsible for implementing the credit risk strategy approved by the Board

Credit Principles

In the feature, credit principles include the general guidelines of providing credit by branch manager or credit officer. In AB Bank Limited they follow the following guideline while giving loan and advance to the client.

Credit advancement shall focus on the development and enhancement of customer relationship.

All, credit extension must comply with the requirements of Bank’s Memorandum and Article of Association, Banking Company’s Act, Bangladesh Bank’s instructions, other rules and regulation as amended from time to time. Loans and advances shall normally be financed from customer’s deposit and not out of temporary funds or borrowing from other banks.

AB Bank provides suitable credit services for the markets in which it operates. It provided to those customers who can make best use of them. The conduct and administration of the loan portfolio should contribute with in defined risk limitation for achievement of profitable growth and superior return on bank capital. Interest rate of various lending categories will depend on the level of risk and types of security offered.

Credit planning

Credit planning implies efficient utilization of scarce (loan able) fund to generate earning for the bank. Constituents of credit planning are: Forecasting of loan able fund likely to be available in a particular period of time and allocation of the same amongst alternative avenues in a prudent way. Credit planning has got a serious importance because:

Loan able fund comes out of deposit mobilized from the people. So safety of people’s money should be ensured carefully. Unplanned lending may create harm in two ways; firstly, excess lending may create liquidity crisis for the bank. Secondly, too much conservative lending may make the loan able fund idle.

Idle but cost-bearing fund again incurs operating cost for the bank. Excess liquidity led by unplanned inadequate lending push the profitability to decline. Planned credit helps to maintain conformity with the national priority. Unplanned credit may upset the total economic stability from macro point of view either by making inflation or deflation.

Portfolio management

Portfolio Management implies the deployment of loan able fund among alternative opportunities through proper allocation. The objective of portfolio management of credit is the best and efficient management of loan to ensure profitability. Designing the size and pattern of loan portfolio with accuracy is a tough job. Even then, a prudent loan portfolio management can be done by careful consideration of the factors mentioned in the following:

• Bank’s Capital position
• Deposit mix (Tenure of deposit) Credit environment
• Influence for monetary and fiscal policies
• Credit needs of the respective commanding area
• Ability & experience of the bank personnel to handle the loan portfolio

In designing a loan portfolio, three things are considered;

• The type of customers the bank wants to serve.
• Involvement of risks with various kinds of loans
• The relative profitability of various kinds of loans.

With each and every coin of loan, there is an involvement of risk. So the quantum of risk should be spread over the various types of loan through diversification. Diversification of credit can be made by extending credit to different sectors, to different geographical area, to different line of product or business and allocating the loan able fund into different type of credit.

Lending guidelines

AB Bank established “Lending Guidelines” that clearly outline the senior management’s view of business development priorities and the terms and conditions that should be adhered to in order for facilities to be approved.  The Lending Guidelines should be updated at least annually to reflect changes in the economic outlook and the evolution of the bank’s facility portfolio, and be distributed to all lending/marketing officers. The Lending Guidelines should be approved by the Managing Director/CEO & Board of Directors of the AB Bank based on the endorsement of the organization’s Head of Credit Risk Management and the Head of Business Unit.

Any departure or deviation from the Lending Guidelines should be explicitly identified in credit applications and a justification for approval provided.  Approval of facilities that do not comply with Lending Guidelines should be restricted to the bank’s Head of Credit or Managing Director/CEO or Board of Directors.

The Lending Guidelines should provide the key foundations for account officers/relationship managers (RM) to formulate their recommendations for approval.

Credit assessment

A thorough credit and risk assessment conducted prior to the granting of a facility, and at least annually thereafter for all facilities.  The results of this assessment  presented in a Credit Application that originates from the relationship manager/account officer (“RM”), and is reviewed by Credit Risk Management (CRM) for identification and probable mitigation of risks.  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 organization’s Lending Guidelines and should conduct due diligence on new borrowers, principals, and guarantors.

It is essential that RMs know their customers and conduct due diligence on new borrowers, principals, and guarantors to ensure such parties are in fact who they represent themselves to be.  All banks should have established Know Your Customer (KYC) and Money Laundering guidelines which should be adhered to at all times. Credit Applications should summaries the results of the RMs risk assessment and include, as a minimum, the following details:

• Amount and type of facility(s) proposed
• Purpose of facilities
• Facility Structure (Tenor, Covenants, Repayment Schedule, Interest)Security Arrangements
• Government and Regulatory Policies
• Economic Risks

In addition, the following risk areas should be addressed:

a) Borrower Analysis

The majority shareholders, management team and group or affiliate companies should be assessed.  Any issues regarding lack of management depth, complicated ownership structures or inter-group transactions should be addressed, and risks mitigated.

b) Industry Analysis

The key risk factors of the borrower’s industry should be assessed.  Any issues regarding the borrower’s position in the industry, overall industry concerns or competitive forces should be addressed and the strengths and weaknesses of the borrower relative to its competition should be identified.

c) Supplier/Buyer Analysis

Any customer or supplier concentration should be addressed, as these could have a significant impact on the future viability of the borrower.

d) Historical Financial Analysis

Preferably an analysis of a minimum of 3 years historical financial statements of the borrower should be presented.  Where reliance is placed on a corporate guarantor, guarantor financial statements should also be analyzed.  The analysis should address the quality and sustainability of earnings, cash flow and the strength of the borrower’s balance sheet.  Specifically, cash flow, leverage and profitability must be analyzed.

e) Projected Financial Performance

Where term facilities (tenor > 1 year) are being proposed, a projection of the borrower’s future financial performance should be provided, indicating an analysis of the sufficiency of cash flow to service debt repayments.  Facilities should not be granted if projected cash flow is insufficient to repay debts.

f) Credit Background

Credit application should clearly state the status of the borrower in the CIB (Credit Information Bureau) report. The application should also contain liability status with other Banks and FI’s and also should obtain their opinion of past credit behavior.

g) Adherence to Lending Guidelines

Credit Applications should clearly state whether or not the proposed application is in compliance with the FI’s Lending Guidelines.  The FI’s Head of Credit or Managing Director/CEO or Board should approve Credit Applications that do not adhere to the FI’s Lending Guidelines.

h) Mitigating Factors

Mitigating factors for risks identified in the credit assessment should be identified.  Possible risks include, but are not limited to: margin sustainability and/or volatility, high debt load (leverage/gearing), overstocking or debtor issues; rapid growth, acquisition or expansion; new business line/product expansion; management changes or succession issues; customer or supplier concentrations; and lack of transparency or industry issues.

i) Facility Structure

The amounts and tenors of financing proposed should be justified based on the projected repayment ability and facility purpose.  Excessive tenor or amount relative to business needs increases the risk of fund diversion and may adversely impact the borrower’s repayment ability.

j) Purpose of Credit

ABBL’s have to make sure that the credit is used for the purpose it was borrowed. Where the obligor has utilized funds for purposes not shown in the original proposal, FIs should take steps to determine the implications on creditworthiness. In case of corporate facilities where borrower own group of companies such diligence becomes more important. FIs should classify such connected companies and conduct credit assessment on consolidated/group basis.

k) Project Implementation

In case of a large expansion, which constitutes investment of more than 30% of total capital of a company or for a green field project, project implementation risk should be thoroughly assessed.  Project implementation risk may involve construction risk (Gestation period, regulatory and technical clearances, technology to be adopted, availability of infrastructure facilities) funding risk, and post project business, financial, and management risks.

l) Foreign Currency Fluctuation

Credit application should clearly state the assessment of foreign currency risk of the applicant and identify the mitigating factors for its exposure to foreign currency.

m) Security

A current valuation of collateral should be obtained and the quality and priority of security being proposed should be assessed internally and preferably by third party velour.  Facilities should not be granted based solely on security. Adequacy and the extent of the insurance coverage should be assessed.

Application for loan

Applicant applies for the loan in the prescribed form of bank. The purpose of this forms is to eliminate the unwanted borrowers at the first sight and select those who have the potential to utilize the credit and pay it back in due time.

Getting Credit information

Then the bank collects credit information about the borrower from the following sources:

1. Personal Investigation
2. Confidential report from other bank, Head office, Branch or Chamber of commerce
3. CIB report from central bank

Scrutinizing and investigation

Bank then starts examination that whether the loan applied for is complying with its lending policy. If comply, than it examines the documents submitted and the credit worthiness. Credit worthiness analysis, i.e.an analysis of financial conditions of the loan applicant is very important. Then bank goes for Lending Risk Analysis (LRA) and spreadsheet analysis, which are recently introduced by Bangladesh Bank. According to Bangladesh Bank rule, LRA and SA is must for the loan exceeding Dhaka core. If these two analyses reflect favorable condition and documents submitted for the loan appears to be satisfactory then, bank goes for further action.

Preliminary screening of a credit proposal

Screening means critical diagnosis of a credit proposal at the very initial stage. It should be made carefully just after the proposal comes to the bank. At the time of screening of a credit proposal the preliminary screening is done on the following premises:

• Quality of management and the entrepreneurial background of the sponsors
• Equity strength i.e., the own capital positions
• Position of assets & properties
• Line of business, it’s future prospects and the existing position of the respective industry
• Required technology, machinery, equipment and their availability
• Location, whether the infrastructural facilities are available
• Potential contribution to the overall economic development of the country
• Security proposed to be given and the genuinely of the title of documents

Analyzing the above matters, it is to be convinced that the credit proposal satisfies all the key elements of a sound lending policy such as:

• Safety of fund
• Security (easy marketability of the property given as security)
• Liquidity (the tenure of the loan)
• Profitability Diversity
• National interest

The C’s of good & bad loan:

The Branch manager of ABBL try to judge the possible client based on some criteria. These criteria are called the C’s of good and bad loans. These C’s are described below:

a) Character

The outcome of analyzing the character is to have overall idea about the integrity, experience, and business sense of the borrower. Two variables; Interaction/interview, and Market Research are used to analyze the character of the borrower.

Interaction/interview: the indicators are

a) Prompt and consistent information supply, information given has not been found false (Willingness to give information)

b) CIB also reveals business character.

c) Willingness to give owns stake/equity & collateral to cover.

d) Tax payer.

Market Research:

a) Information on business is verified.

b) Dealing with supplier and or customer as supplier is also a kind of lender; the payment character can also be verified.

b) Capital

For identifying the capital invested in the business can be disclosed using the following indicators.

a) Financial Statements

b) Receivable, Payable, statements to practically assess the business positions.Net worth through financial statements or from declaration of Assets & Liabilities.

c) Capacity (Competence)

Capability of the borrower in running the business is highly emphasized in the time of selecting a good borrower. As the management of the business is the sole authority to run the business that is use the fund efficiently, effectively and profitably.  The indicators help to identify the capacity of the borrower.

a) Entrepreneurship skills i.e. risk taking attitude shown by equity mobilization.

b) Management competencies both marketing and products detail, ability to take decision.
c) Resilience or shock absorption: Connection, Back up (if first time falls second lines come to help.)

d) Collateral

Make sure that there is a “second way out “of a credit, but do not allow that to drive the credit decision.

e) Cash Follow:

Cash flow is the vital factor that is used to identify whether the borrower will have enough cash to repay the loan or advance. Cash keeps the liquidity to ensure repayment. The relationship manager tries to identify the annual cash flow from the submitted statements.

Appraisal of a project

Project is an investment activity from which benefit is expected to be generated over a period of time. Appraisal of project implies the critical analysis of a project from various angles. It is a comprehensive study to see whether the project is commercially profitable, economically viable and socially desirable. An appraisal covers the feasibility study of the following aspects:

• Technical aspect
• Marketing aspect
• Financial aspect
• Managerial aspect
• Socio-economic aspect

a) Technical aspect

In this part, the factors those are more or less technical in nature are examined. Examination of the technical factors enables to know whether the project is technically feasible. The Points of observation in this area are:

• Location or site of the project
• Availability of infrastructural facilities such as: roads & transport, school, college etc.
• Availability of raw materials
• Availability of utilities such as: electricity, gas water etc.
• Availability of required machinery
• Climatic position in the project area
• Availability of required labor
• Nearness of market for the product
• Political factors such as Government Patronage, industrial policy of the Government
• Proximity to complementary projects

b) Marketing aspect

Marketing aspect is the most significant aspect. Whether a project will be able to generate profit depends largely upon the market position. The market demand for the product of the project is analyzed in this part of appraisal. The following assessments are made under marketing feasibility test:

• Past & present demand for the product
• Past & present supply of the product
• Expected future demand for the product
• Demand and supply gap

Existence and impact of complementary goods and the distribution channel or marketing mechanism is critically analyzed in this part of project appraisal.

c) Financial aspect

It is another significant part of appraisal. Financial viability of a project is examined in this part. Various financial tools & Techniques are used in testing the financial viability such as:

1. Capital Budgeting
2. Break Even Analysis
3. Sensitivity Analysis
4. Ratio Analysis

Capital Budgeting Technique

Capital budgeting is a process of planning and evaluating expenditures on assets whose cash flows are expected to extend beyond one year. The Capital budgeting tools used for evaluating an investment opportunity are:

Technical Approach (Time value of money not adjusted):

Average/Accounting Rate of Return (ARR):

ARR is arithmetic expression of expected return from the investment. The higher the rate, the more is the financial viability of the project.

Payback Period:

The period within which the volume of investment is expect to be returned from the project. The “period” should be less than the maximum acceptable payback period.

Discounted cash flow Approach (Time value of money adjusted):

Net Present Value (NPV)

It is the difference between present value (Time adjusted value) of expected inflow or benefit and that of outflow or investment.

Under this method expected future benefits are being converted into present value using reasonable rate of discount. In case of a single project, the project can be accepted present value of inflow is higher than the present value of outflow. But in case of a mutually exclusive decision, the project having higher NPV should be accepted.

Internal Rate of Return (IRR)

It is a rate at which the present value of inflow equates the present value of outflow. IRR tells the minimum required rate of return from an investment. Acceptable IRR is being determined by considering the opportunity cost, cost of capital, the prevailing maximum return in the economy etc. IRR is a trial and error method. Under trial & error process two discounting rate-one, at which NPV is negative and another one, at which NPV is positive are used in calculating IRR.

Profitability Index (PI)

PI is calculated by dividing present value of inflow with the present value of outflow. A project can be accepted if PI ≥ 1.

 Break Even Analysis

Break-Even Analysis is commonly known as the Cost-Volume-Profit (CVP) analysis. Break-even analysis shows the relationship between cost and revenue with respect to profit. By showing the break-even point, this analysis says the minimum level of output or sales that is required to equate the cost. Moreover, break-even analysis provides a clear idea about the required volume of sales to earn a target profit. Thus break-even analysis helps the decision criteria.

 Sensitivity Analysis:

Sensitivity analysis provides the picture of relative changes in overall profitability due to change in any variable. Usually changes (increase) in material and other variable cost or changes (decrease) in selling price are being taken into consideration for making sensitivity analysis.

Ratio Analysis:

Ratio analysis is the analysis and interpretation of data given in the financial statement such as: Balance Sheet, Income statement, Cash Flow statement, Changes in Equity statement etc. Ratio is the quantitative expression of relationship between two accounting figures. Ratio analysis gives a clear picture about the strength and weakness of a firm, its historical performance and current financial condition. The common ratios that are being used in the analysis are:

 Liquidity Ratio

• Current Ratio
• Acid Test etc.

Solvency Ratio:

• Debt-Equity Ratio
• Debt to Total Asset Ratio
• Debt Service Coverage Ratio etc.

Activity Ratio

• Inventory Turnover Ratio
• Debtors/Receivable Turnover Ratio
• Total Asset Turnover Ratio etc.

 Profitability Ratio

• Profit Margin
• Return on Investment
• Return on Equity etc.

d) Managerial aspect

This is another important aspect of the appraisal. Managerial feasibility refers to the assessment of ability of management personnel in managing a project efficiently.

The management personnel should have:

• Technical skill to use knowledge, method and Techniques (acquired from experience, education and training) to perform the job
• .Human skill to maintain interpersonal relationship within or outside the organization.
• Conceptual skill to understand the complexities in overall organization.

e) Socio-Economic aspect

The observation of this aspect is to see whether the project is socially desirable. How much contribution will be made by the project to the GDP and how many numbers of employment will be generated by the project should be ascertained.

Working capital assessment

The Capital, which is needed to meet current obligation and to finance against day-to-day operational expenditure of a firm, is working capital. Assessment of working capital bears great importance because, excess working capital incurs cost for the firm and in reverse, shortage of working capital may totally upset the smooth operation of the firm.

Practically, working capital becomes obvious for the following reasons:

• For purchase of raw materials, stores & spares
• For making advance payment to the raw material suppliers
• Blocking of fund in work-in-process and finished goods
• Blocking of fund with sundry debtors
• For meeting day to day cash expenditures

Basis of Working Capital Assessment

Required components of working capital are to be computed prudently, for example: for a manufacturing concern, working capital can be assessed by calculating the major components:

• Projected annual sales
• Yearly consumption of raw materials
• Annual labor charges
• Overhead costs
• Stock of raw materials
• Stock of work in process
• Stock of finished goods
• Credit allowed to customer in days
• Credit received from suppliers in days
• Annual selling & administrative expenses
• Annual depreciation
• Closing inventory

The days or tied up period for stock of raw materials (Local / Imported), stock of work in process, stock of finished goods, credit allowed to customers, credit received from suppliers should be considered very prudently.

Documentation of loans & advances

Immediate after sanctioning of loan, documentation is to be made properly before disbursement of loan. Documentation formalities are commonly known as completion of ‘Charge Documents’ in the banking world. Types of documents signed by the clients vary depending upon the nature of loans and advances given. Some common documents are listed below:

• Demand Promissory (DP) Note
• Letter Arrangement
• Letter of Agreement
• Letter of continuity (in case of continuous loan)
• Letter of pledge (in case of Pledge)
• Letter of Hypothecation (in case of Hypothecation
• )Letter of Undertaking
• Letter of Debit Authority
• Letter of Installment (in case of Term Loan / Short Term Loan to be paid in installment)
• Letter of Guarantee (Personal Guarantee)

 Security against Advances

The different types of securities that may be offered to a banker are as follows:

(a) Immovable property

(b) Movable property

1. Pratiraksha Sanchaya Patra, Bangladesh Sanchaya Patra, ICB unit certificate, wage earner development bond
2. Fixed Deposit Receipt
3. Shares quoted in the Dhaka Stock Exchange and Chittagong Stock Exchange
4. Pledge of goods
5. Hypothecation of goods, produce and machinery
6. Fixed assets of manufacturing unit
7. Shipping documents.

Credit approval system

Preparation of quality credit proposal helps to mitigate credit risk in aid of certain guidelines of Bangladesh Bank. ABBL follows the strategy of risk diversification through syndicated financing wherever applicable. A detailed analysis of the borrower and relevant industry is conducted through Credit Risk Grading model to mitigate risk factors. Credit Committee of the Bank works on a basic platform for credit evaluation and approval up to certain limit beyond which proposals are placed in the Board.

Approval Authority:

The authority to sanction/approve loans must be clearly delegated to senior credit executives by the Managing Director/CEO & Board based on the executive’s knowledge and experience. Approval authority should be delegated to individual executives and not to committees to ensure accountability in the approval process. The following guidelines should apply in the approval/sanctioning of loans:

• Credit approval authority must be delegated in writing from the MD/CEO & Board (as appropriate), acknowledged by recipients, and records of all delegation retained in CRM. Delegated approval authorities must be reviewed annually by MD/CEO/Board. The credit approval function should be separate from the marketing/relationship management (RM) function. The role of Credit Committee may be restricted to only review of proposals i.e. recommendations or review of bank’s loan portfolios.
• Approvals must be evidenced in writing, or by electronic signature. Approval records must be kept on file with the Credit Applications.
• All credit risks must be authorized by executives within the authority limit delegated to them by the MD/CEO. The “pooling” or combining of authority limits should not be permitted.
• MD/Head of Credit Risk Management must approve and monitor any cross border exposure risk. Any breaches of lending authority should be reported to MD/CEO, Head of Internal Control, and Head of CRM. It is essential that executives charged with approving loans have the relevant training and experience to carry out their responsibilities effectively. As a minimum, approving executives should have:
• At least 5 years experience working in corporate/commercial banking as a relationship manager or account executive.
• Training and experience in financial statement, cash flow and risk analysis.
• A thorough working knowledge of Accounting.
• A good understanding of the local industry/market dynamics.

Approval Process

The approval process must reinforce the segregation of Relationship Management/ Marketing from the approving authority. The responsibility for preparing the Credit Application should rest with the RM within the corporate/commercial banking department. Credit Applications should be recommended for approval by the RM team and forwarded to the approval team within CRM and approved by individual executives. Banks may wish to establish various thresholds, above which, the recommendation of the Head of Corporate/Commercial Banking is required prior to onward recommendation to CRM for approval.

In addition, banks may wish to establish regional credit centers within the approval team to handle routine approvals. Executives in head office CRM should approve all large loans. The recommending or approving executives should take responsibility for and be held accountable for their recommendations or approval. Delegation of approval limits should be such that all proposals where the facilities are up to 15% of the bank’s capital should be approved at the CRM level, facilities up to 25% of capital should be approved by CEO/MD, with proposals in excess of 25% of capital to be approved by the EC/Board only after recommendation of CRM, Corporate Banking and MD/CEO.

Key Responsibilities

The key responsibilities of the above functions are as follows.

Credit Risk Management (CRM)

• Oversight of the bank’s credit policies, procedures and controls relating to all credit risks arising from corporate/commercial/institutional banking, personal banking, & treasury operations.
• Oversight of the bank’s asset quality. Directly manage all Substandard, Doubtful & Bad and Loss accounts to maximize recovery and ensure that appropriate and timely loan loss provisions have been made.
• To approve (or decline), within delegated authority, Credit Applications recommended by RM. Where aggregate borrower exposure is in excess of approval limits, to provide recommendation to MD/CEO for approval.
• To provide advice/assistance regarding all credit matters to line management/ RM.
• To ensure that lending executives have adequate experience and/or training in order to carry out job duties effectively.

Credit Administration:

• To ensure that all security documentation complies with the terms of approval and is enforceable.
• To monitor insurance coverage to ensure appropriate coverage is in place over assets pledged as collateral, and is properly assigned to the bank.
• To control loan disbursements only after all terms and conditions of approval have been met, and all security documentation is in place.
• To maintain control over all security documentation
• To monitor borrower’s compliance with covenants and agreed terms and conditions.

Relationship Management/Marketing (RM)

• To act as the primary bank contact with borrowers.
• To maintain thorough knowledge of borrower’s business and industry through regular contact, factory/warehouse inspections, etc. RMs should proactively monitor the financial performance and account conduct of borrowers.
• To be responsible for the timely and accurate submission of Credit Applications for new proposals and annual reviews, taking into account the credit assessment requirements .
• To highlight any deterioration in borrower’s financial standing and amend the borrower’s Risk Grade in a timely manner. Changes in Risk Grades should be advised to and approved by CRM.
• To seek assistance/advice at the earliest from CRM regarding the structuring of facilities, potential deterioration in accounts or for any credit related issues.

Internal Audit/Control

• Conducts independent inspections annually to ensure compliance with Lending Guidelines, operating procedures, bank policies and Bangladesh Bank directives.
• Reports directly to MD/CEO or Audit committee of the Board.

Credit sanction system

There is no hard and fast procedure of managing credit, yet is should follow the instructions of the Bangladesh Bank, Central Bank of Bangladesh and the Circular of Head Office from time to time. The first stengp of credit proceedings is the request for credit from the clients. Then scrutinizing and collection of information from primary and secondary sources take place. Credit appraisal and evaluation is the most important part of credit management. On the basis of evaluation approval is given by the higher-authority with certain conditions to be fulfilled. Sanction of credit is done by the sanctioning authority. After fulfilling the conditions, the credit is disbursed .Credit monitoring and reviewing start at the time of disbursement. Necessary steps are taken to minimize the risks and increase the return of the Bank. Four-tire level is maintained in case of large amount of credit sanctioning. Credit Risk Grading (CRG) is also prepared in case of credit above Tk.1.00 crore.

Supervision, Monitoring & Recovery of credit

To minimize the credit losses and effective monitoring, credit monitoring is done to detect early indication of the deteriorating financial health of a borrower. In the post sanction stage, constant monitoring is the key element in Risk Management and timely identification of accounts that have risks, monitoring, supervision, or close attention by management called Early Alert Accounts and minimize, external or regulator inspections.  Because of efficient credit risk management of ABBL, percentage of bad loan to total loans and advance reduced year by year; cash recovery, recovery from write-off loans increases.

Recovery of loan ensures the recycling of fund. Non-recycling of fund leads a bank or financial institution to become stagnant. So, recovery of loans and advances is a must. But the scenario of loan recovery is undoubtedly poor and inefficient in our financial system. Willful non-repayment of loan has become a culture in our country. This is mainly because of inadequate, inefficient and even absence of supervision & monitoring system.

Recovery can be ensured or at least making close supervision and monitoring can increase rate of recovery. Supervision should be started from the starting point of a credit proposal. Supervision can be done in two stages:

 Pre Finance Stage Supervision

In this stage, supervision should be made –

• To select the right borrower i.e., credit worthiness of the borrower should be considered first
• To be sure about the business prospect
• To see whether any misstatement made by the borrower etc.

Post Finance Stage Supervision

Post finance stage supervision is sometimes synonymous to the monitoring. Monitoring is a continuous process of overseeing the borrower, his business, his trend in repaying the loan. In this stage, supervision and monitoring should be made-

• To see whether the borrower draws the sanctioned credit regularly
• To see whether the loans are being properly & fully utilized
• To see whether the borrower repays the loan regularly
• To see whether the any significant change happens in the management of the borrower
• To see whether the borrower maintains close contact with bank regularly
• To see whether the any significant change happens in the borrower’s business plan

Supervision monitoring helps to develop a cooperative attitude between the borrower and the Bank. Moreover, close supervision & monitoring make the borrower loyal to the Bank and thus, supervision & monitoring ensure the recovery of loan.

 Early Alert process

An Early Alert Account is one that has risks or potential weaknesses of a material nature requiring monitoring, supervision, or close attention by management. If these weaknesses are left uncorrected, they may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date with a likely prospect of being downgraded to CG 5 or worse (Impaired status), within the next twelve months.

Early identification, prompt reporting and proactive management of Early Alert Accounts are prime credit responsibilities of all Relationship Managers and must be undertaken on a continuous basis. An Early Alert report should be completed by the RM and sent to the approving authority in CRM for any account that is showing signs of deterioration within seven days from the identification of weaknesses. The Risk Grade should be updated as soon as possible and no delay should be taken in referring problem accounts to the CRM department for assistance in recovery.

Despite a prudent credit approval process, loans may still become troubled. Therefore, it is essential that early identification and prompt reporting of deteriorating credit signs be done to ensure swift action to protect the Bank’s interest. The symptoms of early alert are by no means exhaustive and hence, if there  are other concerns, such as a breach of loan covenants or adverse market rumors that warrant additional caution, an Early Alert report should be raised.

Moreover, regular contact with customers will enhance the likelihood of developing strategies mutually acceptable to both the customer and the Bank. Representation from the Bank in such discussions should include the local legal adviser when appropriate.

An account may be reclassified as a Regular Account from Early Alert Account status when the symptom, or symptoms, causing the Early Alert classification have been regularized or no longer exist. The concurrence of the CRM approval authority is required for conversion from Early Alert Account status to Regular Account status.

Credit Recovery

The Recovery Unit (RU) of CRM should directly manage accounts with sustained deterioration (a Risk Rating of Sub Standard (6) or worse). Banks may wish to transfer EXIT accounts graded 4-5 to the RU for efficient exit based on recommendation of CRM and Corporate Banking. Whenever an account is handed over from Relationship Management to RU, a Handover /Downgrade Checklist should be completed.

The RU’s primary functions are Determine Account Action Plan/Recovery Strategy Pursue all options to maximize recovery, including placing customers into receivership or liquidation as appropriate. Ensure adequate and timely loan loss provisions are made based on actual and expected losses. Regular review of grade 6 or worse accounts the management of problem loans (NPLs) must be a dynamic process, and the associated strategy together with the adequacy of provisions must be regularly reviewed. A process should be established to share the lessons learned from the experience of credit losses in order to update the lending guidelines

 NPL Account Management

All NPLs should be assigned to an Account Manager within the RU, who is responsible for coordinating and administering the action plan/recovery of the account, and should serve as the primary customer contact after the account is downgraded to substandard. Whilst some assistance from Corporate Banking/Relationship Management may be sought, it is essential that the autonomy of the RU be maintained to ensure appropriate recovery strategies are implemented.

Account Transfer Procedures

Within 7 days of an account being downgraded to substandard (grade 6), a Request for Action (RFA) and a handover /downgrade checklist should be completed by the RM and forwarded to RU for acknowledgment. The account should be assigned to an account manager within the RU, who should review all documentation, meet the customer, and prepare a Classified Loan Review Report (CLR) within 15 days of the transfer. The CLR should be approved by the Head of Credit, and copied to the Head of Corporate Banking and to the Branch/office where the loan was originally sanctioned. This initial CLR should highlight any documentation issues, loan structuring weaknesses, proposed workout strategy, and should seek approval for any loan loss provisions that are necessary.

Recovery Units should ensure that the following is carried out when an account is classified as Sub Standard or worse:

Facilities are withdrawn or repayment is demanded as appropriate. Any drawings or advances should be restricted, and only approved after careful scrutiny and approval from appropriate executives within CRM.CIB reporting is updated according to Bangladesh Bank guidelines and the borrower’s Risk Grade is changed as appropriate. Loan loss provisions are taken based on Force Sale Value (FSV). Loans are only rescheduled in conjunction with the Large Loan Rescheduling guidelines of Bangladesh Bank. Any rescheduling should be based on projected future cash flows, and should be strictly monitored.

Prompt legal action is taken if the borrower is uncooperative.

Non- Performing Loan (NPL) Monitoring

On a quarterly basis, a Classified Loan Review (CLR) should be prepared by the RU Account Manager to update the status of the action/recovery plan, review and assess the adequacy of provisions, and modify the bank’s strategy as appropriate. The Head of Credit should approve the CLR for NPLs up to 15% of the bank’s capital, with MD/CEO approval needed for NPLs in excess of 15%. The CLR’s for NPLs above 25% of capital should be approved by the MD/CEO, with a copy received by the Board.

NPL provisioning and Write Off

The guidelines established by Bangladesh Bank for CIB reporting, provisioning and write off of bad and doubtful debts, and suspension of interest should be followed in all cases. These requirements are the minimum, and Banks are encouraged to adopt more stringent provisioning/write off policies. Regardless of the length of time a loan is past due, provisions should be raised against the actual and expected losses at the time they are estimated. The approval to take provisions, write offs, or release of provisions/upgrade of an account should be restricted to the Head of Credit or MD/CEO based on recommendation from the Recovery Unit. The Request for Action (RFA) or CLR reporting format should be used to recommend provisions, write-offs or release/upgrades.

Incentive program:

Banks may wish to introduce incentive programs to encourage Recovery Unit Account Managers to bring down the Non Performing Loans (NPLs). The table below shows an indicative incentive plan for RU account managers:

Table-: Incentive Program of AB Bank Ltd

Financial Analysis:

Financial analysis is one of the key indicators of banking sector performance. It indicate whether the bank perform well or not. Total asset, loan and advance, deposit, total shareholder’s equity, earning per share, profit after tax, return on asset, return on equity, and growth rate of asset, loan and advance, deposit, shareholder’s equity, profit after tax etc are the important element of financial analysis. My topics are financial analysis of ABBL in this chapter, but for better understanding I compare the operating performance of AB Bank with NBL. In this chapter I represent some graphical presentation of ABBL as well NBL.

 Profit after tax

Total profit after tax of AB Bank is consistently increases. In 2009 AB bank’s profit after tax increases by 43.44% and the amount was 3300.01 million taka. It increases 20.86% total amount of 2300.62 million taka in 2008. Profit after was in the year 2007, 2006 and 2005 was 1,903.49, 532.19, 162.45 and the growth rate was 257.67, 227.60, 80.67 respectively.

Table-: Profit after tax of ABBL& NBL

On the other hand profit after of NBL was 2070.47, 1517.43, 1238.11, 507.49 and 271.67 million taka in the year of 2009, 2008, 2007, 2006, and 2005 respectively.

Table- 6.2: Growth rate of ABBL

Above data and figure indicate that the total profit after tax of NBL was greater than the ABBL profit at the beginning year of the analysis, but in the letter year ABBL operating performance become better than the NBL performance.

 Deposit

Deposits are recognized when the Bank enters into contractual provisions of the arrangements with the counterparties, which is generally on trade date and initially measured at the consideration received.

During 2009, ABBL achieved growth of deposits by 21.20% compared to 53.78% in 2006. In such competitive market, maintaining high growth in deposit is very difficult. However, the Bank maintains double digit growth in deposits from 2006. Because of introducing some competitive, Attractive deposit products and all-out activities of the Bank; deposits growth flourished from 2006. The Bank’s major portion of deposits is the term deposits which are higher at cost, and such proportion is continuing increasing trend for last few years.

Table-: Deposit growth rate of ABBL

In 2009 total amount of deposit of AB Bank was 83,087.22 million taka compare to 27,361.44 million taka in 2005 and total amount of deposit of NBL was 76838.64 million taka in 2009 that was 32984.05 million taka in 2005.

Loan & Advance

Analysis of the credit portfolio of AB Bank at the end of year 2009 shows that overdraft had the largest share of the total portfolio followed by loans (general, term loan, demand loan, project loan etc), and loan against trust receipt. In terms of growth, electronic banking is one of the major features of today’s banking and AB Bank credit card shows highest growth during this period amounting BDT 44.2 million. The govt. emphasizes to provide agriculture credit through commercial banks. During 2009 loan and advance amount of ABBL was 70,879.93 million taka it was 21,384.63 million taka in 2005, and the loan and advance amount of NBL was 65,129.29 million taka in 2009 compare to 27020.21 million taka in 2005.

Loan and advance growth of ABBL was 24.99% in 2009 that was 38.6%, 30.76%, 46.32 and 25.73% in the year 2008, 2007, 2006 and 2005 respectively.

Table-: Loan& advance growth rate of ABBL

Total asset

As the net profit of ABBL is increases the total asset of the bank also increases. The amount of total asset of ABBL was 106,912.31 million taka in 2009 that was 33,065.40 in the year of 2005. Total asset of NBL was 38400.37 million taka in 2005 that was increases to 92084.79 million taka in 2009.

Growth in Loans and advances increased the asset base of the Bank. Total asset base of AB Bank increased in 2009 at a rate of 27.20% over that of 2008 compared to 32.26% growth in 2008. Each class of asset shows positive contribution in year 2009. Fixed assets shows highest growth because of new land and building amounting BDT 1,009.86 added with existing assets.

Table-: total asset growth rate of ABBL

Shareholder’s equity

During the year 2009 shareholder’s equity of ABBL was 106,912.31 million taka over that of 2008 compare to 84,053.61 million taka in the year of 2008. Total shareholder’s equity of AB Bank was 63,549.86, 47,989.34 and 47,989.34 million taka in the year 2007, 2006 and 2005 respectively.

On the other hand shareholder’s equity of NBL was 92084.79, 72205.50, 56526.96, 46796.04 and 38400.37 in the year of 2009, 2008, 2007, 2006 and 2005 respectively. This data suggest that ABBL achieve shareholder’s trust by their performance.

Shareholder’s equity growth rate of ABBL is consistently increases. In the year 2009 the growth rate was 50.04% that was 49%, 74.68%, 69.15% and 22.78% in the year 2008, 2007, 2006 and 2005 respectively.

Table- :   Shareholder’s equity growth rate of ABBL

Earnings per share

Basic earnings per share have been calculated in accordance with BAS- 33 “Earning per Share” which has been shown in the face of the Profit and Loss Account. This has been calculated by dividing the basic earnings by the total ordinary outstanding share.

Price of a share mainly depends on some good news about the particular organization. Future expansion of business, effective management team, higher profit earnings ratio, return on asset, efficiency ratio etc. At the beginning of the analysis earning per share of NBL was higher than the AB Bank share. But in the letter year performance of ABBL become efficient and so the earning per share.

In the year 2005 earnings per share of ABBL was 31.26 taka and EPS of NBL was 43.85 taka that was lower than NBL EPS. But from 2006 to 2009 EPS of ABBL become higher than the NBL EPS.

Table-:  Earnings per share of ABBL& NBL 

Return on asset

Return on asset means how much profit is gain after using the total asset of the organization. This has been calculated by dividing the basic earnings by total asset. Return on asset of ABBL in the year of 2009 was 3.09 times this ratio was 2.74, 3, 1.11 and .5 times during the year of 2008, 2007, 2006 and 2005 respectively. In case of NBL this ratio was 2.25, 2.10, 2.19, 1.08 and .71 time from the year of 2009 to 2005.

Table-: Return on Asset of ABBL& NBL

Return on equity

Return on equity indicates return to equity ratio. It means how much profit gain by the organization after using the total equity. ROE has been calculated by dividing the profit after tax by total equity.

Return on equity of AB Bank was 32.72, 343.22, 42.19, 20.61 and 10.64 during the year from 2009 to 2005 respectively. On the other hand ROE of NBL was 23.22, 24.77, 27.10, 21.37 and 9.93 in the year of 2009 to 2005. Above all other position, ROE of ABBL is greater than the NBL. All of the above data indicate that the CRM of AB Bank is more efficient than NBL. CRM carefully observe the creditor, regularly monitoring supervising the creditor before and after grants the credit.  AS a result performance of ABBL increases day by day.

Table-: Return on equity of ABBL& NBL

Strategic group of competition

After the operation of ABBL in Bangladesh its performance become better and better. Growth rate of AB Bank is consistently high. Market share increases, profitability, efficiency of the management team, earning per share, risk absorb ability is very high. AB Bank has better knowledge how to drill with customer and how to operate different segment within the country. In case of successfully running its business and compete with competitor AB Bank takes different types of strategic plan. As a result AB Bank operates its business so long time and enjoys the leading position in the banking sector of Bangladesh.

SWOT analysis of AB Bank

Strengths

• The Bank has been rated by CRAB Single (AA3) in terms of long term lending. The Banks asset portfolio consists of above 60% in long term lending.

• The Bank’s Loan disbursement rate is growing largely, suggesting its high growth in lending to deposit ratio (currently 79.4%).
• The bank’s returns on assets and equity are also consistently rising. Its return on average assets registered significant growth of 2.74 % in 2008 and 3.1% in 2009, while its return on average equity also grew to 32.72% in 2008.Its Efficiency ratios are improving, with lower cost per unit operating income.

Weaknesses

• Net Interest Margin on the decline.
• Dilution in EPS in a recent 200%B share issue in 2007
• No cash dividend for shareholders in five years.

Opportunities

• The bank should focus on expanding its loan syndication and project financing business bigger projects.
• Improving capital market conditions and developing equity culture should help the bank
• Improve its fee based revenue by further developing its existing investment management and advisory business.

Threats

• There is intense competition in the local market, not only from the local banks but also from the foreign banks.
• The high growth period for PCBs is sure to decline in the near future, so the bank should be aware of it

Findings

AB Bank Limited provides loans and advances to the borrower through their different branches in all over the country. Though every branch is not best in all respective area of the program but in a particular area a bank can be best. The major point that I have identified in credit policy in procedure of giving loan & advances of AB Bank Limited is given below:

• There are many competitions in the banking sector of our country considering our economic condition. The loan provided by the banks is almost same in case of interest rate.
• Lending is one of the main functions of a bank. But lending is a risky procedure, in order to make it less risky AB Bank have different variations such as credit grading and risk grading system.
• Practical procedure is different from the policy that is prescribed by head office.
• Sometimes situation is a big factor at the time of giving loan. Such as-if there is an occurrence in the branch then head office will restricted the amount of giving loan. At that time Branch will not sanction more loans.
• The full process of loan sanction is done by the branch official, but the final decision is taken by the head office.
• The procedure of giving credit is very complex. That sometimes discourages client from taking loan.
• ABBL’s loans and advances are dominated by financing on short-term credit programmers mainly to the trade commerce & processing units rather in any manufacturing unit.

Recommendation

It is quite difficult to give suggestion to improve the banking conditions of ABBL. AB Bank Limited has been able to manage its credit portfolio skillfully and kept the classified loan at a very lower rate thanks go to the standard and stringent credit appraisal policy and practices of the bank. But all things around us are changing at an accelerating rate. Today is not like yesterday and tomorrow will be different from today. As we know that nothing is perfect, there is always a room for improvement, so I have found during my Thesis Report Prepare can be made up taking into account the following suggestion:                

• AB Bank should have a clear written lending guideline. The lending guideline should include Industry and Business Segment Focus, Types of loan facilities, Single Borrower and group limit, Lending caps, Discouraged Business Types, Loan Facility Parameters and Cross boarder Risk.
• It should adopt a credit grading system all facilities should be assigned a risk grade. And the borrowers risk grades should be clearly stated on credit application.
• Approval authority should be delegated to individual executives rather than Executive Committee/ Board to ensure accountability. This system will not only ensure accountability of individual executives but also expedite the approval process.
• The segregation of duties will improve the knowledge levels and expertise in each department.
• The organization structure should have to be changed to put in place the segregation of the Marketing, Relationship Management function from Approval, Risk Management Administration function.
• The responsibilities of the key persons of the above function must also be clearly specified.
• An Early Alert Account system should be introduced to have adequate monitoring, supervision or close attention by management. There should be a Recovery Unit to manage directly accounts with sustained deterioration. To encourage Recovery Unit incentive program may also introduced.
• AB Bank should increase the amount of loan and advance in micro credit sector as the loan recovery rate from micro credit sector is much higher. Improve the Credit risk management department for avoid possible defaulter.
• AB Bank should examine its borrower’s Cash flow Statement, Audited Balance Sheet, and Income Statement and other financial statement to make sure that its borrower has the ability to repay the loan.

Conclusion

The banking sector of Bangladesh is passing through a tremendous reform under the economic deregulation and opening up the economy. Currently this sector is becoming extremely competitive with the arrival of multinational banks as well as emerging and technological infrastructure, effective credit management, higher performance level utmost customer satisfaction and the transactions of foreign exchange.  As we all know in the business world things move on the will of impression. A banker cannot sleep well with bad debts in his portfolio. The failure of commercial banks occurs mainly due to bad loans, which occurs due to inefficient management of the loans and advances portfolio. Therefore any banks must be extremely cautious about its lending portfolio and credit policy

It has been observed that ABBL started its banking services with a view to minimize the customer’s needs by offering different products and services which are easy and affordable for all level of customers. To that extent, ABBL 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 ABBL as their social responsibility.

In spite of all limitations AB Bank still doing better and holding a good percentage of market shares in banking sector, only because of its best impression, performance and trust of its clients. Proper utilization of use of the loans is very much essential to meet up the requirements of the borrower wants. The loan applied for by the borrower must not be employed for unproductive purpose. So, a purpose-oriented loan must be followed up regularly by the Bank So that the borrower properly uses the fund. AB Bank Ltd airways trying to improve their credit policy for minimizing loss and maximizing profit and various measures are undertaken to develop the credit management system. Recently AB Bank Ltd is going to adopt pure automation system in credit division for proper handling of disbursement and better monitoring reviewing of regular and irregular loan. In addition they are exploring new ideas, implementing new technology to serve the better service to clients.