Credit Risk Management of NCC Bank Limited

The main objectives of this report is to present the Credit Risk management and practices at National Credit and Commerce bank Limited. Other objectives are to exhibit the Credit Risk management laws imposed by Bangladesh Bank. Here also analyze the extent of compliance with the Credit Risk management laws of Bangladesh Bank by NCC bank ltd. Finally highlight the impact of the credit performance of the bank and the problems associated with the compliance of Credit Risk management and give suggestions for improving its credit performance.

Objectives of the study:

The Overall objectives of the study is to present the Credit Risk management and practices at National Credit and Commerce bank Ltd.

The main objectives of this study are as follows:

• To know about the overall banking practice of NCC Bank Ltd (Narayangonj branch).
• To exhibit the Credit Risk management laws imposed by Bangladesh Bank.
• To analyze the extent of compliance with the Credit Risk management laws of Bangladesh Bank by NCC bank ltd.
• To highlight the impact of the credit performance of the bank and the problems associated with the compliance of Credit Risk management .
• To give suggestions for improving its credit performance.

METHODOLOGY OF THE REPORT:

The information incorporated in this report has been gathered from primary and secondary sources. Apart from this, a review of related circular and office circular as well as face-to face interview of the executives, officials and clients were carried out.

Primary sources-

• Face-to-face conversation with the respective officers and staff of the Branch.
• Informal conversation with the clients.
• Practical work exposures from the different desks of the department of the branch.
• Relevant file and documents study as provided by the concerned officers.

Secondary sources-

• Unpublished data received from the branch.
• Annual Report.
• Banks record.
• Different paper of the bank.
• Various books, periodical seminar papers, training papers, manuals, Web site, etc. related to the topic.

INTRODUCTION:

NCC Bank Limited is the leading private sector bank in Bangladesh offering full range of Personal, Corporate, International Trade, Foreign Exchange, Lease Finance and Capital Market Services. NCC Bank Limited is the preferred choice in banking for friendly and personalized services, cutting edge technology, tailored solutions for business needs, global reach in trade and highly yields on investment, assuring excellence in banking services.

Back ground of NCC Bank Limited:

National Credit and Commerce Bank Ltd. bears a unique history of its own. The organization started its journey in the financial sector of the country as an investment company back in 1985.

The aim of the company was to mobilize resources from within and invest them in such way so as to develop country’s Industrial and Trade Sector and playing a catalyst role in the formation of capital market as well. Its membership with the browse helped the company to a great extent in this regard. The company operated up to1992 with 16 branches and thereafter with the permission of the Central Bank converted in to a fully fledged private commercial Bank in 1993 with paid up capital of Tk. 39.00 corer to serve the nation from a broader platform. Since its inception NCC Bank Ltd. has acquired commendable reputation by providing sincere personalized service to its customers in a technology based environment. The Bank has set up a new standard in financing in the Industrial, Trade and Foreign exchange business. Its various deposit & credit products have also attracted the clients- both corporate and individuals who feel comfort in doing business with the Bank. Within this short time the bank has been successful in positioning itself as progressive and dynamic financial institution in the country. This is now widely acclaimed by the business community, from small entrepreneur to big merchant and conglomerates, including top rated corporate and foreign investors, for modern and innovative ideas and financial services.

Vision

The vision of the bank is to become the bank of choice in the communities they serve the bank accomplishes this by offering to their customers the financial services which are expected by their customers while providing a return to their owners. In accomplishing this mission, the bank has now been free from all the natures of a problem bank though full filling all the conditions set by the central bank. They proudly say’s NCCBL is profit making and problem free.

Misson

NCC Bank shall be at the forefront of national economic development by: –

i) Anticipating business solution required by all NCC Bank’s customers everywhere and innovatively supplying them beyond the expectation.

ii) Setting industry benchmark of world class standard in delivering customer value through the comprehensive product range, customer service and all the activities.

iii) Building an exciting team based working environment that will attract, develop and retain employees of exceptional ability who help celebrate the success of bank’s  business, of bank’s customers and of national development.

iv) Maintaining the highest ethical standards and a community responsibility worthy of a leading corporate citizen

v) Continuously improving productivity and profitability and thereby enhancing share holder value.

Slogan

Where Credit & Commerce Integrates

Motto

The Bank will be a confluence of the following three interests:

• Of the Bank: Profit Maximization and Sustained Growth.
• Of the Customer: Maximum Benefit and Satisfaction.
• Of the Society: Maximization of Welfare.

Activities of NCCBL

The world economy is going through various crises arising from insurgent activities at various parts of the globe. The turbulence also affected Bangladesh Economy adversely as well. Taka has been devalued. The political unrest caused devastation to the industrial and service sectors.

The business communities as a whole apprehend ding imminent doom, tried to negotiate for a compromise among the various concerned parties. The bank earned a modestly satisfactory result during the year 2008, which contributed in continuing its steady growth in respect of all major indicators, namely Deposit, Advance, Profit, etc. During the year NCCBL has concentrated its focus to a number of income increasing sectors such as SME Financing, Inward Foreign Remittance, etc. Also it has put efforts to bring discipline in administering Bank’s Asset through various measures. As a whole, the outcome of these efforts was very positive and encouraging indeed. Prudent handling of Asset-Liability is of utmost importance for keeping up profitability at a satisfactory level of any financial institution. During last few years, with the timely measures taken by the Management under guidance of the Board, it was possible to sustain steady growth through maintaining asset quality.

The Bank has separate Credit Administration Department, Recovery Department and also a task Force for continuous monitoring of difficult loans and advances of the Bank and to propose ways of recovery of Bank’s dues. This process will continue in upcoming years also. Further, the Bank will pay attention to manage liability also so as to build up a strong deposit base to satisfy investment need of the market.

NCCBL plans to continue this project even after expiry of the RPCF, if proved feasible. The Bank has put due emphasis on grooming up its workforce in a technology based working atmosphere for some time. Also to cater the needs of the customers, very recently NCCBL started full-fledged real time On Line Banking System with implementation of Flora Banking UBS Software and introduced Debit Card in the brand name of “MPower Card” The bank also introduced a foreign remittance payment card in the brand name of  “MBridge Card” Bank’s Information Technology Division is always engaged in designing need based software and other programmers to ease the situation for the employees so as to enable them to work more dedicatedly to satisfy the customers. Of late financing in SMEs has been proven to be very beneficial for banking sector. Banks have paid special focus to this sector to expand scopes of extending credit facilities to enhance sustainable profit. SME has been found to be a very potential avenue of financing, since it is believed that small and medium entrepreneurs are very hard working and sincere in paying back Bank’s money. Banks are optimistic that investing in this sector would not entail huge volume of default loan like conventional or cooperate financing.

GENERAL BANKING OF NCC BANK LIMITED

Deposit

Deposit of the bank at the end of the year 2010 was TK. 67,961.24 million, which was more than deposit of 2009. From 2006 to 2010 bank deposits has been increased than that previous year. This is happen because increasing confidence of customer to NCCBL inspires people to make more and more deposited to NCCBL.

Products and services of Ncc bank ltd

Products:

Services:

Deposit section

In fact, a bank operates with the people’s money. The banking activity of a person starts with the opening of an account. NCCBL generally gives facility to open the following accounts:

1. Current Deposit (CD)
2. Savings Deposit (SB)
3. Fixed Deposit (FDR)
4. Short Term Deposit (STD)
5. Special Savings Scheme (SSS)
6. Special Fixed Deposit Scheme(SFDS)

Current Deposit Account

NCCBL opens current accounts for its clients to facilitate their day-to-day operations. The amount deposited in the current account can be withdrawn at any time. No interest is given on the current account. In certain cases, however, interest is available at an agreed rate where withdrawals are subject to a written notice for a specified period. The minimum balance requirement for this account is TK.5000/- and TK.250/- is deducted from the account in case of closing the current account.

Savings Account

The bank provides savings account services for the ease of its clients. It offers both personal and corporate Savings account to its clients in every branch. The current rate on the deposit amount is 6% and the minimum balance requirement is TK.1000/-. The bank requires no other service charge for this account.

Fixed Deposit                                                                                                                                                                             

Fixed Deposit is very much important for its contribution to the bank’s deposit creation process, because the highest amount of Bank fund from it’s direct customers comes in the form of Fixed Deposit. For increasing the deposit base every commercial bank offers its customers various rates according to the amount of deposit. In case of fixed deposit, clients consider two (2) things- one is interest rate and another is certainty of their money. That means financial strength and stability of the concern bank. NCCBL’s interest rate is not equal or higher than their competitors, but their fixed deposit curve is moving upwards. It is a great achievement for NCCBL.

NCCBL also offers its valuable customers some significant rates for different amounts. Those are:

 Short Term Deposit (STD)

According to characteristics, short-term deposit is similar to current deposit except interest. Though it is C/D account but bearing some interest. Currently this interest rate is 4.00%.

Special Savings Scheme (SSS)

Two types of Account can be opened under this scheme. One for a term of 5 years and another for a term of 10 years. Rules for both the accounts shall be the same. Minimum Monthly installments of deposit will be TK.500/- and its multiple up to TK.25000/= only as mentioned below to be deposited every month during the entire period of the scheme as fixed at the time of opening of the account. Currently this interest rate is 13.00%. Account may be opened for any installment but later on the same is not changeable. The depositor(s) will be paid a fixed amount after expiry of the term as follows:

Special Fixed Deposit Scheme (SFDS)

Minimum Tk.50,000 or multiple amount is acceptable under this scheme. The duration of the Scheme shall be 3 years after which depositors can take back the principal amount; if not renewed. Monthly interest will be given to the depositors against the deposited amount according to the following schedule. But after deducted 10% income tax the amount will be reduced.

 Rules and Regulations for Opening an Account

1. Savings Bank/ Current Deposit/ Fixed Deposit/ Special Deposit/ Premium Term Deposit/ Instant Earning Term Deposit/ Special Savings Scheme/ Money Double Deposit/ NFCD/ RFCD/ FC Account may be opened in the name of adult individual or jointly who is/are mentally sound.
2. Savings Bank Account may be opened in the name of Club, Association, Society and similar institutions.
3. Savings Bank Account may be opened in the name illiterate persons and minor person after observing/completion of necessary formalities.
4. Current Deposit/ Fixed Deposit Account may be opened in the name of Firm, Corporate Bodies, Joint Stock Companies.
5. Short Term Deposit Account may be opened in the name of Corporate Bodies, Joint Stock Companies.
6. A suitable introduction acceptable to the bank is required for opening bank account except Fixed Deposit Account.
7. Initial Deposit for opening Savings Bank is Tk. 1,000.00, for Current Deposit A/C and for Short Term deposit A/C is Tk. 5000.00
8. Incidental charges to be realized twice in a year June & December @ Tk. 200.00 from Savings A/C and Tk. 500 from CD, STD, & all Loans A/Cs.
9. Withdrawals from Savings, Current and STD account can be made only by cheques supplied bu the bank duly signed with the specimine signature of the A/C holder(s) recorded with the bank.
10. Statement of accounts will be supplied to the Account holder(s) every month free of cost. Statement can be supplied on request against payment of Tk. 20.00 for each month’s statement.
11. If a depositor likes to close his/her/their A/C, service charge for Savings A/C Tk. 100.00 and for CD & STD A/C Tk. 500.00 will be deducted from the A/C.
12. The Bank reserve the right to alter or add to or cancel any of the forgoing rules at any time.

Necessary Documents for Opening an Account

Individual/Joint Account:

For any individual/joint account the following papers/documents are required:

1. Two copies of photograph of the account holder(s) who will operate A/C.
2. One copy of photograph of the Nominee(s)
3. Introducer-attested by current/savings account holder.
4. Photocopy of National ID Card/Passport/Driving Licence/TIN Certificate/Birth Certificate both A/C holder(s) and Nominee(s) duly attasted by a authorized officer.

Minor’s Account:

Following documents have to be obtained in case of the account of minor:

1. Putting the word “MINOR” after the title of the account.
2. Recording of the special instruction of operation of the account.
3. The AOF (Account Opening Form) is to be filled in and signed by either the parents or the legal guardian appointed by the court of law and not by the minor.

Proprietorship Firm:

The following documents have to be submitted for preparing an account of a Proprietorship firm:

1. Name of the firm.
2. Name of the Proprietor.
3. Copy of Trade license.
4. Seal of Proprietorship firm.
5. Proprietor’s National Voter Identification Card’s Photocopy.

Partnership Firm:

The following documents have to be submitted for preparing an account of a partnership firm:

1. Partnership deed.
   • If the partnership firm is registered, one copy of registration forms.
   • If not, then a copy of certificate from the notary public.
2. Certified copy of valid trade license.
3. Trade seal.
4. Partnership account agreement (Draft enclosed)

Limited Company:

For the opening of an account of a limited company, following documents have to be submitted:

1. Extract of Resolution of the Board / General Meeting of the company for opening the account and authorization for its operation duly certified by the Chairman / Managing director of the company.
2. Certified true copy of the Memorandum & Articles of Association of the Company.
3. Certificate of Incorporation of the company for inspection and return along with a duly certified Photocopy for Bank’s records.
4. Certificate from the Register of Joint Stock Companies that the company is entitled to commence business (in case of Public Ltd. Co. for inspection and return) along with a duly certified Photocopy for Bank’s records.
5. Latest copy of balance sheet.
6. List of Directors with address (a latest certified copy of Form-Xll).

Club / Society:

Following documents have to be obtained in case of the account of the club or society:

1. Up to date list of office bearers.
2. Certified copy of Resolution for opening and operation of account.
3. Certified copy of Byelaw and Regulations / Constitution.
4. Copy of Government Approval (if registered).

Non-Govt. College / School / Madrasha / Muktab:

1. Up to date list of Governing Body / Managing Committee.
2. Copy of Resolution of the Governing Body/Managing Committee authorizing opening and operation of the account duly certified by Gazetted Officer.

Trustee Board: Following documents have to be obtained in case of the account of trustee board:

1. Prior approval of the Head Office of PBL.
2. Certified copy of Deed of Trust, up to date list of members of the Trustee.
3. Board and certified copy of the Resolution of Trustee Board to open and operate the account.            

Card section

The bank being a service oriented organization offers ATM card and various types of credit card mentioned as below:

• ATM Card/Debit Card

NCC Bank is extending ATM facility through E-Cash shared ATM Network. Use of additional 142 ATM’s Booth and 600 POS of Dutch-Bangla Bank. Cardholders can withdraw cash through the ATM Booth 24 hours a day 365 days of the year. There are two types of Debit card provided by NCCBL

• VISA (M-Power) Debit Card
• Proprietary Debit Card.
• Credit Card

NCC Bank has launched its Visa Credit Card Service on August 22, 2005 .Since then were able to reach 5000 cards, both corporate and general. NCC Bank has offering three types of Credit Card.

Type of Credit Card

There are three types of Visa Credit Cards of NCCBL, these are –

1. Visa Classic,
2. Visa Gold (Local)
3. Visa Dual Currency Card (Globally and Locally).

Wide Range of Accept

NCC bank Visa Credit Card is accepted at over 5,000 merchant outlets around the country. Our wide range of merchants include Hotels, Restaurants, Airline and Travel Agents, Shopping Malls, Hospitals, Jewelers Shops, Mobile Phone and Internet Service Providers, Petrol Pumps and many more! Now NCC Bank Visa Credit Cards can also be used at all 142 ATM’s Booth and 600 POS (Point of Sale) of Dutch-Bangla Bank.

Instant Cash Advance

You do not need to carry cash any more if you have a NCC Bank Credit Card. You can withdraw cash up to 50% of your credit limit from any ATM across the country that shows Visa logo.

Credit Facilities

NCC Bank Visa Credit Card offers you free Credit facility up to 45 days and minimum of 15 days without any interest (Purchase only).

Supplementary Card

NCC bank Visa Credit Card holder can also enjoy spouse Credit Card free of cost for lifetime and issue more Supplementary card.

Reward Programs

As a NCC Bank Visa Credit Card holder, you will accumulate Treasure points for every purchase made by using Visa Credit Card. For every Tk. 50 and USD 1 spent on your Credit Card, you will earn 1 and 1.5 Treasure Point accordingly and be closer to redeeming the reward of your choice.

Flexible Payment Option

With the NCC Bank Visa Credit Card, you have the convenience to pay as little as 5% of your outstanding (or Tk. 500, whichever is higher) on the Card account every month, thus having the power and flexibility to plan your payments. Auto-Debit Payment Facility With the NCC bank Credit Card, you no longer have to stand in long queues for paying your monthly bill. You can pay your monthly bill through NCC Bank Account by instruction Auto-Debit.

Balance Transfer Facilities

If anyone holds other Bank Credit Card, then NCC Bank will issue a credit card with equivalent limit and will issue a pay order by debiting card A/C from balance transfer option for the equivalent amount of total outstanding in order to full settlement and cancellation of other Bank A/C.

Corporate Visa Credit Card

Corporate is characteristic of individuals acting together; “a joint identity”; “the collective mind”; “the corporate good”.

The new dimension of NCC Bank Visa Credit Card is Corporate Credit Card which has already started to benefit the Corporate Houses.

NCC Bank promises the followings services:

• Fast and Accurate Service
• Effective Communication
• Attractive Pricing (Annual fee 50% discount on card fee)
• Strong Communication
• Smiling faces of the Bankers
• Good Ambience in the Bank

The cash counter section

We know that a Bank is the Dealer of Money; it receives money and pay money. Where cash counter should be the heart of any commercial bank’s branch office as it receives and pay cash every moment at its working time. Cash Counter also does a very important work by managing the Bank’s flow of Fund. All the money of any Bank Business enters & exits through the cash counter. This section is the major part of Bank that works as the customer service oriented section. The efficiency of this section of a Bank crates the good image of that Bank to the all type of customers. If the officials can serves at once the customer than it proves the strong human resources of that Bank and increases customer satisfactions, which improve the overall position of that Bank in the market. It must be mentioned that NCCBL has a very strong group of employees, especially in the Narayangonj Branch, whom all the time serves the customers satisfactorily. Generally followings are some tasks done by the cash counter of NCCBL Bank:

• Cash Receive
• Cash Payment
• Receive of Credit Cards Bill.
• Payment of Foreign Remittance.
• Receive Online Transaction Charge.
• Payment/Receive several Debit/Credit Voucher.

The accounts section

This is the most confidential department of a bank. Recording all kinds of transactions of the branch, confirming their accuracy and preparing statements are the main job of this department. Now-a-days under computerized banking system, the jobs of accounts department become very easy. Now the computer directly prepares the clean cash statement on party ledger vouchers. The function of the accounts department can be divided into two parts:

1. Daily function
2. Periodical functions

a) Daily functions

 The routine daily tasks of the accounts departments are as follows:

• Record the daily transactions in the cash book.
• Record the daily transactions in general and subsidiary ledger.
• Prepare the daily position of the branch comprising of deposit and cash.
• Prepare the daily statement of affairs showing all the assets and liability of the branch as per ledger and subsidiary ledger separately.
• Pay all expenditure on behalf of the branch.
• Make salary statement and pay salary.
• Checking whether all the vouchers are correctly passed to ensure the conformity with the ‘Activity Report’; if otherwise making it correct by calling the respective official to rectify the voucher.

b) Periodical Tasks

The routine periodicals tasked performed by the department are as follows:

• Prepare the monthly salary statements for the employees.
• Publish the basic data of the branch.
• Prepare the weekly position for the branch, which is sent to the Head Office to maintain Cash Reserve Requirement.
• Prepare the monthly position for the branch, which is sent to the Head Office to maintain liquidity requirement.
• Prepare the weekly position for the branch comprising of the break up of sector-wise deposit, credit etc.
• Prepare the weekly position for the branch comprising of the denomination wise statement of cash in tills.

The  cheque clearing section

In Clearing Section cheque, dividend warrants and other forms of financial instruments, which are easy for encashment, are received. The clearing department sends these instruments to the Clearing House of the Bangladesh Bank for collection. As soon as cash is received the amount is deposited in the client’s account. Collection of cheques, drafts etc. on behalf of its customers in one behalf of its customers in one of basic function of a commercial Bank. Clearing stands for mutual settlement of claims made in between member banks at an agreed time and place in respect of instruments drawn on each other.

Negotiable instrument Law provides protection to a banker who collects a cheque or a draft if the banker fulfills the following conditions:

• He collects the instrument for customer
• The instrument be crossed
• The banker acts in good faith and without negligence

There are two types of clearing-

1. Outward Clearing
2. Inward Clearing

Outward Clearing

Outward Clearing means when a particular branch receive instruments drawn on the other bank within the clearing zone and those instruments for collection through the clearing arrangement is considered as outward clearing for that particular branch.

CREDIT

In line with the policy guideline issued by the Central bank from time to time, the bank formulates its own credit policy keeping it flexible to accommodate changes that are taking place. At present, several credit schemas are on the offer, which received quit well response from the customers and may help the bank to expand its customer base. The bank also engaging in syndication with other banks for allowing large loans converging Bangladesh bank‘s rules and regulation.

Loan and Advance section

Making advances is the primary function of a bank. A major portion of its funds is used for this purpose and this is also the major sources of bank’s income.

Loans are the right to receive payment or an obligation to make payment on demand or at some future time on account of the immediate transfer of goods (securities).

Loans are the largest asset item, which generally account for half to almost three-quarters of the total value of all banks assets. A bank’s loan account typically is broken down into several groups of similar type loans. The Loan and Advances made by the NCCBL can broadly be classified by following categories-

1. Continuous Loan
2. Demand Loan
3. Term Loan
4. Other Special Scheme

Continuous Loan

These are those advances which do not have any set schedule for drawing or disbursement but usually have a terminal date of full adjustment or repayment.

1. Cash Credit (CC)
2. Over Draft (OD)

A) Cash Credit (CC):

A Cash Credit (CC) is an arrangement by which the customer is allowed to borrow money up to a limit. This is a permanent arrangement and the customer need not draw the sanctioned amount at once, but draw the amount as and when required. They can put back any surplus amount, which they may find with them. Thus Cash Credit (CC) is an active and running account, which deposits and with drawls may be affected frequently. Interest is charged only for the amount withdrawn and not for the whole amount charged.

If the customer does not use the cash credit (CC) limit to the full extent, a commitment charge is made by the bank. This charge is imposed on the unutilized portion of Cash Credit (CC) only.

Cash Credit (CC) provides an elastic form of borrowing since the limit fluctuates according to the needs of the business. Cash Credits (CC) are the most favorite mode of borrowing by large commercial and industrial concerns in our country.

Cash Credit (CC) arrangements are usually made against the security of commodities hypothecated or pledged with the bank.

There are two types of CC account:

• Cash Credit (Hypothecation)
• Cash Credit (Pledge)

b) Over Draft (OD):

Overdraft (OD) is an arrangement between a banker and its customer by which the latter is allowed to withdraw over his credit balance in the current account up to an agreed limit. This is only a temporary accommodation usually granted against securities. The borrower is permitted to draw and repay any number of times, provided the total amount overdrawn does not exceed the agreed limit. The interest is charged only for the amount drawn and not for the whole amount sanctioned.

A cash credit is differs from an overdraft in one respect. A cash credit is used for long term by businessmen in doing regular business whereas overdraft is made occasionally and for short duration.

There are two kinds of overdraft.

1. Secured Over Draft
2. Unsecured Over Draft

Demand Loan

The loan which become payable after serving demand notice by the bank concerned are termed as Demand Loan.

There are five kinds of demand loan. These are given bellow:

1. Loan against Imported Merchandise (LIM)
2. Loan against Trust Receipt (LTR)
3. Payment against Documents (PAD)
4. Loan against Packing Credit

a) Loan against Imported Merchandise (LIM)

Usually, importer fails to retire the documents in spite of repeated reminders of the banker or the bank has to clear the goods imported under the Letter of Credit at the request of the importer (borrower). In both the cases, whether the importer fails to retire the documents or request for clearance of goods, the outstanding under PAD or B/E is transferred to “Loan against Imported Merchandise (LIM)” account and the overdue interest from the date of accompanying Bills of Exchange or negotiating date to the date of transfer to LIM account is charged. At the time of opening of letter of credit the banks obtain from the importer an arrangement on stamped paper which provides for financing and, if necessary, clearance and storage of goods by debiting importer’s account at their risk and responsibilities. After clearance, consignments are taken delivery by the importer on full payment of bank’s liability. Normally part delivery is not allowed while on LIM account. When the delivery in part is desired by the importer, the LIM is converted into cash credit account retaining proper margin and executing charge documents, the delivery is affected thereafter on obtaining pro rata payment.

b) Loan against Trust Receipt (LTR)

Under this arrangement, credit is allowed to the importer to retire documents and release the consignment from the customs authority against trust, receipt keeping the goods under importer’s control. The rate of interest of NCCBL on LTR @ 14.50%.

c) Payment against Documents (PAD)

The bank that opens the letter of credit is bound to honor its commitment to pay for import bills when these are presented for payment, if drawn strictly in terms letter of credit. The foreign correspondent bank, who negotiates the documents, debits the account of the opening bank and, in fact, the amount thus stands advanced on behalf of the importer. The opening bank will lodge the shipping documents to their book and will respond to the debit advice originated by the foreign correspondent to the debit of “Payment against Documents (PAD)” account or “Bills of Exchange (B/E)” accounts and present the bill to the importer for payment. The rate of interest of NCCBL on PAD @ 14.50%

d) Loan against Packing Credit

Packing credit is a short term advance granted by bank to an exporter for assisting him to buy, process, packs and ships the goods. The credit is gradually extended for payment of freight, handling charges, insurance and export duties. A packing credit advance does not normally extend beyond 180 days and has to be liquidated by negotiation/ purchase of the bills of exchange. The rate of interest of NCCBL on this packing credit @ 7.00%.

e) Loan against Investment

In order to contribute to the development of the Capital Market of the country NCC Bank Limited extends credit facilities against pledge of Shares, Debentures, Prize Bonds, Bangladesh Bank Treasury Bills etc. to the individuals as well as to the Member of DSE & CSE.

• Term Loan

These are loans which have a specific term for repayment as specified in the loan agreement.

1. Loan (General)
2. Housing Loan
3. Project Loan
4. Transport Loan
5. Small Business Loan Scheme
6. Personal Loan Scheme

a) Loan (General)

In case of loan general, the baker advances a lump sum for a certain period at an agreed rate of interest. The entire amount is paid on an occasion either in cash or by credit in his/her current account which he/she can draw at any time. The interest is charged for the full amount sanctioned whether he/she withdraws the money from his/her account or not. The loan may be repaid in monthly installments or at the expiry of a certain period.

b) Housing Loan

A large amount of money needed to construct a house or purchase a apartment .It is not possible to of all people to construct a house by only own income sources. Especially this problem largely faces by middle level and fixed income people. To solve this problem, NCCBL’s offer Housing loan with easy repayment condition and less interest rate.

c) Project Loan

NCC bank Ltd has their project loan scheme. Though they do not invest in project loan extensively but now they are planning on project loan. Because project loan is huge investment and it completely depends on success of the project for that reason bank always keeps eye some major factor before invest on project loan. Before invest on project loan Bank always who is the people involves in the project Security standard of the borrower. Then bank looks for the feasibility report of the project. Borrower has to completely show the feasibility report to the head office. In the feasibility report borrower has to show the what the mission of the project, who are the target customer, comparative analysis of the project with other same project, how the project meets the demand of the target customer, for which purpose the loan is asking for, detail information of the project operation, detail price list of the equipment, approximate repayment planning by the borrower. Branches do not have any authority to sanction any amount of loan for

project loan. Branch can only asses the project feasibility, evaluate the client check the necessary papers and collect it from the client. After getting the entire necessary papers branch makes a proposal for the loan and send it to the head office. Head office then re-evaluate the proposal with necessary papers. Then head office again inspects the project. After getting all the evaluation head office then send the sanction letter to the branch. Loan amount then disburse from the branch. Branch has to do the regular monitoring until the whole loan amount is repaid.

d) Transport Loan

NCC Bank Ltd was an investment company before the conversion in a bank. So they have good idea about lease financing. Transport loan is fallen under the lease financing, though it is called transport loan but it is actually fallen under leasing term and condition.  NCC Bank Ltd does not have any car loan scheme for individual clients, they had this scheme but the scheme is completely stopped for the time being.

Process of transport loan is more or less similar to project loan. Borrower has to apply for the loan in prescribed bank application form. In the application form borrower must mention which vehicle he wants to buy and what’s the quantity. Borrower also has to provide detail price list of the vehicle, insurance paper for each vehicle, possible repayment planning of the loan; list of collateral, list of hypothecation of securities and other necessary papers depends on clients and number of vehicles. After getting all necessary papers and field inspection branch makes a proposal for the loan and sends it to the head office. Head offices then again checks the necessary papers and do the field inspection. After inspection if Head Office thinks that for sanction of the loan they need more papers and securities, borrower has to provide those papers. Branches usually do not have any authority to sanction any amount of loan amount branch only disburse the amount and do the regular monitoring whether the vehicle is purchased, is they quotation match with the real one, vehicle is in the route and more importantly borrower is repaying the installment regularly.

e) Small Business Loan Scheme

Small businessman take place a large portion in our country. More of them are honest, energetic and hardy. In the absence of sufficient capital more of them cannot manage their business properly. They have not sufficient asset to make a security against loan, as a result they are failure to take a loan from bank or other financial assistance institution. If a loan give to them with easy terms and condition then this energetic small businessman  not only manage and increase their business properly but also they take important role in development of our country. To meet up this purpose, NCCBL start Small Business Loan Scheme.

f) Personal Loan Scheme

Fixed income employee’s of various firm or company need urgently financial assistance for the following purpose-

• Marriage purpose
• Education purpose
• Advance against Salary
• Education Loan
• Travel Loan

Especially meet up this financing by own income source is very difficult for middle class people. To solving these problems NCCBL introduce Personal Loan Scheme for Salaried Person.

Other Special Scheme

NCCBL Operate some kind of loan scheme as well to contribute the overall economy, poverty alleviation and fulfill some basic needs of the people. The special loan schemes are:

1. Consumer Scheme
2. Lease Finance
3. Micro credit financing

a) Consumer Scheme

The Scheme aims at improving the standard of living of the fixed income group. Under the scheme the clients may secure loan facilities at easy installments to procure household amenities.

b)Lease Financing

An entrepreneur, under this scheme, may avail of the lease facilities to procure industrial machinery (without having to purchase it by down payment) with easy repayment schedule. The clients also get special rebate in their income-tax payment under the scheme.

Lease financing is one of the most convenient long term sources of acquiring capital machinery and equipment. It is a very popular scheme whereby a client is given the opportunity to have an exclusive right to use an asset, usually for an agreed period of time, against payment of rent. Of late, the lease finance has become very popular in almost all the countries of the world. An obvious advantage of the lease is to use an asset without having to buy it. The lessee is obligated to make lease payments until the expiration of the lease agreement, which corresponds to the useful life of the assets. In a capital scarce economy like ours, Lease Financing is suitable for firms to acquire Capital Machinery, Equipments, Medical Instruments, and Automobiles etc. And thereby employ their own resources more advantageously in some other investments. Lease financing also helps a firm to reap significant economic benefit through tax saving and by reducing the risk of the equipments becoming obsolete due to the technological advancement.

c) Micro credit financing

To fulfill its commitment to play a vital role in socio economic development of the country NCC Bank Ltd has introduce a small and medium credit scheme for its customers.

The objective of the scheme is:

• To encourage and develop medium and small entrepreneurs
• To provide credit with minimum complexity
• To generate employment.

Under the scheme, NCC Bank Ltd. is providing loan:

• To meet working capital
• To purchase capital machinery and for expansion of business and for purchasing household durably.

The Scheme covers the following areas of options:

Agriculture sector: Seed or crop loan, Poultry and Fisheries, Fish processing, Plot, Fish storage and Marketing Project, with processing project etc.

Small and Cottage Industry: Handicraft maker, Blacksmith, Fishing net weaver, handloom industry, Goldsmith, watch assembling project, mineral water plant etc.

Service Industry: Transportation, medical service provider, different type of shop owners, hotel and restaurant owners, vocational training center etc.

Household durable and Consumer credit: Electric equipment, Electronics, Vehicles, Furniture, medication and Hospitalization, cookeries etc.

Information Technology Sector: Computer and Computer accessories purchase for household use, selling up of Computer training institute, Software development for exporting purpose, Software development for local business and household users.

Energy Sector: Household purchase of substitute energy like UPS, IPS, Stabilizer, Battery etc. Biogas technology, solar electricity producing plant, small electricity production etc.

Rates of Different Loan and Advance:

CREDIT RISK MANAGEMENT GUIDELINES BY BANGLADESH BANK

Amendment of section 13 of Act N.14 of 1991: In section 13 of the said Act- the words “previous financial year”, wherever they are mentioned, the words “accounting year” the following explanation shall be added, namely: – “For the purpose of this section, demand liabilities and temporary liabilities shall not include the paid-up capital, the consolidated fund, the liabilities shown in the profit and loss account and loans received from the Bangladesh Bank and interbank liabilities.”

INDUSTRY BEST PRACTICES AS SUGGESTD BY BANGLADESH BANK

Policy Guidelines

This section details fundamental credit risk management policies that are recommended for adoption by all banks in Bangladesh. The guidelines contained herein outline general principles that are designed to govern the implementation of more detailed lending procedures and risk grading systems within individual banks.

Lending Guidelines:

All banks should have established Credit Policies (“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 loans 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 loan 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 bank based on the endorsement of the bank’s Head of Credit Risk Management and the Head of Corporate/Commercial Banking. (Section 2.1 of these guidelines refers) Any departure or deviation from the Lending Guidelines should be explicitly identified in credit applications and a justification for approval provided. Approval of loans that do not comply with Lending Guidelines should be restricted to the bank’s Head of Credit or Managing Director/CEO & Board of Directors. The Lending Guidelines should provide the key foundations for account officers/relationship managers (RM) to formulate their recommendations for approval, and should include the following:

Industry and Business Segment Focus:

The Lending Guidelines should clearly identify the business/industry sectors that should constitute the majority of the bank’s loan portfolio. For each sector, a clear indication of the bank’s appetite for growth should be indicated (as an example, Textiles: Grow, Cement: Maintain, Construction: Shrink). This will provide necessary direction to the bank’s marketing staff.

Types of Loan Facilities:

The type of loans that are permitted should be clearly indicated, such as Working Capital, Trade Finance, Term Loan, etc.

Cross Border Risk:

Risk associated with cross border lending. Borrowers of a particular country may be unable or unwilling to fulfill principle and/or interest obligations. Distinguished from ordinary credit risk because the difficulty arises from a political event, such as suspension of external payments

• Synonymous with political & sovereign risk
• Third world debt crisis. For example, export documents negotiated for countries like Nigeria.

Credit Assessment & Risk Grading

• Credit Assessment

A thorough credit and risk assessment should be conducted prior to the granting of loans, and at least annually thereafter for all facilities. The results of this assessment should be presented in a Credit Application that originates from the relationship manager/account officer (“RM”), and is approved by Credit Risk Management (CRM). 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 bank’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 loan(s) proposed.
• Purpose of loans.
• Loan Structure (Tenor, Covenants, Repayment Schedule, Interest)
• Security Arrangements.

In addition, the following risk areas should be addressed:

• 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 intergroup transactions should be addressed, and risks mitigated Industry analysis.

• 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.

• Historical Financial Analysis. 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 analyses. 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.

• Projected Financial Performance: Where term facilities are being proposed, projection of the borrower’s future financial performance should be provided, indicating an analysis of the sufficiency of cash flow to service debt repayments. Loans should not be granted if projected cash flow is insufficient to repay debts.

• Account Conduct: For existing borrowers, the historic performance in meeting repayment obligations (trade payments, cheques, interest and principal payments, etc) should be assessed.

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

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

• Security: A current valuation of collateral should be obtained and the quality and priority of security being proposed should be assessed. Loans should not be granted based solely on security. Adequacy and the extent of the insurance coverage should be assessed.

• Name Lending: Credit proposals should not be unduly influenced by an over reliance on the sponsoring principal’s reputation, reported independent means, or their perceived willingness to inject funds into various business enterprises in case of need. These situations should be discouraged and treated with great caution. Rather, credit proposals and the granting of loans should be based on sound fundamentals, supported by a thorough financial and risk analysis. Appendix iv contains a template for credit application.

Risk grading

All Banks should adopt a credit risk grading system. The system should define the risk profile of borrower’s to ensure that account management, structure and pricing are commensurate with the risk involved. Risk grading is a key measurement of a bank’s asset  quality, and as such, it is essential that grading is a robust process. All facilities should be assigned a risk grade. Where deterioration in risk is noted, the Risk Grade assigned to a borrower and its facilities should be immediately changed. Borrower Risk Grades should be clearly stated on Credit Applications. The following Risk Grade Matrix is provided as an example. The more conservative risk grade (higher) should be applied if there is a difference between the personal judgment and the Risk Grade Scorecard results. It is recognized that the banks may have more or less Risk Grades; however, monitoring standards and account management must be appropriate given the assigned Risk Grade:

Approval Authority, Segregation of Duties & Internal Audit

• 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.

• Credit approval should be centralized within the CRM function. Regional credit centers may be established, however, all large loans must be approved by the Head .

• Credit and Risk Management or Managing Director/CEO/Board or delegated Head Office credit executive.

• The aggregate exposure to any borrower or borrowing group must be used to determine the approval authority required.

• Any credit proposal that does not comply with Lending Guidelines, regardless of amount, should be referred to Head Office for Approval.

• 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.

Segregation of Duties

Banks should aim to segregate the following lending functions:

• Credit Approval/Risk Management
• Relationship Management/Marketing
• Credit Administration

The purpose of the segregation is to improve the knowledge levels and expertise in each department, to impose controls over the disbursement of authorized loan facilities and obtain an objective and independent judgment of credit proposals.

• Internal Audit

Banks should have a segregated internal audit/control department charged with conducting audits of all departments. Audits should be carried out annually, and should ensure compliance with regulatory guidelines, internal procedures, and Lending Guidelines and Bangladesh Bank requirements.

Preferred organizational structure & responsibilities

The appropriate organizational structure must be in place to support the adoption of the policies detailed in Section 1 of these guidelines. The key feature is the segregation of the Marketing/Relationship Management function from Approval / Risk Management /Administration functions. Credit approval should be centralized within the CRM function. Regional credit centers may be established, however, all applications must be approved by the Head of Credit and Risk Management or Managing Director /CEO Board or delegated Head Office credit executive.

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/ RMs.
• 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, and general monitoring of account conduct/performance.

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
• 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.

Procedural guidelines

This section outlines of the main procedures that are needed to ensure compliance with the policies contained in Section 1.0 of these guidelines.

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 centres 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.

Credit Administration

The Credit Administration function is critical in ensuring that proper documentation and approvals are in place prior to the disbursement of loan facilities. For this reason, it is essential that the functions of Credit Administration be strictly segregated from Relationship Management/Marketing in order to avoid the possibility of controls being compromised or issues not being highlighted at the appropriate level. Credit Administration procedures should be in place to ensure the following:

• Disbursement:

Security documents are prepared in accordance with approval terms and are legally enforceable. Standard loan facility documentation that has been reviewed by legal counsel should be used in all cases. Exceptions should be referred to legal counsel for advice based on authorization from an appropriate executive in CRM. Disbursements under loan facilities are only be made when all security documentation is in place. CIB report should reflect/include the name of all the lenders with facility, limit & outstanding. All formalities regarding large loans & loans to Directors should be guided by Bangladesh Bank circulars & related section of Banking Companies Act. All Credit Approval terms have been met.

• Custodial Duties:

Loan disbursements and the preparation and storage of security documents should be centralized in the regional credit centers. Appropriate insurance coverage is maintained (and renewed on a timely basis) on assets pledged as collateral. Security documentation is held under strict control, preferably in locked fireproof storage.

• Compliance Requirements:

All required Bangladesh Bank returns are submitted in the correct format in a timely manner. Bangladesh Bank circulars/regulations are maintained centrally, and advised to all relevant departments to ensure compliance. All third party service providers (value’s, lawyers, insurers, CPAs etc.) are approved and performance reviewed on an annual basis. Banks are referred to Bangladesh Bank circular outlining approved external audit firms that are acceptable.

Incentive Program:

Banks may wish to introduce incentive programs to encourage Recovery Unit (RU) Account Managers to bring down the Non Performing Loans (NPLs).

The table below shows an indicative incentive plan for RU account managers:

Recommendations

For the probable solutions of the identified problems ensure better progress to NCC Bank in future, some necessary steps are recommended bellow on the basis of collected data, observation, expert staffs opinion and my knowledge and judgment.  

Banks always contribute towards the economic development of a country. Compared with other banks NCC Bank Ltd. is contributing more by investing most of its funds in fruitful projects lending to increase in production of the country.

For Cash Credit Hypothecation loan procedure time should be decrease so that customers get loan easily and quickly. Document justification process can be easy  if  employ  a  lawyer so that quickly justify document and able to provide loan.

For Cash Credit Pledge’s repayment amount should be further invest and always careful so that customer can’t be able to default.

For SOD (Overdrafts) promote customers to do FDR, DPS so that customers take loan against FDR and DPS. It is fully secured for banks and customers give less interest from other loan.

For Loan Against House Building Credit officer should check all documents perfectly so that when will be needed it can be sold.

For Consumer Credit Scheme bank try to increase loan amount so that employee can buy as they need and feel happy and work hardly.

Real Estate Financing for CRB High rise building increase day by day and also increase real estate financing for future purpose bank should increase loan and check all document which are provided by the organization.

For Lease Financing Many fields banks provide lease financing but can’t able to see all time their lease asset. So banks should employ extra employee so that he /she can be able to see lease items.

For SME Bankers should provide loan and go customer business and give advice so that they increase their business and can give repayment perfectly.

Conclusion

Today’s business is very competitive and complex. To survive in the related sector the organization need competitive people and has to take some effective policy. Every country must have a plan for important role in economic activities. Bangladesh is no exception of that. Commercial Banks’ financial development and economic developments are closely related. That’s why the private commercial banks’ are playing significant role in this regard.

The National Credit and Commerce Bank Limited (NCCBL) is one of the best Banks in respect of service, profitability and strength among the private commercial banks’ in our country and also to play a catalyst role in the formation of capital market. National Credit and Commerce bank Limited bears a unique history of its own.. Its various deposit and credit products have also attracted the clients-both corporate and individuals who feel comfort in doing business with the Bank.

The National Credit and Commerce Bank Limited (NCCBL) is now been called a modern bank that undertakes all its operations at an international standard. Over the years, NCCBL has built itself as one of the pillars of Bangladesh’s financial sector and is playing a pivotal role in extending the role of the private sector of the economy.

Each and every bank has got its own credit policy which generally promulgated on the basis of prevailing countries socio economic conditions, political and other related aspects from time to time as per guideline of central bank. NCC Bank limited have formulated own policy indicating the areas of lending complied by Bangladesh Bank guideline. The main features of credit policy of NCC Bank Ltd focus on the following areas:

• Trade and Commerce
• Industry
• Leasing Financing
• Consumer Financing
• Small & Medium Enterprise (SME) Finance.
• Agricultural & Agro based Ventures
• Housing Loan Scheme
• Real Estate & Civil Construction