Financing in Project and Credit Analysis of NCC Bank Limited

Origin of the report

For any business school student only curriculum activities are not enough for handling the real business situation. So it is an important opportunity the students to know about the field of business through the internship program. Internship program is a perfect blend of the theoretical and practical knowledge. This report is originated to fulfill the requirement of the assign project internship report on “FINANCING IN PROJECT & CREDIT ANALYSIS” of NCC Bank Limited” I have been working as an internee in NCC Bank Limited, Motijheel Main Branch, Dhaka from June 24, 2009 to August31, 2009 date. During this period I leaned how the host organization works with the help of the internal supervisor. On the basis of working experience for this period I have prepared this report and I have tried my best to relate the theoretical knowledge with the practical work situation.

Objective of the study

The objectives of this report are as under:

• To know how the bank finance in different sector.
  • To learn about the loan classification process of National Credit and Commerce Bank Limited.
  • To know the client booking process.
  • To know the preparation of credit line proposal
  • I have gathered theoretical knowledge from my University. But there is a far difference between practical and theoretical knowledge. This difference was crystal clear to me while I was preparing this report

 Methodology of the report

Study Design

The study was fully a descriptive in nature. The study was conducted using the participatory method. To know the in-depth information, the topic was discussed with the expert professionals related to bank for several times and review of record of NCC Bank Limited and other related secondary information. The purpose was to get an idea about the whole activities of the branch where I did my practical orientation.

Data Collection method

Data have been collected from two sources.  These are as under:

Primary source

The primary sources of data include the followings:

• Face to face conversation with the bank officers and staffs
• Direct conversation with the clients
• Study of different files of different sections of the bank
• Practical Deskwork.

Secondary source

The secondary sources of data include as under:

• Annual report of NCC Bank Limited
• Different publications of NCC Bank Limited
• Unpublished data received from the Branch
• Different text books
  • Different circulars sent by Head Office of NCC Bank Limited and Bangladesh Bank.

 Scope of the report

National Credit and Commerce Bank Limited (NCCBL) is operating widely with 57 branches all over Bangladesh. This report is strictly confined NCCBL’s operating system in Motijheel Main Branch, Dhaka.

 Limitation of the study

• The first obstacle is that the bank has provided lump sum remuneration which is not sufficient for doing intern.
• The main constraint of the study was insufficiency of information that was highly required for the study. Since the bank officials are very busy with their activities, as a result it was thought to have proper knowledge as was required for the study.
• Due to lack of experience, there may have been faults in the report though maximum efforts have been given to avoid any kind of mistake.

 Historical Background

National Credit and Commerce Bank Limited 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 ways so as to develop country’s industrial and trade sector and playing a catalyst role in the formation of capital market as well. The company operated up to 1992 with 16 branches and thereafter with the permission of the central bank converted into a fully fledged scheduled private commercial bank in May 1993 with paid capital of Tk. 39.00 Crore to serve the nation from a broader platform.

The present authorized capital is Tk.2500.00 million and paid up capital is Tk.1757.62 million. The sponsors of the new bank consisted of 30 members, who comprised the first Board of Directors. The share price of the bank is currently being quoted at both Dhaka and Chittagong Bourses at an average price of Tk.370/- against per value of Tk. 100.00. NCC Bank based upon its commendable business performance for the year ended 2008 has meanwhile declared dividend bonus 30%. The bank which started with 16 branches in 1993, has at present 57 branches are located in prime commercial areas of Dhaka, Chittagong, Sylhet, Feni, Khulna, Jessore, and Rangpur district head quarters, out of which as many as 20 are authorized dealer branches, fully equipped for dealing in direct foreign exchange business. NCC Bank is now positioned to best suit the best financial needs of its customers and makes them partner of progress.

Hierarchy of position in NCC Bank

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 “NCCBL is profit making and problem free”.

Mission

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

• Anticipating business solution required by all NCC Bank’s customers everywhere and innovatively supplying them beyond the expectation.
• Setting industry benchmark of world class standard in delivering customer value through the comprehensive product range, customer service and all the activities.
• 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.
• Maintaining the highest ethical standards and a community responsibility worthy of a leading corporate citizen.
• Continuously improving productivity and profitability and thereby enhancing share holder value.

NCC Bank at present

The year 2008 was another milestone of success for the bank in terms of earning profit and consolidating position at various spheres of operations. The profit figure at the end of the year stood at taka 2363.49 million recording an increase of 45.16% over the previous year’s figure of taka 1780.23 million. The paid up capital stood at taka 1757.62 million against taka 1352.01 million. The reserve fund increased to taka 2863.62 million during the year 2008 as against that of taka 1995.36 million of previous year showing 75.15% increase. At on 31st December 2008 bank’s total deposits stood at taka 46904.66 million deposit growth over the last 5 years appended in the graph…..

 NCC Bank has decided to purchase land/space to house or branches to strengthen our asset base. Good news is that the primary works of construction of a 22 storied “NCC Bank Bhaban” at their land at a very prime location of motijheel C/A.

Investment

The value of investment as on 31December 2008 was Tk.6526.82 million. In 2006 it was Tk. 6266.62 million, in 2006 it was Tk. 3,552.08 million, in 2005 it was Tk. 3010.45 million and in 2004 it was Tk. 4385.23 million. Treasury bond is considering as good in respect of rate of return. In this way bank could utilize excess liquid fund resulting from reduction of liquidity requirement by Bangladesh Bank.

Trade Finance and Correspondent Banks

Successful companies today are fully aware that they need to be able to rely on the services of a bank that can handle international trade with a good hand. Ever since its conversion into a full-fledge bank in 1993, NCC Bank has been an accomplished “Trade Finance” bank. With a highly professional team experienced and competent professionals we are able to provide a wide range of services to companies engaged in international trade.

NCCBL has also positioned itself as an established correspondent Bank. Through a worldwide network of 260 correspondent Banks, NCCBL is present in all key areas of the globe. Our ambit of correspondents includes top ranking international banks with a global reach.

Performance of the Bank at a Glance        

Taka in million

 Account Department

This is the most confidential department of the bank. Recording all kinds of transaction of the branch, confirming their accuracy and preparing statements are the main jobs of this department. The function of the account department can be dividing into two parts:

 Daily function

The routine daily functions of this department are as under:

• Ø Record of the daily transactions in the cash book
• Ø Record of the daily transactions in general and subsidiary ledger
• Ø Prepare the daily position of the branch comprising of deposit and cash
• Ø Prepare the daily statement of affairs showing all the assets and liabilities of the branch as per ledger and subsidiary ledger separately.
• Ø Pay all expenditure on behalf of the branch
• Ø Make salary statement and pay salary
• Ø Records of inter branch funds transfer and providing accounting treatment in this regard.

Periodical function

The routine periodical tasks performed by the department are as follows:

• Ø Prepare the monthly salary statements for the employees
• Ø Publish the basic data for the branch, which is sent to the Head Office to maintain Cash reserve requirement
• Ø Prepare the monthly position for the branch, which is sent to Head Office to maintain liquidity requirement
• Ø Prepare the weekly position for the branch comprising of the break of sector wise deposit, credit etc.

Cheque Clearing Section

In clearing section, Cheque, dividend warrant and other forms of financial instruments, which are easy for encashment, are received. The clearing departments send these instruments to the clearing House of the Bangladesh Bank for collection. As soon as cash is received the amount is deposited in the clients account. Collection of Cheque, drafts etc. on behalf of its customers is one of the basic functions of commercial bank.

Clearing sends for mutual settlement of claims made in between members banks at an agreed time and placed 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 acts in good faith and without any negligence

Types of clearing

Outward clearing:

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

Inward clearing:

The bank provides the instruments to other bank through clearinghouse, which have been collected different clients. It performs this kind of service for its clients without any charge or the remittance.

OBC (outward bill collection):

If a party gives a Cheque to a branch of NCCBL to collect money from a branch of other bank, which is not situated in the clearinghouse then NCCBL collects money through OBC. Incase of OBC two ways exist to collect money from another bank.

In the 1^st way

The receiving branch of NCCBL sends the Cheque with forwarding letter to the branch of another bank which name is introduced in the Cheque. After receiving the Cheque that branch of the bank sends a DD to other branch of their bank, which is situated, in the same clearinghouse of payee’s branch of NCCBL. After that they issue pay order to the name of payee’s branch name and send the Cheque to the clearing house and NCCBL collects the Cheque through clearing house and credit the payee’s account.

In the 2nd way

NCCBL, payee’s branch sends the Cheque to another branch of NCCBL, which is situated in the same area of another bank’s branch (which name is included in the Cheque). Then the receiving branch of NCCBL collects the amount of Cheque through outward clearing by clearinghouse of those areas and issues a credit advice to the payee’s branch. After that payee’s branch credit the payee’s account.

Local Remittance Department

Remittance is significant part of the general banking. The bank receives and transfers various types of bills through the remittance within the country. Obviously the bank charges commission on the basis of bills amount. NCCBL remittances are safe, swift, inexpensive and simple.

Types of Remittance

Pay Order (PO):

Pay Order is an instrument that contains an order for payment to the payee only incase of local payment whether on behalf of the bank or its constitution. Unlike cheque there is possibility of dishonoring Pay Order. NCCBL charge different amount of commission on the basis of Pay Order amount.

Demand Draft:

By DD any person can send money from one branch to another branch of NCCBL. To send the money he/she must fill up the NCCBL’s prescribed form of DD and paid charge/commission and receives DD block. The following information is included in the DD block:

       Name of the sender branch

       Name and account of the party who receives the money.

       For security purpose a confidential test number are included in the DD block

       Amount of money to be transferred

       Name of receiver branch

The sender sends this block to the receiver branch of DD. When this DD block is received by the receiver branch, the authorized officer of the receiver branch tests the DD confidential number and if the test number is proofed then he /she gives the money to the payee.

Telegraphic Transfer:

To send money urgently NCCBL may be requested for TT on payment of a nominal charge and telegram charge. Any person urgently sends money from one branch to another branch within NCCBL through TT. When a message of TT sends through phone from one branch to another branch in that time the message received by the authorized officer who has a right of power of attorney. After that, he/she fills up the TT form. Following things are included in the TT form:

       TT number

       TT test number

       Name and account number of the payee

       Power of attorney number of the sender and receiver of TT.

       The amount to be transferred.

After fill up the TT form, he tests the number of TT. If he ensures through testing the test number then he credits the account of the payee. On the other hand, if the test number is not proved then he calls back to the sending branch of TT and request to send a new TT.

Mail Transfer:

Money can be sent through mail transfer to anybody who has an account in any other branch of the same bank for this purpose the sender shall have to furnish the details like:

       The name of the beneficiary and his account number

       The amount to be transferred

       The name of the branch where the account is maintained

Financing in Project

Project finance involves the creation of a legally independent project company financed with non-recourse debt (and equity from one or more sponsors) for the purpose of financing a single purpose, industrial asset.

The Project Finance recognizes three key decisions first, there is an investment decision involving an industrial asset. Here, the term industrial asset is meant to include infrastructure projects as well differentiate between stock and flow-type projects. In stock-type projects, firms extract resources like oil or copper, sell the output, and use the proceeds to service debt and generate equity returns until the resource is depleted. In contrast, flow-type projects – toll roads, pipelines, telecommunications systems, and power plants – rely on asset use to generate returns for capital providers. The definition also highlights an organizational decision to create a legally independent entity to own the asset. As a result, project finance can represent a form of off-balance sheet finance, meaning that project assets and liabilities do not appear on the sponsor’s balance sheet. The exact accounting treatment, however, is a function of the chosen organizational form (corporation, partnership, etc) and the sponsor’s fractional interest in and control over the project. In many cases (e.g., when there is only one sponsor), project assets and liabilities appear on the sponsor’s balance sheet. Finally, there is financing decision involving non-recourse debt. Because the project company is legally independent, the debt can be structured without recourse to sponsors. Legal independence also ensures that capital providers have a clear claim on the project assets and cash flows without concern for the sponsor’s financial condition or for preexisting claims on its assets.”

Participants in a Project Finance Transaction

Government – this participant is responsible for creating an enabling environment for project finance transactions through its legal system and other associated legislation (e.g. agreements, permits, property rights etc).

Equity Funders – these are the owners of the project company and contribute the riskiest portion of the total funding of the project (equity). Their contribution is usually in the order of 40 to 50 percent, as a proportion of the total funding.

Nonrecourse Debt Funders – these are the providers of Long-Term loans to the transaction. They usually contribute about 60 to 70 percent of the total funding of the transaction. (These are usually commercial banks, Development Finance Institutions, Multilateral, Bilateral and Export Credit Agencies.

Operator – this is usually the Engineering Firm that is in control of the construction and operations/management of the project (e.g. Power Plant).

Construction/Engineering Consultants – this is the company responsible for the engineering, procurement and construction. Equipment Supplier – this is the selected manufacturer of the key equipment to be used during construction of the project.

Environmental Impact Assessment (EIA) Consultant – this is the specialist who assesses whether the project meets the minimum standards of both national and international environment related legislation and agreements.

Affected Communities – these are important stake holders who are directly or indirectly affected by the project (e.g. communities that have to be relocated because of the construction of a power station, toll road, dam, mine etc.)

 Project Finance Transaction Agreement

Engineering, Procurement and Construction (EPC) Contract: – between the Project Company & the Engineering Firm.

Operations and Maintenance (O & M) Agreement: – between the Operations Contractor and the Project Company, obligates the Operator to operate and maintain the project.

Shareholders Agreement: – governs the business relationship of the equity partners

Inter-creditor Agreement: – an agreement between lenders or class of lenders that describes the rights and obligations in the event of default.

Supply Agreement: – agreement between the supplier of a critical key input and the Project Company (e.g. agreement between a coal supplier and a power station)

Purchase Agreement: – agreement between the major user of the project output and the Project Company (e.g. agreement between a metropolitan council and a power station)

Credit Analusis

National Credit and Commerce Bank Limited is a scheduled commercial bank. Through financial intermediation the bank seeks avenues for employment of its funds where: (a) there is a profit, (b) risk is minimal; and (c) the cost of administrating is low. While “profit motivation” remains the prime consideration for viable operation and growth of the bank, the bank would also respond adequately to the socio – economic objectives formulated by the Government from time to time for accelerating the pace of economic development of the country.

National Credit and Commerce Bank Limited is a new generation bank. It is committed to provide high quality financial services products to contribute to the growth of G.D.P of the country through stimulation trade and commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the educated youth, poverty alleviation, raising standard of living of limited income group and over all sustainable socio – economic development of the country.

Like every other business activity banks are profit oriented and profit is the central point on which the entire business activity rotates. A bank invests its fund in many ways to earn income. The bulk of its income is derived from investment. Since major part of banks income is derived from credit and since the money credited by bank is customer’s fund, banks should follow a cautious policy and should lending principles in the matter of lending.

The bank will put reliance on market forces via increased inducement to savers to mobilize saving and via profitability potential to allowance funds to the users of such sector of trade, commerce, and industries as are consistence with the socio – economic objectives of the nation. The free market economy policy of the Government of Bangladesh will indeed facilitate healthier and efficient lending activities of the bank.

Target Customer

Like other bank this NCC bank has some target customer and they are:

                    Individual Person.

                    Sole Proprietorship firm.

                    Partnership Firm.

                    Private Limiter Company.

                    Public Limited Company.

                    Government and Semi Government Organization.

                    Bank Employee.

Various Product of Credit                                       

                    Loan (General)

                    HouseBuilding Loan.

                    Transport Loan.

                    Project Loan.

                    Loan under Consumer Finance Scheme.

                    Loan under Lease Finance Scheme.

                    Secured Overdraft.

                    Cash Credit (Pledge)

                    Cash Credit (Hypothecation)

                    Export Cash Credit.

                    Bank Guarantee.

                    Letter of Credit.

                    Payment against Document.

                    Loan against Imported Merchandise.

                    Loan against Trust Receipt.

                    Back to Back Letter of Credit.

                    Accepted Bill for Payment.

                    Inland Bill Purchased.

                    Local Documentary Bill Purchased.

                    Foreign Documentary Bills for Purchased.

                    Foreign Documentary Bill for Collection.

                    Packing Credit.

                    Foreign Bank Guarantee.

                    Small Business Loan.

                    House Renovation Loan.

                    Personal Loan.

                    Festival Small Business Loan Scheme.

Some of these important loans are described in below:

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 items, which generally account for half to almost three-quarters of the total value of all banks assets. A bank’s 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 –

   Continuous loan

   Demand loan

   Term loan

   Other Special Scheme.

Types of loan

 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. Example: Cash Credit (CC), Over Draft (OD).

Cash credit (CC)

A cash credit 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 withdrawals 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 limit to the full extent, a commitment charge is made by the bank. This charge is imposed on the unutilized portion of cash credit only.

Cash credit arrangements are usually made against the security of commodities hypothecated or pledged with the bank.

Cash Credit (Hypothecation)

This type of credit is allowed to the traders and industrial borrowers for promoting trade and commerce and industries. In case of Hypothecation the possession of goods is not given to the bank. The goods remain at the disposal and in the go downs of the borrower. This is given access to goods whenever it so desires. The borrower furnishes periodical return of stock with the bank.

 Cash credit (pledge)

Allowed for promoting trade, commerce and industries of the country against pledge of stock in trade under Bank’s control. In case of the pledge, the goods are placed in custody of the bank with its name on the go down where they are stored. The borrower has no right to deal with them.

 Overdraft

Overdraft is an arrangement between a banker and its customer by which the letter 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 to times, provided the total amount drawn and not for the whole amount sanctioned.

A cash credit is differs from an overdraft in one respect. A cash credit 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.

Secured overdraft

Secured overdrafts are loan which have collateral attached to them in the form of a lien. A lien is a monetary claim against a property to be fulfilled before repeat ownership can take place.

Secured overdraft divided into 2 forms. There are-

      Secured overdraft financial obligation (SOD-FO) :

Allowed against financial obligation (Like-FDR, SSS etc) for promotion of economic and business activities.

      Secured overdraft general (SOD General):

Generally allowed to the traders for business promotion and economic activities. In case of SOD (General), bank keeps the land as collateral.

Unsecured overdraft:

Banks sometimes, grant unsecured overdraft for small amount to customers having current account with them. Such customers may be government employees with fixed income or traders. Unsecured overdrafts are permitted only where reliable source of funds are available to a borrower for repayment.

Demand loan

The loan which become payable after serving demand notice by the bank concerned are termed as Demand loan. Example: LIM, LTR, PAD, Loan against Packing Credit, Loan against Investment etc.

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.

Loan against Trust Receipt (LTR)

Under this arrangement, credit is allowed to the importer to retire documents and release the consignment from the customer’s authority against trust, receipt keeping the goods under importer’s control. The rate of interest of NCCBL on LTR @ 13.5%.

 Payment against Document (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 @ 13.50%.

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 extended for payment of freight, handling charges, and insurance and export duties. A packing credit advance does not normally extent 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%.Packing credit is export finance. At present our country participate a large scale export, especially in garment sectors.

 Loan against investment

In order to contribute to the development of the capital market of the country NCC Bank extends credit facilities against pledge of shares, debentures, pries bonds treasury bills etc. to the individuals as well as to the member of DSE and CSE.

 Term Loan

Term Loan has specific term for repayment as specified in the loan agreement. Terms Loans may be of various types which are discussed in the below:

Loan General

In case of loan general, a lump sum amount for a certain period is given as an agreed interest rate. The entire amount is paid within the validity by deposited installment each period as stated in the loan agreement. The interest rate is charged for the outstanding amount.

 Housing Loan

Housing Loan of NCCBLL at a glance:

Maximum size of loan:

Loan for amount exceeding Tk. 5.00 lac to the maximum of Tk. 50.00 lac is considered under the Housing Loan Scheme.

   Repayment period:

The repayment period will be 5 years to 15 years including grace period.

   Interest and other charges:

• Interest:  @ 13.50% P.A. subject to change with market situation
• No processing fee will be charged.
• Documentation charge:  1% of loan amount to be realized on acceptance of loan.
• Interest will be charged on monthly reducing balances after realization of monthly installments.
• 5% rebate will be allowed on total amount of interest charged at the time of final adjustment of an account wherein no break of chain in repayment of installments will occur.

   Security:

Registered Mortgage of land and building/flat(s) with proportionate land to be financed.

Project Loan:

NCC Bank has project loan scheme. Before investment in the project loan Bank always assessed who is the person behind the project, security of the loan, repayment status etc. Borrower has completed a feasibility report on the proposed project showing the objective of the project, target customer, details cost of the project, etc. Branch has not any authority to sanction the project loan. They send the proposal to Head Office along with all necessary papers after assessing the feasibility of the project. Head Office then evaluates the proposal, if feasible then Head Office gives a sanction letter to the branch indication all terms and conditions of the loan. The branch then gives another sanction letter to the client.

   Detail information of project loan:

• Name and address of the client
• Particulars of the Directors and percentage of share
• Detail of the approve facility
• Nature of the facility
• Amount of loan
• Purpose of the loan
• Rate of interest (current rate is 16%)
• Grace period i.e. time period between disbursement of loan and payment of installment
• Validity of the loan (how long it will take to repay the (loan)
• Mode of adjustment i.e. monthly or quarterly installment, size of the installment etc.
  • Securities:
  • Primary security: For this sort of security bank takes the hypothecation of existing facility against which the loan is taken.
  • Collateral: For this security land or fixed assets are taken
  • Personal guarantee of the Directors of the company jointly and severally
  • First charge on the assets and book debts of the company to be created with the RJSC.
  • Registered irrevocable general power of attorney to be obtained from the mortgagor/client to sale the mortgage properties, without intervention of the court.
    • Usual charge documents as per bank’s credit norms.

   Necessary documents for the project loan:

• TIN certificate
• CIB inquiry form 1, 2, 3
• Party’s application
• Credit proposal and approval form
• List of collateral securities
• Feasibility report
• Trade incense
• Memorandum and Articles of Association
• Resolution
• Net worth of the business and individual
• Legal opinion
• Valuation assessment of the mortgaged properties
• Quotation
• Deed of lease agreement

Transport Loan:

Process of transport loan is more or less same as the project loan. Borrower has to apply for the loan in the bank’s prescribed 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 schedule of the loan, list of collateral, list of hypothecated securities and necessary other 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 the Head Office. Head Office then again checks the necessary papers and does the field inspection. After inspection if Head Office thinks that for sanction of the loan they need more securities and papers, borrower has to provide these papers.  Branch usually does not have any authority to sanction any amount of loan. Branch only recommends for sanctioning the loan. After getting sanction from Head Office, branch disburses the loan and monitors regularly whether the vehicle is purchased, is the quotation matches with the real one, vehicle is in the route and more importantly borrower is repaying the installment regularly.

   Detail information of transport loan:

• Name and address of the client and the company
• Particulars of the Directors and percentage of share
• Detail of the approve facility
• Nature of the facility
• Amount of loan
• Purpose of the loan
• Margin-50% cash against each vehicle
• Debt-equity ration-it remains within 50%
• Rate of interest (current rate is 16%)
• Validity of the loan (how long it will take to repay the (loan)
  • Mode of adjustment-from daily fare and minimum of certain amount of money against each vehicle and balance if any in lump sum within the validity

   Securities:

• Usually bank prefers pledge of FDR against each vehicle (Minimum Tk 1.00 Lac) and also additional FDR for certain amount of money.
• Hypothecation of vehicles duly registered in the name of the bank (1st party) and the borrower under supervision of bank official duly complying all the formalities of registration with motor vehicle department with comprehensive insurance cover in the name of bank and borrower at borrower’s cost.
• If the client default payment of two consecutive installments, the loan will be recalled with up to date interest immediately duly notifying.
• The bank official will inspect the vehicle at every month interest interval to see that the vehicles are on route.
• The vehicle under this limit must bear the word prominently on its body as “This Vehicle is under the Credit of NCCBL (Main Branch)”
• Excess over limit is strictly prohibited ever after accrual of quarter5ly interest.
• Before disbursement borrower has to sign in the sanction letter of the head office to declare that he is accepting the term and condition.
• Bank has right to cancel, alter, amend the terms and condition.
• The borrower must avail the loan 2 months from the date of communication for sanction; otherwise the loan will be cancelled.

   Necessary Documents for Transport Loan:

• CIB response form.
• Party’s application
• CIB inquiry form 1,2,and 3
• D.P Note
• Letter of disbursement
• Letter of arrangement
• Letter of authority
• Letter of hypothecation
• Letter of lien

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 this problem NCCBL introduce Personal Loan Scheme for salaried Person.

Detail information about personal loan scheme:

Personal loan Scheme is available for the following person:

• Government
• Semi Government
• Corporation
• Bank
• Insurance company
• Teacher of school, college or university.
• Multinational company
• Any firm or company, which is acceptable by bank.

         Amount of loan: Maximum TK1, 00,000/-

         Interest and other charges: Interest: 17% annually.

         Service charge: 1% of given amount of loan.

         Application Fee: TK. 500.

         Security:

• Equal number of post dated Cheque in which each covering all installments in advance.
• Guarantee bond in Bank’s prescribed format from personal guarantor on TK. 150/- Non- judicial stamp.
• Letter of authority to mark lien on the provident fund, and gratuity of the borrower.
• Letter of confirmation from disbursing authority.

 House Repairing/Renovation Loan Scheme:

The ownership of a House/Building/ Flat come from purchasing or by heir. Huge amounts of fund are needed at one time for repairing them to make suitable for live or for modernization or renovation. The owner’s faces difficult financial problems to invest their fund in these sectors. NCCBL trying to solve this difficult problem by introducing “House Repairing/ Renovation Loan Scheme”

Detail information of “House Repairing/Renovation Loan Scheme”:

House Repairing/Renovation Loan Scheme is available for the following person:

• The original owners of a house, whose age’s between 30 to 50 years.
• Who are capable to repayment of loan?
• The house for which repairing or renovation loan sought are not older than 20 years.
• Who has a account number in the loan providing branch.

               Amount of loan: By matching monthly income a person get maximum Tk. 5 lac from these loans.

               Interest and other charges: Interest: 16%

               Processing fee: @ 1% of the amount of loan sanctioned to be recovered only at the time of disbursement of the loan.

               Application Fee: Tk 500

               Mode of Disbursement:

The loan amount will be disbursed in 4 equal installments. Second installment will be released after being fully satisfied that the first installment has been properly utilized and so on.

               Mode of Repayment:

By monthly equal installment repayment of the installment will start from the 4th month of availing of the loan. Monthly installment has to be deposited by 10th of each following month. If any three installments are not paid, penal interest will be charged.

               Security:

• Equitable mortgage by way of simple deposit of original title deed with chain of documents of the property owned by the application, which value assessed by the Manager of the branch.
• Guarantee bond in Bank’s prescribed format from Guarantor on Tk. 150/- Non-judicial stamp.
• Personal guarantee of spouse of the borrower
• Letter of undertaking of the borrower in the bank prescribed from to pay monthly installment regularly.

Equal number of post dated cheque in which each

 Festival Small Business Loan Scheme (FSBLS):

This is one of the innovative products of NCCBL. The main 2 factor of this loan is this loan fully applicable for festival purpose and only for small businessman. The requirement of loan is not very high but which have beneficial effects for the small businessman who requires extra finance to stock the goods to cope with market demand especially during the festival time (Eid-ul –Fitr, Eid- ul- Azha, Durga Puza) to run their business smoothly. The disbursement/transaction procedure for festival small business loan shall be is re-cycling order and disbursement shall be stopped 15 days before the festival day and the disbursement shall start before 1 month of festival.

 Necessary Documents for FSBLS:

• D.P. Note.
• Letter of arrangement
• Letter of disbursement
• Letter of guarantee.
• Letter of authority to debit the account for loan installment, incidental and other bank charges
• Letter of hypothecation.
• Up to date trade license.

Festival Personal loan Scheme for Salaried Person (FPLS)

In our country or in the sub- continent culture religious festival is one of the biggest occasions for the whole year. No matter what the financial situation everyone just wants to involve in those occasion. So this is a big occasion for businessmen for their business purpose and also individual for the festival. Salaried person of our country cannot fulfill demand from their fixed income at the time of festival. During the festival they require to meet up their expenses. In order to cater to such emergent needs of the service holders, NCCBL has introduced this new scheme.

Interest and other charges for this type of loan:

• Interest @ 17% P.A at quarterly rest, subject to change.
• Application Fees- Tk.100/-

Security:

• Letter of authority to mark lien on the application’s provident fund, gratuity.
• Post dated Cheque covering the loan amount of the borrower’s current account maintained with the financing branch to be deposited in advance.
• Guarantee bond on bank’s prescribed format on TK150/- non-judicial stamp.
• Guarantee on bank’s standard format form the spouse of the borrower.

 Other special scheme:

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 installment to procure household amenities.

Lease Finance:

An entrepreneur, under this scheme, may avail of the lease facilities to procure industrial machinery 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.

Micro Credit Financing:

To fulfill the its commitment to play a vital role in socio economic development of the country NCCBL 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 and
• To generate employment.

Under the scheme NCCBL 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.
• IT Sector-Computer and computer accessories purchase for household use, setting up of computer training center etc.

 Performance of NCC Bank LTD in terms of loans and advances

• The performance of the bank in terms of loans and advances are as under:
• Total loans and advances for 2004 was Tk. 15211.15 million, but in 2005 is decreased to Tk. 20533.13 million. In 2006 it again increased to Tk. 24678.36 million, 23678.75 million in 2007 and 46332.69 million in 2008.

 Sector wise segregation of loans and advances

• The bank sanctions loan in different sectors to minimize the portfolio risk. The sector wise loans and advances of NCC Bank are as under:                  Figure in Million

• From the table it can be seen that NCC Bank has sanctioned loans for different sectors. The 1st position is business sector.

 Loans and advances on the basis of geographical location

• Division wise loans and advances are as under:

                                                                                                                      Figure in Million

 Performance on the basis of gross figures

The following table shows that total interest income was highest in 2006.  Net interest income, net operates income, Profit after tax was higher in this year. Finally we can say 2006 is good year for the bank comparing 2005.

                                                            (Million)

 Profitability Ratio analysis

Financial ratios are constructed by forming ratios of accounting data contained in the bank’s report of income and condition. A wide variety of financial ratios can be calculated to assess different characteristics of financial performance.

Return on assets (ROA)

Return on assets (ROA) is primarily an indicator of managerial efficiency. It indicates how capably the management of the bank has been converting the institution’s assets into net earning. ROA can be calculated as following-

Return on asset = (Net income/ Total asset) * 100

 ROA was higher in 2007 i.e. performance was better in 2006 in terms of ROA.

 Net operating Margin

It also indicates how well management and staffs have been able to keep the growth of revenues ahead of rising costs, principally the interest on deposits and money market borrowings and employee salaries and benefits. The formula to calculate profit margin is as follows-

Net operating margin = (Net operating income /Operating revenue) *100

 Profit Margin

It measures the relation between sales and profit. It is calculated by dividing net income by the operating revenues of the bank. Normally if return on equity and return on assets are higher the profit margin will also be higher. It indicates how well management and staffs have been able to keep the growth of revenues ahead of rising costs. The formula to calculate profit margin is as follows-

 Profit margin = (Net income / Operating income)*100

 Profit margin was higher in 2006 and lower in 2005.

Earning per share (EPS)

Earnings per share was higher in 2006.

 SWOT analysis of NCC Bank Ltd. is as under

Both manufacturing and service oriented business organizations start to possess some weakness as time elapse. The weaknesses of an organization can be turned into opportunities if recognized on time. Moreover, overlooking any threat may result in loosing valuable business opportunities. For this reason, an assessment of every business organization is required to judge the performance from the aspects of its Strength, Weaknesses, Opportunities and Threat (SWOT).

Strength:

      The bank provides quality service to the clients compared to it other contemporary competitors.

      Experienced bankers and corporate personnel have formed the management.

      Some services of the bank are automated which attract large number of clients. For instance, the bank provides Automated Taller machine (ATM) service s in several locations.

      The bank will very recently introduce on line banking which will enable it to automate all of its operations .At present, several banking functions are performed by computers. The bank is also a member of SWIFT (Society for Worldwide Inter bank Financial Telecommunication) alliance Access which enables the bank to exchange critical financial messages swiftly and cost effectively.

      NCC Bank has already achieved a goodwill among the clients that helps it retain the valuable clients.

Weaknesses:

      Delegation of authority is centralized which makes the employee to realize less responsibility. Thus, the employee morale is deteriorated.

      The credit proposal evaluation process is lengthy. Therefore, sometimes valuable clients are lost and the bank becomes unable to meet targets.

      No substantive use of Annual Confidential Report (performance evaluation form of the employee) to reward or to punish the employee. Hence the employee becomes ineffective.

      The bank lacks aggressive advertising and promotional activities to get a broad geographical coverage.

      The bank has only a few ATM booths and not in proper places. So, the scope of using ATM card is limited.

      Computer facility for all the officers is not available. Moreover, all the officers have no computer knowledge.

      The bank has no any research and development division.

Opportunities:

      The bank can introduce more innovative and modern products and services for then customers.

      The bank can offer micro credit business for individuals and small businesses.

      It can diversify its portfolio by taking new sector.

      Many branches can be opened to reach the bank’s services to the remote areas.

      It can recruit more efficient and experienced persons to give fast and efficient service to the customers.

Threats:

      The common attitude of Bangladeshi clients is default.

      Multinational as well as the fast growing local banks with modern products and services are capturing huge market within a short period and resulting to switch over the existing customers of the bank

      Bangladesh Bank sometimes requires Private Commercial Banks to be abided by such rules and regulations which are not suitable for every commercial bank.

 sack of skilled officers in the branch.

      The officers working with computer are not well trained.

      In case of cash credit, bank should collect stock report in monthly basis but stock report collection is irregular.

      Before sanctioning loan some times CIB report is not obtained from Bangladesh Bank.

      The average number of days required for sanctioning and disbursement of credit against specific loan proposal is high due to the requirements of different stages of the loan sanctioning and shortage of skilled officers in the credit department.

      On line services are not available in the branch, which are required to compete with the other competitors in banking sector.

      Monitoring of loan is not sufficient

      Information that is acquired by the bank officials to appraise a loan proposal is not enough to judge a borrower’s credit worthiness.

      Proper distribution of works responsibility among personnel is absent here.

Recommendations

 It has a large portfolio with huge asset to meet up its liabilities and the management of this bank is accomplished with the expert bankers and managers in all level of management and with a little knowledge about banking, it is not an easy job to find out the difficulties of this branch. Rather than recommending I would like to give my opinion to improve the banking service and make the customer more satisfied.

Renovation of customer service

Providing more industrial loans

Speed up Processing of loan application

If loan-processing time is lengthy, it will not get good borrower. Most of this time is spent for correspondence between Head Office and Branch. So the branch should speed up its loan processing time.

      Use Modern tools and techniques and evaluate customers credit needs professionally.

      Develop Communication Skills.

      Develop effective Management Information System (MIS).

Conclusions:

There are a number of private commercial banks, Nationalized Commercial Banks and foreign banks operating their activities in Bangladesh. The NCC Bank LTD one of them. For the future planning and the successful operation for achieving its prime goal in this current competitive environment this report can be a helpful guideline.

From the practical point of view declare boldly that I really have enjoyed my internship at NCC Bank from the first day. Moreover, internship program that is mandatory for my BBA program, although it is obviously helpful for my future thinking about my career.

Banks always contribute towards the economic development of a country. Compared with other banks NCC Bank is contributing more by investing most its funds in fruitful projects lending to increase in production of the country. It is obvious that right channel of banking establish a successful network over the country and increase resources; will be able to play a considerable role in the portfolio of development in the developing country like ours.

NCC Bank is playing its lending role in socio economic development of the country. Since inception NCC bank has been rendering its banking service with the needs of the nation to cope with the demands of people in the country. By doing many other works for state & society, NCC Bank has emerged as the pioneer of playing key role in our country.

Bibliographies

Category: Books & Articles.

      Annual Report of NCC Bank Limited from 2007-2008.

      Edward W. Reed and Edward K Grill “Commercial Banking” Prentice Hall, New Jercy,1989.

      Hai, M Enamul, “Bank Management” Jane Publishers, January 1996.

Category: Web Site.

      www.nccbank-bd.com.

      www.bangladesh bank-bd.org.