“Credit Risk Management”

A comparative analysis on three selected Banks-

(National Bank, Sonali Bank & Islamic bank

Bangladesh Limited)

By

Ashis Kumar Barman

ID# 2013110001094

An internship Report Presented in Partial Fulfillment

Of The Requirements for the Masters of Business Administration

Southeast University

07, January 2015

“Credit Risk Management”

A comparative analysis on three selected Banks-

(National Bank, Sonali Bank & Islamic bank

Bangladesh Limited)

By

Ashis Kumar Barman

ID# 2013110001094

Has been approved

January 2015

__________________

Sadia Noor Khan

Lecturer

School of Business

Southeast University

i

Letter of Transmittal

7th January, 2015

Sadia Noor Khan

Lecturer,

School of Business

Southeast University

Subject: Submission of the internship working report.

Dear Madam,

I am glad to submit my report on the topic as you have assigned me to prepare an internship

report on retail banking a comparative analysis on three selected banks as a partial requirement.

Now I am looking forward for your kind appraisal regarding internship report.

You would be glad to hear that I have given my best effort to prepare the report with relevant

information that I have collected from National Bank Limited, Gulshan Branch and from other

relevant sources during my internship program. I have the great pleasure to have the opportunity

to study on “Credit Risk Management” of National Bank Limited. It is meaningful to mention

that the knowledge I have gathered during the internship period, it will help me in practical field

of professions.

In spite of various inadequacies I have tried to cover all the relevant affairs. It is quite worthy to

mention that without your kind hearted guidance and cooperation it would not be possible for me

to authenticate this paper. I will be pleased and grateful to you to answer any sort of quarry you

think necessary.

Sincerely yours,

_________________

Ashis Kumar Barman

ID-2013110001094

ii

iii

Certification

This is to certify that Ashis Kumar Barman ID: 2013110001094, student of the

MBA program of Southeast University Bangladesh has done a project work titled

“Credit Risk Management- A comparative analysis on three selected Banks- (National

Bank, Sonali Bank & Islamic bank Bangladesh Limited)” under my supervision and

guidance. The student is found to be intelligent, sincere and hardworking.

Name: Name:

Member: 1 Member: 2

Supervisor

iv

Acknowledgment

A warm felicitation goes for me to acknowledge the people, who hold the desirability for

encouraging, praising, assisting as well as believing me on the tasks of marketing activities what

I have worked through my internship period. First of all I would like to take the opportunity to

thank, Sadia Noor Khan Lecturer, Southeast University & my internship supervisor for providing

me guidelines, help in assisting my report. She was constantly supporting me with his inspiring

personality. I will always be always thankful for his extraordinary reinforcement. I am not have

been successful in complete the report without the active support and cooperation from many

persons in the National Bank Limited, Gulshan Branch. I have tried my best and also worked

hard for preparing this report. I also want to express my strong gratitude to MR. SOFIQUL

ISLAM (PO) for his enthusiastic cooperation and supervision during the preparation of the

report. I am grateful to him for his suggestions and all instance observations to prepare the

report. I would also like to thank to the officials of National Bank Limited, Gulshan Branch

especially MR.SYED SHAHINUR ISLAM, (AVP), MR RABIUL ISLAM, (AVP), MR.

MD.JAHANGIR HOSSAIN (AVP), MS. MILIA HAQUE (PO), MS. SHARMINA IASMIN

(PO), MS.SADIA AFRIN (PO), MR. MD. SHAH ALAM (SEO), MR. MD. ZASHIM UDDIN

(SEO), MS SHAMIMA SULTANA (SEO), MR. NAHIAN KHAN (E.O), MRS. FOUZIA

AFRIN KHAN (E.O), MR.MOHAMMAD SHAHJALAL (E.O), MR FAISAL JUBAIR

JO(GEN) and a very special thanks goes to MR. MD SHEL FAISAL, SVP of National Bank

Limited, Gulshan Branch for providing all the support in the organization. Special thanks go to

the respondents, who spared their time generously, and took the trouble of answering my queries

and helped me to complete my study.

v

Executive Summary

Banks and other financial institutions play a vital role in forecasting the economic and social

condition of a country. Banks in Bangladesh now constitutes the core of the country’s organized

financial system. They mobilize the savings of people and channel the resources toward

different sectors of the economy. Customer satisfaction is one of the most vital reflections of

the progression toward advancement and development for any service institution. As service

providing organization, providing best service is one of the mottos of the commercial banks.

With the customers’ perception as well as satisfaction, the mirror image of service quality in

private commercial banks can be obtained. The achievement of the customers’ satisfaction is

the key feedback to improve service quality. Financial conditions have analyzed more to

determine the organizational position. This study is mainly focused on credit risk management

of National Bank Ltd. Like the other private commercial banks, NBL also competing with

others to flourish in this country. Providing loan service is only means to flourish. Therefore,

measuring the level of customer satisfaction is very crucial. Measuring customer satisfaction is

not any single task. Customers’ expectations are also required to measure the level of customer

satisfaction. Therefore, total required information has collected through the questionnaire. After

essential calculations, it has found that the customers of National Bank Ltd. are overall satisfied

regarding the provided services of the bank. The mean value customers’ perception is 4.03 and

the expected mean value is4.88. As the perceived mean value is over 4, the level of customer

satisfaction of National Bank Ltd. is “Good”. In addition, the expected mean value demonstrate

that, the customers are not expecting just about “World Class” services. As the expectation

level of human being has no bounds, there are difference between the expectation and

perception. There is no predicament in the world that does not have any remedy. Customers

also provide many suggestions to improve the level of provided services of NBL. Those

suggestions are incorporate in this report after some modification by consulting some related

research work. By implementing these recommendation levels of satisfaction of NBL can be

improved.

Table of content

i. Letter of Transmittal

ii. Bank Certificate

iii. Supervisor Certificate

iv. Acknowledgement

v. Executive Summery

Chapter No. Title Page No.

Chapter

One

Introduction 1

1.1 History of the NBL 2-4

1.2 Objectives of the NBL 4

1.3 Functions of the NBL 4-5

1.4 Roles of the NBL in the Economic

Development in Bangladesh

6-7

1.5 Organogram of the NBL 8-9

1.6 Present Programs of NBL 10-17

1.7 Rationale of the Report 18

1.8 Objectives of the Study 18

1.9 Methodology of the Study 19

1.10 Data analysis & presentation 19

1.11 Limitation of the Study 20

Chapter

Two

Findings & Analysis 21

2.1 Definitions of risk 22

2.2 Definition of Credit risk 22-23

2.3 Credit Risk and Bangladesh Bank 23-26

2.4 Process of Credit Risk 26-30

2.5 Types of credit risk 30

2.6 Organizational Structure 30-32

2.7 Credit risk planning 32

2.8 Tools of credit risk 32-35

2.9 Essential Components of a Sound Credit

Policy

35-36

2.10 Focus on Industry and Business Segment 36

2.11 Lending Guidelines 36

2.12 Indebtedness, Rural and Urban 37

2.13 Leading Guidelines of NBL 38-41

2.14 Credit Principles of NBL 41

2.15 Credit Evaluation Process of NBL 42-43

2.16 Performance Evaluation 44

2.17 Financial Performance 45-50

2.18 Analyzing of NBL Performance with

financial Ratios

51-56

2.19 Key Findings 56-57

2.20 Major Learning Points 57

Chapter-

Three

Conclusion & Suggestions 58

3.1 Conclusion 59

3.2 Recommendation

61

3.3 Bibliography

62

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Chapter-1

Introduction

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1.1 History of the NBL:

National Bank Limited (NBL) is a Public Company Limited by shares in the Country, with

commendable operating performance. Directed by the mission to provide prompt and efficient

services to clients, NBL provides a wide range of commercial banking services also. Bank has

achieved success among its peer group within a short span of time with its professional and

dedicated team of management having long experience, commendable knowledge and expertise

in convention with modern banking. With all its resources, the management of the Bank firmly

believes that the Bank would be able to encounter problems that may arise both at micro and

macroeconomic levels. NBL incorporated in Bangladesh under company Act 1994. It is also

guided by The Bank Company Act 1991 (and its subsequent amendments) and Bangladesh Bank

Ordinance 1972, so as to enable the company for doing banking business. National Bank Limited

has its prosperous past, glorious present, prospective future and under processing projects and

activities. Established as the first private sector Bank fully owned by Bangladeshi entrepreneurs,

NBL has been flourishing as the largest private sector Bank with the passage of time after facing

many stress and strain. The member of the board of directors is creative businessman and leading

industrialist of the country. To keep pace with time and in harmony with national and

international economic activities and for rendering all modern services, NBL, as a financial

institution automated all its branches with computer network in accordance with the competitive

commercial demand of time. Moreover, considering its forth-coming future the infrastructure of

the Bank has been rearranging. The expectation of all class businessman, entrepreneurs and

general public is much more to NBL. National Bank Limited was born as the first hundred

percent Bangladeshi owned Bank in the private sector. From the very inception it is the firm

determination of National Bank Limited to play a vital role in the national economy. They are

determined to bring back the long forgotten taste of banking services and flavors. They want to

serve each one promptly and with a sense of dedication and dignity. The emergence of National

Bank Limited in the private sector is an important event in the Banking arena of Bangladesh.

When the nation was in the grip of severe recession, Govt. took the farsighted decision to allow

in the private sector to revive the economy of the country. Several dynamic entrepreneurs came

forward for establishing a bank with a motto to revitalize the economy of the country. The then

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President of the People’s Republic of Bangladesh Justice Ahsanuddin Chowdhury inaugurated

the bank formally on March 28, 1983 but the first branch at 48, Dilkusha Commercial Area,

Dhaka started commercial operation on March 23, 1983. The 2nd Branch was opened on 11th

May 1983 at Khatungonj, Chittagong. At present, NBL has been carrying on business through its

101 branches spread all over the country. Besides, the Bank has drawing arrangement with 415

correspondents in 75 countries of the world as well as with 32 overseas Exchange Companies.

NBL was the first domestic bank to establish agency arrangement with the world famous

Western Union in order to facilitate quick and safe remittance of the valuable foreign exchanges

earned by the expatriate Bangladeshi nationals. NBL was also the first among domestic banks to

introduce international Master Card in Bangladesh. In the meantime, NBL has also introduced

the Visa Card and Power Card. The Bank has in its use the latest information technology services

of SWIFT and REUTERS.NBL has been continuing its small credit programmed for

disbursement of collateral free agricultural loans among the poor farmers of Barindra area in

Rajshahi district for improving their lot. Alongside banking activities, NBL is actively involved

in sports and games as well as in various Socio-Cultural activities. Up to September 2006, the

total number of workforce of NBL stood at 2239, which include 1689 officers and executives

and 550 staff. The year 2006 marked the addition of yet another golden stair in the chronicle of

NBL’s success story. Compared to 2005, Foreign exchange business of the Bank increased by

34.40% to Tk. 5186 crore, of which export, import and remittance business increased by 34.16%,

31.27% and 56.50% respectively. Total assets of the Bank stood at Tk. 4483 core on 30.09.2006.

NBL invested 25% equity in Gulf Overseas Exchange Company LLC, a joint venture Exchange

Company in Oman, operating since November, 1985 under the management of our Bank. The

Bank received Riyal Omani 11875 equivalent to Tk.2.10 million as dividend for the year 2013.

Now NBL is on line to establish trade and communication with the Prime International banking

companies of the world. As a result NBL will be able to build a strong root in international

banking horizon. Bank has been drawing arrangement with well conversant money transfer

service agency “Western Union”. It has a full time arrangement for speedy transfer of money all

over the world. Banking is not only a profit-oriented commercial institution but it has a public

base and social commitment. Admitting this true NBL is going on with its diversified banking

activities. NBL introduced National Bank Monthly Savings Scheme (NMS), Special Deposit

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Scheme, Consumer’s Credit Scheme and NBL Housing Loan, NBL Small Business Loan, Small

House Loan Scheme, Festival Small Business loan etc. to combine the people of lower and

middle-income group.

1.2 Objectives of the NBL:

NBL is to become “A Bank for Performance with Potential” by transforming the way they do

business and developing a truly unique financial institution that delivers superior growth and

financial performance and be the most recognizable brand in the financial service in Bangladesh.

NBL dreams to become the bank of choice of the general public, which includes both the

consumer and the corporate clients. They want to build such an image that whenever people will

think of a bank, they will think of NBL. In order to build up such an image, NBL has taken up

some attractive promotional campaign. They are targeting the young generation in particular

because research has shown that people usually have a soft corner for the first bank of their lives

and tend to stick to it if they are satisfied with its services. With this plan in mind, NBL is trying

to project itself as a vibrant and dynamic organization by introducing state-of-the-art banking

technology that will make banking easier and hassle-free to the young generation.

1.3 Functions of the NBL:

The main task of the NBL is to accept deposited from various customers through various

accounts.

Provides loans on easy terms and condition

It creates loan deposit

The bank invest it fund into profitable sector

It transfers money by Demand Draft (DD), Pay Order (PO) and Telegraphic Transfer etc

The bank is doing the transaction of bill of exchange, Cheque etc. on behalf of the clients

NBL assists in the Foreign Exchange by issuing Letter of Credit

The bank insures the securities of valuable documents of clients

It brings the increasing power of dimension of transaction

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Above all, NBL helps the businessmen financially by giving discount facility for bill of

exchange and by providing the facility of Letter of Guarantee

Outstanding customer service

Effective and efficient operations

Strong capital liquidity

Expense discipline

NBL Conservative lending policy

Strict also operates according to certain key Business Values

The highest personal standard of integrity at all levels

Commitment to truth and fair dealing

Openly esteemed commitment to quality and competence

A minimum of bureaucracy

Fast decisions and implementation

Putting the Group’s interests ahead of the individual’s

The appropriate delegation of authority with accountability

Fair and objective employer

Merit approach to recruitment/selection/promotion process

The promotion of good environmental practice and sustainable development, and

commitment to the welfare and development of each local community

A commitment for complying with the spirit and letter of all laws and regulations

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1.4 Roles of the NBL in the Economic Development in Bangladesh:

The growth of world economy, according to World Bank’s study on Global Economic Prospects

2005, has been broadening over the past few years. Real GDP growth of the world is expected to

be 3.20% in the year 2005 which is remarkably higher than that of the previous years due to

improvements in macroeconomic fundamentals, enhanced structural flexibility, a stronger

economic climate and progress toward reducing trade barriers. However, International Monetary

Fund (IMF) had forecasted 4.30% growth for 2005. The economic growth had gained

momentum and now well entrenched in most of Asia, which represents a solid starting point for

long term growth and in all possibilities would increase the likelihood of the developing

countries to meet their Millennium Development Goals. If such favorable environment sustains

for long, the developing countries would surely be able to achieve rapid and sustained per capita

growth at a level of 3.50% per annum between 2006 and 2015, which would enable them to

halve the incidence of extreme poverty by 2015. Global growth rate slowed down to some extent

in the year 2005 and is expected to slide further to 3.20% in the year 2006, mainly due to

increase in oil and commodities price. According to Global Economic Prospects 2005, high oil

prices have dramatically worsened the poverty of the poorest oil importing countries. These

spiraling fuel prices have acted as an impediment to recovery of the world’s economies of some

countries which did not fully participate in the global expansion. On the other hand, the high fuel

prices acted as a moderating influence, where aggregate demands were already buoyant. This is

not surprising because services are assumed to be income elastic and a relative rise in the share

consumption is understood. This effect is reinforced by the relatively high rate of productivity

growth in manufacturing. In high growth regions in East Asia and South Asia, where GDP is

forecasted to be 5.40% and 6.30% respectively for the year 2005, exists two contrasting scenario.

In South Asia the employment in agriculture shifted mostly to services, with a small increase in

industrial output. In East Asia, employment in agriculture shifted more evenly between industry

and services. However, long-term growth in South Asia is forecasted to average about 5.50%

during 2006-2015 as the contribution to growth from the private sector continued to rise. The

Government continued to take necessary measures with a view to recovering the losses caused

by the devastating floods and other natural calamities of the previous year. Efforts were made to

7 | P a g e

boost export and loans were extended for rapid and sustainable development and expansion of

the Small & Medium Enterprise (SME). In the year 2005, the country again passed through a

year of socio-political chaos. Series of terrorist activities across the country stifled investors’

confidence and curtailed the economic activities to some extent. Even with all these adversities

brewing around, the country successfully combated the aftermath of post MFA era. GDP growth

is likely to exceed 5.40% in FY 2005. With the exception of agriculture, the growth in

production was broad based covering wide range of activities in non-crop agriculture, industries

and services. Robust annual growth of manufacturing sector, estimated at 8.50% by the Bureau

of Statistics, is partly the result of strong growth in the fourth quarter. It is reflected in the

movement of quantum index of the manufacturing industries, covering mainly, medium and

large-scale industries, which witnessed about 8.80% growth in the fourth quarter of FY 2005.

Consumer Price Index (CPI) inflation, according to the study of Economic Trend by Bangladesh

Bank, exhibited a moderate trend during the first half of the year and showed an upward trend in

the second half of FY 2005. The point-to-point inflation during the year increased from 5.50% in

December 2004 to 6.70% in March 2005 and further to 7.40% in June-2005. The growth in the

operating profit of the private banking sector in the year 2005 registered at 29% over 2004. On

the other hand, the macroeconomic challenges, faced by the policymakers, were to facilitate

orderly adjustments of exchange rate and interest rate in order to maintain macroeconomic

balance in the face of external sector adversities of continuing escalation in oil price and post

MFA era uncertainties. The ethos of NBL for pursuing its activities in social arena has got

further momentum with enthusiasm and support. National Bank Foundation was established by

the board of directors of National Bank in 1989. With the financial help of the foundation,

National Bank Public School and College was established at Mogbazar, Dhaka. After

establishment, NBL is continuously facilitating with sports and cultural activities. As a

continuation of it, NBL has patronized the “National Bank Volleyball league” arranged by

Bangladesh Volleyball federation. NBL never hesitate to extent the hand of help in case of

natural calamities and national cultural festival.

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1.5 Organogram of the NBL:

Directors (Owners)

Managing Director (MD)

Additional Managing Director (AMD)

Deputy Managing Director (DMD)

Vice President (VP)

Executive Vice President (EVP)

Senior Vice President (SVP)

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Source: Office document

Senior Principal Officer (SPO)

Principal Officer (PO)

Probationary Officer

Junior Officer

Officer

Assistant officer

Assistant Vice President (AVP)

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1.6 Present Programs of NBL:

Efforts for expansion of NBL activities at home and abroad by adding new dimensions to our

banking services are being continued unabated. Alongside, NBL are also putting highest priority

in ensuring transparency, account ability, improved clientele service as well as to their

commitment to serve the society through which they want to get closer and closer to the people

of all strata. Winning an everlasting seat in the hearts of the people as a caring companion in

uplifting the national economic standard through continuous up gradation and diversification of

our clientele services in line with national and international requirements is the desired goal we

want to reach. At present, NBL has been carrying on business through its 106 branches spread all

over the country. Besides, the Bank has drawn arrangement with 415 correspondents in 75

countries of the world as well as with 32 overseas Exchange Companies. NBL was the first

domestic bank to establish agency arrangement with the world famous Western Union in order to

facilitate quick and safe remittance of the valuable foreign exchanges earned by the expatriate

Bangladeshi nationals. NBL was also the first among domestic banks to introduce international

Master Card in Bangladesh. In the meantime, NBL has also introduced the Visa Card and Power

Card. The Bank has in its use the latest information technology services of SWIFT and

REUTERS. NBL has been continuing its small credit programmed for disbursement of collateral

free agricultural loans among the poor farmers of Barindra area in Rajshahi district for improving

their lot. Alongside banking activities, NBL is actively involved in sports and games as well as in

various Socio-Cultural activities. Up to September 2006, the total number of workforce of NBL

stood at 2239, which include 1689 officers and executives and 550 staff.

11 | P a g e

Product Scheme Current Deposit:

National Bank Limited offers customers current deposit facility for day-to-day business

transaction without any restriction.

Benefits (Condition Apply)

Minimum balance Tk.2000.

Minimum maintenance charge yearly Tk. 800.

No hidden costs.

Standing Instruction Arrangement are available for operating account.

Easy access to our other facilities.

Account Opening

copies of recent photograph of account holder.

TIN certificate.

Nominee’s Photograph.

Valid photocopy of Voter ID Card.

Home Loan:

NBL offers home loan facility for purchasing flats or construction of house.

Benefits (Condition Apply)

Financing amount extends up to 70% or Tk. 75, 00,000 which is highest of total construction

cost. Grace period available up to 9 months in flat purchase or 12 months in construction.

Competitive interest rate.

SME Loan:

NBL offers financial support to small businessmen/enterprise with new products named

“Festival Small Business Loan” and “NBL Small Business Loan” has been introduced in the

Bank.

Benefits (Condition Apply)

Maximum Tk.3.00 lac (Festival Scheme) and Maximum Tk.5.00 lac (Small Business

Scheme) .

Months (Festival Scheme) and 5 years (including 1 month grace period (Small Business

Scheme).

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Consumer Loan:

NBL offers consumer credit facility for retail customers.

Financing items

Electronics consumer products.

Computer or Computer accessories.

Trade Finance:

NBL provides comprehensive banking services to all. types of commercial concerns such as in

the industrial sector for export-import purpose as working capital, packing credit, trade finance,

Issuance of Import L/Cs, Advising and confirming Export L/Cs. – Bonds and Guarantees .

Benefits (Condition Apply)

Low interest rate 13.00%-14.50%.

Minimum processing time.

Low service charges.

Savings Deposit:

National Bank Limited offers customers a basal free and low charges savings account through

the branches all over Bangladesh.

Benefits (Condition Apply)

Interest rate of 6.00% on average monthly balance.

Minimum balance Tk.1000.

Maintenance charge yearly Tk. 400.

No hidden costs.

Standing Instruction Arrangement are available for operating account.

copies of recent photograph of account holder.

Nominee’s Photograph.

Valid photocopy of Voter ID Card

Current Deposit:

National Bank Limited offers customers current deposit facility for day-to-day business

transaction without any restriction.

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Benefits (Condition Apply)

Minimum balance Tk.2000.

Minimum maintenance charge yearly Tk. 800.

No hidden costs.

Standing Instruction Arrangement are available for operating account.

Easy access to our other facilities.

Account Opening

Copies of recent photograph of account holder.

TIN certificate.

Nominee’s Photograph.

Valid photocopy of Voter ID Card.

RFC Deposit:

National Bank Limited gives opportunity to maintain foreign currency account through it’s

Authorized Dealer Branches. Bangladesh nationals residing abroad or foreign nationals

residing abroad or Bangladesh and foreign firms operating in Bangladesh or abroad or

Foreign missions and their expatriate employees.

Benefits (Condition Apply)

No initial deposit is required to open the account.

Interest will be offered 1.75% for US Dollar Account, 3.00 % for EURO Account and

3.25% for GBP Account.

They will get interest on daily product basis on the credit balance (minimum balance

of US$ 1,000/- or GBP 500/- at least for 30 days) maintaining in the account.

Copies of recent photograph of account holder.

Nominee’s Photograph.

Passport Copy.

ID of residence in abroad.

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NFC Deposit:

National Bank Limited gives opportunity to maintain foreign currency account through it’s

Authorized Dealer Branches. All non –resident Bangladeshi nationals and persons of

Bangladesh origin including those having dual nationality and ordinarily residing abroad may

maintain interest bearing NFCD Account.

Benefits (Condition Apply)

NFCD Account can be opened for One month, Three months, Six months and One

Year through US Dollar, Pound Starling, Japanese Yen and Euro.

The initial minimum amount of $1000 or 500 Pound Starling or equivalent other

designated currency.

Monthly Savings:

National Bank Limited offers monthly savings scheme for its retail customers.

Benefits (Condition Apply)

Monthly amount can be 500 and multiple of it.

Premature encashment is available for urgent need.

Loan facility can be available up to 80% against NMS account balance.

Standing instruction facility can be available to auto transfer installment to NMS

account.

1 copy of your recent photograph.

Nominee’s Photograph.

Short Term Deposit:

National Bank Limited offers interest on customer’s short term savings and gives facility to

withdraw money any time.

Benefits (Condition Apply)

Minimum balance Tk. 2000.

Minimum maintenance charge yearly Tk. 800.

Standing Instruction Arrangement are available for operating account

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Fixed Deposit:

National Bank Limited offers fixed term savings that will scale up your savings amount with

the time.

Benefits (Condition Apply)

Any amount can be deposited.

Premature encashment facility is available.

Overdraft facility available against term receipt.

1 copy of recent photograph of account holder.

Nominee’s Photograph.

Overdraft:

NBL offers overdraft facility for corporate customers for day-today business operations .

Benefits (Condition Apply)

Low charges in overdraft account maintenance.

Facility is available against deposit receipt or mortgage property.

Low interest rate 13-16%

Opening

Introductory current account.

Others necessary documents as per loan requirement

Western Union:

Joining with the world’s largest money transfer service “Western Union”, NBL has introduced

Bangladesh to the faster track of money remittance. Now money transfer between Bangladesh

and any other part of the globe is safer and faster than ever before. This simple transfer system,

being on line eliminates the complex process and makes it easy and convenient for both the

sender and the receiver. Through NBL – Western Union Money Transfer Service, your money

will reach its destination within a few minutes.

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Credit Card:

Credit card is the newest concept in our country. In our country Credit card was first introduced

by the National bank ltd. master card is a name of popular credit card band and it is worldwide

accepted credit card. Credit card is safe, instant and universal money. National bank ltd issued

two types of credit card, which is as follows:

Local credit card:

Local credit card is two types, such as “gold card” and “silver card”.

Gold card limit is 45000 taka to 100000 taka

Silver card limit is 10000 taka to 45000 taka

Requirement for local credit card:

FDR.STD account Loan

Tax identification number

Two copy passport size photo

International credit card:

International Credit Card has also two types, such as gold card and silver card. For international

purpose gold card limit is 2000 us dollar to 4000 us dollar. For international purpose silver card

limit is 1000us dollar to 2000us dollar.

Requirement for international credit card:

Passport photocopy (first five pages)

Two copy passport size photo.

TIN number

FDR, STD, SB account lien

Through its Credit Card. National Bank Limited has not only initiated a new scheme but also

brought a new life style concept in Bangladesh. Now the dangers and the worries of carrying

cash money are memories of the past credit card.

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NBL ATM Services:

ATM means automated teller machine. NBL ATM card give opportunity to their customer that

they can withdraw their money at any time, any days even holidays. By using ATM subscriber

can give various utility bill such as telephone, gas, electricity bills etc. actually ATM card is a

debit card. National Bank Limited has introduced ATM service to its Customers. The card will

enable to save our valued customers from any kind of predicament in emergency situation and

time consuming formalities. NBL ATM Card will give our distinguished Clients the

opportunity to withdraw cash at any time, even in holidays, 24 hours a day, and 7 days a week.

Charges for ATM card: -

ATM card holders have to pay 1000 taka annually and in the case of card lost subscriber also

pay additional 300 taka.

NBL Power Card:

It is a prepaid card. No need of any account of NBL branch. Application form available at any

NBL branch and card center. No annual fee for the first year. Renewal fee tk 200.00 only.

Local card limit 1000at minimum or its multiple. International card limit-US$ 500.00 at

minimum. Refill through any NBL branch. Drawing cash from NBL ATMs free of charge &

from ATMs under Q-Cash network-Tk 10.00 per transaction from other ATM-Tk 100.00.

Loading fee for international card will be charged @1% of the loaded amount. Cash withdraw

fee (abroad) 2% of the cash drawn amount or US $.2.00, whichever is higher. Accepted at all

VISA POS merchants. Cash withdrawal at all ATM booths bearing VISA and Q-Cash logo.(

Except HSBC Bangladesh). Utility bill payment. It is a prepaid card. No need of any account of

NBL branch. Application form available at any NBL branch and card center. No annual fee for

the first year. Renewal fee Tk 200.00 only. Local card limit 1000at minimum or its multiple.

International card limit-US$ 500.00 at minimum. Refill through any NBL branch.

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1.7 Rationale of the Report: The internship program is very helpful to bridge the gap between the theoretical knowledge and

real life experience as the part of the Bachelor of Business Administration (MBA) program. This

internship report has been designed to have a practical experience through the theoretical

understanding. For the completion of this internship program I have been placed in Bank named

“National Bank Limited”. I decided to work on the practices of general banking and credit

activities of the bank. The report focuses on the practices of the general banking activities.

1.8 Objectives of the Study:

The core objective of this study is to analyze Credit Risk Management of National Bank Ltd &

other banks in Bangladesh and draw a comparison between these banks to identify the position in

the banking industry. The objectives of the report are as follows:

Broad Objective:

To partial fulfillment of my MBA degree.

To match my academic knowledge with the real corporate business set up.

To enlarge my experience from a real corporate exposure.

To enhance my adaptive quality with the real life situation.

Specific Objective:

To know organizational profile of National Bank Ltd.

To evaluate the factors affecting performance of the bank.

To identify areas where these banks are performing well.

To emphasize areas where improvement is possible.

Comparative analysis to identify their position.

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1.9 Methodology of the Study:

This report has been prepared on the basis of understanding gathered during the period of

internship. In order to prepare this report, I have also collected information from different section

and department of the bank. I have presented my experience and findings through using different

table and charts which are presented sequentially. To prepare an authentic and informative report

I studied all the company’s information, record, company website and other relevant things.

(a)Primary Source I have collected primary information by interviewing employees, managers, observing various

organizational procedures, structures. Primary data were mostly derived from the discussion with

the employees of the organization.

(b)Secondary Source I have elaborated different types of secondary data in my research. Sources of secondary

information can be defined as follows:

Internal Sources · Bank’s Annual Report – 2011- 2013

· Group Instruction Manual & Business Instruction Manual

· Prior research report

External Sources · Different books and periodicals related to the banking sector

· Bangladesh Bank Circulars

· Website Information

1.10 Data analysis & presentation:

Collected data have been analyzed through descriptive statistical tools & Ms Excel. After

analyzing the data they have been presented in tabular & graphical format.

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1.11 Limitation of the Study:

Every matter has got some limitation. So this is also not an exception. So this is also not an

exception. The limitations of this internship report are been sated below:

Due to time and cost restriction, the study is concentrated in selected areas of the Bank.

To continue study in such a vast are requires a big deal of time. As an internee I had only

three month, which is not enough

As a financial organization the bank used to maintain confidentiality of their valuable

data. As a result the study is mostly depends on official files and annual report.

It was very difficult to verify the accuracy of the collected data. Available data also could

not be verified.

National Bank as a private commercial Bank they are very busy and they could not able

to give me enough time for discussion about various topics.

In case of performance analysis secondary data are used.

Through there are some limitations I have tried my best to collect adequate data and information

to make the report meaningful.

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Chapter-2

Findings & Analysis

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Credit Risk Management of National Bank Limited

2.1 Definitions of risk:

Risk is a concept that denotes a potential negative impact to some characteristic of value that

may arise from a future event, or we can say that “Risks are events or conditions that may occur,

and whose occurrence, if it does take place, has a harmful or negative effect”. Risk is a

commercial strategic board game, produced by Parker Brothers (now a division of Hasbro). It

was invented by French movie director Albert Lamorisse, and originally released in 1957, as La

Conquête du Monde (The Conquest of the World), in France. Risk is an album by thrash metal

band Megadeth released in 1999. Risk is also notable as the last original Megadeth release to

feature long time Megadeth guitarist Marty Friedman. This album is the first Megadeth recording

with drummer Jimmy DeGrasso. The probability of harmful consequences, or expected losses

(deaths, injuries, property, livelihoods, economic activity disrupted or environment damaged)

resulting from interactions between natural or human-induced hazards and vulnerable conditions

Risk is a science fiction short story by Isaac Asimov, first published in the May 1955 issue of

Astounding Science Fiction, and reprinted in the collections The Rest of the Robots (1964) and

The Complete Robot (1982).

2.2 Definition of Credit risk:

Risk is inherent in all commercial operations. For banks and financial institutions credit risk is an

essential factor, which needs to be managed properly. Credit risk virtually is the possibility that a

borrower will fail to repay debt in accordance with the terms of sanction. Credit risk therefore

arises from the bank’s lending operations. In the present days state of deregulation and

globalization banks range of activities have increased, so also are the bank. Expansion of bank

lending operations covering new products have focused the bank to confront newer risk areas

and therefore to work out proper risk addressing devices. Credit risks are so exhaustive that a

single device cannot encompass all the risk. As National bank is providing credit facility out of

its total available funds, it has to manage these credits very efficiently. An efficient credit

management system comprises many things and this cover the pre-sanction activities to post-

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sanction activities. Credit management is important as it helps the banks and financial

institutions to understand various dimensions of risk involved in different credit transactions. At

the pre-sanction stage, credit management helps the sanctioning authority to decide whether to

lend or not to lend, what should be the loan price, what should be the extent of exposure, what

should be the appropriate credit facility, what are the various facilities, what are the various risk

mitigation tools to put a cap on the risk level. At the post-sanctioning stage, the bank can decide

about the depth of the review of renewal, frequency of review, periodicity of the grading, and

other precautions to be taken.

2.3 Credit Risk and Bangladesh Bank: The Financial Sector Reform Project (FSRP) has designed the LRA package, which provides a

systematic procedure for analyzing and quantifying the potential credit risk. Bangladesh Bank

has directed all commercial bank to use LRA technique for evaluating credit proposal amounting

to Tk. 10 million and above. The objective of LRA is to assess. The credit risk in quantifiable

manner and then finds out ways & means to cover the risk. However, some commercial banks

employ LRA technique as a credit appraisal tool for evaluating credit proposals amounting to Tk.

5 million and above. Broadly LRA package divides the credit risk into two categories, namely

Business risk & Security risk. A detail interpretation of these risks and the procedure for

evaluating the credit as follows:

2.3.1 Business Risk:

It refers to the risk that the business falls to generate sufficient cash flow to repay the loan.

Business risk is subdivided into two categories.

2.3.2 Industry Risk:

The risk that the company fails to repay for the external reason. It is subdivide into supplies

risk and sales risk.

2.3.3 Supplies Risk:

It indicates that the business suffers from external disruption to the supply of imputes.

Components of supplies risk are as raw material, Labor, power, machinery, equipment, factory

premises etc.

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2.3.5 Sales Risk:

This refers to the risk that the business suffers from external disruption of sales. Sales may be

disrupted by changes to market size, increasing in competition, change in the regulation or due

to the loss of single large customer. Sales risk is determined by analyzing production or

marketing system, industry situation, Government policy, and competitor profile and

companies strategies.

2.3.6 Company Risk:

This refers to the risk that the company fails for internal reasons. Company risk is subdivided

into company position risk and Management risks.

2.3.7 Company Position Risk:

Within an industry each and every company holds a position. This position is very competitive.

Due to the weakness in the company’s position in the industry, a company is the risk for

failure. That means, company position risk is the risk of failure due to weakness in the

company’s position in the industry. It is subdivided into performance risk and resilience risk.

2.3.8 Performance Risk:

This risk refers to the risk that the company’s position is so weak that it will be unable to repay

the loan even under Favor able external condition. Performance risk assessed by SWOT

(Strength, Weakness, Opportunity and Threat) analysis, Trend analysis, Cash flow forecast

analysis and credit report analysis (i.e. CIB repot from Bangladesh Bank).

2.3.9 Resilience Risk:

Resilience means to recover early injury, this refers to risk that the company falls due to

resilience to unexpected external conditions. The resilience of a company depends on its

leverage, liquidity and strength of connection of its owner or directors. The resilience risk is

determined by analyzing different financial ratio, flexibility of production process, shareholders

willingness to support the company if need arise and political and private affiliation of owners

and key personnel.

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2.3.10 Management Risk:

The management risk refers to the risk that the company fails due to management not

exploiting effectively the company’s position. Management risk is subdivided into management

competence risk and integrity risk.

2.3.11 Management Competence Risk:

This refers to the risk that falls because the management is incompetent. The competence of

management depends upon their ability to manage the company’s business efficiently and

effectively. The assessment of management competence depends on management ability and

management team work. Management ability is determined by analyzing the ability of owner

or board of the members first and then key personnel for finance and operation. Management..

2.3.12 Management Integrity Risk:

This refers to the risk that the company fails to repay the loan amount due to lack of

management integrity. Management integrity is a combination of honesty and dependability.

2.3.13 Security Risk:

This sort of risk is associated with the realized value of the security, which may not cover the

exposure of loan. Exposure means principal plus outstanding interest. The security risk is

subdivided into two major heads i.e. security control risk and security cover risk.

2.3.14 Security Control Risk:

This risk refers to the risk that the bank falls to realize the security because of bank’s control

over the security offered by the borrower i.e. incomplete documents. The risk of failure to

realize the security depends on the difficulty in obtaining favorable judgment and taking

possession of security. For analyzing the security control risk the credit office is required to

verify documentation to ensure security protection, documentation completeness,

documentation integrity and proper insurance policy. He/she also conducts site visit to verify

security existence. Assessment of security control risk requires analyzing the possibility of

obtaining favorable judgment and analyzing the case with which the bank could take the

possession and liquidate the securities.

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2.3.15 Security Covers Risk:

This refers to the risk that the realized value of security is less than exposure. Security cover

risk depends on speed of realization and liquidation value. For analyzing security cover risk,

the official requires assessing the power of the customer to prolong the legal process and to

analyze the market demand for the security For assessment of security control risk, the officials

times the time that would require to liquidate the security and assess the risk and estimates the

security value at liquidation and assess the rise.

2.4 Process of Credit Risk:

Credit Management Policy for any commercial bank must have been prepared in accordance

with the Policy Guidelines of Bangladesh Bank’s Focus Group on Credit and Risk

Management with some changes to meet particular bank’s internal needs. Credit management

must be organized in such a process that the bank can minimize its losses for payment of

expected dividend to the shareholders. The purpose of this process is to provide directional

guidelines that will improve the risk management culture, establish minimum standards for

segregation of duties and responsibilities, and assist in the ongoing improvement of concerned

bank. The guidelines for credit management may be organized into the following sections:

Policy guidelines:

Lending guidelines

Credit assessment and risk grading

Approval authority

Segregation of duties

Internal control and compliance

Program Guidelines

Approval process

Credit administration

Credit monitoring

Credit recovers

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Policy guidelines

a. Lending guidelines:

The lending guidelines include the following:

Industry and Business Segment Focus

Types of loan facilities

Single borrowers/ group limits/ syndication

Lending caps

Discouraged business types

As a minimum, the followings are discouraged:

Military equipment/ weapons finance

Highly leveraged transactions

Finance of speculative investments

Logging, mineral extraction/ mining, or other activity that is ethically or

environmentally sensitive

Lending to companies listed on CIB black list or known

Counter parties in countries subject to UN sanctions

Lending to holding companies.

b. Credit Assessment and Risk Grading:

A thorough credit and risk assessment should be conducted prior to the granting of loans, and

at least annually thereafter for all facilities. Credit Applications should summaries the results

of the risk assessment and include, as a minimum, the following details:

Environment or social risk inputs

Amount and type of loan (s) proposed

Purpose of loans

Loan structure ( tenor, covenants, repayment schedule, interest)

Security arrangement

Any other risk or issue

Risk triggers and action plan-condition prudent, etc.

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Risk is graded as per Lending Risk Analysis (LRA), Bangladesh Bank’s Guidelines of

classification of loans and advances.

c. Approval Authority:

Approval authority may be as the following:

Credit approval authority has been delegated to Branch Manager, Credit Committee

by the MD/ Board

Delegated approval authorities shall be reviewed annually by MD/ Board.

MD/ Board:

Approvals must be evidenced in writing. Approval records must be kept on file with

credit application

The aggregate exposure to any borrower or borrowing group must be used to determine

the approval authority required.

d. Segregation of Duties:

Banks should aim at segregating the following lending function:

Credit approval/ risk management

Relationship management/ marketing

Credit administration

Credit Risk Management

e. Internal Control and Compliance:

Banks must have a segregated internal audit/ control department charged with conducting

audits of all branches.

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Credit Risk Management Program Guidelines:

a. Approval process: The following diagram illustrates an example of the

approval process:

Source: Office Document

Credit Application Recommended by Branch Manager/

Relationship Manager/ Corporation

Executive Committee of Board of Directors

Head Office, Credit Division

Head Office, Credit Committee

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b. 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.

c. Credit monitoring: To minimized credit losses, monitoring procedures and systems

should be in place that provides an early indication of the deteriorating financial health of

borrower.

d. Credit recovery: The recovery unit of branch should directly manage accounts with

sustained deterioration (a risk rating of sub-standard or worse).

Credit Risk Management

Determine account action plan/ recovery strategy

Pursue all options to maximize recovery, including placing customers into

receivership or liquidation as appropriate.

Ensure adequate and timely loan loss provisions are made based on actual and

expected losses.

2.5 Types of credit risk:

Term financing for new project had BMRE of existing projects (large, medium, SME).

Working capital for industries, trading services and others (large, medium, SME).

Trade finance for import and export

Lease finance

Small loan for traders, micro enterprise and other productive small venture.

Consumer finance

Fee business

2.6 Organizational Structure:

1. To maintain bank’s overall credit risk exposure within the parameters set by the board of

directors, the importance of a sound risk management structure is second to none. While the

banks may choose different structures, it is important that such structure should be

commensurate with institution’s size, complexity and diversification of its activities. It must

facilitate effective management oversight and proper execution of credit risk management and

control processes.

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2. Each bank, depending upon its size, should constitute a Credit Risk Management Committee

(CRMC), ideally comprising of head of credit risk management Department, credit department

and treasury. This committee reporting to bank’s risk management committee should be

empowered to oversee credit risk taking activities and overall credit risk management function.

The CRMC should be mainly responsible for,

The implementation of the credit risk policy / strategy approved by the Board.

Monitor credit risk on a bank-wide basis and ensure compliance with limits approved by

the Board.

Recommend to the Board, for its approval, clear policies on standards for presentation

of credit proposals, financial covenants, rating standards and benchmarks.

Decide delegation of credit approving powers, prudential limits on large credit

exposures, standards for loan collateral, portfolio management, loan review mechanism,

risk concentrations, risk monitoring and evaluation, pricing of loans, provisioning,

regulatory/legal compliance, etc.

3. Further, to maintain credit discipline and to enunciate credit risk management and control

process there should be a separate function independent of loan origination function. Credit

policy formulation, credit limit setting, monitoring of credit exceptions / exposures and review

/monitoring of documentation are functions that should be performed independently of the loan

origination function. For small banks where it might not be feasible to establish such structural

hierarchy, there should be adequate compensating measures to maintain credit discipline

introduce adequate checks and balances and standards to address potential conflicts of interest.

Ideally, the banks should institute a Credit Risk Management Department (CRMD). Typical

functions of CRMD include:

To follow a holistic approach in management of risks inherent in banks portfolio and

ensure the risks remain within the boundaries established by the Board or Credit Risk

Management Committee.

The department also ensures that business lines comply with risk parameters and

prudential limits established by the Board or CRMC.

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Establish systems and procedures relating to risk identification, Management

Information System, monitoring of loan / investment portfolio quality and early

warning. The department would work out remedial measure when deficiencies/problems

are identified.

The Department should undertake portfolio evaluations and conduct comprehensive

studies on the environment to test the resilience of the loan portfolio.

4. Not withstanding the need for a separate or independent oversight, the front office or loan

origination function should be cognizant of credit risk, and maintain high level of credit

discipline and standards in pursuit of business opportunities.

2.7 Credit risk planning:

There are some objectives behind a written credit policy of National Bank that are as follows:

To provide a guideline for giving loan.

Prompt response to the customer need.

Shorten the procedure of giving loan.

Reduce the volume of work from top level management.

Delegation of authority of work from top level of management.

To check and balance the operational activities

2.8 Tools of credit risk:

For credit management, a firm may use tools available to them. Such tools include Credit Risk

Grading (CRG) and Financial Spread Sheet (FSS). Credit risk grading is an important for credit

risk management as it helps the banks and financial institutions to understand various

dimensions of risk involved in different credit transactions. The aggregation of such grading

across the borrowers, activities and the lines of business can provide better assessment of the

quality of credit portfolio of a bank or branch. The Lending Risk Analysis (LRA) manual

introduced in 1993 by the Bangladesh Bank has been in practice for mandatory use by the

banks and financial institutions for loan size of BDT 1.00 core and above. However, the LRA

manual suffers from a lot of subjectivity, sometimes creating confusion to the lending bankers

in terms of selection of credit proposals on the basis of risk exposure. Meanwhile in 2003 end,

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BB introduced Credit Risk Grading, a new version of assessing credit risk grading to make the

mechanism easier to implement. It is a mandatory replacement of LRA as per BRPD Circular

No18,

Definition of CRG: Based on the pre-specified scale reflecting the credit-risk for an exposure.

A credit Risk Grading deploys a number/alphabet/symbol as a primary summary indicator of

risks associated with a credit exposure.

2.8.1 Credit Risk Grading Process:

For Superior Risk Grading CRG exercise is not applicable.

Credit risk grading matrix would be useful analyzing credit proposal, new or renewal

for regular limits or specific transaction, if basic information on a borrowing client to

determine the degree of each factor is a) readily available, b) current, c) dependable, and

d) parameters/risk factors are assessed judiciously and objectively. The Branch Credit

Officer will collect required information as per Data Collection Checklist.

Branch credit Officer shall ensure to correctly fill up the Limit Utilization Form as in

order to arrive at a realistic earning status for the borrower.

Risk factors are to be evaluated and weighted very carefully, on the basis of most up-to-

date and reliable data and complete objectivity must be ensured to assign the correct

grading. Actual parameters should be inputted in the Credit Risk Grading Score Sheet.

CRG exercise should be originated by trained credit officer of the branch and should be

an on-going and continuous process. They shall complete the Credit Risk Grading Score

Sheet and shall arrive at a risk grading in consultation with the advance In charge and

document it as per Credit Risk Grading Form as, which shall then be concurred by the

authorized approving official of the branch.

All credit proposals whether new; renewal, Enhancement, Rescheduling cases or

specific facility should consist of a) Data Collection Checklist, b) Limit Utilization

Form. c) Credit Risk Grading Score Sheet and d) Credit Risk Grading Form.

The credit officers then would pass the approved Credit Risk Grading Form to Credit

Administration Department for updating their record.

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CRG helps:

Promote banks safety and soundness.

Measure credit risks.

Management monitor change and trend in risk level.

Management manages risk to optimize return.

Use of Credit Risk Grading:

CRG allows application of Uniform Standards to Credits.

Obligor-Level Analysis (CRG output is used)

Credit selection and pricing.

Monitoring and internal MIS and assessing the aggregate risk profile of a Bank.

CRG Review:

Risk Grading Review Frequency (at least)

Superior, Good and Acceptable Annually

Marginal/Watch list Half yearly

Special Mention, SS, DF and BL Quarterly

Management Information System (MIS) on CRG

Credit Risk Grading Report (Consolidated)

Credit Risk Grading Report (Branch Wise)

Credit Risk Grading Report (Branch &Grade Wise)

Credit Risk Grading Report (Grade Wise Borrower List)

Special Attention:

Ensure implementation of the instructions provided in Credit Operations Division, CAD

and Bangladesh Bank regarding Credit Risk Grading.

Officers who will approve Risk Grading shall have necessary competence and overall

understanding of CRG Manual.

Ensure completion of CRG Form for all the accounts having Early Warning Signals.

Prepare financials preferably form audited Accounts.

Ensure calculation of financial ratios correctly.

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Compute parameters of different components of business/Industry risk.

Assess grading Score objectively (where applicable).

Ensure that Risk Grading is shown in the first page of proposal.

Ensure matching of security risk with sanction advice and documentation.

Ensure proper understanding by the originating officer of relationship Risk.

Prepare financials on the basis of latest financial statements.

Data Collection Checklist & Limit Utilization Form should be used uniformly.

For considering proposal of a client under any group CRG shall have to be done on the

group instead of the concerned unit only. In case a borrower has sister concern than

sister concern’s CRG shall have to be done also.

Monitoring should be in place to ensure that risk factors are evaluated and weighted

very carefully, on the basis of most up-to-safe and reliable data and complete objectivity

must be ensured to assign the correct grading. Careful assessment should be done after

receiving all the required information and actual parameters that deserves by the

account should be inputted in the Credit Risk Grading Score Sheet.

2.9 Essential Components of a Sound Credit Policy

There can be some variations based on the needs of a particular organization, but at least the

following areas should be covered in any comprehensive statement of credit policy and

National Bank’s policy also covers these areas:

a. Legal consideration: The bank’s legal lending limit and other constraints should be set

forth to avoid inadvertent violation of banking regulations.

b. Delegation of authority: Each individual authorized to extend credit should know

precisely how much and under what conditions he or she may commit the bank’s funds. These

authorities should be approved, at least annually, by written resolution of the board of directors

and kept current at all times.

c. Types of credit extension: One of the most substances parts of a loan is a delineation

of which types of loans are acceptable and which type are not

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Credit Risk Management

d. Pricing: In any profit motivated endeavor, the price to be charged for the goods or services

rendered is of paramount without it, individuals have few guidelines for quoting retag or fees,

and the variations resulting from human nature will be a source of customer dissatisfaction.

e. Market Area: Each bank should establish its proper market area, based upon, among

other things, the size and sophistication of its organization its capital standpoint, defining one’s

market area is probably more important in the lending function than in any other aspect of

banking.

f. Loan Standard: This is a definition of the types of credit to be expended, wherein the

qualitative standards for acceptable loans are set forth.

2.10 Focus on Industry and Business Segment

Industry segment focuses on Textile, Pharmaceuticals, Agro-based, Food and allied,

Telecommunication, Power generation and distribution, Health care, Entertainment Services,

Chemicals, Transport, Infrastructure development, Linkage industry, Information technology,

Ceramics, Others as decided from tome to time. And business segment focuses on Distribution,

Brick field, Rice mill/ flour mill/ oil mill, Work order, Yarn trading, Cloth merchant, Industrial

spares, Hardware, Electronic and electrical goods, Construction materials, Fish trading,

Grocery, Wholesale/ retail, Others as dedicated from time to time

Credit Risk Management

2.11 Lending Guidelines

As the bank has a rate of non-performing loans. Banks risk taking applied should be contained

and our focus should be to maintain a credit portfolio keeping in mind of bank’s capital

adequacy and recovery strength. Thus bank’s strategy will be invigorating loan processing

steps including identifying , measuring , containing risks as well as maintaining a balance

portfolio through minimizing loan concentration , encouraging loan diversification , expanding

product range , streamlining security , insurance etc. as buffer again unexpected.

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2.12 Indebtedness, Rural and Urban Indebtedness means the amount borrowed by the people from various sources for investment in

the various fields. Rural indebtedness is the amount borrowed by the agriculturists from various

sources. This amount is to be used for the improvement in agriculture, for the purchase of

improved agricultural implements, better seeds, fertilizers, etc. But the amount, thus borrowed,

is not generally used for the purpose for which it is borrowed. The funds are utilized for

unproductive purposes such as orthodox, customs heavy expenditure on ceremonial activities,

weddings, festivals, etc. By urban indebtedness is meant the amount borrowed by the

industrialists, traders and other business community. Their business needs are met to some

extent by the commercial banks and government agencies, but, for incurring non-productive

expenditure, they have to resort to borrowing from the money-lenders. Contrary to the

indebtedness, the amount borrowed is generally utilized for the use in the respective

establishments. The commercial banks in the district generally charge interest from 7 per cent

to 13 per cent, according to the amount advanced and security offered. The banks advance

loans on the pledge of goods movable or immovable. The movable goods are kept in the

custody of the banks. The average lending rate in the Central Co-operative Financial

Institutions ranges in between 6 to 8 per cent, depending upon the nature and purpose of loans.

The co-operative societies advance loans at the rate of interest ranging from 2 ½ to 8 ½ percent.

Loans advanced, under the State Aid to Industries Act, 1935, carry interest from 2 ½ to 6 ½

percent. The indebtedness money-lenders charge interest varying from 12 to 25 percent. The

loans advanced by the unregistered money-lenders carry much higher rate of interest, usually

ranging from 60 to 100 percent, per annum. The indigenous bankers are either going out to the

picture or they are trying to fall in line with the modern banking institutions. There is hardly

any case where usury is noticed these days. The interest is sometimes calculated in kind, too, in

rural areas. It is done only in case where loan is advance in kind. Such interest varies from 25

to 50 percent on the loan advance in kind, i.e., is one quintal of wheat is advanced as loan, it

will fetch one quintal 25 kilos or one quintal fifty kilos to the creditors, as the case may be.

Such loans are advanced by landlords, but this practice is by and by disappearing because of

the coming up of co-operative institutions which extend financial assistance liberally to the

rural areas.

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2.13 Leading Guidelines of NBL:

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. National Bank has been offering wide range of credit

facilities as under:

NAME PURPOSE

Cash credit(Hypo & Pledge) Business capital / Working capital.

SOD ( General) Against F.O/ Work Order/ supply order.

SOD ( Export ) Payment of accepted bills at maturity before receipt of

export proceeds.

Loan ( Gen. ) Acquiring capital assets/ purchasing, constriction

finishing, expansion, repair, renovation of house/ flats/

real estate business etc.

LCA ( Loans against cash assistance ) Financing for the period of non- receipt of

reimbursement from Bangladesh bank.

LC ( Local and foreign) Sight & on deferred payment

basis

For import/ local procurement of goods/ service.

PAD For making payment of the L/C obligation against

receipt of document.

LTR Retirement of shipping document.

LIM Retirement of shipping document.

PC Meeting financial requirement of the export at pre-

shipment stage against export L/C.

LDBP/FDBP As post shipment finances against local/ foreign export

bills.

BTB L/C Import of raw/ packing materials against export L/C.

Bank guarantee local/ foreign For submission of tender/ to obtain and offer as

security against work order, supply order/ for gas

electricity connection against delivery of goods against

release of goods without or against partial payment by

customer etc.

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2.13.2 Single borrower/ group limits/ syndication National bank ltd pursues / will continue to pursue the policy of avoiding too much loan

concentration to a single borrower group in order to bypass possible threat in event of such

advance turning sticky. In a bid to keep credit risk at the minimum level in respect of larger but

prospective advance, National bank will prefer syndicated financing after proper feasibility

study.

2.13.3 Leading caps: National bank ltd is very much aware of over concentration of credit in a particular area, which

may under some situation, create disaster for the bank. Keeping this in consideration and also

the overall business, trend, prospects/ potentials, problems, risk & mitigates, pricing owner’s

stake in business, business competition involvement safety, liquidity, security etc. Bank will be

guided by the following leading caps generally:

Sector Caps %

Trade and commerce 45%

SME 10%

Industry- working capital 10%

Project finance- loan term 10%

Retail/ consumer ( CCS ) 10%

Agro credit 5%

Work/ supply order ( contractual finance ) 5%

Others 5%

Total 100%

2.13.3.1 Nature of advanced:

Each advanced to be made will be Loan facilities parameters:

National bank ltd extends and will credit for various genuine purpose. One types of advance

requires to be treated different from other types. Depending on the types financed ownership

pattern, business mode, cash flow, security and other related matters facility parameters

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categorized under one of the arranged types and will be governed under the terms and

conditions related thereto.

2.13.3.2 Purpose:

Our leading will be guided by legitimate purpose, financing for hoarding, speculative purpose

and which will be utilized for degrading the character of the people will avoided. Credit which

will contribute to production, trade, commerce, import, export, development of industry,

development activities.

2.13.3.3 Limit/ amount of facility/ maximum size:

Facility will be considered based on assessment of requirement & justification subject to the

overall leading caps as per Bangladesh bank single party exposure limit.

2.13.3.4 Margin/ Equity:

It will be the general policy of the bank to judiciously ensure stake of the borrower in any

financing plan. Margin will however be subject to institution policy in this regard and central

bank policy where applicable.

2.13.3.5 Rate of interest/ Commission:

Rate of interest will be charged as per declared rate of the bank. Pricing will be basically risk

based. Higher price will be considered for riskier borrower because of higher risk involved.

(I.e. lower score obtain by an obligor as per CRG score sheet is called a risky client). Similarly

lower prices will be considered for prime clients on the basis of their low risk. (Low risk grade

client means where an obligor obtained higher aggregate score as per CRG score sheet or 100%

cash covered or govt. international top bank guarantee).

2.13.3.6 Insurance:

Our bank have insurable interest on a property an asset obtain insurance policy as per norms

against credit facilities extended in order to protect our banks interest. Insurance policy shall

take timely basis. Insurance should take from a reputed company.

2.13.3.7 Security:

Our bank mostly relies/ will continue to rely on security based leading taking into consideration

the character of the borrower nature of business cash flow, environmental, economical,

business and other influencing factor. Collateral security of acceptable type having adequate

market sale value is accepted. Collateral property is judiciously valued before accepting the

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same. The property is valued by the branch official by applying prudence and considering

prevailing rate in the location area of the property.

2.14 Credit Principles of NBL:

To achieve our goal for maximizing the stockholders value and protect the interest of the

depositors as well as to improve the quality of banks assets as fundamentally sound financial

institution, we will abide by but will not be limited to the following credit principles, which

should guide our behavior in our leading decisions:

1 Assessment of the customer integrity and willingness to repay will form basis

of leading.

2 Customer having capacity and ability to repay shall only be lent.

3 Possibility of default will be worked out before lending.

4 Credit will be extended in the areas risks of which can be sufficiently understood

and managed.

5 Independent credit participation in the credit process shall be ensured.

6 Ethical behavior in all credit activities shall be ensured.

7 Be proactive in identifying, managing and communicating credit risk.

8 Be diligent in ensuring that credit exposures and activities including processing

function complying with NBL requirements as well requirement of regulatory

authority.

9 Risk is reward to be optimized.

10 Diversified credit portfolio to be built and maintained.

11 Credit will normally be financed from customer’s deposit.

12 The bank will provide suitable credit service and products for the market in which

it operate.

13 Credit will be allowed in a manner which will in no way to compromise.

14 All credit extension must comply with the requirement of banking company’s act

1991 and amendment thereof from time to time.

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2.15 Credit Evaluation Process of NBL: National bank will follow the following evaluation process:

Prevailing credit practices in the market.

Credit worthiness, background and track records of the borrower.

Financial standing of the borrower supported by financial statement and other

documentary evidence.

Legal jurisdiction and implications of applicable laws.

Effect of any applicable regulations and laws.

Purpose of the loan/facility.

Tenure of the loan/facility.

Viability of the business concern.

Cash flow analysis and also projection thereof.

Quality value and adequacy of security if available.

Risk taking capacity of the borrower.

Entrepreneurship and managerial capability of the borrower.

Reliability of the source of repayment.

Volume of risk in relation to the risk taking capacity of the bank or company concern.

Profitability of the personal to the bank or company concerned.

Credit risk grading.

Yield from the facility.

Market aspect.

Total global expansion of the borrower.

CIB status.

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Source: Office Document

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Performance Evaluation

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2.16 Financial Performance

Capital

Bank Name 2011 2012 2013

National Bank 24,960.42 26,460.36 27,705.46

Solali Bank 44,208.8 (3,345.09) 28,281.66

Islami Bank 26,820.3 39,701.6 43,786.6

(All Amount in millions)

27,705.46 28,281.66

43,786.60

(10,000.00)

-

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

National Bank Sonali Bank Islami Bank

Capital

2011

2012

2013

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Asset

Bank Name 2011 2012 2013

National Bank 169,037.98 205,207.33 235,173.80

Solali Bank 852,852.2 754,616.07 852,852.20

Islami Bank 273,104 482,664.8 549,979.11

(All Amount in millions)

235,173.80

852,852.20

549,979.11

0.00

100,000.00

200,000.00

300,000.00

400,000.00

500,000.00

600,000.00

700,000.00

800,000.00

900,000.00

National Bank Sonali Bank Islami Bank

Asset

2011

2012

2013

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Deposit

Bank Name 2011 2012 2013

National Bank 135,458.2 157,331.73 193,642.9

Solali Bank 533,192.2 599,293.7 685,894.6

Islami Bank 341,854 417,844 473,141

(All Amount in millions)

193,642.90

685,894.60

473,141

0.00

100,000.00

200,000.00

300,000.00

400,000.00

500,000.00

600,000.00

700,000.00

800,000.00

National Bank Sonali Bank Islami Bank

Deposit

2011

2012

2013

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Investment

Bank Name 2011 2012 2013

National Bank 29,994.03 54,326.46 56,827.5

Solali Bank 132,089.1 147,019 270,411.2

Islami Bank 305,841 372,921 406,805

(All Amount in millions)

56,827.50

270,411.20

406,805

0.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

350,000.00

400,000.00

450,000.00

National Bank Sonali Bank Islami Bank

Investment

2011

2012

2013

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Loan & Advances

Bank Name 2013 2012 2011

National Bank 116,063.02 126,169.8 151,098.9

Solali Bank 345,991.3 378,147.05 313,450.5

Islami Bank 345,991.34 378,147.05 343,450.5

(All Amount in millions)

151,098.90

313,450.50

343,450.50

0.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

350,000.00

400,000.00

National Bank Sonali Bank Islami Bank

Loan & Advances

2011

2012

2013

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Liabilities:

Bank Name 2011 2012 2013

National Bank 146,992.8 182,833.06 211,244.16

Solali Bank 639,481.3 732,215.6 802,966.4

Islami Bank 341,672.1 442,963.2 506,190.4

(All Amount in millions)

211,244.16

802,966.40

506,190.40

0.00

100,000.00

200,000.00

300,000.00

400,000.00

500,000.00

600,000.00

700,000.00

800,000.00

900,000.00

National Bank Sonali Bank Islami Bank

Liabilites

2011

2012

2013

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2.17 Analyzing of NBL Performance with financial Ratios

Ratio Analysis:

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated quotient

of two mathematical impressions and as the relationship between two or more things. In financial

analysis, a ratio is used as benchmark for evaluating the financial position and performance of a

firm. We are describing some ratios for the measurement of the performance of the bank.

Profitability Ratio:

Return on Asset: The rate of return on assets (ROA) measures the ability of management to utilize

the real and financial resources of the bank to generate returns. ROA is most commonly used to

evaluate bank management.

Bank Name 2011 2012 2013

National Bank 0.60% 0.80% 0.96%

Solali Bank 0.45% 1.42% -2.86%

Islami Bank 0.75% 1.27% 0.96%

0.96%

-2.86%

0.96%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

National Bank Sonali Bank Islami Bank

ROE

2011

2012

2013

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ROI

A performance measure used to evaluate the efficiency of an investment or to compare the

efficiency of a number of different investments.

Bank Name 2011 2012 2013

National Bank 9.02% 0.80% 0.96%

Solali Bank 7.38% 1.42% -2.86%

Islami Bank 10.12% 12.21% 9.45%

0.96%

-2.86%

9.45%

-5.00%

0.00%

5.00%

10.00%

15.00%

National Bank Sonali Bank Islami Bank

ROI

2011

2012

2013

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Cost of Fund

The interest rate paid by financial institutions for the funds that they deploy in their business.

The cost of funds is one of the most important input costs for a financial institution, since a lower

cost will generate better returns when the funds are deployed in the form of short-term and long-

term loans to borrowers. The spread between the cost of funds and the interest rate charged to

borrowers represents one of the main sources of profit for most financial institutions.

Bank Name 2011 2012 2013

National Bank 10.22% 0.80% 0.96%

Solali Bank 1.11% 1.42% -2.86%

Islami Bank 9.32% 9.45% 10.21%

0.96%

-2.86%

10.21%

-5.00%

0.00%

5.00%

10.00%

15.00%

National Bank Sonali Bank Islami Bank

Cost of Fund

2011

2012

2013

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Credit Deposit Ratio

A commonly used statistic for assessing a bank's liquidity by dividing the banks total loans by its

total deposits. This number, also known as the LTD ratio, is expressed as a percentage. If the

ratio is too high, it means that banks might not have enough liquidity to cover any unforeseen

fund requirements; if the ratio is too low, banks may not be earning as much as they could be.

Bank Name 2011 2012 2013

National Bank 72.21% 80.19% 78.03%

Solali Bank 64.10% 63.10% 50.07%

Islami Bank 80.10% 85.18% 82.35%

78.03%

50.07%

82.35%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

National Bank Sonali Bank Islami Bank

Credit Deposit Ratio

2011

2012

2013

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2.18 CAMEL rating and composite analysis 2013

Capital & reserved NBL Sonali Bank Islami Bank

Provision shortfall 1,461.48 (161.70) 2,465.00

Adjusted capital 27,705.46 50,302.10 60,415.00

Total deposit 193,642.90 685,894.60 473,141.00

Classified loan 75,062.30 135,725.00 121,531.00

Total loan 151,098.90 313,450.50 343,450.50

Total asset 235,173.80 852,852.20 549,979.11

Net income 4,356.60 3,580.10 5,055.30

Liquid asset 147,459.30 49,491.50 127,000.00

Total RWA 835,960.74 2,091,134.30 1,683,036.91

Rating NBL Sonali Bank Islami Bank

Capital Adequacy Ratio 3.31 2.41 3.59

Assets Quality Rating 0.50 0.43 0.35

Management Rating 4.00 5.00 6.00

Earning Rating 1.85 0.42 0.92

Liquidity 1.21 1.24 1.16

Composite Rating 1.60 2.60 3.60

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Meaning of Composite Rating

Composite 1 Rating

Basically sound in every respect

Resistant to external economic and financial disturbances.

No causes of supervisory concern.

Composite 2 Rating

Fundamentally sound.

Finding of minor nature can be handled routinely.

Resist business fluctuation.

Supervisory concerns are limited.

Composite 3 Rating

Financial and operational weakness.

Vulnerability to the adverse business condition.

More than normal supervision to address deficiency.

Composite 4 Rating

Serious financial weakness.

Unsafe and unsound condition.

Without correction impair future violability.

High probability of failure.

Composite 5 Rating

Immediate or near term probability of failure.

Severity of weakness is so critical that urgent aid from stockholder or other financial

source is necessary.

Without immediate corrective action will likely require liquidation.

2.19 Key Findings:

To increase the efficacy in customer service the National Bank Limited Bank should try to

develop the process of providing services. To get a perfect process of delivering services, the

customers should be asked. The other suggestions are as follows:

NBL follows the most liberal process of disbursement process, which made the clients,

inspires to take advance and help them to pay in time.

Personal relationship should be build with the customers.

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Customers are satisfied with the price charged by National Bank Limited Bank but they

are not too much aware about the pricing strategy. Customer’s awareness should be

build over pricing strategy.

The offices should be decorated with the help of interior design companies.

Customers are the heart of the organization. They should provide more space in the

office and if possible they should have some entertainment facility.

The employee of the branch should be trained continuously.

The National Bank Limited Bank should recruit more employees having commerce

backgrounds.

2.20 Major Learning Points

During the time of internship program in the National Bank Ltd, I assemble many learning

things, which inspire me. The learning things are pointed in the following-This report is one of

the major parts of MBA Program offered by Southeast University Bangladesh. In today’s world,

education is not just limited to books and classrooms. Education now-a-days is understanding the

real world and applying knowledge and education for the betterment of the society. So the

Internship is such a way that helps to apply the knowledge and understanding of the courses and

to use them in a practical field. National Bank Limited gives me this opportunity to be engaged

there to gather practical experience about the real business world and to observe different

practical aspects of education. We the students of business do this usually for three months. In

our country there are many banks particularly the esteemed private sector banks, and elite

business firms provide this. In this respect I have done my internship at National Bank Ltd

(Gulshan Branch). One of the most renowned private banks in Bangladesh. I am thankful for

this.

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Chapter-3

Conclusion & Suggestions

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3.1 Conclusion:

During the 12 weeks internship program at NBL, almost all the desk has been observed more or

less. For gaining knowledge of practical banking and to compare this practical knowledge with

theoretical knowledge. Though all departments and sections are covered in the internship

program, it is not possible to go to the depth or each activities of division because of time

limitation. So, objectives of this internship program have not been fulfilled with complete

satisfaction. However, highest effort has been given to achieve the objectives the internship

program. National Bank Limited has been trying to operate its business successfully since 1983.

The bank has already developed good image and goodwill among its clients by offering excellent

services. Today, the whole Banking sector is facing a tough competition and challenge. In this

situation our Branch is in good position than any other Bank of its locality and day-by-day we

are increasing our activities & goodwill. Within 20 years of its operation, the bank has grabbed a

position in the banking sector. According to the CAMEL rating the banks performance are 3,

which is satisfactory. It is expected that in a year or so the rating will be 1, which is strong. So

we can say that overall performance is good in banking sector of Bangladesh. From the practical

implementation of customer dealing procedure during the whole period of my practical

orientation in National Bank Limited Bank I have reached a firm and concrete conclusion in a

very confident way. I believe that my realization will be in harmony with most of the banking

thinkers. It is quite evident that to build up an effective and efficient banking system to the

highest desire level computerized transaction is must. Success in the banking business largely

depends on effective lending. Less the amount of loan losses, the more the income will be from

credit operation s. the more the income from credit operations the more will be the profit of the

National Bank Limited and here lays the success of credit financing. It can be argued that though

the results achieved so far are not satisfactory, credit financing is a modern scientific technique

for enhancing National Bank Limited bank’s strength and there lies the opportunities to make it

more effective in the future for our own benefit. From the learning and experience point of view

I can say that I really enjoyed my internship at National Bank Limited. From the very first day. I

am confident that this 03 (three) months internship program at National Bank limited, will

definitely help me to realize my further carrier in the job market.

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Recommendation

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3.2 Recommendation Though the bank is making a huge amount of profit and gencratil1g a large volume of deposit,

based on my working experience at Nationa1 Bank limited, Credit card division, I would like to

put up the following recommendations.

Prospects: how to Achieve? Credit card division should increase their marketing activities and for these the will formulate a

card marketing group and the remuneration of the member of the group will semi variable.

That’s means they get a fixed salary and get commission for every card. The division should

maintain a card marketing strategy. They must identify which type of people get preference in

issuing card, like as bankers, exporters, importers, government high officials. The bank may

circulate student credit card and the card limit will be Tk. 5000. The may sort out the

cardholder who paid their payment regular and issue another credit card to their spouse without

any security To increase the number of cardholder the bank may decrease the annual fee and

interest. Credit card division should improve their customer service.

Challenges: how to face these? To avoid telecommunication problem the bank should follow modern

telecommunication system.

Bank may encourage the business firm to establish fixed price shopping center.

Because of different type of merchant commission rate may be different according

merchant’s type of business. Bank should concentrate on quickly merchant payment.

For this bank may use computerized system in preparing pay order

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3.3 Bibliography

1. National Bank Limited Annul Report 2013, 2012, 2011.

2. National Bank Limited Financial Statement 2013, 2012, 2011

3. http://www.nblbd.com/

4. Sonali Bank Limited Annul Report 2013, 2012, 2011.

5. Sonali Bank Limited Financial Statement 2013, 2012, 2011

6. http://www.sonalibank.com.bd/

7. Islami Bank Bangladesh Limited Annul Report 2013, 2012, 2011.

8. Islami Bank Bangladesh Limited Financial Statement 2013, 2012, 2011

9. http://www.islamibankbd.com/

10. http://www.bangladesh-bank.org/