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Internship ReportOn

Credit Risk Management of National Bank Limited

Submitted by

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Last year Bangladesh Bank undertook a project to review the global best practices in the

banking sector and examines in the possibility of introducing these in the banking

industry of Bangladesh. Four 'Focus Groups' were formed with participation from

Nationalized Commercial Banks, Private Commercial Banks & Foreign Banks with

representatives from the Bangladesh Bank as team coordinators to look into the practices

of the best performing banks both at home and abroad. These focus groups identified and

selected five core risk areas and produce a document that would be a basic risk

management model for each of the five 'core' risk areas of banking. The five core risk

areas are as follows-

a) Credit Risks;

b) Asset and Liability/Balance Sheet Risks;

c) Foreign Exchange Risks;

d) Internal Control and Compliance Risks; and

e) Money Laundering Risks.

Credit Risk Management Bangladesh Bank in one of it’s circular (BRPD Circular no.17) advised the commercial

banks of Bangladesh to put in place an effective risk management system by December,

2003 based on the guidelines sent to them.

I am working in the Credit Department of National Bank Limited. In this report, I will try

to make a comparative analysis between Bangladesh Bank’ suggested best practices

guideline for managing credit risk and National Bank Limited existing credit policy.

1.3 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 activities of the bank. The report focuses on the practices of

the general banking activities.

1.4 Objective of the study:

The objective of the internship program is to familiarize students with the real business

situation, to compare them with the business theories & at last stage make a report on

assign task.

Credit Risk Management

The study has been undertaken with the following objectives:

To complete the partial fulfillment of the requirement of MBA Degree

To know the general banking activities of National Bank Ltd

To apprise the principal activities and evaluate performance of the National Bank

Ltd

To analysis the pros and cons of the conventional ideas about credit operation of a

Bank.

To have better orientation on credit management activities specially credit policy

and practices, credit appraisal, credit-processing steps, credit management,

financing in various sector and recovery, loan classification method and practices

of National Bank Limited (NBL).

To compare the existing credit policy of National bank limited with that of best


Practices guideline given by Bangladesh Bank, the central bank of Bangladesh.

To identify and suggest scopes of improvement in credit management of NBL.

To get an overall idea about the performance of National Bank Ltd.

To fulfill the requirement of the internship program under MBA program

1.5 Scope of the Report:

This internship is a part of Business Administration degree that provides an on the job

experience to students. I was placed at National Bank Limited as an internee for three

months duration. This internship program was my very first on-the-job exposure and

provides me with learning experience and knowledge in several areas. During the first

few week of my internship period, I was able to get accustomed to the working

environment of National Bank Limited. As the internship continued, I not only learned

about the activities and operation of correspondent Bank, but I also gathered some

Knowledge about the basic business activities of banking in first one-month of my

internship period.


This internship report covers all the trade related products handled by “National Bank

Ltd” such as Dispatch, Cash department, Account opening, Cheque clearing, Local

remittance, Accounts, Loan division, Credit card division, Foreign exchange, Western

Money Union etc.

This has been prepared through extensive discussion with bank employees and with the

customer. While preparing this report, I had a great opportunity to have an in depth

knowledge of all the banking activities practices by the “National Bank Ltd”. It also helps

me to acquire a first hand perspective of a leading private banking in Bangladesh.

Generally, by the word “Bank” we can easily understand that the financial institution

deals with money. But there are different types of banks such as; Central Banks,

Commercial Banks, Saving Banks, Investment Banks, Industrial Banks, Cooperative

Banks etc. But we are used the term “Bank” without any prefix, or qualification, it refer


to the “commercial banks”. Commercial banks are the primary contributions to the

economy of a country. Therefore we can say commercial banks are profit-making

Institutions that hold the deposit of individuals 7 business in checking & savings accounts

and then uses these founds to make loans

Both general public and the government are dependent on the services of banks as the

financial intermediary. As, banks are profit earning concern; they collect deposit at the

lowest possible cost and provides loans and advances at higher cost. The differences

between two are the profit for the bank the bank.

A company can increase efficiency through a number of steps. These include exploiting

economies of scale and learning effects, adopting flexible manufacturing technologies,

reducing customer defection rate, getting R&D function to design products that are easily

to manufacture, upgrading the skills of employees through training, introducing self-

managing team, linking pay to performance building a company wide to efficiency

through strong leadership, and designing structures that facilitate cooperation among

different functions in pursuit the efficiency goal


Efficiency of customer is related with progression of operation. We can identify the efficiency

of customer services by studying the progress of “National Bank Limited” from starting to at

present. The progress of “National Bank Limited” is very rapid with concern of its profits

making and growth of its operation within the country towards the country’s economy.

National Bank Limited pursues decentralized management policies and gives adequate

work freedom to the employees. This results in less pressure for the worker and acts as a

motivational tool for them, which gives them, increased encouragement and inspiration to

move up the leader of success. Overall I have experienced a very friendly and supporting

environment at National Bank Limited which gave me the pleasure and satisfaction to be

a part of them for a while.

The study would focus on the following areas of National Bank Limited.


Credit appraisal system of National Bank Limited.

Procedure for different credit facilities.

Portfolio (of Loan or advances) management of National Bank Limited.

Organization structures and responsibilities of management

1.6 Methodology of the study:

The following methodology will be followed for the study:

Both primary and secondary data sources will be used to generate this report. Primary

data sources are scheduled survey, informal discussion with professionals and

observation while working in different desks. The secondary data sources are annual

reports, manuals, and brochures of National Bank limited and different publications of

Bangladesh Bank.

To identify the implementation, supervision, monitoring and repayment practice-

interview with the employee and extensive study of the existing file was and practical

case observation was done.

Credit Risk Management1.7 Source of data:

To perform the study data sources are to be identified and collected, the data are to

classified, analyzed, interpreted and presented in a systematic.

i) Primary Sources-

Face to face conversation with the official staff.

Practical desk work

Simple Depth interview technique was used by asking number open-ended

questions to collect the information.

Relevant file study as provide by the concerned officer.

ii) Secondary Sources:

Annual Report ( 2005, 2006 and 2008) National Bank Limited


Credit Risk Manual (2005), National Bank.

1.8 Limitation of the study:

The present study was not out of limitations. But it was a great opportunity for me to

know the banking activities of Bangladesh specially National Bank Limited. The study

carried on has the following limitations:

The main constraint of the study is inadequate access to information, which has

hampered the scope of the analysis required for the study.

Some problems create confusions regarding verification of data.

The time is insufficient to know all activities.

It was very difficult to collect the information from various personnel for their

job constraint.

As some of the fields of banking are still not covered by our courses, there was

difficulty in understanding some activities.

Because of the limitation of information, some assumption was made. So there

may be some personal mistake in the report.


CHAPTER – 02

Background of banking

This Chapter covers the followings:

2.1 Definition of bank:

2.1.1 Law of banking:

2.2 Historical background of the banking institution in Bangladesh:

2.3 Beginning Banking operation in Bangladesh:

2.4 Banking operation of Bangladesh:


Credit Risk Management 2.1 Definition of bank:The Jews in Jerusalem introduced a kind of banking in the form of money lending before

the birth of Christ. The word 'Bank' was probably derived from the word 'bench' as during

ancient time Jews used to do money -lending business sitting on long benches.

First modern banking was introduced in 1668 in Stockholm as 'Savings Pis Bank' which

opened up a new era of banking activities throughout the European Mainland.

In the South Asian region, early banking system was introduced by the Afghan traders

popularly known as Kabuliwallas. Muslim businessmen from Kabul, Afghanistan came

to India and started money lending business in exchange of interest sometime in 1312

A.D. They were known as 'Kabuliwallas

A bank is a financial institution whose primary activity is to act as a payment agent for

customers and to borrow and lend money. It is an institution for receiving, keeping, and

lending money.

Banks have influenced economies and politics for centuries. Historically, the primary

purpose of a bank was to provide loans to trading companies. Banks provided funds to

allow businesses to purchase inventory, and collected those funds back with interest

when the goods were sold. For centuries, the banking industry only dealt with businesses,

not consumers. Banking services have expanded to include services directed at

individuals, and risk in these much smaller transactions are pooled.

The name bank derives from the Italian word banco "desk/bench", used during the

Renaissance by Florentines bankers, who used to make their transactions above a desk

covered by a green tablecloth.[2] However, there are traces of banking activity even in

ancient times.In fact, the word traces its origins back to the Ancient Roman Empire,

where moneylenders would set up their stalls in the middle of enclosed courtyards called

macella on a long bench called a bancu, from which the words banco and bank are

derived. As a moneychanger, the merchant at the bancu did not so much invest money as

merely convert the foreign currency into the only legal tender in Rome—that of the

Imperial Mint.[3]


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2.1.1 Law of banking:

Banking law is based on a contractual analysis of the relationship between the bank and

the customer. The definition of bank is given above, and the definition of customer is

any person for whom the bank agrees to conduct an account.

The law implies rights and obligations into this relationship as follows:

1. The bank account balance is the financial position between the bank and the

customer, when the account is in credit, the bank owes the balance to the

customer, when the account is overdrawn, the customer owes the balance to the

bank.

2. The bank engages to pay the customer's cheques up to the amount standing to the

credit of the customer's account, plus any agreed overdraft limit.

3. The bank may not pay from the customer's account without a mandate from the

customer, e.g. a cheque drawn by the customer.

4. The bank engages to promptly collect the cheques deposited to the customer's

account as the customer's agent, and to credit the proceeds to the customer's

account.

5. right to combine the customer's accounts, since each account is just an aspect of

the same credit relationship.

6. The bank has a lien on cheques deposited to the customer's account, to the extent

that the customer is indebted to the bank.

7. The bank must not disclose the details of the transactions going through the

customer's account unless the customer consents, there is a public duty to

disclose, the bank's interests require it, or under compulsion of law.



2.2 Historical background of the banking institution in Bangladesh:

Banks have influenced economies and politics for centuries. Historically, the primary

purpose of a bank was to provide loans to trading companies. Banks provided funds to

allow businesses to purchase inventory, and collected those funds back with interest

when the goods were sold. For centuries, the banking industry only dealt with businesses,

not consumers. Banking services have expanded to include services directed at

individuals, and risks in these much smaller transactions are pooled.The name bank

derives from the Italian word banco "desk/bench", used during the Renaissance by

Florentines bankers, who used to make their transactions above a desk covered by a green

tablecloth.[2] However, there are traces of banking activity even in ancient times.

In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders would set up their stalls in the middle of enclosed courtyards called macella on a long bench called a bancu, from which the words banco and bank are derived. As a moneychanger, the merchant at the bancu did not so much invest money as merely convert the foreign currency into the only legal tender in Rome—that of the Imperial Mint.[3]

2.3 Beginning Banking operation in Bangladesh:

After independence of Bangladesh the government of Bangladesh was formally to change the administration of the territory now constitute Bangladesh. The government promulgated a law called Bangladesh bank order 1971 (acting president order no 2 of 1971). By this order the state bank of Pakistan was declared to be deemed as Bangladesh bank and officers, branches and assets of said state bank was declared to be deemed as officers, branches of Bangladesh bank. On the date there existed 14 scheduled banks with about 3042 branches all over the world.


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On the 16th December 1971 there existed the following 12 banks in Bangladesh namely:

Existing Bank New Bank1. National bank. 2. Bank of Bahawalpur Ltd3. Premir Bank Ltd.

Sonali Bank

4. Habib Bank Ltd5. Commerce Bank Ltd

Agrani Bank

6. United Bank Ltd.7. Union Bank Ltd.

Janata Bank

8. Muslim Commercial Bank Ltd.9. Standard Bank Ltd.10. Australasia Bank Ltd

Rupali Bank

11. Eastern Mercantile Bank Ltd. Pubali Bank 12. Eastern Banking Corporation Ltd. Uttara Bank 2.4 Banking operation of Bangladesh: The number of banks in all now stands at 49 in Bangladesh. Out of the 49 banks, four are

Nationalized Commercial Banks (NCBs), 28 local private commercial banks, 12 foreign

banks and the rest five are Development Financial Institutions (DFIs).

Sonali Bank is the largest among the NCBs while Pubali is leading in the private ones.

Among the 12 foreign banks, Standard Chartered has become the largest in the country.

Besides the scheduled banks, Samabai (Cooperative) Bank, Ansar-VDP Bank,

Karmasansthan (Employment) Bank and Grameen bank are functioning in the financial

sector. The number of total branches of all scheduled banks is 6,038 as of June 2000. Of

the branches, 39.95 per cent (2,412) are located in the urban areas and 60.05 per cent

(3,626) in the rural areas. Of the branches NCBs hold 3,616, private commercial banks

1,214, foreign banks 31 and specialized banks 1,177.

Bangladesh Bank (BB) regulates and supervises the activities of all banks. The BB is

now carrying out a reform program to ensure quality services by the banks.


CHAPTER – 03

Background of National Bank Ltd.

3.1 Background of National Bank Ltd. (NBL)

3.2 Corporate information:

3.2.1 Board of Directors:

3.2.2 Management Hierarchy of NBL:

3.2.3 Organ Gram of the NBL in Broadly:

3.3 Number of branches:

3.4 Number of employee:

3.5 Vision statement of the bank:

3.6 Mission statement of the bank:

3.7 Objective of the Bank

3.8 Product Scheme

3.8.1Current Deposit:

3.8.2Home Loan:


3.8.3 SME Loan:

3.8.4Consumer Loan:

3.8.5 Trade Finance:

3.8.6 Savings Deposit:

3.8.7 Current Deposit:

3.8.8 Benefits (Condition Apply)

3.8.9 RFC Deposit:

3.8.10 NFC Deposit:

3.8.11 Monthly Savings:

3.8.12 Short Term Deposit:

3.8.13 Fixed Deposit:

3.8.14 Overdraft:

3.8.15 Western Union:

3.8.16 Credit Card: 3.8.17 NBL ATM Service: 3.8.18 NBL Power Card:

3.9 General banking:

3.9.1 Account Opening Department:

3.9.3 Current account (CD):

3.10 SWOT analysis of the NBL

3.10.1 Strengths:

3.10.2 Weaknesses:

3.10.3 Opportunities:

3.10.4 Threats:



3.1 Background of National Bank Ltd. (NBL):

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. Keeping the target in mind NBL has taken preparation to

open new branches by the year 2008. The expectation of all class businessman,

entrepreneurs and general public is much more to NBL. Keeping the target in mind NBL

has taken preparation to open new branches by the year 2008.

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. We are determined to bring back the

long forgotten taste of banking services and flavors. We 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 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 programme 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

crore on 30.09.2006.


Our Bank 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 2006.

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 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.


3.2 Corporate information:

3.2.1 Board of Directors:

MS. PARVEEN HAQUE SIKDER Chairperson

MRS HELENA RAHMAN Director

MR. A. B. TAJUL ISLAM Director

MR. ZAKARIA TAHER Director

MR. SHAHADAT HOSSAIN (SALIM) Director

MR. M. G. MURTAZA Director

MR. LT. COL. (RETD.) MD. AZIZUL ASHRAF, PSC Director

MR. A. M. NURUL ISLAM Director

MR. SALIM RAHMAN Director


Chairman

Managing Director (MD)

Deputy Managing Director

(DMD)

Senior Executive Vice President (SEVP)

Executive Vince President (EVP)

Senior Vice President (SVP)

Vice President (VP)

Senior Assistant Vice President (SAVP)

Assistant Vice President (AVP)

Assistant Vice President

(AVP)Principal Officer

Senior Officer

Officer- i

Officer-ii

Officer-iii

Junior Officer

MR. S. M. SHAMEEM IQBAL Director

PROF. MAHBUB AHMED Director

CAPT. ABU SAYEED MONIR Director

MR. M. AMINUZZAMAN Managing Director& CEO


3.2.2 Management Hierarchy of NBL:


3.2.3:


Organ gram of the NBL in Broadly

Chairman

Board Secretariat Committees

Research & Planning

Budget Exp. Control

Managing director

Monitoring Implementation

Special Audit &

inspection

VP VP

Public relation

Computer

EVP SVP EVP EVP

SVPSVP

Loan & recovery

DMD adminEstablishment

EVP

AVP

DMD Operator

AVP

AVP AVP

AVP

AVP

AVP

AVP

SVP

AVP

AVP


3.3 Number of branches:

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.

3.3.1 The list of Branches with opening date of National Bank Limited:

SL. No Branch name Opening Date

SL. No Branch name Opening Date

Head office 23.03.83 47 Kawranbazar 27.08.8901 Dilkusha 23.03.83 48 North BK.HI.RD 15.07.9002 Khatungonj 11.05.83 49 Paglabazar 29.08.9003 Imamgonj 08.06.83 50 Shibganj 24.12.9004 Agrabad 16.08.83 51 Saver 30.01.9105 Rajshahi 28.08.83 52 Chapaienawabgonj 10.02.9406 Rangpur 31.08.83 53 Islampur 28.02.9407 Khulna 12.09.83 54 Pahartoli 13.04.9408 Sylhet 06.11.83 55 Bhola 01.06.9409 Comilla 30.01.84 56 Jhalakathi 02.06.9410 Narayangonj 12.03.84 57 Motileel 26.12.9411 Feni 09.05.84 58 Subid bazar 19.06.9512 Bangshal 31.07.84 59 Sk. Mojib RD 28.06.9513 Barisal 10.10.84 60 Ishwardi 27.08.9514 Bogra 04.12.84 61 Joypurhat 14.05.9615 Elephand road 18.05.85 62 Dhanmondi 22.06.96


EVP

AVP, NBLTrain. Ins

AVP, admin

VP

VP

EVP

AVP. Establish

AVPDevelop AVP

AVP

16 Jubilee Road 10.11.85 63 Coxsbazar 05.02.9717 Chowmohoni 10.11.85 64 Kishorgonj 07.06.9718 Moulovibazar 16.07.86 65 KDA Khulna 30.09.9719 Sreemongal 17.07.86 66 Gulshan 19. 10.99

20 F. exchange 09.10.86 67 Uttara 29.05.01

21 Brahmanbaria 08.11.86 68 Mirpur 31.05.0122 Narsindhi 25.11.86 69 Bishwanath 12.06.0123 Satkhira 30.11.86 70 Hobigonj 14.06.0124 Tongi 23.02.87 71 Gajipur 25.10.0125 Mymensing 24.02.87 72 Z.H.Sikdar

Women College04.11.0111.08.97

26 Faridpur 26.02.87 73 Thakurgaon 08.11.0127 Jesshor 28.02.87 74 Jamalpur 15.11.0128 Dagondhuiyn 27.06.87 75 Sherpur 24.12.0129 chandpur 17.08.87 76 Chauddagram 14.02.0230 Babubazar 31.08.87 77 Gopalgonj 21.06.0631 Malibagh 04.11.87 78 Sreenagar 10.07.0632 Mirpur bazaar 05.12.87 79 Modupur 06.07.0633 Tajpur 28.02.88 80 Godagari 23.07.0634 Zindabazar 12.04.88 81 Naria 11.09.0635 Pabna 17.04.88 82 Bhanga 14.09.0636 Dinajpur 05.06.88 83 Chowgacha 17.09.06

37 Saidpur 19.06.88 84 Natore 18.09.0638 Noaogaon 07.06.88 85 Sunamgonj 20.90.0639 Sirajgon 14.08.88 86 Muradpur 19.11.0640 Kushtia 16.08.88 87 Bashurhat 28.11.0641 Patiya 14.09.88 88 Charfession 12.12.0642 Mohakhali 31.10.88 89 Mohammadpur 20.12.0643 Bebianibazar 26.12.88 90 Lake Circus 24.12.0644 Sandwip 15.03.89 91 Mirsarai .27.12.0645 Banbura 04.04.8946 Chaktai 24.06.89

3.4 Number of employee:

Up to September 2006, the total number of workforce of NBL stood at 2239, which

include 1689 officers and executives and 550 staff.

3.5 Vision statement of the bank:


Ensuring highest standard of clientele services through best application of latest

information technology, making due contribution to the national economy and

establishing ourselves firmly at home and abroad as a front ranking bank of the country

are our cherished vision.

Credit Risk Management 3.6 Mission statement of the bank:

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

our banking services are being continued unabated. Alongside, we are also putting

highest priority in ensuring transparency, account ability, improved clientele service as

well as to our commitment to serve the society through which we 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.

3.7 Objective of the Bank:

Alongside up gradation and diversification of banking service to provide

maximum satisfaction to the respected clients, nourishing saving habit among the general

people by offering them attractive savings oriented products, thereby assisting economic

development.

To build up a deep-rooted and harmonies banker-customer relationship by

dispensing prompted improved services to the clients.

To make best use of the hard-earned investment of our valued shareholders.

Simultaneously, play our due part in developing a vibrant capital market by ensuring

more effective participation of the Bank in the share market.

To make best use of latest technologies for giving the clients a taste of modern

banking so as to encourage them to continue and feel proud of banking with NBL.


To respond to the need of the time by participating in syndicated large loans

financing, thereby expanding the area of investment of the Bank.

To gain confidence of all quarters involved in the economic development of the

country through pursuance of a policy of continuous adjustment and coordination of the

Bank’s external trade programmers with the dynamism inherent in the international trade

and payments system.

Credit Risk Management3.8 Product Scheme

3.8.1Current 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

2 copies of recent photograph of account holder.

TIN certificate.

Nominee's Photograph.

Valid photocopy of Voter ID Card.

3.8.2Home Loan:NBL offers home loan facility for purchasing flats or construction of house .



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

construction cost.

Grace period period available upto 9 months in flat purchase or 12 months in

construction. Competitive interest rate.


3.8.3 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.


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

Scheme) .

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

Business Scheme))

Collateral Free Advance.

Any genuine and small businessmen/ entrepreneurs/enterprise having honesty, sincerity,

and integrity.

3.8.4Consumer Loan:NBL offers consumer credit facility for retail customers.

Financing items

Electronics consumer products.

Computer or Computer accessories.

3.8.5 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 .



Low interest rate 13.00%-14.50%.

Minimum processing time.

Low service charges.

3.8.6 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.


Maintenance charge yearly Tk. 400.

No hidden costs.

Standing Instruction Arrangement are available for operating account.t Opening



Valid photocopy of Voter ID Card

3.8.7 Current Deposit:


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

transaction without any restriction.





No hidden costs.

Standing Instruction Arrangement are available for operating account.

Easy access to our other facilities.

Account Opening


TIN certificate.


Valid photocopy of Voter ID Card.

3.8.9 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.


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.



Passport Copy.

ID of residence in abroad.


3.8.10 NFC Deposit:

National Bank Limited gives opportunity to maintain foreign currency account thorugh

it's Authorized Dealer Branches. All non â€“resident Bangladeshi nationals and persons

of Bangladesh origin including those having dual nationality and ordinarily residing

abroad may maintain interest bearing NFCD Account.


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.

3.8.11 Monthly Savings:National Bank Limited offers monthly savings scheme for it's retail customers.


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.


Credit Risk Management3.8.12 Short Term Deposit:

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

to withdraw money any time.


Minimum balance Tk. 2000.


Standing Instruction Arrangement are available for operating account

3.8.13 Fixed Deposit:

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

with the time.


Any amount can be deposited.

Premature encashment facility is available.

Overdraft facility available against term receipt.

1 copy of recent photograph of account holder.



Credit Risk Management3.8.14 Overdraft:NBL offers overdraft facility for corporate customers for day-to day business operations .


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

3.8.15 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.

Money transfer from anywhere in the World to Bangladesh in minutes.

3.8.16 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 world wide 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:-

It 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:-

Pass port photocopy (first five pages)

Two copy passport size photo.

TIN number

FDR, STD, SB account lien

Credit Card


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.


3.8.17 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.

3.8.18 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.


ATM Location:

Branch Location DistrictSatmasjid Road 761 , Satmashjid Road , Dhanmondi Dhaka

Uttara Hossain Tower , Next to over Bridge Dhaka

Dilkusha 48, Dilkusha C/A Dhaka

Gulshan 97/1 , Gulshan Aenue Dhaka

Malibagh 474, Malibagh, DIT Road Dhaka

Karwan Bazar BTMC Bhavan, Karawan Bazar Dhaka

Dhaka Varsity Administritive Building Dhaka

3.9 General banking:

3.9.1 Account Opening Department:

Another function of the banking is A/C opening. The establish a banker and customer

relationship account opening is the first step. Opening of account binds the banker and

customer into contractual relationship. A bank has to maintain different types of


accounts for different purposes. National Bank Limited offers the general deposit

products in the form of various accounts.

Saving Account.

Current Account.

Short term deposit Account.

Fixed deposit Account.


Savings account is that account whose interest rate is higher then current account and

saving account holder can withdraw two times in a week. Savings account can be open by

individual, joint name or club, society, association etc.

3.9.3 Current account (CD):

Current account is that type’s account where depositor can withdraw his deposited money

at any time there is no restriction. Current account can be divided into following such as:-

Individual current account

Proprietorship current

Partnership

Limited Companies

Trustees/ clubs/ association/ and different types of institution etc.

3.10 SWOT analysis of the NBL

3.10.1 Strengths:


NBL provides its customers excellent and consistent quality in every service. It

is of highest priority that customer is totally satisfied.

NBL draws its strength from the adaptabilssity and dynamism it possesses. It

has quickly adapted to world class standard in terms banking services. NBL has also

adapted state of the art technology to connect with world for better communication to

integrate facilities.

All the level of the management are solely directed to maintain a culture for

the betterment of the quality of the service and development a corporate brand image in

the market through organization wide team approach and open communication system.

Credit Risk Management NBL utilizes state of the art technology to ensure consistent quality and operation. The proof of that can be found in one of its branches, Scotia that is equipped with Reuters and SWIFT. All these facilities will be introduced in every branch vary shortly.

On of the key-contributing factors behind the sources of NBL are its

employees who are highly trained and most competent in their own field. NBL provides

their employees training both in- house and out side job.

NBL is free from dependence from the ever-disruptive owner supply of our

public sources. The required power is enervated by the company through enervator fed on

diesel. Water enervation at present is also done by deep tube wells on site and is abundant

in quality.

NBL provides its workforce an excellent place to work in. total complex has

been centrally conditioned. The interior decoration was done exquisitely with the choice

of soothing colors and blend of artistic that is comparable to any multinational bank.

NBL provides the western union money transfer service for these customers are

easily getting the foreign money.

NBL also provide power card service facility. First year Bank is not providing

any service charge for the power card.

3.10.2 Weaknesses:


NBL has very limited human resources compared to its financial activities.

There are not many people to perform most of the tasks. As a result many of the

employees are burdened with extra workloads and works late hours without any overtime

facilities. This might cause high employee turnover that will prove to be too costly to

avoid.

Few of the NBL’s products offered to its clients like “Personal credit (PC)” are

lying idle due to proper marketing initiative from the management. These products call

easily be made available in attractive way to increase its client base as well as its deposit

status.


3.10.3 Opportunities:

Government of Bangladesh has rendered its full support to the banking sector

for a sound financial status of the country, as it is becoming one of the vital sources of

employment in the country now. Such government concern will facilitate and support the

long tern vision for NBL.

Emergence of e-banking will open more scope for NBL to reach the clients not

only in Bangladesh but also in global arena. It is also facilitate wide area network in

between the buyer and the population units of NBL to smooth operation to meet the

desired need with least deviation.

3.10.4 Threats:

Government of Bangladesh has rendered its full support to the banking sector

for a sound financial status of the country, as it is becoming one of the vital sources of


employment in the country now. Such government concern will facilitate and support the

long tern vision for NBL.

Emergence of e-banking will open more scope for NBL to reach the clients not

only in Bangladesh but also in global arena. It is also facilitate wide area network in

between the buyer and the population units of NBL to smooth operation to meet the

desired need with least deviation.

Chapter – 04

Risk Management of National Bank Limited

This Chapter covers the followings: 4.1 Definitions of risk:

4.2 Definition of Credit risk:

4.3 Credit risk and Bangladesh bank:

4.3.1 Business risk:

4.3.2 Industry risk.

4.3.3 Supplies risk:

4.3.4 Sales risk:

4.3.5 Company risk

4.3.6 Company position risk:


4.3.7 Performance risk:

4.3.8 Resilience risk:

4.3.9 Management risk:

4.3.10 Management competence risk:

4.3.11 Management integrity risk:

4.3.12 Security risk:

4.3.13 Security control risk:

4.3.14 Security covers risk:

4.4 Process of Credit risk:

4.5 Types of credit risk:

4.6 Importance of credit risk:

4.7 Credit risk planning:

4.8 Tools of credit risk:

4.9 Essential Components of a Sound Credit Policy

4.10 Focus on Industry and Business Segment

4.11 Lending Guidelines



4.1 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).



4.2 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 banks 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 can not 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-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.



4.3 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

4.3.1 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.

4.3.2 Industry risk.

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

supplies risk and sales risk.

4.3.3 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.



4.3.4 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.

4.3.5 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.

4.3.6 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 companies position in the industry. It is subdivided into performance risk

and resilience risk.

4.3.7 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).



4.3.8 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.

4.3.9 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.

4.3.10 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..

4.3.11 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.



4.3.12 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.

4.3.13 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.

4.3.14 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



4.4 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

a. Lending guidelines

b. Credit assessment and risk grading

c. Approval authority

d. Segregation of duties

e. Internal control and compliance

Program Guidelines

a. Approval process

b. Credit administration

c. Credit monitoring

d. Credit recovers



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:

o Military equipment/ weapons finance

o Highly leveraged transactions

o Finance of speculative investments

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

environmentally sensitive

o Lending to companies listed on CIB black list or known

o Counter parties in countries subject to UN sanctions

o 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.

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


e. Internal Control and Compliance:

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

conducting audits of all branches.


Credit Risk ManagementProgram Guidelines a. Approval process: The following diagram illustrates an example of the approval

process:

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). The primary functions of

recovery unit are:


Credit application recommended by Branch Manager / Relationship Manager / Corporate

Head Office, Credit Division

Head Office Credit Committee

Executive Committee of Board of Directors


▪ 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.

4.5 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

4.6 Importance of credit risk:

The importance of credit risk management for banking is tremendous. Banks and other financial institutions are often faced with risks that are mostly of financial nature. These institutions must balance risks as well as returns. For a bank to have a large consumer base, it must offer loan products that are reasonable enough. However, if the interest rates in loan products are too low, the bank will suffer from losses. In terms of equity, a bank must have substantial amount of capital on its reserve, but not too much that it misses the


Investment revenue and not too little that it lead itself to financial instability and to the risk of regulatory non-compliance.


Credit risk management, in finance terms, refers to the process of risk assessment that

comes in an investment. Risk often comes in investing and in the allocation of capital.

The risks must be assessed so as to derive a sound investment decision. Likewise, the

assessment of risk is also crucial in coming up with the position to balance risks and

returns.

Banks are constantly faced with risks. There are certain risks in the process of granting

loans to certain clients. There can be more risks involved if the loan is extended to

unworthy debtors. Certain risks may also come when banks offer securities and other

forms of investments.

The risk of losses that result in the default of payment of the debtors is a kind of risk that

must be expected. Because of the exposure of banks to many risks, it is only reasonable

for a bank to keep substantial amount of capital to protect its solvency and to maintain its

economic stability. The second Basel Accords provides statements of its rules regarding

the regulation of the bank's capital allocation in connection with the level of risks the

bank is exposed to. The greater the bank is exposed to risks, the greater the amount of

capital must be when it comes to its reserves, so as to maintain its solvency and stability.

risk management must play its role then to help banks be in compliance with Basel II

Accord and other regulatory bodies.

To manage and assess the risks faced by banks, it is important to make certain estimates,

conduct monitoring, and perform reviews of the performance of the bank. However,

because banks are into lending and investing practices, it is relevant to make reviews on


loans and to scrutinize and analyze portfolios. Loan reviews and portfolio analysis are

crucial then in determining the credit and investment risks


The complexity and emergence of various securities and derivatives is a factor banks

must be active in managing the risks. The credit risk management system used by many

banks today has complexity; however, it can help in the assessment of risks by analyzing

the credits and determining the probability of defaults and risks of losses.

Credit risk management for banking is a very useful system, especially if the risks are in

line with the survival of banks in the business world.

4.7 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

4.8 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 crore 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, Bangladesh Bank

provided guidelines for credit risk management of banks wherein it recommended,

interalia, the introduction of Risk Grade Score Card for risk assessment of credit

proposals.

Bangladesh Bank expects all commercial banks to have a well defined credit risk

management system which delivers accurate and timely grading. In practice, a bank’s

credit risk grading system should reflect the complexity of its lending activities and the

overall level of risk involved.

4.9 Essential Components of a Sound Credit PolicyThere 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:

1. Legal consideration: The bank’s legal lending limit and other constraints

should be set forth to avoid inadvertent violation of banking regulations.

2. 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.

3. 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


4. 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.

5. 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.

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

wherein the qualitative standards for acceptable loans are set forth.

4.10 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



4.11 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.


.

CHAPTER – 05

Credit Evaluation Process


5.1 Indebtedness, Rural and Urban:

5.2 Role of Private Moneylenders and Financiers

5.3 Government and Semi-Government Credit Agencies

5.4 Joint-Stock Banks

5.5 Leading Guidelines of NBL:

5.5.1 Types of loan facilities:

5.5.2Types of loan facilities:

5.5.2. Single borrower/ group limits/ syndication:

5.5.3. Leading caps:

5.5.4 Loan facilities parameters:

5.5.4.1 Nature of advanced:

5.5.4.2 Purpose:

5.5.4.3 Limit/ amount of facility/ maximum size:

5.5.4.4 Margin/ Equity:

5.5.4.5 Rate of interest/ Commission:

5.5.4.6 Insurance:


5.5.4.7 Security:

5.6 Credit Principles of NBL:

5.7 Credit Evaluation Process of NBL:


5.1 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.

5.2 Role of Private Money-lenders and Financiers

Money-lenders. - Though the institution of private money-lending has lost its

importance, yet it has not been completely eliminated. It is regarded as a necessary

agency where the modern banking has not developed. The illiterate and conservative

people, who have not been fully acquainted with the modern banking practices or have


not brought themselves into the co-operative fold, still go to the doors of the private

money-lenders.

The money-lenders or the Banian still dominates the rural sector of the district

economy. His supremacy in the field of rural finance is still unchallenged. The business

of the money-lenders is generally a family concern. His working capital is his own. He

grants


He follows indigenous methods of keeping he charges is out of proportion to the rate of

interest charged by the other banking institutions.

In the primitive agriculture society, the indigenous money-lender constituted the

main and only source of finance to a large section of population. He served in many

ways the agriculturist who required money for the purchase of food and other necessaries

of life, for social and religious ceremonies and for securing agriculture requisites such as

seeds, bullock etc. In times of drought and famine, agriculturists used to borrow heavily

from the money-lender against the security of agricultural lands return the debts at

harvest time. These debts, not regularly repaid by the farmers, piled up through

generation and created in succeeding years the problem of rural indebtedness. In the

absence of any adequate protection to the debtor in the form of State regulation the

money-lender indulged in a number of malpractices and caused hardships to the debtors.

The Government had, therefore, to intervene to prevent money-lenders from indulging in

malpractices. The various Acts passed by the Government checked the activities of the

money-lenders. The rise and growth of modern banking institutions also affected their

business adversely.


Till recently, private money-lending was regarded as a hereditary profession.

There was a separate class which was having money-lending as its regular profession.

The children of this class generally used to adopt the same profession in turn. The

passing of the Punjab Regulation of Accounts Act, 1930, affected the private money-

lending business adversely. Though the class of professional money-lending still exists,

yet it has either left money-lending as a profession or has refined this profession in line

with the modern practice of m0ney0lending. Now the money-lenders are required to get

themselves registered with

Credit Risk Management 5.3 Government and Semi-Government Credit Agencies Till recently, the system of indigenous money-lending as a source of finance, both

in rural and urban areas, was common. But the development of Government/Semi

Government credit agencies gave a death blow to it. The Government/Semi Government

agencies are: (i) The Punjab Financial Corporation. It was established in1953 under the

State Financial Corporation Act, 1951, with the object of providing medium and long-

term loans to industrial concerns located in the Punjab State to the extent of Rs 20 lakhs

in the case of a public limited company or a registered co-operative society and 10 lakhs

in other case, at a rate of interest of 3 percent above the bank rate, with a minimum of 9

percent per annum. This amount is repayable in 10 years. The loans are advanced on the

security of land, building, plant and machinery, by way of first registered mortgage, with

a margin of 40 percent of the net assessed value. In case of Government guarantee, the

margin is reduced to 25 percent. ; (ii) The Khadi and Village Industries Commission. It

caters to the financial needs of the khadi and village industries for short-term loans. ; (iii)

Joint Stock Banks ; and (iv) Co-operative banks.

Financial assistance is also rendered by the State Department of Industries under

the State Aid to Industries Act, 1935, for setting up new industrial units and for

expansion/modernization of existing units. The Government also advances loans to the


agriculturists of agricultural purpose such as purchase of fertilizers, seeds, cattle, tractors,

agricultural implements, etc

5.4 Joint-Stock Banks

The banks registered under the Indian Companies Act, 1913, come under this

head. Organized on modern lines of joint-stock companies with limited liability, the

joint-stock banks are usually referred to as commercial banks.


The modern banking institutions in the country had a very chequered history. The

beginning of the 20th century was a turning point in their development. The Swadeshi

movement gave a great fillip to the banking industry. A good number of banks were

started by enterprising Indian businessmen and capitalists. However, there were several

banking failures. The first two decades of the 20th century were characterized by

progress of banking as well as bank closures. The World-Wars I (1914-18) and II (1939-

45) brought acceleration progress. During the thirties also there was a banking crises.

The passage of the Banking Companies Act, 1949, in the banking legislation in India.

This Act was amended from time to time.

In the Gurdaspur District, in the beginning, there was at Gurdaspur a branch of the

Doaba Bank Ltd., but it had a very short life. Thereafter, a branch of the People’s Bank of

Northern India Ltd. was opened. Though fro a sometime it had a good business, yet it

also went into liquidation. Batala had a branch of Sahukara Bank Ltd. The Amrit Bank

Ltd. with its Head Office at Amritsar, opened a branch at Gurdaspur in 1939 and another

one at Batala. The Batala branch was closed after about a year but another was opened at

Dinanagar. At that time, the Amrit Bank was the only commercial bank at Gurdaspur.


Later on, the Central Bank of India Ltd. And the Imperial Bank of India (now the State

Bank of India) also opened their branches there, but these closed soon after. After the

lapse of some period, the Bharat Bank Ltd. and the Punjab National Bank Ltd. opened

their branches at Gurdaspur (in 1944),

5.5 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

Credit Risk Management5.5.1 Types of loan facilities: National Bank has been offering wide range of credit facilities as under:NAME PURPOSECash 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.


5.5.2. 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 by pass 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.

5.5.3. 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 over all business, trend, prospects/ potentials, problems,

risk & mitigates, pricing owner’s stake in business, business competition involvement

safety, liquidity, security etc.

Our 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%


are to be set.

5.5.4.1 Nature of advanced:

Each advanced to be made will be 5.5.4 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

maters facility parameters categorized under one of the arranged types and will be

governed under the terms and conditions related thereto.

5.5.4.2 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.


5.5.4.3 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.

5.5.4.4 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.


5.5.4.5 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).

5.5.4.6 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.

5.5.4.7 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 same. The property is


valued by the branch official by applying prudence and considering prevailing rate in

the location area of the property.

5.6 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.


5.7 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.

CHAPTER – 06

Highlights of Financial Performance


6.1 Highlights on the overall activities of the NBL for the

year2007, 2006, 2005 and 2004.

6.2 Ratio Analysis:

6.2.1 Profit Margin Ratio:

6.2.2 Rate of return on asset (ROA):

6.2.3 Rate of return on Equity (ROE):

6.3 Asset Utilization Ratio:

6.4 Risk ratio Analysis:

6.4.1 Equity Multiplier (EM):

6.4.2 The investment ratio:

6.5 Liquidity Ratio:

6.5.1 Cash Ratio:

6.6 Capital and Reserve Fund:

6.7 Deposits:

6.8 Investment:


6.9 Total Loans & Advances:

6.10 Import and Export:

6.11 Bank Profit:

612 Performance at a glance:



6.1 Highlights on the overall activities of the NBL for the year2007, 2006, 2005 and 2004.

(Taka in Million)SL. No

Particular 2007 2006 2005 2004

01 Paid-up Capital 1208.21 805.47 619.59 516.3302 Total Capital 4711.49 3237.88 2658.03 2088.6903 Capital

surplus/Deficit 1117.41 352. 87 3 54.19 307.04

04 Total Asset 56526.96 46796.04

38400.37 35127.30

05 Total Deposits 47961.23 40350.87 32984.05 28973.3906 Total Loan and

Advances36475.75 32709.68 27020.21 23129.65

07 Total Contingent Liabilities and commitments

26801.08 19737.75 16645.76 12897.66

08 Loan Deposit Ratio

76.05% 81.06% 81.92% 79.83%

09 Ratio of Classified Loan to Total Loan and Advances

4.53% 6.01% 7.06% 17.24%

10 Profit after Tax & provision

1238.11 507.49 271.67 170.02

11 Amount of Classified Loans during the Currant year

1651.10 1967.16 1906.40 3988.59

12 Provision kept against classified loans

947.75 1161.61 967.21 1966.65

13 Provision surplus or deficit

430.30 352.62 73.95 185.00


14 Cost of Fund 6.35% 6.15% 5.58% 5.55%15 Interest earning

Assets47506.42 44194.85 34162.47 30973.49

16 Non Interest earning Assets

9020.57 2601.19 5470.26 4153.81

17 Return on Investment (ROI)

14.31% 5.62% 8.25% 6.62%

18 Return on Assets(ROA)

4.29% 2.50% 2.22% 2.09%

19 Income from Investment

1110.43 321.95 294.05 289.51

20 Earning per share (Taka)

102.47 63.01 43.85 27.44

21 Net Income per share (Taka)

102.47 63.01 43.85 27.44

22 Price Earning Ratio (Times)

14.32 12.07 17.02 17.32

6.2 Ratio Analysis:

Financial ratios are constructed by forming ratios of accounting data contained in the

banks reports of income (i.c balance sheet). Ratio analysis is a part of financial analysis.

A ratio analysis is defined as the indicated quotient of two mathematical expressions” and

as the relationship between two or more things.” In financial analysis a ratio is use as a

benchmark for evaluation the financial position and performance of a bank. A wide verity

of financial ratio can be calculated to assess different characteristics of financial

performance. To evaluate a particular financial ratio for a bank, comparison with peer

group bank is often used. Also it is benefited to track the ratio over time relative to other

banks. Even without comparison with other bank. Ratio trends over time may provide

valuable information about the bank performance.

To measure the performance of the bank it is important to measure source of the ratios to

get a clear picture about the bank and its activities. Some of the important ratios are

Return and asset ratio (ROA), Return on equity (ROE), profit margin and asset utilization

ratio.


Credit Risk Management6.2.1 Profit Margin Ratio:

The profit margin gives some ingredients to judge the ability of management to control

expense, including taxes give a particular level of operating income. The profit margin

ratios are as follows:

Profit Margin 2005 2006 2007NBL 21.59 20.63 14.82SIBL 11.00 15.49 14.40IBBL 7.15 9.25 14.456.2.2 Rate of return on asset (ROA):The rate of return on asset is frequently used to evaluate banks management. The ROA

measure the ability of management to utilize the real and financial resource of the banks

to generate returns. It indicates net income per taka of total assets owned during the

period. The ROA of the banks are as follows:

ROA 2005 2006 2007NBL 2.22 2.50 4.29SIBL 1.25 2.15 3.75IBBL 1.92 2.05 3.25 6.2.3 Rate of return on Equity (ROE):The rate of return on equity is considered as a well judgment in analyzing a bank’s

financial health. ROE shows what contribution the equity capital has on net income. It

measures the percentage return on each dollar of stockholders equity is the aggregate

return to stockholders before disbursing dividends.

The higher return the better as banks can add more to retained earnings and pay more in

cash dividends when profits are higher. The ROE of the bank’s are

ROE 2005 2006 2007NBL 7.90 8.64 5.56SIBL 4.51 5.12 8.46IBBL 8.15 8.60 8.04



6.3 Asset Utilization Ratio:The asset utilization ratio represents the ability of management to employ assets

effectively to generate revenues. Bank assets fall into one of four general categories.

Loans investment securities non interest cash and due from banks and other assets. The

assets utilization ratios are:

Assets Utilization 2005 2006 2007NBL 29.22 43.55 30.15SIBL 6.75 16.33 7.26IBBL 10.9 12.74 17.08

6.4 Risk ratio Analysis:It is very important for bank to measure its risk associated with its operation. Without

identifying risk no bank can success in future rather it will face liquidity operational and

market risk. Therefore it is very important measure risk and takes necessary steps against

it.

6.4.1 Equity Multiplier (EM):Equity multiplier measures financial leverage and represents both profit and risk

measure. EM affects banks profits because it has a multiplier impact on ROA to

determine a banks ROE. It should be obvious that a higher equity multiplier can

increase both ROE and the growth rate of the bank as long as ROA is positive. On the

downside if ROA is negative ROA will be margined in a negative direction.

Equity Multiplier 2005 2006 2007NBL 27.61 34.16 23.30SIBL 10.00 21.00 28.00IBBL 18.97 16.00 18.64



6.4.2 The investment ratio:The investment ratio indicates that extent to which assets are developed to loans as

opposed to other assets, including cash securities and plant and equipment. The greater

the greater the banks ability to generate income as interest that the bank owns.

Investment Ratio 2005 2006 2007NBL 8.25 5.62 14.31SIBL 46.25 31.08 45.53IBBL 52.95 20.15 40.63

6.5 Liquidity Ratio: Liquidity can be defined as the extent to whom the bank has funds available to meet cash

demands for loans and deposit withdrawals. The failure of bank meet its obligations due

to lack of sufficient liquidity , will result in a poor creditworthiness, loss of creditors

confidence or even in legal tangles resulting in the closure of the bank. A very high

degree of liquidity is also unexpected idle cash earn nothing. Therefore it is necessary to

strike a proper balance between high liquidity and lack of liquidity. The most common

ratio are as follows:

6.5.1 Cash Ratio:

Cash including vault cash, deposit at other banks and cash items in the

process of collection. All these earn no interest. As such bank

management should attempt to minimize its investment in these assets.

On the other hand, it is the most liquid asset. Banks must maintain

liquid assets to meet up any sudden need. Lower cash ratio indicates

higher risk or it will lose its reputation. Therefore banks have to

maintain an optimal cash ratios of the bank are 2005 to 2007 Cash Ratio 2005 2006 2007NBL 4.50 4.96 4.17


SIBL 34.15 18.37 15.92IBBL 19 20.04 20.11


6.6 Capital and Reserve Fund:

Authorized capital of the bank was Tk. 245.00 crore.The paid-up capital of the bank

stood at Tk. 120.82 crore in 2007 due to declaration fifty percent bonus share 2006.The

statutory reserve enhanced by Tk 40.70 crore in 2007 and stood Tk. 121.33 crore. The

total equity of shareholders of the bank at the end of the year 2007 stood at Tk. 456.84

crore.


6.7 Deposits:



The deposit base of the bank registered a growth of 18.86 percent from Tk. 4035.08 crore

in 2006 to Tk. 4,796.12 crore in December 2007. Expanded branch network, innovative

deposit products including NMS and NDS attracted a huge number of customers, which

contributed to the growth of deposit. The main customers include individuals,

corporations, financial institutions, government & autonomous bodies, etc.

6.8 Investment:

The bank's investment grew by 24.36 percent and stood at Tk. 776.04 crore in 2007

against Tk 623.98 crore in the previous year. It mostly invested in high yielding long-

term government securities to cover the increased statutory liquidity (SLR) requirement

arising from the growth of deposit liabilities.



6.9 Total Loans & Advances:

National Bank limited ahead their steps for providing advance to the different

organization in our country. The credit policy of NBL is guided by Bangladesh Bank.

The advance portfolio of the bank is well diversified and broad based covering various

sectors of the economy in addition to traditional financing of domestic and international

trade. NBL has been able to increase its loans and advance despite adverse conditions in

the domestic as well as in the global economy. The bank recorded a growth of 11.51

percent with a total loans and advances portfolio of Tk. 3,647.57 crore at the end of

December 2007 compared to Tk. 3,270.97 crore at the end of decenber 2006. The growth

was due to parking of established business enterprises, new venture of Syndication loan,

Project loan , Housing loan, Lease finance , SME, Agri loan etc.



6.10 Import and Export:

Import trade finance by NBL rose to USD 907.08 million (Tk.6,275.91 crore) in

reporting year compared with USD 606.26 million (Tk.4,245.85 crore) in 2006. The

growth in USD increased by 49.62 percent and in Taka by 47.81 percent. Large LSc.were

opened mainly for importing old ships, rice, wheat , edible oil, fertilizer, capital

machinery, fabrics & accessories, petroleum products and other consumer products.

NBL sucessfully handled export documents USD 465.78 million (Tk. 3,182.37 crore)

during the reporting year compared to to USD 405.33 milion (Tk. 2,801.92 crore) in the

year 2006. The growth rate in US dollar is 14.91 percent and in Tk. 13.58 percent.

Readymade garments, knitwear, frozen food, fish, tanned leather, handicraft, tea etc. were

the major export finance sectors.



6.11 Bank Profit:

National Bank Limited generated an operating profit of Tk. 221.51 crore in 2007 which

was Tk. 114.68 crore in 2006, registering a growth of 93.17 percent. Net Profit after tax

increased by 143.96 percent to Tk. 123.81 crore in 2007 after making provision for loans

losses and income tax.


6.12 Performance at a glance:

Highlights on the overall activities of the Bank

Taka in Million Particulars Jun-08 Jun-07

Authorized Capital 2,450.00 2,450.00

Paid up Capital 1,872.72 1,208.21

Reserve Fund 3,760.56 2,645.23

Equity Fund (Capital and Reserve) 5,633.29 3,853.44

Deposits 53,739.54 45,177.67

Loans & Advances 44,800.18 32,695.14

Provision Required 1,371.00 1,162.67

Provision Kept 1,599.97 1,323.06

Investment 7,780.47 7,959.47

Import Business 48,226.62 27,543.34

Export Business 18,447.50 14,131.12

Total Income 4,398.56 3,342.26

Total Expenditure 2,361.90 2,259.69

Operating Profit 2,036.65 1,082.57

Net Profit after Tax and Provisions 1,065.94 580.47

Fixed Assets 1,898.05 1,711.03

Total Assets 65,168.91 53,576.12

(Percentage)

Capital Adequacy Ratio 13.31% 12.25%

% of Classified Loan & Advance 5.91% 7.10%

Advance Deposit Ratio 83.37% 72.37%

Cost of Fund 6.40% 6.54%

Return on Assets (ROA) 6.25% 4.04%

(Amount in Taka)


Earnings per Share (EPS) -Annualized 113.84 102.47

Book Value per Share 300.81 318.94

Market Value per Share 985.50 851.50

Price Earning Ratio (Times) 8.66 8.31

(In number)

Number of Foreign Correspondents 405 395

Number of Shareholders 14,221 11,633

Number of Employees 2,632 2,277

Number of Branches 101 92

8.2 Conclusion & Recommendation for the NBL:

It is also very difficult for me to give any recommendation with my little working

experience but I have tried as my best to give best recommendation above shortcomings

(its may be its not sweet able for NBL)

NBL should give more freedom to their branches for taking decisions and their

head office should take decision more quickly.

NBL should build separate loan recovery division if it happed then their

classified loan amount will reduce and they can invest more.

NBL, Inter Bank Transaction is made by advice but it is unsecured for bank so

NBL have to build net working system between branches and head office.

NBL should go through the online banking as early as possible for better

service to the customer.

NBL should increase own investment in different sectors as like Islami Bank

Ltd. if they can increase their own investment then their cost of capital will reduce.



NBL, Human Resources Department should train their employees with

computer knowledge and their Human Resources Department should arrange training

program frequently.

NBL, management should take decision more quickly.

NBL should use group incentives so that employee can share their experience,

strength and can work smoothly.

Their statement should be computerized which is cost effective and safe.

It has been seen that NBL marketing activates are not sufficient but now a

day’s proper marketing is important for creating good image in target customer mind.

They should increase promotion campaign and they should participate in social activities

for creating good image in target customer mind.


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