Credit Management of Standard Chartered Bank
Name of the Organization Year of Establishment
: Standard Chartered Bank Bangladesh : 1948 (Chittagong)
Country Chief Executive Officer
: Jim McCabe
Logo: Nature of the organization
: Multinational Company subsidiary group in Bangladesh.
: GMT + 7 Hours
: Taka (BDT)
: 161.3 million (UN, 2008)
Number of Branches
Number of ATM’s
: Offers full online banking from branch to branch and also from Dhaka to Chittagong.
Service Coverage & Customers
: Serves individual and corporate customer within Dhaka & Chittagong.
2.2 Background of the Bank Background The Standard Chartered Group was formed in 1969 through a merger of two banks: The Standard Bank of British South Africa founded in 1863 and the Chartered Bank of India, Australia and China, founded in 1853. Both companies were keen to capitalize on the huge expansion of trade and to earn the handsome profits to be made from financing the movement of goods from Europe to the East and to Africa. The Chartered Bank: The details about the Chartered Bank include: •
Founded by James Wilson following the grant of a Royal Charter by Queen Victoria in 1853.
Chartered opened its first branches in Mumbai (Bombay), Calcutta and Shanghai in 1858, followed by Hong Kong and Singapore in 1859.
Traditional business was in cotton from Mumbai (Bombay), indigo and tea from Calcutta, rice in Burma, sugar from Java, tobacco from Sumatra, hemp in Manila and silk from Yokohama.
Played a major role in the development of trade with the East which followed the opening of the Suez Canal in 1869 and the extension of the telegraph to China in 1871.
In 1957 Chartered Bank bought the Eastern Bank together with the Ionian Bank's Cyprus Branches. This established a presence in the Gulf.
The Standard Bank: The details about the Standard Bank include: •
Founded in the Cape Province of South Africa in 1862 by John Paterson. Commenced business in Port Elizabeth, South Africa, in January 1863.
Was prominent in financing the development of the diamond fields of Kimberley from 1867 and later extended its network further north to the new town of Johannesburg when gold was discovered there in 1885.
Expanded in Southern, Central and Eastern Africa and by 1953 had 600 offices.
In 1965, it merged with the Bank of West Africa expanding its operations into Cameroon, Gambia, Ghana, Nigeria and Sierra Leone.
In 1969, the decision was made by Chartered and by Standard to undergo a friendly merger. All was going well until 1986, when a hostile takeover bid was made for the Group by Lloyds Bank of the United Kingdom. When the bid was defeated, Standard Chartered entered a period of change. Provisions had to be made against third world debt exposure and loans to corporations and entrepreneurs who could not meet their commitments. Standard Chartered began a series of divestments notably in the United States and South Africa, and also entered into a number of asset sales. From the early 1990s, Standard Chartered has focused on developing its strong franchises in Asia, the Middle East and Africa using its operations in the United Kingdom and North America to provide customers with a bridge between these markets. Secondly, it would focus on consumer, corporate and institutional banking and on the provision of treasury services areas in which the Group had particular strength and expertise. In the new millennium SCB acquired Grindlays Bank from the ANZ Group and the Chase Consumer Banking operations in Hong Kong in 2000.2005 and 2006 were historic years for as several milestones with a number of strategic alliances and acquisitions that is expected to extend SCB’s customer or geographic reach and broaden their product range at the same time. The bank rejuvenated its 150-year-old logo in 2003 by bringing in colors of green and blue. The logo shows the letters ‘S’ in blue and ‘C’ in green, twisted and curled with one another. The logo of the bank depicts the merger of two banks.
Standard Chartered today: Today Standard Chartered is the world's leading emerging markets bank employing 30,000 people in over 500 offices in more than 50 countries primarily in countries in the Asia Pacific Region, South Asia, the Middle East, Africa and the Americas. The new millennium has brought with it two of the largest acquisitions in the history of the bank with the purchase of Grind lays Bank from the ANZ Group and the acquisition of the Chase Consumer Banking operations in Hong Kong in 2000. These acquisitions demonstrate Standard Chartered firm committed to the emerging markets, where we have a strong and established presence and where we see our future growth. 2.3 Company Vision At Standard Chartered Bank, we draw our inspiration from the distant. Our vision is to assure a standard that makes every banking transaction a pleasurable experience. Our endeavor is to offer you supreme service through accuracy, reliability, timely delivery, cutting edge technology and tailored solution for business needs, global reach in trade and commerce and high yield on your investments. Our people, products and processes are aligned to meet the demand of our discerning customers. Our goal is to achieve a distinct foresight. Our prime objective is to deliver a quality that demonstrates a true reflection of our vision - Excellence in Banking. 2.4 Company Mission To be the premier financial institution in the country providing high quality products and services backed by latest technology and a team of highly motivated personnel to deliver Excellence in Banking. 2.5 Values Standard Chartered also operates according to certain key business values. These are – •
The highest personal standards of integrity at all levels
Commitment to truth and fair dealing
Hands-on management at all levels
Commitment to quality and competence
A minimum of bureaucracy
Fast decisions and implementation
Putting the team’s interests ahead of the individual’s
The appropriate delegation of authority with accountability
A commitment to complying with the spirit and letter of all laws and
regulations wherever we conduct our business.
SCB reputation is founded on adherence to these principles and values. All section taken by a member of the SCB Group or staff member on behalf of a Group company should confirm to the principles and values. Additionally they have code of conduct for staff in all operations. 2.6 Goal SCB people, products and processes are aligned to meet the demand of its discerning customers. Its goal is to achieve a distinction like the luminaries in the sky. Its prime objective is to deliver a quality that demonstrates a true reflection of its vision – Excellence in Banking. 2.7 Strategic Objectives •
To conduct transparent and high quality business operation within the legal and social framework.
To provide customers continually efficient, innovative and high quality products with excellent delivery system.
To generate profit with qualitative business as a sustainable ever-growing organization.
We are committed to our community as a corporate citizen and contributing towards the progress of the nation as our corporate social responsibility.
Our employees are our backbone. We promote their well being through attractive compensation package, promoting staff morale through training, development and career planning.
We strive for fulfillment of our responsibility to the government through paying entire range of taxes and duties and abiding the other rules.
We are cautious about environment & climatic change and dutiful to make our world a green and clean soul.
2.8 The main Objective of Standard Chartered Bank Through an international network linked by advanced technology, including a rapidly growing e-commerce capability, SCB provides a comprehensive range of financial services, personal financial services, commercial banking, corporate, investment banking and markets, private banking and other activities. 2.9 Principles of Standard Chartered Bank The Standard Chartered Group is committed to five core business principles. These are – •
Outstanding customer service
Prudent lending policy
Effective and efficient operations
Strict expense discipline
Strong capital and liquidity
Figure 1: Organogram CEO
: Chief Executive Officer
: Head of Consumer Banking
: Head of wholesale Banking
: Head of Human Resource
: Head of Finance & Administration
: Chief Information Officer
HOCA : Head of Corporate Affairs Remarks: All Departmental Heads indirectly report to country CEO, and directly report to regional head 2.11. Branch Location & Banking Hour
Branch Name & Address
Gulshan Branch 67 Gulshan Avenue Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Evening Banking (Sun - Thu): 6:00 pm to 8:00 pm Saturday Banking: 10:00 am to 1:00 pm North Gulshan Branch Block-NW(A), 189 Gulshan Avenue (North), Gulshan 2 Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Banani Branch 14 Kemal Ataturk Avenue, Banani Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Evening Banking (Sun - Thu): 6:00 pm to 8:00 pm Dhanmondi Road# 2 Branch House 37, Road 2, Dhanmondi R/A Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Evening Banking (Sun - Thu): 6:00 pm to 8:00 pm Saturday Banking: 10:00 am to 1:00 pm Dhanmondi Road# 5 Branch House 6, Road 5, Dhanmondi R/A Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Evening Banking (Sun - Thu): 6:00 pm to 8:00 pm Saturday Banking: 10:00 am to 1:00 pm Kakrail Branch Karnaphuli Garden City, 109 Kakrail Road Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Kawran Bazar Branch 53 Kawran Bazar Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Saturday Banking: 10:00 am to 1:00 pm Sonargaon Branch L101 Pan Pacific Sonargaon Hotel, 107 Kazi Nazrul Islam Avenue Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Mirpur Branch Dynasty Tower, Plot 01, Road 12, Block G, Section 6, Pallabi, Mirpur Banking Hours (Sun - Thu): 10:00 am to 4:00 pm City Centre Branch
City Centre, Plot 5/A, Motijheel C/A Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Saturday Banking: 10:00 am to 1:00 pm Motijheel Branch Alico Building, 18-20 Motijheel C/A Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Saturday Banking: 10:00 am to 1:00 pm Chawk Bazar Branch 12 Water Works Road, Dalpatty, Chawkbazar Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Evening Banking (Sun - Thu): 6:00 pm to 8:00 pm Savar Branch Dhaka Export Processing Zone, Zone Service Complex Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Sheraton Branch Dhaka Sheraton Annex Building, 1 Minto Road, Ramna Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Uttara Branch House 81, Road 7, Sector 4, Uttara Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Evening Banking (Sun - Thu): 6:00 pm to 8:00 pm aadiq Centre 102 Gulshan Avenue Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Chittagong
Main Branch Sheikh Mujib Road, Agrabad Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Saturday Banking: 10:00 am to 1:00 pm Agrabad Branch PHP House, 31 Agrabad C/A Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Khatunganj Branch Asma Chamber, 1649 (New) Ramjoy Mohajon Lane, Khatungonj Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Nasirabad Branch Bulbul Centre, 486/B, O R Nizam Road, CDA Avenue, East Nasirabad Banking Hours (Sun - Thu): 10:00 am to 4:00 pm
Evening Banking (Sun - Thu): 6:00 pm to 8:00 pm Saturday Banking: 10:00 am to 1:00 pm Station Road Branch Jibon Bima Corp Shopping Center, 22/23 Station Road Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Evening Banking (Sun - Thu): 6:00 pm to 8:00 pm Saturday Banking: 10:00 am to 1:00 pm Bogra
Bogra Branch Shatani House, Sherpur Road Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Saturday Banking: 10:00 am to 1:00 pm
Khulna Branch Jibon Bima Bhaban, KDA Avenue Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Saturday Banking: 10:00 am to 1:00 pm
Narayanganj Narayanganj Branch 26 Shaista Khan Road (near Narayanganj Club) Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Saturday Banking: 10:00 am to 1:00 pm Sylhet Branch 7 Noya Sharak, Jail Road, Ward # 16 Banking Hours (Sun - Thu): 10:00 am to 4:00 pm Saturday Banking: 10:00 am to 1:00 pm
2.12. Management Structure of Standard Chartered Bank 2.12.1 Board of Directors •
Mr. John Peace
Mr. Hossain Mehmood
Mr. Jon Macmain
Managing Director and CEO
Mr. Rubel Aziz
Evana Fahmida Mohammad
Mr. Hossain Khaled Saifullah
Rajibul Haque Chowdhury
Mr. Mobarak Ali
Ms. Tabassum Kaiser
Mr. Rafiqul Islam Khan
Ms. Meherun Haque
Ahmed Rajib Samdani
2.12.2 Board of Members •
Mr. Peter Sands
Mr. Rudy Markham
Mr. Richard Meddings
Senior Independent Non Executive Director Group Finance Director
Mr. Steve Bertamini
Group Executive Director
Mr. Jaspal Bindra
Group Executive Director
Mr. Gareth Bullock
Group Executive Director
Mr. Richard Delbridge
Non Executive Director
Ms. Jamie Dundas
Non Executive Director
Dr. Han Seung –Soo, KBE
Non Executive Director
Ms. Val Gooding, CBE
Non Executive Director
Mr. Simon Lowth
Non Executive Director
Mr. Ruth Markland
Non Executive Director
Mr. John Paynter
Non Executive Director
Mr. Mike Rees
Non Executive Director
Mr. Paul Skinner
Non Executive Director
Mr. Oliver Stocken
Non Executive Director
Mr. Annemarie Durbin
Non Executive Director
Source: Standard Chartered Bank website (www.standardchartered.com/bd)
2.13. Physical Evidence The environment in which the reference and information service are delivered that performance and communication of the service, The appearance of building, landscaping, vehicles, interior furnishing, equipment, staff members, signs, printed materials, and other than visible cues all provide tangible evidence of the banks service quality. Standard Chartered Bank manages its physical evidence very carefully, as it can have a profound impact on customers’ impression. They have: •
Well decorated office space
Seating arrangement for customers
Prayer time & space
Car parking facility
Necessary furniture & electric
Skilled manpower etc.
2.14. Process: •
Standard Chartered Bank creates and delivers product elements based on customer requirement.
They design and implementation by effective process.
Standard Chartered Bank designs its process in such a way that lead to fast, dynamic and very effective service delivery and result in satisfied customers.
As the process of the bank is very well designed, it helps a lot to the front line staffs to do their jobs well, resulting in high productivity and decrease likelihood of service failure.
In the bank most of the directions comes from head office but there are different culture in different branch based on location but everywhere a specific process is highly maintained.
• 2.15. Capital Structure The capital structure of Standard Chartered Bank is quite strong. Its authorized capital is Tk 6,000 million and paid up capital is Tk 2,128 million. Market price per share is tk 780. (Amount in million)
Year 2005 2006 2007 2008 2009
Authorized Capital Paid up Capital 2,650 1,228 2,650 1,289 6000 1,547 6,000 1,934 6,000 2,128 Source: Annual Report Standard Chartered Bank (Year 2005-2009) Capital Structure
7,000 6,000 5,000 4,000
Paid up Capital
2,000 1,000 0 2005
Fig: 2(c) - Authorized & paid up capital From the graph it is seen that in 2005 and 2006 the authorized capital was tk 2,650 million and from 2007 it is tk 6,000 million. Their paid up capital is also increasing year by year. In 2005 it was tk 1,228 million and in 2009 it stood at tk 2,128 million.
2.16. Products and Services of Standard Chartered Bank
Services: • Internet Banking • SMS Banking • Locker • ATM Card • VISA Credit Card • Utility Bill BBbILLBill/TuitioFeeCollectio n
Liability Products: • Savings Bundled Product • Fixed Deposit • RFCD, FC, NFCD • Deposit Double Scheme • Familink,SD
Asset Products: • Home loan • Personal loan • Business loan • Car loan • Any Purpose loan
Source: Annual Report of Standard Chartered Bank (Year 2009) Fig: - 2 (d) Products and Services of Standard Chartered Bank 2.17. Different Departments:
Figure: 2(e) - Different Departments 2.18. Department of Gulshan Branch General Banking (GB) Department: Some of the day-to-day activities of this department are the following. 1
Closing and Transfer of Accounts
Issuance of Cheque
Maintaining the Locker of the Bank
Receiving Cheques for Clearing,
Outward Clearing of IBC and OBC
Transport, and Dispatch 4
Issuance of PO (Pay Order), DD
10 Maintaining On-line Voucher 11 Utility bill, Rent of building and work
(Demand Draft), etc. 5
Opening and Maintaining of FDR and other Scheme Deposits
of accounts department was done by GB because they donâ€™t have any separate accounts department.
Cash Department: This department is responsible for cash payment and receipt. The employees in this department are also liable for computer posting, passing cheques, and accuracy of posting, balancing on-line accounts, etc. Credit Department: This department is responsible for the following jobs: 1
Prepare the application form to provide loan
Preparing CIB Statements
Preparing Credit Proposal and Statement
Administration of Retail Credit
Foreign Exchange Department 1. L/ C opening. 2. Verification o L/C application 3. Sanction the application 4. Advising L/C 5. Export trade financing 6. Remittance Marketing and Customer Care Department Searching for new customer, answer the inquiry about the product to the customer. They also look whether customer all documents are given or not. 2.19 Credit Rating Report Standard Chartered Bank was rated by Credit Rating Agency of Bangladesh (CRAB) on the basis of financial audited Statement, as on December 31 .2009.The Summary of rating is presented below: Status Long Term Short Term
2009 A1 ST-2
2008 A+ ST-2
Commercial banks rated A1 in the long term are adjudged to be to be strong banks, characterized by good financials, healthy and sustainable franchises and a first rate operating environment. This level of rating indicates strong capacity for timely payment of financial commitments with low likeliness of being adversely affected by foreseeable events. Commercial banks rated ST-2 in the short term are considered to have strong capacity for timely repayment. Banks rated in this category are characterized with commendable position in terms of liquidity, internal fund generation, and access to alternative sources of funds is outstanding. Theoretical Aspects Credit: Credit is a contractual Agreement, in which a borrower receives something of value now, with the agreement to repay the lender at some date in the future.
Pay Order: A pay order is a draft issued by one another or on its branch. The purchase of a draft makes to the seller in local currency at the domestic center while the paying after presentation of the draft by the beneficiary pays the beneficiary. There is also risk of loss of the draft in transit. Demand Draft: The person intending to remit the money through a pay order has to deposit the money to be remitted with the commission which the banker charges for its services. The amount of commission depended on the amount to be remitted .On issue of the pay –order the remitter does not remit a party to the instrument 1) drawer branch 2) drawee branch 3) payee. This is treated as the current liability of the bank as banker on the presentation of the instrument should pay the money. Telegraphic transfer: Telex transfer is another widely used mode for remittance of funds. In case of telex transfer the message for transfer of funds is communicated through tested telex. SCB generally recovers from the telex charges in addition to the usual service charge. Now a day’s Standard Chartered are not covering this service. Secured Overdraft-SOD (FO): Advance is granted to a client against financial obligations that is deposited in the bank. A client can get up to 90% loan of the total deposited value. Secured Overdraft-SOD (G): Granted against the work order of government departments, corporation’s autonomous bodies and reported multinational private organization. To arrive at logical decision, the client’s managerial capability, equity strength, nature of scheduled work is to be judged. Cash Credit-CC (Hypothecation): The mortgage of movable property for securing loan is called hypothecation. Hypothecation is a legal transaction whereby goods are made available to the lending banker as security for a debt without transferring either the property in the goods or either possessing. Cash Credit-CC (Pledge): Transfer of possession in the judicial sense of essential in the valid pledge. In case of pledge, the bank acquire the possession of the goods or a right to hold goods until the repayment for credit with a special right to sell after due notice to the borrower in the event of non-repayment. Lim: It stands for loan against important merchandise. It’s one kind of post import finances allowed for very shorter period, usually 30 to 60 days or 30 to 90 days. LTR: This is an arrangement under which credit is allowed against trust receipts. Imported or exportable goods remain in the custody of the importer of exporter. But he is to execute a stamped trust receipt in favor of the bank wherein a declaration is made that the goods imported or bought with the bank’s financial assistance are held by him in trust for the bank.
As soon as goods are sold, generally the importer or exporter is required to deposit the sale proceeds there of the bank. PAD: It stands for payment against documents. By opening letter of credit on behalf of the importer in favor of the seller banks undertake to make payment to the seller subject to shipments of goods and submission of shipping documents in strict compliance with L/C terms, giving title of goods to the buyer. After shipment and having document in hand, the bank asks the importer to retire the import bills immediately that the bank undertakes. Thus liability under the L/C is converted to bankâ€™s advance. It is a practice to allow the importer to retire the documents until ship carrying the goods arrives. If the importer retires the bill the transaction ends. Primary security: There are the securities taken by the ownership of the items for which banks provides the facility. Collateral security: Collateral securities refer to the securities deposited by the third party to secure the advance for the borrower in narrow sense. In wider sense, it denotes any type of security on which the bank has a personal right of action on the debtor in respect of the advances. Sub-standard Advances: This classification contains accounts where irregularities have occurred but where such irregularities are considered to be either "technical" or "temporary" in nature. The main criteria for a sub-standard advance are that despite these "technical" or temporary irregularities no loss is expected to arise. These accounts will require close supervision by the management to ensure that the situation does not deteriorate further. Provision @ 15% of the base is required for debt in this classification where the base is the outstanding balance less interest kept in Interest Suspense Account less the value of eligible securities. Doubtful Debt: This classification contains debts where doubt exists the full recoverability of the principal and/or interest. Although a loss is anticipated it is not possible at this state to quantify the exact extent of that loss. Management is required to handle such debts with the utmost caution to either avoid or minimize the Bank's losses. Provision @ 50% of the base is required for debts in this classification. Bad-Debts: These facilities are considered to be uncorrectable shall be made a provision @ 100% of the base. Special Mention: In addition to the above classification rating, there should be another category which is not classified but where special attention is necessary to keep the account
out of classification. This category will be known as Special Mention. Facilities required special monitoring are to be flagged or put on a watch list. About Credit 4.1 Credit The word credit comes from the Latin word “Credo” meaning “I believe”. It is a lender’s trust in a person’s or firms or company’s ability or potential ability and intention to repay. Credit is a contractual Agreement, in which a borrower receives something of value now, with the agreement to repay the lender at some date in the future. One of the basic functions of the bank is deposit extraction and credit extension. Managing credit operations is the crying need for any bank. The objective of the credit management is to maximize the performing asset and the minimization of the non-performing asset as well as ensuring the optimal point of loans and advances and their efficient management.
4.2 Factors Related with Credit •
Security or Collateral
4.3 Importance of Credit Credit plays a vital role in national economy in the following waysI. It provides working capital for industrialization II. It helps to create employment opportunities III. Credit controls almost all kinds of production activities of the country IV. It brings social equity
V. Cash generation occurs for its successful performance VI. Business cycle can run well only by the help of lending system VII. Economic stabilization VIII. Raise standard of living.
4.4 Credit Management Credit management is a dynamic field where a certain standard of long-range planning is needed to allocate the fund in diverse field and to minimize the risk and maximizing the return on the invested fund. Continuous supervision, monitoring and follow-up are highly required for ensuring the timely repayment and minimizing the default. Actually the credit portfolio is not only constituted the bank’s asset structure but also a vital factor of the bank’s success. The overall success in credit management depends on the banks credit policy, portfolio of credit, monitoring, supervision and follow-up of the loan and advance. Therefore, while analyzing the credit management of SCB, it is required to analyze its credit policy, credit procedure and quality of credit portfolio.
4.5 Credit Policy of SCB One of the most important ways, a bank can make sure that its loans meet organizational and regulatory standards and they are profitable. It is important to establish a loan policy. Such a policy gives loan management a specific guideline in making individual loans decisions and in shaping the bank’s overall loan portfolio. In Standard Chartered Bank there is perhaps a credit policy but there is no credit written policy.
4.6 Credit Principles In the feature, credit principles include the general guidelines of providing credit by branch manager or credit officer. In Standard Chartered Bank they follow the following guideline while giving loan and advance to the client. 1. Credit advancement shall focus on the development and enhancement of customer relationship. All credit extension must comply with the requirements of Bank’s Memorandum and Article of Association, Banking Company’s Act, Bangladesh Bank’s instructions, other rules and regulation as amended from time to time. 2. Loans and advances shall normally be financed from customer’s deposit and not out of temporary funds or borrowing from other banks. 3. The bank shall provide suitable credit services for the markets in which it operates. 4. It should be provided to those customers who can make best use of them.
5. The conduct and administration of the loan portfolio should contribute within defined risk limitation for achievement of profitable growth and superior return on bank capital. Interest rates of various lending categories will depend on the level of risk and types of security offered.
4.7 Principles of Sound Lending It should be clearly understood that the criteria/principles are not inflexible laws & are given as guidelines for protecting credit. In a practical competitive world, risks are defined, accepted and credit is often granted even though a proposal does not strictly with some of the criteria described below: The basic lending criteria can be considered as eight main headings, as follows:
Principle of Safety
Principle of Security
Principle of Liquidity
Principle of profitability
Principle of Purpose
Source of repayment
Character and ability of the
Principle of National Interest
borrower Each of the headings will now be discussed further in the following paragraph: Principle of Safety The first lending Principle of sound lending is safety. The very existence of a bank depends upon the safety of its advances. Safety should not be sacrificed for profitability. So utmost care should be exercised to ensure that the funds go to the right type of borrower, are utilized in such a way that they remain safe and the repayment comes in the normal course. Principle of Liquidity Liquidity means the availability of Bank funds on short notice. The liquidity of an advance means it repayment on demand on due date or after a short notice. Therefore, the banks must have to maintain sufficient liquidity to repay its depositors and trade off between the liquidity and profitability is must. Principle of Purpose The bank should not lend money for any purposes for which a borrower may be free from all risks but if the funds borrower are employed for unproductive. Purpose like marriage ceremony, pleasure trip etc or speculative activities, the repayment in the normal course will become uncertain. Banks therefore discourage advances from boarding stocks and refuse advances for speculative activities.
Character and ability of the borrower: The primary responsibility of the leading banker is “know your customer and his business”. While considering the character and ability of a borrower, the following point must be kept in mind.
Do know your customer already?
Was he respectively introduced?
If he was previously customer of another bank, why has he come to United Commercial Bank Ltd. Try to see previous bank statement?
Have you made the account opening inquiries required by the bank?
What are the business its ownership?
What is the customer’s background and financial track record?
Customer’s honesty & integrity and personal stability?
How has the customer managed his financial circumstances in the past?
The branch manger should have the answer of the above queries and should be to judge his ability to use the credit facilities to his advantage. Advance should be granted only to those borrowers in whom the branch manager has full confidence. Integrity of the borrower and his ability to conduct business are of paramount importance and take precedence over the value of securities offered. Principle of Security The security offered by a borrower for an advance is insurance to the banker. It serves as the safety value for an unforeseen emergency. So another principle of sound lending is the security of lending. The security accepted by a banker to cover a bank advance must be adequate, readily marketable, easy to handle and free from any encumbrance. Principle of Profitability Banking is essentially a business, which aims at earning of a good profit. The working funds of a bank are collected mainly by means of deposit from the public and interest has to be paid on those deposits. Banks have also to meet their establishment charges and other expenses. Interest earned by a bank on its advance is the main source of its income. The different between the interest received on advances and the interest paid on deposits constitute a major portion of the banker’s income. Besides foreign exchange business is also highly remunerative. The bank will not enter into a transaction unless a fair return form it is assured.
Source of Repayment After the branch manager has ensured that the credit will be a profitable propositioning for the bank, he should then turn his attention to the cash flow situation of the borrower. The bank’s credit can be classified into three main categories, as follows:
A very short-term advance will be liquidated by funds received in the very near future, such as advances against foreign or local bills or bridge functioning where evidence of credit sanction from another financial institution is available.
Provision for current assets; this type facility is needed for trading and /or manufacturing activities.
Long term loans, generally over 5 years; example of such facilities as investment in plant and machinery, a farm or a shop, generally, a long term is repaid out profits generated by the business.
Principle of National Interest The development of banking has reached a stage where a banker is required to identify his business with national policies. Banking Industry has significant role to play in the economic development of a country. So, the savings of the people which are mobilized by banks must be distributed to those sectors which require development in the country’s Planning Program.
4.8 Global Credit Portfolio Limit of SCB The features which deals with how much total deposits would be used as lending the proportion of long term lending, customer exposure, country exposure, proportion of unsecured facility etc. the most notable ones are: The aggregate of all cash facility will not be more than the 80% of the customers deposit Long term loan must not exceed 20% of the total loan portfolio. Facilities are not allowed for a period of more than 5 (Five) years. Credit facilities to any one customer group shall not normally exceed 15% of the capital fund or TK. 100 crores.
4.9 Type of Credit Activities: Credit may be classified with reference to elements of time, nature of financing and provision base. Classification on the basis of time: On the basis of elements of time, bank credit classified as:
Continuous loan: These are the advances having no fixed repayment schedule but have a date at which it is renewable on satisfactory performance of the clients. Continuous loan mainly includes "Cash credit both hypothecation and pledge" and "Overdraft". Demand loan: In opening letter of credit (L/C), the clients have to provide the full L/C amount in foreign exchange to the bank. To purchase this foreign exchange, bank extends demand loan to the clients at stipulated margin. No specific repayment date is fixed. However, as soon as the L/C documents arrive, the bank requests the clients to adjust their loan and to retire the L/C documents. Demand loans mainly include “Payment against Documents,” "Loan against imported merchandise (LIM)" and "Later of Trust Receipt". Term loan: These are the advances made by the bank with a fixed repayment schedule. Terms loans mainly include "Consumer credit scheme", "Lease finance"," Hire purchase", and "Staff loan". The term loans are defined as follows: • Short term loan: Up to 12 months. • Medium term loan: More than 12 months & up to 36 months • Long term loan: More than 36 months. Classification on characteristics of financing of Standard Chartered Bank (SCB): Funded Overdraft Loan Consumer Credit LTR PAD Cash Credit (Pledge & Hypo) Staff Loan Term Loan
Non-funded Letter of Credit Bank Guarantee -------------
Short Term Agricultural Loan and Micro Credit These loans are short term credits enlisted by Agricultural Credit division of Bangladesh Bank in its ‘annual loan program’. Loans disbursed in agricultural sector for a period not more than 12 months are also included in this category. Short term micro credits are the
credits not exceeding BDT 25,000/- (taka twenty five thousand) only and repayable within twelve months.
Application Based Categories of Loan Based on the purpose of the loan, loans are classified as follows: Corporate Loan Any loan exceeding 1, 00, 00,000 BDT and issued for business and trade purposes is defined as corporate loan. Such loans mainly serve the purpose of initials for the establishment of industry or large scale factory. SME (Small & Medium Enterprise) Loans This type of loan is disbursed for business purposes but the amount loaned does not exceed 1, 00, 00,000 BDT. The amount loaned here serves the purpose of potential (partial) working capital for small and medium business ventures. Retail Loan Retail loans are given for personal usage rather than for business purposes. It includes auto loan, personal loan, vacation loan, and home loan. Personal Loan (Consumer Credit Scheme): The objectives of this loan are to provide essential household durable to the fixed income group (Service Holders) and other eligible borrowers. Car loan, loan for house renovation, vacation loan, marriage loan and loan for household equipment well as entertainment products are governed by personal loan program. Personal loan is given under personal guarantee of the borrower and another third parson known to the borrower. There is also a processing fee of 1% taken at the time of disbursement of the loan. Who can apply? a) Salaried Individuals (salary must taken by Bank). b) Professionals (minimum one year Bank transaction script from any Bank). Age Limit: Minimum Age of the Applicant: 21 Years Maximum Age of the Applicant: 57 Years
Requirements: For Different professions people Bank gives different conditions. Loan Size*: Minimum
BDT 10, 00.000.00
Interest Rate*: 15.00 % -19.00 %per annum Other Terms & Conditions: Minimum Gross Family Income: BDT 14,500.00 Auto Loan Who can apply? a) Salaried Individuals (salary must taken by Bank). b) Professionals (minimum one year Bank transaction script from any Bank). Loan Size: -Minimum Loan Amount
BDT 5, 00,000.00
-Maximum Loan Amount
Up to 50% of Auto price.
Interest Rate: 15.00 % per annum (Conditions Apply) Age Limit: -Minimum Age of the Applicant: 21 Years. -Maximum Age of the Applicant: 57 Years. Other Terms & Conditions: Gross Income: Minimum: BDT 50,000.00 Loan Facility for â€“ -Brand New or Re-Conditioned Vehicle, not older than 6 Years. -Vehicle should be for personal use only. Home Loan Home Loan is a term loan facility to purchase your desired home/flat. Who Can Apply?
a) Salaried Individuals b) Professionals c) Business Persons (Requirements are same for all product & customer) Loans are available to Bangladeshi nationals: -Minimum age of eligibility
-Maximum age of eligibility
-Verified gross family income
Loan Size: -Minimum
BDT 15, 00,000*
BDT 200, 00,000*
*conditions apply Tenure: Maximum
Interest Rate: Depending on the size and tenure, Dhaka Bank Home Loan interest rates vary from 12% to 13.50% Security: Registered Mortgage of the House/Apartment Govt. Charges: As per Government Specification. 4.10 Business Credit Facilities under SME •
OD WO (Overdraft Work Order)
OD PO (Overdraft Pay Order)
SOD (Secured Overdraft)
OD SME (Overdraft SME)
OD WO (Overdraft Work Order) SCB, OD WO is a credit against assignment of receivables (under the awarded work) and lien / mortgage of collateral. It’s for contractors / suppliers and can be availed on one off basis for
financing the working capital requirement in business against specific work order or the same under a revolving line with renewal option. Features Secured by assignment of receivables and lien / mortgage of collateral. Single facility limits max up to Tk.50.00 Lac for Small enterprise and Tk.100.00 Lac for Medium enterprise. Disbursement in multiple phases Interest charged only on the utilized amount Low processing fee
Eligibility Must be an affiliate of any valid cluster under any broad sectors of Trade, Service and Industry. Must be a firm (proprietorship / partnership) or a private limited company incorporated in Bangladesh. Must have a min. average business income of Tk.35,000/- p.m. Must have a Tax Identification Number (TIN). Must be able to provide last 3 years’ (audited / un-audited) financials like Income Statement, Balance Sheet, Cash Flow Statement, etc.
Charges: • Interest rate: Small - [Men: 13% - 17%; Women: 10%] & Medium - 13%. •
Overdue interest: 3%.
Processing fee: 1.00%.
VAT: 15% of processing fee.
OD PO (Overdraft Pay Order) SCB, OD PO is a renewable credit against lien / mortgage of collateral(s). It’s for contractors / suppliers as well and can be availed at a pre determined margin for meeting the obligation of pledging pay order(s) with the work order awarding authority as earnest money / security deposit. Features Secured by lien / mortgage of collateral. Credit max up to 90% of the amount of pay order. Single facility limit max up to Tk.50.00 Lac for Small enterprise and Tk.100.00 Lac for Medium enterprise. Low processing fee. Validity max up to 1 year.
Eligibility Must be an affiliate of any valid cluster under any broad sectors of Trade, Service and Industry. Must be a firm (proprietorship / partnership) or a private limited company incorporated in Bangladesh. Must have a min. average business income of Tk.35,000/- p.m. Must have a Tax Identification Number (TIN). Must be able to provide last 3 years’ (audited / un-audited) financials like Income Statement, Balance Sheet, Cash Flow
Statement, etc. Charges: • Interest rate: Small - [Men: 13% - 17%; Women: 10%], Medium - 13% •
Overdue interest: 3%
Processing fee: 0.50% to 1.00%
VAT: 15% of processing fee.
SOD (Secured Overdraft) SCB, SOD facility is provided against different types of FDRs, ICB Unit Certificate, Life Insurance policy, etc. It is renewable and can be availed on a continuous basis to support the day-to-day operations and / or sudden escalation of financial requirement in a business. Features 100% secured by cash / quasi cash instruments Credit max up to 90% of cash / current encashment value of quasi cash instruments Single facility limit max up to Tk.100.00 Lac Low processing fee. Validity max up to 1 year.
Eligibility Must be an affiliate of any valid cluster under any broad sectors of Trade, Service and Industry. Must be a firm (proprietorship / partnership) or a private limited company incorporated in Bangladesh. Must have a min. average business income of Tk.35,000/- p.m. Must have a Tax Identification Number (TIN). Must have a min. average business income of Tk.35,000/- p.m.
Charges: • Interest rate: 3% above the deposit interest rate. •
Overdue interest: 3%
Processing fee: Nil
OD SME (Overdraft SME) SCB, OD SME is also a credit against hypothecation of stocks insured (covering all risks) under Bank’s mortgage clause and lien / mortgage of collateral(s). It’s renewable and can be availed on a continuous basis to support the day-to-day operations and finance growth of a business. Features Secured by hypothecation of stocks and lien / mortgage of collateral
Eligibility Must be an affiliate of any valid cluster under any broad sectors of Trade, Service and Industry.
Credit max up to 100% of net working capital or 75% of the sum total of inventory and receivable whichever is lower. Single facility limit up to a max of Tk.50.00 Lac for Small enterprise and Tk.100.00 Lac for Medium enterprise Low processing fee. Validity max up to 1 year.
Must be a firm (proprietorship / partnership) or a private limited company incorporated in Bangladesh. Must have a min. average business income of Tk.35,000/- p.m. Must have a Tax Identification Number (TIN). Must have a min. average business income of Tk.35,000/- p.m.
Charges: • Interest rate: Small - [Male: 13% - 17%; Female: 10%] & Medium - 13% •
Overdue Interest: 3%
Processing fee: 0.50% to 1.00%
VAT: 15% of processing fee
4.11 Rates of Interest and Lending: SL NO 1 2
Categories of lending Rate Agriculture 07.00%p.a Industrial Term Loan Large and medium scale industry Small scale industry Working capital Type 1 Pharmaceuticals Textile Garments Chemical Financial intuitions Type 2 Transport and communication Electronics and allied Automobiles Construction Ship breaking/ steel engineering Industrial raw materials
Mid Rates ( Existing)
Mid Rates (New)
13.50%p.a 13.50%p.a 13.50%p.a 14.00%p.a 13.50%p.a
13.50%p.a 13.00%p.a 13.00%p.a 13.00%p.a 13.50%p.a
13.50%p.a 14.00%p.a 15.00%p.a
13.50%p.a 14.00%p.a 15.00%p.a
Other commercial Lending trading others Energy/power
15.00%p.a 13.50%p.a 14.00%p.a
15.00%p.a 13.50%p.a 14.00%p.a
Telecom Urban housing- Residential - commercial
14.00%p.a 14.50%p.a 15.00%p.a
14.00%p.a 14.50%p.a 15.00%p.a
Special program small and cottage industries other special program SME
14.00%p.a 14.00%p.a 16.50%p.a
14.00%p.a 14.00%p.a 16.50%p.a
Secured against FDR Incase of FDR with DBL interest to be (2.5%â€” 3.00%) Higher than the FDR rate. Incase of FDR with other bank.
14.50%p.a 14.50%p.a 15.50%p.a 12-15%p.a 2.50%per month 16.00%p.a
14.50%p.a 14.50%p.a 15.50%p.a 12-15%p.a
11 12 13 14 15
Loan against DPS Commercial Bill Discount/Purchase Lease against DPS Consumer loan Credit card
Share margin Account
Source: Standard Chartered Bank Website (www.standardchartered.com/bd)
4.12 Different Securities for Different Advances Securities offered to the bank by the borrowers are of different types. Each security has its own suitability. Some of the examples of the securities obtained by the banks while allowing advance are shown below against the types of advancesTypes of advances House building loan Transport loan
Securities Primary securities: mortgage of the land or any property Primary securities: joint registration and comprehensive insurance policy. Two valuable guarantors. Collateral securities: mortgage of land or any property. Any type financial obligation.
Primary securities: joint registration and comprehensive insurance policy. Two valuable guarantors and post dated cheques. Primary securities: two valuable guarantors and post dated cheques. Pledge or hypothecation of stock-in trade, goods, produce and merchandise, machineries, land or building on which machineries are installed. Pledge of imported merchandise
Any purpose loan Payments against documents(PAD) Loan against imported merchandise Loan against trust receipt Local bills purchased Foreign bill purchased Overdraft Secured overdraft Cash credit
Trust receipt in lieu of import document Bill itself Shipping documents for exports Primary securities: hypothecation of book depth Collateral securities: mortgage of landed property and IPA. Primary securities: Lien on any types of financial obligation. Primary securities: Hypothecation of stock of goods in trade duly insured produce merchandise.Collateral securities: Mortgage of land and building, any financial obligation.
4.13 Modes of Charging Securities A wide range of securities is offered to banks as coverage for loan. In order to make the securities available to banker, in case of default of customer, a charge should be created on the security. Creating charge means making it available as a cover for advance. The following modes of charging securities are applied in the Standard Chartered Bank. Lien A lien is right of banker to hold the debtorâ€™s property until the debt is discharged. Bank generally retains the assets in his own custody but sometimes these goods are in the hands of
third party with lien marked. When it is in the hand of third party, the third party cannot discharge it without the permission of bank. Lien gives banker the right to retain the property not the right to sell. Permission from the appropriate court is necessary. Lien can be made on moveable goods only such as raw materials, finished goods, shares debentures etc. Pledge Pledge is also like lien but here bank enjoys more right. Bank can sell the property without the intervention of any court, incase of default on loan, But for such selling proper notice must be given to the debtor. To create pledge, physical transfer of goods to the bank is must. Hypothecation In this charge creation method physically the goods remained in the hand of debtor. But documents of title to goods are handed over to the banker. This method is also called equitable charge. Since the goods are in the hand of the borrower, bank inspects the goods regularly to judge it s quality and quantity for the maximum safety of loan. Mortgage Mortgage is transfer of interest in specific immovable property. Mortgage is created on the immovable property like land, building, plant etc. Most common type of mortgage is legal mortgage in which ownership is transferred to the bank by registration of the mortgage deed. Another method called equitable mortgage is also used in bank for creation of charge. Here mere deposit of title to goods is sufficient for creation of charge. Registration is not required. In both the cases, the mortgaged property is retained in the hand of the borrower. Trust Receipt Generally goods imported or bought by bank's financial assistance are held by bank as security. Bank may release this lien / pledge these goods against trust receipt. This means that the borrower holds goods in trust of the bank; trust receipt arrangement is needed when the borrower is going to sell these goods or process it further but borrower has no sufficient fund to pay off the bank loan. Here proceeds from any part of these goods are deposited to this bank. Advance against Work-Order
Advances can be made to a client to perform work order. The following points are to be taken into consideration. The clientâ€™s management capability, equity strength, nature of scheduled work and feasibility study should be judiciously made to arrive at logical decision. If there is a provision for running bills for the work, appropriate amount to be deducted from each bill to ensure complete adjustment of the liability within the payment period of the final bill besides assigning bills receivable, additional collateral security may be insisted upon. Disbursement should be made only after completion of documentation formalities and fulfillment of arrangements by the client to undertake the contract. The progress of work under contract is reviewed periodically.
Advance against Approved Shares Credit facilities to extend against shares will be called â€œInvestment Scheme against Sharesâ€?. Advance may be allowed against shares of companies listed with the Stock Exchange Ltd. Subject to margin or may other restrictions imposed by Bangladesh Bank/Head Office of the bank from time to time. Value of shares & margin should be worked out as per guidelines issued from time to time by Bangladesh Bank / Head Office of the bank. Advance against Fixed Deposit Receipts Advance against Fixed Deposit Receipt will be subject to credit Restrictions imposed from time to time by Head Office / Bangladesh Bank. Standard Chartered Bank usually sanctions credit limit up to 90% of the FDR value. Scrutinize the Fixed Deposit Receipts with regard to the following points. a) The Fixed Deposit Receipt is not in the name of minor. b) It is discharged by the depositor on revenue stamp of adequate value & his signature is verified. c) Creation of liability on Fixed Deposit issued in joint names by any one of the depositors is regular. d) If the Deposit Receipt is offered as a security for allowing advances, a letter of lien shall be obtained from the depositors, on the appropriate form. e) If the Deposit Receipt has been issued by the branch-allowing advance, lien against that specific Deposit Receipt to be marked in the fixed Deposit Register of the branch.
f) The discharged receipt, the letter of lien duly verified by the issuing branch & the letter confirming registration of the lien on the deposit receipts shall be kept along with other documents under safe custody of the bank. 4.14 The Câ€™s of Good and Bad Loan in Credit Management The Branch manager of SCB try to judge the possible client based on some criteria. These criteria are called the Câ€™s of good and bad loans. These Câ€™s are described below: Character The outcome of analyzing the character is to have overall idea about the integrity, experience, and business sense of the borrower. Two variables; Interaction/interview, and Market Research are used to analyze the character of the borrower. 1. Interaction/interview: the indicators are: a) Prompt and consistent information supply, information given has not been found false (Willingness to give information). b) CIB also reveals business character. c) Willingness to give owns stake/equity & collateral to cover. d) Tax payer. 2. Market Research: a) Information on business is verified. b) Dealing with supplier and or customer as supplier is also a kind of lender; the payment character can also be verified. Capital For identifying the capital invested in the business can be disclosed using the following indicators: a) Financial Statements b) Receivable, Payable, statements to practically assess the business positions. Net worth through financial statements or from declaration of Assets & Liability statement. Capacity (Competence) Capability of the borrower in running the business is highly emphasized in the time of selecting a good borrower. As the management of the business is the sole authority to run the business that is use the fund efficiently, effectively and profitably. The indicators help to identify the capacity of the borrower. a) Entrepreneurship skills i.e. risk taking attitude shown by equity mobilization.
b) Management competencies both marketing and products detail, ability to take decision. c) Resilience or shock absorption: Connection, Back up (if first time falls second lines come to help). Collateral Make sure that there is a â€œsecond way outâ€? of a credit, but do not allow that to drive the credit decision. Cash Flow Cash flow is the vital factor that is used to identify whether the borrower will have enough cash to repay the loan or advance. Cash keeps the liquidity to ensure repayment. The relationship manager tries to identify the annual cash flow from the submitted statements. Conditions Understanding the business and economic conditions can and will change after the loan is made. Complacency Do not rely on past history to continue. Stay alert to what can go wrong in any loan. Communication Share credit objectives and credit decision making both vertically and laterally within the bank. Credit Query: The loans and advance department gets a form filled up by the party seeking a lot of information.
4.15 Different Types of Risks Associated with CM LRA divides the credit risk into two categories, namely a) 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- Industry Risk and Company Risk. a.1 Industry Risk: Due to some external reasons a business may fail and the risk, which arrives from external reasons of the business, is called industry risk. It has two componentsSupply Risk and Sales Risk.
a.1.1 Supply 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. Supply risk is assessed by a cost breakdown of the inputs and then assessing the risk of disruption of supplies of each item. a.1.2 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, and 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. a.2 Company Risk: This refers to the risk that the company fails for internal reasons. Company risk is subdivided into Company Position Risk and Management Risk. a.2.1 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. a.2.1.1 Performance Risk: This risk refers to the risk that the companyâ€™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 analysis, Trend analysis, and Cash flow forecast analysis and credit report analysis (i.e. CIB repot from Bangladesh Bank). a.2.1.2 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. a.2.2 Management Risk: The management risk refers to the risk that the company fails due to management not exploiting effectively the companyâ€™s position. Management risk is subdivided into Management Competence Risk and Integrity Risk.
a.2.2.1 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 team work is determined by analyzing management structure and its strength and weakness. a.2.2.2 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. Management integrity risk is determined by assessing management honesty, which requires evaluating the reliability of information supplied and then management dependability. b) 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. b.1 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 judgments 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. b.2 Security Cover 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 risk.
4.16 General procedure of sanctioning loan The following procedure is applicable for giving advance to the customer. These are: a) Party’s application b) Filling form-A c) Collecting CIB report from Bangladesh Bank d) Processing loan proposal e) Project appraisal f) Head office approval g) Sanction letter h) Documentation i) Disbursement A. Party’s application At first borrower had to submit an application to the respective branch for loan, where he/she has to clearly specify the reason for loan. After receiving the application form the borrower Bank officer verifies all the information carefully. He also checks the account maintains by the borrower with the Bank. If the official becomes satisfied then he gives form-A (prescribed application form of Bank) to the prospective borrower. B. Filling Form -A After satisfying with party’s application the applicant need to fill Form-A. It is the prescribed form provides by the respective branch that contains information of the borrower. It containsName with its factory location, Official address and telephone number, details of past and present business, its achievement and failures, type of loan needed etc. C. Collecting CIB Report from Bangladesh Bank After receiving the application for advance, Standard Chartered Bank sends a letter to Bangladesh Bank for obtaining a report from there. This report is called CIB (Credit Information Bureau) report. Standard Chartered Bank generally seeks this report from the head office for all kinds of investment. The purpose of this report is to being informed that whether the borrower has taken loan from any other Bank; if ‘yes’ then whether the party has any overdue amount or not. D. Processing loan Proposal
After receiving CIB report from Bangladesh Bank, then respective branch prepare an Investment proposal, which contains terms and conditions of Investment for approval of Head Office. Documents those are necessary for sending Investment proposal are: Necessary Documents While advancing money, banks create a lot of documents, which are required to be signed by the borrowers before the disbursement of the loan. Of them some are technically called charge documents. Necessary steps and documents: 1. Loan application form duly signed by the customer. 2. Acceptance of the term and conditions of sanction advice. 3. Trade license. 4. In Case Of Partnership Firm, copy of registered partnership deed duly certified as true copy or a partnership deed on non-judicial stamp of taka-150 denomination duly notarized. 5. In Case Of Limited Company a. Copy of memorandum and articles of association of the company including certificate of incorporation duly certified by Registered Joint Stock Companies (RJSC) and attested by the managing director and accompanied by an up-todate list of directors. b. Copy of board resolution of the company for availing credit facilities and authorizing managing director/chairman/director for execution of documents and operation of the accounts. c. An undertaking not to change the management of the company and the memorandum and article of the company without prior permission d. Copy of last audited financial statement up to last 3 years. e. Personal guarantee of the directors including the chairman and managing director. f. Certificate of registration of charges over the fixed and floating assets of the company duly issued by RJSC. g. Certificate of registration of amendment of charges over the fixed and floating assets of the company duly issued by RJSC in case of repeat loan or change in terms and conditions of sanction advice regarding loan amount and securities etc.
6. Demand promissory notes. 7. Letter of hypothecation of stocks and goods. 8. Letter of hypothecation of books debts and receivable. 9. Letter of hypothecation of plant and machinery. 10. Personal letter of guarantee. Required Doc’s for Retail (Individual) Loan •
Photograph- 2 Copies
Partnership Deed (for partnership firm)
Passport/National ID/Driving License
Visiting card/company ID
Certificate of professional degree
Trade license (For Businessman)
LOI (For service holder)
Spouse- photo with signature, Attested
Utility Bill (electricity/WASA/Gas)
Bank statement- last 6 months
Quotation (For Auto or HHD)
by applicant •
Eligible photo with signature, Attested by the applicant, Visiting card, TIN
Sanction letter with Related Bank Statement (If Enjoying Any Loan)
Required Doc’s for SME •
Total sale for 1 year
Credit Risk Grading (CRG) System
Credit risk grading is an important tool for credit risk management as it helps the Banks & 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 a branch. The credit risk grading system is vital to take decisions both at the pre-sanction stage as well as post-sanction stage. At the pre-sanction stage, credit grading 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 postsanction stage, the bank can decide about the depth of the review or renewal, frequency of review, periodicity of the grading, and other precautions to be taken.
Usually there includes
six steps for CRG. This are – •
Identify all the Principal Risk Components
Allocate weights to Principal Risk Components
Identify the Key Parameters
Assign weight to each of the key parameters
Input data to arrive at the score on the key parameters.
Arrive at the Credit Risk Grading based on total score obtained.
1. Identify all the principal risk components At the first step all the principal risk such as financial risk, business risk, management risk, security risk and relationship risk are identified. These principal risks cover all possible uncertainty that may occur. 2. Allocate weight to principal risk components In this step, weight is distributed to the risk components. Risk factors have to be evaluated and weighted on the basis of updated & reliable data and complete objectivity. Financial risk
Source: SCB Website 3. Identify the key parameters of principal risk In this step, key parameters of principal risk are identified. The parameters are shown on table below: Risk components
Leverage, liquidity, profitability,& coverage ratio
Size & age of business, business outlook, industry
growth, competition & barriers to business Experience, Succession & team work
Security coverage, collateral coverage & support
Account conduct, utilization of limit, compliance of covenants & personal deposit
4. Assigning weight to key parameters After identifying key parameters, weight is given to each parameter of principal risk components. In this case, high weight is given to the risky parameters. 5. Input data to arrive at score Finally, data is put on Excel based CRG matrix for getting the score. Number 1
Score Fully cash secured, secured by govt.
2 3 4 5 6 7 8
Good Acceptable Marginal/Watch list Special Mention Substandard Doubtful Bad/Loss
GD ACCPT MG/WL SM SS DF BL
guarantee/international bank guarantee 85+ 75-84 65-74 55-64 45-54 35-44 <35
6. Arrive at the Credit Risk Grading based on total score obtained: At last bank select a grade for the borrower. CRG System Review CRG system should be reviewed by the respective loan officer regularly. Frequencies of review of CRG are mentioned below; Risk grading Superior Good
Frequency (at least) Annually Annually
Acceptable Marginal/Watch list Special Mention Substandard Doubtful Bad/Loss
Annually Half yearly Quarterly Quarterly Quarterly Quarterly
Early Warning Signals (EWS) Any early alert is one of that has risk or potential weakness of a material nature requiring monitoring, supervision, or close attention by management. If theses weakness are left uncorrected, it may result in deterioration of the of the payment prospects for the asset or in the bankâ€™s credit position at the same future date with a likely prospect of being downgraded, within the next twelve months. Early identification, prompt reporting and proactive management of early alert account are prime responsibilities of all Relationship Manager and must be undertaken on a continuous basis. An early alert report should be completed by the RM and sent to the approving authority in CRG for any account that is showing signs of deterioration within seven days from the identification of weaknesses. The risk grade should be updated as soon as possible and no delay should be taken in referring problem accounts to the CRM department for assistance in recovery. Despite a prudent credit approval process, loans may still become trouble. Therefore, it is essential that early identification and prompt reporting of deterioration credit signs be done to ensure swift action to protect the bankâ€™s interest. E. Project Appraisal It is the pre-investment analysis. Project appraisal in the Banking sector is important for the following reasons: o To achieve organizational goals, o To recommend if the project is not designed properly. o To justify the soundness of an investment, o To ensure repayment of Bank finance, Techniques of Project Appraisal
An appraisal is a systematic exercise to establish that the proposed project is a viable preposition. Appraising officer checks the various information submitted by the promoter in first information sheet, application for Investment and Investment proposal. Standard Chartered Bank considers the following aspects in appraising a proposal. Technical viability Commercial viability Financial viability Economic viability The Head Office (HO) mainly checks the technical, commercial and financial viability of the project. For others HO is dependent on branch’s information. But when the investment size is big, then the HO verifies the authenticity of information physically. F. Head Office Approval When Head office receive appraisal from the branch then, Head Office again appraises the project. If it seems to be a viable one, the HO sends it to the Board of Directors for the approval of the Investment. The Board of Directors (BOD) considers the proposal and takes decision whether to approve the Investment or not. If the BOD approves the investment, the HO sends the approval to the concerned branch. The respective officer of Head Office appraises the project by preparing a summary named “Top Sheet” or “Executive Summary” and then he sends it to the Head Office Credit Division for the approval of the Loan. The Head Office Credit Division considers the proposal and takes decision whether to approve the Investment or not. If the committee approves the investment; the HO sends the approval to the concerned branch. G. Sanction Letter After getting the approval of the HO the branch issues sanction letter to the borrower. A sanction letter contains: o Name of borrower, o Facility allowed, o Purpose, o Rate of interest, H. Documentation
o Period of the Investment and mode of adjustment, o Security and Other terms and condition.
If the borrower accepts the sanction letter, the Documentation starts. Documentation is a written statement of fact evidencing certain transactions covering the legal aspects duly signed by the authorized persons having the legal status. The most common documents used by the Standard Chartered Bank for sanctioning different kinds of Investment are: o Joint Promissory Note,
o Stock Report,
o Letter of Arrangement,
o Letter of Lien,
o Letter of Disbursement,
o Status Report,
o Letter of Installment,
o Letter of Hypothecation,
o Letter of Continuity,
o Letter of Guarantee
o Trust Receipt,
o Documents Relating to Mortgage.
o Counter Guarantee, I. Disbursement After sanction and completion of all formalities the respective officer disburses the loan. The officer writes cheque and provides it to the borrower. For this borrower has to open an account through which he/she can withdraw the money. Strategies for Recovery: Recovery of loan can be made in the following three methods: o Persuasive o Voluntarily o Legally 1) Persuasive Recovery: The first step in recovery procedure is private communication that creates a mental pressure on borrower to repay the loan. In this situation bank can provide some advice to the borrower for repaying the loan. 2) Voluntarily: In this method, some steps are followed for recovering loan. These are: a. Building Task Force b. Arranging Seminar c. Loan Rescheduling Policy d. Waiver of Interest Rate 3) Legal Recovery: When all steps fail to keep an account regular and the borrower does not pay the installments and interests then the bank take necessary legal steps against
the borrower for realization of its dues. In this case “Artha Rin Adalat Law 2003” plays an important role for collecting the loan. 4.17 Status of Loans Unclassified These are the loans with which the bank satisfied about repayment. No doubt exists up till now about their recovery. Classified These are the loans which the bank finds overdue after the due date. The bank applies its predefined policy and procedures, after a loan becomes classified. •
Special Mention Account
When a loan installment is first missed by the borrower, the loan account is classified as a Special Mention Account (SMA). The tenure of SMA varies with the category of loans. •
If a loan is not repaid or reschedule within the SMA period, it becomes sub-standard loan. From this stage the loan is treated as defaulted. Interest is treated the same way as in SMA. •
If a loan is not repaid or reschedule within the sub-standard period, it becomes a doubtful loan Interest will be treated as before in this stage. •
Bad & Loss
If a loan is not repaid or reschedule within the doubtful stage, it is termed as bad & loss. Serious doubts exist as to the recovery of such loans. 4.17.1 Criteria for Loan Classification Loan Classification Stages
Special Mention Account Sub-Standard Doubtful
Irregular for 3 to 6 months Irregular for 6 to 9 months Irregular for 9 to 12 months
Irregular for 3 to 6 months Irregular for 6 to 9 months Irregular for 9 to 12 months
Fixed term loan Term loan Term loan for within 5 for more years than 5 years Irregular Irregular for for 3 to 6 3 to 12 months months Irregular Irregular for for 6 to 12 12 to 18 months months Irregular Irregular for for 12 to 18 18 to 24 months months
Short Term Agricultural And Micro Credit Loan Irregular for 3 to 12 months Irregular for 12 to 36 months Irregular for 36 to 60 months
Bad and Loss
Irregular for more than 12 months
Irregular for more than 12 months
Irregular for more than 18 months
Irregular for more than 24 months
Irregular for more than 60 months
4.17.2 Interest and Payments on Classified Loans a) Interest on loans classified as sub-standard and doubtful are charged on the account, but instead of being credited to income account; it is credited to Income Suspense Account. b) No interest on loans classified as bad & loss will be charged on the account. However, when suit will be filed to recover the loan, interest upon filing of such suit will be charged on the account and suit will be filed for the outstanding amount including interest. Such charged interest will also be credited to Interest Suspense Account. 4.17.3 Maintenance of Interest Suspense Account Though interest on loans classified as bad & loss may not be charged on the account, branches should calculate interest on monthly basis to charge it to Interest Receivables on Classified Loans account and credit to Interest Suspense account, but it is not entered into the accounting books. Amount wise record of such interest will be maintained and monthly proof will be prepared to confirm it with the ledger balance. 4.17.4 Treatment of Payment Received In Classified Loan Account Whenever any payment is received in respect of any classified loan account, the order of application will be as follows: a) To uncharged interest, if any b) To interest charged but credited to interest suspense account and c) To principal However, if any partial payment is received on account of a classified loan account for rescheduling, branches will keep the amount not yet paid in the Accounts Receivable â€“ Classified loan instead of applying the fund out right to adjustment as stated above. For such adjustment, branches should seek permissions from the head office and verify and report the necessary data for the final decision of the head office. 4.18 Provisioning
Provisioning is maintained at branch levels. This is followed in order apply the Matching Principle and Expense and loss Recognition Principle that suggest the recording of a probable loss account to be adjusted in the period it operates and is assumed to occur. For every provisioning, each branch debits Income Account and credits Provision against loans to better match expense with revenue and show the effects by reducing income for any given period. 4.18.1 Rate of Provision Provision will be provided against all types of loans including short term agricultural and micro credit at the following rates:
a) For unclassified loans b) For special mention account c) For loans classified as sub-standard d) For loans classified as doubtful e) For loans classified as bad and loss
1% 5% 20% 50% 100%
Rate of provision
PROVISION AGAINST LOANS BAD & LOSS DOUBTFUL SUB-STANDARD SPECIAL MENTION ACCOUNT UNCLASSIFIED 0
PROVISION AGAINST150 LOANS 50 100
Fig: 4(a) â€“ Provision against Loan Provisioning rate against short term agricultural and micro credit will be as follows:
a) For irregular, unclassified, sub-standard and doubtful loans 5% b) For loans classified as bad & loss 100%. 4.19 Declassification of Loans Classified By Standard Chartered Bank A loan classified by any branch may be declassified upon its recovery or rescheduling. A rescheduled loan will be classified again if any of the terms of rescheduling is unsatisfied and such rescheduling will be computed with retrospective effect from the date of rescheduling. However, once the loan is declassified on the basis of qualified judgment, branches may declassify the amount with the prior permission from the head office on the ground that the conditions for which classification was made has materially been improved and that no adverse situation exists. A loan classified by Head Office inspection team/ credit division will only be declassified with prior permission from the respective authority. A loan classified by Bangladesh Bank Inspection Team will be declassified either after obtaining permission from Bangladesh Bank or during the next inspection by Bangladesh Bank. 4.19.1 Issuance of Notice to the Client for Loans to Be Classified As per the Bangladesh Bank directives, Standard Chartered Bank has to issue a prior notice to the concerned client (borrower) at least one month before the date of treating each of the outstanding loans as classified/ overdue. Bangladesh Bank has a suggested specimen of such a notice to be followed and notified by the bank. 4.19.2 Consideration of Rescheduling Request for Classified Loans Any rescheduling request has to be approved by Head Office. For consideration of rescheduling request of the client, the client has to deposit minimum 1% of the total overdue amount. In this case, amount of interest not charged to the account for a bad & loss situation will be included for defining the outstanding overdue. As per the Bangladesh Bank Directives, a decision has to be conveyed to the client within three months from the date when the rescheduling request was received. Therefore, branches must forward rescheduling request to Head Office within 15 (fifteen) days from the date of receipt of the request along with the branchâ€™s opinion on the proposal and recommendation as per the situation of the claim.
4.19.3 Resorting To Legal Action for Recovery of Stuck-Up Advances Branches can initiate the legal procedures only when they are assured that the classified loan will not be recovered through persuasion alone .For initiating legal action branch shall obtain prior permission from Head Office. Request for such permission should indicate desired nature of legal action to be initiated and the request should accompany a resume of the account. While initiating legal action a careful consideration shall be made to take all the â€œoff-ledgerâ€? interest elements of the account and that all the concerned persons have been involved with such action. As soon as the legal action is initiated, it will be circulated to Head office along with all the particulars of such action. Legal expenses incurred will be charged to prepaid expenses (legal action). It is very important to note that filing of a suit is only a start of a lengthy legal process and branches have to make necessary arrangement to follow-up and monitor the progress of the suit so as to ease the disposal of the suit. It is quite normal that the borrower may resort to different tactics to delay the procedure and branches must be vigilant to protect the banks. It shall be the particular responsibility of the branch manager to ensure proper monitoring and supervision of the legal proceedings so as to protect the bankâ€™s interest.
4.19.4 Furnishing Lists of Defaulted Borrowers to Other Banks Branches under the authorization of the Head Office have to circulate the list of defaulting borrowers to Bangladesh Bank or other banks and financial institutes. This ensures that other banks will not extend credits to any previous loan defaulters. The Actual Write-Off When Standard Chartered Bank fails to recover some portion of the defaulted loan because of getting a cash amount less than the outstanding loan amount from selling the security, it writes off the rest of the loan amount. For this write off, it debits a loss account and credits the Accounts Receivable-classified loan for the amount left after making adjustments to recover the outstanding loan. 4.20 Credit Administration The administration function is critical in ensuring that proper documentation and approvals are in place prior to the disbursement of loan facilities. For this reason it is essential that the
function credit administration be strictly segregated from relationship management/ marketing in order the possibility of controls being compromised of issues not being highlighted at the appropriate level. 4.21 Credit Monitoring: To minimize credit losses, monitoring procedures and systems shall be in place that provides an early indication of the deteriorating financial health of a borrower. At a minimum, systems shall be in place to report the following exceptions to relevant executives in CRM and RM team: •
Past due principal or interest payments, past due trade bills, account excesses, and breach of loan covenants.
Loan terms and conditions are monitored, financial statements are received on regular basis, and any covenant braches or exceptions are referred to CRG and the RM team for timely follow-up.
Timely corrective action is taken to address finding of internal, external or regulator inspection/audit.
All borrower relationships/loan facilities are reviewed and approved through the submission of a credit proposal at least annually.
Analysis and Findings 5.0 Analysis of Standard Chartered Bank. Analysis is an important part of a report. Two types of analysis have been done in this reportQuantitative and Questionnaire survey analysis. This analysis will give an idea about the credit performance of Standard Chartered Bank. •
Quantitative Analysis o Trend Analysis o Ratio Analysis o Comparative Analysis
ď ś Questionnaire Survey Analysis Before starting qualitative and quantitative analysis here I am doing some general analysis regarding loan and advance about Standard Chartered Bank. 5.1 Total loan and advances: Loan Status Unclassified Classified Total
2007 1,43,376.12 7,373.43 1,50,749.55
2008 1,46,705.55 6,292.15 1,52,997.70
2009 1,48,796.61 5,122.21 1,53,918.82
Total Loan and Advances 154500 154000 153500 153000 152500 152000 151500 151000 150500 150000 149500 149000
153918.82 152997.7 Total Loan and Advances 150749.55
Fig: 5(a) â€“ Total loan and advances of Standard Chartered Bank. From the graph it is seen that the total loan and advances of Standard Chartered Bank is increasing year by year. If Standard Chartered Bank gives more attention in various Sector than they can earn more income from loan and advances. 5.2 Classification of loan and advances: In million Loan status Standard Special Mention Account Sub Standard
Bad or loss
Total Classified Amount
Source: Annual Report -2009 and 2008
Fig: 5(b) â€“ Classification of loan and advances of Standard Chartered Bank. From the graph it is seen that the amount of classified loan is increasing year by year. In 2008 total classified loan amount was tk 6,292.15 million and in 2009 it stood at tk. 5,122.21 million. The amount of good also increased. 5.3 Sector wise Advances: A wide range of business industries and sectors constitutes the Bank's advance portfolio. Major sectors where the Bank extended credit include steel and engineering, ship breaking, edible oil, sugar, housing and construction, pharmaceuticals, chemicals, electronic and automobiles, energy and power, service industries, trade finance, personal consumer credit, leasing etc. The Bank continued to support Small and Medium Enterprises (SME) and expended credit facilities to them through its SME Cell. Sectoral allocation of advances reveals a well-diversified portfolio of the Bank with balance exposure in different sectors. High concentration sectors are textile and garment industries with outstanding of Tk.9,729 million, housing and construction with Tk.6,916 million, food and allied industries with Tk.3,506 million and engineering and metal including ship breaking with Tk.3,937 million as at 31 December 2009.
Sector Wise Advances
Pharmaceuticles Industries Textile & Garment Industries Chemical Industries
13% Food & Alied Industries
Housing & Construction Industries
2% 7% 1%
Electronics & Automobile Industries Engineering & Metal Industries Service industries
Transport & Communication
Energy & Power Industries
Fig: 5(c) - Sector wise Advances of Standard Chartered Bank. Source: Annual Report 2009 Sectors 2007 2008 2009 Agricultural Industries
Textile and Garment Industries Engineering and Metal Industries Others
Sector wise advances 60% 50%
30% 20% 10% 0%
18% 13% 7% 2009
Agricultural Industries Textile and Garment Industries Engineering and Metal Industries Others
Fig: 5(d) – Sector wise advances of Standard Chartered Bank From the graph it is seen that the sector wise advances of Standard Chartered Bank is increasing year by year. Agricultural industries, Textile and Garment industries, Engineering and Metal industries are taken more percentage of advances. But the major portion (others) is decreasing year by year. Because the Bank is given more advances in the above sectors. 5.4 Geographical location wise loans and advances: Year by year • Urban Region 2007 2008 Dhaka 1,27,869.56 1,34,296.12 Chittagong 16,763.26 17,512.54 Sylhet 1,462.78 1,563.15 Other 3,691.61 4,226.39 Total 1,49,787.21 1,57,598.20 • Rural Region Dhaka Chittagong Sylhet Other Total
2007 2008 11,478.21 11,645.87 298.86 309.42 262.54 288.78 2,164.23 1,398.12 14,203.84 13,642.19 Source: Annual Report -2009
(in million) 2009 1,36,419.76 18,974.34 1,620.29 4,371.40 1,61,385.79 2009 11,725.51 327.29 301.18 1,469.54 13,823.22
Geographical Loan and Advances 180000 160000 140000
Urban area Rural area
80000 60000 40000 20000
Fig: 5(d) â€“ Geographical location wise loan and advances of Standard Chartered Bank. From the graph it is seen that Standard Chartered Bank provides most of the portion of loan and advances in urban area, whereas they provide a little portion in rural area. As we seen before that this bank provide more loan and advances in other industries than agricultural industries. Because of this their contribution to urban area is more than rural area. This Bank is also decreasing to give their loan and advances amount in rural area year by year. 5.5 Investment: The Bank's Investment during the year 2009 were mostly in long term Government Securities which stood at Tk.8,660 million as against Tk, 7,239 million making a growth of 20% over the last year.
Investment 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0
8660 7239 5378
2005 2006 2007 2008 2009 Year
Fig: 5(e) - Year wise Investment of Standard Chartered Bank. Source: Annual Report 2005-2009
5.6 Deposit Analysis (Amount in million) Year 2005 2006 2007 2008 2009
Deposit 28,439 41,554 48,731 56,986 60,918 Source: Annual Report 2005-2009 Deposit
70,000 Taka in million
60,000 50,000 40,000
30,000 20,000 10,000 0 2005
Year Fig: 5(f) - Year wise deposit of Standard Chartered Bank. Source: Annual Report 2005-2009
The deposit base of Standard Chartered Bank continued to register a steady growth and stood at Tk.60, 918 million excluding call as of 31 December 2009 compared to Tk. 56,986 million of the previous year. If deposit increases than the bank can use more proportion of deposit for loans and advances. 5.7 Provision After getting list of the classified accounts where no loss is anticipated, partial or total loss is anticipated, audit report by Audit division and Bangladesh bank, previous and current portfolio by external auditors and branch managers comments on the classified accounts, Head office credit division prepares a list of credit accounts which are considered to be totally or partially be unrecoverable. Provision against Loan and Advances (2005-2009) (Amount in million)
Year 2009 2008 2007 2006 2005
Provision against Loan and Advances 69,519 65,388 61,511 58,363 56,519
Provision against Loan and Advances 80,000 70,000 60,000
Provision against Loan and Advances
40,000 30,000 20,000 10,000 0 2005
Fig: 5(g) - Provision against Loan and Advances. Source: Annual Report (2005-2009) From the graph it is seen that the provision is increasing year by year. In 2005 the provision against loan is 56,578 in 2006 58,363 in 2007 61,511 in 2008 65,388 and in 2009 the provision against loan amount is 69,519. 5.8 Recovery and Disbursement Analysis (Amount in million) Year 2005 2006 2007 2008 2009
Disbursement Recovery 2,23,372 2,18,732 2,34,049 2,28,908 2,39,972 2,35,406 2,49,698 2,44,303 2,52,910 2,48,750 Source: Annual Report 2005-2009
Loan disbursment and recovery 260000 250000 240000 Disbursement
220000 210000 200000 2005
Fig: 5(h) - Year wise Disbursement and Recovery of Standard Chartered Bank. year
From the graph it is seen that the disbursement amount of Standard Chartered Bank increases every year. In 2008 disbursement amount was tk. 249,698 million and in 2009 disbursement amount was tk. 252,910 million. In 2008 recovery amount was tk 242,303 million and in 2009 recovery amount was tk. 245,750 million. 5.9 Recovery in Percent The following Graph shows the ability of Standard Chartered Bank to recover the loan. Year 2005 2006 2007 2008 2009
Disbursement Recovery 223372 218732 234049 228908 239972 235406 249698 244303 252910 248750 Source: Annual Report 2005-2009
Recovery Percent 80.15% 79.87% 88.26% 91.45% 93.23%
Recovery Percent 95.00% 91.45%
75.00% 70.00% 2005
Fig: 5(i) - Year wise Recovery rate of Standard Chartered Bank From the graph it is seen that the recovery rate of Standard Chartered Bank is increasing day by day. But they can not achieve their targeted standard percentage of recovery. They are trying hard to achieve their target year by year. The standard recovery percentage is 95% given by target of this bank. 5.10 Non Performing Loan Analysis: Year
Non Performing Loan 1.51% 1.64% 3.15% 3.84% 5.57%
2005 2006 2007 2008 2009
Source: Annual Report 2005-2009 Non Performing Loan 6.00%
3.00% 2.00% 1.00%
Non Performing Loan
Fig: 5(j) - Year wise non performing loan of Standard Chartered Bank
From the graph it is seen that the non performing loan of Standard Chartered Bank increases every year. In 2008 non performing loan was 3.84% and in 2009 it stood on 5.57% because a large portion of loan provided to Mahbub traders goes default as they were fraud. 5.11 Interest income on loan and advances: (Amount in million) Year 2009 2008 2007 2006 2005
Interest income 5323.18 5845.36 6295.12 6577.25 6907.66 Source: Annual Report -2005-2009
Fig: 5(k) â€“ Interest income on loan and advances of Standard Chartered Bank. From the graph it is seen that the interest income from loan and advances of Standard Chartered Bank is increasing year by year. If Standard Chartered Bank gives more attention in this Sector then they can earn more income from loan and advances. 5.12 Ratio Analysis Ratio analysis involves methods of calculating and interpreting financial ratios to analyze and monitor the firmâ€™s performance. The basic inputs to ratio analysis are the firmâ€™s income statement and balance sheet. Credit/ deposit Ratio Credit/ deposit ratio= Credit/ Deposit Year Credit/deposit Ratio 2007 82.03% 2008 87.21% 2009 86.85% Source: Annual Report 2007-2009
Credit/deposit Ratio 88.00% 87.00% 86.00% 85.00% 84.00%
83.00% 82.00% 81.00% 80.00% 79.00% 2007
Year Fig: 5(l)-Credit/Deposit ratio
Interpretation: Credit deposit ratio measures the portion of deposit used for credit. The more the ratio the more the bank is using its deposit as its credit. According to the Bangladesh Bank, any Bank cans keep maximum 85% of their deposit as assailer. But in 2008 and 2009 the Bank uses more deposit as credit than the standard ratio given by Bangladesh Bank. Capital Adequacy Ratio Capital Adequacy Ratio= Total capital/ Risk weighted Assets Year C.A Ratio 2007 11.13% 2008 11.84% 2009 11.31% Source: Annual Report 2007-2009
C.A Ratio 12.00% 11.84%
11.80% 11.60% 11.40% 11.20%
11.00% 10.80% 10.60% 2007
Fig: 5(m)-C.A Ratio Interpretation: Capital adequacy ratio determines the capacity of the bank in terms of meeting the liabilities and other risk such as credit risk, operational risk etc. Generally 10% is acceptable line for this ratio, in that sense bank is good enough, because in every year this ratio is more than standard line and this is good sign for the bank. Debt ratio Debt ratio= Total Liabilities/ Total assets Year
Total Liability Total Asset (Million) (Million) 1,53,434 1,57,443 1,63,051 1,71,137 1,68,722 1,77,767 Source: Annual Report 2007-2009
2007 2008 2009
Debt Ratio 93% 89% 88%
Debt Ratio 94% 93% 92% 91% 90% 89% 88% 87% 86% 85%
Fig: 5(n) - Debt Ratio Interpretation: Debt ratio indicates the proportion of debt or leverage in total capital structure. The higher this ratio the greater the amount of other peopleâ€™s money being used to
generate profits. In the above graph in year 2007 the ratio was 93%, in year 2008 it decreases in 89% and year 2009 it is 88%. 5.13 Comparative Analysis Comparative Analysis with other Banks Every bank is different in terms of their organizational structure and operating system. So no direct comparison can be made in credit policy and practices. But it can be compared with other banks by analyzing the efficiency in credit management. In that we will segregate the banks operating in Bangladesh into four types: â€˘
Nationalized Commercial Banks
Local Private Banks
And then we will analyze and compare credit management efficiency of Standard Chartered Bank with those banks. 5.13.1 Nationalized Commercial Banks Nationalized banks are playing an important role in our banking and economic sector. There are four nationalized bank: Agrani Bank, Sonali Bank, Janata Bank and Rupali Bank. Here I am comparing Standard Chartered Bank with Sonali Bank: (Amount in Million) Particulars SCB Sonali Bank Total Deposits 360,918 406,151 Total Loans & Advances 252,910 254,022 Classified Loans 13521 69,833 Classified Loans Percentage (Total 5.34% 27.49% Loans & Advances) Provision kept against Classified 21,488 43,380 Loans Credit Deposit Ratio 93.88% 62.54% Return on Asset (ROA) 1.29% 0.42% Return on Investment (ROI) 11.58% 6.79% Source: Annual Report 2009 (Standard Chartered Bank & Sonali Bank) Sonali bank is one of the large nationalized banks in our country. From the table we see that in 2009 total deposit and total loans and advances of Standard Chartered Bank are lower than Sonali Bank. The classified loans also lower, which is a good sign for the credit management of Standard Chartered Bank. In year 2009 this banks classified loan was 27.49% of total
loans and advances, where as Standard Chartered Bank was 5.34% his loan classification rate clears that there is huge gap in credit management between Sonali bank and Standard Chartered Bank. Also other particulars are so much good enough than Sonali Bank, which include in the table. Because of effective management, update credit management techniques, credit supervision, Standard Chartered Bank is doing great in credit management as their credit deposit ratio is better than Sonali Bank. So that we can say that the credit management of Standard Chartered Bank is better than a nationalized bank.
5.13.2 Local Private Commercial Banks In our country local private commercial bank play an effective role in our countryâ€™s banking sector. These banks are doing their work effectively and also providing better service for our country people. Prime Bank and Mercantile Bank are well recognized private commercial bank in Bangladesh. These banks are modern in their nature and activity. Like other banks these bank are much concern about their credit policy and follows Bangladesh Banks credit grading policies and rules in case of credit management. â€˘
Standard Chartered Bank Vs Prime Bank (Amount in Million)
Particulars SCB Prime Bank Total Deposits 360918 106,956 Total Loans & Advances 252910 89,252 Classified Loans 13521 1,149 Classified Loans Percentage (Total 5.34% 1.29% Loans & Advances) Provision kept against Classified 21,488 631 Loans Credit Deposit Ratio 93.88% 83.45% Return on Asset (ROA) 1.29% 2.37% Return on Investment (ROI) 11.58% 15.67% Source: Annual Report 2009 (Standard Chartered Bank & Prime Bank) Prime bank is one of the reputed banks in our country. From the graph we can see that in year 2009 this banks classified loan was 1.29% of total loans and advances, where as Standard Chartered Bank was 5.34% in case credit management of SCB is less effective than Prime Bank. Prime Bank follows a well structured credit policy than Standard Chartered Bank. Apart this, total deposit of SCB is almost twice than Prime Bank and they are using a large proportion of this deposit as loans and advances and monitoring it properly.
5.14 Questionnaire Survey Analysis Questionnaire is important for any types of research. Questions are designed and asked to respondents to extract specific information. It serves two basic purposes: to (1) collect the appropriate data (2) make data comparable and amenable to analysis. For preparing this report I have used a questionnaire and interviewed 25 clients of Standard Chartered Bank. Such questions are analyzing from questionnaire and those are followings: 5.14.1 How Standard Chartered Bank is different from other banks? Opinions
No. of Respondents
Low interest rate
Easy loan disbursement SME loan
Questionnaire survey of SCB 15 10 5
11 8 5 1
0 No. of Respondents
Low interest rate Easy loan disbursement SME loan
Figure: 5(o) - How Standard Chartered Bank is different from other banks?
From the graph it is seen that 44% client prefer Standard Chartered Bank because of their easy loan disbursement. 32% client said that interest rate is low so they prefer this bank. 5% prefer for the SME facility and 1% prefer for the other privilege. 5.14.2 Income level of clients. Income level 10,000-24,999 25000-39,999 40,000-54,999 55,000+
No. of Respondents 2 4 7 12
Percentage 8% 16% 28% 48%
Income level of Clients 60% 48%
50% 40% 28%
Figure: 5(p) - Income level of clients. From the graph it is seen that most of the clientsâ€™ income level is above 55,000, which is good for providing loan. Because they are financially solvent so it will be less risky to provide them loan as they can easily pay the interest rate. 5.14.3 Experience of clients Experience Below 5 Years 5-15 years 15-25 years Above 25 years
No. of Respondents 5 8 9 3
Percentage 20% 32% 36% 12%
Experience of clients Above 25 years
36% Percentage 32%
5-15 years Below 5 Years
Figure: 5(q) - Experience of clients Experience in business is a very important criterion for providing loan. Bank should provide loan to those who are experienced so that there is less possibility of loan default. From the graph it is seen that most of the clientsâ€™ experience is in between 15-25 years, which is good for providing loan. 5.14.4 Opinion regarding interest rate. Opinion Very satisfactory Satisfactory Unsatisfactory Extremely unsatisfactory
No. of Respondents 1 11 8 5
Percentage 4% 44% 32% 20%
Opinion regarding interest rate 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
44% 32% 20%
4% Very satisfactory
Figure: 5(r) - Opinion regarding interest rate. From the graph it is seen that 44% client are satisfied with the interest rate of Standard Chartered Bank. But the dissatisfaction level is also near about the satisfaction level. So the bank should adjust the interest rate in compare to other banks. 5.14.5 Opinion regarding Service charge. Opinion High Medium Low
No. of Respondents 13 11 1
Percentage 52% 44% 4%
Opinion regarding service charge 60%
Figure: 5(s) - Opinion regarding Service charge.
From the graph it is seen that 52% people said that the service charge of Standard Chartered Bank is high, 44% said it is medium and 4% said it is low. So bank should work on this factor. 5.14.6 The loan processing time is lengthy. Opinion
No. of Respondents 12 11 2 0
Agree Fully agree Disagree Fully disagree
Percentage 48% 44% 8% 0%
Loan processing time is lengthy 48%
40% 30% Percentage
Fully agree Disagree
Figure: 5(t) - The loan processing time is lengthy. From the graph it is seen that 48% client agree with the statement, 44% fully agree, 8% disagree, and no one is fully disagree with this statement. 5.14.7 In which area(s) do you think that they should take care of? Opinion Interest rate Installment period Service charge Loan processing time
No. of Respondents 5 3 8 9
Percentage 20% 12% 32% 36%
Area should improve Loan processing time
Figure: 5(u) – Area should improve From the graph it is seen that 36% said that the bank should work on their loan processing time, 32% said that service charge should reduce, 12% said installment period should increase and 20% said interest rate should decrease. Major Findings, Conclusion & Recommendations Major Findings: •
The loan and advances of Standard Chartered Bank is increasing year by year. And it carries positive sign for Standard Chartered Bank.
Provision against loans of Standard Chartered Bank is increasing day by day.
From the last two years analysis it is seen that Standard Chartered Bank is providing more credit facilities in urban areas than rural areas.
This Bank is also decreasing to give their loan and advances amount in rural area year by year. Higher rate of interest plays a great role in credit management. Some times the rate is so high that the return from the investment is not so adequate enough to repay the loan. And hence default occurs.
Credit deposit ratio of Standard Chartered Bank is quite satisfactory.
According to the Bangladesh Bank, any Bank cans keep maximum 85% of their deposit as assailer. But in 2008 and 2009 the Bank uses more deposit as credit than the standard ratio given by Bangladesh Bank.
Debt ratio of Standard Chartered Bank is decreasing year by year. The major case is they can not achieve their targeted deposit from their clients.
Capital adequacy ratio is above the standard line. Generally 10% is acceptable line for this ratio, in that sense bank is good enough, because in every year this ratio is more than standard line and this is good sign for the bank.
It is found from the survey that most of the client prefers Standard Chartered Bank because of their easy loan and disbursement.
The loan processing time of Standard Chartered Bank is quite lengthy according to the clients of Standard Chartered Bank.
Standard Chartered Bank is providing loan to those who are experienced enough in their respective field. It is found from the survey.
Classified loan percentage of Standard Chartered Bank is better than Sonali bank but worse than Prime Bank.
The recovery rate of Standard Chartered Bank has increased in last two years. Before that, recovery rate was not satisfactory.
Day by day non performing loan of Standard Chartered Bank is increasing and in year 2009 the non performing loan percentage of Standard Chartered Bank was greater in compare to Prime Bank.
6.2 Conclusion Proper financial system of country can contribute towards the development of the country’s economy. In our country banks are leading in the financial system. Again private commercial banks, which are much better than state owned bank, are playing significant as well as imperative role and the development of our country. Certainly Standard Chartered Bank is mobilizing its all resources on this same track to achieve maximum possible contribution to the nation. Despite stiff competition among banks operating in Bangladesh both foreign and local, Standard Chartered Bank has achieved satisfactory progress in areas of its operations and
earned an impressive operating income over the previous years. The bank hopes to achieve a satisfactory level of progress in all areas of its operations including target of profitability. In achieving the aforesaid objectives of the bank, credit operation is of paramount importance as the greatest share of total revenue of the bank is generated from it, maximum risk is centered in it and even the very existence of bank depends on prudent management of its credit portfolio. 7.3 Recommendations • The interest income from loan and advances of Standard Chartered Bank is increasing year by year. If Standard Chartered Bank give more attention in this Sector than they can earn more income from loan and advances • Proper and effective monitoring system should be developed in order to minimize the amount of non performing loan. •
As we have seen that deposit amount of Standard Chartered Bank is higher than Prime Bank, so if Standard Chartered Bank can increase more their deposit than they can use more deposit portion to provide credit facilities.
• As from the graph we have seen that the bank is providing a large portion in unproductive sector, which is not a good sign for our economy. So the bank should pay more concentration on productive sectors like industrial loan instead of unproductive sector car loan. •
Standard Chartered Bank is focusing urban areas to provide credit facilities. Still they are ignoring rural areas. But they can earn from agro sector so Standard Chartered Bank should provide more credit facilities in rural areas.
• The bank should strictly follow ‘The Principle of Sound Lending’. The bank should not sanction loan to the customer without all necessary documents. •
Recently Bangladesh bank reduced the bank rate to encourage investment. But still in the present economic context the private banks are charging too high rate of return on the loans. So Standard Chartered Bank should reduce their interest rate as per Bangladesh Banks guideline.
Capital adequacy is important for a financial institution. Standard Chartered Bank capital adequacy ratio is in better position and they should maintain it.
• As Standard Chartered Bank is providing loan to experienced clients so there is less
possibility to default the loan and bank should maintain it. Appendix Books: •
Lawrence, J Gitman (2003), “Principle of Managerial Finance”, 10th edition, Pearson Education Pte. Ltd, Singapore.
Bedi, H.L. “Practical Banking Advances” UBS Publishers Distributions Ltd. New Delhi.
C.R Kotheri, “Research Methodology” 2nd Edition, 2003-2004, Wishwa Prakashan, Calcutta, India.
Frederic S. Miskhin, “The Economics of Money Banking & Financial Market” 6th Edition, 2003, Boston.
Frank K. Reilly & Keith C. Brown, “Investment Analysis Portfolio Management”, 7th Edition.
Standard Chartered Bank, Annual report 2005-2009.
Prime Bank Ltd, Annual Report 2009.
Websites: www.standardchartered.com/bd www.bangladesh-bank.org.bd www.primebank.com www.mblbd.com