Credit Risk Management of United Commercial Bank Limited

CHAPTER # 1
Introduction
ORIGIN OF THE REPORT
Internship program means systematic gathering, recording and analyzing of data about the subject
that a student foes to learn through the program. This program is a partial requirement to obtain the
BBA certificate. I was assigned to conduct my internship in the UCBL for the period of 3 months
commencing from August 1, 2010 to Octobar 31, 2010 as an intern.
My Internship topic was Credit Risk Management of UCBL which was assigned by my
internship supervisor Md. Kaleem Mohammed khan. I have completed this report on the basis of
my practical experience of working in United Commercial Bank Limited, Khilkhet Branch.
Statement of the Problem
The specific problems that would be answered by this particular study are the following
What types of risk a bank faced?
What does it mean by credit risk?
What is the overall process that is followed by UCBL to manage the credit risk?
What are general credit principles that are used to reduce the risk?
What is the process of credit risk assessment?
Scope and Delimitation of the Study
The present study was not out of limitations. But as an intern it was a great opportunity for me to
know the banking activities of Bangladesh specially U.C.B.L. Some constraints are appended
below:
The main constraint of the study is inadequate access to information, which has hampered the
scope of analysis required for the study.
Due to time limitations many of the aspects could not be discussed in the present report.
Every organization has their own secrecy that is not revealed to others. While collecting data i.e.
interviewing the employees, they did not disclose much information for the sake of the
confidentiality of the organization.
Since the bank personals were very busy, they could provide me very little time.
Another problem is that creates a lot of confusions regarding verification of data. In some cases
more than one person were interviewed to clarify each concept as many of the bankers failed to
provide clear-cut idea about the job they perform.

Objectives of the Study:

The broad and specific objectives of the study are listed below:
Broad Objective
The broad objective of the study is to learn and analyze the credit risk management of UCBL and
the system the followed for credit assessment.
Specific Objectives
To know about the United Commercial Bank Ltd.
To gather information about credit risk and its management process.
Analyze the credit assessment process.
To know the risk acceptance criteria.
To know the credit risk management systems, tools & techniques use in UCBL.
To find out a common standard of credit risk management systems.
METHODOLOGY OF THE REPORT
Methods of data collection
The report was fully exploratory in nature. Data have been collected from both primary and
secondary sources.
Primary sources of data
Face to face conversation with the bank officers & staffs
Different manuals of U.C.B.L
Different circulars of U.C.B.L
Secondary sources of data
Annual report of U.C.B.L
Prospectus of U.C.B.L
Different papers of U.C.B.L
Unpublished data
Different Text Books

CHAPTER # 2
OVERVIEW OF UCBL
Introduction:
United commercial Bank Ltd. is one of the leading private commercial bank in Bangladesh. It
Sponsored by some dynamic and reported entrepreneurs and eminent industrialists of the country
and also participated by the eminent. UCBL started its operation in the mid 1983. It renders banking
services to its customers. With an outstanding lance, the company is heading towards the new
millennium though focusing on leadership, service innovations and all other is required for earning
excellence and continued growth. This is offering service-keeping harmony with the changing
demands customers and is getting customer satisfaction by assuring quality and by delivery better
service value comparing with its competitors.
The emergence of UCBL in private sector is an important event in the arena of Bangladesh. It has
been able to establish the network of 99 (another one is ongoing) branches throughout the country.
A team of highly qualified and experienced professionals headed by the Managing Director
of the Bank who has vast banking experience bank and at the top there is an efficient Board of
Directors for making policies.
With its firm commitment to the economic development of the country, the Bank has already made
a distinct mark in the realm of Private Sector Banking through personalized service, innovative
practices, dynamic approach and efficient Management. The Bank, aiming to play a leading role in
the economic activities of the country, is firmly engaged in the development of trade, commerce
and industry thorough a creative credit policy. UCBL currently works with 329 correspondents
covering 102 countries. Moreover, the Bank has arrangement with a number of Exchange House at
Singapore, U.A.E, Oman, Qatar, and Kuwait to facilitate remittances from expatriate Bangladeshis.
UCBL offers various types of products and services include Western Union money transfer, SMS
banking, and online services, debit card, credit card, dual currency VISA credit card, various
deposit schemes etc.
Mission and Vision of UCBL
UCBL has certain Vision relative to its competitors of UCBL visualizes as:
Maximizing shareholders wealth.

Setting industry benchmarks of world class standard in delivering customer value through
our comprehensive product range, customer service and alt our activities.
To participate in growth and expansion of our national economy.
Maintaining the highest ethical standards and a community responsibility worthy of a leading
corporate citizen.
Building an exciting team-based working environment that will attract, develop and retain
employees of exceptional ability who help celebrate the success of our business, of our
customers and national development.
Continuously improving productivity and profitability, and thereby enhancing stakeholders
value.
UCBL is banking and financial service group, aim to be outstanding financial institution providing
a broad range of services to the full range of customers and differentiated from its competitors by
the quality and efficiency in service.
Strategies, Goals & Objectives of UCBL:
Strategy is a course of action taken by the management available to him in advance. Business sense,
it refers to the formulation of basic organizational missions, purposes, & objectives; policies &
program strategies to achieve them, & the methods needed to assure that lies are implemented to
attain organizational ends.

Strategies of UCBL
Utilize all available resources to develop various plan, policies and procedures in each of the
objectives and goal areas.
Synchronized and steady growth of the bank.
Implement plans, policies and procedures.
Utilize team of professional employees.
Search for a total customized solution of IT. For the purpose of full automation step.
Goals of UCBL
Develop a plan for offering better customer service.
Foster a realistic deposit mobilization plan.
Develop appropriate lending risk assessment system.
Enhance capital plan.
Generate a system to make good advances.
Invent appropriate management structure, system, procedures and approaches.
Cultivate scientific MIS to monitor banks activities.

Business Objectives UCBL

Objective may be defined as a specific desired result to be achieved.
The objectives of UCBL have outlined hereunder:
Ensure full recovery of all advances.
Ensure a satisfied work force.
Make sound loan and investment
Build up a low cost fund base.
Meet capital adequacy requirement at all the time.
Focus on fee based income.
Install a scientific MIS to monitor banks activities.
Adopt an appropriate management technology.
Organism of UCBL
Managing Director
Deputy Managing Director
Senior Executive Vice President
Executive Vice President
Senior Vice President
First Vice President
Vice president
First Assistant Vice President
Assistant Vice President
Senior Executive Officer
Executive Officer
Senior Officer
Officer

Junior Officer
Board of directors of UCBL
The Bank has in its Management a combination of highly skilled and eminent bankers of the
country of varied experience and expertise successfully led by Mr. M. Shahjahan Bhuiyan, a
dynamic banker, as its Managing Director and well educated young, energetic and dedicated
officers working with missionary zeal for the growth and progress of the institution. The board of
directors of united Commercial Bank is following below:
Board of Directors
Chairman

Md.Jahangir Alam Khan

Vice-Chairman

Qamrun Nahar

Chairman, EC

Hajee M. A. Kalam

Chairman, Audit Committee

M.A.Sabur

Members

Hajee

M.A.

Kalam

(Director)

Hajee Yunus Ahmed (Director) Mr. M.

A.

Sabur

(Director)

Mr.M.A.Hashem (Director)
Mr. Shabbir Ahmed (Director) Mr.Kazi
Enamul

Hoque

(Director)

Mr. Showkat Aziz Russell (Director)

Mr.

Riyadh

Zafar

Chowdhury

(Director)
Mr.
Dr.

Nur

Uddin

Aziza

Javed

Karim

(Director)
(Director)

Mrs. Setara Begum (Director)

Managing Director

Mr. M. Shahjahan Bhuiyan

Executive

Committee

Secretary

Mr. Mirza Mahmud Rafiqur Rahman

Chairman

Hajee M.A. Kalam

Members

Mr.Hajee Yunus Ahmed

of

the Board

(Director)

Mr. M. A. Sabur (Director)

Mr.Kazi Enamul Haque (Director)
Md.Shabbir
Mr.

Ahmed

Showkat

(Director)

Aziz

Russell

(Director)
Managing Director

Mr. M. Shahjahan Bhuiyan

Chairman

Mr.M.A. Sabur

Members

Mrs.Qamrun

Audit Committee

Nahar

Mr.Kazi Enamul Hoque

Corporate Information
Name of the Company

United Commercial Bank Limited

Legal Status

Public Limited Company

Date of Incorporation

June 26,1983

Date of Commencement

June 27,1983

Registered Office

CWS(A)-1,Gulshan Avenue
Dhaka 1212,Bangladesh

Telephone

PABX 02 885 2500

E-Mail

info@ucbl.com

(Director)
(Director)

Website

www.ucbl.com

S.W.I.F.T
Listing with Dhaka Stock Exchange

UCBLBDDH
November 30,1986

Listen with Chittagong Stock Exchange November 15,1995

Chairman

Md. Jahangir Alam khan

Managing Director

M. Shahjahan Bhuian

Company Secretary

Mirza Mahamud Rafiqur Rahaman

Products & Service Offer by UCBL

UCB Multi Millionaire

Travelers Cheques

UCB Money Maximizer

Import Finance

UCB Earning Plus

Export Finance

UCB DPS Plus

Working Capital Finance

Western Union Money Transfer

Loan Syndication

SMS Banking Service

Underwriting and Bridge Financing

Online Service

Trade Finance

Credit Card

Industrial Finance

One Stop Service

Foreign Currency Deposit A/C

Time Deposit Scheme

Non Resident Foreign Currency Deposit Account

Monthly Savings Scheme

Resident Foreign Currency Deposit Account

Deposit Insurance Scheme

Consumer Credit Scheme

Inward & Outward Remittances

Locker Service

Financial Position of UCBL

The Bank
The Bank closed the year with satisfactory performance in every sector. At the end of the year
2009, total assets of the bank stood at Tk.90,484 million against Tk.64,795 million of 2008
registering an increase of 39.65 percent.
Total assets included Tk. 7,004 million cash in hand, balances with Bangladesh Bank and Sonali
Bank against Tk.4,746 million in the previous year. Total liquid assets including investment stood
at Tk.22,669 million during the year against Tk.16,325 million in the previous year. The liquid
assets was 29.16 percent of the total deposits as at the close of the year. Net return on equity during
the year 2009 was 16.35 percent as against 17.44 percent in the previous year.
Capital and reserves
During the year under report authorized capital of the bank remained unchanged at TK 1000 million
and the paid-up capital stood at TK 299 million. The reserve fund of the bank increased by 16.33
percent to TK 2,197 million against TK 1,889 million in the previous year of 2008. The reserves
for the last five years (2005 to 2009) are as below (taka in millions):
Deposit
The deposit of the bank registered an increase of 42.66 percent in the year under review. At the
close of 2009, Total deposit stood at TK 77,730 million as against TK 54,485 million in the
previous year. The Deposit mix comprised Tk.12400 million as demand and Tk.65330 million as
time deposit.Out of the total deposits,Tk.68,455 million was mobilized from the private sector while
the balance Tk. 9,275 million from the public sector. Deposits of last five years (2005 to2009) are
shown below:
Credit
The bank continued its participation in different credit programs for financing new industrial
projects, working capital, trade finance, international trade etc. Consequently total credit rose to TK
61,692 million in 2009 from Tk. 44,446 million of 2008. The credit deposit ratio stood at 79.37
percent. Sector wise net advances during the year were as follows:Loans and advance of last five years (2005 to 2009) are given below:

Investment
At the close of 2009, total investment of the bank stood at TK 9,346 million against TK 7,201
million in 2008.dividend amounting to Tk. 8 million has been received from different companies/
institutions against investment in share during the year under report.
Foreign Trade
During the year 2009,the volume of import business was Tk.58,857 million compared to Tk.60,009
million in 2008. On the other hand the volume of export business in 2009 was tk. 38,519 million
compared to tk. 36,500 million in 2008.
Income, Expenditure & Operating Profit
UCBL earned a total operating income of Tk. 9540 million during the year against Tk. 7850 million
in the previous year. The total operating expenditure was Tk. 6415 million in 2009 against Tk. 5400
million in 2008. Thus operating profit stood at Tk. 3125 million in 2009 against Tk. 2450 million of
2008 registered a growth of 27.56 percent.
From above financial statistics it can be said that the bank is doing well day by day.
CHAPTER # 3
Credit Risk Management of U C B L & Analysis of the Data
Risk
Risk may be defined in terms of the variability of possible outcomes from a given investment. If the
outcome is certain and there is no variability-hence no risk. Another way we can measure risk like a
measure of uncertainty about the outcome from a given event. The greater the variability of possible
outcomes on both, the high side and the low side, the greater the risk.
Risk management
Risk Management is a discipline at the core of every financial institution and encompasses all the
activities that affect its risk profile. It involves identification, measurement, monitoring and
controlling risks to ensure that
a) The individuals who take or manage risks clearly understand it.
b) The banks risk exposure is within the limits established by Board of Directors.
c) Risk taking decisions are in line with the bank strategy and objectives set by BOD.
d) The expected payoffs compensate for the risks taken.

e) Risk taking decisions are explicit and clear.

f) Sufficient capital as a buffer is available to take risk
Risk Evaluation/Measurement
Until and unless risks are not assessed and measured it will not be possible to control risks. Further
a true assessment of risk gives management a clear view of banks standing and helps in deciding
future action plan. To adequately capture banks risk exposure, risk measurement should represent
aggregate exposure of bank both risk type and business line and encompass short run as well as
long run impact on bank. To the maximum possible extent banks should establish systems / models
that quantify their risk profile, however, in some risk categories such as operational risk,
quantification is quite difficult and complex. Wherever it is not possible to quantify risks,
qualitative measures should be adopted to capture those risks. Whilst quantitative measurement
systems support effective decision-making, better measurement does not obviate the need for wellinformed, qualitative judgment. Consequently the importance of staff having relevant knowledge
and expertise cannot be undermined.
Risk Management Process:
UCBL always try to manage above risk by various steps like risk analysis, evaluation, acceptance
and management of some risk or combination of risks. Risk management is emphasized not only for
regulatory purpose but also to improve operational and financial performance of the Bank. The
objective of the risk management is that the Bank takes well calculative business risks while
safeguarding the Banks capital, its financial resources and profitability from various risks.
In order to streamline risk control features in a more effective manner, UCBL has put in places all
manuals as suggested in the core risk management guide lines of Bangladesh Bank. Its Standard
Operating Procedure (SOP) contains all the guidelines and also includes some of the internationally
accepted best practices.
To manage the risk, united commercial Bank Limited takes some steps. They actively involve
analysis, evaluation, acceptance and management of some risk. Risk management is not only for
regular process but also improve financial performance of the Bank.
UCBL manage their banks risk by taking following steps:

Risk Assessment and Measurement

Quantify and Assess Risk Impact
Risk
Credit

Operational Risk

Market Risk

Liquidity Risk

Reputation Risk

Risk
Risk Identification
Identify, Understand and Analyze Risks
Risk control and migration
Control & Migrate Risks
Risk monitoring
Monitor and Report on Progress & Compliance
Balance Risk against return
The Risk management policy of the Bank operates under some broad principles:
Oversight by the Board /Executive Committee. Board approves policies and processes of risk
management recommended by the management and Executive Committee approves the credit
proposals submitted by the management;
Audit Committee of the Board reviews the internal audit reports of the Bank and risk
management covering credit risk, operational risk including money laundering risk, market risk
and liquidity risk;
Dedicated independent risk management units viz. Credit Risk Management units, Credit
Administration Unit, Credit Monitoring and Recovery Unit, Internal Control and Compliance
Unit are responsible for implementation of the risk policies and monitoring of compliance with
risk policies. They are also responsible for identification of and measuring risks.

Dedicated committee at management level has been set up to monitor risk viz. credit risk
through Credit Review Committee/and Risk Management Division, Operational Risk through
Management Committee and Internal Control and Compliance Division, Market and Liquidity
risk through Asset Liability Committee (ALCO); Information risk through MRS Committee and
Reputation risk arising out of money laundering through Chief Compliance Officer of the Bank
and Compliance Officers of the branches;
In order to streamline risk control features in a more effective manner, UCBL has put in places
all manuals as suggested in the core risk management guide lines of Bangladesh Bank. Its
Standard Operating Procedure (SOP) contains all the guide lines and also includes some of the
internationally accepted best practices. Departments including corporate banking, SME banking,
retail banking, credit card, foreign exchange, treasury, human resources and financial
administration. The SOPs include all processes related to the initiation, maintenance,
settlement/closure and recording for the entire range of products offered by the Bank. SOPs will
help the bank maintain control over its operations, clarify the links with the IT system, act as an
effective communication tool that will reduce training time, improve risk management and work
consistency.
Board and senior Management oversight:
UCBLs board of director and senior management must concern following things to reduce risk.
a) To be effective, the concern and tone for risk management must start at the top. While the overall
responsibility of risk management rests with the BOD, it is the duty of senior management to
transform strategic direction set by board in the shape of policies and procedures and to institute an
effective hierarchy to execute and implement those policies. To ensure that the policies are
consistent with the risk tolerances of shareholders the same should be approved from board.
b) The formulation of policies relating to risk management only would not solve the purpose unless
these are clear and communicated down the line. Senior management has to ensure that these
policies are embedded in the culture of organization. Risk tolerances relating to quantifiable risks
are generally communicated as limits or sub-limits to those who accept risks on behalf of
organization. However not all risks are quantifiable. Qualitative risk measures could be
communicated as guidelines and inferred from management business decisions.
c) To ensure that risk taking remains within limits set by senior management/BOD, any material
exception to the risk management policies and tolerances should be reported to the senior
management/board who in turn must trigger appropriate corrective measures. These exceptions also

serve as an input to judge the appropriateness of systems and procedures relating to risk
management.
d) To keep these policies in line with significant changes in internal and external environment,
BOD is expected to review these policies and make appropriate changes as and when deemed
necessary. While a major change in internal or external factor may require frequent review, in
absence of any uneven circumstances it is expected that BOD re-evaluate these policies every year.
Management of Core Risks in Bank
Risks involved in different operational area are under control of the management. UCBL has taken
appropriate measures to enforce and follow all approved risk manuals/ guidelines covering the
following risk area in order to control and minimize the business as well as financial risks at an
acceptable level.
1. Policy Guidelines on Asset Liability Management
2. Policy Guidelines on Credit Risk Management
3. Policy Guidelines on Foreign Exchange Risk Management
4. Policy Guidelines on Money Laundering Prevention
5. Policy Guidelines on Internal Control and Compliance.
UCBL has formed a Management Committee to review proper implementation and regular
monitoring of core areas of Risk Management.
Credit risk
Credit risk is one of the major risks faced by the Bank. This can be described as potential loss
arising from the failure of a counter party to perform according to contractual arrangement with the
Bank. The failure may arise due to unwillingness of the counter party or decline in economic
condition etc. The risk of loss of principal or loss of a financial reward stemming from a borrowers
failure to repay a loan or otherwise meet a contractual obligation. Credit risk arises whenever a
borrower is expecting to use future cash flows to pay a current debt. Investors are compensated for
assuming credit risk by way of interest payments from the borrower or issuer of a debt obligation to
repay. The higher the perceived credit risk, the higher the rate of interest that banks will demand for
lending their capital. Credit risks are calculated based on the borrowers overall ability. This
calculation includes the borrowers collateral assets, revenue-generating ability etc. Credit risk

emanates from a banks on and off balance sheet dealings with an individual, firm, company,
corporate entity, bank, financial institution or a sovereign. Credit risk may take the following forms:
In the case of direct lending: principal and/or interest may not be repaid;
In the case of guarantees or letters of credit: funds may not be forthcoming from the constituents
upon crystallization of the liability;
In the case of treasury operations: the payment or series of payments due from the counter
parties under the respective contracts may not be forthcoming or cease;
In the case of security trading business: funds/securities settlement may not be effected;
In the case of cross border exposure: the availability and free transfer of foreign currency funds
may either cease or restrictions may be imposed by the sovereign.
Principles to Reduce Credit Risk
UCBL follow some principles to reduce their credit risk. These principles set by board of director
and senior management. Every branch follows these principles in a very proper way. These
principles are:
Repayment Capacity
Credit facilities will be extended to those customers who can make best use of them thus helping
maximize Banks profit as well as economic growth of the country. To ensure achievement of this
objective the Bank bases its lending decision mainly on the borrowers ability to repay.
Compliance
All credit extension must comply with the requirements of Banks Memorandum and Articles of
Association, Banking Companies Act, 1991 as amended from time to time, Bangladesh Banks
instruction circulars, guidelines and other applicable laws, rules and regulations, Banks Credit Risk
Management Policy, Credit Operational Manual and all relevant circulars in force. The officer
originating a credit proposal shall specifically declare that it complies with all above mentioned
rules, regulations, policy etc. Credit officer have to check that all of the information is properly
verified. And mentioned document is in the given to the Bank is correct.
Loan-Deposit Ratio
Loans and advance are financed from customer deposits some time from capital fund of the Bank.
United Commercial Bank Limited financed the loan less than their deposits. Another thing is that
bank does not finance their loan from short term money market or out of temporary fund.

Deviation
Any deviation from the internal policy of the Bank must be justified and well documented.
Specially, all credit assessment form shall invariably include the deviations from the policy, if any.
However, no external regulations shall be compromised.
Return
Credit operation of the Bank should contribute at optimum level within the defined risk limitation.
In other words, credit facilities should be extended in such a manner that each deal becomes a
profitable one so that Bank can achieve growth target and superior return on capital. Besides, credit
extension shall focus on the development and enhancement of customers relationship and shall be
measured on the basis of the total yield for each relationship with a customer.
Credit Quality
Credit facilities shall be allowed in a manner so that credit expansion goes on ensuring optimum
asset quality i.e. Banks standard of excellence shall not be compromised. Credit facilities will be
extended to customers who will complement such standards.
Diversification
The portfolio shall always be well diversified with respect to sector, industry, geographical region,
maturity, size, economic purpose etc. Concentration of credit shall be carefully avoided to minimize
risk.
Proper Staffing
Proper credit assessment is complex and requires high level of numerical as well as analytical
ability of the concerned officer. To ensure effective understanding of the concept and thus to make
the overall credit portfolio of the Bank healthy, proper staffing shall be made through placement of
qualified officials having appropriate background, right aptitude, formal training in credit risk
management, familiarization with Banks credit culture and required experience as well.
Name Lending
No credit facility shall be allowed simply considering the name and fame of the key person or
corporate image of the borrowing company. The Bank shall carefully avoid name lending. Credit
facility shall be allowed absolutely on business consideration after conducting due diligence. In all

cases, viability of business, credit requirement, security offered, cash flow and risk level will be
meticulously analyzed.
Single Customer Exposure Limit
UCBL will always comply with the prevailing banking regulation regarding Single Customer
Exposure Limit set by Bangladesh Bank from time to time. As per prevailing regulation, Bank will
take maximum exposure (outstanding at point of time) on a single customer (Individual, Enterprise,
Company, Corporate, Organization, Group) for the amount not exceeding 35 percent of Banks total
capital subject to condition that the maximum outstanding against funded facilities does not exceed
15 percent of the total capital. However, for single customer of the export sector maximum
exposure limit shall be 50 percent of the total capital subject to the condition. Total funded facility
shall not exceed 15 percent of the total Capital of the Bank at any point of time.
Security
Security taken against facilities shall be properly valued and affected in accordance with the laws of
the country. When any loan taker was unable to repay the loan then can recover the loan by
realizing the security.
Large Loan
Credit facility to a single customer (Individual, Enterprise, Company, Corporate, Organization, and
Group) shall be treated as Large Loan if total outstanding amount against the limit at a particular
point of time equals or exceeds 10 percent of the total capital of the Bank. UCBLs total Large Loan
Portfolio exposure shall not exceed 56 percent of the total outstanding loans and advances at any
point of time.
Credit in different sectors:
UCBL continued its Participation in different credit programmes for financing new industrial
projects, working capital, trade finance, international trade etc. Consequently total credit rose to Tk.
20211 million in 2005 from Tk. 15385 million of 2004. The credit deposit ratio stood at 0.82:1.
Sector wise credits during the year 2005 were as follows:
Sector
Agriculture & fishery

Taka in Million
237

Industry

21473

House building

4077

Transport

658

Whole sale/retail

1866

Import

12611

Export

2264

Others

2101
Total

61692

Above information explain below by graph:

Credit Risk Assessment
Risk assessment or analysis is all about understanding the risk associated with lending money. Until
and unless risks are not assessed and measured it will not be possible to control risks. The primary
factor determining the quality of the Banks credit portfolio is the ability of each borrower to honor,
on timely basis, all credit commitments made to the Bank. This must be accurately determined by
the authorized Credit Officers/ Executives prior to approval. Therefore a thorough credit risk
assessment shall be conducted prior to the sanction of any credit facilities. While assessing a credit
proposal total emphasis shall be given on repayment potential of loans out of funds generated from
borrowers business (cash flow) instead of realization potential of underlying securities. A thorough
credit and risk assessment should be conducted prior to the granting of loans, and at least annually
thereafter for all facilities. The results of this assessment should be presented in a Credit
Application that originates from the relationship manager/account officer (RM), and is approved
by Credit Risk Management (CRM). The RM should be the owner of the customer relationship, and
must be held responsible to ensure the accuracy of the entire credit application submitted for
approval. RMs must be familiar with the banks Lending Guidelines and should conduct due
diligence on new borrowers, principals, and guarantors. It is essential that RMs know their
customers and conduct due diligence on new borrowers, principals, and guarantors to ensure such

parties are in fact who they represent themselves which should be adhered to at all times. Credit
Applications should summaries the all banks should have established Know Your Customer (KYC)
and Money Laundering guidelines which should be adhered to at all times. Credit Applications
should summaries the results of the RMs risk assessment and include, as a minimum, the following
details:
Amount and type of loan(s) proposed
Purpose of Loan(s)
Results of Financial analysis
Loan structure (Tenor, Covenants, Repayment schedule, Interest)
Security Arrangements
In addition, the following risk areas should be addressed:
Borrower Analysis: The majority shareholders, management team and group or affiliate
companies should be assessed. Any issues regarding lack of management depth, complicated
ownership structures or intergroup transactions should be addressed, and risks mitigated. Industry
Analysis. The key risk factors of the borrowers industry should be assessed. Any issues regarding
the borrowers position in the industry, overall industry concerns or competitive forces should be
addressed and the strengths and weaknesses of the borrower relative to its competition should be
identified.
Supplier/Buyer Analysis: Any customer or supplier concentration should be addressed, as these
could have a significant impact on the future viability of the borrower.
Historical Financial Analysis: An analysis of a minimum of 3 years historical financial statements
of the borrower should be presented. Where reliance is placed on a corporate guarantor, guarantor
financial statements should also be analyzed. The analysis should address the quality and
sustainability of earnings, cash flow and the strength of the borrowers balance sheet. Specifically,
cash flow, leverage and profitability must be analyzed.
Projected Financial Performance: Where term facilities are being proposed, a projection of the
borrowers future financial performance should be provided, indicating an analysis of the
sufficiency of cash flow to service debt repayments. Loans should not be granted if projected cash
flow is insufficient to repay debts.

Account Conduct: For existing borrowers, the historic performance in meeting repayment
obligations (trade payments, cheques, interest and principal payments, etc) should be assessed.
Adherence to Lending Guidelines: Credit Applications should clearly state whether or not the
proposed application is in compliance with the banks Lending Guidelines. The Banks Head of
Credit or Managing Director/CEO should approve Credit Applications that do not adhere to the
banks Lending Guidelines.
Mitigating Factors: Mitigating factors for risks identified in the credit assessment should be
identified. Possible risks include, but are not limited to: margin sustainability and/or volatility, high
debt load (leverage/gearing), overstocking or debtor issues; rapid growth, acquisition or expansion;
new business line/product expansion; management changes or succession issues; customer or
supplier concentrations; and lack of transparency or industry issues. The Bank must assess the
critical risks of facilities given / to be given and ways / factors of mitigation of those risks. Some of
the critical factors are:
Volatility
High debt
Overstocking
Rapid growth
Acquisition
Debtors issues
Succession
Loan Structure: The amounts and tenors of financing proposed should be justified based on the
projected repayment ability and loan purpose. Excessive tenor or amount relative to business needs
increases the risk of fund diversion and may adversely impact the borrowers repayment ability.
Security: A current valuation of collateral should be obtained and the quality and priority of
security being proposed should be assessed. Loans should not be granted based solely on security.
Adequacy and the extent of the insurance coverage should be assessed.
Name Lending: Credit proposals should not be unduly influenced by an over reliance on the
sponsoring principals reputation, reported independent means, or their perceived willingness to
inject funds into various business enterprises in case of need. These situations should be

discouraged and treated with great caution. Rather, credit proposals and the granting of loans should
be based on sound fundamentals, supported by a thorough financial and risk analysis.
Credit Assessment System:
Commercial banks and financial institutions intermediate between lenders and borrowers. These
financial intermediaries collect deposit and disburse it as loan and advance to the individual people,
business, commercial, industrial entity. The loan and advance should be given to them who has the
certain and predicted cash flow to repay the credit. If the credit officer fail to analyze the clients
viability of repaying the loan and the projects cash flow possibility of default may arise due to the
information. In sanctioning the loan, is the key to identify the borrowers ability, expertise,
efficiency, and industry analysis, business performance to ensure the recovery of the credit along
with the good supervision, monitoring and the relationship. The purpose of appraisal is to be sure
that the proposed advance will be safe, liquid, and profitable and for acceptable purpose covered by
adequate security.
Allocation of Authority:
To assure proper and orderly conduct of the banking operation, the board of directors empowered
the Managing Directors and executives of the bank to lend up-to certain under certain terms and
conditions at their discretion. Important point is that an officer will not be delegated certain power
on the basis of his position. In other words, an officer does not automatically get lending authority
by virtue of his corporate /functional title. Specified lending authority will be delegated by the
Managing Director to various Executives after taking into consideration his proven credit
judgment, Knowledge, and experience.
Approving Authority:
UCBL credit proposal go through certain steps that are ordered in terms of hierarchy. The board of
directors is the ultimate authority and it delegates different power to the different committees. In
UCBL there are following hierarchies in approving credit facilities.
Branch Credit Committee
The branch credit department is maintained by the branch manager and the other members are
second man or manager operation, credit in-charge, and other members are nominated by the
branch manager and the credit officer who prepares the proposal calls them relation officer. As the

ultimate performance of the branch depends on the loan all of the members are give importance. If
the credit amount wanted is not under the sanctioning authority of the branch committee, it is sent
to the Head Office Credit Committee for approval.
Head Office Credit Department
After receiving the loan proposal from different branches, credit committee (HO) seats after certain
interval for analyzing the proposal. The credit officers review the proposal and look for what other
information is needed to provide with it to present before the executive committee. Here they also
appraise the loan proposal in the same way the branch does. The Head office credit committee is
headed by the Managing Directors of the bank and other members are selected by him. Mainly the
head office credit department is responsible for the following activities:
The committee evaluates the quality of the lending staff posted in the branch and take
appropriate steps to made them efficient and effective.
Ensuring that all the required information and documents are collected and are in order.
Executive Department
If the limit of the loan proposal exceeds the authority delegated to the head office credit committee,
the loan proposal is forwarded to the executive committee for sanction. Approving the credit facility
as delegated by the Board of Directors.

Supervising implementing the directives of the Board of Directors.

Reviewing of each extension of the credit approval by the HO credit committee or Managing
Director.
Communicate the result of all the above function to the Board of Directors.
Board of Directors
If the credit demand of the client crosses the delegated power of the executive committee, the
proposal is sent to the board of directors for approval. The Board of Directors has, in the UCBL

retain the following credit related responsibilities in their hand:

Delegating authority to approve and review credit
The board of directors will approve the credit for which authority is not delegated to anybody.
The board of directors will establish the credit-related, policy and procedures.
Risk Acceptance Criteria
The Management will review and prepare periodically Risk Acceptance Criteria (RAC) duly
approved by the Executive Committee/Board and disseminate to the concerned executives at

operational level. In preparation of RAC the following area would be covered with flexibility for
deviations by the competent authority:
a) Maximum amount in each type of facility line
b) Maximum limit to a single obligor and group
c) Acceptable Leverage, Current ratio, Interest coverage, Operating margin for an industry.
d) Geographical location
e) Security & Support
United Commercial Bank will extend credit only to qualified borrowers where the amount and
intended purpose are clear and legitimate. Credit facilities shall be allowed in a manner that the
expansion in credit does not compromise the asset quality of the Bank.
Risk Grading
Risk grading is a key measurement of a Banks asset quality and as such, it is essential that grading
is a robust process. All facilities should be assigned a risk grade. Where deterioration in risk is
noted, the Risk Grade assigned to a borrower and its facilities should be immediately changed.
Borrower Risk Grades should be clearly stated on Credit Applications.
Significance of Credit Risk Grading
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 post-sanction 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.
Having considered the significance of credit risk grading, it becomes imperative for the banking
system to carefully develop a credit risk grading model which meets the objective outlined above.

Credit Risk Grading

Credit Risk Grading is an important tool for credit risk management as it helps a Bank to
understand various dimensions of risk involved in different credit transactions. 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 pricing for a particular exposure, what should be the extent
of exposure, what should be the appropriate credit facility and the various risk mitigation tools. At
the post-sanction 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. Having considered the
significance and necessity of credit risk grading for a Bank, it becomes imperative to develop a
credit risk grading model which meets the objective outlined above.
The Credit Risk Grading (CRG) is a collective definition based on the pre-specified scale and
reflects the underlying credit-risk for a given exposure.
A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary summary indicator of
risks associated with a credit exposure.
Credit Risk Grading is the basic module for developing a Credit Risk Management system.
Function of Credit Risk Grading
Well-managed credit risk grading systems promote bank safety and soundness by facilitating
informed decision-making. Grading systems measure credit risk and differentiate individual credits
and groups of credits by the risk they pose. This allows bank management and examiners to monitor
changes and trends in risk levels. The process also allows bank management to manage risk to
optimize returns.
Use of Credit Risk Grading
The Credit Risk Grading matrix allows application of uniform standards to credits to ensure a

Grading

Short Name

Number

Superior

SUP

Good

GD

Acceptable

ACCPT

Marginal/Watch list

MG/WL

Special Mention

SM

Sub standard

SS

Doubtful

DF

Bad & Loss

BL

Common standardized approach to assess the quality of an individual obligor and the credit
portfolio as a whole. As evident, the CRG outputs would be relevant for credit selection, wherein
either a borrower or a particular exposure/facility is rated. The other decisions would be related to
pricing (credit spread) and specific features of the credit facility. Risk grading would also be
relevant for surveillance and monitoring, internal MIS and assessing he aggregate risk profile. It is
also relevant for portfolio level analysis.
Number and Short Name of Grades Used in the CRG
The CRG scale consists of eight categories with Short names and Numbers are provided as follows:

UCBL Risk Grading Framework

Effective risk management requires an accurate and forward looking estimation of the probability of
default over the next 12 months. It should be noted that Credit Risk Grading is not a replacement of
comprehensive credit appraisal. Credit Risk Grading is a dynamic process for measuring credit risk
to help the sanctioning authority in taking decisions. All credit proposals whether new or renewal
must be supported by Credit Risk Grading. It will encompass the following two things:
(a) Risk Grading Scorecard and
(b) Risk Grading Sheet.

No proposal will be processed until Risk Grading is completed, submitted for approval and the
result is shown in proposal. It is the responsibility of the originating officer to ensure that analysis
has been carried out with authentic and reliable information.
Risk Grading Scorecard

Sl. No.

Components

Parameters

Weight (%)

1)

Financial Risk

a) Leverage

50

b) Liquidity
c) Profitability
d) Coverage
2)

Business Risk

a) Turnover of Business

18

b) Age of Business
c) Business Outlook
d) Technology/Resource
e) Industry Growth
f) Inventory/Receivables
g) Market Competition
h) Entry/Exit Barriers
3)

Management Risk

a) Business experience

12

b) Expertise of the Management

c) Second line /Succession
d) Team Work
4)

Security Risk

a) Security Coverage(Primary)

10

b) Security Coverage (FSV)

c) Security Coverage(Location)
d) Support/Guarantee
5)

Relationship Risk

a) Account Conduct
b) Utilization of limit
c) Compliance of Covenants/Conditions

10

As per instruction of Bangladesh Bank, Risk Grading Score Card has been developed for all
exposures of UCBL (irrespective of amount) other than those covered under Consumer and Small
Enterprise Financing Prudential Guidelines and also under The Short-Term Agricultural and MicroCredit. The Score Card will be updated if required. The score of the risk grading scorecard will be
weighted one. There are 5 (five) broad head rating components and separate parameters have been set
to measure borrowers position against each component. Score Cards are tools to determine a
borrowers aggregate score based on assessment of quantitative and qualitative factors. Score Cards
shall records the Assigned rating through a combination of the Aggregate Score as well as exercise of
judgment. Judgment plays an important role in the scoring of qualitative factors as well as
recommendations made to change the risk rating in case of disagreement. It should be noted that
Industry volatility is a key driver in the Risk Grading as it has been proved that the probability of
default is higher in industries with higher volatility. However, since there is no acceptable industry
average of key financials and industry volatility factor is absent, the matter has not been included in
the present Risk Grading Score Card. A snapshot of Principal Risk components and corresponding
Parameters and weight assigned to each Component is as follows:
The Relationship Officer of the Branch will prepare Risk Grading Scorecard in case of new proposal,
renewal and/or enhancement of existing facility, any deterioration in the borrowers business position,
any breach of contract by the borrower or as and when he/she feel it necessary. In addition, aggregate
weighted score of the customer is to be affixed in the relevant field of the Credit Assessment Sheet.
A clear definition of the different categories of Credit Risk Grading is given below
After preparation of Risk Grading Scorecard, concerned Relationship Officer will assign risk grade
to the customer within the following definition of Credit Risk Grading:
Superior (SUP)
Credit facilities, which are fully secured i.e. fully cash covered.
Credit facilities fully covered by government guarantee.
Credit facilities fully covered by the guarantee of top tier international bank.
Good (GD)
Strong repayment capacity of the borrower.
The borrower has excellent liquidity and low leverage.

The company demonstrates consistency strong earnings and cash flow.

Borrower has well established, strong market share.
Very good management skill and expertise.
All security documentations are in place.
Credit facilities fully covered by the guarantee of a top tier local bank
Aggregate score of 85 or greater based on Risk Grade Score sheet.

Acceptable (ACCPT)
These borrowers are not strong as good grade borrowers, demonstrate earnings, cash flow and
have a good track record.
Borrowers have adequate liquidity, cash flow and earnings.
Credit
in
this
grade
is
secured
acceptable
collateral
(1st charge
over
inventory/receivables/equipment/property).
Acceptable management.
Acceptable parent/sister company guarantee.
Aggregate score of 75-84 based on Risk Grade Score sheet.
Marginal/Watch list (MG/WL)
This grade warrants greater attention due to conditions affecting the borrower, the industry or
the economic environment.
These borrowers have an above average risk due to strained liquidity, higher than normal
leverage, thin cash flow and/ or inconsistent earnings.
Weaker business credit and early warning signals of emerging business credit detected.
The borrower incurs a loss.
Loan repayment routinely falls past due.
Account conduct is poor, or other untoward factors are present.
Credit requires attention.
Aggregate score of 65-74 based on Risk Grade Score sheet.
Special Mentioned (SM)
This grade has potential weakness that deserves managements close attention. If left
uncorrected, this weakness may result in a deterioration of the repayment prospects of the
borrower.
Severe management problems exist.
Facilities are downgraded to this grade if sustained deterioration in financial condition is noted
(consecutive losses, negative net worth, excessive leverage).
Bangladesh Bank criteria for Special Mentioned (SM) shall apply.
Aggregate score of 55-64 based on Risk Grade Score sheet.

Sub Standard (SS)

Financial condition is weak and capacity or inclination to repay is in doubt.
These weaknesses jeopardize the full settlement of loans.
Bangladesh Bank criteria for Sub Standard (SS) shall apply.
Aggregate score of 45-54 based on Risk Grade Score sheet.
Doubtful (DF)
Full repayment of principal and interest is unlikely and the possibility of loss is extremely high.
However, due to specifically identifiable pending factors, such as litigation, liquidation
procedures or capital injection, the asset yet is not classified as Bad & Loss.
Bangladesh Bank criteria for Doubtful Credit shall apply.
Aggregate score of 35-44 based on Risk Grade Score sheet
Bad and Loss (BL)
Credit of this grade has long outstanding with no progress in obtaining repayment or on the
verge of wind up/ liquidation.
Prospects of recovery are poor and legal options have been pursued.
Proceeds expected from the liquidation or realization of security may be awaited. The
continuance of the loan as a bankable asset is not warranted, and the anticipated loss should
have been provided for.
This classification reflects that it is not practical or desirable to defer writing off this basically
valueless asset even though partial recovery may be affected in the future. Bangladesh Bank
guidelines for timely write off of bad loans must be adhered to. Legal procedures/ suit initiated.
Bangladesh Bank criteria for bad and loss (BL) shall apply.
Aggregate score of less than 35 based on Risk Grade Score sheet.
Credit Risk Grading Model:
United Commercial Bank Limited
Credit Risk Grading Model
Score Summary
Reference No.:

Name of the Borrower

Key Person
Group Name (if any)
Branch:
Industry

Aggregate Score:

Sector
Date of Financials
Originated by (RO/SRO)

Risk Grading:

Completed by (RM/SRM)
Approved by (CO/SCO)
.

Numeric Grade

Grade

Short

Score

Superior

SUP

Fully

cash

covered,
secured

by

Government/In
ternational
Bank
Guarantee
2

Good

GD

85+

Acceptable

ACCPT

75-84

Marginal/Watchlist

MG/WL

65-74

Special Mention

SM

55-64

Substandard

SS

45-54

Doubtful

DF

35-44

Bad/Loss

BL

<35

Score

Actual

Score Calculation Sheet

Criteria

Weight

Parameter

Parameter
A. Financial Risk

50%

A-1 Leverage

10%

A-1.1 Debt-Equity (x) Times

5%

Total Liabilities to Tangible Net

worth

< 0.25 x

5.00

0.26 to 0.35 x

4.50

0.36 to 0.50 x

4.25

0.51 to 0.75 x

4.00

0.76 to 1.25 x

3.50

1.26 to 2.00 x

3.25

2.01 to 2.50 x

3.00

3.81

A-1.2 Debt-Total Asset (x)-

5%

2.51 to 2.75 x

2.50

> 2.75

0.00

< 0.25

5.00

0.26 to 0.35 x

4.50

0.36 to 0.50 x

4.25

0.51 to 0.75 x

4.00

0.76 to 1.25 x

3.50

1.26 to 2.00 x

3.25

2.01 to 2.50 x

3.00

2.51 to 2.75 x

2.50

> 2.75

0.00

> 2.74

5.00

2.50 to 2.74 x

4.50

2.00 to 2.49 x

4.25

1.50 to 1.99 x

4.00

1.10 to 1.49 x

3.50

0.90 to 1.09 x

3.25

0.80 to 0.89 x

3.00

0.70 to 0.79 x

2.50

0.79

Times
Total Liability to Total Assets

A-2 Liquidity

10%

A-2.1Current Ratio (x) Times

5%

Current
Liabilities

Assets

to

Current

0.66

A-2.2 Quick Ratio (x) Times

Quick

Assets

to

5%

Current

Liabilities

A-3 Profitability

20%

A-3.1 Operating Profit Margin

5%

< 0.70

0.00

> 2.00

5.00

1.75 to 2.00 x

4.50

1.50 to 1.74 x

4.25

1.25 to 1.49 x

4.00

1.00 to 1.24 x

3.50

0.75 to 0.99 x

3.25

0.50 to 0.74 x

3.00

0.25 to 0.49 x

2.00

Less than 0.25

0.00

> 25%

5.00

23% to 25%

4.50

20% to 22%

4.00

17% to 19%

3.50

14% to 16%

3.25

11% to 13%

3.00

8% to 10%

2.50

< 8%

0.00

Parameter

Score

0.54

9.02%

(%)
(Operating Profit/Sales) X 100

Criteria

Weight

Actual

Parameter
A-3.2 Net Profit Margin (%)

5%

(Net Profit/Sales) X 100

A-3.3 Retrun on Asset

5%

(Net Profit/Total Asset) X 100

A-3.4 Return on Equity

(Net Profit/Total Equity) X 100

5%

> 15.00%

5.00

13% to 15%

4.50

11% to 12%

4.00

9% to 10%

3.50

7% to 8%

3.25

5% to 6%

3.00

3% to 4%

2.50

< 3%

0.00

> 30%

5.00

26% to 30%

4.50

22% to 25%

4.00

18% to 21%

3.50

14% to 17%

3.25

8% to 13%

3.00

5% to 7%

2.50

< 5%

0.00

> 15.00%

5.00

13% to 15%

4.50

11% to 12%

4.00

2.99%

1.77%

8.52%

A-4 Coverage

10%

A-4.1 Interest Coverage ()

5%

9% to 10%

3.50

7% to 8%

3.25

5% to 6%

3.00

2% to 4%

2.00

< 2%

0.00

> 2.00

5.00

1.51 to 2.00

4.00

1.25 to 1.50

3.00

1.00 to 1.24

2.00

< 1.00

0.00

> 2.00

5.00

1.51 to 2.00

4.00

1.25 to 1.50

3.00

1.00 to 1.24

2.00

< 1.00

0.00

1.50

Times

Earning before interest & tax

(EBIT)
Interest on debt

A-4.2 Debt Service Coverage

5%

EBITDA/(Total
Interest+CMLTD)

Total Score- Financial Risk

B. Business/ Industry Risk

50.00

18%

1.41

B-1 Size of Business (in BDT

4%

> 60.00

4.00

30.00 59.99

3.50

10.00 29.99

3.00

5.00 9.99

2.00

2.50 4.99

1.00

< 2.50

0.00

> 10 Years

3.00

6 10 Years

2.00

2 5 Years

1.00

< 2 Years

0.00

Favorable

2.00

Stable

1.50

Slightly Uncertain

1.00

Cause for Concern

0.00

Parameter

Score

12.53

crore)
Size of the borrowers business
measured by
the most recent years total
sales.

Preferably

audited

numbers.

3%

B-2 Age of Business

Number of years the borrower is
engaged in the primary line of

business

2%

B-3 Business Outlook

Critical assessment of medium
term

prospects

of

industry,

Favorable

market share and economic

factors.
Criteria

Weight

Actual
Parameter

B-4 Raw Material Availability

2%

Locally available

2.00

Locally
available

Partially
dependent

import

1.00

B-5 Industry Growth

B-6 Market Competition

3%

2%

Fully import dependent

0.50

Scarce

0.00

Strong (10%+)

3.00

Good (>5% 10%)

2.00

Moderate (1%-5%)

1.00

No Growth (<1%)

0.00

Dominant Player

2.00

Strong (10%+)

Dominant
Player

Consider market share, demand

supply gap etc.
B-7 Entry/Exit Barrier

2%

(Technology, capital, regulation

etc)

Moderately Competitive

1.00

Highly Competitive

0.00

Difficult

2.00

Average

1.00

Easy

0.00

Total Score- Business Risk

Difficult

18.00

C. Management Risk

12%

C-1 Experience

Total length of experience of

the senior management in the

More than 10 years

5.00

610 years

3.00

15 years

2.00

No experience

0.00

Very Good

2.00

15 years

related line of business.

C-2 Track record

Very Good

Reputation, commitment, track

record of owners in business.

C-3 Second Line/Succession

Moderate

1.00

Poor

0.50

Marginal

0.00

Ready Succession

3.00

Ready
Succession

Succession within 1-2

2.00

years
Succession within 2-3

1.00

years

C-4 Team Work

Total

Score-

Succession in question

0.00

Very Good

2.00

Moderate

1.00

Poor

0.50

Regular Conflict

0.00

Management

Very Good

12.00

Risk

Criteria

Weight

Parameter

Score

Actual
Parameter

D. Security Risk

10%

D-1

Security

Coverage

4%

(Primary)

Fully

covered

by

Fully covered

underlying

by underlying

assets/substantially cash

assets/substanti

covered

ally

cash

covered
Registered

Hypothecation
(1stCharge/Pari

passu

Charge)
2nd charge/Inferior

charge
Simple hypothecation /

Negative lien on assets

No security
D-2

Collateral

(Property Location)

Coverage

4%

R/M

on

0
Municipal

corporation/Prime Area
property
R/M

on

Pourashava/Semi-Urban
area property
E/M or No property but

other Plant & Machinery

as collateral
Negative
collateral

lien

on

No collateral

D-3 Support (Guarantee)

2%

No collateral

Personal Guarantee with

Personal

high net worth or Strong

Guarantee with

Corporate Guarantee

high net worth

or

Strong

Corporate
Guarantee
Personal Guarantees or
Corporate

Guarantee

with average financial

strength
No support/guarantee

Total Score- Security Risk

E. Relationship Risk

10

10%

10%
E-1 Account Conduct

5%

More

than

years

5.00

More than 3

Accounts with faultless

years Accounts

record

with
record

Less than 3 years Accounts with faultless record

4.00
Accounts

having

satisfactory
with
payments.

some

dealings
late

2.00

faultless

Frequent Past dues &

Irregular

dealings

0.00

in

account
E-2 Utilization of Limit

2%

(actual/projection)-Consider
both revolving & non-revolving

More than 80%

2.00

61% 80%

1.50

40% 60%

1.00

Less than 40%

0.00

Parameter

Score

80%+

limits.

Criteria

Weight

Actual
Parameter

E-3 Compliance of Covenants

2%

Full Compliance

2.00

Full
Compliance

E-4 Personal Deposits

1%

Some Non-Compliance

1.00

No Compliance

0.00

Personal accounts of the

1.00

Personal

key business Sponsors/

accounts of the

Principals

key

are

business

maintained in the bank,

Sponsors/

with significant deposits

Principals

are

maintained

in

the bank, with

significant
deposits
No
relationship

depository

0.00

Total

Score-

Relationship

10.00

Risk
Grand Total All Risk

100.00

Note: All calculations should be based on annual financial statements of the borrower (audited preferred).

CHAPTER # 4
Findings of the Study
Findings of Study
Based on the previous chapter analysis segments and the brief description of credit risk
management system of UCBL following findings are originated:
Bank income mostly depended on the activities of foreign exchange division and credit division.
For this UCBL handle both of department very strongly.
The rate of interest or product cost set up by the head office. Interest rate has to be within a limit
for every bank which is notified by the Bangladesh Bank.
Sometime risk manager cannot find necessary documents and information for credit risk
assessment. Thats why risk managers use their assumption on risk management. Data
collection checklists are not duly filled by the Relationship Managers.
Credit quality depends on close follow-up and monitoring of loans. The follow-up and
monitoring of loans is not strong here.
An insurance coverage should obtain for both funded and non funded credit facility. But reality
is very few borrowers confirm their insurance coverage. So Banks has no security in case of any
uncertainty like fire, strike, riot etc.
The Banks in Bangladesh has faces a lot of illegal pressure from Political persons, Directors and
Management of the Bank for approval of loan. in that cases Risk managers are bound to approve
the loan without any assessment and rationality.
The risk managers have often insufficient time for credit risk management. Huge workload and
hurries for loan approval prevent them from through assessment. So, it is very troublesome to
manage the risk in a prudent manner for the risk managers.

Credit allocation is set-up by the Head Office Credit committee. The Head of the Branch can
authorize credit up to Tk.20 Lac.
Some big credit facilities recommended by the Head Office credit Committee which is
processed with fast monitoring and screening.
Quality development may help the bank to hold on the old customers and attract potential
customers.

CHAPTER # 5
Recommendation
Recommendation:
The Credit Policy of the Bank is very complicated. Bank need to make it easy and
understandable. So that all credit officer can understand the instruction and follow this
instruction correctly at the time of credit risk management..
To assessment the credit proposal correctly management should recruit sufficient risk manager
in credit department.

The management must be careful to sanctioning that loan which is recommended by powerful
bodies. Because these loans sometimes become more risky.
To reduce the credit risk the original documents of the client must be verified thoroughly. If
manager sanction the loan without the original documents, that may involves more risk.
To reduce the default risk the repayment capacity of loan of the client should be properly
investigated. Otherwise, here have the chance to default.
The process of sanctioning a loan is very time consuming. Management should give more effort
to reduce the time of processing a loan.

The main portion of profit comes from the foreign exchange and credit division, but there are
not enough employees on these departments to serve the clients. So number of employees
should be increased in these departments.
Management should arrange training in regular basis to develop their employee skill.
Bank need to develop an industry wise integrated Credit Risk Grading system. So that risk can
measure for different industry of business in a correct way.
Bank has a few numbers of tools and techniques to assessment the credit risk. Bank need to
introduce new and advance risk assessment tools and techniques.

CHAPTER # 6
Conclusion
Conclusion:
As an organization the United Commercial Bank Limited has earned the reputation of top listed
banks operating in Bangladesh. The organization is much more structured compared to any other
listed bank operating in Bangladesh. It is relentless in pursuit of business innovation and
improvement. It has a reputation as a leader in financing manufacturing sector. With a bulk of
qualified and experienced human resource, United Commercial Bank Limited can exploit any
opportunity in the banking sector. It is pioneer in introducing many new products and services in
the banking sector of the country. Moreover, in the retail-banking sector, it is unmatched with any
other listed banks because of its wide spread branch networking thought the country. United
Commercial Bank Ltd. explores their business day by day. In 2009 to may 2010 it introduce 17 new
branches and many of branches is going to open.
UCBL does very good in credit risk management. Bangladesh Bank has introduce a good numbers
of circulars, guidelines, tools and techniques for managing the credit risk in a prudent manner as
well as to minimize the rate of default/ non-performing loans at a standard level. UCBL always
follow these circulars, guidelines and techniques and they have also use some internal policy,

guidelines, tools and techniques for better risk management. Despite a prudent credit approval
process, loans may still become troubled.
The success of credit risk management has resulted from dedication, commitment, dynamic
leadership, effective strategy, planning and decision making, motivating and controlling of banks
management. In formulating a credit judgment and making quality Credit Decisions, the lending
officer must be equipped with all information needed to evaluate a borrowers character,
management competence, capacity, ability to provide collaterals and external conditions which may
affect his ability in meeting financial obligations. So, it is obvious that prudent management of
these risks is fundamental to the sustainability of a bank.
Bibliography
Annual Report 2009.
Credit Risk Grading Manual; Published on March, 2008.
www.ucbl.com
en.wikipedia.org/wiki/Bank
Foundations of financial management by Stanley B. Block & Geoffrey A. Hirt.
UCBLs retail banking service prospectus.
www.investopedia.com
www.bis.org/publ/bcbs54.htm
Articles published on Credit Department information.
Credit Risk Management: How to Avoid Lending Disasters and Maximize Earnings By Joetta
Colquitt.
http://www.bangladeshinfo.com/business/banking01.php
Credit Risk Measurement: New approaches to Value at Risk and other Paradigms by Anthony
Saunde