"Credit Risk Management" A Comparative Analysis On Three Selected Banks - (National Bank, Sonali Bank & Islamic Bank Bangladesh Limited)

Credit Risk Management
A comparative analysis on three selected Banks(National Bank, Sonali Bank & Islamic bank
Bangladesh Limited)
By
Ashis Kumar Barman

ID# 2013110001094
An internship Report Presented in Partial Fulfillment

Of The Requirements for the Masters of Business Administration
Southeast University
07, January 2015

A comparative analysis on three selected Banks(National Bank, Sonali Bank & Islamic bank
Bangladesh Limited)
By
Ashis Kumar Barman

ID# 2013110001094
Has been approved

January 2015
__________________
Sadia Noor Khan
Lecturer
School of Business
Letter of Transmittal
7th January, 2015
Sadia Noor Khan
Lecturer,
School of Business
Subject: Submission of the internship working report.
Dear Madam,
I am glad to submit my report on the topic as you have assigned me to prepare an internship
report on retail banking a comparative analysis on three selected banks as a partial requirement.
Now I am looking forward for your kind appraisal regarding internship report.
You would be glad to hear that I have given my best effort to prepare the report with relevant
information that I have collected from National Bank Limited, Gulshan Branch and from other
relevant sources during my internship program. I have the great pleasure to have the opportunity
to study on Credit Risk Management of National Bank Limited. It is meaningful to mention
that the knowledge I have gathered during the internship period, it will help me in practical field
of professions.
In spite of various inadequacies I have tried to cover all the relevant affairs. It is quite worthy to
mention that without your kind hearted guidance and cooperation it would not be possible for me
to authenticate this paper. I will be pleased and grateful to you to answer any sort of quarry you
think necessary.
Sincerely yours,
_________________
Ashis Kumar Barman
ID-2013110001094
ii
Certification
This is to certify that Ashis Kumar Barman ID: 2013110001094, student of the
MBA program of Southeast University Bangladesh has done a project work titled
Credit Risk Management- A comparative analysis on three selected Banks- (National
Bank, Sonali Bank & Islamic bank Bangladesh Limited) under my supervision and
guidance. The student is found to be intelligent, sincere and hardworking.
Name:
Name:
Member: 1
Member: 2
Supervisor
iii
Acknowledgment
A warm felicitation goes for me to acknowledge the people, who hold the desirability for
encouraging, praising, assisting as well as believing me on the tasks of marketing activities what
I have worked through my internship period. First of all I would like to take the opportunity to
thank, Sadia Noor Khan Lecturer, Southeast University & my internship supervisor for providing
me guidelines, help in assisting my report. She was constantly supporting me with his inspiring
personality. I will always be always thankful for his extraordinary reinforcement. I am not have
been successful in complete the report without the active support and cooperation from many
persons in the National Bank Limited, Gulshan Branch. I have tried my best and also worked
hard for preparing this report. I also want to express my strong gratitude to MR. SOFIQUL
ISLAM (PO) for his enthusiastic cooperation and supervision during the preparation of the
report. I am grateful to him for his suggestions and all instance observations to prepare the
report. I would also like to thank to the officials of National Bank Limited, Gulshan Branch
especially MR.SYED SHAHINUR ISLAM, (AVP), MR RABIUL ISLAM, (AVP),
MR.
MD.JAHANGIR HOSSAIN (AVP), MS. MILIA HAQUE (PO), MS. SHARMINA IASMIN
(PO), MS.SADIA AFRIN (PO), MR. MD. SHAH ALAM (SEO), MR. MD. ZASHIM UDDIN
(SEO), MS SHAMIMA SULTANA (SEO), MR. NAHIAN KHAN (E.O), MRS. FOUZIA
AFRIN KHAN (E.O), MR.MOHAMMAD SHAHJALAL (E.O), MR FAISAL JUBAIR
JO(GEN) and a very special thanks goes to MR. MD SHEL FAISAL, SVP of National Bank
Limited, Gulshan Branch for providing all the support in the organization. Special thanks go to
the respondents, who spared their time generously, and took the trouble of answering my queries
and helped me to complete my study.
iv
Executive Summary
Banks and other financial institutions play a vital role in forecasting the economic and social
condition of a country. Banks in Bangladesh now constitutes the core of the countrys organized
financial system. They mobilize the savings of people and channel the resources toward
different sectors of the economy. Customer satisfaction is one of the most vital reflections of
the progression toward advancement and development for any service institution. As service
providing organization, providing best service is one of the mottos of the commercial banks.
With the customers perception as well as satisfaction, the mirror image of service quality in
private commercial banks can be obtained. The achievement of the customers satisfaction is
the key feedback to improve service quality. Financial conditions have analyzed more to
determine the organizational position. This study is mainly focused on credit risk management
of National Bank Ltd. Like the other private commercial banks, NBL also competing with
others to flourish in this country. Providing loan service is only means to flourish. Therefore,
measuring the level of customer satisfaction is very crucial. Measuring customer satisfaction is
not any single task. Customers expectations are also required to measure the level of customer
satisfaction. Therefore, total required information has collected through the questionnaire. After
essential calculations, it has found that the customers of National Bank Ltd. are overall satisfied
regarding the provided services of the bank. The mean value customers perception is 4.03 and
the expected mean value is4.88. As the perceived mean value is over 4, the level of customer
satisfaction of National Bank Ltd. is Good. In addition, the expected mean value demonstrate
that, the customers are not expecting just about World Class services. As the expectation
level of human being has no bounds, there are difference between the expectation and
perception. There is no predicament in the world that does not have any remedy. Customers
also provide many suggestions to improve the level of provided services of NBL. Those
suggestions are incorporate in this report after some modification by consulting some related
research work. By implementing these recommendation levels of satisfaction of NBL can be
improved.
Table of content
i.
ii.
iii.
iv.
v.
Letter of Transmittal
Bank Certificate
Supervisor Certificate
Acknowledgement
Executive Summery
Chapter
No.
Title
Page No.
Introduction
1.1
History of the NBL
2-4
1.2
Objectives of the NBL
1.3
Functions of the NBL
4-5
1.4
Roles of the NBL in the Economic

Development in Bangladesh
6-7
1.5
Organogram of the NBL
8-9
1.6
Present Programs of NBL
10-17
1.7
Rationale of the Report
18
1.8
Objectives of the Study
18
1.9
Methodology of the Study
19
1.10
Data analysis & presentation
19
1.11
Limitation of the Study
20
Findings & Analysis
21
2.1
Definitions of risk
22
2.2
Definition of Credit risk
22-23
2.3
Credit Risk and Bangladesh Bank
23-26
Chapter
One
Chapter
Two
2.4
Process of Credit Risk
26-30
2.5
Types of credit risk
30
2.6
Organizational Structure
30-32
2.7
Credit risk planning
32
2.8
Tools of credit risk
32-35
2.9
Essential Components of a Sound Credit

Policy
35-36
2.10
Focus on Industry and Business Segment
36
2.11
Lending Guidelines
36
2.12
Indebtedness, Rural and Urban
37
2.13
Leading Guidelines of NBL
38-41
2.14
Credit Principles of NBL
41
2.15
Credit Evaluation Process of NBL
42-43
2.16
Performance Evaluation
44
2.17
Financial Performance
45-50
2.18
Analyzing of NBL Performance with
51-56
financial Ratios
2.19
Key Findings
56-57
2.20
Major Learning Points
57
Conclusion & Suggestions
58
3.1
Conclusion
59
3.2
Recommendation
61
3.3
Bibliography
62
ChapterThree
Chapter-1
Introduction
1|Page
1.1
History of the NBL:
National Bank Limited (NBL) is a Public Company Limited by shares in the Country, with
commendable operating performance. Directed by the mission to provide prompt and efficient
services to clients, NBL provides a wide range of commercial banking services also. Bank has
achieved success among its peer group within a short span of time with its professional and
dedicated team of management having long experience, commendable knowledge and expertise
in convention with modern banking. With all its resources, the management of the Bank firmly
believes that the Bank would be able to encounter problems that may arise both at micro and
macroeconomic levels. NBL incorporated in Bangladesh under company Act 1994. It is also
guided by The Bank Company Act 1991 (and its subsequent amendments) and Bangladesh Bank
Ordinance 1972, so as to enable the company for doing banking business. National Bank Limited
has its prosperous past, glorious present, prospective future and under processing projects and
activities. Established as the first private sector Bank fully owned by Bangladeshi entrepreneurs,
NBL has been flourishing as the largest private sector Bank with the passage of time after facing
many stress and strain. The member of the board of directors is creative businessman and leading
industrialist of the country. To keep pace with time and in harmony with national and
international economic activities and for rendering all modern services, NBL, as a financial
institution automated all its branches with computer network in accordance with the competitive
commercial demand of time. Moreover, considering its forth-coming future the infrastructure of
the Bank has been rearranging. The expectation of all class businessman, entrepreneurs and
general public is much more to NBL. National Bank Limited was born as the first hundred
percent Bangladeshi owned Bank in the private sector. From the very inception it is the firm
determination of National Bank Limited to play a vital role in the national economy. They are
determined to bring back the long forgotten taste of banking services and flavors. They want to
serve each one promptly and with a sense of dedication and dignity. The emergence of National
Bank Limited in the private sector is an important event in the Banking arena of Bangladesh.
When the nation was in the grip of severe recession, Govt. took the farsighted decision to allow
in the private sector to revive the economy of the country. Several dynamic entrepreneurs came
forward for establishing a bank with a motto to revitalize the economy of the country. The then
2|Page
President of the Peoples Republic of Bangladesh Justice Ahsanuddin Chowdhury inaugurated

the bank formally on March 28, 1983 but the first branch at 48, Dilkusha Commercial Area,
Dhaka started commercial operation on March 23, 1983. The 2nd Branch was opened on 11th
May 1983 at Khatungonj, Chittagong. At present, NBL has been carrying on business through its
101 branches spread all over the country. Besides, the Bank has drawing arrangement with 415
correspondents in 75 countries of the world as well as with 32 overseas Exchange Companies.
NBL was the first domestic bank to establish agency arrangement with the world famous
Western Union in order to facilitate quick and safe remittance of the valuable foreign exchanges
earned by the expatriate Bangladeshi nationals. NBL was also the first among domestic banks to
introduce international Master Card in Bangladesh. In the meantime, NBL has also introduced
the Visa Card and Power Card. The Bank has in its use the latest information technology services
of SWIFT and REUTERS.NBL has been continuing its small credit programmed for
disbursement of collateral free agricultural loans among the poor farmers of Barindra area in
Rajshahi district for improving their lot. Alongside banking activities, NBL is actively involved
in sports and games as well as in various Socio-Cultural activities. Up to September 2006, the
total number of workforce of NBL stood at 2239, which include 1689 officers and executives
and 550 staff. The year 2006 marked the addition of yet another golden stair in the chronicle of
NBLs success story. Compared to 2005, Foreign exchange business of the Bank increased by
34.40% to Tk. 5186 crore, of which export, import and remittance business increased by 34.16%,
31.27% and 56.50% respectively. Total assets of the Bank stood at Tk. 4483 core on 30.09.2006.
NBL invested 25% equity in Gulf Overseas Exchange Company LLC, a joint venture Exchange
Company in Oman, operating since November, 1985 under the management of our Bank. The
Bank received Riyal Omani 11875 equivalent to Tk.2.10 million as dividend for the year 2013.
Now NBL is on line to establish trade and communication with the Prime International banking
companies of the world. As a result NBL will be able to build a strong root in international
banking horizon. Bank has been drawing arrangement with well conversant money transfer
service agency Western Union. It has a full time arrangement for speedy transfer of money all
over the world. Banking is not only a profit-oriented commercial institution but it has a public
base and social commitment. Admitting this true NBL is going on with its diversified banking
activities. NBL introduced National Bank Monthly Savings Scheme (NMS), Special Deposit
3|Page
Scheme, Consumers Credit Scheme and NBL Housing Loan, NBL Small Business Loan, Small
House Loan Scheme, Festival Small Business loan etc. to combine the people of lower and
middle-income group.
1.2
Objectives of the NBL:
NBL is to become A Bank for Performance with Potential by transforming the way they do
business and developing a truly unique financial institution that delivers superior growth and
financial performance and be the most recognizable brand in the financial service in Bangladesh.
NBL dreams to become the bank of choice of the general public, which includes both the
consumer and the corporate clients. They want to build such an image that whenever people will
think of a bank, they will think of NBL. In order to build up such an image, NBL has taken up
some attractive promotional campaign. They are targeting the young generation in particular
because research has shown that people usually have a soft corner for the first bank of their lives
and tend to stick to it if they are satisfied with its services. With this plan in mind, NBL is trying
to project itself as a vibrant and dynamic organization by introducing state-of-the-art banking
technology that will make banking easier and hassle-free to the young generation.
1.3
Functions of the NBL:
The main task of the NBL is to accept deposited from various customers through various
accounts.
Provides loans on easy terms and condition
It creates loan deposit
The bank invest it fund into profitable sector
It transfers money by Demand Draft (DD), Pay Order (PO) and Telegraphic Transfer etc
The bank is doing the transaction of bill of exchange, Cheque etc. on behalf of the clients
NBL assists in the Foreign Exchange by issuing Letter of Credit
The bank insures the securities of valuable documents of clients
It brings the increasing power of dimension of transaction
4|Page
Above all, NBL helps the businessmen financially by giving discount facility for bill of
exchange and by providing the facility of Letter of Guarantee
Outstanding customer service
Effective and efficient operations
Strong capital liquidity
Expense discipline
NBL Conservative lending policy
Strict also operates according to certain key Business Values
The highest personal standard of integrity at all levels
Commitment to truth and fair dealing
Openly esteemed commitment to quality and competence
A minimum of bureaucracy
Fast decisions and implementation
Putting the Groups interests ahead of the individuals
The appropriate delegation of authority with accountability
Fair and objective employer
Merit approach to recruitment/selection/promotion process
The promotion of good environmental practice and sustainable development, and
commitment to the welfare and development of each local community
A commitment for complying with the spirit and letter of all laws and regulations
5|Page
1.4
Roles of the NBL in the Economic Development in Bangladesh:
The growth of world economy, according to World Banks study on Global Economic Prospects
2005, has been broadening over the past few years. Real GDP growth of the world is expected to
be 3.20% in the year 2005 which is remarkably higher than that of the previous years due to
improvements in macroeconomic fundamentals, enhanced structural flexibility, a stronger
economic climate and progress toward reducing trade barriers. However, International Monetary
Fund (IMF) had forecasted 4.30% growth for 2005. The economic growth had gained
momentum and now well entrenched in most of Asia, which represents a solid starting point for
long term growth and in all possibilities would increase the likelihood of the developing
countries to meet their Millennium Development Goals. If such favorable environment sustains
for long, the developing countries would surely be able to achieve rapid and sustained per capita
growth at a level of 3.50% per annum between 2006 and 2015, which would enable them to
halve the incidence of extreme poverty by 2015. Global growth rate slowed down to some extent
in the year 2005 and is expected to slide further to 3.20% in the year 2006, mainly due to
increase in oil and commodities price. According to Global Economic Prospects 2005, high oil
prices have dramatically worsened the poverty of the poorest oil importing countries. These
spiraling fuel prices have acted as an impediment to recovery of the worlds economies of some
countries which did not fully participate in the global expansion. On the other hand, the high fuel
prices acted as a moderating influence, where aggregate demands were already buoyant. This is
not surprising because services are assumed to be income elastic and a relative rise in the share
consumption is understood. This effect is reinforced by the relatively high rate of productivity
growth in manufacturing. In high growth regions in East Asia and South Asia, where GDP is
forecasted to be 5.40% and 6.30% respectively for the year 2005, exists two contrasting scenario.
In South Asia the employment in agriculture shifted mostly to services, with a small increase in
industrial output. In East Asia, employment in agriculture shifted more evenly between industry
and services. However, long-term growth in South Asia is forecasted to average about 5.50%
during 2006-2015 as the contribution to growth from the private sector continued to rise. The
Government continued to take necessary measures with a view to recovering the losses caused
by the devastating floods and other natural calamities of the previous year. Efforts were made to
6|Page
boost export and loans were extended for rapid and sustainable development and expansion of
the Small & Medium Enterprise (SME). In the year 2005, the country again passed through a
year of socio-political chaos. Series of terrorist activities across the country stifled investors
confidence and curtailed the economic activities to some extent. Even with all these adversities
brewing around, the country successfully combated the aftermath of post MFA era. GDP growth
is likely to exceed 5.40% in FY 2005. With the exception of agriculture, the growth in
production was broad based covering wide range of activities in non-crop agriculture, industries
and services. Robust annual growth of manufacturing sector, estimated at 8.50% by the Bureau
of Statistics, is partly the result of strong growth in the fourth quarter. It is reflected in the
movement of quantum index of the manufacturing industries, covering mainly, medium and
large-scale industries, which witnessed about 8.80% growth in the fourth quarter of FY 2005.
Consumer Price Index (CPI) inflation, according to the study of Economic Trend by Bangladesh
Bank, exhibited a moderate trend during the first half of the year and showed an upward trend in
the second half of FY 2005. The point-to-point inflation during the year increased from 5.50% in
December 2004 to 6.70% in March 2005 and further to 7.40% in June-2005. The growth in the
operating profit of the private banking sector in the year 2005 registered at 29% over 2004. On
the other hand, the macroeconomic challenges, faced by the policymakers, were to facilitate
orderly adjustments of exchange rate and interest rate in order to maintain macroeconomic
balance in the face of external sector adversities of continuing escalation in oil price and post
MFA era uncertainties. The ethos of NBL for pursuing its activities in social arena has got
further momentum with enthusiasm and support. National Bank Foundation was established by
the board of directors of National Bank in 1989. With the financial help of the foundation,
National Bank Public School and College was established at Mogbazar, Dhaka. After
establishment, NBL is continuously facilitating with sports and cultural activities. As a
continuation of it, NBL has patronized the National Bank Volleyball league arranged by
Bangladesh Volleyball federation. NBL never hesitate to extent the hand of help in case of
natural calamities and national cultural festival.
7|Page
1.5
Organogram of the NBL:
Directors (Owners)
Managing Director (MD)
Additional Managing Director (AMD)
Deputy Managing Director (DMD)
Executive Vice President (EVP)
Senior Vice President (SVP)
Vice President (VP)
8|Page
Assistant Vice President (AVP)
Senior Principal Officer (SPO)
Principal Officer (PO)
Officer
Assistant officer
Junior Officer
Probationary Officer
Source: Office document
9|Page
1.6
Present Programs of NBL:
Efforts for expansion of NBL activities at home and abroad by adding new dimensions to our
banking services are being continued unabated. Alongside, NBL are also putting highest priority
in ensuring transparency, account ability, improved clientele service as well as to their
commitment to serve the society through which they want to get closer and closer to the people
of all strata. Winning an everlasting seat in the hearts of the people as a caring companion in
uplifting the national economic standard through continuous up gradation and diversification of
our clientele services in line with national and international requirements is the desired goal we
want to reach. At present, NBL has been carrying on business through its 106 branches spread all
over the country. Besides, the Bank has drawn arrangement with 415 correspondents in 75
countries of the world as well as with 32 overseas Exchange Companies. NBL was the first
domestic bank to establish agency arrangement with the world famous Western Union in order to
facilitate quick and safe remittance of the valuable foreign exchanges earned by the expatriate
Bangladeshi nationals. NBL was also the first among domestic banks to introduce international
Master Card in Bangladesh. In the meantime, NBL has also introduced the Visa Card and Power
Card. The Bank has in its use the latest information technology services of SWIFT and
REUTERS. NBL has been continuing its small credit programmed for disbursement of collateral
free agricultural loans among the poor farmers of Barindra area in Rajshahi district for improving
their lot. Alongside banking activities, NBL is actively involved in sports and games as well as in
various Socio-Cultural activities. Up to September 2006, the total number of workforce of NBL
stood at 2239, which include 1689 officers and executives and 550 staff.
10 | P a g e
Product Scheme
Current Deposit:
National Bank Limited offers customers current deposit facility for day-to-day business
transaction without any restriction.
Benefits (Condition Apply)
Minimum balance Tk.2000.
Minimum maintenance charge yearly Tk. 800.
No hidden costs.
Standing Instruction Arrangement are available for operating account.
Easy access to our other facilities.
Account Opening
copies of recent photograph of account holder.
TIN certificate.
Nominees Photograph.
Valid photocopy of Voter ID Card.
Home Loan:
NBL offers home loan facility for purchasing flats or construction of house.

Financing amount extends up to 70% or Tk. 75, 00,000 which is highest of total construction
cost. Grace period available up to 9 months in flat purchase or 12 months in construction.
Competitive interest rate.
SME Loan:
NBL offers financial support to small businessmen/enterprise with new products named
Festival Small Business Loan and NBL Small Business Loan has been introduced in the
Bank.

Maximum Tk.3.00 lac (Festival Scheme) and Maximum Tk.5.00 lac (Small Business
Scheme) .
Months (Festival Scheme) and 5 years (including 1 month grace period (Small Business
Scheme).
11 | P a g e
Consumer Loan:
NBL offers consumer credit facility for retail customers.
Financing items
Electronics consumer products.
Computer or Computer accessories.
Trade Finance:
NBL provides comprehensive banking services to all. types of commercial concerns such as in
the industrial sector for export-import purpose as working capital, packing credit, trade finance,
Issuance of Import L/Cs, Advising and confirming Export L/Cs. Bonds and Guarantees .

Low interest rate 13.00%-14.50%.
Minimum processing time.
Low service charges.
Savings Deposit:
National Bank Limited offers customers a basal free and low charges savings account through
the branches all over Bangladesh.

Interest rate of 6.00% on average monthly balance.
Maintenance charge yearly Tk. 400.
No hidden costs.
copies of recent photograph of account holder.
Valid photocopy of Voter ID Card
Current Deposit:
National Bank Limited offers customers current deposit facility for day-to-day business
transaction without any restriction.
12 | P a g e

No hidden costs.
Easy access to our other facilities.
Account Opening
Copies of recent photograph of account holder.
TIN certificate.
Valid photocopy of Voter ID Card.
RFC Deposit:
National Bank Limited gives opportunity to maintain foreign currency account through its
Authorized Dealer Branches. Bangladesh nationals residing abroad or foreign nationals
residing abroad or Bangladesh and foreign firms operating in Bangladesh or abroad or
Foreign missions and their expatriate employees.

No initial deposit is required to open the account.
Interest will be offered 1.75% for US Dollar Account, 3.00 % for EURO Account and
3.25% for GBP Account.
They will get interest on daily product basis on the credit balance (minimum balance
of US$ 1,000/- or GBP 500/- at least for 30 days) maintaining in the account.
Copies of recent photograph of account holder.
Passport Copy.
ID of residence in abroad.
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NFC Deposit:
National Bank Limited gives opportunity to maintain foreign currency account through its
Authorized Dealer Branches. All non resident Bangladeshi nationals and persons of
Bangladesh origin including those having dual nationality and ordinarily residing abroad may
maintain interest bearing NFCD Account.
NFCD Account can be opened for One month, Three months, Six months and One
Year through US Dollar, Pound Starling, Japanese Yen and Euro.
The initial minimum amount of $1000 or 500 Pound Starling or equivalent other
designated currency.
Monthly Savings:
National Bank Limited offers monthly savings scheme for its retail customers.

Monthly amount can be 500 and multiple of it.
Premature encashment is available for urgent need.
Loan facility can be available up to 80% against NMS account balance.
Standing instruction facility can be available to auto transfer installment to NMS
account.
1 copy of your recent photograph.
Short Term Deposit:

National Bank Limited offers interest on customers short term savings and gives facility to
withdraw money any time.

Minimum balance Tk. 2000.
Standing Instruction Arrangement are available for operating account
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Fixed Deposit:
National Bank Limited offers fixed term savings that will scale up your savings amount with
the time.

Any amount can be deposited.
Premature encashment facility is available.
Overdraft facility available against term receipt.
1 copy of recent photograph of account holder.
Overdraft:
NBL offers overdraft facility for corporate customers for day-today business operations .

Low charges in overdraft account maintenance.
Facility is available against deposit receipt or mortgage property.
Low interest rate 13-16%
Opening
Introductory current account.
Others necessary documents as per loan requirement
Western Union:
Joining with the worlds largest money transfer service Western Union, NBL has introduced
Bangladesh to the faster track of money remittance. Now money transfer between Bangladesh
and any other part of the globe is safer and faster than ever before. This simple transfer system,
being on line eliminates the complex process and makes it easy and convenient for both the
sender and the receiver. Through NBL Western Union Money Transfer Service, your money
will reach its destination within a few minutes.
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Credit Card:
Credit card is the newest concept in our country. In our country Credit card was first introduced
by the National bank ltd. master card is a name of popular credit card band and it is worldwide
accepted credit card. Credit card is safe, instant and universal money. National bank ltd issued
two types of credit card, which is as follows:
Local credit card:

Local credit card is two types, such as gold card and silver card.
Gold card limit is 45000 taka to 100000 taka
Silver card limit is 10000 taka to 45000 taka
Requirement for local credit card:

FDR.STD account Loan
Tax identification number
Two copy passport size photo
International credit card:

International Credit Card has also two types, such as gold card and silver card. For international
purpose gold card limit is 2000 us dollar to 4000 us dollar. For international purpose silver card
limit is 1000us dollar to 2000us dollar.
Requirement for international credit card:

Passport photocopy (first five pages)
Two copy passport size photo.
TIN number
FDR, STD, SB account lien
Through its Credit Card. National Bank Limited has not only initiated a new scheme but also
brought a new life style concept in Bangladesh. Now the dangers and the worries of carrying
cash money are memories of the past credit card.
16 | P a g e
NBL ATM Services:

ATM means automated teller machine. NBL ATM card give opportunity to their customer that
they can withdraw their money at any time, any days even holidays. By using ATM subscriber
can give various utility bill such as telephone, gas, electricity bills etc. actually ATM card is a
debit card. National Bank Limited has introduced ATM service to its Customers. The card will
enable to save our valued customers from any kind of predicament in emergency situation and
time consuming formalities. NBL ATM Card will give our distinguished Clients the
opportunity to withdraw cash at any time, even in holidays, 24 hours a day, and 7 days a week.
Charges for ATM card: ATM card holders have to pay 1000 taka annually and in the case of card lost subscriber also
pay additional 300 taka.
NBL Power Card:

It is a prepaid card. No need of any account of NBL branch. Application form available at any
NBL branch and card center. No annual fee for the first year. Renewal fee tk 200.00 only.
Local card limit 1000at minimum or its multiple. International card limit-US$ 500.00 at
minimum. Refill through any NBL branch. Drawing cash from NBL ATMs free of charge &
from ATMs under Q-Cash network-Tk 10.00 per transaction from other ATM-Tk 100.00.
Loading fee for international card will be charged @1% of the loaded amount. Cash withdraw
fee (abroad) 2% of the cash drawn amount or US $.2.00, whichever is higher. Accepted at all
VISA POS merchants. Cash withdrawal at all ATM booths bearing VISA and Q-Cash logo.(
Except HSBC Bangladesh). Utility bill payment. It is a prepaid card. No need of any account of
NBL branch. Application form available at any NBL branch and card center. No annual fee for
the first year. Renewal fee Tk 200.00 only. Local card limit 1000at minimum or its multiple.
International card limit-US$ 500.00 at minimum. Refill through any NBL branch.
17 | P a g e
1.7 Rationale of the Report:

The internship program is very helpful to bridge the gap between the theoretical knowledge and
real life experience as the part of the Bachelor of Business Administration (MBA) program. This
internship report has been designed to have a practical experience through the theoretical
understanding. For the completion of this internship program I have been placed in Bank named
National Bank Limited. I decided to work on the practices of general banking and credit
activities of the bank. The report focuses on the practices of the general banking activities.
1.8 Objectives of the Study:

The core objective of this study is to analyze Credit Risk Management of National Bank Ltd &
other banks in Bangladesh and draw a comparison between these banks to identify the position in
the banking industry. The objectives of the report are as follows:
Broad Objective:
To partial fulfillment of my MBA degree.
To match my academic knowledge with the real corporate business set up.
To enlarge my experience from a real corporate exposure.
To enhance my adaptive quality with the real life situation.
Specific Objective:
To know organizational profile of National Bank Ltd.
To evaluate the factors affecting performance of the bank.
To identify areas where these banks are performing well.
To emphasize areas where improvement is possible.
Comparative analysis to identify their position.
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1.9 Methodology of the Study:

This report has been prepared on the basis of understanding gathered during the period of
internship. In order to prepare this report, I have also collected information from different section
and department of the bank. I have presented my experience and findings through using different
table and charts which are presented sequentially. To prepare an authentic and informative report
I studied all the companys information, record, company website and other relevant things.
(a)Primary Source
I have collected primary information by interviewing employees, managers, observing various
organizational procedures, structures. Primary data were mostly derived from the discussion with
the employees of the organization.
(b)Secondary Source
I have elaborated different types of secondary data in my research. Sources of secondary
information can be defined as follows:
Internal Sources
Banks Annual Report 2011- 2013
Group Instruction Manual & Business Instruction Manual
Prior research report
External Sources
Different books and periodicals related to the banking sector
Bangladesh Bank Circulars
Website Information
1.10 Data analysis & presentation:

Collected data have been analyzed through descriptive statistical tools & Ms Excel. After
analyzing the data they have been presented in tabular & graphical format.
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1.11 Limitation of the Study:

Every matter has got some limitation. So this is also not an exception. So this is also not an
exception. The limitations of this internship report are been sated below:
Due to time and cost restriction, the study is concentrated in selected areas of the Bank.
To continue study in such a vast are requires a big deal of time. As an internee I had only
three month, which is not enough
As a financial organization the bank used to maintain confidentiality of their valuable
data. As a result the study is mostly depends on official files and annual report.
It was very difficult to verify the accuracy of the collected data. Available data also could
not be verified.
National Bank as a private commercial Bank they are very busy and they could not able
to give me enough time for discussion about various topics.
In case of performance analysis secondary data are used.
Through there are some limitations I have tried my best to collect adequate data and information
to make the report meaningful.
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Chapter-2
Findings & Analysis
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Credit Risk Management of National Bank Limited

2.1 Definitions of risk:
Risk is a concept that denotes a potential negative impact to some characteristic of value that
may arise from a future event, or we can say that Risks are events or conditions that may occur,
and whose occurrence, if it does take place, has a harmful or negative effect. Risk is a
commercial strategic board game, produced by Parker Brothers (now a division of Hasbro). It
was invented by French movie director Albert Lamorisse, and originally released in 1957, as La
Conqute du Monde (The Conquest of the World), in France. Risk is an album by thrash metal
band Megadeth released in 1999. Risk is also notable as the last original Megadeth release to
feature long time Megadeth guitarist Marty Friedman. This album is the first Megadeth recording
with drummer Jimmy DeGrasso. The probability of harmful consequences, or expected losses
(deaths, injuries, property, livelihoods, economic activity disrupted or environment damaged)
resulting from interactions between natural or human-induced hazards and vulnerable conditions
Risk is a science fiction short story by Isaac Asimov, first published in the May 1955 issue of
Astounding Science Fiction, and reprinted in the collections The Rest of the Robots (1964) and
The Complete Robot (1982).
2.2 Definition of Credit risk:

Risk is inherent in all commercial operations. For banks and financial institutions credit risk is an
essential factor, which needs to be managed properly. Credit risk virtually is the possibility that a
borrower will fail to repay debt in accordance with the terms of sanction. Credit risk therefore
arises from the banks lending operations. In the present days state of deregulation and
globalization banks range of activities have increased, so also are the bank. Expansion of bank
lending operations covering new products have focused the bank to confront newer risk areas
and therefore to work out proper risk addressing devices. Credit risks are so exhaustive that a
single device cannot encompass all the risk. As National bank is providing credit facility out of
its total available funds, it has to manage these credits very efficiently. An efficient credit
management system comprises many things and this cover the pre-sanction activities to post22 | P a g e
sanction activities. Credit management is important as it helps the banks and financial
institutions to understand various dimensions of risk involved in different credit transactions. At
the pre-sanction stage, credit management helps the sanctioning authority to decide whether to
lend or not to lend, what should be the loan price, what should be the extent of exposure, what
should be the appropriate credit facility, what are the various facilities, what are the various risk
mitigation tools to put a cap on the risk level. At the post-sanctioning stage, the bank can decide
about the depth of the review of renewal, frequency of review, periodicity of the grading, and
other precautions to be taken.
2.3 Credit Risk and Bangladesh Bank:

The Financial Sector Reform Project (FSRP) has designed the LRA package, which provides a
systematic procedure for analyzing and quantifying the potential credit risk. Bangladesh Bank
has directed all commercial bank to use LRA technique for evaluating credit proposal amounting
to Tk. 10 million and above. The objective of LRA is to assess. The credit risk in quantifiable
manner and then finds out ways & means to cover the risk. However, some commercial banks
employ LRA technique as a credit appraisal tool for evaluating credit proposals amounting to Tk.
5 million and above. Broadly LRA package divides the credit risk into two categories, namely
Business risk & Security risk. A detail interpretation of these risks and the procedure for
evaluating the credit as follows:
2.3.1 Business Risk:

It refers to the risk that the business falls to generate sufficient cash flow to repay the loan.
Business risk is subdivided into two categories.
2.3.2 Industry Risk:

The risk that the company fails to repay for the external reason. It is subdivide into supplies
risk and sales risk.
2.3.3 Supplies Risk:

It indicates that the business suffers from external disruption to the supply of imputes.
Components of supplies risk are as raw material, Labor, power, machinery, equipment, factory
premises etc.
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2.3.5 Sales Risk:

This refers to the risk that the business suffers from external disruption of sales. Sales may be
disrupted by changes to market size, increasing in competition, change in the regulation or due
to the loss of single large customer. Sales risk is determined by analyzing production or
marketing system, industry situation, Government policy, and competitor profile and
companies strategies.
2.3.6 Company Risk:

This refers to the risk that the company fails for internal reasons. Company risk is subdivided
into company position risk and Management risks.
2.3.7 Company Position Risk:

Within an industry each and every company holds a position. This position is very competitive.
Due to the weakness in the companys 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
companys position in the industry. It is subdivided into performance risk and resilience risk.
2.3.8 Performance Risk:

This risk refers to the risk that the companys position is so weak that it will be unable to repay
the loan even under Favor able external condition. Performance risk assessed by SWOT
(Strength, Weakness, Opportunity and Threat) analysis, Trend analysis, Cash flow forecast
analysis and credit report analysis (i.e. CIB repot from Bangladesh Bank).
2.3.9 Resilience Risk:

Resilience means to recover early injury, this refers to risk that the company falls due to
resilience to unexpected external conditions. The resilience of a company depends on its
leverage, liquidity and strength of connection of its owner or directors. The resilience risk is
determined by analyzing different financial ratio, flexibility of production process, shareholders
willingness to support the company if need arise and political and private affiliation of owners
and key personnel.
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2.3.10 Management Risk:

The management risk refers to the risk that the company fails due to management not
exploiting effectively the companys position. Management risk is subdivided into management
competence risk and integrity risk.
2.3.11 Management Competence Risk:

This refers to the risk that falls because the management is incompetent. The competence of
management depends upon their ability to manage the companys business efficiently and
effectively. The assessment of management competence depends on management ability and
management team work. Management ability is determined by analyzing the ability of owner
or board of the members first and then key personnel for finance and operation. Management..
2.3.12 Management Integrity Risk:

This refers to the risk that the company fails to repay the loan amount due to lack of
management integrity. Management integrity is a combination of honesty and dependability.
2.3.13 Security Risk:

This sort of risk is associated with the realized value of the security, which may not cover the
exposure of loan. Exposure means principal plus outstanding interest. The security risk is
subdivided into two major heads i.e. security control risk and security cover risk.
2.3.14 Security Control Risk:

This risk refers to the risk that the bank falls to realize the security because of banks control
over the security offered by the borrower i.e. incomplete documents. The risk of failure to
realize the security depends on the difficulty in obtaining favorable judgment and taking
possession of security. For analyzing the security control risk the credit office is required to
verify
documentation
to
ensure
security
protection,
documentation
completeness,
documentation integrity and proper insurance policy. He/she also conducts site visit to verify
security existence. Assessment of security control risk requires analyzing the possibility of
obtaining favorable judgment and analyzing the case with which the bank could take the
possession and liquidate the securities.
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2.3.15 Security Covers Risk:

This refers to the risk that the realized value of security is less than exposure. Security cover
risk depends on speed of realization and liquidation value. For analyzing security cover risk,
the official requires assessing the power of the customer to prolong the legal process and to
analyze the market demand for the security For assessment of security control risk, the officials
times the time that would require to liquidate the security and assess the risk and estimates the
security value at liquidation and assess the rise.
2.4 Process of Credit Risk:

Credit Management Policy for any commercial bank must have been prepared in accordance
with the Policy Guidelines of Bangladesh Banks Focus Group on Credit and Risk
Management with some changes to meet particular banks internal needs. Credit management
must be organized in such a process that the bank can minimize its losses for payment of
expected dividend to the shareholders. The purpose of this process is to provide directional
guidelines that will improve the risk management culture, establish minimum standards for
segregation of duties and responsibilities, and assist in the ongoing improvement of concerned
bank. The guidelines for credit management may be organized into the following sections:
Policy guidelines:
Lending guidelines
Credit assessment and risk grading
Approval authority
Segregation of duties
Internal control and compliance
Program Guidelines
Approval process
Credit administration
Credit monitoring
Credit recovers
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Policy guidelines
a. Lending guidelines:
The lending guidelines include the following:
Industry and Business Segment Focus
Types of loan facilities
Single borrowers/ group limits/ syndication
Lending caps
Discouraged business types
As a minimum, the followings are discouraged:
Military equipment/ weapons finance
Highly leveraged transactions
Finance of speculative investments
Logging, mineral extraction/ mining, or other activity that is ethically or

environmentally sensitive
Lending to companies listed on CIB black list or known
Counter parties in countries subject to UN sanctions
Lending to holding companies.
b. Credit Assessment and Risk Grading:

A thorough credit and risk assessment should be conducted prior to the granting of loans, and
at least annually thereafter for all facilities. Credit Applications should summaries the results
of the risk assessment and include, as a minimum, the following details:
Environment or social risk inputs
Amount and type of loan (s) proposed
Purpose of loans
Loan structure ( tenor, covenants, repayment schedule, interest)
Security arrangement
Any other risk or issue
Risk triggers and action plan-condition prudent, etc.
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Risk is graded as per Lending Risk Analysis (LRA), Bangladesh Banks Guidelines of
classification of loans and advances.
c. Approval Authority:
Approval authority may be as the following:
Credit approval authority has been delegated to Branch Manager, Credit Committee
by the MD/ Board
Delegated approval authorities shall be reviewed annually by MD/ Board.
MD/ Board:
Approvals must be evidenced in writing. Approval records must be kept on file with
credit application
The aggregate exposure to any borrower or borrowing group must be used to determine
the approval authority required.
d. Segregation of Duties:
Banks should aim at segregating the following lending function:
Credit approval/ risk management
Relationship management/ marketing
Credit administration

e. Internal Control and Compliance:
Banks must have a segregated internal audit/ control department charged with conducting
audits of all branches.
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Credit Risk Management Program Guidelines:

a. Approval process: The following diagram illustrates an example of the
approval process:
Credit Application Recommended by Branch Manager/

Relationship Manager/ Corporation
Head Office, Credit Division
Head Office, Credit Committee
Executive Committee of Board of Directors
Source: Office Document
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b. Credit administration: The credit administration function is critical in ensuring that

proper documentation and approvals are in place prior to the disbursement of loan facilities.
c. Credit monitoring: To minimized credit losses, monitoring procedures and systems

should be in place that provides an early indication of the deteriorating financial health of
borrower.
d. Credit recovery: The recovery unit of branch should directly manage accounts with
sustained deterioration (a risk rating of sub-standard or worse).
Determine account action plan/ recovery strategy
Pursue all options to maximize recovery, including placing customers into
receivership or liquidation as appropriate.
Ensure adequate and timely loan loss provisions are made based on actual and
expected losses.
2.5 Types of credit risk:
Term financing for new project had BMRE of existing projects (large, medium, SME).
Working capital for industries, trading services and others (large, medium, SME).
Trade finance for import and export
Lease finance
Small loan for traders, micro enterprise and other productive small venture.
Consumer finance
Fee business
2.6 Organizational Structure:

1. To maintain banks overall credit risk exposure within the parameters set by the board of
directors, the importance of a sound risk management structure is second to none. While the
banks may choose different structures, it is important that such structure should be
commensurate with institutions size, complexity and diversification of its activities. It must
facilitate effective management oversight and proper execution of credit risk management and
control processes.
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2. Each bank, depending upon its size, should constitute a Credit Risk Management Committee
(CRMC), ideally comprising of head of credit risk management Department, credit department
and treasury. This committee reporting to banks risk management committee should be
empowered to oversee credit risk taking activities and overall credit risk management function.
The CRMC should be mainly responsible for,
The implementation of the credit risk policy / strategy approved by the Board.
Monitor credit risk on a bank-wide basis and ensure compliance with limits approved by
the Board.
Recommend to the Board, for its approval, clear policies on standards for presentation
of credit proposals, financial covenants, rating standards and benchmarks.
Decide delegation of credit approving powers, prudential limits on large credit
exposures, standards for loan collateral, portfolio management, loan review mechanism,
risk concentrations, risk monitoring and evaluation, pricing of loans, provisioning,
regulatory/legal compliance, etc.
3. Further, to maintain credit discipline and to enunciate credit risk management and control
process there should be a separate function independent of loan origination function. Credit
policy formulation, credit limit setting, monitoring of credit exceptions / exposures and review
/monitoring of documentation are functions that should be performed independently of the loan
origination function. For small banks where it might not be feasible to establish such structural
hierarchy, there should be adequate compensating measures to maintain credit discipline
introduce adequate checks and balances and standards to address potential conflicts of interest.
Ideally, the banks should institute a Credit Risk Management Department (CRMD). Typical
functions of CRMD include:
To follow a holistic approach in management of risks inherent in banks portfolio and
ensure the risks remain within the boundaries established by the Board or Credit Risk
Management Committee.
The department also ensures that business lines comply with risk parameters and
prudential limits established by the Board or CRMC.
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Establish systems and procedures relating to risk identification, Management

Information System, monitoring of loan / investment portfolio quality and early
warning. The department would work out remedial measure when deficiencies/problems
are identified.
The Department should undertake portfolio evaluations and conduct comprehensive
studies on the environment to test the resilience of the loan portfolio.
4. Not withstanding the need for a separate or independent oversight, the front office or loan
origination function should be cognizant of credit risk, and maintain high level of credit
discipline and standards in pursuit of business opportunities.
2.7 Credit risk planning:

There are some objectives behind a written credit policy of National Bank that are as follows:
To provide a guideline for giving loan.
Prompt response to the customer need.
Shorten the procedure of giving loan.
Reduce the volume of work from top level management.
Delegation of authority of work from top level of management.
To check and balance the operational activities
2.8 Tools of credit risk:

For credit management, a firm may use tools available to them. Such tools include Credit Risk
Grading (CRG) and Financial Spread Sheet (FSS). Credit risk grading is an important for credit
risk management as it helps the banks and financial institutions to understand various
dimensions of risk involved in different credit transactions. The aggregation of such grading
across the borrowers, activities and the lines of business can provide better assessment of the
quality of credit portfolio of a bank or branch. The Lending Risk Analysis (LRA) manual
introduced in 1993 by the Bangladesh Bank has been in practice for mandatory use by the
banks and financial institutions for loan size of BDT 1.00 core and above. However, the LRA
manual suffers from a lot of subjectivity, sometimes creating confusion to the lending bankers
in terms of selection of credit proposals on the basis of risk exposure. Meanwhile in 2003 end,
32 | P a g e
BB introduced Credit Risk Grading, a new version of assessing credit risk grading to make the
mechanism easier to implement. It is a mandatory replacement of LRA as per BRPD Circular
No18,
Definition of CRG: Based on the pre-specified scale reflecting the credit-risk for an exposure.
A credit Risk Grading deploys a number/alphabet/symbol as a primary summary indicator of
risks associated with a credit exposure.
2.8.1 Credit Risk Grading Process:

For Superior Risk Grading CRG exercise is not applicable.
Credit risk grading matrix would be useful analyzing credit proposal, new or renewal
for regular limits or specific transaction, if basic information on a borrowing client to
determine the degree of each factor is a) readily available, b) current, c) dependable, and
d) parameters/risk factors are assessed judiciously and objectively. The Branch Credit
Officer will collect required information as per Data Collection Checklist.
Branch credit Officer shall ensure to correctly fill up the Limit Utilization Form as in
order to arrive at a realistic earning status for the borrower.
Risk factors are to be evaluated and weighted very carefully, on the basis of most up-todate and reliable data and complete objectivity must be ensured to assign the correct
grading. Actual parameters should be inputted in the Credit Risk Grading Score Sheet.
CRG exercise should be originated by trained credit officer of the branch and should be
an on-going and continuous process. They shall complete the Credit Risk Grading Score
Sheet and shall arrive at a risk grading in consultation with the advance In charge and
document it as per Credit Risk Grading Form as, which shall then be concurred by the
authorized approving official of the branch.
All credit proposals whether new; renewal, Enhancement, Rescheduling cases or
specific facility should consist of a) Data Collection Checklist, b) Limit Utilization
Form. c) Credit Risk Grading Score Sheet and d) Credit Risk Grading Form.
The credit officers then would pass the approved Credit Risk Grading Form to Credit
Administration Department for updating their record.
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CRG helps:
Promote banks safety and soundness.
Measure credit risks.
Management monitor change and trend in risk level.
Management manages risk to optimize return.
Use of Credit Risk Grading:
CRG allows application of Uniform Standards to Credits.
Obligor-Level Analysis (CRG output is used)
Credit selection and pricing.
Monitoring and internal MIS and assessing the aggregate risk profile of a Bank.
CRG Review:
Risk Grading
Review Frequency (at least)
Superior, Good and Acceptable
Annually
Marginal/Watch list
Half yearly
Special Mention, SS, DF and BL
Quarterly
Management Information System (MIS) on CRG

Credit Risk Grading Report (Consolidated)
Credit Risk Grading Report (Branch Wise)
Credit Risk Grading Report (Branch &Grade Wise)
Credit Risk Grading Report (Grade Wise Borrower List)
Special Attention:
Ensure implementation of the instructions provided in Credit Operations Division, CAD
and Bangladesh Bank regarding Credit Risk Grading.
Officers who will approve Risk Grading shall have necessary competence and overall
understanding of CRG Manual.
Ensure completion of CRG Form for all the accounts having Early Warning Signals.
Prepare financials preferably form audited Accounts.
Ensure calculation of financial ratios correctly.
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Compute parameters of different components of business/Industry risk.

Assess grading Score objectively (where applicable).
Ensure that Risk Grading is shown in the first page of proposal.
Ensure matching of security risk with sanction advice and documentation.
Ensure proper understanding by the originating officer of relationship Risk.
Prepare financials on the basis of latest financial statements.
Data Collection Checklist & Limit Utilization Form should be used uniformly.
For considering proposal of a client under any group CRG shall have to be done on the
group instead of the concerned unit only. In case a borrower has sister concern than
sister concerns CRG shall have to be done also.
Monitoring should be in place to ensure that risk factors are evaluated and weighted
very carefully, on the basis of most up-to-safe and reliable data and complete objectivity
must be ensured to assign the correct grading. Careful assessment should be done after
receiving all the required information and actual parameters that deserves by the
account should be inputted in the Credit Risk Grading Score Sheet.
2.9 Essential Components of a Sound Credit Policy

There can be some variations based on the needs of a particular organization, but at least the
following areas should be covered in any comprehensive statement of credit policy and
National Banks policy also covers these areas:
a. Legal consideration: The banks legal lending limit and other constraints should be set
forth to avoid inadvertent violation of banking regulations.
b. Delegation of authority: Each individual authorized to extend credit should know
precisely how much and under what conditions he or she may commit the banks funds. These
authorities should be approved, at least annually, by written resolution of the board of directors
and kept current at all times.
c. Types of credit extension: One of the most substances parts of a loan is a delineation
of which types of loans are acceptable and which type are not
35 | P a g e

d. Pricing: In any profit motivated endeavor, the price to be charged for the goods or services
rendered is of paramount without it, individuals have few guidelines for quoting retag or fees,
and the variations resulting from human nature will be a source of customer dissatisfaction.
e. Market Area: Each bank should establish its proper market area, based upon, among
other things, the size and sophistication of its organization its capital standpoint, defining ones
market area is probably more important in the lending function than in any other aspect of
banking.
f. Loan Standard: This is a definition of the types of credit to be expended, wherein the
qualitative standards for acceptable loans are set forth.
2.10 Focus on Industry and Business Segment

Industry segment focuses on Textile, Pharmaceuticals, Agro-based, Food and allied,
Telecommunication, Power generation and distribution, Health care, Entertainment Services,
Chemicals, Transport, Infrastructure development, Linkage industry, Information technology,
Ceramics, Others as decided from tome to time. And business segment focuses on Distribution,
Brick field, Rice mill/ flour mill/ oil mill, Work order, Yarn trading, Cloth merchant, Industrial
spares, Hardware, Electronic and electrical goods, Construction materials, Fish trading,
Grocery, Wholesale/ retail, Others as dedicated from time to time
2.11 Lending Guidelines

As the bank has a rate of non-performing loans. Banks risk taking applied should be contained
and our focus should be to maintain a credit portfolio keeping in mind of banks capital
adequacy and recovery strength. Thus banks strategy will be invigorating loan processing
steps including identifying , measuring , containing risks as well as maintaining a balance
portfolio through minimizing loan concentration , encouraging loan diversification , expanding
product range , streamlining security , insurance etc. as buffer again unexpected.
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2.12 Indebtedness, Rural and Urban

Indebtedness means the amount borrowed by the people from various sources for investment in
the various fields. Rural indebtedness is the amount borrowed by the agriculturists from various
sources. This amount is to be used for the improvement in agriculture, for the purchase of
improved agricultural implements, better seeds, fertilizers, etc. But the amount, thus borrowed,
is not generally used for the purpose for which it is borrowed. The funds are utilized for
unproductive purposes such as orthodox, customs heavy expenditure on ceremonial activities,
weddings, festivals, etc. By urban indebtedness is meant the amount borrowed by the
industrialists, traders and other business community. Their business needs are met to some
extent by the commercial banks and government agencies, but, for incurring non-productive
expenditure, they have to resort to borrowing from the money-lenders. Contrary to the
indebtedness, the amount borrowed is generally utilized for the use in the respective
establishments. The commercial banks in the district generally charge interest from 7 per cent
to 13 per cent, according to the amount advanced and security offered. The banks advance
loans on the pledge of goods movable or immovable. The movable goods are kept in the
custody of the banks. The average lending rate in the Central Co-operative Financial
Institutions ranges in between 6 to 8 per cent, depending upon the nature and purpose of loans.
The co-operative societies advance loans at the rate of interest ranging from 2 to 8 percent.
Loans advanced, under the State Aid to Industries Act, 1935, carry interest from 2 to 6
percent. The indebtedness money-lenders charge interest varying from 12 to 25 percent. The
loans advanced by the unregistered money-lenders carry much higher rate of interest, usually
ranging from 60 to 100 percent, per annum. The indigenous bankers are either going out to the
picture or they are trying to fall in line with the modern banking institutions. There is hardly
any case where usury is noticed these days. The interest is sometimes calculated in kind, too, in
rural areas. It is done only in case where loan is advance in kind. Such interest varies from 25
to 50 percent on the loan advance in kind, i.e., is one quintal of wheat is advanced as loan, it
will fetch one quintal 25 kilos or one quintal fifty kilos to the creditors, as the case may be.
Such loans are advanced by landlords, but this practice is by and by disappearing because of
the coming up of co-operative institutions which extend financial assistance liberally to the
rural areas.
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2.13 Leading Guidelines of NBL:

This section details fundamental credit risk management policies that are recommended for
adoption by all banks in Bangladesh. The guidelines contained herein outline general principles
that are designed to govern the implementation of more detailed lending procedures and risk
grading systems within individual banks. National Bank has been offering wide range of credit
facilities as under:
NAME
Cash credit(Hypo & Pledge)
SOD ( General)
SOD ( Export )
Loan ( Gen. )
LCA ( Loans against cash assistance )

LC ( Local and foreign) Sight & on deferred payment
basis
PAD
LTR
LIM
PC
LDBP/FDBP
BTB L/C
Bank guarantee local/ foreign
PURPOSE
Business capital / Working capital.
Against F.O/ Work Order/ supply order.
Payment of accepted bills at maturity before receipt of
export proceeds.
Acquiring capital assets/ purchasing, constriction
finishing, expansion, repair, renovation of house/ flats/
real estate business etc.
Financing for the period of non- receipt of
reimbursement from Bangladesh bank.
For import/ local procurement of goods/ service.
For making payment of the L/C obligation against
receipt of document.
Retirement of shipping document.
Retirement of shipping document.
Meeting financial requirement of the export at preshipment stage against export L/C.
As post shipment finances against local/ foreign export
bills.
Import of raw/ packing materials against export L/C.
For submission of tender/ to obtain and offer as
security against work order, supply order/ for gas
electricity connection against delivery of goods against
release of goods without or against partial payment by
customer etc.
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2.13.2 Single borrower/ group limits/ syndication

National bank ltd pursues / will continue to pursue the policy of avoiding too much loan
concentration to a single borrower group in order to bypass possible threat in event of such
advance turning sticky. In a bid to keep credit risk at the minimum level in respect of larger but
prospective advance, National bank will prefer syndicated financing after proper feasibility
study.
2.13.3 Leading caps:

National bank ltd is very much aware of over concentration of credit in a particular area, which
may under some situation, create disaster for the bank. Keeping this in consideration and also
the overall business, trend, prospects/ potentials, problems, risk & mitigates, pricing owners
stake in business, business competition involvement safety, liquidity, security etc. Bank will be
guided by the following leading caps generally:
Sector Caps
Trade and commerce
45%
SME
10%
Industry- working capital
10%
Project finance- loan term
10%
Retail/ consumer ( CCS )
10%
Agro credit
5%
Work/ supply order ( contractual finance )
5%
Others
5%
Total
100%
2.13.3.1 Nature of advanced:

Each advanced to be made will be Loan facilities parameters:
National bank ltd extends and will credit for various genuine purpose. One types of advance
requires to be treated different from other types. Depending on the types financed ownership
pattern, business mode, cash flow, security and other related matters facility parameters
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categorized under one of the arranged types and will be governed under the terms and
conditions related thereto.
2.13.3.2 Purpose:
Our leading will be guided by legitimate purpose, financing for hoarding, speculative purpose
and which will be utilized for degrading the character of the people will avoided. Credit which
will contribute to production, trade, commerce, import, export, development of industry,
development activities.
2.13.3.3 Limit/ amount of facility/ maximum size:
Facility will be considered based on assessment of requirement & justification subject to the
overall leading caps as per Bangladesh bank single party exposure limit.
2.13.3.4 Margin/ Equity:
It will be the general policy of the bank to judiciously ensure stake of the borrower in any
financing plan. Margin will however be subject to institution policy in this regard and central
bank policy where applicable.
2.13.3.5 Rate of interest/ Commission:
Rate of interest will be charged as per declared rate of the bank. Pricing will be basically risk
based. Higher price will be considered for riskier borrower because of higher risk involved.
(I.e. lower score obtain by an obligor as per CRG score sheet is called a risky client). Similarly
lower prices will be considered for prime clients on the basis of their low risk. (Low risk grade
client means where an obligor obtained higher aggregate score as per CRG score sheet or 100%
cash covered or govt. international top bank guarantee).
2.13.3.6 Insurance:
Our bank have insurable interest on a property an asset obtain insurance policy as per norms
against credit facilities extended in order to protect our banks interest. Insurance
policy shall
take timely basis. Insurance should take from a reputed company.

2.13.3.7 Security:
Our bank mostly relies/ will continue to rely on security based leading taking into consideration
the character of the borrower nature of business cash flow, environmental, economical,
business and other influencing factor. Collateral security of acceptable type having adequate
market sale value is accepted. Collateral property is judiciously valued before accepting the
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same. The property is valued by the branch official by applying prudence and considering
prevailing rate in the location area of the property.
2.14 Credit Principles of NBL:

To achieve our goal for maximizing the stockholders value and protect the interest of the
depositors as well as to improve the quality of banks assets as fundamentally sound financial
institution, we will abide by but will not be limited to the following credit principles, which
should guide our behavior in our leading decisions:
1
2
Assessment of the customer integrity and willingness to repay will form basis
of leading.
Customer having capacity and ability to repay shall only be lent.
Possibility of default will be worked out before lending.
4
5
Credit will be extended in the areas risks of which can be sufficiently understood
and managed.
Independent credit participation in the credit process shall be ensured.
Ethical behavior in all credit activities shall be ensured.
Be proactive in identifying, managing and communicating credit risk.
Be diligent in ensuring that credit exposures and activities including processing

function complying with NBL requirements as well requirement of regulatory
authority.
Risk is reward to be optimized.
10
Diversified credit portfolio to be built and maintained.
11
Credit will normally be financed from customers deposit.
12
The bank will provide suitable credit service and products for the market in which
it operate.
Credit will be allowed in a manner which will in no way to compromise.
13
14
All credit extension must comply with the requirement of banking companys act
1991 and amendment thereof from time to time.
41 | P a g e
2.15 Credit Evaluation Process of NBL:

National bank will follow the following evaluation process:
Prevailing credit practices in the market.
Credit worthiness, background and track records of the borrower.
Financial standing of the borrower supported by financial statement and other
documentary evidence.
Legal jurisdiction and implications of applicable laws.
Effect of any applicable regulations and laws.
Purpose of the loan/facility.
Tenure of the loan/facility.
Viability of the business concern.
Cash flow analysis and also projection thereof.
Quality value and adequacy of security if available.
Risk taking capacity of the borrower.
Entrepreneurship and managerial capability of the borrower.
Reliability of the source of repayment.
Volume of risk in relation to the risk taking capacity of the bank or company concern.
Profitability of the personal to the bank or company concerned.
Credit risk grading.
Yield from the facility.
Market aspect.
Total global expansion of the borrower.
CIB status.
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Source: Office Document
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Performance Evaluation
44 | P a g e
2.16 Financial Performance

Capital
Bank Name
2011
2012
2013
National Bank
24,960.42
26,460.36
27,705.46
Solali Bank
44,208.8
(3,345.09)
28,281.66
Islami Bank
26,820.3
39,701.6
43,786.6
(All Amount in millions)
Capital
50,000.00
43,786.60
40,000.00
30,000.00
27,705.46
28,281.66
2011
20,000.00
2012
2013
10,000.00
National Bank
Sonali Bank
Islami Bank
(10,000.00)
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Asset
Bank Name
2011
2012
2013
National Bank
169,037.98
205,207.33
235,173.80
Solali Bank
852,852.2
754,616.07
852,852.20
Islami Bank
273,104
482,664.8
549,979.11
Asset
852,852.20
900,000.00
800,000.00
700,000.00
549,979.11
600,000.00
500,000.00
2011
400,000.00
2012
300,000.00
2013
235,173.80
200,000.00
100,000.00
0.00
National Bank
Sonali Bank
Islami Bank
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Deposit
Bank Name
2011
2012
2013
National Bank
135,458.2
157,331.73
193,642.9
Solali Bank
533,192.2
599,293.7
685,894.6
Islami Bank
341,854
417,844
473,141
Deposit
800,000.00
685,894.60
700,000.00
600,000.00
473,141
500,000.00
2011
400,000.00
2012
300,000.00
200,000.00
2013
193,642.90
100,000.00
0.00
National Bank
Sonali Bank
Islami Bank
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Investment
Bank Name
2011
2012
2013
National Bank
29,994.03
54,326.46
56,827.5
Solali Bank
132,089.1
147,019
270,411.2
Islami Bank
305,841
372,921
406,805
Investment
450,000.00
406,805
400,000.00
350,000.00
300,000.00
270,411.20
250,000.00
2011
200,000.00
2012
150,000.00
2013
100,000.00
56,827.50
50,000.00
0.00
National Bank
Sonali Bank
Islami Bank
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Loan & Advances

Bank Name
2013
2012
2011
National Bank
116,063.02
126,169.8
151,098.9
Solali Bank
345,991.3
378,147.05
313,450.5
Islami Bank
345,991.34
378,147.05
343,450.5
Loan & Advances

400,000.00
343,450.50
350,000.00
313,450.50
300,000.00
250,000.00
2011
200,000.00
2012
151,098.90
150,000.00
2013
100,000.00
50,000.00
0.00
National Bank
Sonali Bank
Islami Bank
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Liabilities:
Bank Name
2011
2012
2013
National Bank
146,992.8
182,833.06
211,244.16
Solali Bank
639,481.3
732,215.6
802,966.4
Islami Bank
341,672.1
442,963.2
506,190.4
Liabilites
900,000.00
802,966.40
800,000.00
700,000.00
600,000.00
506,190.40
500,000.00
2011
400,000.00
2012
300,000.00
2013
211,244.16
200,000.00
100,000.00
0.00
National Bank
Sonali Bank
Islami Bank
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2.17 Analyzing of NBL Performance with financial Ratios

Ratio Analysis:
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated quotient
of two mathematical impressions and as the relationship between two or more things. In financial
analysis, a ratio is used as benchmark for evaluating the financial position and performance of a
firm. We are describing some ratios for the measurement of the performance of the bank.
Profitability Ratio:
Return on Asset: The rate of return on assets (ROA) measures the ability of management to utilize
the real and financial resources of the bank to generate returns. ROA is most commonly used to
evaluate bank management.
Bank Name
2011
2012
2013
National Bank
0.60%
0.80%
0.96%
Solali Bank
0.45%
1.42%
-2.86%
Islami Bank
0.75%
1.27%
0.96%
ROE
2.00%
1.00%
0.96%
0.96%
0.00%
-1.00%
2011
National Bank
Sonali Bank
2012
2013
-2.00%
-3.00%
Islami Bank
-2.86%
-4.00%
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ROI
A performance measure used to evaluate the efficiency of an investment or to compare the
efficiency of a number of different investments.
Bank Name
2011
2012
2013
National Bank
9.02%
0.80%
0.96%
Solali Bank
7.38%
1.42%
-2.86%
Islami Bank
10.12%
12.21%
9.45%
ROI
15.00%
9.45%
10.00%
5.00%
2011
2012
0.96%
2013
0.00%
-5.00%
National Bank
Sonali Bank
-2.86%
Islami Bank
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Cost of Fund
The interest rate paid by financial institutions for the funds that they deploy in their business.
The cost of funds is one of the most important input costs for a financial institution, since a lower
cost will generate better returns when the funds are deployed in the form of short-term and longterm loans to borrowers. The spread between the cost of funds and the interest rate charged to
borrowers represents one of the main sources of profit for most financial institutions.
Bank Name
2011
2012
2013
National Bank
10.22%
0.80%
0.96%
Solali Bank
1.11%
1.42%
-2.86%
Islami Bank
9.32%
9.45%
10.21%
Cost of Fund
15.00%
10.21%
10.00%
2011
5.00%
2012
0.96%
2013
0.00%
National Bank
-5.00%
Sonali Bank
-2.86%
Islami Bank
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Credit Deposit Ratio

A commonly used statistic for assessing a bank's liquidity by dividing the banks total loans by its
total deposits. This number, also known as the LTD ratio, is expressed as a percentage. If the
ratio is too high, it means that banks might not have enough liquidity to cover any unforeseen
fund requirements; if the ratio is too low, banks may not be earning as much as they could be.
Bank Name
2011
2012
2013
National Bank
72.21%
80.19%
78.03%
Solali Bank
64.10%
63.10%
50.07%
Islami Bank
80.10%
85.18%
82.35%
Credit Deposit Ratio

90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
82.35%
78.03%
50.07%
2011
2012
2013
National Bank
Sonali Bank
Islami Bank
54 | P a g e
2.18 CAMEL rating and composite analysis 2013

Capital & reserved
NBL
Sonali Bank
Islami Bank
Provision shortfall
1,461.48
(161.70)
2,465.00
Adjusted capital
27,705.46
50,302.10
60,415.00
Total deposit
193,642.90
685,894.60
473,141.00
Classified loan
75,062.30
135,725.00
121,531.00
Total loan
151,098.90
313,450.50
343,450.50
Total asset
235,173.80
852,852.20
549,979.11
Net income
4,356.60
3,580.10
5,055.30
Liquid asset
147,459.30
49,491.50
127,000.00
Total RWA
835,960.74
2,091,134.30
1,683,036.91
Rating
NBL
Sonali Bank
Islami Bank
Capital Adequacy Ratio
3.31
2.41
3.59
Assets Quality Rating
0.50
0.43
0.35
Management Rating
4.00
5.00
6.00
Earning Rating
1.85
0.42
0.92
Liquidity
1.21
1.24
1.16
Composite Rating
1.60
2.60
3.60
55 | P a g e
Meaning of Composite Rating

Composite 1 Rating
Basically sound in every respect
Resistant to external economic and financial disturbances.
No causes of supervisory concern.
Composite 2 Rating
Fundamentally sound.
Finding of minor nature can be handled routinely.
Resist business fluctuation.
Supervisory concerns are limited.
Composite 3 Rating
Financial and operational weakness.
Vulnerability to the adverse business condition.
More than normal supervision to address deficiency.
Composite 4 Rating
Serious financial weakness.
Unsafe and unsound condition.
Without correction impair future violability.
High probability of failure.
Composite 5 Rating
Immediate or near term probability of failure.
Severity of weakness is so critical that urgent aid from stockholder or other financial
source is necessary.
Without immediate corrective action will likely require liquidation.
2.19 Key Findings:

To increase the efficacy in customer service the National Bank Limited Bank should try to
develop the process of providing services. To get a perfect process of delivering services, the
customers should be asked. The other suggestions are as follows:
NBL follows the most liberal process of disbursement process, which made the clients,
inspires to take advance and help them to pay in time.
Personal relationship should be build with the customers.
56 | P a g e
Customers are satisfied with the price charged by National Bank Limited Bank but they
are not too much aware about the pricing strategy. Customers awareness should be
build over pricing strategy.
The offices should be decorated with the help of interior design companies.
Customers are the heart of the organization. They should provide more space in the
office and if possible they should have some entertainment facility.
The employee of the branch should be trained continuously.
The National Bank Limited Bank should recruit more employees having commerce
backgrounds.
2.20 Major Learning Points

During the time of internship program in the National Bank Ltd, I assemble many learning
things, which inspire me. The learning things are pointed in the following-This report is one of
the major parts of MBA Program offered by Southeast University Bangladesh. In todays world,
education is not just limited to books and classrooms. Education now-a-days is understanding the
real world and applying knowledge and education for the betterment of the society. So the
Internship is such a way that helps to apply the knowledge and understanding of the courses and
to use them in a practical field. National Bank Limited gives me this opportunity to be engaged
there to gather practical experience about the real business world and to observe different
practical aspects of education. We the students of business do this usually for three months. In
our country there are many banks particularly the esteemed private sector banks, and elite
business firms provide this. In this respect I have done my internship at National Bank Ltd
(Gulshan Branch). One of the most renowned private banks in Bangladesh. I am thankful for
this.
57 | P a g e
Chapter-3
Conclusion & Suggestions
58 | P a g e
3.1 Conclusion:
During the 12 weeks internship program at NBL, almost all the desk has been observed more or
less. For gaining knowledge of practical banking and to compare this practical knowledge with
theoretical knowledge. Though all departments and sections are covered in the internship
program, it is not possible to go to the depth or each activities of division because of time
limitation. So, objectives of this internship program have not been fulfilled with complete
satisfaction. However, highest effort has been given to achieve the objectives the internship
program. National Bank Limited has been trying to operate its business successfully since 1983.
The bank has already developed good image and goodwill among its clients by offering excellent
services. Today, the whole Banking sector is facing a tough competition and challenge. In this
situation our Branch is in good position than any other Bank of its locality and day-by-day we
are increasing our activities & goodwill. Within 20 years of its operation, the bank has grabbed a
position in the banking sector. According to the CAMEL rating the banks performance are 3,
which is satisfactory. It is expected that in a year or so the rating will be 1, which is strong. So
we can say that overall performance is good in banking sector of Bangladesh. From the practical
implementation of customer dealing procedure during the whole period of my practical
orientation in National Bank Limited Bank I have reached a firm and concrete conclusion in a
very confident way. I believe that my realization will be in harmony with most of the banking
thinkers. It is quite evident that to build up an effective and efficient banking system to the
highest desire level computerized transaction is must. Success in the banking business largely
depends on effective lending. Less the amount of loan losses, the more the income will be from
credit operation s. the more the income from credit operations the more will be the profit of the
National Bank Limited and here lays the success of credit financing. It can be argued that though
the results achieved so far are not satisfactory, credit financing is a modern scientific technique
for enhancing National Bank Limited banks strength and there lies the opportunities to make it
more effective in the future for our own benefit. From the learning and experience point of view
I can say that I really enjoyed my internship at National Bank Limited. From the very first day. I
am confident that this 03 (three) months internship program at National Bank limited, will
definitely help me to realize my further carrier in the job market.
59 | P a g e
Recommendation
60 | P a g e
3.2 Recommendation
Though the bank is making a huge amount of profit and gencratil1g a large volume of deposit,
based on my working experience at Nationa1 Bank limited, Credit card division, I would like to
put up the following recommendations.
Prospects: how to Achieve?

Credit card division should increase their marketing activities and for these the will formulate a
card marketing group and the remuneration of the member of the group will semi variable.
Thats means they get a fixed salary and get commission for every card. The division should
maintain a card marketing strategy. They must identify which type of people get preference in
issuing card, like as bankers, exporters, importers, government high officials. The bank may
circulate student credit card and the card limit will be Tk. 5000. The may sort out the
cardholder who paid their payment regular and issue another credit card to their spouse without
any security To increase the number of cardholder the bank may decrease the annual fee and
interest. Credit card division should improve their customer service.
Challenges: how to face these?

To avoid telecommunication problem the bank should follow modern
telecommunication system.
Bank may encourage the business firm to establish fixed price shopping center.
Because of different type of merchant commission rate may be different according
merchants type of business. Bank should concentrate on quickly merchant payment.
For this bank may use computerized system in preparing pay order
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3.3 Bibliography
1. National Bank Limited Annul Report 2013, 2012, 2011.
2. National Bank Limited Financial Statement 2013, 2012, 2011
3. http://www.nblbd.com/
4. Sonali Bank Limited Annul Report 2013, 2012, 2011.
5. Sonali Bank Limited Financial Statement 2013, 2012, 2011
6. http://www.sonalibank.com.bd/
7. Islami Bank Bangladesh Limited Annul Report 2013, 2012, 2011.
8. Islami Bank Bangladesh Limited Financial Statement 2013, 2012, 2011
9. http://www.islamibankbd.com/
10. http://www.bangladesh-bank.org/
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"Credit Risk Management" A Comparative Analysis On Three Selected Banks - (National Bank, Sonali Bank & Islamic Bank Bangladesh Limited)

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Credit Risk Management

Ashis Kumar Barman

An internship Report Presented in Partial Fulfillment

Credit Risk Management

Ashis Kumar Barman

Has been approved

History of the NBL

Objectives of the NBL

Functions of the NBL

Roles of the NBL in the Economic

Organogram of the NBL

Present Programs of NBL

Rationale of the Report

Objectives of the Study

Methodology of the Study

Data analysis & presentation

Limitation of the Study

Findings & Analysis

Definition of Credit risk

Credit Risk and Bangladesh Bank

Process of Credit Risk

Types of credit risk

Credit risk planning

Tools of credit risk

Essential Components of a Sound Credit

Focus on Industry and Business Segment

Indebtedness, Rural and Urban

Leading Guidelines of NBL

Credit Principles of NBL

Credit Evaluation Process of NBL

Analyzing of NBL Performance with

Major Learning Points

Conclusion & Suggestions

History of the NBL:

President of the Peoples Republic of Bangladesh Justice Ahsanuddin Chowdhury inaugurated

Objectives of the NBL:

Functions of the NBL:

Roles of the NBL in the Economic Development in Bangladesh:

Organogram of the NBL:

Managing Director (MD)

Additional Managing Director (AMD)

Deputy Managing Director (DMD)

Executive Vice President (EVP)

Senior Vice President (SVP)

Vice President (VP)

Assistant Vice President (AVP)

Senior Principal Officer (SPO)

Principal Officer (PO)

Source: Office document

Present Programs of NBL:

Benefits (Condition Apply)

Benefits (Condition Apply)

Benefits (Condition Apply)

Benefits (Condition Apply)

Benefits (Condition Apply)

Benefits (Condition Apply)

Benefits (Condition Apply)

Short Term Deposit:

Benefits (Condition Apply)

Benefits (Condition Apply)

Benefits (Condition Apply)

Local credit card:

Requirement for local credit card: