Report Body

CHAPTER # ONE
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INTRODUCTION
In today’s fast moving world, business is more complex and competitive. Banking is
an essential industry. It is where we often wind up then we’re seeking a loan to
purchase a new automobile, tuition for college or trade school, financial advice on
how to invest our savings, credit to begin a new business, a safe deposit box to
safeguard our valuable documents or even more commonly, a checking account or
Credit card to keep track of when and where we spend our money. This industry,
composed of thousands of firms worldwide, literally affects the welfare of every other
industry and the economy as a whole.
In fact, bank is the vitality of modern economy. Developed and organized banking
system is a prerequisite of every kinds of economy- capitalistic, socialist, and
developed and underdeveloped countries whatever it may be. Today’s banking is an
industry in change. Rather than being something in particular, it is continually
becoming new- offering new services, merging and consolidating into much larger
and more complex business, adopting new technologies that seem to change faster
than most of us can comprehend, and facing a new and changing set of rules as more
and more nation cooperate to regulate and supervise the banks that serve their citizen.
During the last six years, many new banks have emerged to cater the needs of the
customers. They are continuously trying to attract people towards them by offering
new types of products and services to face competition and fresh challenges thrown
by their rival. Efforts are made to satisfy customers’ needs by providing superior
value than their competitors.
JBL, Agrabad Branch is a bank of 21st century commenced their journey only 9 years
ago. Within these 9 years, the bank has developed many attractive financial products
and services at a pretty interest rate to help the people for saving their money and for
meeting loan demand.
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During my 3 months internship program, I’ve tried to know about the services offered
by JBL the problems faced by them and the prospects they will enjoy.
The report mainly emphasizes on credit risk assessment and recovery system at
Jamuna Bank Ltd. This report includes how the bank determines credit risk, which
process they follow to evaluate the credit risk, who are risky borrower& which loan
involve in great risk. This study also discuss about loan monitoring, handling problem
loan and how they recover the loan.
Objective of the study

1. To know about the area of General Credit Procedure.
2. To know about the procedure of landing.
3. To examine how JBL assess there credit risk before and after giving the
loan.
4. To know about there over all loan recovery system.
Methodology of the study
Report should be prepared to consume and observing practical. So Primary data are
more essential than secondary data. Because the reporter before submitting report
he/she must work report related activities on open field, and looking facts inside of
the event. This report is based on my observation of activities and performance of
Jamuna Bank Limited, Agrabad branch. During the period of my internship I have
performed practical work in various departments of the bank and gathered both
primary and secondary data to prepare this report.
Sample design: In this internship program, JBL, Agrabad Branch, Chittagong is

selected to conduct the study.
Selection of variables: Deposits, Loans and Advances, Customer services, Profits etc.
are selected as variables.
Data collection: For conducting the study I used the following methods-
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Collection of primary data: Some study related data are collected from
designing questionnaires, personal interview, Face-to-Face conversation with
the officer, and from related instruments.
 Daily diary (containing my activities of practical orientation in
JBL) maintained by me.
 Practical desk work.
 Personal investigation with bankers.
 Face to face conversation with the credit officers,
Collection of secondary data:
To prepare the report, I used many data and literary information for which I
had to depend on secondary sources. This are-
• Annual reports of JBL.

• Different prospectors of JBL, Agrabad Branch.
• Bank’s statement
• Preparing Questionnaire
• Others related books.
• Website
Along with these, observation is another method that was also given emphasis in the
study.
Scope of the study
At JBL, Agrabad Branch, Chittagong, I’ve tried to acquire knowledge about the
overall banking system. The bank has classified its total operation into three sections.
These are:
General Banking
Credit
Foreign Exchange
4
I’ve worked with two of those three sections to acquire knowledge about the
operations, procedures of the work followed by the bank. Firstly, I worked in general
banking and gathered the practical knowledge as well as some theoretical one. In
general banking area I worked in remittance section and then customer care. They
gave me a little chance to worked in the credit section and to know about the credit
activities.
Limitations of the study
In every program or activities, one has to face numerous constraints. During my 3

months internship program, I have also faced some problems. These are:
1. Bank is a busy organization with comparison to others. There are rushes of

people for about whole the day and the officers have to transact with them. So
it is very much tough for them to allocate time for an internee.
2. The duration of our internship program is only 3 months. The allocated time is
not sufficient for us to gather knowledge and to make the study a complete and
fruitful one.
3. The study also suffered from inadequacy of data provided by JBL Limited.
4. Most of the employees are not familiar with internship program.
5. Most of the customers were found reluctant to express their dissatisfaction in
Bank’s services.
5
CHAPTER #TWO
6
Organization Overview
History/Background
Jamuna Bank Limited (JBL) is Banking Company registered under the Companies
Act, 1994 with its Head Office at Printers Building (2nd floor, 3rd & 8th floor), 3,
Dilkusha, C/A, Dhaka-1000. The Bank started its operation from 3rd June 2001.
Jamuna Bank Limited is a highly capitalized new generation Bank with an Authorized
Capital and Paid-up Capital of Tk.1600.00 million and Tk.390.00 million
respectively. The Paid-up Capital has been raised to 429.00 million and the total
equity of the bank stands at 725.00 million as on June 30, 2005. Currently the Bank
has 19 (nineteen) branches 9 in Dhaka, 1 in Gazipur, 4 in Chittagong, 3 in Sylhet and
2 in Naogaon (including five Rural Branches).
The Bank undertakes all types of banking transactions to support the development of
trade and commerce of the country. JBL's services are also available for the
entrepreneurs to set up new ventures and BMRE of industrial units.
Jamuna Bank Ltd., the only Bengali named new generation private commercial bank
was established by a group of winning local entrepreneurs conceiving an idea of
creating a model banking institution with different outlook to offer the valued
customers, a comprehensive range of financial services and innovative products for
sustainable mutual growth and prosperity. The sponsors are reputed personalities in
the filed of trade, commerce and industries.
The Bank is being managed and operated by a group of highly educated and
professional team with diversified experience in finance and banking. The
Management of the bank constantly focuses on understanding and anticipating
customers needs. The scenario of banking business is changing day by day, so the
bank's responsibility is to device strategy and new products to cope with the changing
environment. Jamuna Bank Ltd. has already achieved tremendous progress within
only two years. The bank has already ranked as one of the quality service providers &
is known for its reputation.
Jamuna Bank offers different types of Corporate and Personal Banking Services
involving all segments of the society within the purview of rules and regulations laid
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down by the Central Bank and other regulatory authorities.
Corporate Information:
Name of the Company : Jamuna Bank Limited.
Legal Form : A Private Limited Company incorporate in
Bangladesh on 2nd April 2001 under the

Company act 1994.
Date of certificate of Incorporation : 3rd June 2001.
Date of certificate of
Commencement of Business : 1st May 2001.
Registered Office : Chini shalpa Bhaban
3, Dilkusha.Commercial Area;Dhaka-1000
Total Number of sponsor directors : 20
Number of Branches : 54
Auditor : M/S Howladar Yunus & Co.
Website : www. jamunabankbd.com
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VISION:
To become a leading banking institution and to play a pivotal role in the development
of the country.
MISSION: The Bank is committed to satisfying diverse needs of its customers

through an array of products at a competitive price by using appropriate technology
and providing timely service so that a sustainable growth, reasonable return and
contribution to the development of the country can be ensured with a motivated and
professional work-force
Corporate Slogan
Your partner for growth.
Strategy:
 To manage and operate the Bank in the most efficient manner to enhance
financial performance and to control cost of fund
 To strive for customer satisfaction through quality control and delivery of
timely services
 To identify customers' credit and other banking needs and monitor their
perception towards our performance in meeting those requirements.
 To review and update policies, procedures and practices to enhance the ability
to extend better service to customers.
 To train and develop all employees and provide them adequate resources so
that customers' needs can be reasonably addressed.
 To promote organizational effectiveness by openly communicating company
plans, policies, practices and procedures to employees in a timely fashion
 To cultivate a working environment that fosters positive motivation for
improved performance
 To diversify portfolio both in the retail and wholesale market
 To increase direct contact with customers in order to cultivate a closer
relationship between the bank and its customers.
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Objectives
• To become one of the best banks on Bangladesh in terms of profitability &
assets quality
• To introduce fully automated systems through integration of information
technology
• To establish relationship banking & improve service quality through
development of strategic marketing plans
• To develop & retain a quality work force through an effective human resource
management system
• To pursue an effective system of management by ensuring compliance to
ethical norms, transparency & accountability at all levels
• To ensure optimum utilization of all available resources
• To ensure an adequate rate of return on investment
• To maintain a healthy growth of business with desired result
CORPORATE CULTURE
• Employees of JBL share certain common values, which helps to create a JBL
culture
• The client comes first
• Search for professional excellence
• Openness to new ideas & new methods to encourage creativity
• Quick decision making
• Flexibility & prompt response
• A sense of professional ethics
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Organization Stricture of JBL (Head Office)
Managing Director (M.D.)

↓
Additional Managing Director (A.M.D)
↓
Senior Executive Vice President (S.E.V.P.)
↓
Executive vice President (E.V.P.)
↓
Senior Vice President (S.V.P.)
↓
Vice President (V.P.)
↓
Senior Assistant Vice President (S.A.V.P.)
↓
Assistant Vice President (A.V.P.)
↓
First Assistant Vice President (F.A.V.P.)
↓
Junior Assistant Vice President (J.A.V.P.)
↓
Senior Executive Officer (S.E.O.)
↓
First Executive Officer (F.E.O)
↓
Executive Officer (E.O)
↓
Officer
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Product (of JBL) at a glance
DEPOSIT SCHEMS OF JBL
1. Marriage Deposit Scheme 5.Education Savings Scheme
2.Lakhpati Deposit Scheme 6. Double/Triple Growth 7.Deposit
3.Millionaire Deposit Scheme Scheme
4.Kotipati Deposit Scheme 8.Monthly Benefit Scheme (MBS)
9. Monthly Savings Scheme (MSS)
Types of credit activities

Depending on the various nature of financing, all the lending activities have been
brought under the following major heads:
Serial Loan & advances Sr. Loan & advances
no. no.
1 Loan (general): 12 Other Loans to Staff
2 Loan (general) /House 13 Cash credit (hypo)
3 Building Loan (general) 14 Cash credit (pledge)
4 House Building loan (staff) 15 Hire Purchase
5 Time loan 16 Lease financing:
6 FDBP 17 Export cash credit (ECC)
7 FBP 18 Packing Credit (P.C)

8 Consumer credit scheme: 19 LIM
9 SOD (General): 20 LTR
10 SOD (Others 21 IBP
11 SOD (Export 22 IDBP
RETAIL BANKING PRODUCTS
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Jamuna Bank Limited approved the “policy for retail financing” that came into effect
during July’2009 with following retail products namely:
1. Consumer Credit Scheme: For JBL employee to purchase household durable.

Loan size is maximum Tk.3.00lac for confirmed employees. Maximum term
of loan is 3 years.
2. Auto Loan: For procuring personal transport. Loan size is minimum

Tk.5.00lac & maximum Tk.20lac. Maximum term of loan for the client is 3-5
years & for JBL employee 3-6 years.
3. Any Purpose Loan: Against security for any one has suitable repayment
capability. Loan size is minimum Tk.2.00lac & maximum Tk.50lac.Maximum
term of loan is 10 years.
4. Salary Loan: For salaried people. Loan size is minimum Tk.1.00lac &
maximum Tk.8.00lac or 12 times gross salary, whichever is lower. Maximum
5. Education Loan: For students. Loan size is minimum Tk.1.00lac & maximum
Tk.10lac. Maximum term of loan is 4 years.
6. Personal Loan: For professional & self employed people. Loan size is
minimum Tk.2.00lac & maximum Tk.20lac. Maximum term of loan is 5
years.
7. Overseas JOB Loan: Against security for expatriate & intending overseas
jobholder. Loan size is minimum Tk.2.00lac & maximum Tk.50lac. Maximum
8. Doctors Loan: For medical practitioners. Loan size is minimumTk.l.00lac &

maximum Tk.50lac. Maximum term of loan is 5 years.
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CREDIT RATING REPORT
As per Bangladesh Bank’s mandatory requirement vide BRPD circular no. 06 dated
July 05,2006 credit rating of Jamuna Bank Limited was done by the Credit Rating
Agency Of Bangladesh Limited (CRAB) on the audited balance sheet as of
31.12.2009 as under:
Long Term Short Term

Current Rating 2009 A2 ST-2
Previous Rating 2008 A- ST-3
Date of Rating April 29 2010
CRAB up grade the rating of Jamuna Bank Limited to “A2” (pronounced as single A)
& short term rating to “ST-2” (high grade).
Commercial banks rated A2 in the long term belong to “strong capacity” cohort.
Banks rated A2 have strong capacity to face their financial commitments. Banks rated
in this category are judged to be of high quality & are subject to low credit risk.
Commercial banks rated in the short term ST-2 category are considered to have strong
capacity for timely repayment of obligations. Commercial banks are rated in this
category are characterized with commendable position in terms of liquidity, internal
fund generation & access to alternative sources of funds.
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HIGHLIGHTS OF JAMUNA BANK LIMITED
Sl. Particulars 2009 2008

No.
1 Paid up capital 1,621,882,500 1,313,265,200
2 Total capital 3,997,664,705 22,444,338,501
3 Capital surplus/(deficit) 880,659,405 392,695,301
4 Total assets 48,730,951,557 31,646,629,499
5 Total deposit 42,356,203,563 27,307,936,141
6 Total loans & advances 32,287,661,155 21,036,861,012
7 Total contingent liabilities & 14,718,947,868 9,169,471,638
commitments
8 Advance deposit ratio 76.23% 77.04%
9 % of classified loans against total 2.20% 2.84%
loans
10 Profit after taxation &provision 923,123,207 479,437,923
11 Amount of classified loans 710,858,000 598,309,000
12 Provision kept against classified 465,638,000 296,285,000
loan
13 Provision surplus/deficit - -
14 Cost of fund 11.93% 12.49%
15 Interest earning assets 34,961,013,269 27,668,329,466
16 Non- interest earning assets 13,769,938,289 3,978,300,033
17 Return on assets 1.89% 1.51%
18 Return on investment 16% 16%
19 Income from investment 1,361,492,698 666,152,122
20 Earning per share 56.92 29.56
21 Net income per share 56.92 29.56
22 Net asset value per share 245.45 133.22
23 Price earning ratio 9.20 9.02
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CHAPTER # THREE
CREDIT
The word “credit” is derived from the Latin word “credere”, which means to trust.
The fundamental nature of credit is that an element of trust exists between buyer &
seller- whether of goods or money. The right to receive or an obligation to pay a
certain sum of money including a mark-up agreed thereon on demand or at
determinable time in exchange of goods & services may be termed as credit.
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CREDIT MANAGEMENT
Bank is a financial intermediary whose prime function is to move scarce resources in

the form of credit from savers to those who borrow for consumption & investment.
The main use of bank fund is to collect money from surplus unit & lend it to deficit
economic unit as credit. A bank’s main earning source is interests on different credits.
In order to ensure the effectiveness & efficiency of utilization of bank fund in the
form of credit, the bank has to carry out a certain course of action that is known as
credit management.
IMPORTANCE OF CREDIT MANAGEMENT
If bank’s credit management is not good than the bank will never ever achieve its
primary goals. In achieving the basic objectives of a bank, credit operation of the bank
is of paramount importance as the greatest share of total revenue of the bank is
generated from it, maximum risk is centered in it and even the very existence of bank
depends on prudent management of its credit policies & strategic planning. The
failure of a commercial bank is usually associated with the problem in credit
management not only features dominant in the assets structure of the bank. It is
certainly importance to the success of the bank also.
CREDIT MANAGEMENT OF JBL
JBL has been established with the objective of providing efficient & innovative
banking services to the people of all sections of our society. Towards attainment of its
goals & objectives, the bank pursues diversified credit policies & strategic planning in
credit management. To name a few, the bank has extended micro credit, consumers
durable scheme loans, house building loans etc. to cater to the needs of the
individuals, which in turn has helped thousands of families. The bank also extends
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loan in the form of trade finance, industrial finance, export & import finance etc. The
bank’s credit policies aimed at balanced growth & harmonious development of al the
sectors of the country’s economy with top most priority to ensure quality of lending
by averting growth of non-performing assets.
CREDIT RISK MANAGEMENT OF JBL
Credit risk is the possibility that a borrower will fail to meet its obligation in
accordance with agreed terms. Credit risk may arise due to unwillingness of the
counter party or adverse economic condition. JBL has established a robust CRM
system to proactively manage loan portfolio in order to minimize losses. It has
significantly improved risk management culture & established standard for
segregation of duties & responsibilities relating to credit operation of the bank. The
major steps taken by JBL to implement CRM guidelines are:
• It has formulated its own Credit Policy Guidelines in line with the core risk
guideline of Bangladesh Bank
• The policy takes in to account the sectoral concentration & specific industry
exposure & cap is set in the policy
• Head Office organizational structure has been segregated in line with CRM
guideline (credit marketing, credit approval & credit administration activities
have been separated)
• Borrower’s risk grade are assigned & mentioned in the credit proposal
• All disbursement is authorized centrally in the computer system only after
confirming fulfillment of documentation requirement as per sanction term.
There is no scope of disbursement without approval of the competent
authority.
• Credit approval authority has been clearly defined in the policy
• Strong monitoring of loan portfolio is ensured by separate credit monitoring
department
Organizational chart of JBL (Agrabad Branch)
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EVP
VP
SEO in charge GB SAVP in charge F.EX.

FAVP in charge credit
JAVP Import
CASH Export
SEO Cash JAVP

EO FEO FEO SEO
Officer
SEO Remittance
EO SEO
Officer Probationer
General Officer
EO FEO FEO
Accounts
FEO FEO
FEO SEO
Clearing
Officer
FEO
General
Hierarchy of credit section
First Assistant Vice

President
Junior assistant Vice

president
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Senior executive officer (2)
Executive Officer (2)
Credit principle:
i) The bank shall provide suitable service and product for the market in which it
operates. Product innovation shall be a continuous process.
ii) Loans and advanced shall normally be financed from customer deposit and not out
of temporary fund or borrowing from money market.
iii) Credit facilities shall be allowed in a manner so that credit expansion goes on
ensuring quality i.e. no compromise with the banks standard of excellence. Credit is
extended to customers who will complement such standards.
iv) all credit extension must be comply with the requirements of banks memorandum
and article of association, bank companies act as amended from time to time,
Bangladesh bank s instructions circulars, guidelines and other applicable laws, rules
and regulations.
v) The conduct of the loan portfolio should contribute, within defined risk limitation
,to the achievement of profitable growth and superior return on the banks capital.
vi) Credit advancement shall focus on the development and enhancement of
customer’s relationship and shall be measured on the basis of the total yield for each
relationship with a customer, though individual transaction should also be profitable.
vii) Credit facilities will be extended to those companies/ person, which can make
best use of the facility thus helping maximize our profit as well as economic growth
of the country
viii)Diversification the portfolio shall be well diversified sector wise, industry wise,
geographical area wise, maturity wise, size wise, mode wise, and purpose wise.
Concentration of credit shall be carefully avoided to minimize risk.
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ix) Remunerative: if credit facilities are granted on a transaction/ one- off basis, the
yield from the facility should be commensurate with the risk.
x) Loan pricing: loan pricing shall deepen on the level of risk and type of securities
offered. Rate of interest in the reflection of risk in the transaction. The higher the risk,
the higher is pricing .interest rate may be revised from time to time in view of the
change in the cost of fund and market condition . Effective yield can be enhanced by
requiring the customer to maintain deposit to support borrowing activities. Yield may
be further improved by realizing management fee, commitment fee, service charge etc
where possible.
xi) Proper staffing: proper analysis of credit proposal is complex and required high
level of numerical as well as analytical ability and common sense. To en sure
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, , who have got the right aptitude, formal
training in credit risk analysis, banks credit procedures as well as required experience
CREDIT FACILITIES PARAMETER
1. Maximum Size:
a. Directives of Bangladesh Bank is meticulously complied in respect of
maximum size single customer/group exposure as revised from time to
time. Presently decided that total outstanding financing facilities to any
single person or organization of a group shall not at any point of time
exceed 35% of bank’s total capital subject to the condition that the
maximum outstanding against fund based financing facilities don’t
exceed 15% of the total capital. Non-funded credit facilities can be
provided to a single large borrower. But under no circumstances,
the total amount of the funded & non-funded credit facilities shall
exceed 35% of bank’s total capital.
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b. Loan sanctioned to any individual enterprise or any organization of a
group amounting to 10% or more of bank’s total capital shall be
considered as large loan.
c. Credit limit in each case shall be fixed after assessment of actual
business need maintaining required debt equity ratio, considering debt
service coverage ratio, pay back period, security coverage etc.
2. Maximum Tenor:
a. Short term loan: Maximum period 12 months.
b. Medium term loan: Loan period shall be for more than 12 months & up
to 36 months.
c. Long term loan: Loan period shall be for more than 36 months.
3. Securities:
The credit facilities have to be secured by both primary & collateral security
of substantial value & quality but the security requirements can be flexible for
borrowers having lower business risks. In case of trading business, the trading
item or stock to be hypothecated & insurance for appropriate amount covering
necessary risk with enlisted insurance company. Collateral securities to be
properly valued by enlisted independent surveyor & the recommending branch.
Assets pledge as security should be properly insured. Financial instruments pledge
as security should be properly liened & verified.
CREDIT CATAGORIES
Loan & Advances have primarily been divided into two major groups:
a) Fixed Term Loan: These are the advances made by the bank with fixed
repayment schedules. The term of loan are defined as follows:
• Short term: up to 12 months
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• Medium term: more than 12 & up to 36 months
• Long term: more than 36 months
b) Continuing Credits: These are the advances having no fixed repayment
schedule, but have an expiry date at which it is renewable on satisfactory
performance.
Further all categories of loans are accommodated under the 8 sectors as under:
I. Agriculture: Credit facilities to the agricultural sector falls under this category.
It is subdivided in to two major heads:
• Loans to primary producers: This sector of agricultural financing refers
to the credit facilities allowed to production units engaged in farming,
fishing, forestry or livestock.
• Loans to input dealers/distributors: It refers to the financing allowed to
input dealers & distributors in the agriculture sectors.
II. Term loan for Large & Medium Scale Industry: These categories of advances
accommodate the medium & long term financing for acquiring capital
machinery of new industries. Term financing to tea gardens may also be
included in this category depending on the nature & size.
III. Term loans to Small & Cottage Industry: No short term or continuing credits
are to be included in this category. Medium & Long term credits are also
included under this category.
IV. Working capital: Loans allowed to the manufacturing units to meet their
working capital requirements, irrespective of their size-big, medium or small,
fall under the category. These are usually continuing credits & as such fall
under the head ‘cash credit’.
V. Export Credit: Credit facilities allowed to facilitate export of all items against
L/C & confirmed export orders fall under this category. It is accommodated
under the heads ‘Export Cash Credit (ECC)’, ‘Packing Credit (PC)’, ‘Foreign
Documentary Bills Purchased (FDBP)’, ‘Local Export Bills Purchased
(LEBP)’ etc.
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VI. Commercial Lending: Short term loans & continuing credits allowed for
commercial purposes other than export fall under this category. This category
of advances are allowed in the form of ‘Loan against Imported Merchandise
(LIM)’, ‘Loan against Trust Receipt (LTR)’, ‘Payment against Import
Documents (PAD)’, ‘Secured Overdrafts (SOD)’, ‘Cash Credit (CC)’, ‘Loan
(Gen.)’ etc.for commercial purposes.
VII. Others: Any loan that does not fall in any of the above categories is
considered under the category ‘others’. It includes loan to transport
equipments, construction works including housing, work order finance,
personal loans etc.
VIII. SME Financing: The role of Small & Medium Enterprise is very crucial in the
economic development of the country. JBL has separate SME financing
scheme duly approved by the board. There are several products, modalities &
loan ceiling for SME financing.
TYPES OF LOAN & ADVANCE AVAILABLE IN AGRABAD BRANCH

Continuous loan:
 C/C (H) = Cash Credit (Hypothecation)
 SOD (FO) = Secured Overdraft
 SOD(G) = Secured Overdraft (GENERAL)
 SOD(FDR)= secured Overdraft against Fixed deposit receipt
2. Demand Loan:
 LDBP= local Documentary Bill Purchase

 PAD(cash )= Payment against document
 PAD(Inland)= payment against document
 ECC = Export cash credit
 IS = Investment under Sifco
 Loan (general)
 LTR(Quarterly) =loan trust recite
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3. Term Loan:
 Up to five years which is installment basis
 Above five years as like-
• CCS= Consumer Credit Schemes
• Loan against staff house building
• Lease Financing
• Loan against house building
• Pension deposit scheme
• Personal loan
Basic charge documents:
Documents common to all sorts of loans and advances are specified below.
Demand promissory note: DP note is an unconditional written promise made by the

borrower to the bank to repay the amount of loans / advances at a fixed or
determinable future date along with interest at stated rate.
Letter of arrangement:
The borrower undertakes to remain liable on the D.P. Note and other loan
documentation even if the liabilities are fully or partially adjusted during the tenure of
the credit facility and even through the account may show credit balance form time to
time.
Letter of revival:
The document refers to the law of limitation whereby documents become time barred
after 3 years form the date of execution. The period of limitation within which a sent
for recovery of the overdue loans/ Advances to be filed the ordinary period of 3
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(Three) years form the date on which the facility was extended. The limitation period
for mortgage is 12 years beginning on the date of the mortgage deed?
The borrower through “Letterer of revival" confirms having precluded enforcement of

limitation law, and also confirms to remain liable on promissory Note and other
documents executed notwithstanding the law.
Other Charge documents:
♦ Letter of Hypothecation with supplementary Agreement.

♦ Letter of pledge with supplementary Agreement.
♦ Letter of Guarantee.
♦ Letter of Trust Receipt
♦ Letter of Lien
♦ General letter of counter guarantee.
♦ Letter of indemnity.
♦ Credit sanction advice accepted by the borrower.
Legal Documents:
Memorandum and Article of Association (Limited Company)
♦ Registered partnership deed (Limited company)

♦ Trade license.
♦ Board resolution covering corporate borrower power and execution of security
documents (Limited company)
If a man or organization wants to give loan or advance they must fulfill and submit
the following types of documents and other necessary certificate.
C/C (H)
Common Documents
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1. DP note= Promissory note
2. Letter of arrangement.
3. Letter of authority
4. Letter of acceptance
Other Documents:
1. letter of continuity
2. letter of Hypothecation
3. Letter of personal guarantee
4. Memorandum of title deeds
CC(P)
Common Documents:
1. DP note= promissory note
2. letter of arrangement
3. letter authority
4. letter of acceptance
Other Documents:
1. Letter of Lodgment
SOD (FO)
Common Document:
4. Letter of Acceptance
Other Documents:
1. Letter of continuity
2. letter of Hypothecation
3. letter of personal Guarantee
4. Letter of plan
5. letter of Encasement
SOD (G)
Common Documents
27
4. Letter of Acceptance
Other Documents:
1. Letter of General Hypothecation
Common Documents Term Loan:
3. letter Authority
Other Documents:
1. Letter of work order
2. letter of mended
3. letter of power authority
4. letter of collateral
5. letter of despatchment
Transport Loan
Common Documents:
3. Letter Authority
Other Documents:
1. Joint Registration
2. Letter of mended
3. Personal Guarantee
4. First class insurance Certificate
House Building Loan
Common Documents:
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3. Letter Authority
Other Documents:
1. Encumbered Certificate
2. Tax-payment Certificate
CHARGES OF INTEREST RATES
Sl No. Particulars Rate Of

Interest
O1. Cash credit hypothesis(CC) 13%
02 Export cash credit(ECC) 13%

03 Investment under SIFCO 13%
04 Local documentary bill purchase(LDBP) 13%
05 Loan against staff hours building 13%
06 Lease finance (monthly) 13%
07 Loan against house building 13%
08 Loan(general) 13%
09 Loan against trust recite(quarterly)(LTR) 13%
10 Payment against document(inland)(PAD) 13%
11 Payment against document(cash)(PAD) 13%
12 Pension deposit scheme(PDS) 13%
13 Personal loan(PL) 13%
14 Consumer credit scheme(CCS) 13%
15 SOD Against Financial Obligation 13%
(PSP,BSP)
16 SOD Against FDR 13%
17 SOD (General) 13%
Different Types Of Securities Under Loan & Advance:

 FDR
 Sanchaya patras.
 Share.
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 Debenture.
 Gold.
 Insurance Policy.
 Provident Fund.
 Transport.
 Land Building Machinery.
 L/C
Common ways of charging securities under loan & advance:
1. Lien
2. Pledge
3. Hypothecation
4. Mortgage
5. Assignment
6. Set-off
1. Lien:
Lien means right to hold the securities till the liability is adjusted. For excusing the
right of lien the following condition to be fulfilled:
 The security over which the right is to be executed must be in possession of
the creditor who will exercise it.
 There must be a lawful debit due to the person in possession of the goods by
the owner of the goods.
2. Pledge:
Pledge may be define as the transfer of possession of goods and produce by a debtor
at his creditor as security for the payment of a debt or the fulfillment of some
obligation by the transfer. The essence of pledge is that possession passes to the
pledge but legal ownership remains with the pledge. Only movable property can be
pledged.
3. Hypothecation:
Hypothecation means the charging of property to secure debt while the possession and
ownership of the property remain with the debtor. A deed of hypothecation gives the
bank the right to sell the goods if the loan is not repaid.
30
4. Mortgage:
Mortgage is a transfer of interest in specific immovable property security by the
owner for the payment of debt. Mortgage is mainly two types such as:
 Equitable Mortgage.
 Legal Mortgage.
5. Assignment:
An assignment means a transfer by one person of a right, property or debt (existing or
future) to another person. The most common examples of assignment are:
 Contract money due from government and semi government body.

 Supply bills
 Books debts
 Life insurance policy
6. Set off:
Set off means the total or partial margining of claims of one person against another to
counter claim by the later against the former. It is combining of accounts between
debtor and creditor; so as to arrive at the net balance payable to one or the other.
Preferable ways of charging securities:
JBL usually applies lien & Hypothecation as the ways of charging securities. But if
necessary, bank can consider the other ways of charging securities.
Segregation of duties
Following credit related function of the bank shall be segregated/separated and to be
done by separate units/set of people:
i) credit marketing /relationship(corporate devotion)
ii) credit approval / credit risk management(CRM)
iii) Credit administration(documentation & disbursement& monitoring)
iv) Credit recovery.
The purpose of the segregation is to improve the knowledge level and expertise in
each department, to impose control over the disbursement of sanctioned loan facilities
31
to avoid conflict of interest, compromise and to ensure quality of assets through
transparent process.
CREDIT RISK MANAGEMENT UNIT
The credit risk management unit shall perform interlaid the following duties:
a) Assess risks inherent in the credit proposal sent by corporate division & also
evaluate proposed facility pricing based on risks, security, structuring and
terms & conditions to suit the business condition and to protect bank’s
interest.
b) Compliance to the rules and regulations of the bank & all regulatory
authorities and laws of the country and to advise the corporate division for
rectification.
c) Advise the corporate division about changes, if required, in the structure and
terms and conditions of the proposed facility.
d) Process credit proposal for approval of the competent authority.
e) Issue sanctions advice for credit facilities or decline.
f) Maintain limit sanction register.
g) Review risk grading of the customer from time to time based on the early alert
report & downgrade proposal submitted by corporate division.
h) Handover loan to the credit monitoring & recovery unit as and when it is
degraded to special mention or below
MAJOR FUNCTIONS OF CRM
a) To update bank’s credit policy/lending guideline, procedures and control

mechanism related with all credit risks arising from corporate banking and
retail banking etc.
b) To approve credit proposal received from corporate division within delegated
authority & to recommend to the higher authority if it is beyond delegation.
c) To provide advice regarding all credit matters to corporate division.
d) Periodical review of different types of credit, maintain effective follow-up and
supervision & take all possible measures in time to save from classification.
32
DUTIES AND RESPONSIBILITIES OF CRM
a) Review credit proposals sent by corporate division

b) Review on a periodical basis in the light of structuring, adequacy of security,
pricing & profitability, financial analysis, form & content, performance,
turnover repayment
c) Revise & ratify borrower’s risk grade developed by corporate division
d) Review delegated credit approval authorities on an annual basis
e) Review approval procedures of retail credit from time to time
f) Review and update bank’s credit manual & credit operating procedures on an
annual basis
g) Conduct industry analysis & detect risk involved with each industry
h) Formulate strategy to minimize risk of lending to specify industry
i) Guide & educate officers of all units of credit division and corporate division
LENDING PRINCIPLES OF JBL
The division of the bank responsible for analyzing & recommendations on the fate of
most loan applications is the credit department. Experience has shown that this
department must satisfactorily answer 3 major questions regarding each loan
applications:
1. Is the borrower creditworthy?
2. Is the loan agreements properly structured & documented?
3. Has the bank being able to perfect its claim on the assets or securities?
Let’s look in turn at each of these 3 key issues a bank must take on every loan request
Creditworthiness of the borrower:
The question that must be dealt with before any other is whether or not the customer
can service the loan i.e. pay out the credit when due, with a comfortable margin for
error. This usually involves a detailed study of Six C’s of the loan application:
33
Character, Capacity, Cash, Collateral, Condition and Control. All must be satisfactory
for the loan to be a good one from the lenders point of view.
1. Character:
The loan officer must be convinced that the customer has a well-defined
purpose for requesting bank credit & a serious intention to repay. If the officer is
not sure exactly why the customer is requesting a loan, this purpose must be
clarified to the bank’s satisBfaction. Responsibility, truthfulness, serious
purpose & serious intention to repay all monies owed make up what a loan
officer calls character.
2. Capacity:
The loan officer must be sure that the customer requesting credit has the
authority to request a loan and the legal standing to sign a binding loan
agreement. This customer characteristic is known as the capacity to borrow
money. For example, in most states a minor cannot legally be held responsible
for; thus, the bank would have great difficulty collectors on such a loan.
3. Cash:
This key feature of any loan application centers on the question: does the
borrower have the ability to generate enough cash, in the form of cash flow, to
repay the loan? In general, borrowing customers have only three sources to draw
upon to repay their loans: (a) cash flows generated from sales or income, (b) the
sale or liquidation of assets or (c) funds raised by issuing debt or equity
securities. Any of these sources may provide sufficient cash to repay a bank
loan.
4. Collateral:
In assessing the collateral aspect of a loan request, the loan officer must ask,
does the borrower possess adequate net worth or own enough quality assets to
provide adequate support for the loan? The loan officer is particularly sensitive
to such features as the age, condition and degree of specialization of the
borrower’s assets.
5. Conditions:
34
The loan offices and credit analyst must be aware of recent trends in the
borrower’s line of work or industry and how changing economic conditions
might affect the loan.
6. Control:
The last factor in assessing a borrower’s creditworthy status is control which
centers on such questions as whether changes in law and regulation could
adversely affect the borrower and whether the loan request meets the bank’s and
the regulatory authorities standards for loan quality.
Structure of the loan agreement:
A properly structured loan agreement must also protect the bank & those it represents-
principally its depositors & stockholders- by imposing certain restrictions on the
borrower’s activities then these activities could threaten the recovery of bank funds.
The process of the recovering the bank’s funds- when & where the bank can take
action to get its funds returned- also must be carefully spelled out in a loan agreement.
Securities:
To make the loan secured, charging sufficient security on the credit facilities is very
important. The banker cannot afford to take the risk of non-recovery of the money
lent. JBL charges the following 2 types of security:
• Primary security: These are the security taken by the ownership of the items
for which bank provides the facility.
• Collateral security: Collateral securities refer to the securities deposited by
the third party to secure the advance for the borrower.
LENDING PROCEDURE OF JBL
The credit officers of the bank, in making loans & extending credit limits, are guided
by the following procedure:
35
 The borrower has to apply to JBL for loan by filling up of a specific
application form
 The lending activities is done under the supervision of the in charge of credit
department, who must follow the principles & procedures of lending policy set
by the central bank
 After receiving loan application form JBL send a letter to head office for
approval with a report of three copies (1A, 2A, 3A). This report is called CIB
report.
 After receiving CIB report from H/O, if the bank thinks that, the prospective
borrower will be a good borrower, then the bank will scrutinize the
documents. In this stage, the bank will look whether documents are properly
filled up & signed.
 Then comes processing stage. In this stage the bank will prepare a proposal. A
proposal contains all relevant information, i.e.
• Name of the client
• Type of loan
• Amount of the loan
• Period of giving loan
• Security
• Date of application
• Financial data etc.
Here needs to mention that, any individual branch has not any right to sanction loan
for the customer. It must need the permission & approval of head office. So, the
branch manager must send a proposal to the H/O before giving loan.
The branch will also send the proposal to Bangladesh Bank for approval, if-
• The proposal limit exceed 10% of bank equity

• The proposal limit against cash collateral securities exceeds 20% of the bank
equity. After getting the proposal it will again come to the head office.
36
• After the processing stage, a sanction advice will be prepared in favor of the
client.
• After the sanction advice, bank will collect necessary documents (charge
documents).
• After receiving all the documents, the bank will disburse the loan to the
borrowers. For withdrawing the loan amount, customer creates a current
account & the loan amount is transferred to this account.
PROCESSING OF CREDIT PROPOSALS
Credit proposals are prepared in the approved format of the bank enclosing/furnishing
documents/papers/information:
• Pre-sanction inspection report containing KYC (Know Your Customer)
• Request for credit limit of customers
• Project profile/profile of business
• Copy of Trade License duly attested
• Copy of TIN Certificate
• Certified copy of Memorandum & Articles of Association, Certificate of
Incorporation, Certificate of Commencement of Business, Resolution of Board
of Director, Partnership Deed(where applicable)
• Personal net worth statement of the Owner/Director/Partner/Proprietor in
Bank’s format
• Three years Balance sheet and Profit & Loss account
• CIB enquiry form duly filled in
• Stock Report duly verified
• Credit Report from other banks
• Indent/Proforma Invoice/Quotation(where applicable)
• Price verification report
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• In case of L/C proposal, detailed performance of L/C during the last year i.e.
No. and date of L/C opened, commodity, L/C value, Date of Creation of PAD,
date of retirement, mode of retirement etc.
• Whether the applicant is Shareholder/Director of Jamuna Bank Limited as per
definition of Banking Companies Act.
• Justification/consideration for the facility
• Credit risk grading for credit facilities irrespective of amount other than
Consumer loan & SME loan covered under Consumer & SME guidelines
• Statement of A/C (CD/SB/CC) for the last twelve months. In case the
customer maintaining account with other bank, Statement of A/C for the last
twelve months of the concerned bank should be furnished
• Declaration of the customer of the name of sister/allied concerns & liabilities
with other banks, if any, & an undertaking to the effect that they have no
liability beyond those declared
• In case of renewed/enhancement of credit facility statement of A/C showing
debit turnover, credit turnover, highest drawing, lowest drawing, total income
earned, detailed position of existing liabilities of the customer i.e. date of
sanction, date of expiry, present outstanding, remarks, if any.
CREDIT RISK ASSESSMENT:

A thorough credit risk assessment should be conducted prior to the sanctioning of
credit facilities. Thereafter it should be done annually for each relation. The result of
this assessment shall be presented in the credit proposal originated from the
relationship manager (presently branch).
In Agrabad branch the relationship manager (presently head of branch) is the owner
of the customer relationship and must ensure the accuracy of the entire credit proposal
submitted for approval. Relationship manager must be familiar with the banks lending
guidelines and should conduct due diligence on the borrower, principle and
38
guarantors. They must conduct necessary KYC (know your customer) part on the
customer and money laundering guidelines be adhered to.
Following risk areas in the credit proposal should be addressed before sending to head
office.
I) Borrower analysis:
A) Share holding
B) Reputation
C) Education
D) Experience –success history
E) Net worth
F) Age etc.
II) Industry analysis:
a) Industry position/threat /prospect.
b) Risk factors pertaining to the industry.
c) Borrower’s position/ share in the industry.
d) Strength, weakness of the borrower compared to the competition etc.
III) Supplier/ buyer risk analysis
Connection of single/few buyer/supplier is addressed.
IV) Demand supply position
V) Technical feasibilities/ infrastructural facilities
VI) Management teams competence
VII) Seasonality of demand
VIII) Debt- Equity ratio
IX) Historical financial analysis
a) An analysis of 3 years historical financial statement.
b) Earning- its sustainability
c) Cash flow
d) leverage
e) profitability
f) Strength and reliability of balance sheet etc.
X) Projected financials
a) Sufficiency of cash flows to service debt repayment.
39
b) Debt service coverage ratio
XI) Trade checking
XII) Account conduct: for existing customer the repayment history, credit turnover,
study of account statement.
XIII) If the customer is proposed to be migrated from other bank, statement of
account from present banker is required.
XIV) Allied deposit with our bank.
XV) Other business with our bank
XVI) Pricing – effective rate of return, return on investment.
XVII) Loan structuring:
Amount , tenor, relation consistency among different modes (L/C & LTR/LIM) are
realistic excessive amount and tenor compared to genuine business need increases the
risk of fund diversion and may adversely impact the borrower repayment ability. Low
does of credit facility compared to genuine requirement also creates problems and
eventual failure.
XVIII) Security a current valuation of collateral security by professional enlisted
surveyor be obtained with photograph and site map. Collaterals within command area
of the respective branch location be preferred. Third party property and vacant land
should be discouraged.
Loans should not be considered based solely on collateral.
Adequacy and extent of insurance coverage should be assessed. Insurance policy

should be obtained from approved insurance company. Premium should be paid
through bank, duly stamped money receipt be obtained. Insurance policy is held by
the bank. The policy is renewed in time. Letter of authority be obtained from the
customer to debit account to pay premium for renewal/enhancement of the policy.
XIX) Succession issue

XX) Margin, volatility of business, high debt (leverage/gearing), over stocking, huge
receivables with long aging, rapid expansion, new business line , management
change, lack of transparency should be addressed.
40
XXI) Adherence to credit guidelines: it should be clarified whether the customer is
agreeable to comply with guidelines in respect of regulatory requirement and bank’s
policy requirement.
Any deviation be clearly identified and maintained.
XXII) Mitigating factors: risk factor be identified and side by side mitigating factors
of those risk should also be mentioned to justify the proposed facility.
XXIII) Environmental factor.
XXIV) Employment generation and contribution to the national economy.
XXV) Name landing: the JBL shall carefully avoid name lending. Lending facility
shall be allowed on business consideration only duly and professionally analyzing
viability of business, assessment of credit requirement, security offered cash flow and
risk level.
Valuation of collateral security
 In case of taking mortgage of land and building as collateral security to secure

bank’s advances the following instruction should be meticulously followed by
the branches:
 In all cases where the value of collateral security is TK25 lac and above the
valuation of the property must be done by enlisted surveyor or the bank. The
property should be physically inspected and jointly verified by enlisted
surveyor or the bank. The property should be physically inspected and jointly
verified by bank’s officers, one of whom should be the branch manager or the
2nd officer. A valuation certificate mentioning marketing market value and
forced sale value should be prepared in the designated from supplied to the
branches and to be jointly signed by the above mentioned two inspecting
officers of the bank .the forced sale value of the collateral security will have to
be 1.5 times higher than the facility/ facilities allowed unless specifically
waived by the approving authority giving full justification.
41
 “a site plan” and “map” along with 3r size distinct photographs of the
mortgaged property covering full exposure from 3 angles mentioning detailed
particulars on the back of the photographs duly authenticated by the
authorized officer(s) to be obtained by the branches.
 It should be ensured that the collateral security is in the physical possession of
the mortgagor(s) and the mortgagor’s /owner’s has /have valid title over it.
 A certificate from the banks lawyer to be obtained that the mortgage formality
has been properly created.
 Vacant land and third party property be discouraged as mortgage.
 Kutcha and temporary structure on the land be excluded from valuation.
 In case of third party property, photograph of the mortgagor be obtained duly
attested by the borrower and an affidavit before 1st class magistrate be
obtained.
 Registered mortgaged along with registered power of attorney in favor of the
bank to sell the property without intervention of the court be obtained.
EARLY ALERT SYTEM
An Early Alert Account is one that has risks or potential weakness of a material
nature requiring monitoring, supervision, or close attention by management.
If these weakness are left uncorrected, they may result in deterioration of the
repayment prospects for the asset or in the banks credit position at some future date
with a likely prospect of being downgraded to CG 5 or worse (Impaired status),
within the next twelve months.
Early identification, prompt reporting and proactive management of Early Alert

Accounts are prime credit responsibilities of all Relationship Managers and must be
undertaken on a continuous basis. An Early Alert report (Appendix) should be
completed by the RM and sent to the approving authority in CRM for any account
that is showing signs of deterioration within seven days from the identification of
42
weakness. The Risk Grade should be updated as soon as possible and no delay should
be taken in referring problem accounts to the CRM department for assistance in
recovery.
Despite a prudent credit approval process, loans may still become troubled. Therefore,
it is essential that early identification and prompt reporting of deteriorating credit
signs be done to ensure swift action to protect the Banks interest. The symptoms of
early alert shown in appendix are by no means exhaustive and hence, if there other
concerns, such as a breach of loan covenants or adverse market rumors that warrant
additional caution, an early report should be raised.
Moreover, regular contact with customers will enhance the likelihood of developing
strategies mutually acceptable to both the customers and the bank. Representation
from the bank in such discussions should include the local legal advisers when
appropriate.
An Account maybe reclassified as a regular Account from Early Alert Account status
when the symptom, or symptoms, causing the Early Alert classification have been
regularized or no longer exist. The concurrence of the CRM approval authority is
required for conversation from Early Alert Account status to regular Account status.
Relationship Manager shall ensure that call/inspection is regularly made on the clients
documented the outcome of the visit in the form of call/visit report.
Call reports shall be analyzed to ensure that the affairs of the business of the borrower
is being run on expected line and there is no material change in the status of the
borrower.
Relationship Manager regularly monitors performances of the customers business as

well as reputation, status and prepares a status and prepares a status report.
Relationship Manager prepares Early Alert Report within 07(seven) days after
identification of weakness and sign of deterioration.
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Credit risk grading:
Credit risk grading is an important tool for credit risk management as it helps the bank
& 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.
Bangladesh bank expects all commercial bank to have a well defined credit risk
management system which delivers accurate and timely risk grading .this manual
describes the element of an effective internal process for grading credit risk. It also
provides a comprehensive, but generic discussion of the objectives and general
characteristics of effective credit risk grading system .in practice ,a bank’s credit risk
grading system should reflect the complexity of its lending activities and the overall
level of risk involved.
Definition of credit risk grading (CRG)

 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.
44
 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 system 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
credit to ensure a common standardized approach to assess the quality of
individual obligator, credit portfolio of a unit, line of business, the branch or
the bank as a whole.
 As evident the CRG output would be relevant for individual credit selection,
wherein a borrower or a particular exposure/ facility is rated. The other
decision would be related to pricing (credit – spread) and specific features of
the credit facility. These would largely constitute obligator level analysis.
 Risk grading would also be relevant for surveillance and monitoring, internal
MIS and assessing the aggregate risk profit of a bank. It is also relevant for
portfolio level analysis.
Number and short name of grades used in the CRG

The purposed CRG scale consists of 8 Categories with short names and number are
provided as follows:
GRADING SHORT NAME NUMBER

Superior SUP 1
45
Good GD 2
Acceptable ACCPT 3
Marginal/watch list MG/WL 4
Special mention SM 5
Sub-standard SS 6
Doubtful DF 7
Bad & loss BL 8
How to compute credit risk grading:

Step#1 Identify all the principal risk components
Credit risk for counterparty arises from an aggregation of the following:
 Financial risk
 Business/ industry risk
 Management risk
 Security risk
 Relationship risk
Each of the above mentioned key risk areas require be evaluating and aggregating to
arrive at an overall risk grading measure.
A) Evaluation of financial risk: risk that counterparties will fail to meet

obligation due to financial distress. This typically entails analysis of financial
i.e. analysis of leverage, liquidity, profitability & interest coverage ratios. To
conclude, this capitalizes on the risk of high leverage, poor liquidity, low
profitability & insufficient cash flow.
B) Evaluation of business/ industry risk: risk that adverse industry situation or
unfavorable business condition will impact borrower’s capacity to meet
obligation .the evaluation of this category of risk looks at parameters such as
business outlook, size of business, industry growth, market competition &
barriers to entry/ exit. To conclude, this capitalizes on the risk of failure due to
low market share& poor industry growth.
C) Evaluation of management risk: risk that counterparties may default as a result
of poor managerial ability including experience of the management, its
succession plan and team work.
46
D) Evaluation of security risk: risk that the bank might be exposed due to poor
quality or strength of the security in case of default. this may entail strength of
security & collateral, location of collateral support
E) Evaluation of relationship risk: these risk areas cover evaluation of limits
utilization, accounting performance, conditions/ covenants compliance by the
bower and deposit relationship.
Step #2 Allocate weight ages to principle risk components:
According to the importance of risk profile, the following weight ages are
proposed for corresponding principal risk.
Principal risk components: Weight
 Financial risk 50%
 Business risk 18%
 Management risk 12%
 Security risk 10%
 Relationship risk 10%
Step #3 Establishing the key parameters
Principal risk components: key parameters

Financial risk: Leverage, liquidity, profitability & coverage
ratio.
Business risk: Size of the business, age of business, business
outlook. Industry growth, competition & barriers
to business
Management risk: Experience, succession & term work.
Security risk: Security coverage collateral coverage and
support.
Relationship risk: Account conduct, utilization of limit.
Compliance of covenants condition & personal
deposit .
Step # 4 Assign weight ages to each of the key parameters.
Principal risk components: Key parameters weight
47
Financial risk 50%
=>Leverage 15%
=>Liquidity 15%
=>Profitability 15%
=>Coverage 5%
Business/ industry risk 18%
=>Size of the business 5%

=>Age of business 3%
=>Business outlook 3%
=>Industry growth 3%
=>Market competition 2%
=>Entry / exit barrier 2%
Management risk 12%
=>Experience 5%
=>Succession 4%
=>Team work 3%
Security risk 10%
=>security coverage 4%
=>collateral coverage 4%
=>support 2%
relationship risk 10%
=>account conduct 5%
=>utilization of limit 2%
=>compliance of covenants/
condition 2%
=>personal deposit 1%
Step # 5 Input data to arrive at the score on the key parameters
After the risk identification & weight ages assignment process (as mention above), the
next steps will be to input actual parameter in the score sheet to arrive at the scores
corresponding to the actual parameters.
This manual also provides a well programmed MS Excel based credit risk scoring
sheet to arrive at a total score on each borrower. The excel pro
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Step # 6 Arrive at the credit risk grading based on total score obtained
The following is the proposed credit risk grade matrix based on the total score
obtained by an obligator.
Number Risk Grading Short Name Score

1 Superior SUP  100% cash covered
 Government guarantee
 International bank
guarantees
2 Good GD 85+
3 Acceptable ACCPT 75-84
4 Marginal/ watch list MG/WL 65-74
5 Special mention SM 55-64
6 Sub-standard SS 45-54
7 Doubtful DF 35-44
8 Bad & Loss BL <35
Credit risk grading review:

Credit risk grading for each borrower should be assigned at the inception of landing
and should be periodically updated. Frequencies of the review of the credit risk
grading are mentioned below:
Number Risk grading Short name Review frequency (at least)
1 Superior SUP Annually
2 Good GD Annually
3 Acceptable ACCPT Annually
4 Marginal/watch list MG/WL Half yearly
5 Special mention SM Quarterly
6 Sub-standard SS Quarterly
7 Doubtful DF Quarterly
8 Bad & loss BL Quarterly
A PRACTICAL CASE STUDY ON CREDIT RISK GRADING
Credit risk grading score sheet
Borrower M/S.Abul Khair steel industries limited
Group name (if any) Aggregate score

Branch Agrabad 76
Industry/sector
Acceptable
49
Date of financials 31-dec-08 Risk grading
Completed by MASUM BILLAH
Approved by MD.Zobaidul Islam
Number Grading Short

1 Superior SUP Fully cash secured , secured
by government
2 Good GD 85
3 Acceptable ACCPT 75-84
4 Marginal/watchlist MG/WL 65-74
5 Special mention SM 55-64
6 Substandard SS 45-54
7 Doubtful DF 35-44
8 Bad /loss BL <35
Criteria weight Parameter Score Actual Score

parameter obtained
A. Financial
Risk 50%
1. Leverage (15%) Less than 0.25x 15 0.61 12
debt Equity ratio(x)- 0.26 x to 0.35x 14
times total liabilities 0.36 x to 0.50 x 13
to tangible net worth 0.51 x to 0.75 x 12
0.76 x to 1.25 x 11
all calculations 1.26 x to 2.00 x 10
should be based on 2.01 x to 2.50 x 8
annual financial 2.51 x to 2.75 x 7
statements of the more than 2.75 x 0
borrower (audited
preferred)
2.liquilidiy : (15%) Greater than 2.74 x 15 2.39 13
current ratio(x) – 2.50 x to 2.74 x 14
times current assets 2.00 x to 2.49 x 13
to current liabilities 1.50 x to 1.99 x 12
1.10 x to 1.49 x 11
0.90 x to 1.09 x 10
0.80 x to 0.89 x 8
0.70 x to 0.79 x 7
less than o.70 x 0
50
3.Profitability:(15%) Greater than 25% 15 8.75% 10
Operating profit 20% to 24% 14
margin (%) 15% to 19% 13
(operating profit/ 10% to 14% 12
sales) x 100 7% to 9 % 10
4% to 6% 9
1% to 3% 7
less than 1% 0
4. Coverage (5%)
interest coverage More then 2.00 x 5 2.12 5
ratio (x) – times More than 1.51 x less then
earning before2.00 4
interest &tax (EBIT) More than 1.25 x less than
Interest on debt 1.50 3
More than 1.00 x less than
1.24 2
Less than 1.00 x 0
Total score- financial 50 40
risk
Reference no : Date 16-aug-2009

Borrower M/s. Abul Khair Steel industries limited
B .Business/ industry
risk18%
1.size of business (in BDT >60.00 5 461.68 5
crore) 30.00 – 59.99 4
The size of the borrower’s 10.00 – 29.99 3
business measured by the 5.00 -9.99 2
most recent year’s total 2.50- 4.99 1
sales. Preferably audited <2.50 0
numbers.
2. Age of the business >10 years 3 13 3
The number of year the >5 years 2
borrower engaged in the 2- 5 years 1
primary line of business <2 years 0
3. Business outlook Favorable 3 Stable 2
Critical assessment of Stable 2
medium term prospects of Slightly uncertain 1
industry, market share and Cause for concern 0
economic factors.
4. industry growth Strong (10% +) 3 Good 2
Good (>5%-10%) 2 (>5%-
Moderate (1%-5%) 1 10%)
No growth (<1%) 0
51
5. market competition Dominant player 2 Dominant 2
Moderately competitive 1 player
Highly competitive 0
6. entry/ exit barriers Difficult 2 Difficult 2
Average 1
Easy 0
Total Score 18 16
Business/Industry

C. management risk
12%
1.Experience More than 10 years in
Quality of management the related 5 More than 5
based on total # of year of 5-10 years in the related 10 years
experience of the senior line of 3 in the
management in the 1-5 years in the related
industry. line of 2
No experience 0
2. second line / succession Ready succession 4 Ready 4
Succession within 1-2 succession
years 3
Succession within 2-3
years 2
Succession in question 0
3. Team work Very good 3 Very good 3
Moderate 2
Poor 1
Regular conflict 0
Total score- management 12 12
risk

d. security risk 10%
52
1.security coverage Fully pledged facilities / 4 Simple 1
(primary) substantially cash cover/ hypothecation/
reg. mortg. for HBL negative lien on
assets
Registered hypothecation 3
(1st charge/ 1st pari passu
charge)
2nd charge/inferior charge 2
simple hypothecation / 1
negative lien on assets
no security 0
2. collateral coverage Registered mortgage on No collateral 0
(property location) municipal corporation /
prime area property 4
Registered mortgage on
pourashava / semi- urban
area property 3
Equitable mortgage or no
property but plant and
machinery as collateral 2
Negative lien on collateral 1

No collateral 0
3. support (guarantee) Personal guarantee with Personal 2
high net worth or strong guarantee with
corporate guarantee 2 high net worth
or strong
Personal guarantees or corporate
corporate guarantee with guarantee
average financial strength 1
No support/ guarantee 0
Total score –security 10 3
risk

E. relationship
53
risk
10%
1. account More than 3 years accounts with 5 Account 2
conduct faultless recorded having
satisfactory
Less than 3 years accounts with 4 dealing with
faultless some late
payments
Account having satisfactory
dealing with some late payments 2
Frequent past dues& irregular

Dealing in account 0
More than 60% 2 90.00% 2
2. utilization of 40% - 60% 1
limit ( actual/ less than 40% 0
projection)
3. compliance of Full compliance 2 Some non 1
covenants/ Some non compliance 1 compliance
conditions No compliance 0
4. personal Personal account of the key 1 No 0
deposits business sponsors/ principals are depository
maintained in the bank, with relationship
significant deposits
No depository relationship 0
Total score- 10 5
relationship risk
Grand total – all 10 76
risk 0
On the basis of above credit risk grading score sheet what I find out here that, the
“ABUL KHAIR STEEL INDUSTRIES LIMITED” who is the borrower and client of
Jamuna Bank Agrabad branch, scored 76 out of 100.which mean that this industry fall
in 3rd grade in credit risk grading score (which grade refers acceptable -3 {75-84}).So
that the jamuna bank agrabad branch have been decided to give proper loan or credit
facility to ‘Abul Khair Steel Industry Limited’.
Disbursement process and documentation
54
 Authority of approval and disbursement shall be separate. Credit
management unit approves credit facilities while credit administration unit
issues disbursement authority.
 CRM issues loan sanction advice to the branch enclosing therewith a
checklist of documentation to be completed before disbursement to secure
the credit facility.
 The branch completes documentation as per checking and submits a
checklist duly filled in to the credit administration unit, head office, duly
signed by the head of the branch seeking disbursement authority. The
credit administration officer shall countersign the checklist after verifying
the proper execution of documents/ security/ collaterals. The credit
administration officer posted at the branch shall be under administrative
and working control of credit administration unit, head office.
 After getting the documentation checklist from the branch, the credit
administration unit compares the documents obtained with the sanction
letter and prepares officer note for approval to issue disbursement
authority mentioning the exception with reason and definite time schedule
for obtained the same as committed by the head of branch.
 After getting disbursement authority the branches disburse the facility.
 For the credit facility sanctioned by the head of the branch under his
delegation the following procedures shall be followed for disbursement :
a) Loan against financial obligation, inland documentary bills purchased,
L/C, bank guarantee shall be disbursed after signing the documentation
checklist by the head of the branch and countersigned by the credit
administration officer posted at the branch duly verified the
documents.
b) Other funded credit facilities shall be disbursed after getting
disbursement authority from credit administration unit, head office
observing usual formalities.
55
 Lawyers satisfaction certificate to be obtained regarding documentation where
there are securities/ collaterals other then personal guarantee and financial
obligation
 For incomplete documentation temporary waiver to be obtained from the
CRM, head office.
 Excess over limit, if any, shall not be disbursed without pre-fact approval of
head office.
 Corporate division and branches shall maintain credit files of the customers.
Credit division shall maintain customer –wise approval file.
 Search shall be conducted periodically about collaterals both with RJSC and
sub –registrar office about encumbrance of the properties.
 Bank’s legal counsel shall certify the legal documentation, borrower’s legal
standing and enforcement of bank’s interest.
 Mortgage documents shall be properly vetted by bank’s legal counsel.
Registered mortgage of property shall be supported by registered irrevocable power of

attorney favoring the bank to sell the property.
DISBURSEMANT OF LOANS & ADVANCES
Total amount of Loans & Advances for 2009:
Though there was an unfavorable business environment due to world economic

recession throughout the year JBL was in constant efforts to explore different areas of
credit operation & could raise the credit portfolios to Tk. 32287.66 million in 2009
with an increase of Tk. 11250.80 million (53.48%) over that of the preceding year.
The total credit was on 31.12.2008 was Tk. 21036.86 million.
Year 2005 2006 2007 2008 2009
Loans & 11012 12797 16617 21037 32288
Advances
(Tk. in
million)
56
Total amount of Loans & Advances
34.44%
35.00%
30.00%
22.43%
25.00%
17.72%
20.00%
13.64%
15.00% 11.74%
10.00%
5.00%
0.00%
2005 2006 2007 2008 2009
Year
Item wise disbursement of Loans & Advances for 2009:
From this graph, I can say that the maximum portion of the lending has disbursed in
the sector of Term Loans. About 5286.13 million loans & advances have given in this
sector.
Item PAD LTR Staff Other Term HBL ECC IS CCS LF PL

Loans Loan Loan
Amount 430. 4414.0 103.4 1984.2 5286.1 910.1 3.63 140.1 52.6 14.9 286.16
(in 7 4 8 8 3 5 6 5 7
mill)
57
Itemwise Loan & Disburesment
910.15 14.97
140.16
3.63 286.16
52.65 430.7
4414.04
5286.13
103.48
1984.28
Sector wise Loans, Advances & Lease for 2009:
JBL’s credit facilities were concentrated on trade finance, agriculture & related
sectors, project finance, SME finance, wholesale & retail trade & structured financing
for developing infrastructure of the country. Jamuna bank always maintain well-
diversified portfolio.
Sector Agricultura Large & Working Export Commercial Small & Others
l Medium Capital Credit Credit Cottage
&Fisheries scale industries
industry
Amount 0.50% 17.35% 34.05% 4.25% 25.57% 4.44% 13.84%
(In %)
58
Agricultural & Fisheries
Sector wise Loans, Advances & Lease Large & Medium scale
13.84% 0.50% 17.35% industries
4.44% Working Capital
Export Credit
25.57% Commercial Credit

34.05%
4.25% Small & Cottage
industry
Others
Geographical location wise Loans, Advances & Lease
Dhaka division Chittagong Sylhet division Rajshahi

division division
Urban (in %) 49.14% 30.13% 0.54% 9.59%
Rural (in %) 1.74% 6.89% 0.54% 1.44%
Geographical Location wise Loans,Advances & Lease (Urban & Rural)
50 49.14
40
30.13
30
Urban
20 Rural
10 9.59
6.89
1.74 0.540.54 1.44
0
Dhaka Chittagong Sylhet Rajshahi
Interest income from Loans & Advance

Year 2005 2006 2007 2008 2009
59
Interest Income 328.92 488.63 455.87 568.77 900.16
from loans &
advances (in
million)
Interest income from loans & advances
1000
900.16
800
600 568.77
488.63 455.87
400
328.92
200
0
2005 2006 2007 2008 2009
Year
From the above analysis it is found that the income from loans & advances is
increased gradually.
Credit monitoring
o Computer generated list of exceptional advanced to be obtained from the
branches on daily basis which shall be examined at CRM and any major
exception be brought to the knowledge of senior management.
o Credit administration unit, head office shall bring the list of documentation
shortfall/ deficiencies to the knowledge of senior management at regular basis
and corrective measures shall be taken.
o Credit turnover in cash credit and overdraft account, past dues, collateral
shortfall, and covenant branch shall be reviewed on a regular basis.
o Recurring transactions are not allowed for one time transaction/limit.
o Credit limit expiry date diary shall be maintained and followed – up.
60
o Use of loan money shall be monitored through analysis of financial
statements.
o Financial statements of the customers shall be obtained on a regular basis and
changes in the financial condition shall be monitored.
o Borrower shall be communicated ahead of time as and when installments are
due.
o Non-payment and late payment of installment shall be communicated to the
senior management.
o CIB report from Bangladesh bank is obtained and reviewed on a periodic
basis.
o Progress against work order / contract financed by the bank is periodically
reviewed.
o Timely renewal of limit shall be ensured informing branch two months ahead
of expiry dates
Classification of the Loan on the Basis of Security
For internal use, banks classify the loan and advance on the basis of how much the
bank is secured in respective of the loan:
1 Classification on the basis of security
 Debts considered good in respect of which the bank is fully secured.

 Debts considered good for which bank holds no other security than the
debtor’s personal security.
 Debts considered good and secured by the personal security of one or more
parties in addition to the personal security of the debtor.
Objective Basis of Classification
In classifying the loan and advance there are four classes in the loan review practiced
in Dhaka Bank Limited. They are as follows:
Unclassified:
61
The loan account is performing satisfactorily in the terms of its installments and no
overdue is occurred. This type of loan and advances are fall into this class.
Substandard:
This classification contains where irregularities have been occurred but such
irregularities are temporarily in nature. To fall in this class the loan and advance has
to fulfill the following factor.
Category of Credit Time overdue (irregularities)

Continuous loan If it is kept irregular for 6 month or
beyond but less then 9 months.
Substandard
Demand Loan Un-recovered for 6 months & above but
less than 9 months from the date of the
loan is claimed.
Repayable within 5years: If the overdue
installment equals or exceeds then the
Fixed Term loan amount of installments due within 6
months.
Repayable more than 5years: If the
overdue installment equals or exceeds the
amount repayable within 12 months.
The main criterion for a substandard advance is that despite these technicalities or
irregularities no loss is expected to be arise for the bank. These accounts will require
close supervision by management to ensure that the situation does not deteriorate
further.
Doubtful:
This classification contains where doubt exists on the full recovery of the loan and
advance along with a loss is anticipated but can not be quantifiable at this stage.
Moreover if the state of the loan accounts falls under the following criterion can be
declared as doubtful loan and advance.
62
Continuous loan If it is kept irregular for 9 month or
Doubtful
beyond but less then 12 months.
Demand Loan Un-recovered for 9 months & above but
less than 12 months from the date of the
loan is claimed.
installment equals or exceeds the amount
Fixed Term loan repayable within 12 months.
overdue installment equals or exceeds the
amount repayable within 18 months.
3.13.4 Bad and Loss:
A particular loan and advance fall in this class when it seems that this loan and
advance is not collectable or worthless even after all the security has been exhausted.
In the following table the criteria to be fulfilled to fall in this category are
summarized:

Continuous loan If it is kept irregular for 12 months or
beyond
Demand Loan Un-recovered more than 12 months and
beyond respectively.
installment equals or exceeds then the
Fixed Term loan amount of installments due within 18
months.
63
overdue installment equals or exceeds
then the amount of installment due within
24 months.
Bad and Loss

Qualitative Judgment Basis of Classification
Beside the above-mentioned objective criteria, Jamuna Bank Limited has other few
qualitative judgment for classifying the loan and advance. Whether any continuous
credit, demand loan, fixed term loan are classified or not on the basis of the above
mentioned objective criterion but if there is any doubt or uncertainty as regarding
their recovery then the loan can be classified on the basis of the Qualitative Judgment.
The qualitative factors that are considered in Jamuna Bank Limited are as follows:
Borrower sustains a loss of capital.
 If the capital of the borrower is impaired due to adverse condition.

 Significant decrease in the¬ value of the security.
 Weakening of bank’s position as creditor due to¬ any reason whatsoever.
 If the loan is extended without the approval of the proper authority.
 Diversification of the funds to uses other than¬ the facility for which the
credit was approved.
 Incorrect information¬ supplied by the borrower or bankruptcy of the
borrower.
 Credit is¬ rescheduled frequently or the rules of rescheduling are violated or a
suit is filed for the recovery of the credit.
Despite the probability of any loans being affected due to the reasons stated above or
for any other reason, if there exists any hope for change of the existing condition by
64
resorting to paper steps, the loan on the basis of qualitative judgment, will be
classified as sub-standard. but even if after resorting to proper steps, there exists no
certainty of total recovery of the loan , it will be classified as “doubtful” and even
after exerting the all-out effort , there exists no change of recovery , it will be
classified as “bad &loss” on the basis of qualitative judgment.
The concerned bank will classify on the basis of qualitative judgment and can
declassify the loans if qualitative improvement does occur.
But if any loan is classified by the inspection term of Bangladesh bank, the same can
be declassified with the approval of the board of directors of the bank. However,
before placing such case to the board, the CEO and branch manager of JBL shall have
to certify that the conditions for declassification have been fulfilled.
Last year the classification of the loan and advance of Jamuna Bank Limited were like
this
Table: Classification position last year. Tk in million
Year Unclassified Substandard Doubtful Bad& loss

2009 31385660.155 10917000 14603000 685338000
CLASSIFIED LOAN
The classified loans & advances stood at Tk.710.86 million in 2009 while it was
Tk.598.31 million in 2008. The percentage of the same was 2.20% in 2009 & 2.84%
in 2008.
Loans Unclassified Special Sub- Doubtful Bad/Loss

Mention Standard(SS) (DF) (BL)
Account(SMA)
Year 2005 2006 2007 2008 2009
Amount 0.46 5.03 5.06 2.84 2.20
(%)
65
Amount of classified loans
6
5.03 5.06
5
4
2.84
3
2.2
2
1 0.46
0
2005 2006 2007 2008 2009
Year
Loan review
Loan review is the most important thing for JBL to do because the conditions under
which each loan is made are constantly changing , affecting the borrower’s financial
condition and his or her ability to repay a loan. Fluctuations in the economy weaken
some businesses and increase the credit needs of others, while individuals may lose
their jobs or contract serious health problems, imperiling their ability to repay any
outstanding loans. The bank’s loan department must be sensitive to these
developments and periodically review all loans until they reach maturity.
While banks today use a variety of different loan review procedures, jamuna bank
also follow some procedure to review the loan, these include:
1)carrying out reviews of all types of loans on a periodic basis –for example, every
30,60, or 90 days the largest loans outstanding may be routinely examined, along with
a random sample of smaller loans.
2) Structuring the loan review process carefully to make sure the most important
features of each loan are checked, including:
a) The record of borrower payments, to ensure that the customer is not falling behind
the planned repayment schedule.
b) The quality and condition of any collateral pledged behind the loan.
66
c) The completeness of loan documentation, to make sure the bank has access to any
collateral pledged and possesses the full legal authority to take action against the
borrower in the courts if necessary
d) An evaluation of weather the borrower’s financial condition and forecasts have
changed, which may have increased or decreased the borrower’s need for bank credit.
e) An assessment of weather the loan conforms to the bank’s lending policies and to
the standards applied to its loan portfolio by examiners from the regulatory agencies.
3) Reviewing most frequently the largest loans, because default on these credit
agreements could seriously affect the bank’s own financial condition.
4) Conducting more frequent reviews of troubled loans, with the frequency of review
increasing as the problems surrounding any particular loan increase.
5) Accelerating the loan review schedule if the economy slows down or if the
industries in which the bank has made a substantial portion of its loans develop
significant problems (e.g. the appearance of new competitors or shift in technology
that will demand new products and new delivery methods).
Loan review is not a luxury but a necessity for a sound bank lending program. That’s
why jamuna bank practice loan review. It not only helps management spot problem
loans more quickly but also acts as a continuing check on weather loan officers are
adhering to the bank’s loan policy.
Credit Recovery
The recovery officer should directly manage account with sustained deterioration (a
risk rating of sub standard 6 or worse). JBL may wish to transfer EXIT accounts
graded 4-5 to the RU for efficient exit based on recommendation of CRM and
corporate banking. Whenever an account is handed over from relationship
management to RU, a handover / downgrade checklist should be completed.
Down grading process should be done immediately and should not be postponed until
the annual review process.
The RU’s primary functions are:
 Determine account action plan/ recovery strategy
67
 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.
 Regular review of grade 6 or worse account.
 Management of classified loans and special mention.
 Accounts and related works writing off B/L loans with the approval off the
board.
The management of problem loans (NPL’ s) must be a dynamic process, and the
associated strategy together with the adequacy of provisions must be regularly
reviewed. A process should be established to share the lessons learned from the
experience of credit losses in order to update the lending guidelines.
NPL ACCOUNT MANAGEMENT:

All NPL’ s should be assigned to an account manager within the RU, who is
responsible for coordinating and administering the action plan / recovery of the
account, and should sever as the primary customer contact after the account is
downgraded to substandard. Whilst some assistance from corporate banking
/relationship management may be sought, it is essential that the autonomy of the RU
be maintained to ensure appropriate recovery strategies are implemented.
Account transfer procedures

Within 7 days of an account being downgraded to substandard (grade 6),a request for
action, RFA and a handover / downgrade checklist should be completed by the RM
and forwarded to RU for acknowledgment. The account should be assigned to an
account manager within the RU, who should review all documentation, meet the
customer, and prepare a classified loan review report, CLR within 15 days of the
transfer. The CLR should be approved by the head of credit, and copied to the head of
corporate banking and to the branch/office where the loan was originally sanctioned
this initial CLR should highlight any documentation issues , loan structuring
weaknesses, proposed workout strategy , and should seek approval for any loan loss
68
provisions that are necessary. Recovery unit ensure that the following is carried out
when an account is classified as sub standard or worse
 Facilities are withdrawn or repayment is demanded as appropriate. Any
drawing or advances should be restricted, and only approved after careful
scrutiny and approval from appropriate executives within CRM.
 CIB reporting is updated according to Bangladesh bank guidelines and the
borrower’s risk grade is changed as appropriate
 Loan loss provisions are taken based on force sale value (FSV).
 Loans are only rescheduled in conjunction with the large loan rescheduling
guidelines of Bangladesh bank. Any rescheduling should be based on
projected future cash flows, and should be strictly monitored
 Prompt legal action is taken if the borrower is uncooperative.
Non –performing loan (NPL) monitoring:

On a quarterly basis, a classified loan review (CLR) prepared by the RU account
manager to update the status of the action /recovery plan, review and assess the
adequacy of provision, and modify the bank’s strategy as appropriate. The head of
credit should approve the CLR for NPL’ s up to 15% of the banks capital, with
MD/CEO approval needed for NPL’s in excess of 15% the CLR’S for NPL’S above
25% of capital should be approved by the MD/CEO ,with a copy received by the
board.
NPL Provisioning and write-off

The guidelines established by Bangladesh bank for CIB reporting, provisioning and
write off of bad and doubtful debts and suspension of interest should be followed in
all cases. These requirements are the minimum, and banks are encouraged to adopt
more stringent provisioning/write off policies. Regardless of the length of time a loan
is past due, provisions should be raised against the actual and expected losses at the
time they are estimated. The approval to take provisions, write off, or release of
provisions/upgrade of an account should be restricted to the head of the credit or
MD/CEO based on recommendation from Recovery Unit. The request for action
69
(RFA) or CLR reporting format should be recommend provisions, write-offs or
release/upgrades.
The RU Account Manager should determine the Force Sale Value (FSV) for accounts
grade 6 or worse. Force Sale Value Is generally the amount that is expected to be
realized through the liquidation of collateral held as security or through the available
operating cash flows of the business, net of any realization costs. Any shortfall of the
Force Sale Value compared to total loan out standings should be fully provided for
once an account is downgraded to grade 7. Where the customers are not co-operative,
no value should be assigned to the operating cash flow in determining Force Sale
Value.
Force Sale Value and provisioning levels should be updated as and when new
information is obtained, but as a minimum, on a quarterly basis in the CLR Follower
Formula is to be applied in determining the required amount of provision:

1. Gross outstanding xxx
2. Less i) cash margin held or fixed deposit/SP
under lien . xxx
ii) Interest in suspense account xxx
3. loan value
(For which provision is to be created before considering
Estimated realizable value of other security/ collateral
held) xxx
4. less : estimated salvage value of security/collateral
Held xxx
Net loan value xxx
Note :the amount of required provision may , in some circumstances , be reduced by

an established realizable forced sale value of (i,e. salvage value) any tangible
collateral held (viz: mortgage of property, pledged goods / or hypothecated goods
repossessed by the bank , pledged readily marketable securities etc).hence, in these
situations it will be advisable to evaluate such collateral, estimate the most realistic
70
sale value under duress and net-off the value against the outstanding before
determining the net loan value for provision purposes. Conservative approach should
be taken to arrive at provision requirement and Bangladesh and Bangladesh bank
guideline to be properly followed.
WHY RECOVERY TAKES SO MUCH TIME

Only because of existing rules & regulation recovery is a time consuming procedure. I
think an example will make this thing clear. Let, Mr. X took loan from Y bank by
giving a land as registered mortgage & become bad. Now bank cannot sell the land
without the permission of court though the land was as registered mortgage to bank.
So bank has to sue against Mr. X & court send notice to Mr. X. but Mr. X can delay
his coming by saying he is sick & asking for more time. Court gives new date to settle
the matter. Then on new date a person came to the court saying that he is the brother
of the client & the land is their father’s property. And most importantly, client didn’t
notify him before give the land to the bank. So court asks him to prove his claim.
Finally, if court gives injunction in favor of bank, they face problem to sell the land.
Because client put mussel men protect the land from bank. Moreover people are not
interested buy land on occasion from court. Finally the interesting thing is most of the
time the same client but the land in another name.
71
CHAPTER # FOUR
72
Major Findings & Recommendations:
Major findings of the study

Some major problems are associated with Jamuna Bank Limited which is as given
below:-
 The general landing processes are too complex & take too much time.
 So many numbers of defaulters.
 Very poor performance on monitoring the loan
 Very poor performance on database management, recording, sorting & filling
system.
Recommendation
 JBL should create a benchmark of time line against loan process and
approval period. If they takes too much time on loan process & approval
period, the clients may move elsewhere.
 They should increase their efficiency on assessment of borrower’s financial
soundness and should monitor continually so that the no of defaulter could
decrease gradually.
 JBL should emphasize on loan recovery system by involving more work
force.
 For the settlement of loan, collecting and analyzing the sources of credit
information is very important. The employees should train properly on this
for knowing and collecting information about the borrower and analyzing on
these sources.
 JBL must improve their logistic support so that they can work efficiently. If
they increase there logistic support they can eliminate there lacking in filling
or storing of the borrower document and the securities also.
 An Early Alert Account system should be introduced to have adequate
monitoring, supervision or close attention by management.( An early Alert
Account is one that has risk and potential weaknesses of a material nature)
73
Conclusion
A banker can not sleep well with bad debts in his portfolio. The failure of commercial
banks occurs mainly due to bad loans, which occurs due to inefficient management of
the loans and advances portfolio. Therefore any banks must be extremely cautious
about its lending portfolio and credit policy. So far Jamuna Bank Limited has been
able to manage its credit portfolio skillfully and kept the classified loan at a very
lower rate a thanks goes to the standard and stringent credit appraisal policy and
practices of the bank.
But all things around us are changing at an accelerating rate. Today is not like
yesterday and tomorrow will be different from today. Given the fast changing,
dynamic global economy and the increasing pressure of globalization, liberalization,
consolidation and disintermediation, it is essential that Jamuna bank limited has a
robust credit risk management policies and procedures that are sensitive to these
changes. To improve the risk management culture further, Jamuna bank limited
should adopt some of the industry best practices that are not practiced currently.
These are mentioned in the recommendation in this report.
74

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CHAPTER # ONE

Objective of the study

Methodology of the study

Sample design: In this internship program, JBL, Agrabad Branch, Chittagong is

• Annual reports of JBL.

Scope of the study

Limitations of the study

In every program or activities, one has to face numerous constraints. During my 3

1. Bank is a busy organization with comparison to others. There are rushes of

Name of the Company : Jamuna Bank Limited.

Legal Form : A Private Limited Company incorporate in

Bangladesh on 2nd April 2001 under the

Registered Office : Chini shalpa Bhaban

Total Number of sponsor directors : 20

Auditor : M/S Howladar Yunus & Co.

Website : www. jamunabankbd.com

MISSION: The Bank is committed to satisfying diverse needs of its customers

Your partner for growth.

Managing Director (M.D.)

Types of credit activities

7 FBP 18 Packing Credit (P.C)

11 SOD (Export 22 IDBP

RETAIL BANKING PRODUCTS

1. Consumer Credit Scheme: For JBL employee to purchase household durable.

2. Auto Loan: For procuring personal transport. Loan size is minimum

8. Doctors Loan: For medical practitioners. Loan size is minimumTk.l.00lac &

Long Term Short Term

Sl. Particulars 2009 2008

Bank is a financial intermediary whose prime function is to move scarce resources in

IMPORTANCE OF CREDIT MANAGEMENT

CREDIT MANAGEMENT OF JBL

CREDIT RISK MANAGEMENT OF JBL

Organizational chart of JBL (Agrabad Branch)

SEO in charge GB SAVP in charge F.EX.

SEO Cash JAVP

First Assistant Vice

Junior assistant Vice

Executive Officer (2)

CREDIT FACILITIES PARAMETER

TYPES OF LOAN & ADVANCE AVAILABLE IN AGRABAD BRANCH

 LDBP= local Documentary Bill Purchase

Demand promissory note: DP note is an unconditional written promise made by the

The borrower through “Letterer of revival" confirms having precluded enforcement of

Other Charge documents:

♦ Letter of Hypothecation with supplementary Agreement.

♦ Registered partnership deed (Limited company)

CHARGES OF INTEREST RATES

Sl No. Particulars Rate Of

02 Export cash credit(ECC) 13%

Different Types Of Securities Under Loan & Advance:

 Contract money due from government and semi government body.

Preferable ways of charging securities:

CREDIT RISK MANAGEMENT UNIT

a) To update bank’s credit policy/lending guideline, procedures and control

a) Review credit proposals sent by corporate division

LENDING PRINCIPLES OF JBL

Creditworthiness of the borrower:

Structure of the loan agreement:

LENDING PROCEDURE OF JBL

• The proposal limit exceed 10% of bank equity

PROCESSING OF CREDIT PROPOSALS

CREDIT RISK ASSESSMENT:

Adequacy and extent of insurance coverage should be assessed. Insurance policy