Internship Report

On
Credit Risk Management: A Study on National Bank Limited,
Chattogram.

Supervised By
Dr. Suraiya Nazneen
Professor
Department Of Finance
University of Chittagong
Prepared by
Tanvir Hasan
ID: 17303081
Program: BBA
Session: 2016-17
Department Of Finance
University of Chittagong

i
 LETTER OF TRANSMITTAL
To

Dr. Suraiya Nazneen

Professor

Department of Finance

University of Chittagong.

Subject: Submission of the Internship Report.

Dear Madam,
This is my pleasure to present my internship report entitled "Credit Risk Management: A Study on
National Bank Limited (NBL) and Chawkbazar Branch, National Bank Limited (NBL), Chattogram"
for your consideration. I have conducted my internship program in National Bank Limited, Chawkbazar
Branch under your close supervision. I have enjoyed much to work on this topic and tried my best to collect
all essential data and information in this regard. Obviously, knowledge and experience I gathered during the
internship period will be helpful in my future professional life. To prepare this, I have gone through published
sources and reports concerning National Bank Limited.

Finally, I would like to express my sincere appreciation and thanks to your kind support while preparing this
report. I will be glad to answer any queries at any time for defense on this report.

Thanking you very much indeed.

Sincerely Yours,
Tanvir Hasan
ID: 17303081
Session: 16-17
Department of Finance
University of Chittagong.

ii
 LETTER OF ENDORSEMENT BY SUPERVISOR

This letter certifies that Tanvir Hasan ID of 17303081, student of Department of Finance, University of
Chittagong has completed the internship report under my supervision. His major subject is Finance. His report
entitled "Credit Risk Management: A Study on National Bank Limited (NBL) and Chawkbazar Branch,
National Bank Limited (NBL), Chattogram" is prepared after performing internship at National Bank
Limited, Chawkbazar Branch, Chattogram as requirement for obtaining BBA degree. I have studied the
report carefully and remark it to be a well written report. He has completed the report by himself. He has been
permitted to submit the report there by. I wish his every success in life.

Dr. Suraiya Nazneen

Professor
Department of Finance
University of Chittagong

iii
 Acknowledgement

First of all my utmost gratitude is towards Allah. To the Beginning of the report, I deem it is my duty to
record my appreciation and gratitude to few people who have helped me to prepare this report in many
ways. I am indebted to the authority for taking the initiative to include practical assignment for the BBA
Students. This has created an opportunity for students to introduce with the practical field of business.

I am deeply indebted to my honorable teacher Dr. Suraiya Nazneen, Professor, Department of Finance,
University of Chittagong, who provided me wholehearted support to prepare my Internship Report on “Credit
Risk Management: A Study on National Bank Limited (NBL) and Chawkbazar Branch, National Bank
Limited (NBL)” and also provided detailed feedback and advice on this report.

I am also grateful to the honorable branch manager A.T.M. Amdadul Hoq and also to the second manager
Mohammad Kibria, Chawkbazar Branch, National Bank Limited, for giving me the valuable opportunity to
do my internship program and supporting me with knowledge and resources. Especially I want to thank, in
the Credit division respectively. I am also grateful to the entire members of the branch as they had always
been there for me when I required. Their active participation to all my queries during my internship has made
this journey a true success. It was my privilege and I feel truly honored working with such a wonderful team.

Finally, I would like to thank my parents who have shown keen interest to make my internship report a success
and to those authors of the books, articles and Journals from whom I took help in course of preparing the
report.

Tanvir Hasan
ID: 17303081
Session: 2016-17
Department of Finance
University of Chittagong

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 PREFACE
The internship, a part of the academic discipline, for the BBA students has been designed to acquire practical
knowledge. As a part of our program, we the Students of the BBA (8th semester) of Department of Finance of
University of Chittagong were divided into some groups. One of the most prominent resource persons of
Finance Department, Dr.Suraiya Nazneen, Professor, Department of Finance, University of Chittagong,
guided our group.

There are two ways to acquire knowledge, one is theoretical and the other is practical. Internship is one of the
important ways to introduce BBA student’s theoretical knowledge with the practical field. Prior to this a
student of Business Administration had little scope to learn practically the pertinent business issues. It is
expected that the integration of knowledge in theories and practices will enable us to become eligible for
business world. Through this program, I have got the chance to acquire some experience in a reputed bank
which is expected to enrich my career.

Finally, it is my earnest and sincere hope that this report would be found useful by the authority of National
Bank Limited.

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 Executive Summary
The report is originated in result of my internship program which I have done as a requirement of BBA
program. This report is completed based on my six weeks internship in National Bank Limited, Chawkbazar
Branch, Chattogram. This is an orientation report that contains the practical work experience of different
tasks in credit department in Chawkbazar Branch of National Bank Limited.

NBL is a scheduled commercial bank under private sector in Bangladesh established under the Banking
Company Act, 1991 & incorporated as a public limited company under Company Act, 1994 on May, 1999.
NBL is one of the top performing 1st generation bank in Bangladesh.

I was given the topic “Credit Risk Management of National Bank Limited: A study on
Chawkbazar Branch”. This report is based on the Credit Risk Management of National Bank Limited
keeping light on the performance of Chawkbazar Branch. I have collected the annual reports of last 5 years
of NBL. To analyze branch performance, I collected Profit and Loss Statement and Balance Sheet of the
bank for the year 2016 to 2020. CRM Manual of NBL, office Circulars, Bangladesh Bank circulars and
study papers were gone through during this period.

This report covers the details of NBL’s practices about credit risk management activities emphasizing the
approval and risk management process. The report mainly emphasizes the sequential activities involved in
credit approval process, analytical techniques used by National Bank for credit analysis as an integral part of
the credit approval process. This report is based on actual information and working procedure practiced for
credit management in NBL in Chawkbazar branch.

These learning experiences are described in details in the various sections of this report. The 1st section of
this report consists of introductory part which has been developed for the proper execution of the entire
report. In the 2nd section, a brief historical background of NBL with its different products & services are
shown where in 3rd section an overview of the Chawkbazar branch is given. In 4th section the credit approval
process and in the 5th section credit monitoring process are explained. In the latter sections some findings
and analysis along with some recommendations are given.

A level best effort was given to prepare this internship paper effective and relevant that can give a realistic
view on the credit risk management of National Bank Limited and the performance of Chawkbazar branch

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 Table of Contents
Cover page…………………………….i
Letter of Endorsement……………..….ii
Acknowledgement…………………….iii
Executive Summary….……………….iv
Preface………………...…………….…v
Table of contents……………................vi-ix

Table of Contents
Chapter 01: Introductory part ................................................................................................................. 1
1.Introduction ................................................................................................................................................ 1
1.2 Origin of the Report ................................................................................................................................. 1
1.3 Objectives of the Report .......................................................................................................................... 1
1.4 Methodology of the Report ..................................................................................................................... 2
1.5 Scope of the Study: .................................................................................................................................. 2
1.6 Limitations of the Study ........................................................................................................................... 2
Chapter 02: Theoretical concept.............................................................................................................. 3
2.1 Credit ........................................................................................................................................................ 3
2.2 Types of Credit: ........................................................................................................................................ 3
2.3 Credit Risk ................................................................................................................................................ 5
2.4 Five Cs of Credit........................................................................................................................................ 5
2.5 Credit Risk Management (CRM) .............................................................................................................. 6
2.6 Credit Risk Management Framework ...................................................................................................... 9
2.6.1 Establishing an appropriate Credit Risk Environment ...................................................................... 9
2.6.2 Organizational Structure for Credit Risk Management .................................................................. 10
2.6.3 Policy and Procedure....................................................................................................................... 13
2.7 Measurement of Credit Risk................................................................................................................... 16
2.8 Credit Concentration Risk ...................................................................................................................... 18
2.9 Data Maintenance ................................................................................................................................. 18

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 2.10 Credit Risk Monitoring & control ......................................................................................................... 18
2.11 Credit Risk Mitigation .......................................................................................................................... 19
Chapter 03: Credit Product of National Bank Limited ............................................................................. 20
3.1 Credit Products....................................................................................................................................... 20
3.2 Credit Card ............................................................................................................................................. 21
3.3 Organizational Structure of Credit Management of National Bank Limited ......................................... 22
3.4 Functional Organogram of Credit Risk Management of NBL ................................................................ 23
Chapter 04: Credit Risk Assessment Guidelines ...................................................................................... 24
4.1 Assessing Credit Risk .............................................................................................................................. 24
4.2 Borrower Evaluation .............................................................................................................................. 24
4.3 Credit Need Assessment and Loan Structuring ...................................................................................... 24
4.4 General Facility Parameters................................................................................................................... 26
4.5 Internal Credit Risk Grading ................................................................................................................... 26
4.6 Credit Risk Grading Matrix ..................................................................................................................... 27
4.7 Credit Risk Grading Process ................................................................................................................... 28
4.8 External Credit Rating System ............................................................................................................... 29
Chapter 05: Credit Documentation & Disbursement Process of National Bank Limited ........................... 30
5.1 Documentation and Disbursement ................................................................................................... 30
5.2 Maintenance of Records of Loan Documents and Credit Files .............................................................. 30
5.3 Security and Support .............................................................................................................................. 31
5.3.1 Acceptable Security/Collateral ....................................................................................................... 32
5.3.2 Type of Acceptable Collateral ......................................................................................................... 32
5.3.3 Quality of Security ........................................................................................................................... 32
Chapter 06: Approval Process & Business Delegation Power.................................................................. 34
6.1 Activities of Credit Operations of National Bank Limited ...................................................................... 34
6.2 Target Customers of NBL ....................................................................................................................... 34
6.3 Principles of Sound Lending ................................................................................................................... 35
6.4 Overall Activities .................................................................................................................................... 36
6.5 Credit Approval Process of NBL.............................................................................................................. 41
Chapter 07: Credit Monitoring Process of National Bank Limited &Techniques to Mitigate Credit Risk ... 45
7.1 Loan Administration............................................................................................................................... 45
7.2 Loan Monitoring Process ....................................................................................................................... 45
7.3 Loan Monitoring at RM Level /Business Head Level .............................................................................. 46

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 7.4 Loan Monitoring at Administration Level .............................................................................................. 46
7.5 CRM Level............................................................................................................................................... 48
7.6 Loan Review ........................................................................................................................................... 50
7.7 Loan Review Committee (LRC) of NBL ................................................................................................... 50
7.8 Problem Loans........................................................................................................................................ 50
7.9 CAUSES of PROBLEM LOANS .................................................................................................................. 50
7.10 Timely Identification of Problem Assets............................................................................................... 51
7.11 Early Alert Process ............................................................................................................................... 52
7.12 Classification, Interest Suspense and Provisioning .............................................................................. 53
7.13 Credit Recovery & NPL Management .................................................................................................. 54
Chapter 8: Finding & Analysis ............................................................................................................... 55
8.1 Chawkbazar Branch Performance, NBL ................................................................................................. 55
8.2 Percentage Amount of Classified Loans of Chawkbazar Branch over the years ................................... 56
8.3 Overall Performance Of National Bank ................................................................................................. 58
8.4 Total Amount of Loans and Advances over the Years ........................................................................... 59
8.5 Amount of Classified Loans over the Years ............................................................................................ 61
8.6 Provision against Loans & Advances ..................................................................................................... 63
8.7 Net Interest Income ............................................................................................................................... 65
8.8 Loan to deposit Ratio (LDR) ................................................................................................................... 66
8.9 Yield on Loans and Advances ................................................................................................................. 68
Chapter 9: Summary and Finding .......................................................................................................... 70
9.1 Summary of the study ............................................................................................................................ 70
9.2 Major challenges of NBL ........................................................................................................................ 71
Chapter 10: Recommendation and Conclusion ...................................................................................... 74
10.1 Recommendations Regarding NBL ...................................................................................................... 74
10.2 Conclusion ............................................................................................................................................ 75
References ........................................................................................................................................... 76

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 Chapter 01: Introductory part

1.Introduction
A healthy banking sector plays an important role for financial stability of a country. At present people are
becoming more conscious about the management of their resources. As the banks do business by lending their
depositor’s money, they are more responsible to manage their Credit portfolio smoothly. In the BBA program,
the internship is one of the vital parts which has to be done by every student. The internship program provides
an opportunity for the students to minimize the gap between the theoretical and practical knowledge and will
help in practical life. After completing my Bachelors of Business Administration (BBA), as a student, I wanted
to complete my internship program from a reputed Bank which would be helpful for my future professional
career. I got this great opportunity to perform my internship program in the National Bank Limited. I have
completed my internship program based on the theoretical and practical knowledge. I was sent to Chawkbazar
Branch, Chattogram. It was six weeks Practical orientation program. This six week journey has helped me a
lot to understand how to apply my theoretical knowledge with my working sector and based on experience I
have prepared the final report.

I have selected Credit Risk Management of National Bank Limited as my concentration topic. I have worked
in Credit Department mainly but I had to work on others departments like Cash, General Banking,
Marketing/Liability departments as I was an intern. As a student of finance, I liked to choose Credit Risk
management as the topic of my internship report.

1.2 Origin of the Report

The internship program is an essential part of the BBA program, which will be helpful to become familiar
with the practical business operation. After the completion of all the courses of BBA program every student
need to complete internship program in any organization. As a student of BBA program of Chittagong
University, I have done six weeks internship in NBL,Chawkbazar Branch. I have worked on “ Credit Risk
Management of NBL”. Credit Risk Management System enables an organization to manage concerns that are
involved in credit approval to manage credit risk. Many phases are covered in between, for instance,
establishing an appropriate credit risk environment, setting up organizational structure for credit risk
environment, formulating policy & procedure.

1.3 Objectives of the Report

Main Objective:
The prime objective of the study is to evaluate the overall credit risk management of Chawkbazar Branch,
National Bank Limited, from the viewpoint of both branch and overall bank perspective. Specific
Objectives:
Under this main objective, the following are the specific objectives:

➢ To highlight the credit products and credit organogram of National Bank Limited. , /.
➢ To know the performance in Credit Risk Management of NBL.
➢ To assess the techniques applied by the bank to minimize the credit risk.
➢ To provide suggestions and recommendations.

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1.4 Methodology of the Report
The study is conducted based on primary and secondary data. The data for this report is collected from
internship experience at bank, brochures, daily position report and different annual reports of NBL. Also
different summary reports of the branch have been examined during preparation of this report & different bar
chart as well as ratios are used for analysis.

Data Collection
Source of data of this report can be divided into two categories.
Primary Sources:
▪ Six weeks practical participation in internship
▪ Face-to-Face conversation with the respective officers and staffs
▪ Relevant file study provided by the officers concerned
▪ Exposure on different desks of the branch
Secondary Data:
Type Sources
Internal ▪ Annual reports of National Bank Ltd,
Sources ▪ Other published documents of the bank,
▪ Website of the Bank

▪ Books
External ▪ Articles
Sources ▪ Journals
▪ Newspapers
▪ Web browsing

1.5 Scope of the Study:

The study would focus on the following areas of National Bank Limited: Credit management system of
National Bank Limited, Procedure for different credit facilities, and Portfolio (Loan or advances) management
of National Bank Limited, Organization structures and responsibilities of management.

1.6 Limitations of the Study

In preparing the report the following limitations have been faced:
i. Such an extensive study requires much more time for effective learning.

ii. Confidentiality of data was another important barrier. Due to some legal obligation and business
secrecy, branch related data was no readily available as expected.
iii. The bankers are very busy with their regular jobs which lead a little time to consult with.

iv. Most of the data used in this report are abstracted from Annual reports of 2020 and earlier,
which may not represent the current scenario.
v. Lack of literatures & research papers on the subject matter in national level.

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 Chapter 02: Theoretical concept

2.1 Credit
Credit is a broad term that has many different meanings in the financial world. In banking terminology, credit
refers to the loans and advances made by the bank to its customers or borrowers. Bank credit is a credit by
which a person who has given the required security to a bank has liberty to draw to a certain extent agreed
upon. It is an arrangement for deferred payment of a loan or purchase.
2.2 Types of Credit:

Real Estate Loan

Financial
Institution Loan

Agicultural Loan

By Purpose Commercial Loan

Individual Loan

Miscellaneous
Loan

Lease Financing
CREDIT
Short - Term

By Duration Mid - Term

Long - term

Funded
By Nature
Non Funded

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By Purpose of the Credit:

Ruse and Hudgins have divided loans into seven broad categories, delineated by their purposes:

Real estate loans are secured by real property – land, buildings, and other structures – and include
short-term loans for construction and land development and longer-term loans to finance the purchase
of farmland, homes, apartments, commercial structures, and foreign properties.

Financial institution loans include credit to banks, insurance companies, finance companies, and other
financial institutions.

Agricultural loans are extended to farms and ranches to assist in planting and harvesting crops and
supporting the feeding and care of livestock.
Commercial and industrial loans are granted to businesses to cover purchasing inventories, paying
taxes, and meeting payrolls.

Loans to individuals include credit to finance the purchase of automobiles, mobile homes, appliances,
and other retail goods, to repair and modernize homes, and to cover the cost of medical care and other
personal expenses, and are either extended directly to individuals or indirectly through retail dealers.

Miscellaneous loans include all loans not listed above, including securities’ loans.

Lease financing receivables, where the lender buys equipment or vehicles and leases them to its
customers.

By Duration of the Credit

Depending on the duration for which loans are given loans can be classified into three categories:

Short-term credits are scheduled to be repaid within one year. Businesses take short-term loans to
meet working capital needs. Short-term loans are usually given against inventory and accounts
receivable. These loans can also be unsecured, such as a line of credit, revolving credit.

Mid-term credits are repaid over a period ranging from one year to five years. Banks customarily
grant such loans against immovable properties. Interest rates on mid-term loans are higher than on
short-term loans.

Long-term credits are the loans whose repayment period extends beyond five years. Long- term loans
are used for constructing plants and factories, construction of a house, purchase of land, equipment,
and machinery. Immovable properties are used as securities for such loans

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By Nature of the Credit
Funded credits or non-documentary credits are given out of the bank’s funds to individuals and
organizations through current accounts or loan accounts. Financed credits include loan, cash credit and bank
overdraft.

Non-funded credits or documentary credits are given through issuing various documents, this form
of credit banks provide the loan by not extending cash but by lending their reputation and good names,
Examples of non-funded credit include a letter of credit (LC), bank guarantee, etc.

2.3 Credit Risk

Credit risk is undoubtedly one of the most crucial issues in the field financial risk management. It can
be defined as a potential loss arises when a debtor or financial instrument issuer is unwilling or unable
to meet its contractual obligation to repay the debt according to the agreed terms with the lenders or
financial institution. It can occur when the counterpart either defaulting or making late payments of
interest or principal. Traditionally, it refers to the risk that a lender may not receive the owed principal
and interest, which results in an interruption of cash flows and increased costs for collection. When
lenders offer mortgages, credit cards, or other types of loans, there is a risk that the borrower may not
repay the loan. Similarly, if a company offers credit to a customer, there is a risk that the customer may
not pay their invoices. Credit risk also describes the risk that a bond issuer may fail to make payment
when requested or that an insurance company will be unable to pay a claim.

Credit risk is not only associated with direct accounting loss but also with economic exposures. This
encompasses opportunity costs, transaction costs and expenses associated with a non-performing asset
over and above the accounting loss. Credit risk not necessarily occurs in isolation. The same source
that endangers credit risk for the institution may also spread it to other risks.

2.4 Five Cs of Credit

The five Cs of credit is a system used by lenders to gauge the creditworthiness of potential borrowers. The
system weighs five characteristics of the borrower and conditions of the loan, attempting to estimate the chance
of default and, consequently, the risk of a financial loss for the lender. The five Cs of credit are character,
capacity, capital, collateral, and conditions.

1. Character

Although it's called character, the first C more specifically refers to credit history: a
borrower's reputation or track record for repaying debts. This information appears on the
borrower's credit reports. Generated by the three major credit bureaus—Experian,
TransUnion, and Equifax—credit reports contain detailed information about how much an
applicant has borrowed in the past and whether they have repaid loans on time. These reports
also contain information on collection accounts and bankruptcies, and they retain most
information for seven to 10 years.

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 2. Capacity:

Capacity measures the borrower's ability to repay a loan by comparing income against
recurring debts and assessing the borrower's debt-to-income (DTI) ratio. Lenders calculate
DTI by adding together a borrower's total monthly debt payments and dividing that by the
borrower's gross monthly income. The lower an applicant's DTI, the better the chance of
qualifying for a new loan.

3. Conditions:

The conditions of the loan, such as its interest rate and amount of principal, influence the
lender's desire to finance the borrower. Conditions can refer to how a borrower intends to
use the money. Consider a borrower who applies for a car loan or a home improvement loan.
A lender may be more likely to approve those loans because of their specific purpose, rather
than a signature loan, which could be used for anything. Additionally, lenders may consider
conditions that are outside of the borrower's control, such as the state of the economy,
industry trends, or pending legislative changes.

4. Capital:

Lenders also consider any capital the borrower puts toward a potential investment. A large
contribution by the borrower decreases the chance of default. Borrowers who can place a
down payment on a home, for example, typically find it easier to receive a mortgage. Down
payments indicate the borrower's level of seriousness, which can make lenders more
comfortable in extending credit.

5. Collateral:
Collateral can help a borrower secure loans. It gives the lender the assurance that if the
borrower defaults on the loan, the lender can get something back by repossessing the
collateral. Often, the collateral is the object one is borrowing the money for: Auto loans, for
instance, are secured by cars, and mortgages are secured by homes. For this reason,
collateral-backed loans are sometimes referred to as secured loans or secured debt.

They are generally considered to be less risky for lenders to issue. As a result, loans that are
secured by some form of collateral are commonly offered with lower interest rates and better
terms compared to other unsecured forms of financing.

2.5 Credit Risk Management (CRM)

Risk Management is a discipline at the core of every financial institution and encompasses all the activities
that affect its risk profile. It involves Identification, Measurement, Aggregation, Planning and Controlling as
well as monitoring.

The effective management of credit risk is a critical component of a comprehensive approach to risk is
a critical component of a comprehensive approach to risk management. It is essential for long-term

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success of any FI. The goal of credit risk management is to maximize an FI's risk-adjusted rate of return
by maintaining credit risk exposure within acceptable parameters.
Steps of CRM Pre-sanction Stage Post-sanction Stage

Risk Identifying

Risk Assess/Measuring

Risk Monitoring ×

Risk Control/Mitigation

Table-1: Steps of CRM

Identification

A bank's risks have to be identified before they can be measured and managed. Typically banks distinguish
the following risk categories:

- Credit risk

- Market risk

- Operational risk

Measurement

The consistent assessment of the three types of risks is an essential prerequisite for successful risk
management. While the development of concepts for the assessment of market risks has shown
considerable progress, the methods to measure credit risks and operational risks are not as sophisticated
yet due to the limited availability of historical data.

Calculation of Credit risk

Credit risk is calculated on the basis of possible losses from the credit portfolio. Potential losses in the
credit business can be divided into

✓ expected losses and

✓ unexpected losses

Expected losses are derived from the borrower's expected probability of default and the predicted
exposure at default less the recovery rate, i.e. all expected cash flows, especially from the realization

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of collateral. The expected losses should be accounted for in income planning and included as standard
risk costs in the credit conditions.
Unexpected losses result from deviations in losses from the expected loss. Unexpected losses are taken
into account only indirectly via equity cost in the course of income planning and setting of credit
conditions. They have to be secured by the risk coverage.

. Aggregation

When aggregating risks, it is important to take into account correlation effects which cause a bank's
overall risk to differ from the sum of the individual risks. This applies to risks both within a risk
category as well as across different risk categories.

Planning and controlling

Furthermore, risk management has the function of planning the bank's overall risk position and actively
managing the risks based on these plans. The most commonly used controlling tools include: Risk-
adjusted pricing of individual loan transactions

✓ Setting of risk limits for individual positions or portfolios

✓ Use of guarantees and credit insurance

✓ Securitization of risks

✓ Buying and selling of assets

Monitoring

Risk monitoring is used to check whether the risks actually incurred lie within the prescribed limits,
thus ensuring an institution's capacity to bear these risks. In addition, the effectiveness of the measures
implemented in risk controlling is measured, and new impulses are generated if necessary

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2.6 Credit Risk Management Framework
Although specific credit risk management practices may differ among FI’s
depending upon the nature and complexity of their credit operations. . The credit risk
management framework will include the followings:

a. Establishing an appropriate credit risk environment

b. Setting up organizational structure for credit risk environment
c. Formulating policy & procedure

2.6.1 Establishing an appropriate Credit Risk Environment

a. Role of Board
The role of directors should have responsibility for approving and
periodically reviewing the credit risk strategy and credit risk policies of the
FI. The strategy should reflect the FI’s risk appetite and the level of
profitability it expects to achieve over various credit risks. The
responsibilities of the board with regard to CRM shall include the
followings:
I. Ensuing that appropriate policies, plans and procedures for credit risk
management are in place;
II. Ensuring the FI implements sound fundamental policies;
III. Defining delegation of credit approving powers
IV. Ensuring that top management as well as staffs responsible for credit
risk management possess expertise and knowledge to accomplish the
risk management function
V. Reviewing trends in portfolio quality and the adequacy of FI’s policies
and procedures are adequate and implemented;
VI. Reviewing the authority delegated to management
VII. Outlining the content and frequency of management report to the board
on credit risk management.

b. Role of Senior Management

Senior management should have responsibility for implementing credit risk strategy
approved by the board of directors and developing policies and procedures for
identifying, measuring and controlling credit risk.
The responsibilities of senior management with regard to credit risk management shall
include:

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 I. Developing credit policies and credit administration procedures for
board approval
II. Implementing credit risk policies to ensure effective credit risk
management process
III. Outlining the content and frequency of management report to the
board on credit risk management and ensuring implementation
IV. Monitoring and controlling the nature and composition of the FI’s
credit portfolio
V. Establishing internal controls and setting clear lines of
accountability and authority VI. Establishing lines of
communication for the timely dissemination of credit risk
management policies, procedures and other credit risk management
information to all respective officials.

c. Role of Business Units

Respective business units should identify and manage credit risk inherent in their
products and activities. FIs should ensure that the risks of products and activities new
to them are subject to adequate risk management procedures and controls before
being introduced or undertaken and approved in advance by the board of directors or
its appropriate committee.

2.6.2 Organizational Structure for Credit Risk Management

a. Credit Risk Management Committee (CRMC): Each FI, depending upon
its size, should constitute a CRMC, ideally comprising of heads of Credit
Risk Management Department (CRMD) , credit department and treasury.

The CRMC should be responsible for-

I. the implementation of the credit risk policy/strategy approved by the board;

II. monitoring credit risk throughout the FI and ensuring compliance;
III. deciding large credit exposure, standards for loan collateral, portfolio management,
loan review mechanism, risk concentration, risk monitoring and evaluation, pricing
of loans, provisioning, regulatory/legal compliance etc.

b. Credit Risk Management Department (CRMD)

To maintain credit discipline and credit management, there should be

separate functional unit independent of loan origination function. Credit

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 policy formulation, credit limit setting, monitoring of credit
exceptions/exposures and review/monitoring of documentations are
functions that should be performed independently of the loan origination
function. Ideally, the FIs should be institute a CRMD for this purpose.

Typical Functions of CRMD include:

I. To follow a holistic approach in management of risks inherent in FIs

portfolio and ensure the risks remain within the boundaries established
by the board or CRMC;
II. The department also ensures that business lines comply with the risk
parameters and prudential limits established by the board or CRMC.
III. Establish systems and procedures relating to credit risk identification,
management information system, monitoring the quality of loan
portfolio and early warning.
IV. The department should undertake portfolio evaluations and conduct
comprehensive studies in the environment to test the resilience of the
loan portfolio.

c. Relationship Management Unit ( RMU) / Marketing Unit :

The responsibilities of RMU include the followings:

I. To act as initiator to contact borrowers at primary stage.
II. To collect and maintain detailed information of borrower’s business and
industry. III. To be responsible for the timely and accurate submission
of credit applications for new proposals.
IV. To highlight any deterioration in borrower’s financial standing.
V. To inform CRMC/approval authority regarding the structuring of
facilities, potential deterioration in accounts.
VI. To inform the borrower after disbursement including borrower’s
compliance with credit terms, identifying early signs of irregularity and
ensuring timely repayments.

To maintain credit files including all correspondence with the borrower,

sufficient information about the financial health of the borrower, repayment
performance etc.

d. Credit Administration:

11
 The credit administration function is critical in ensuring that proper
documentation and approvals are in place prior to the disbursement of
financial facilities. The functions of credit administration includes the
followings:
I. To ensure the completeness of documentation in accordance with
approved terms and conditions;
II. To monitor insurance coverage of assets pledged as collateral and is
properly assigned to the FI;
III. To maintain control over all security documentation.

e. Internal Audit:

Internal audit will randomly test all aspects of CRM in order to determine that:

I. Credit activities are in compliance with the FIs credit

and according policies and procedures , and with the
laws and regulations to which these activities are
subjected to;
II. Existing facilities are duly authorized;
III. Credit exposures are appropriately rated; IV. Credit
documentation is completed.

f. Recovery Unit (RU):

The RU should directly manage accounts with sustained deterioration (a credit
grading of Sub
-Standard or worse). FI may wish to transfer EXIT accounts graded 4 to
5 the RU for efficient exit based on recommendation of CRMC. The RU’s
primary functions are to:
I. Determine action plan/recovery strategy of loan account;
II. Pursue all options to maximize recovery;
III. Ensure adequate and timely loan loss provisions are made
and regular review of grade 6 or worse accounts.

12
2.6.3 Policy and Procedure

Credit Risk Policy (CRP)

Every FI must have a credit risk policy as part of its overall credit risk
management framework and get it approved by the board. It should at
least include: I. Detailed and formalized credit evaluation process;
II. Credit origination, administration and
documentation procedures; III. Formal credit approval
process;
IV. Risk identification, measurement, monitoring and control
techniques; V. Internal risk rating systems;
VI. Risk acceptance criteria;
VII. Roles and responsibilities of staffs involved in origination and
management of credit
VIII. Pricing of credits;
IX. Guideline of write-offs;
X. Guidelines on management of problem loans
XI. The process to ensure appropriate reporting

Limit Setting

FIs will consider the credit strength of the borrower, purpose of credit,
economic conditions and the risk appetite while setting credit limits. FIs
will review credit limits periodically, at least semi-annually, to reassess
the credit quality and potentiality of the borrowers.

Credit Origination

FIs should meticulously conduct credit and risk assessment before

granting any credit facility. The results of this assessment should be
presented in credit proposal that will be originated by the respective
relationship manager. This will be further reviewed by the CRMD for
identification of risk and provable mitigation.

13
Credit proposal prepared for approval should address assessment made by the
relationship manager. This will contain at least the following information in
details:
a. Amount and type of facilities proposed
b. Purpose of facilities
c. Facility structure
d. Security arrangement
e. Government and regulatory policies
f. Economic risks

The following risk areas should be focused while preparing credit proposal:
• Borrower Analysis
• Industry Analysis
• Historical Financial Analysis
• Projected Financial Analysis
• Credit Background
• Account Conduct
• Adherence to Lending Guidelines
• Mitigating Factors
• Facility Structure
• Purpose of the credit
• Project Implementation
• Security
• Type of Control on Cash Flow
• Exit Option
• Name Lending

Credit Approval

FIs credit approval process should establish accountability in the process

of approving as well as altering the credit structure. A potential area of
exploitation arises from granting credit to connected and related parties,
sometimes called “insider”
The delegation of authority needs to be clearly documented and must include
the followings as a minimum:
- Absolute and incremental credit approval authority being delegated
- Executives or positions to whom authority is being further delegated

14
 - Restriction, if any, placed on the use of delegated risk-approval
authorities.
- The degree of delegation of authority will depend on a number of
variables including:
- Credit approval authority must be delegated in accordance with the
instructions mentioned in Guidelines on Products & services of Financial
Institutions in Bangladesh
- Delegated approval authorities must be reviewed annually by Board of
Directors
- The credit approval function should be separated from the
marketing/relationship function
- Approvals must be evidenced in writing , or by electronic signature;
- All credit risk must be authorized by executives within the authority limit
delegated to them;
- Any breaches of lending authority should be reported to CEO, head of
Internal Control, CRMD head.

Credit Monitoring
Establishing an efficient and effective credit monitoring system would
help senior management to monitor the overall quality of the total credit
portfolio and its trends. It would also help to reassess credit
strategy/policy accordingly before encountering any major setback.
An effective credit monitoring system must:
- Ensure that the FI understands the current financial condition of the
borrowers
- Ensure that all credits are in compliance with existing covenants
- Follow how the customers use approved credit lines;
- Ensure how the customers use approved credit lines
- Ensure that, where applicable , collateral provides adequate coverage
relating to the obligor’s current condition and
- Identify and classify potential problem credits on a timely basis.
Following factors also need to be taken into consideration:

• Financial Position and Business Conditions

• Conduct of accounts
• Loan Covenants
• Reassess the value of collaterals

15
2.7 Measurement of Credit Risk
Pre-sanction Stage:

Credit risk grading

Credit risk grading (CRG) is an important tool for credit risk management as it
helps the FIs to understand various dimensions of risk involved in different credit transactions.
CRG is vital to take decisions both at the pre-sanction and post-sanction stages. At pre-sanction
stage, CRG helps the sanctioning authority to decide whether to lend or not, what should be the
lending price; what should be the extent of exposure, what should be the appropriate credit facility,
what are the various risk mitigating tools to put a cap on the risk level.

Internal Risk Rating System

Along with the CRG or any other methodology prescribed by BB, FIs
may also deploy their own credit rating methodology at this pre-sanctioned stage.
FIs may adopt any of the methodologies or techniques of their own keeping in
view of their own size, complexity of operations and clientele base.

a. An obligor rating
I. Financial Condition
II. Management and ownership structure
III. Qualitative factors IV. Others
b. A facility rating

I. Facility
II. Collateral

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Post Sanction Stage

Financial Position

Management
Classification
Covenants
Credit Risk Rating Provisioning
External Factors
Capital Charge
Transaction Data

Micro-level Analysis

Macro-Level Analysis:

Macro level illustration would help to re-strategizing the risk mitigation plans
for the following credit group exposures:

Serial No Credit Exposure

1 Sector Wise

2 Product Wise

3 Region Wise

4 Top 10/20/50 borrowers

Table-2: Broad Credit Exposure Groups

17
 FIs may consider following perspectives for macro-level analysis during post
sanction stage: a. Credit Amount
b. Credit Quality
c. Credit Enhancement
d. Stress Test

2.8 Credit Concentration Risk

Credit concentration risk arises when an FI invests its most or all of the assets to a single or
few individuals or entities or sectors or products.
The concentration risk can be measured for each group mentioned in table 2 by using
Herfindahl Hirschman Index (HHI). It is measured as: HHI=∑Si

2.9 Data Maintenance

Life Cycle of Credit

Repayment

Loan Renewal

Credit Initial Rating Final

Origination Grading Update collection Loan sales &
Liquidation
Default
Collectin

2.10 Credit Risk Monitoring & control

The monitoring team will report at least the following exceptions to relevant executive in
CRMD and CRMC;

- Past due principal or internal payment, past due trade bills , account
excesses, and breach of facility covenants
- Non-receipts of financial statement on a regular basis and any breaches
or exceptions made

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 - Action not taken on time for findings of any internal, external or regular
basis and any covenants breaches or exceptions made;
- Action not taken on time for findings of any internal , external or
regulator inspection/audit
2.11 Credit Risk Mitigation
Managing Problem Credit
A problem credit management process encompasses the following basic element:

Negotiating &
Follow up

Workout Remedial
Strategies

Reviewing Collateral
&
Security documents

Managing Credit Concentration Risk

While setting the limit on lending in each group elements, FIs should consider the
followings:
a. Current exposure must be within the prescribed limit
b. Credit quality of that group element
c. Profitability of that group element
d. Current Economic Trend
e. Expertise and professionalism to manage that group element

Credit Risk Transfer (CRT)

a. Loan Sale: A lender sells all of its obligations and future payments
from a commercial loan to third party.
b. Syndication: In a syndication more lenders participate in financing
which reduces the risk of individual lender.

19
 c. Securitization: A securitization involves transferring a pool of
loans or other debt obligations to a third party, typically a corporate
entity established just to own the pool.
d. Credit Derivatives: These are financial instruments that transfer
some or all of the credit risk of an underlying debt obligation.
Chapter 03: Credit Product of National Bank
Limited

3.1 Credit Products

National Bank Limited offers various types of credit facilities to different classes of
customers. Here the credit products with their current interest rate are summarized below:

Category of Loans & Advances Revised Interest Rate (p.a)

effective from April 01,
2020
Agri Credit 9%

Term Loan for Large & Medium Industries 9%

Term Loan for Small & Cottage Industries 9%

Working Capital for Large & Medium Industries 9%

Working Capital for Small & Cottage Industries 9%

Export Credit 7%

Trade Finance 9%

House Building Loan(commercial) 9%

House Building Loan(Gen) 9%

Consumer Credit 9%

Credit Card 20% yearly

OD (Exp) (Forced Loan) 9%

20
 SOD/Loan against FDR of others Bank, ICB unit etc. 9%

LDBP 9%

All other loans advances created on Forced 9%

Circumstances
Loan against Forced Import Payment 9%

OD (Gen) against work order/ Bid bond/ 9%

Performance Bond
Festival Small Business Loan(Gen) 9%

Small House Loan Scheme 9%

NBL Small Business Loan 9%

NBL Housing Loan 9%

NBL Lease Financing 9%

NBL Weaver Loan 9%

NBL Nari Jagoron Loan 9%

NBL Trinomul Uddog Loan 9%

NBL Nobo Uddog Loan 9%

3.2 Credit Card

National Bank Limited introduced Credit Card and acquiring card transactions first ever in
Bangladesh in 1997 among the local banks as principal member of MasterCard international.
Thereafter in 2003 NBL obtained principal membership of Visa Worldwide and introduced
Visa Credit Card in the country with acquiring of visa card transaction.

21
3.3 Organizational Structure of Credit Management of National
Bank Limited
National Bank Limited has segregated the credit functions into two broad divisions:

Two Board
Division

Business Banking
Division Credit Division

Credit
Corporate
SME Retail Credit Risk Administratio
& n&
Structured Banking Banking Management
Division Division Division Management
Finance Division

Figure-2: Organizational Structure of CM of NBL The Business

Banking Division has sub divisions such as-

✓ Corporate and Structured Finance Division

✓ SME Banking Division

✓ Retail Banking Division

Similarly, the credit division has been sub divided as-

✓ Credit Risk Management Division

✓ Credit Administration and Management Division.

Functional Set up of Credit Department at Branch Level:

At branch level, the credit operations activities will be conducted by 2 separate
units namely-

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 • Relationship Unit: This unit is responsible for primary
relationship contact with existing as well as potential corporate,
SME or retail customers. Branch Manager acts as the head of the
team whereas the relationship officer or marketing officer assists
him/her.
• Credit Administration Unit: This unit is responsible for all
activities at post sanction period which includes documentation,
disbursement, recovery & loan adjustment, proper reporting etc.
This unit will execute all jobs quite independently being separated
from the relationship unit.
3.4 Functional Organogram of Credit Risk Management of NBL

Managing Director

Head of CRM

Loan
CIB, BB Monitoring
Loan Research & ,Loan MIS
Project Asset Returns & Development
Approval and BB &
Management policy Unit
Unit Internal
Unit
Audit
Complience

Figure-3: Functional Organogram of CRM of NBL

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 Chapter 04: Credit Risk Assessment Guidelines

4.1 Assessing Credit Risk

The primary objective of Credit Risk Management (CRM) is to build a sound, vibrant
and rewarding credit portfolio. It requires, among others, a thorough “Credit Need”
and “Risk” assessment at pre-sanction stage and rigorous monitoring at post-sanction
stage. In general, the granting of credit depends on the Bank’s confidence in the
borrower's credit worthiness, which encompasses the borrower's ability and
willingness to pay.

4.2 Borrower Evaluation

Credit evaluation presupposes right evaluation of borrower, which needs complete
and comprehensive investigation of all the facts. Selection of a right type of borrower
reduces the element of risk from lending to a great extent. To arrive at a decision
about selection of a borrower the banker needs to collect a long chain of information
about the borrower. Advances should be made to customers in reliance on their
capacity and willingness to repay, rather than the security/collateral they offer. All
relationships with the Borrower are to be in full compliance with the Money
Laundering Presentation, Anti-Terrorism Policy and KYC procedures. The
majority shareholders, management team and group of affiliate companies shall be
assessed. Any issue regarding lack of management depth, succession, complicated
ownership structures or inter-group transactions shall be addressed and related risks
are to be mitigated. CIB report obtained from “Bangladesh Bank CIB online system”
is one of the major sources for verification of overall classification status of the
client. Up to date CIB report should be obtained in the name before allowing any
credit facility to the borrower. For clients fall under “Large Loan Exposure”, i.e. 10%
of Bank’s Capital, CIB report must not be older than 60 days.

4.3 Credit Need Assessment and Loan Structuring

Credit need assessment is the primary tool for credit risk assessment. It is the
deciding factor for quantum of loan to be allowed to the borrower and loan
structuring is about the facility schedule which includes product wise credit lines
with loan amount, tenor, purpose, pricing, mode of repayment etc. These are to be
done considering the following factors:

✓ Type of business /project

✓ Purpose of the loan

✓ Cash conversion cycle of the business

24
 ✓ Tied up period of raw material, receivables and other major cost

components Equity of the borrower in the operation of the business

/project.

✓ Financial projections including cash flow projections

Facilities should be not more or less but optimum so that the business can operate
smoothly. Excess amount of loan without definite intended purpose and proper
justification can lead to misuse of the loans for unintended or speculative purpose.
Such loans not being related to cash flows are difficult to recover. It is critical to
inspect and verify stock, receivables and collection position and sales reflection of
the borrower throughout the year to observe the cash cycle and seasonality effect.
This will help getting clues for early alert signs if any. Limits on total exposure
should be set for each individual borrower or group of related borrowers (related to
each other, not to the bank), that are at least as stringent as those set by law or BB
regulation. The size of credit limits should be based on the credit strength of the
borrower, genuine purpose of credit, economic conditions and the bank’s risk
appetite. Limits should also be set for respective products, activities, specific
industry, economic sectors and/or geographic regions to avoid concentration risk.
Credit limits should be reviewed periodically at least annually or more frequently if
borrower’s credit quality deteriorates.

25
4.4 General Facility Parameters

1. SIZE Generally maximum up to Bangladesh

Bank’s lending cap.

2. FORM Project Finance in the form of LC, Term

Loan, BG etc. which are mainly
medium term or long term finance.

Working Capital Finance in the form

of
LC/PAD, ULC/Acceptance, LTR, Time
Loan, OD, BG, BBLC/ Acceptance,
Packing Credit etc. which are mainly
short term finance.
3. TENOR Short Term: Maximum 12 months

Medium /Long Term: Preferably 5 years

4. DEBT: EQUITY Preferably 60:40. But to be decided on

the basis of borrower’s risk profile,
nature of business, cash flows projection,
Bank exposure in the business sector etc.

5. PRICING On the basis of loan pricing module of

the Bank, focusing on the risk rating of
the borrower, and sector preference.

6. REPAYMENT Cash flows from the business /other

sources of sponsors.

7. SECURITY Coverage will depend on risk profile of

the client and industry.

Table-3: General Facility Parameter

4.5 Internal Credit Risk Grading

An internal credit risk rating system (ICRRS) should categorize all credits into
various classes on the basis of underlying credit quality. Banks should develop an
internal credit risk rating system in line with regulatory authority’s prescription for

26
its credits in consistent with the nature, size and complexity of the bank’s activities.
All credit facilities should be assigned a risk grade. If any deterioration in risk is
observed, the risk grade assigned to a borrower and its facilities should be
immediately changed.

As per “Guidelines on Credit Risk Management for Banks” disseminated by

Bangladesh Bank on March 08, 2016, Banks shall comply with existing Credit Risk
Grading (CRG) process to rate credit risk and start preparation (including capacity
building) for ICRRS as per estimated Probability of Default (PD) as directed in
Internal Rating based Approach (IRB) in line with Basel III. Accordingly NBL will
continue to exercise on conventional “Credit Risk Grading (CRG)” system until full
development of ICRSS.

4.6 Credit Risk Grading Matrix

Credit Risk Grading matrix is to apply uniform standards to credits to ensure a
common standardized approach to assess the quality of individual obligor, credit
portfolio of a unit, line of business, the branch or the Bank as a whole. Bangladesh
Bank has prescribed “Credit Risk Grading Manual [November, 2005]” in order to
correctly assess the credit risk environment. In this connection, Bangladesh Bank has
developed an integrated “Credit Risk Grading Model” incorporating the significant
features and parameters of credit risk analysis. NBL is following this model
accordingly for its credit risk grading matrix. The following Risk Grading Matrix is
developed:

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

27
 6 Substandard SS 45 – 54

7 Doubtful DF 35 – 44
8 Bad /Loss BL < 35
Table-4: Credit Risk Grading Matrix

4.7 Credit Risk Grading Process

Credit Risk Grading is a regulatory requirement for all exposures irrespective of
amount other than those covered under Consumer and Small Enterprises Financing
Prudential Guidelines and also under The Short-Term Agricultural and Micro -
Credit. It is to be used for all credit facilities – new or renewal for specific
transactions or regular limits. For superior Risk Grading (SUP-1), the score sheet is
not applicable.

All Risk Grades are to be prepared by RMs and to be completed in consultation with
the Branch Manager and documented as per Credit Risk Grading Sheet of Credit
Risk Grading Manual (CRGM) which is to be then concurred by CHQ CRM
Division.
All Credit proposals whether new, renewal or specific facility should include the following
4 (four) forms as specified by Credit Risk Grading Manual (CRGM) of Bangladesh Bank
(Appendix - A to D):

✓ Data Collection Cheek List

✓ Limit Utilization Form
✓ Credit Risk Grading Score Sheet
✓ Credit Risk Grading Form
✓ The Credit Officer will then pass the approved Credit Risk Grade Form
to Credit Administration, Marketing Division / Line of Business /
Recovery Unit.
✓ Early Alert Report should be completed by RM / Marketing Division and
to be forwarded to CRM when deterioration is noted.
✓ If deterioration in risk is noted or adverse information is received on any
borrower, the Risk Grade assigned to the Borrower will be lowered
immediately.
✓ Downgrading, if required, shall be done immediately and shall not be
postponed till annual review.

28
4.8 External Credit Rating System
The analysis of a potential borrower’s creditworthiness by an ECAI may provide
useful input and assist the bank’s credit analysts in organizing thinking and forming
an opinion about the potential borrower in question. NBL may make reference to
ECAI ratings (recognized by Bangladesh Bank) in their credit risk management
policies and loan underwriting practices, but they must rely on their own assessments
of the credit worthiness of their borrowers as the primary determinants of the
decision. As per Guidelines on Risk Based Capital Adequacy [December, 2014], the
capital requirement for credit risk is based on the risk assessment made by External
Credit Assessment Institutions (ECAIs) recognized by BB for capital adequacy
purposes. Bangladesh Bank, till now, has recognized following 08 (eight) Credit
Rating Agencies:

a) Credit Rating Agency of Bangladesh (CRAB) Ltd.,

b) Credit Rating Information and Services Limited (CRISL),

c) National Credit Ratings Ltd. (NCRL),

d) Emerging Credit Rating Ltd. (ECRL),

e) ARGUS Credit Rating Services Limited (ACRSL),

f) Alpha Credit Rating Limited (ACRL),

g) WASO Credit Rating Company (BD) Limited and

h) The Bangladesh Rating Agency Limited (BDRAL)

BB has also decided that banks may use the ratings (if available) of the following
international credit rating agencies for the purposes of risk weighting their exposure at
abroad:

a) Fitch,

b) Moody's, and Standard & Poor.

29
 Chapter 05: Credit Documentation &
Disbursement Process of National Bank Limited

5.1 Documentation and Disbursement

✓ Issue Sanction Advice as per credit approvals with all relevant conditions and
covenants as per CRM Policy Guidelines.
✓ Ensure perfection of all types of legal papers and loan documents through proper
vetting and execution to ensure that standard and security documents valid and
legally enforceable.
✓ Exceptions to be referred to Legal counsel for obtaining advice and necessary
approval to be obtained from CRM.
✓ Updating all loan related documents -- standard, and security as and when required.
✓ Disbursements under approved loan facilities to be made when all security
documentations are in place and preconditions for disbursement are met.
✓ Central Loan Administration Offices will prepare security documentation check list
as per approval /sanction advice and RM will arrange obtaining of the required
documents according to “Sanction Advice”.
✓ Sanction advice to be prepared in a way that the borrower understand &
acknowledge the purpose of the loan.
✓ Central Loan Administration Department (CLAD) to set and authorize limits in the
Core Banking System (CBS) of the Bank. All disbursement /drawings will be as per
credit approval from appropriate authority. Unauthorized Excess over Limit (EOLs)
are not allowed.

5.2 Maintenance of Records of Loan Documents and Credit Files

✓ Credit files maintained at branch should contain among others:
✓ Credit application of the borrower.
✓ Memorandum and Articles of Association of the client and authentic copies of other
legal paper evidencing existence and operation of the client viz. Trade license, TIN
certificate, Audited Balance Sheet, etc.
✓ Call reports / site visits / inspection reports.
✓ Surveyor’s valuation report / Branch valuation report.
✓ List of machinery / equipment.

30
 ✓ Annual Financials.
✓ Stock and receivables reports.
✓ Updated CIB Report.
✓ Approved CM.
✓ Copy of accepted sanction advice.
✓ All disbursement record, loan MIS.
✓ All chronological correspondences with the client and related offices and the
respective replies. CHQ CRM Division, Business /Marketing Division and Loan
Administration Dept. to maintain shadow credit files for related documents /papers.
List of credit files are to be maintained at branches and Credit Risk Management
(CRM) Division, Marketing Division and Loan Administration Dept. at CHQ and
only authorized persons should handle the files.
✓ A separate guideline titled as “Loan Administration Policy Guidelines and
Operations Manual” is available for detailed procedure of loan administration
process, procedure and methodology.

5.3 Security and Support

Most banks look for three sources of repayment. The first is always ability of the
business to repay loans from its cash flows. Cash flows in this case mean operating
profits or the conversion and sale of current assets, usually inventory and realization
of receivables. But if the business fails to generate enough cash flow, the banks need
coverage -- not just for the repayment of the principle amount but for interest, fees,
legal expenses, and costs of selling the assets. As such, banks look for a second
source of repayment support to cover possible cash flow shortage, which comes from
the value of the collateral. The third source of support is usually in the form of
personal guarantee or corporate guarantee supported by net worth statement.
Insurance coverage is another form of support for loans in case of
damage/loss/destruction of assets, goods, services, machinery, equipment etc. Thus
security and collateral are standard fallback arrangement to ensure repayment in case
of distress situation. Besides, banks require collateral on certain types of loans when
borrower's credit worthiness, the loan amount, and other risk factors seem too risky
without security. But loans solely based on security should not be considered.

Security is something deposited as a guarantee of an undertaking or loan. If the

borrower fails to repay the loan then the lender can sale the security to recover the
loan. Security is obtained as a line of last defense to get back the loan amount. It is
meant to be an insurance against emergency. By taking security bank acquires a
claim over the particular asset(s) of the borrower if repayment is not made as per
schedule.

31
5.3.1 Acceptable Security/Collateral
A general list of acceptable security and collateral based on nature/type and quality that is
acceptable to NBL is given below:

5.3.2 Type of Acceptable Collateral

✓ Hypothecation and/or pledge of Stock-in-Trade/ Inventory/ Raw Materials/ Book
Debt- Receivables/ Work-in-Process and Finished Goods.
✓ Hypothecation of Movable Assets viz. machinery and equipment.
✓ Registered Mortgage of Land & Building and other acceptable assets to Bank.
✓ Pledge/Lien of Financial Instruments/Obligations.
✓ Lease Asset [Vehicle/ Ship/ Water Vessel/ Machinery/ Equipment] Personal
Guarantee/Corporate Guarantee.
✓ Assignment of bills receivables.
✓ Lien on export L/C / Contract.
✓ Documents to title to goods.
✓ Lien on Sinking Fund to be built up. Cheque.

5.3.3 Quality of Security

✓ Primary security having adequate market value is accepted.

✓ Perishable goods and seasonal qoods are generally discouraged as primary security

✓ Acceptable financial obligations are preferred.

✓ Receivable bills against work order l supply order funded by foreign agencies which
bear adequate funding arrangements are preferred.

✓ Documents which are drawn in conformity with the export LlC terms (documents
which do not have discrepancies) are accepted for negotiation.

✓ Personal guarantee of those persons having high net worth l assets, satisfactory
commitments fulfillment track record and no connection with any irregular
classified advances are obtained.

32
✓ Subordinated rank (in respect of financing) on fixed and floating assets of the
companies proposed for financing are generally discouraged.

✓ Land, Building, having defect less title, chain of proper document, adequate
valuation and acceptable forced sale value, located under municipality l municipal
corporation l important commercial centers are best choice for creating mortgage
thereon.

✓ In syndicated financing mortgage is executed on the first ranking pari passu basis.

33
 Chapter 06: Approval Process & Business
Delegation Power

6.1 Activities of Credit Operations of National Bank Limited

The activities of credit operations start with discussion between bank and client and end
with adjustment and/or loan.

Origin:
Discussion with client
Receiving request for Credit from the client by RM
Scrutiny/ verification of Submitted information
Collection of all other required information
Collection of CIB through Credit Administration

The credit department of a Bank performs the following functions:

1) It receives loan applications.

2) It collect information about the application from different sources,
conduct interviews with the applicants and verifies the accuracy of
the information given by them in the application.
3) It investigates the credit worthiness of applicants by making use of
numerous
tools of credit analysis.
4) After granting loan, it monitors loans by visiting the borrowers,
keeping a constant watch on their deposit balances, obtaining
financial and other reports and calling the attention of the borrowers
to their unsatisfactory performances.
5) It maintains records of credit information and revises them constantly
so that bank offers may come to know the status of their accounts.
6) It furnishes credit information to other banks and creditors who ask
about it.

6.2 Target Customers of NBL

• Individual person
• Sole proprietorship firms

34
 • Partnership firms
• Private limited company
• Public limited company
• Government and semi government organization

6.3 Principles of Sound Lending

Some principles or standards of lending are maintained in approving loans in order to keep
credit risk to a minimum level as well as for successful banking business. The main principles of
lending are given below:

i. Liquidity: Liquidity means the availability of bank funds on short notice.

The liquidity of an advance means it repayment on demand on due date or
after a short notice. Therefore, the banks must have to maintain sufficient
liquidity to repay its depositors and trade-off between the liquidity and
profitability is must.
ii. Safety: Safety means the assurance of repayment of distributed loans. Bank
is in business to make money but safety should never be sacrificed for
profitability to ensure the safety of loan. The borrower should be chosen
carefully. He should be a person of good character & capacity as well as
bank must have to maintain eligible number of security from borrower.
iii. Profitability: Banking is a business aiming at earning a good profit. The
difference between the interest received on advances and the interest paid
on deposit constitutes a major portion of the bank income, foreign exchange
business is also highly remunerative. The bank will not enter into a
transaction unless a fair return from it is assured.
iv. Intent: Banks sanction loans for productive purpose. No advances will be
made by bank for unproductive purposes though the borrower may be free
from all risks.
v. Security: The security offered for an advance is an insurance to fall bank
upon in cases of need. Security serves as a safety value for an unexpected
emergency. Since risk factors are involved, security coverage has to be
taken before a lending.
vi. National interest: Banking industry has significant role to play in the
economic development of a country. The bank would lend if the purpose
of the advances can contribute more to the overall economic development
of the country.

35
6.4 Overall Activities
However, the overall activities of the credit operations of a bank are outlined below:

Credit Borrower Credit Credit

Investigation Selection Appraisal Approval

Credit Credit Credit

Administration Monitoring Recovery

Credit Investigation: Starting from its journey since 1999, National Bank Ltd is
focused to maintain a growing, diversified and quality credit portfolio based on its
risk-taking appetite and risk managing capacity. NBL always gives due importance
on sound business without
compromising quality of its assets. It strives to take calculative risks for optimized
return. National Bank, in its quest to establish the Bank as a fundamentally sound
financial institution for maximizing the stakeholders‟ value, abides by the following
Ten Credit Principles, which guide the Bank’s behavior in lending decisions:

One Assess the customer for integrity and willingness to repay loans.

Two Assess customer’s capacity and ability to repay.

Three Have contingency plan to tackle the possible loan default situation.

Four Sufficient understanding of customer’s business and associated risks.

Five Ensure independent and unbiased credit appraisal in credit approval

process.

Six Behave ethically in all credit related activities and comply with the
prudential guidelines of Bangladesh Bank.

Seven Be proactive in identifying, managing and communicating credit risk.

36
 Eight Be diligent to ensure that credit exposures and activities comply with the
OBL requirements and guidelines.

Nine Optimize risk and return in all credit related activities.

Ten Build and maintain a diversified credit portfolio to manage and mitigate
credit risks.

Stages of credit investigation: Credit investigation of a borrower may be completed in

the following stages:

1. Collecting Information: A lot of sources are there to collect information

about a borrower. The list includes the following but not limited to:
• Personal Interview
• Loan application
• Published Financial Statements, if any
• Site visit and observation
• CIB report
• Confidential report from other banks
• Registration records
• Information from credit rating agency
• Press reports regarding purchase, sale, pending cases or verdict
of cases.
• Utility services bill payment
• Tax Authority
• Competitors, supplier, customer etc.

Step -1 Preliminary Screening

Step-2 Business Prospect of the Borrower

Step-3 Industry and Business Risk analysis

Step-4 Financial Statement Analysis

37
 Step-5 Cash Flow Analysis

Step -6 Projections

Step -7 Identification of Risk and Mitigation there of

Step-8 Summary and Recommendation

Step-9 Loan Structuring

2. Assessing collected information: The branch Relationship Management

assesses the
collected information through the following steps:

Borrower selection: Considering different aspects, banks select their borrower.

The borrower selection process of a bank may vary from bank to bank. Figure-4.1
presents decisions flow of borrower selection pointing out different sequential stages.

5. Managerial,
6. CIB, Bank
Loan Organization,
Statement and
Application Marketing &
Contact
Technical Aspects

7. Financial Analysis
1. Expected Business 4. Single Borrower l
Based on Historical
segments Group Limit
Data

3. Lending Target &

2. Expected Types of 8. Financial Analysis
Disbursement In The
loan Facilities Based on Projection
Industry

38
 Figure-5: Stages of Borrower Selection

Credit Appraisal Generally financial institutions apply following techniques and

feasibility tests to evaluate a particular credit proposal:
• Academic Qualification

• Business and Industrial Experience

• Managerial Ability
Managerial
Skills of the Manager and Management Team
•
Aspect
• Past Performances of the Promoter Management Soundness

• Location and Site

• Size (Plant Capacity)
• Technology, Plant and Equipment
Technical • Building and layout
Feasibility
• A brief description of the market

• Analysis of the past and present demand and supply

• Estimate future demand of the product

Marketing • Estimate projects share of the market

Aspect • Analyze structure of the competition and elasticity of demand

• Information about consumer behavior, intentions,

attitudes, preferences and requirements.

• Determine distribution channel and marketing policies

39
 • Preparation of Financial Statements: Income Statement and
Balance Sheet
• Analysis of Income Statement and Balance Sheet
• Cash Flow Statement Analysis
• Financial Projection and Preparation of Projected Financial
Financial Statements

Viability • Cost-Volume-Profit Analysis

• Cost of the Project and Means of Financing
• Capital Budgeting Techniques
• Sensitivity Analysis
• Assessment of Working Capital Requirement

• Opportunity cost.

Socio- • Shadow prices.

economic • Employment generation

Aspect • Income distribution

• Self-reliance
• Development of small Scale and ancillary industries
• Improvement of infrastructure
Improvement of quality of life and well-being of the society

Environmental Environmental Risk management Guidelines and Environmental Risk

Aspect Rating.

Tools of Financial Statement Analysis: There are three ways of financial statement
followed by
NBL which are given below-
✓ Horizontal Analysis
✓ Vertical Analysis
✓ Ratio Analysis

40
Credit Risk Grading (CRG): Credit risk grading is an important tool for credit
risk management as it helps the banks and financial institutions to understand various
dimensions of risk involved in different credit transactions.

The different categories of Credit Risk Grading are given below:

Number Risk Grading Short Score Review

Name frequency (at
least)

1 Superior SUP 100% cash covered Annually

Government guarantee

International Bank guarantees

2 Good GD 85+ Annually

3 Acceptable ACCPT 75-84 Annually

4 Marginal/Watchlist MG/WL 65-74 Half yearly

5 Special Mention SM 55-64 Quarterly

6 Sub-standard SS 45-54 Quarterly

7 Doubtful DF 35-44 Quarterly

8 Bad & Loss BL <35 Quarterly

6.5 Credit Approval Process of NBL

National Bank Limited conducts its banking operation under branch banking system. For
administrative control and smoothing its day to day operation and extension of appropriate
and quick services, quick credit delivery, some branches have been placed under regional
offices. Responding to the requirement of customers in the state of lack of full
computerization facilities of the branches and on line banking facilities some credit
sanctioning powers have been delegated to the Branch Manager and Regional Manager.

41
Credit proposal are generally originated at branch. However proposals may also be
received at Head Office for syndication and also from big clients, financial institutions.

At branch level,

the officer / executives of credit department have to obtain full knowledge of the policy
and procedure of credit operations. The credit officer / executives after obtaining credit
applications through Branch Manager along with all required papers / documents ensure
sufficiency and consistency of the papers l documents. They can originate credit proposals,
prepare detailed credit memorandum after undertaking a through credit check and
conducting credit risk assessment of the clients in light of credit policy guidelines of the
bank. The fully documented credit memorandum will be placed to the Branch Credit
Committee by the officer in charge credit. Credit Committee after thoroughly and critically
examining the proposal recommends it to the Branch Manager who approves credit under
his delegated authority.

42
A.Flow Chart for Corporate Loans of NBL:

43
 Executive

Managing
Director

Unit Heads of Head of Credit Risk

SME Risk Management

Head of SME

Credit Officers undertake the credit proposals through appraisal, do their due diligences
and credit analysis in line with the Bank’s CRM Policy Guidelines and prepare a summary
called Appraisal Report/Office Note – highlighting the key aspects of the proposal
including major financial indicators, risks and mitigates etc. Unit Heads of CRM review
the CMs along with appraisal report and give final node as per business approving power.
CMs beyond their delegation are placed to MD/EC as necessary and as per delegation of
business approval authority. Credit proposals are placed to the EC/Board as applicable by
MD with due recommendations from Credit Risk Management Committee through EC

44
Memos /Board memos. The approval advices are sent to Central Loan Administration
Department and CM originating offices
/Branches as per standard procedure. The EC of the Bank in its regular meetings also
provide post fact approvals of urgent specific transactions done by the management beyond
their delegated authority. However, rescheduling/write-off /declassification proposals are
approved by the Board of Directors in line with Bangladesh Bank’s Guidelines.

Chapter 07: Credit Monitoring Process of

National Bank Limited &Techniques to Mitigate
Credit Risk
7.1 Loan Administration
The crucial part of Credit Risk Management after loan procurement and approval is
managing loan in the administration process. Prime responsibility of loan
administration is to ensure that documents are valid and legally enforceable, and
disbursements are made only on documentation perfection and compliance of
preconditions. In this regard, NBL has a separate Loan Admin Manual in place which
gives detail guidelines for loan administration officers.

7.2 Loan Monitoring Process

Borrower selection and thorough appraisal of loan proposal are crucial for credit risk
management. Equally vital is continuous loan monitoring. Receiving regular
information on the health of credit portfolio and early signals of deterioration is
critical for taking necessary action at the earliest to fix the situation without loss to
the Bank. As such, it is imperative that a robust loan monitoring system is in place
that gives early indications on the deteriorating financial health of a borrower. At a
minimum, the system must ensure maintenance of required MIS for reporting the
portfolio status, loan performance, industry trends etc. to management on regular
intervals. An effective mechanism for regular follow up and control must also be in
place. NBL loan monitoring and follow-up are to be done under following tiers:

a. RM /Branch/ Business Head Level

b. Loan Administration Level
c. CRM Level

45
7.3 Loan Monitoring at RM Level /Business Head Level
The monitoring of customer performance is done as an on-going basis as a part of
continuous follow-up with the customer. The activities are:
• Day to day transaction monitoring to ensure utilization of limits
and repayment.
• Monitoring stock and receivables movement, and reflection of that
movement in different accounts of the customers with the Bank.
• Periodic review of past dues, compliances of condition and
covenants. Deviations
/surprises must be immediately taken up with the borrower to regularize the
position.
• Undertaking periodic factory visit /stock inspection /progress of
work against work order /projects under implementation. Any gap
or shortfall if detected must be taken up with the borrower without
delay for early regularization.
• Maintaining close contact with the management of the borrower
to ensure that the business/project is being run smoothly in
continued operation and management is capable of handling
crises.
• Undertaking periodic review of sales, financial positions, credit
rating and account conduct of the borrower. If business and
financial weakness are identified early alert to be immediately
raised.
• Reporting early alert signs for accounts to the business heads with
work out plans - prepared in consultation with the borrower -- and
submit the same to CRM for review and approval.
• Review all audit/inspection report by internal and external
auditors and Bangladesh Bank’s inspection team. Objections
raised in those reports must be rectified at the earliest.

7.4 Loan Monitoring at Administration Level

The tasks associated with post-disbursement monitoring activities like follow-up,
supervision, monitoring and control in respect of facilities allowed to customers that
is the part of monitoring to be handled by Loan Administration Department.

I. Updating Databases
Once the limits are set in the Core Banking System of the Bank, the
particulars related to the account are to be updated in the various databases,

46
 necessary for monitoring and follow-up of facility accounts and submission
of periodic regulatory returns. The customer loan account details are to be
updated on continuous basis.

II. Loan documentation compliance monitoring

a. Management of Post Dated Cheque (PDC)
b. Monitoring of security valuation report of enlisted surveyor
c. Monitoring of insurance policy expiry
d. Monitoring of payment of ground rent of mortgaged properties by customer
III. Documentation deferral monitoring
Loan Administration dept. to monitor compliance of documentation deferral and
deferral conditions and follow up with branches to complete the required formalities
within approved time for any deferral. In case of non-compliance by the branch,
an exception report to be raised formally by Loan Administration to bring it to the
notice of management.

IV. Loan covenants compliance monitoring

Monitoring of stock-receivable report and Branch stock-verification report

Statement of Stocks and Receivable are usually submitted at monthly intervals
within 5th day of following month, detailing the position as on the last day of
the month. Relationship Managers (RM) shall obtain a statement of stocks and
receivable on Bank’s standard format. RM along with Branch Credit Officer and
Branch Manager (BM) will verify stock & inventory periodically as per
stipulation in approval and CRM Policy Guidelines. In case of non- compliance
by the branch, an exception report to be raised formally by Loan Administration
to bring it to the notice of management.

Monitoring of customer drawing power based on periodic stock report

Maintaining of Stock Receivable reports for Hypothecated stocks and
Receivables of Borrower on regular basis as per approval condition. Monitoring
of compliance of Drawing Power (DP) as per approval. DP allowed to the
Borrower are to be calculated on the basis of total value of the stocks and
receivables as per stock and receivable statement of preceding month end on
deduction of margin as per terms of sanction. Drawing Power (DP) is the
maximum amount that a Borrower is permitted to draw from his facility, subject
to a cap of the total facility limit approved. In case of non-compliance of DP, an

47
 exception report to be raised formally by Loan Administration to bring it to the
notice of management.

Monitoring customers having past due accounts

Loan Administration Department will monitor all excess drawings (excess of

outstanding over limits or DP) of borrowers on monthly basis. Loan
Administration Department will monitor EOL Loans, Past-due Loans and
Forced Loans. Monthly Past Due Report is an integral part of an early warning
process for advising management.
Loan Administration Department will be responsible for preparation of monthly
Past Due Report which respective RM/BM will follow-up. CRM Monitoring
Department will monitor and follow up with the branch for regularization of past
dues. Loan Administration Department will strictly maintain restriction on
transactions for customers having past-due accounts.
• Credit line expiry and exception monitoring - Loan Administration
Department will monitor expiry of all loans and to bring it to the notice of
management and Monitoring Account Conducts & Past Dues - Loan
Administration Department will monitor account conduct and repayment
status and bring exceptions to the notice of management for follow-up.
• Monitoring compliance of condition covenants of approved CMs /TMs -
Loan Administration Department will monitor account compliance status
and bring the exceptions to the notice of management as early alert signal
for follow-up.
• Detecting exceptions and signals of deterioration in account conduct
/performance and generating related MIS for management information and
follow-up.
• Submission of MIS on Past dues / early alert accounts for management
information
and follow-up.
7.5 CRM Level
Monitoring Department of CRM will review exception reports prepared by Loan
Administration Department from time to time and will follow-up with RM /Business heads
for mitigation and control. The following are monitoring jobs of CRM:
Monitoring Department of CRM will do off-site supervision through
reviewing Loan MIS, compliance reports and audit/inspection reports. They
will focus on past dues and compliances of loan conditions and covenants
and will submit the following MIS to top management on monthly basis:
• Statement on Loans having past dues of 30 days & above

48
 • Statement of Term Loan Performance
• Statement on NPL and provision status
• Statement on Rescheduled Loans status
• Past due position of all loans and trade bills are the primary indicators in
the loan monitoring system as it gives hint of stressed cash flow position
arising from lower sales or slow realization of receivables.
Loan conditions and covenants are set as preventive and restrictive measures on the part of
the borrower to keep the business/project healthy and performing. Periodic review of
compliances of these covenants is critical to have a better understanding of the business and
financial position of the borrower. Any covenant breach or exception to be referred to CHQ
management and respective Business Unit, RM along with Branch Credit Officers for their
timely follow up and corrective actions to address the irregularities.
• PAM of CRM Division will undertake physical verification of NBL
financed projects under implementation to review that:
- Bank finance is utilized for intended purpose and
proportionate equity investment has been done in the projects.
- Progress of works for Project /BMRE /Work orders is as per
schedule and commensurate with disbursed loan and equity
investment.
• Monitoring Department of CRM will review objections raised in the
audit inspection Audit/Inspection reports of NBL’s ICC Division,
external auditors and Bangladesh Bank and take the following actions:
a) Depending on the nature of the objections, will call meeting with RM/Business
Heads in presence of ICC head to discuss about the objection and ensure immediate
rectification by RM l Branch.

b) Depending on sensitivity and seriousness of cases, will raise Office memo to call
explanation of related RM /Branch Head /Business Head through HR.

c) Restriction on Transaction for accounts having Past Dues.

RMs to obtain Pre-fact approval from CHQ for transactions within approved limits for any
of the following instances of past due situations:
i. Past due is 10% of total funded exposure of the
client or more ii. Past due amount is Tk.3.00 crore
or more iii. Tenor of past due is 45 days or more.
Reasons for past dues and adjustment plans supported by cash inflows and out flows
statement of the client are to be clearly spelt out in the memo. Loan Administration

49
Department will not allow transaction in such accounts having the above status without
CRM approval.

7.6 Loan Review

Loan Review is identified as a Strategic Process to evaluate credit quality of the loan
portfolio through an independent assessment of risk ratings assigned to individual loans.
Loan review should also assess the loan management process and the results/ profitability
of the loan portfolio. Loan review is usually an independent function or part of the overall
independent auditing function of the bank. The concept of an independent, internal loan
review is absolutely critical to proper credit risk management.
7.7 Loan Review Committee (LRC) of NBL
This is a top level committee headed by MD or any executive authorized by MD which
committee are head of CRM, Head of Marketing and head of Legal. Monitoring Unit of
CRM arrange the meeting and the Committee reviews branch wise Overdue Positions, EOL
Status, Non-compliance Status, NPL status and Loan Classification Status and give
guidance. The Member Secretary of LRC is responsible for informing the decisions of LRC
meeting to concerned branch immediately (usually within 3 days of the LRC meeting).
7.8 Problem Loans
Problem loans are an inevitable consequence of lending. Any time a loan is funded,
unforeseen events could arise and make it difficult for the borrower to live up to the terms
of the loan agreement. Problem loans often begin with commercial loan officer errors – for
example, inaccurately assessing the character of the borrower, misinterpreting the figures
on a spread sheet, or simply not saying no to the loan request. These causes of problem
loans should and can be minimized.

7.9 CAUSES of PROBLEM LOANS

Factors that can result in a good loan turning into a bad loan can be categorized into three broad
groups:
❖ External Causes:
Included are the factors outside the control of the company’s management and l or the
lender. Examples include negative economic events such as high interest rates, recession,
technological advances making the company’s product obsolete, acts of God such as floods
and fire.
❖ Internal Causes:
Factors brought on by the company’s management. Generally attributed to the
management deficiencies such as lack of managerial, operational, and financial controls,
product deterioration, loss of market share, not keeping up with the competition and fraud.
❖ Lender Causes:

50
 Factors brought on by the lender. These causes generally include improper loan structuring,
an inadequate or excessive loan amount, failure to adequately monitor a loan, improper
statement analysis, insufficient collateral, poor documentation, an inexperienced lender
and fraud.

7.10 Timely Identification of Problem Assets

The standard practice of “looking back” at past due status, presence or absence of collateral,
and other factors resulted in provisions that turned out to be grossly inadequate on both an
aggregate and individual credit basis. A more “forward-looking” approach to the
identification of problem loans and the establishment of adequate provisions was clearly
needed, and international standards such as International Financial Reporting Standard 9 on
the classification and measurement of financial assets are being adopted to provide this
forward-looking approach. More specifically, the following warning signs are to be
considered by banks in predicting that a loan will become a problem loan:
a) Documentation Weakness
✓ Failing to file collateral agreements/security agreements with
appropriate public departments
✓ Transferring the collateral to another country/state Guaranties with
expired dates
✓ Changes in legal status
✓ Unauthorized corporate/partner signatures
b) Collateral Deterioration
✓ Changes of value in the marketplace
✓ Rising interest rates decrease real estate and investments Technological
advances
✓ Rapid depreciation of equipment or inventory Tax law changes (real
estate)
✓ Natural disasters
✓ Spoilage or mishandling of collateral
c) Extended Credit and High Use of Lines of Credit
✓ Borrower is at the top of line each month
✓ Failure to meet financial covenants in loan agreement Delays in payment
of principal and interest
✓ Use of overdrafts/low balances in current account Credit inquiries from
other lenders
✓ Change of accountants

51
 d) Other Indications of Problem Loans
✓ Delay in receipt of financial statements
✓ Delay in management promises or returning telephone calls
✓ Change in senior management

7.11 Early Alert Process

Early Alert accounts are accounts having risks or potential weaknesses of a material nature
requiring monitoring, supervision or close attention by management. Reputation damage or
litigation controversy may also have impact on the market position of the borrower which
may in turn affect sales and financials of the borrower. So it is important to detect
deteriorating condition of an account well before the situation goes beyond control and
accounts become non-performing. An early detection of signal of deteriorating condition
allows the Bank to take appropriate action/strategy to manage the risk without loss to the
Bank. Signals of deteriorating situation may be observed from:

✓ Account transactions
✓ Stock movement
✓ Account receivables movement Market information etc.
If these weaknesses are left uncorrected, they may result in deterioration of repayment of
loans with the possibility of further downgrading the loans. Early identification, prompt
reporting and proactive management of Early Alert accounts are prime responsibilities of
all RMs and must be undertaken on a continuous basis. It is a general requirement to raise
Early Alert Report before downgrading an account to SMA. Early Alerts to be raised
immediately after the symptoms of deterioration or symptoms of deterioration are visible.
An Early Alert Report to be completed by the RM within seven days of identification of a
weakness. Risk grade to be updated as soon as possible and no delay should be made in
referring the problem accounts to Business Heads and CRM for their guidance. Relationship
Managers to take the following steps immediately when they observe reason:

✓ Arrange to re-check all security documents jointly by Loan

Administration and Legal Counsel and status report including
deficiencies if any to be signed jointly. RM to rectify the deficiencies at
the earliest.
✓ RM with the guidance of Business head to conduct a thorough analysis
of the accounts to find out the reason of deterioration, and prepare an
evaluation report.
✓ RM and Business head to sit with the client to find a possible way out
to come out of the situation. There should a consensus /agreement
among RM, Business Head and Client about workout plan and
rectification of document deficiencies.

52
 ✓ The following papers /documents to be enclosed by the RM at the time
of submitting Early Alert Report to Head of CRM and Managing
Director:
a) Security documents status.
b) Branch Manager and Relationship Manager evaluation report
c) Agreement between Branch and Client
✓ HOCRM and Managing Director will review the Early Alert report and
give necessary guidance/instruction.
✓ RM will send monthly status report on Early Accounts to CRM with
comments of related Business head.

7.12 Classification, Interest Suspense and Provisioning

There is always a possibility that a part of the loan disbursed will not come back for various
reasons. Some portion of this uncollectable loan may be recovered later on; but some
portion may not be recoverable at all. It is important to not to book interest from these non-
performing loans to income and keep it in interest suspense account till realization.
Suspended interest can be transferred to income on cash recovery only. For BL accounts
charging of interest is to be stopped in the system; however, a separate ledger is to be
maintained for such uncharged interest for establishing the bank’s claim. At the time of
cash recovery in BL accounts, such uncharged interest should be realized first. At the same
time, provisions for estimated loan loss to be made from current year income. Bangladesh
Bank has issued clear guidelines for Classification, Provisioning, Suspension of Interest
and CL reporting vide BRPD Circular No. 14 dated 23.09.2012 titled as
“Master Circular on Loan Classification and Provisioning”, which is being followed
meticulously by
NBL. The term NPL encompasses all accounts classified as risk grades Doubtful (DF), and
Bad & Loss (BL). Sub Standard (SS) and Special Mentioned Accounts (SMA) are not
considered as NPL under present rules of Bangladesh Bank. Irrespective of above
definitions, the Bank may classify any account if goes default as per terms and conditions
of credit, and/or any other subjective judgment. In such case, a notice is to be given to the
customer informing such classification, and account shall be classified if remedial
measurements, satisfactory to the bank, are not undertaken by the customer. Subject to
judgment, approval from MD is required. Though provision is made on the downgraded
loans based on time bound criteria, but it is important, regardless the length of time a loan
remained past due, to maintain provision based on expected loss at the time of estimation.
Besides, Early Loss Recognition should be taken under the following circumstances:

✓ Proprietor is dead. Interest charging in all of his/her account (s) should be

stopped.

53
 ✓ Fraudulent loans must be charged off immediately after finding out. If
recovery is unlikely the amount should be written off.

In case of bankruptcy, the account must be charged off in the same month following a
notification of a bankruptcy petition by the debtor. The account may be written off, if
approved by the Board of Directors.

7.13 Credit Recovery & NPL Management

The Special Asset Management (SAM) department at Head Office would directly manage
accounts with sustained deterioration [a Risk Rating of Defaulter (DF) or worse] for
rescheduling, recovery and efficient exit based on recommendation of CRM Approval
Department and Marketing Department.

The primary functions of Special Asset Management Department are:

✓ Determine Account Action Plan/Recovery Strategy

✓ Pursue all options to maximize recovery, including placing customers
into receivership or liquidation as appropriate.

✓ Ensure adequate and timely loan loss provisions are made based on
actual and expected losses.
✓ Regular review of DF/BL/BLW worse accounts.

The management of problem loans (NPLs) shall be a dynamic process, and the associated
strategy together with the adequacy of provisions must be regularly reviewed. A process
shall be established to share the lessons learned from the experience of credit losses in order
to update the lending guidelines. A separate guideline titled as “Special Asset Management
Policy Guideline” is available to problem loans in accordance with Bangladesh Bank’s
directives, rules and regulations.

54
 Chapter 8: Finding & Analysis
8.1 Chawkbazar Branch Performance, NBL
During my internship period, I have collected the following data from the Chawkbazar
Branch of National Bank Limited.
Table-5: Financial Highlights of Chawkbazar Branch, NBL
Particulars March 2022 April 2022

Total deposits 1,78,58,00,000 1,87,06,00,000

Total loans and advances 1,27,11,00,000 1,27,13,00,000

Total classified loans 6,87,00,000 6,41,00,000

Profit and Loss Account 4,91,30,000 5,40,00,000

Source: Constructed by the author based on different daily position statements

2000

1800

1600

1400

1200

1000 March 2022 (BDT In Million)

April 2022 (BDT In Million)
800

600

400

200

0
Total Deposits Total Loans & Total Classified Profit & Loss
Advances Loans Account

Figure-6: Financial Highlights of Chawkbazar branch

55
 Explanation:
Here from the table and figure, it can be interpreted that:
✓ This branch has a huge amount of deposit base and this is the strong side
of the branch.
✓ As the branch is situated in urban the area, the bank can deploy its fund
to the corporate clients.
✓ The amount of classified loans has decreased than the previous month
because the officials were more careful about loan recovery This
branch:
➢ provides better customer services,
➢ offers lucrative products,
➢ gives cash incentives and rewards to the good borrowers,
➢ provides the loan facilities to the good borrower at a very lower
rate to encourage them,
➢ gives business related services and suggestions.
✓ After all, the branch has huge opportunity to grow and expand its
network as it has a great profitability that representing the increasing
trend of profit in the two months.
8.2 Percentage Amount of Classified Loans of Chawkbazar
Branch over the years
Table-6: Percentage Amount of Classified Loans of Chawkbazar Branch over the Years
Year NPL (Amount in %)

2016 3.38

2017 3.23

2018 2.86

2019 4.19

2020 6.13

Source: Constructed by the author based on different daily position statements

56
 NPL(IN %)

4
NPL (IN %)
3

0
2016 2017 2018 2019 2020

Figure-7: NPL % of Chawkbazar Branch over the Years

Explanation:
The Non-Performing Loan (NPL) which can potentially mar the Bank’s financial stability
has become a matter of grave concern for the whole banking industry of Bangladesh. As
such, managing NPLs of Chawkbazar Branch has been given utmost priority that has been
found out from interviewing with employees. Still there are some initiatives need to be
taken for this loans as the condition hasn’t been improved yet. It is evident from the table
and figure that:

✓ The branch was badly affected by NPL.

✓ The performance over the years was not satisfactory.

✓ In 2016, the percentage was 3.38 and then it decreased to 3.23 in 2017.

✓ Though the trend decreased slightly in 2018 and became 2.86.

✓ Again, it jumped in 2019.

✓ In 2019, the percentage became 4.19.

✓ After that it increased in huge amount and became 6.13 percent in 2020.

57
8.3 Overall Performance Of National Bank
From the website of NBL, I have found the following information for the period 2020

Table-7: Performance of the Year 2020

Particulars Amount (BDT in Million)
Total Loans and Advances 408,510.60
Net Interest Income 34,339.27
Classified Loans 3,832.80
Provision Against Loan and Advances 13443.96
Recoveries on Loans Previously Written 12.60
Off
Source: Constructed by the author based on first quarter report of NBL, 2020

Financial Highlights
450000
408510.6
400000

350000

300000

250000

200000

150000

100000
34339.27 38328.8
50000
12.6
0
Total Loan & Net interest income Classified Loan Recoveries on Loan
Advance Series 1 Previously written off

58
 Figure-8: Financial Highlights of NBL 2020

Explanation:
Here from the table and figure, it is clear that:

✓ There was a huge amount of loans disbursement in that period which

would increase the income of the bank and it is also representing the
efficiency of the bank to utilize their funds.
✓ During the period, net interest income of the bank was BDT 34339.27
million. This portion must be focused by the bank to improve the amount
within the rest period to cover the other financial costs and to ensure the
highest return than their competitors and to make the whole bank
profitable.
✓ To cover anticipated credit losses, the bank maintained provision BDT
38328.8 million.
✓ Collection of loans from a borrower in default was BDT 12.6 million.

8.4 Total Amount of Loans and Advances over the Years

Table-8: Total Amount of Loans and Advances over the
Years
Year Amount (BDT in Million)

2016 209,929.07

2017 248,467.15

2018 314,507.26

2019 360,769.74

2020 408,510.60

Source: Constructed by the author based on annual report of NBL, 2020

59
 450,000.00

400,000.00

350,000.00

300,000.00

250,000.00

200,000.00

150,000.00

100,000.00

50,000.00

0.00
2016 2017 2018 2019 2020

BDT in Million

Figure-9: Loans and Advances 0f NBL over the years

Explanation:
National Bank Limited provides various types of loans or credits for their different types of
clients for helping to make their life easy and simple which are the major income and cash
flow sources of the bank. From the table, it can be interpreted that:
✓ The total amount of loans and advances was increasing over the years
and continued to increase in 2020.
✓ In 2016, the amount was BDT 209,929.07 million which was very little
comparing with other years and after then this amount gradually
increased in 2017, it became 248,467.15 million.
✓ In 2018, it jumped and became BDT 314,507.26 million.
✓ In 2019, it was increased by BDT 360,769.74 million.
✓ In the last year 2020, it became 408,510.60 milli0n.
✓ That indicates the positive trend in case of the deployment of fund of the
bank. For a commercial Bank, to sustain successfully, this trend is
satisfactory. And this large investment will earn huge profits for the
bank.

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8.5 Amount of Classified Loans over the Years
Table-9: Amount Of Classified Loans of NBL over the years
Year Amount (BDT in Million)

2016 21727.12

2017 26448.33
2018 29881.46

2019 39637.14

2020 38328.80
Source: Constructed by the author based on different annual reports of NBL
45000
Classified Loan (BDT in Million)
40000

35000

30000

25000

20000

15000

10000

5000

0
2016 2017 2018 2019 2020

Amount(BDT in Million)

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 Table-10: Percentage of NPL of NBL over the Years
YEAR NPL %

2016 10.35%
2017 10.64%
2018 10.98%

2019 9.50%

2020 9.38%
Source: Based on Different Annual Reports of NBL

11.50%
NPL in Percentage
11.00%

10.50%

10.00%

9.50%

9.00%

8.50%
2016 2017 2018 2019 2020

NPL in Percentage

Explanation:
The Non-Performing Loan (NPL) which can potentially harm the Bank’s financial stability
has become a matter of grave concern for the whole banking industry of Bangladesh. As
such, managing NPLs of NBL has been given utmost priority that has been found out from

62
interviewing with employees. Still there are some initiatives need to be taken for these loans
as the condition hasn’t been improved yet. It is evident from the table and figure that:

✓ The bank was badly affected by NPL.

✓ But The performance over the years is improving

8.6 Provision against Loans & Advances

The following table and figure is providing the amount of provision kept against loans and
advances over the five years:
Table-11: Provision against Loans & Advances
Year Amount (BDT in Million)

2016 5133.22

2017 6892.35

2018 9665.48

2019 11278.24

2020 13443.96
Source: Constructed by the author based on different annual reports of NBL

63
 Provision against Loan & Advances

13443.96

11278.24
9665.24

6892.35

5133.22

2016 2017 2018 2019 2020

Provision against Loan & Advances

Figure-12: Provision against loans and advances over the Five yea

Explanation:
The bank has to keep provision on different quality of loans. Because this provision works
as the protection for bank to overcome the expected losses. From the table and figure, it can
be interpreted that:

✓ In 2016, the amount of provision kept was low which was BDT 5133.22
million and in the next year (2017), the bank increased the portion highly
which was BDT 6892.35 million.
✓ In 2018, this amount increased comparing with the previous year 2017
and became BDT 9665.2 million.
✓ Though in 2019, the amount increased and became BDT 11278.24
million after than it jumped too much.
✓ And in 2020, it became BDT 13443.96 million that indicates the bank
had kept huge amount of provisions for its protection.
✓ It may be a reason to face the present vulnerable situation that affecting
not only this bank but also the whole banking sector but the bank must
have a strategic decision about the maintaining provision because large
amount of provision ensures the protection for the bank as well as
decreases the profitability as huge amount are kept idly in the bank rather
than investment.

64
8.7 Net Interest Income
The following table and figure is providing the net interest income amount of NBL over the five
years:
Table-13: Net Interest Income over the Five Years
Year Amount (BDT in Million)

2016 4075.05

2017 6439.17

2018 8504.05

2019 10455.88

2020 34339.27

Net Interes Income(BDT in Million)

34339.27

10455.88
8504.05
6439.17
4075.05

2016 2017 2018 2019 2020

Net Interes Income(BDT in Million)

Explanation:
From the table and figure, it can be interpreted that:

✓ The trend of net interest income is increasing over the years.

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 ✓ In 2020, Net interest income is much satisfactory

Ratio Analysis: Here, we will analyze the CRM performance of National Bank Limited using
some ratios of
LDR, Yield on loans and advances. Because ratio is the best tools for analyzing any types of
performance of a financial institution.

8.8 Loan to deposit Ratio (LDR)

Loan to Deposit Ratios (LDRs) of the Bank over the five years from 2016 to 2020 are shown on
below:

Table-14: Loan to Deposit Ratios over the Years

YEAR LDR

2016 84.66%

2017 89.03%

2018 97.49%

2019 95.27%

2020 94.83%

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 Loan to Deposit Ratio

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2016 2017 2018 2019 2020
Loan to Deposit Ratio 84.66% 89.03% 97.49% 95.27% 94.83%

Explanation:
LDR is the ratio of how much a Bank lends out of the deposits it has mobilized. It indicates
how much of a bank’s core funds are being used for lending, the main Banking Activity.
The higher ratio indicates more reliance on deposits for lending & vice versa. The table and
figure reveals that:
✓ At first, the percentage of LDR is continued to be increased till 2018.
✓ In 2019, the percentage decreased slightly than 2018 and became 95.2 percent.
✓ In 2020, the percentage is also decreased than 2019 and became 94.83%

67
8.9 Yield on Loans and Advances
Table-15: Yield on Loans and Advances of NBL over the Five years
YEAR YIELD (%)

2016 10.00%

2017 10.80%

2018 10.39%

2019 10.48%

2020 9.37%

Figure-15: Yield on Loans and Advances of NBL over the Five years

Yield on Loan & Advances

Yield on Loan & Advances

10.80%

10.48%
10.39%

10%

9.37%

2016 2017 2018 2019 2020

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Explanation:
Yield on loans and advances ratio gives the average lending rate of the portfolio. High yield on
advances is an indication that the entity is financing riskier assets and may see assets quality issues.
It also indicates whether the pricing of the loan is in line with underlying risk. However, the tables
and figure reveals that:

✓ In 2016, the yield on loans and advances was 10.00% and in the next year the ratio was
10.80%. That means the bank took less risk in investment than previous year.

✓ In 2018, the percentage decreased to 10.39 percent.

✓ And in two subsequent years 2019 and 2020, the percentage was 10.39% and 10.41%
respectively.

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 Chapter 9: Summary and Finding

9.1 Summary of the study

➢ As my study is on the Credit Risk Management of NBL and so the main portion of
the report starts from the description of Credit products of NBL. This segment
provides a complete overview of Credit products offered and provided by NBL.
National Bank Limited offers various credit facilities which are mainly Funded and
Non-funded credit. They provide:

• Funded Credit Facility

• Consumer Loan Products

• SME Loan Products

• Other Credit Related Products and Services

• Non-Funded Credit Facility

➢ In the chapter of Credit Risk Assessment, a theoretical framework has been built up
on Credit Management of NBL. Where there is a concrete overview of credit
assessment of NBL, Internal Credit Risk Grading, Credit Risk Grading (CRG)
mechanism & so on related to credit policy & management have been discussed.

➢ In the chapter of Credit Documentation and Disbursement Process, there is a

concrete overview of credit documentation process and also functions of credit
disbursement process.

➢ In the chapter of Credit Approval Process of NBL the mechanism of Credit

Approval has been discussed. Principles of sound lending have also been discussed.

➢ In the chapter ‘‘Credit Monitoring Process’’ of NBL Loan Administration, Loan

Monitoring Process & Loan Review have been discussed.

➢ In the chapter ‘‘Techniques to Mitigate Risk’’ of NBL Problem Loans,

Identification of Problem
Assets, Classification, Interest suspense and Provisioning, Credit Recovery etc.
have been studied.

70
 ➢ In the chapter “CRM Performance Evaluation” of NBL Trend Analysis and Ratio
Analysis have been completed where Branch Highlights, Total Loans & Advances,
Classified loans etc. have been discussed.

➢ In the chapter “Findings and Recommendation” the summary of the report has been
discussed.

9.2 Major challenges of NBL

Though overall performance of NBL during the stated periods was satisfactory after analysis, I
have found some problems which have created a great challenge for it. These problems are
completely from my personal point of view which are stated below:

✓ NPLs (Non- Performing Loans)

✓ Concentration risk

✓ Changing interest rates

✓ Political interference and Government regulations

NPLs: The financial health of NBL is weakening due to rising NPLs. NPLs create the
following problems-

✓ NPLs and performance efficiency are inversely related. So, increase in NPL
hampers the performing loan. Most of the cases, it occurs when there is an adverse
selection. Big risk takers or outright crooks might be the most eager to take out a
loan because they know that they are unlikely to pay it back.
✓ NPL creates the Credit crunch situation.
✓ When the NPL is increased, interest earning gets stopped. But the cost of fund and
the cost of management are not stopped.
✓ The negative growth in earnings is caused by the provisioning of bad loans.
✓ NPL affects opening of LC (Letter of Credit). International Importers always
choose healthy condition of the exporter’s bank. Worse health condition of the
bank affects the opening of new LCs. Low rate of LCs makes low bank earning.

Concentration risk: This risk arises from concentration to a single sector. NBL mainly
focus too much on corporate sector comparing with other sectors. The bank has huge
number of corporate clients so its lion share of fund remains engaged for the longer period.

71
Changing the interest rates: In Bangladesh, the central bank decides the interest rates.
It gives a range and within that range the bank has to maintain the interest rates it offers.
From the 2020 all listed banks of Bangladesh Bank have to follow 6 percent deposit rate
and 9 percent lending rate. This guideline will impact deposit amount of banks and also
Advance Deposit (AD) ratio of the banks.

Political interference and Government regulations: Political influence works in two ways
-
✓ When taking loans and preventing bank from taking actions and When the loans
turn bad.
➢ Economists and Bankers said that the major reason behind default loan is the
distribution of credit on political consideration, which made it quite difficult to
recover the credits. Moreover, the decision of loan rescheduling and restructuring
facilities for default loan taken by the government is encouraged debtors not to
repay the loans. Experts observed that these measures are insufficient as the bad
loan keeps rising and it creates a stress on good governance in the banking sector.
➢ Khondkar Ibraim Khaled (a noted banker and former deputy governor of
Bangladesh) said- “the central bank could do nothing here when the finance
ministry defies the law to pave the way for appointing a corrupt person, then why
will corruption not take place?”

➢ He noted that loans may turn bad because of unrest or other unavoidable situation
in the country. But when a loan is given out through corrupt practices, it becomes
bad from the very first day.[ Source: The Daily Star, August 26,2016]

➢ The newly appointed finance minister of Bangladesh, A H M Mustafa Kamal

announced that defaulters would be allowed to reschedule their loans for 12 years
after furnishing 2% down payment under a special package. Both small and large
borrowers will be able to get the rescheduling facility and a 7% simple interest
formula instead of existing compound formula will be applied. If their payments are
regular, borrowers will also be able to get fresh loans from the same bank after
rescheduling.

➢ But Khondkar Ibraim Khaled thinks that it will not solve the problem rather it will
encourage and facilitate the defaulters and will discourage the good borrowers to
repay their loan at a highest interest rate comparing with that of defaulters. [Source:
The Daily Star, March 31, 2019]

Other problems of NBL:

72
Without the above five major problems, NBL has the following others problems

✓ High emphasis on fixed deposits.

✓ Less emphasis on advertising through the electronic media.
✓ Highly capital reserve requirement imposed by the central bank. Unstable
political environment of the country.

High emphasis on fixed deposits: NBL gives high emphasize on fixed deposits every year,
which means that they always end up paying high interest expense for their deposit mix. Certainly,
this will decrease their dealing spread and keeps them always in pressure.

Less emphasis on advertising through the electronic media: NBL does not do
much electronic media advertising. On the other hand, competitors do opposite frequently
come up with creative advertising for their banks. This is a big weakness for NBL, which
may prove to be big mistake in the future.

Highly capital reserve requirement imposed by the central bank: If there is liquid money
crisis in the market, NBL will find it hard to manage its capital reserve requirement. As Banking
Company Act 1991, Bangladesh Bank is regulated the capital requirement not less than 9%. And
if for some reasons the bank fails to meet the reserve requirements then the consequences and
sanctions will be severe.

Unstable political environment of the country: The political environment of

Bangladesh is quite unstable and it affects the industry from performing efficiently.

73
 Chapter 10: Recommendation and Conclusion

10.1 Recommendations Regarding NBL

After implementing the following recommendations, NBL may remove the existing
problems-

✓ NBL should have a clear guideline for CRM. The lending guideline should include
Industry & Business segment focus, types of loan facilities, single borrower & group
limit, lending caps, discouraged business types, loan facility parameters and cross
border risks.
✓ It should adopt a credit grading system in which all facilities should be assigned a
risk grade and the borrowers risk grades should be clearly stated on credit
application.
✓ Approval authority should be delegated to individual executive rather than
Executive Committee/ Board to ensure accountability. This system will not only
ensure accountability of individual executives but also expedite the approval
process.
✓ The organization structure should have to be changed to put in place the segregation
of Marketing/ Relationship Management/ Administrative function.
✓ The employee of NBL should carefully check the customers KYC form and take
enough collateral before providing them loan.
✓ NBL should follow the CRG model provided by the Bangladesh Bank.
✓ NBL should also follow ICRRS model provided by the Bangladesh Bank.
✓ NBL should keep as much as provision against the loans.
✓ NBL should lessen the NPL ratio low by the proper management of loan.
✓ NBL should provide better training to the employees about CRM.
✓ Political consideration in loan disbursement has to be stopped. As a result, this bad
culture of default loan will remove.
✓ Appointment of accountable lawyers to take legal actions against loan defaulters
will reduce the size of Default loans.
✓ Political appointment to the Board of the bank should be avoided.
✓ The bank should extend credit not only to running and old customers but also to
new entrepreneurs/ customers. It also should try to increase customers for its
improvement and survival in future.
✓ The bank should exercise syndicated financing technique for large loans.
✓ Though the bank takes the facility to clean up its balance sheet, it ultimately creates
a big problem and becomes very harmful for it. So, the bank should beef up

74
 monitoring of the recovery process of written-off loans and this type of loans must
be recovered within the shortest possible time through taking legal actions.
✓ The bank should exercise syndicated financing technique for large loans.
✓ Finally, emphasis must be placed on ethical standards in the banking profession
from all corners to make the credit environment trustworthy and vibrant. So, the
bank needs to ensure- accuracy, accountability, transparency as well as good
governance.

10.2 Conclusion
To conclude the report, it is imperative to mention that default clients have been a major
problem for the banking financial institutions for long and the financial institutions have
been trying to minimize the default problem all along.

The Bangladesh Bank has been striving to assist the financial institutions to get out of the
default risk problem and formulating policies for that purpose. As a continuance to this,
Bangladesh Bank has been providing directives when and where it seems to be necessary.

As a lending financial institution of Bangladesh, National Bank Limited is maintaining its

operation in a smooth way. Though the bank faced many problems, its experience in the
field of corporate and proper lending policy make it very much cautious about the risk. A
very skillful and technically enriched CRM department is always working with its products
and services. So far it has proved itself as a successful organization in assessing risk and
takes care of it.

The main purpose of this paper is to show about the CRM practice of banks. It describes
about the theoretical framework, importance, process, advantage and challenges of CRM.
It also describes the CRM practice and performance of NBL. Finally, it tries to find if there
is a relationship between CRM performance and banks profitability. All these analyses is
described on the Perspective of National Bank Limited, Bangladesh.

75
References:
Annual Report of National Bank Limited 2020
Retrieved from
https://www.nblbd.com/assests/financial/annu
al/NBL_Annual_Report_2020.pdf
Annual Report of National Bank Limited 2019 Retrieved from
https://www.nblbd.com/assests/financial/annual/NBL_Annual_Report_2019
_(04.10.2020).pdf

Annual Report of National Bank Limited 2018 Retrieved from

https://www.nblbd.com/assests/financial/annual/NBL_Annual_Report_2018.pdf

Annual Report of National Bank Limited 2017 Retrieved from

https://www.nblbd.com/assests/financial/annual/NBL_Annual_Report_2017.pdf
Annual Report of National Bank Limited 2016 Retrieved from
https://www.nblbd.com/assests/financial/annual/NBL_Annual_Report_2016
1.pdf

http://www.nblbd.com

National Bank Limited (NBL). (2022). General Ledger (Daily position), Chawkbazar
Branch.

Financial statements of National Bank limited,2016-2020

Rose Peter S. Commercial Bank Management, Fifth Edition

Suman and Shilpi Das (2007) studied on –“Credit risk management practices – an
evaluation of commercial banks in Bangladesh”

Lalon (2016) studied on – “Credit Risk Management (CRM) practices in

commercial banks of Bangladesh: A study on Basic Bank Ltd.”

Nwanna and Oguezue (2017) studied on – “Effect of Credit management on

profitability of Deposit Money Banks in Nigeria”

Bank, B (2007). Credit Risk Grading in Bangladesh, Available at:

https://www.bb.org.bd/mediaroom/circulars/brpd/cregradnbbankjun07.pdf

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