Internship report on credit management policy & procedure by mutual trust bank on alankar branch
- 1. CREDIT MANAGEMENT POLICY AND PROCEDURE - A Study on Mutual Trust Bank, Alankar Mour Branch, Chittagong. (This Report has been submitted as the partial fulfillment of Requirements for the Degree of Bachelor of Business Administration major in Finance & Banking) PREPARED BY Md. Abdullah Al Noman ID: B131370 Program: BBA Semester: AUTUMN 2016 Major: Finance & Banking Internship Duration: 17th April - 22th June Date of Submission: 15th July, 2017 DEPARTMENT OF BUSINESS ADMINISTRATION Faculty of Business Studies INTERNATIONAL ISLAMIC UNIVERSITY CHITTAGONG
- 2. CREDIT MANAGEMENT POLICY AND PROCEDURE - A Study on Mutual Trust Bank, Alankar Mour Branch, Chittagong. (This Report has been submitted as the partial fulfillment of Requirements for the Degree of Bachelor of Business Administration major in Finance & Banking) PREPARED BY Md. Abdullah Al Noman ID: B131370 Program: BBA Semester: AUTUMN 2016 Major: Finance & Banking SUPERVISOR Md. Kazi Golam Azam Assistant Professor DEPARTMENT OF BUSINESS ADMINISTRATION INTERNATIONAL ISLAMIC UNIVERSITY CHITTAGONG Internship Duration: 17th April - 22th June Date of Submission: 15th July, 2017 Signature of Supervisor DEPARTMENT OF BUSINESS ADMINISTRATION Faculty of Business Studies INTERNATIONAL ISLAMIC UNIVERSITY CHITTAGONG
- 3. Letter of Submission Date: 15 July 2017 The Convener, Internship & Dissertation Committee International Islamic University Chittagong Subject: Submission of Internship Report Dear Sir, Here is the report on “Credit Management of Mutual Trust Bank Alankar Mour Branch” you asked me to conduct on the beginning of the Internship. In this assignment, I have tried to focus some key aspects of credit management of Bank Services. Here I show how here I use different tools of credit management of Mutual Trust Bank. I appreciate having this assignment. I prepared this assignment with sincerity and serious effort. Thank you for providing me the opportunity to prepare this. I am really grateful to you for giving me the scope to prepare this report under your observation. I have enjoyed preparing this report and presented it for your judgment. Sincerely yours, Md. Abdullah Al Noman Matric no. –B13170 BBA (Major in Finance & Banking) Department of Business Administration International Islamic University Chittagong
- 4. ACKNOWLEDEMENT At first I would like to express my gratitude to the Almighty Allah who has given me the opportunity to go through the whole process of Internship and write a report on this regard successfully. Basically, this report is about “A study on Credit Management Policy & Procedure on Mutual Trust Bank AlankarMour Branch. I would like to acknowledge my heartiest gratitude to the Honorable Faculty Md. KaziGolamAzam, Assistant Professor, Department of Business Administration, International Islamic University Chittagong, who has given me the full support and suggestions for preparing the report successfully and which became an excellent way of understanding the topic of my Internship. I am grateful to all the individuals of on Mutual Trust Bank AlankarMour Branch who helped me with full support and cooperation during my Internship period. I would like to express my thanks to M. Iqramul Bashar (JAVP), Md. Minhaj Karim Romal (JO), SK Md. ArfanUllah (JO) and all employees of on Mutual Trust Bank AlankarMour Branch, who have helped me by contributing their time and providing me with information related to the topic. I appreciate their consideration.
- 5. Executive Summary Internship program is the pre-requisite for the graduation in BBA. Classroom discussion alone cannot make a student perfect in handling the real business situation; therefore, it is an opportunity for the students to know about the real life situation through this program. A report has to be built for the university and organization requirement. The topic of my report is “Credit Management of Mutual Trust Bank, Alankar Mour Branch”. The main purpose of the report becomes very clear from the topic of the report. This is an orientation report that contains the real life day to day working experience of different tasks in Credit Department of Mutual Trust Bank Limited, Alankar Mour Branch. Mutual Trust Bank Ltd, (MTB) is a pioneer and leading private bank in Bangladesh. To serve the nation Mutual Trust bank performs some activities for their clients like: general banking, loan and advance, capital market operation etc. Bank collects deposit from public and provides it’s to other business or individual as loan. Bank pays interest to deposit holder and take interest from borrowers. Mutual Trust bank measure all risk components before sanctioning a loan. When all the formalities completed then respective officer disburse the loan. After disburse the loan it is duty of bank to recover the disbursed loan. This report is based on actual information and working procedure practiced in MTB. The overall credit management of MTB has analyzed to give a clean idea about the policy of MTB and implementation of that policy by various mechanism and process. The objective of this study is to analyze the credit policy, rules and regulation of credit management and evaluation of the product performance in order to identify the major problems regarding the credit management. The first section of this report consists of an introductory part of this report, which has been developed for the proper execution of the entire report. In the second part, overview of banking industry in Bangladesh. This chapter encloses overview of the banking industry. In the third part of this report a brief description about the host organization of my internship, Mutual Trust Bank has been given. In part four consists of some information about credit, its usefulness and credit management policy and procedure of Mutual Trust Bank. The five parts the overall credit management performance of Mutual Trust bank Alankar Mour branch and every contents is analyzed with chart and graphical presentation. The remaining part consist the findings, recommendations and conclusion. To prepare this report both primary and secondary sources of data have been used. Mutual Trust Bank credit policy is quite lengthy. Disbursement of loan and advances are increasing year by year. On the basis of findings it can be recommended for betterment that their loan sanctioning procedure should be less time consuming and monitoring should be stricter.
- 6. From my part, I would like to suggest, Mutual Trust Bank Alankar Mour Branch should strictly follow the principles of sound lending and they should make strong their credit monitoring department. Among the most important of these are honesty, reliability, thoroughness and willingness to always be open to new ideas and new ways of meeting customer needs.
- 7. Table of Contents SL. No Title Page No 1.0 CHAPTER ONE INTRODUCTION 01-04 1.1.Introduction 01 1.2.Background of Topic 02 1.3.Objectives of the Study 02 1.4.Scope of the Study 03 1.5.Methodology of the Study 03 1.6.Limitations of the Study 04 2.0 CHAPTER TWO Overview of Banking Industries in Bangladesh 05-10 2.1. As Regards of Banking Industries in Bangladesh 05 2.2. Banking History in Bangladesh 05 2.3 Classification of Schedule Banks in Bangladesh 06 2.4. Functions of Commercial Banks in Bangladesh 10 2.5. Contribution of Commercial Banks in Bangladesh 10 2.6. Islamic Banking 11 2.7. Possibilities of Banking Industries in Bangladesh 11 3.0 CHAPTER THREE MTB at a Glance 12-22 3.1. Background Profile of MTB 12 3.2. Mutual Trust Bank at a Glance 14 3.3. Strategic Objectives 15 3.4. MTB Mission 15 3.5. MTB Vision 15 3.6. MTB Slogan 15 3.7. Functions of MTB 16 3.9. Hierarchy of Organization 17 3.10. Product Profile 18 3.11. Service Profile 20 3.12. Company’s Competitive Status 20 3.13. Last Four Year Position MTB 21 3.14. Branch Overview 22 CHAPTER FOUR 23-45
- 8. Credit Management Policy and Procedure 4.1. Credit Management 23 4.2. Factors Considered for Credit 24 4.3. Significance of Credit 24 4.4. Importance of Bank Credit 25 4.5. Credit Policy of MTB 25 4.6. Types of Credit Provided by MTB 25 4.7. Different Securities for Different Types of Advances 30 4.8. Methods of Charging Securities 32 4.9. The 9C’s of Bad and Good Loan in Credit Management 34 4.10. Different Categories of Risks Associated with CM 35 4.11. Credit Risk Grading System 37 4.12. General Procedure of Sanctioning Loan 39 4.13. Status of Loans 45 5.0 CHAPTER FIVE Data Analysis 46-43 5.1. Introduction 46 5.2. Loan and Advance 46 5.3. Collection of Loan and Advance 47 5.4. Credit to Deposit Ratio 48 5.5. Classified Loan 49 5.6. Net Profit 50 5.7. Growth of Profit 51 6.0. CHAPTER SIX Findings, Recommendations & Conclusion 52-55 6.1. Summary of Findings 52 6.2. Recommendations 53 6.3. Conclusion 54 References 55
- 10. 1.1. Introduction Banks are the key financial that play a vital role in the country’s economy. It deals with accepting deposit from the public and advances as well as various loans for public. During the last decade, banking became the most competitive industries of Bangladesh with a huge amount of growth. Globalization in the banking section has through up opportunities as well as challenges. Competition is getting edge day by day. It paces with continuous development occurring in the tremendous competitive environment. Banks offer a widest menu of services of any financial institution. Banks are among the most important financial institution in the economy. They are the principal source of credit and they take deposit from people. This report on “Credit Management of Mutual Trust Bank”- A study on Mutual Trust Bank, Alankar Mour Branch is a collaborated representation of the internship program at Mutual Trust Bank, which is a partial requirement of the Bachelor of Business Administration (BBA) Program of International Islamic University Chittagong. The Purpose of the report is to contemplate the knowledge and experience accumulated from the internship program. Modern banks play an important part in promoting economic development of a country. Banks provide necessary funds for executing various programs underway in the process of economic development. They collect savings of large masses of people scattered throughout the country, which in the absence of banks would have remained idle and unproductive. These scattered amounts are collected, pooled together and made available to commerce and industry for meeting the requirements. Economy of Bangladesh is in the group of world’s most undeveloped economies. One of the reasons may be its undeveloped banking system. Government as well as different international organizations have also identified that undeveloped banking system causes some obstacles to the process of economic development. So they have highly recommended for reforming financial sector. In any country strong banking sector indicate strong economic condition of the country. Mutual Trust Bank Limited is the preferred choice in banking for friendly and personalized services, cutting edge technology, tailored solutions for business needs, global reach in trade and commerce and high yield on investment, assuring excellence in banking services.
- 11. 1.2. Background of Topic Credit is the central function, as it is known as the heart of financial intuitions like Banks. Because through effective and efficient credit practice, overall risk of the intuitions can be alleviated. As so each banking institutions follows the policies and rules CRM provided by Bangladesh Bank introduced new accounting policies with respect to loan classification provisioning and interest suspense in 1989 with a view to attaining international standards over a period of time. As a result, all the financial and non-financial institutions are involved in credit practice and concentrating more to provide better service with maintaining a better credit policy to uphold its own financial growth. As a part of Internship Program of Bachelors of Business Administration at International Islamic University Chittagong, IIUC, I was assigned for doing my internship in Mutual Trust Bank, Alankar Mour Branch. My program started from April17, 2017 to June23, 2017 selected by the Career Service Office of the IIUC. In Mutual Trust Bank, I was assigned with Credit Department where my organizational supervisor was Md. Minhaj Karim Romal. My project was on "Credit Management Policy at Mutual Trust Bank". This was given by my faculty supervisor Md. Kazi Golam Azam Assistant Professor of International Islamic University Chittagong, and the project was approved by my organizational supervisor. 1.3. Objective of the study: This report emphasizes the importance of loan & Advance of banking in the context of Credit Risk Management of the commercial banks in Bangladesh along with the conditions of The Mutual Trust Bank. A huge work has been performed for preparing this report. The objectives behind this research paper are pointed below: To highlight overview of banking industries in Bangladesh. To know about the Mutual Trust Bank at a glance. To know about the depth knowledge of credit management’s policy and procedures. To evaluate the credit management performance of Mutual Trust Bank, Alankar Mour Branch. To identify Findings and providing recommendations regarding credit management.
- 12. 1.4. Scope of the Study I have worked as an internee in the Mutual Trust bank on Alankar Mour branch, which is one of the most successful banks in the country. The scope of this study is credit management of MTB. This study makes an attempt to cover within its scope almost all the significant aspects of credit operations of the selected banks. The study is organized as follows: Account opening Clearing FDR Deposit Loan and Advance Credit profile of the selected banks Loan recovery 1.5. Methodology of the Study This is a description research work. Data was thereby collected from primary & secondary sources, they are: 1.5.1. Primary Sources: • Face to face conversation with the respective officer. • Face to face conversation with the clients of the Bank. 1.5.2. Secondary Sources: Official website of Mutual Trust Bank Credit Policy Manual of the Banks Prudential Guidelines on Credit Risk Management issued by Bangladesh Bank. Annual report of MTB. Annual report of Bangladesh Bank
- 13. News papers and journals from websites. Circulars, letters and memos issued by the Banks and regulatory organization i.e. Bangladesh Bank and Govt. Websites of MTB 1.6. Limitation of the Study All data aren’t ready to support us all the time and the internee student face lots of problem for collecting data from the branch. Now-a-days the private banks are very busy and lucrative to survive. Within short time the students can’t understand all the sector of the banks. There were some encountered problems that obstructed me in the accomplishment of the study. Limitations of the study are given bellow: Scarcity of sufficient written documents. All the employees are very busy. So that I couldn’t get greater help from them. There are various sectors but internee student can’t enter there on account of security. Sometimes the internee students forced to work the uncreated works where we get nothing to learn. Sometimes I was assigned to do some jobs without explaining why this work is to be done. I got heavy pressure there. Only 9 weeks are not sufficient to visit all the desks in the branch. So some desks were remained unvisited. There is no specified accommodation for me.
- 14. Chapter: Two Overview of Banking Industries in Bangladesh
- 15. 2.1. As Regards of Banking Industries in Bangladesh Banking industry of Bangladesh is one of the major industries, which contributes significantly to the national economy. This comprises a number of banks in various categories. Considering ownership the industries can be classified in to four major categories- such as Nationalized Commercial Banks (NCBs), Specialized Banks (SPBs), Private Commercial Banks (PCBs) and Trans-National Banks (TNBs). The commercial banking system put on vital role in Bangladesh's financial sector. Bangladesh Bank is the Central Bank of Bangladesh and the principal regulator of the sector. Bangladesh have total of 59 states owned, private, foreign and specialize Banks. The banking system consists of 6 state-owned commercial banks, 34 private commercial banks, 9 specialized development banks, and 10 foreign commercial banks. The Nobel Prize for Grameen Bank is a specialized micro-finance institution, the concept of Micro credit revolution and a major contribution to poverty alleviation and empowerment of women in Bangladesh. 2.2. Banking History in Bangladesh Banking in Bangladesh is as old as banking in other parts of the world. Today’s banking system has evolved primarily from British banking through it was undergone substantial changes in post liberation period.After the emergence of Bangladesh in 1971 Bangladesh Bank was established in 1972 which is the successor bank of State Bank of Pakistan. It is wholly Government owned bank managed by a board appointed by the government. Again after the achievement of victory against par occupation forces 16th December 1971, there were 12 schedule banks operating in Bangladesh. All these banks were established by Pakistanis and their head offices were in West Pakistan.The Bangladesh government regarding initially nationalized the entire domestic banking system and proceeded to recognize and rename the various banks. Foreign owned banks were permitted to continue doing business in Bangladesh.. Now, banking sector in Bangladesh is primarily of two types:
- 16. A) Scheduled Bank B) Non-scheduled Bank A) Scheduled Bank: The banks which get license to operate under Bank Company Act, 1991 (Amended in 2003) are termed as Scheduled Bank. State-owned commercial banks, private commercial banks, Islamic commercial banks, foreign commercial banks and some specialized banks are Scheduled Bank. B) Non-Scheduled Bank: The banks which are established for special and definite objective and operate under the acts that are enacted for meeting up those objectives are termed as Non- Scheduled Bank. These banks cannot perform all functions as like as scheduled banks. Grameen Bank, Probashi Kallyan Bank, Karmasangsthan Bank, Answer VDP Unnayan Bank are Non-Scheduled Bank. 2.3. Classification of Schedule Banks in Bangladesh A. Central Bank Bangladesh Bank B. State Owned Commercial Banks (SOCBs): There are 5 SOCBs which are fully or majorly owned by the Government of Bangladesh. 1. Sonali Bank Limited 2. Janata Bank Limited 3. Agrani Bank Limited 4. Rupali Bank Limited 5. Bangladesh Krishi Bank Limited Under State Owned Commercial Banks (SOCBs) there are four specialized banks are now operating which were established for specific objectives such as social development, like agricultural or industrial development. These banks are also fully or majorly owned by the Government of Bangladesh.
- 17. Four specialized banks are as follows 1. BASIC Bank Limited 2. BDBL (Bangladesh Development Bank Limited) 3. Rajsahi Krishi Unnoyon Bank (RKUB) 4. Bangladesh Krishi Bank Limited C. Private Commercial Banks (PCBs): There are 39 private commercial banks which are majorly owned by the private entities where among them 32 PCBs perform their banking functions in conventional fashion i.e interest based operations and rest 8 banks operate under Islami Shariah i.e. Profit-Loss Sharing (PLS) mode. 1. AB Bank Limited 2. Bangladesh Commerce Bank Limited 3. Bank Asia Limited 4. BRAC Bank Limited 5. Dhaka Bank Limited 6. Dutch Bangla Bank Limited 7. Eastern Bank Limited 8. IFIC Bank Limited 9. Jamuna Bank Limited 10. Meghna Bank Limited 11. Mercantile Bank Limited 12. Midland Bank Limited 13. Modhumoti Bank Limited 14. Mutual Trust Bank Limited
- 18. 15. National Bank Limited 16. NCC Bank Limited 17. NRB Bank Limited 18. NRB Commercial Bank Limited 19. NRB Global Bank Limited 20. One Bank Limited 21. Prime Bank Limited 22. Pubali Bank Limited 23. South Bangla Agriculture and Commerce Bank Limited 24. Southeast Bank Limited 25. Standard Bank Limited 26. The City Bank Limited 27. The Farmers Bank Limited 28. The Premier Bank Limited 29. Trust Bank Limited 30. United Commercial Bank Limited 31. Uttara Bank Limited 32. Simanta Bank Limited There are eight private Islamic Commercial Banks in Bangladesh: 1. Islami Bank Bangladesh Limited 2. Al-Arafah Islami Bank Limited 3. Export Import Bank of Bangladesh Limited 4. Social Islami Bank Limited 5. Shahjalal islami Bank Limited 6. First Security Islami Bank Limited 7. Union Bank Limited 8. ICB Islamic Bank Limited
- 19. D. Foreign Commercial Banks (FCBs): 10 FCBs are operating in Bangladesh as the branches of the banks which are incorporated in abroad. 1. Bank Al-Falah 2. Citibank NA 3. Commercial Bank of Ceylon 4. Habib Bank Limited 5. HSBC (The Hong Kong and Shanghai Banking Corporation Ltd.) 6. National Bank of Pakistan 7. Standard Chartered Bank 8. State Bank of India 9. Woori Bank 10. ICICI Bank E) Specialized Development Banks: 1. Bangladeshi Krishi Bank 2. Rajshahi Krishi Unnayan Bank 3. Rajshahi Krishi Unnayan Bank 4. Progoti Co-operative Land Mortgage Bank Limited 5. Grameen Bank 6. The Dhaka Mercantile Co-operative Bank Limited (DMCBL) 7. Bangladesh Somobay Bank Limited (Cooperative Bank) 8. Ansar VDP Unnyan Bank 9. Karmasangstan Bankangladesh Development Bank Limited
- 20. 2.4 Function of Commercial Banks in Bangladesh 2.5 Contribution of Commercial Bank in Bangladesh 1. 1.Banks promote capital formation 2. 2.Investment in new enterprises 3. 3.Promotion of trade and industry 4. 4.Development of agriculture 5. 5.Balance development of different savings 6. 6.Influencing the economy activity 7. 7.Implementation of monetary policy 8. 8.Export promotion cells Figure: Functions of Commercial Banks in Bangladesh
- 21. 9. 2.6 Islamic Banking Alongside the conventional interest bearing banking system, Bangladesh entered into an Islamic Banking system (profit-loss sharing) in 1983. At present, out of 59 banks in Bangladesh, 3 private commercial banks are operating as full-fledged Islamic banks and 10 conventional banks are partially involved in Islamic banking in a total of 35 branches. The Islamic banking industry continued to show strong growth since its inception in 1983 to June 2014 in tandem with the growth in the economy, as reflected by the increased market share of the Islamic banking industry in terms of assets, financing and deposits of the total banking system. 2.7 Possibilities of the Banking Industries of Bangladesh There are huge possibilities of the banking sector in Bangladesh. These are below: 1. Banking sector of Bangladesh has a great opportunity to become a major sector of the national economy. 2. Bangladesh has huge number of population. This advantage may accelerate expansion and growth of Bangladeshi banking sector. 3. Bangladeshi banking sector is very much capable to ensure proper quality of the product services as per requirement of the global market. 4. There are ten foreign banks active in Bangladesh, but no Japanese bank yet. So there are huge prospect for Japanese bank to open their branch in Bangladesh.
- 22. 3.1. Background Profile of MTB The Mutual Trust Bank was incorporated as a public limited company on September 29, 1999 under the Companies Act 1994. The Bank started its commercial operation on October 05, 1999 with an authorized capital of BDT 200 Million divided into 2,000,000 ordinary shares of BDT 100 each(Mutualtrustbank.com, 2014). The Company was also issued Certificate for Commencement of Business on the same day and was granted license on October 05, 1999 by Bangladesh Bank under the Banking Companies Act 1991 and started its banking operation on October 24, 1999. The bank conducts all types of commercial banking activities including foreign exchange business and other financial services. During the first two years of operations, the bank's main focus was on the delivery of personalized customer services and expansion of its clientele base. As envisaged in the Memorandum of Association and as licensed by Bangladesh Bank under the provisions of the Banking Companies Act 1991, the Company started its banking operation and entitled to carry out the following types of banking business: 1. All types of commercial banking activities including Money Market operations. 2. Investment in Merchant Banking activities. 3. Investment in Company activities. 4. Financiers, Promoters, Capitalists etc. 5. Financial Intermediary Services. 6. Any related Financial Services. The Company (Bank) operates financial activities through its Head Office situated at Dhaka and 112 branches. The Bank carries out international business through a Global Network of Foreign Correspondent Banks.
- 23. Memberships of MTB 1. Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI, D) 2. The Institute of Banker’s Bangladesh (IBB) 3. Bangladesh Foreign Exchange Dealers Association (BAFEDA) 4. Bangladesh Institute of Bank Management (BIBM) 5. International Chamber of Commerce Bangladesh Limited (ICCB) 6. Association of Bankers Bangladesh Limited (ABB) 7. Bangladesh Association of Publicly Listed Companies (BAPLC) 7. American Chamber of Commerce in Bangladesh (AMCHAM) Aiming at offering commercial banking service to the customers' door around the country, Mutual Trust Bank Limited establishes 112 branches up-to this year. This organization achieved customers' confidence immediately after its establishment in domestic and international markets. Mutual Trust Bank is one of the few banks permitted by the Bangladesh bank in the early 90s; the other banks permitted earlier were Dutch-Bangla Bank, Al-ArafahIslami Bank, Prime Bank, Dhaka Bank, Eastern Bank, ONE Bank. These banks are known as the second generation banks and fortunate to remain immune from the bad loan culture. The emergence of Mutual Trust Bank Limited at the junction of liberation of global economic activities, after the URUGUAY ROUND has been an important event in the financial sector of Bangladesh. Mutual Trust Bank has been licensed by the Government of Bangladesh as a Scheduled Bank in the private sector in pursuance of the policy of liberalization of banking and financial services and facilities in Bangladesh. In view of the above, the Bank within a period of 17 years of its operation achieved a remarkable success and met up capital adequacy requirement of Bangladesh bank.
- 24. 3.2. Mutual Trust Bank Limited: At a Glance Name of the Company Mutual Trust Bank Limited Legal form The Company was incorporated as a Public Limited Company on September 29, 1999, under the Companies Act 1994, with an Authorized Share Capital of BDT 1,000,000,000 divided into 10,000,000 ordinary shares of BDT 100 each. At present, the Authorized Share Capital of the company is BDT 10,000,000,000 divided into 1,000,000,000 ordinary shares of BDT 10 each. Date of Commencement October 05, 1999. Registered Office MTB Centre, 26 Gulshan Avenue Plot- 5, Block SE (D), Gulshan-1, Dhaka-1212. Telephone 880(2) 882 6966, 882 2429 Telefax 880 (2) 882 4303 SWIFT Code MTBL BD DH E-mail info@mutualtrustbank.com.bd Web Page www. mutualtrustbank.com Auditor M. J. ABEDIN & CO.Chartered Accountants, National Plaza (3rd Floor), 109 Bir Uttam CR Datta Road, Dhaka 1205 Tax Consultant MalekSiddiquiWali BSRS Bhaban (13th floor) 12 Karwan Bazar C/a, Dhaka 1215, Bangladesh Managing Director Mr.AnisA.Khan Company Secretary Mr.Quamrul Islam Chowdhury Number of Branches 112 SME center 5 MTB Securities limited 14
- 25. 3.3. Strategic Objectives To maintain a discreet credit policy. To enhance versatility and diversification through the penetration of new market segments, thereby fulfilling unmet needs. To ensure inflow of funds at combination of least possible cost. To improve administrative and organizational structures in order to prepare the platform for best practices of corporate governance. To practice stronger IT- driven initiatives that will meet the challenges and requirements of the bank and its clientele. To provide extensive career opportunities through competitive pay and a flexible environment. To extend financial assistance to the citizenry, living at dispersed locations by expanding the network of branches. To enrich the banking sector with improved awareness on Corporate Social Responsibility 3.4. Our Mission We aspire to be one of the most admired banks in the nation and be recognized as an innovative and client-focused company, enabled by cutting-edge technology, a dynamic workforce and a wide array of financial products and services. 3.5. Our Vision Mutual Trust Bank's vision is based on a philosophy well known as MTB. We envision MTB to be: One of the Best Performing Banks in Bangladesh The Bank of Choice A Truly World-class Bank 3.6. MTB Slogan You can bank on us
- 26. 3.7. Functions of Mutual Trust Bank Limited a. The main task of the MTBL is to accept deposited from various customers through various accounts. b. Provides loans on easy terms and condition. c. It creates loan deposit. d. The bank invest it fund into profitable sector e. It transfers money by Demand Draft (DD), Pay Order(PO) and Telegraphic Transfer etc. f. The bank is doing the transaction of bill of exchange, Cheque etc. on behalf of the clients. g. MTBL assists in the Foreign Exchange by issuing Letter of Credit. h. The bank insures the securities of valuable documents of clients. i. It brings the increasing power of dimension of transaction. j. Above all, MTBL helps the businessmen financially by giving discount facility for bill of exchange and by providing the facility of Letter of Guarantee.
- 27. 3.9. Hierarchy of Organization SR. EXECUTIVE VICE PRESIDENT EXECUTIVE VICE PRESIDENT SENIOR VICE PRESIDENT PRESIDENT VICE PRESIDENT ASSISTANCE VICE PRESIDENT SENIOR ASSTT.VICE FIRST ASSTT. VICE PRESIDENT JUNIOR ASSTT. VICE PRESIDENT SENIOR OFFICER OFFICER / TRAINEE OFFICER JUNNIOR OFFICER ASSISTACE OFFICER DRIVER/ ELECTRICIAN OFFICE ASSTT/ ASSTT ELECRICAN
- 28. 3.10. Product Profile: Commercial Banks deals with money & Money’s worth with a view to earn profit. Savings & deposit are considered as lifeblood of the bank. The more is deposit the greater is the strength of the bank. The bank offers various products scheme to attract deposits & invest the deposit. Marketing of banks products & services is the process of gearing the activities of a bank to serve its customers requirements at a profit. The product offered by the bank is as follows: 3.10.1. DEPOSIT PRODUCTS: Regular Savings Account Current Account Brick By Brick MTB Double Saver Plan Fixed Deposit MTB Education Plan MTB Millionaire Plan Monthly Benefit Plan MTB Inspire MTB Ruby MTB Junior MTB Graduate MTB Senior 3.10.2 NRB PRODUCTS: NRB Savings Account NRB Deposit Pension NRB Fixed Deposit 3.10.3. Retail Loan Products: MTB Personal Loan
- 29. MTB Auto Loan MTB Home Loan MTB Home Equity Loan Doctors Loan MTB Life Line. Home Repair Loan. 3.10.4. Card Products: Credit Card Debit Card Travel Card 3.10.5. SME Products: MTB Bhaggobati MTB Gunaboti MTB Krishi MTB Mousumi MTB Revolving Loan MTB Small Business Loan MTB Diggon MTB Green Energy Loan Cash Credit Hypo SME Cash Credit Hypo MTB Microfinance MTB Green Energy Loan MTB Krishijat MTB Light Engineering MTB IT Genius MTB Youth Line 3.10.6. SME Deposit Products: MTB Probaho MTB Buniad
- 30. 3.11. Service Profile: Consumer Banking Corporate Banking Commercial Banking Lease Finance Facility Consumer Credit Facility Locker Facility Collection of cheque, bills, dividends Foreign Exchange Dealings 3.12. Company’s Competitive Status: Highly trained Officer & Stuff High Customer Loyalty Good Works Environment Quick Delivery Service Highly Customer Satisfaction 3.13. Last Four Year position MTB Financial Statement(Figure in Millions) No. Particular 2012 2013 2014 2015 1 Authorized Capital 10000 10000 10000 10000 2 Paid Up Capital 2543 2798 3078 3693 3 Shareholder Equity 4834 5449 6770 8929 4 Total Capital 6981 8137 8712 12413 5 Total Assets 93162 101464 116301 146073 6 Deposits 75140 84373 96065 118405 7 Total Loan & Advance 56511 59548 77141 97589 8 Total Investment 23251 25823 20768 26210 9 Export 25455 32479 36154 45940
- 31. 10 Import 39427 44273 51593 63988 11 Total Liabilities 17676 23896 30802 35029 12 Operating Income 3507 4619 5690 6580 13 Operating Expenditure 2175 2593 3087 3769 14 Profit Before Tax 1332 2026 2603 2811 15 Profit After Tax 327 573 962 1366 16 Total Provision Maintained 1828 2297 2388 2835 17 Earning Assets 78807 85324 98026 126017 18 Non Interest Earning Assets 14356 16140 18275 98026 3.14. Branch Overview Bank Name Mutual Trust Bank Limited Branch Name Alankar Mour Branch Address DT Road, Abdul Ali Hat, Alankar Mour, North Phartali, Chittagong Telephone 0312772617, 2772619, 2772620 SWIFT Code MTBBDDH Routing Number 145150149 District Chittagong Ratio Analysis No Items 2012 2013 2014 2015 1 EPS 1.17 1.86 2.60 3.70 2 Net Asset Value Per Share 19.01 19.48 22.00 24.18 3 Dividend(Stock) 10% 10% 20% 20% 4 ROE 6.08% 11.15% 15.74% 17.40% 5 ROA 0.39% 0.59% 0.88% 1.04% 6 Classified Loans as a % of total Loans & Advances 3.69% 3.62% 2.67% 2.08% 7 Loan-Deposit Ratio 75.21% 70.58% 80.30% 82.42% 8 Capital- Risk Weighted Assets Ratio 10.71% 11.57% 10.77% 12.02% 9 Market Value Per Share 21.90 16.30 19.80 19.50 10 Price-Earnings Ratio 18.74 7.96 7.60 5.27
- 32. 3.13.1. Organizational Structure of Alankar Mour Branch Name Designation Quazi Md. Abul Hossain VP Md. Iqramul Bashar JAVP Md. Zakir Hossain Senior Officer Mursheda Jahan Officer Md. Minhaj karim Romal Junior Officer SK Md Arfan Ullah Junior Officer Iftekharul Akram Junior Officer Md. Jahangir Alam Assistant Junior Officer Shirajum Monira Assistant Junior Officer Ishrat Jahan Assistant Junior Officer Md. Saidujjaman Shameem Assistant Junior Officer
- 33. 4.1 Credit Management The word credit comes from the Latin word “Credo” meaning “I believe”. It is a lender’s trust in a person’s or firms or company’s ability or potential ability and intention to repay. Credit is a contractual agreement, in which a borrower receives something of value now, with the agreement to repay the lender at some date in the future. One of the basic functions of the bank is deposit extraction and credit extension. Managing credit operations is the crying need for any bank. The objective of the credit management is to maximize the performing asset and the minimization of the non-performing asset as well as ensuring the optimal point of loans and advances and their efficient management. Credit management is a dynamic field where a certain standard of long- range planning is needed to allocate the fund in diverse field and to minimize the risk and maximizing the return on the invested fund. Continuous supervision, monitoring and follow-up are highly required for ensuring the timely repayment and minimizing the default. Actually the credit portfolio is not only constituted the bank’s asset structure but also a vital factor of the bank’s success. The overall success in credit management depends on the banks credit policy, portfolio of credit, monitoring, supervision and follow-up of the loan and advance. Therefore, while analyzing the credit management of MTBL, it is required to analyze its credit policy, credit procedure and quality of credit portfolio. Strong and effective credit management is essential to ensure the financial health for a bank. Credit management involves credit planning, credit policies, credit procedures, credit administration, and credit monitoring & credit recovery. Why the bank provides Loan to the borrowers – a) To earn interest from the borrowers and give the depositors interest back b) To accelerate economic development by providing finance to different industrial as well as agricultural institutions c) To create employment by providing industrial loans d) To pay the employees as well as meeting the interest groups profit
- 34. Credit is a continuous process. Recovery of one credit gives rise to another credit. In this process of revolving of funds, bank earns income in the form of interest. A bank can invest its fund in many ways. Banks provide loans and advances to traders, businessmen, and industrialists. Moreover nature of credit may differ in terms of security requirement, disbursement provision, terms and conditions etc. This section has been analyzed in this report in the following manner- 1. Types of Loan Provided By the Branch 2. Selection of the borrower 3. Process of the loan 4. Recovery System 5. Regulation 4.2. Factors Considered for Credit Time Operating Expense Risk Interest Rate Legal Considerations Finance Charge Inflation 4.3 Significance of Credit Business cycle can run well only by the help of lending system It helps to create employment opportunities Credit plays a vital role in national economy in the following ways It provides working capital for industrialization Credit controls almost all kinds of production activities of the country It brings social equity Cash generation occurs for its successful performance Economic stabilization Raise standard of living
- 35. 4.4. Importance of bank credit Credit is an important determinant of money creation and hence of production, consumption and national income. Credit influenced by quantity of money, level of economic activity, imports and net foreign assets. It influences imports and capital movements and hence outcome of balance of payments. Some other importance issues of bank credit are as follows: Credit is influences behavior of economic sector industry, agriculture and behavior economic agents. Credit provides vital linkages among government sector, private sector, financial sector and foreign sector. Credit is of vital importance that the bank takes good decisions in awarding of loans. 4.5. Credit Policy of MTB One of the most important ways, a bank can make sure that its loans meet organizational and regulatory standards and they are profitable. It is important to establish a loan policy. Such a policy gives loan management a specific guideline in making individual loans decisions and in shaping the bank’s overall loan portfolio. In Mutual Trust Bank Limited there is perhaps a credit policy but there is no credit written policy. 4.6. Types of Credit Provided by MTB 4.6.1. Classification on the basis of time On the basis of elements of time, bank credit classified as: Continuous Loan The loan accounts in which transactions may be made within certain limit and have an expiry date for full adjustment will be treated as continuous loan. Example- Cash Credit, Overdraft, etc.
- 36. Demand Loan The loans that become repayable on demand by the bank will be treated as Demand Loan. If any contingent or any other liabilities are turned to forced loan those too will be treated as demand loan. Example- Forced Loan against Imported Merchandise, Payment against Document, Foreign Bill Purchased, Inland Bill Purchased. Term loan These are the advances made by the bank with a fixed repayment schedule. Terms loans mainly include "Consumer credit scheme", "Lease finance"," Hire purchase", and "Staff loan". The term loans are defined as follows: Short term loan: Up to 12 months. Medium term loan: More than 12 months & up to 36 months Long term loan: More than 36 months. Table: Classification on characteristics of financing of Mutual Trust Bank Limited Funded Non-funded Overdraft Letter of Credit Loan Bank Guarantee Consumer Credit --- LTR --- PAD --- Cash Credit (Pledge & Hypo) --- Staff Loan --- Term Loan --- 4.6.2 Application Based Categories of Loan Based on the purpose of the loan, loans are classified as follows: Corporate Loan
- 37. Any loan exceeding 1, 00, 00,000 BDT and issued for business and trade purposes is defined as corporate loan. Such loans mainly serve the purpose of initials for the establishment of industry or large scale factory. SME (Small & Medium Enterprise) Loans This type of loan is disbursed for business purposes but the amount loaned does not exceed 1, 00, 00,000 BDT. The amount loaned here serves the purpose of potential (partial) working capital for small and medium business ventures. Retail Loan Retail loans are given for personal usage rather than for business purposes. It includes auto loan, personal loan, vacation loan, and home loan MTB Personal Loan: MTB Personal Loan is simple, convenient and quick. Features: a. Loan amounts from Tk. 50,000 to Tk. 10,00,000 b. Flexible repayment option of 12 – 60 months c. No hidden charges d. Competitive interest rate e. Easy documentation and quick processing f. Option for early settlement Eligibility: a. Age minimum 21 and maximum 60 years at loan maturity. Experience: a. Salaried person: 1 year with 6 months permanent employment status b. Self-employed: 1 year of practice in the profession c. Businessperson: 2 years of involvement in the same nature of business
- 38. Minimum monthly income: a. Salaried executive Tk. 15,000 b. Self-employed Tk. 30,000 c. Businessperson/Land lord/Land lady Tk. 40,000 MTB Auto Loan MTB offers lucrative interest rates that would pleasantly surprise the customer. MTB Auto Loans are built for utmost speed and competence. MTB Auto Loan is available for financing both new and reconditioned cars. Features: a. Loan amounts from Tk. 3,00,000 to Tk. 20,00,000 b. Flexible repayment of 12 – 60 months c. No hidden charges d. Competitive interest rate e. Easy documentation and quick processing f. Option for early settlement Eligibility: a. Age: minimum 21 and maximum 60 years at the end of loan maturity Experience: b. Salaried executive total – 2 years c. Business person/self-employed – 2 year d. Monthly income: Minimum Tk. 30,000 MTB Home Loan
- 39. Planning to own a home is one of life’s most rewarding challenges. Whether it is purchasing a new house or a new apartment, MTB has a wide range of home loan options that can be customized to your specific need. An experienced, dedicated team of experts and a complete loan package is in place, to meet all your housing finance needs. MTB Home Loan helps the client to fulfill their dreams. Features: a. Loan for residential apartment/house purchase b. Loan amounts from BDT 5,00,000 to BDT 1,00,00,000 c. Loan tenor from 3 to 25 years d. Loan amount up to 80% of the property value e. Aggregation of co-applicant’s income f. Competitive interest rates g. Quick and simple processing and approval time h. Loan for apartment under construction i. Partial or early settlement options available Eligibility: a. Any financially able person b. Age: minimum 21 and maximum 65 years at loan maturity c. For 100% cash covered loan: Age- minimum 18 and maximum 70 years at loan maturity Minimum Income Range: a. Salaried person Tk. 25,000 b. Self-employed Tk. 30,000 c. Businessperson/Land lord/Land lady Tk. 40,000
- 40. Experience a. Salaried person : 3 years b. Self-employed : 3 years c. Businessperson : 3 years Loan Takeover Plan An exclusive offer for other bank’s credit worthy customers who can transfer their Home Loan outstanding to MTB with both preferential interest rate and waiver of processing fees. Eligibility: a. Minimum12monthsloanEMIrepaymenthistorywithexistingbank b. Property location and other eligibility criteria of general loan are applicable Benefits of Takeover Plan: a. 1% reduced rate from regular interest rate b. Additional loan amount facility over takeover amount c. No processing fee for takeover loan amount d. No processing fee for additional loan amount Required documents: Loan application Applicant’s National ID/Driving License/Passport copy Photographs of applicants (studio photo) Salary certificate for salaried person Trade license for businessperson Personal and business account statement for last one year Applicant’s TIN certificate
- 41. Copies of all existing loans‟ sanction letter and repayment history for last one year Rental deed for rental income and ownership deed of rented property Apartment allotment letter/Deed of agreement/property ownership deed Other all property related documents copy. 4.7. Different Securities for Different Types of Advances Securities offered to the bank by the borrowers are of different types. Each security has its own suitability. Some of the examples of the securities obtained by the banks while allowing advance are shown below against the types of advances: Table: Different Securities for Different Advances Types of Advances Securities House building loan Primary securities: mortgage of the land or any property Transport loan Primary securities: joint registration and comprehensive insurance policy. Two valuable guarantors. Collateral securities: mortgage of land or any property. Any type financial obligation. Auto loan Primary securities: joint registration and comprehensive insurance policy. Two valuable guarantors and post-dated cheques Any purpose loan Primary securities: two valuable guarantors and post-dated cheques.
- 42. Payments against documents(PAD) Pledge or hypothecation of stock-in trade, goods, produce and merchandise, machineries, land or building on which machineries are installed. Loan against imported merchandise Pledge of imported merchandise Loan against trust receipt Trust receipt in lieu of import document Local bills purchased Bill itself Foreign bill purchased Shipping documents for exports Overdraft Primary securities: hypothecation of book depth Collateral securities: mortgage of landed property and IPA. Secured overdraft Primary securities: Lien on any types of financial obligation Cash credit Primary securities: Hypothecation of stock of goods in trade duly insured produce merchandise. Collateral securities: Mortgage of land and building, any financial obligation 4.8. Methods of Charging Securities The following modes of charging securities are applied in the Mutual Trust Bank Limited Lien A lien is right of banker to hold the debtor’s property until the debt is discharged. Bank generally retains the assets in his own custody but sometimes these goods are in the hands of third party with lien marked gives banker the right to retain the property not the right to sell. Permission from the appropriate court is necessary. Pledge Pledge is also like lien but here bank enjoys more right. Bank can sell the property without the intervention of any court, in case of default on loan, But for such selling proper notice must be given to the debtor. To create pledge, physical transfer of goods to the bank is must.
- 43. Hypothecation In this charge creation method physically the goods remained in the hand of debtor. But documents of title of goods are handed over to the banker. Since the goods are in the hand of the borrower, bank inspects the goods regularly to judge its quality and quantity for the maximum safety of loan. Mortgage Mortgage is transfer of interest in specific immovable property. Mortgage is created on the immovable property like land, building, plant etc. Another method called equitable mortgage is also used in bank for creation of charge. Here mere deposit of title to goods is sufficient for creation of charge. Trust Receipt Generally goods imported or bought by bank's financial assistance are held by bank as security. Bank may release this lien / pledge these goods against trust receipt. This means that the borrower holds goods in trust of the bank; trust receipt arrangement is needed when the borrower is going to sell these goods or process it further but borrower has no sufficient fund to pay off the bank loan Advance against Work-Order Advances can be made to a client to perform work order. The following points are to be taken into consideration. The client’s management capability, equity strength, nature of scheduled work and feasibility study should be judiciously made to arrive at logical decision. Advance against Approved Shares Credit facilities to extend against shares will be called “Investment Scheme against Shares”. Advance may be allowed against shares of companies listed with the Stock Exchange Ltd. Advance against Fixed Deposit Receipts
- 44. Advance against Fixed Deposit Receipt will be subject to credit Restrictions imposed from time to time by Head Office / Bangladesh Bank. Mutual Trust Bank Limited usually sanctions credit limit up to 80% of the FDR value. Scrutinize the Fixed Deposit Receipts with regard to the following points 1) The Fixed Deposit Receipt is not in the name of minor. 2) b) It is discharged by the depositor on revenue stamp of adequate value& his signature is verified. 3) c) Creation of liability on Fixed Deposit issued in joint names by any one of the depositors is regular 4) d) If the Deposit Receipt is offered as a security for allowing advances, a letter of lien shall be obtained from the depositors, on the appropriate form. 5) e) If the Deposit Receipt has been issued by the branch-allowing advance, lien against that specific Deposit Receipt to be marked in the fixed Deposit Register of the branch. 4.9. The 9C’s of Bad and Good Loan in Credit Management The Branch manager of MTB try to judge the possible client based on some criteria. These criteria are called the C‟s of good and bad loans. These C‟s are described below: 4.9.1. Character The outcome of analyzing the character is to have overall idea about the integrity, experience, and business sense of the borrower. Two variables; Interaction/interview, and Market Research are used to analyze the character of the borrower. 4.9.2. Capital For identifying the capital invested in the business can be disclosed using the following indicators: Financial Statements
- 45. Receivable, Payable, statements to practically assess the business positions. Net worth through financial statements or from declaration of Assets & Liability statement. 4.9.3. Capacity (Competence) Capability of the borrower in running the business is highly emphasized in the time of selecting a good borrower. As the management of the business is the sole authority to run the business that is use the fund efficiently, effectively and profitably. The indicators help to identify the capacity of the borrower. 4.9.4. Collateral Make sure that there is a “second way out” of a credit, but do not allow that to drive the credit decision. 4.9.5. Cash Flow Cash flow is the vital factor that is used to identify whether the borrower will have enough cash to repay the loan or advance .Cash keeps the liquidity to ensure repayment. The relationship manager tries to identify the annual cash flow from the submitted statements. 4.9.6. Conditions Understanding the business and economic conditions can and will change after the loan is made. 4.9.7. Complacency Do not rely on past history to continue. Stay alert to what can go wrong in any loan. 4.9.8. Communication Share credit objectives and credit decision making both vertically and laterally within the bank. 4.9.9. Credit Query The loans and advance department gets a form filled up by the party seeking a lot of information. 4.10. Different Categories of Risks Associated with CM Business risk: It refers to the risk that the business falls to generate sufficient cash flow to repay the loan. Business risk is subdivided into two categories
- 46. Industry risk: Due to some external reasons a business may fail and the risk, which arrives from external reasons of the business, is called industry risk. It is subdivide into supplies risk and sales risk. a. Supplies risk: It indicates that the business suffers from external disruption to the supply of imputes. Components of supplies risk are as raw material, Labor, power, machinery, equipment, factory premises etc b. Sales risk: This refers to the risk that the business suffers from external disruption of sales. Sales may be disrupted by changes to market size, increasing in competition, and change in the regulation or due to the loss of single large customer. Company Risk: This refers to the risk that the company fails for internal reasons. Company risk is subdivided into Company Position Risk and Management Risk. Company Position Risk: Within an industry each and every company holds a position. This position is very competitive. Due to the weakness in the company's position in the industry, a company is the risk for failure. That means, company position risk is the risk of failure due to weakness in the company’s position in the industry. It is subdivided into performance risk and resilience risk. Management Risk:
- 47. The management risk refers to the risk that the company fails due to management not exploiting effectively the company’s position. Management risk is subdivided into Management Competence Risk and Integrity Risk. A. Management Competence Risk: This refers to the risk that falls because the management is incompetent. The competence of management depends upon their ability to manage the company's business efficiently and effectively. Management team work is determined by analyzing management structure and its strength and weakness. B. Management Integrity Risk: This refers to the risk that the company fails to repay the loan amount due to lack of management integrity. Management integrity is a combination of honesty and dependability 4.11. Credit Risk Grading (CRG) System Credit risk grading is an important tool for credit risk management as it helps the Banks & financial institutions to understand various dimensions of risk involved in different credit transactions. The credit risk grading system is vital to take decisions both at the pre-sanction stage as well as post- sanction stage .At the pre-sanction stage, credit grading helps the sanctioning authority to decide whether to lend or not to lend, what should be the loan price, what should be the extent of exposure, what should be the appropriate credit facility, what are the various facilities, what are the various risk mitigation tools to put a cap on the risk level. At the post-sanction stage, the bank can decide about the depth of the review or renewal, frequency of review, periodicity of the grading, and other precautions to be taken. Usually there includes six steps for CRG. These are: 1. Identify all the Principal Risk Components
- 48. 2. Allocate weights to Principal Risk Components 3. Identify the Key Parameters 4. Assign weight to each of the key parameters 5. Input data to arrive at the score on the key parameters. 6. Arrive at the Credit Risk Grading based on total score obtained 1) Identify all the principal risk components At the first step all the principal risk such as financial risk, business risk, management risk, security risk and relationship risk are identified. These principal risks cover all possible uncertainty that may occur. 2) Allocate weight to principal risk components In this step, weight is distributed to the risk components. Risk factors have to be evaluated and weighted on the basis of updated & reliable data and complete objectivity. Table: Weight to Principal Components Financial risk 50% Business risk 18% Management risk 12% Security risk 10% Relationship risk 10% 3) Identifying the key parameters of principal risk In this step, key parameters of principal risk are identified. The parameters are shown on table below: Risk components Key parameters Financial risk Leverage, liquidity, profitability,& coverage ratio Business risk Size & age of business, business outlook, industry growth, competition & barriers to business Management risk Experience, Succession & team work Security risk Security coverage, collateral coverage & support
- 49. Relationship risk Account conduct, utilization of limit, compliance of covenants & personal deposit 4) Assigning weight to key parameters After identifying key parameters, weight is given to each parameter of principal risk components. In this case, high weight is given to the risky parameters. 5) Input data to arrive at score Finally, data is put on Excel based CRG matrix for getting the score. Table: Arriving at the Credit Risk Grading Number Grading Short Score 1 Superior SUP Fully cash secured, secured by govt. guarantee/international bank guarantee 2 Good GD 85+ 3 Acceptable ACCP 75-84 4 Marginal/Watch list MG/WL 65-74 5 Special Mention SM 55-64 6 Substandard SS 45-54 7 Doubtful DF 35-44 8 Bad/Loss BL <35 6) Arrive at the Credit Risk Grading based on total score obtained: At last bank select a grade for the borrower. CRG System Review CRG system should be reviewed by the respective loan officer regularly. Frequencies of review of CRG are mentioned below: Risk grading Frequency (at least) Superior Annually Good Annually Acceptable Annually
- 50. Marginal/Watch list Half yearly Special Mention Quarterly Substandard Quarterly Doubtful Quarterly Bad/Loss Quarterly 4.12. General procedure of sanctioning loan The following procedure is applicable for giving advance to the customer. These are: a. Party’s application b. Filling form-A c. Collecting CIB report from Bangladesh Bank d. Processing loan proposal e. Project appraisal f. Head office approval g. Sanction letter h. Documentation i. Disbursement j. Credit Monitoring Process k. Credit Recovery A. Party’s application At first borrower had to submit an application to the respective branch for loan, where he/she has to clearly specify the reason for loan. After receiving the application form the borrower Bank officer verifies all the information carefully. He also checks the account maintains by the borrower with the Bank. If the official becomes satisfied then he gives form-A (prescribed application form of Bank) to the prospective borrower. B. Filling Form -A
- 51. After satisfying with party’s application the applicant need to fill Form-A. It is the prescribed form provides by the respective branch that contains information of the borrower. C. Collecting CIB Report from Bangladesh Bank After receiving the application for advance, Mutual Trust Bank sends a letter to Bangladesh Bank for obtaining a report from there. This report is called CIB (Credit Information Bureau) report. D. Processing loan Proposal After receiving CIB report from Bangladesh Bank, then respective branch prepare an Investment proposal, which contains terms and conditions of Investment for approval of Head Office. Documents those are necessary for sending Investment proposal are: Necessary Documents While advancing money, banks create a lot of documents, which are required to be signed by the borrower’s before the disbursement of the loan. Of them some are technically called charge documents. Necessary steps and documents: 1. Loan application form duly signed by the customer. 2. Acceptance of the term and conditions of sanction advice. 3. Trade license. 4. In Case Of Partnership Firm, copy of registered partnership deed duly certified as true copy or a partnership deed on non-judicial stamp of taka-150 denomination duly notarized. 5. Demand promissory notes. 6. Letter of hypothecation of stocks and goods. 6. Letter of hypothecation of books debts and receivable. 7. Letter of hypothecation of plant and machinery.
- 52. 8. Personal letter of guarantee. 9. Required Doc’s for Retail (Individual) Loan 10. Required Doc’s for Retail (Individual) Loan Photograph- 2 Copies Passport/National ID/Driving License Visiting card/company ID Tin Trade license (For Businessman) LOI (For service holder) Utility Bill (electricity/WASA/Gas) Bank statement- last 6 months Quotation (For Auto or HHD) Partnership Deed (for partnership firm) Company memorandum Rental/Lease/Title Deed Certificate of professional degree Guarantor Spouse- photo with signature, Attested by applicant Eligible photo with signature, Attested by the applicant, Visiting card, TIN Sanction letter with Related Bank Statement (If Enjoying Any Loan). 11. Required Doc’s for SME Total stock
- 53. Total sale for 1 year Guarantor Photograph Visiting card TIN Trade license E. Project Appraisal It is the pre-investment analysis. Project appraisal in the Banking sector is important for the following reasons: To achieve organizational goals, To recommend if the project is not designed properly. To justify the soundness of an investment To ensure repayment of Bank finance F. Head Office Approval When Head office receive appraisal from the branch then, Head Office again appraises the project. If it seems to be a viable one, the HO sends it to the Board of Directors for the approval of the Investment. The Board of Directors (BOD) considers the proposal and takes decision whether to approve the Investment or not. If the BOD approves the investment, the HO sends the approval to the concerned branch. G. Sanction Letter When a Branch Manager writes a letter to accepting all terms and conditions of loan, it is called loan sanction. The conditions which are included in the loan sanctions these are given bellow: Limit. Primary Securities.
- 54. Collateral Securities. The Rate of Interest Expiry date. Repayment. Documentation. Others Condition. H. Documentation If the borrower accepts the sanction letter, the Documentation starts. The most common documents used by the Mutual Trust Bank for sanctioning different kinds of Investment are: Joint Promissory Note, Letter of Arrangement, Letter of Disbursement, Letter of Installment, Letter of Continuity, Trust Receipt, Counter Guarantee, Stock Report, Letter of Lien, Status Report Letter of Hypothecation, Letter of Guarantee Documents Relating to Mortgage. I. Disbursement
- 55. After sanction and completion of all formalities the respective officer disburses the loan. The officer writes cheque and provides it to the borrower. For this borrower has to open an account through which he/she can withdraw the money. Strategies for Recovery: Recovery of loan can be made in the following three methods: Persuasive Voluntarily Legally J. Credit Monitoring To minimized credit losses, monitoring procedures and systems are in place that provides an early indication of the deteriorating financial health of borrower. At a minimum, systems should be in place to report the following exceptions to relevant executives in CRM and RM team. Past due principal or inters payments, past due trade bills, account excesses, and breach of loan covenants: Loan terms and conditions are monitored, financial statements are received on a regular basis, and any covenant breaches or exceptions are referred to HO Credit for timely follow-up. Timely corrective action is taken to address findings of any internal, external or regulator inspection/audit. All borrower relationships/loan facilities are reviewed and approved through the submission of a Credit Application at least annually K. Credit Recovery: The Recovery Unit of Branch should directly manage accounts with sustained deterioration (a Risk Rating of Sub Standard or worse).The RU’s primary functions are:
- 56. 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 base on actual and expected losses. 4.13. Status of Loans 4.13.1. Unclassified These are the loans with which the bank satisfied about repayment. No doubt exists up till now about their recovery. 4.13.2. Classified These are the loans which the bank finds overdue after the due date. The bank applies its predefined policy and procedures, after a loan becomes classified. Special Mention Account When a loan installment is first missed by the borrower, the loan account is classified as a Special Mention Account (SMA). The tenure of SMA varies with the category of loans. Sub-Standard If a loan is not repaid or reschedule within the SMA period, it becomes sub-standard loan. From this stage the loan is treated as defaulted. Interest is treated the same way as in SMA. Doubtful If a loan is not repaid or reschedule within the sub-standard period, it becomes a doubtful loan Interest will be treated as before in this stage.
- 57. Bad & Loss If a loan is not repaid or reschedule within the doubtful stage, it is termed as bad & loss. Serious doubts exist as to the recovery of such loans
- 59. 5.1. Introduction This chapter contains the evaluation of last five years performance of the bank. It represents the performance on loan & advance, collection of loan & advance, classified loan, loans & deposit ratio, profitability, growth of profit. The following are as follows: 5.2. Loan and Advances Year Loans and Advances(In millions) 2012 410 2013 329 2014 382 2015 722 2016 1191 Table: Loan and Advances of MTBL Alankar Mour Branch during the period from 2012 to 2016 Interpret: Year wise total loans and advances of MTBL is also fluctuate year by year. In 2012 the total loan was 410 million. But it was decreased to 329 million in 2013. Bank prudent and continuous credit operation gradually increased from 2014 to 2016. 5.3. Collection of Loan & Advance Year Amount(In millions) 410 329 382 722 1191 0 200 400 600 800 1000 1200 1400 2012 2013 2014 2015 2016 Loan and Advance
- 60. 2012 246 2013 131 2014 152 2015 505 2016 953 Table: Collection of Loan and Advances of MTBL Alankar Mour Branch during the period from 2012 to 2016 Interpret: Above table and graph shows that the collection of loan and advance of Mutual Trust Bank, Alankar Mour Branch are fluctuate year by year from 2012 to 2016. In 2012 the collection of loans loan was 246 million. But it was decreased to 131 million in 2013. 5.4. Credit to deposit Ratio Analysis Credit deposit ratio measures the portion of deposit used for credit. The more the ratio the more the bank is capable to uses its deposit as credit. Credit to deposit ratio= Total Credit/ Total Deposit Year Total Credit Total Deposit Total Credit/ Total Deposit 2012 410 455 90.10% 0 100 200 300 400 500 600 700 800 900 1000 2012 2013 2014 2015 2016 246 131 153 505 953 Colleection of loan & advance
- 61. 2013 329 436 75.45% 2014 382 507 75.34% 2015 722 853 84.64% 2016 1191 1256 94.82% Table: Loan and Deposit Ratio of MTBL Alankar Mour Branch during the period from 2012 to 2016 Interpret: From the figure it can be said that the collection of deposit in fluctuate year by year that form into loan & advances increasing year by year subsequently. Firstly there high loans and deposit ratio but next two years falls there loans & deposit ratio. If we noticed that from year 2015 to 2016 credit deposit ratio has increased significantly which is positive sign that the bank is successfully utilizing its deposit collected from the people by the lowest interest rate into in the form of loan and advances which is main source of Bank’s income. 5.5. Classified Loan Year Amount(In millions) 2012 0.93 2013 2.59 2014 2.65 2015 2.93 2016 3.21 Table: Classified Loan of MTBL Alankar Mour Branch during the period from 2012 to 2016 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 2012 2013 2014 2015 2016 Loans & Deposit Ratio Loans & Deposit Ratio 90.10 75.45 75.34 84.64 94.82
- 62. Interpret: Above table and graph shows that the classified loan and advance of Mutual Trust Bank, Alankar Mour Branch are increasing year by year from 2012 to 2016. 5.6. Net Profit Year Amount(In millions) 2012 13.39 2013 28.38 2014 25.89 2015 33.71 2016 83.61 Table: Net Profit of MTBL Alankar Mour Branch during the period from 2012 to 2016 0 0.5 1 1.5 2 2.5 3 3.5 2012 2013 2014 2015 2016 0.93 2.59 2.65 2.93 3.21 Classified Loan
- 63. Interpret: Above table and graph shows that the Net Profit of Mutual Trust Bank, Alankar Mour Branch is fluctuate year by year from 2012 to 2016. Net Profit was highest in 2016 and the figure was 83.61 million taka. However, in 2012 it was lowest and the figure was 13.39 million taka. 5.7. Growth of Profit Year Growth of Profit 2012 40.48% 2013 112% 2014 91.22% 2015 30.39% 2016 148% 0 20 40 60 80 100 2012 2013 2014 2015 2016 Net Profit Net Profit 28.38 13.39 25.89 33.71 83.61
- 64. Interpret: From the graph shows that the Growth of Net Profit of Mutual Trust Bank, Alankar Mour Branch is fluctuate year by year from 2012 to 2016. In 2012 growth of net profit was 40.48% and in 2013 it in increased at 112%. But in 2014 Mutual Trust Bank, Alankar Mour Branch couldn’t perform well as its growth of net profit was decreased at 8.80% compared to year 2013 at 112%. In 2015 to 2016 the growth of net profit are gradually increased but maximum profit growth in 2016 at 148%. 40.48% 112% 91.22% 30.39% 148% 0.00% 20.00% 40.00% 60.00% 80.00% 100.00% 120.00% 140.00% 160.00% 2012 2013 2014 2015 2016 Growth of Net Profit Growth of Net Profit
- 66. 6.1. Summary of Findings While working at Mutual Trust Bank Alakar Mour Branch, I have attained to the kind of experience. After the collecting and analyzing of data I have got some findings. Those findings are completely from my personal point of view. 1. The Loans & Advances of Mutual Trust Bank Alakar Mour Branch was fluctuate year by year, but it was decreased to 329 million in 2013. The highest amount was tk. 1191 million and the lowest amount tk. 329 million in the year 2016 and 2013 respectively. 2. The collection of loan and advance of Mutual Trust Bank, Alankar Mour Branch are fluctuating year by year from 2012 to 2016. In 2012 the collection of loans loan was 246 million. But it was decreased to 131 million in 2013. 3. The collection of deposit was fluctuate year by year that form into loan & advances increasing year by year subsequently. Firstly there high loans and deposit ratio but next two years falls there loans & deposit ratio. If we noticed that from year 2015 to 2016 credit deposit ratio has increased. 4. The Classified loan and advance of Mutual Trust Bank, Alankar Mour Branch are increasing year by year from 2012 to 2016. 5. The Net Profit of Mutual Trust Bank, Alankar Mour Branch is fluctuating year by year from 2012 to 2016. Net Profit was highest in 2016 and the amount was 83.61 million taka. However, in 2012 it was lowest and the amount was 13.39 million taka. 6. The Growth of Net Profit of Mutual Trust Bank, Alankar Mour Branch is fluctuating year by year from 2012 to 2016. In 2012 growth of net profit was 40.48% and in 2013 it in increased at 112%. But in 2014 Mutual Trust Bank, Alankar Mour Branch couldn’t perform well as its growth of net profit was decreased at 8.80% compared to year 2013 at 112%. In 2015 to 2016 the growth of net profit are gradually increased but maximum profit growth in 2016 at 148%. 7. Total Deposit is increasing which represent the positive sign for the bank as deposits are increasing than the bank can use more proportion of deposit for loans and advances.
- 67. 8. The most popular loan product is corporate loan. 9. A systematic loan approval process is maintained. 10. Sometimes bank prepares CRG score based or unaudited balance sheet. 6.2. Recommendation Recommendations of these report has been made on the basis of the research findings of the credit facilities of Mutual Trust Bank Limited, Alankar Mour Branch. It is very difficult to recommend about this topic because of research restrictions and unavailability of data. Despite these problems there is something that the credit department of Mutual Trust Bank should look at 1. Bank should prepare the CRG score sheet based on audited balance sheet. Because it shows appropriate position of the firm. So it reduces the credit risk. 2. Effective decision should taken by the trust for the more deposit because the more deposit, the more loan, the more profit & the more investment. 3. Effective and efficient initiative is necessary to recover the default loans. 4. The loan documentation and verification should be done fairly and properly. 5. They should diversify their Loan products. 6. The credit department, strict supervision is necessary to avoid loan defaulters. The bank officials should do regular visit to the projects. 7. MTB should take initiative for agriculture sectors 8. MTB should attract customer to provide loan at minimum rate compare to other bank. 9. MTB should improve the recovery rate of Loan & Advances. 10. The bank should take proper step to maintain & increase its credit to deposit ratio. It should increase in order to generate more profit.
- 68. 6.3. Conclusion Proper financial system of country can contribute towards the development of the country’s economy. In our country banks are leading in the financial system. Again private commercial banks, which are much better than state owned bank, are playing significant as well as imperative role and the development of our country. Certainly MTB is mobilizing all of its resources on this same track to achieve maximum possible contribution to the nation Despite stiff competition among banks operating in Bangladesh both foreign and local, MTB has achieved satisfactory progress in areas of its operations and earned an impressive operating income over the previous years. The bank hopes to achieve a satisfactory level of progress in all areas of its operations including target of profitability In achieving the aforesaid objectives of the bank, credit operation is of paramount importance as the greatest share of total revenue of the bank is generated from it, maximum risk is centered in it and even the very existence of bank depends on prudent management of its credit portfolio. The writer would like to suggest, a bank requires some special personal traits that not every bank possesses. Among the most important of these are honesty, reliability, thoroughness and willingness to always be open to new ideas and new ways of meeting customer needs. Today is not like yesterday and tomorrow will be different from today. Given the fast changing, dynamic global economy and the increasing pressure of globalization, liberalization, consolidation and disintermediation, it is essential that Mutual Trust bank limited has a robust credit risk management policies and procedures that are sensitive to these changes.
- 69. References: Flora Banking Software MTBL Corporate Intranet Annual Report on 2012 to 2016 Personal Interview with Credit Department Statement Supplied by Credit Department Various information’s supplied by Mutual Trust Bank Alanker Mour Branch, Chittagong Previous Internship Report Websites: o www.mutualtrustbank.com o www.bb.org.bd o Other websites