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Internship ReportOn

Credit Appraisal and Credit Management Practice by Prime Bank Limited

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Prime Bank Limited is one of the leading commercial bank in our country with huge growth in almost every sphere. It was incorporated under the Companies Act 1994, started its operation on April 17, 1995 with a target to play the vital role on the socio-economic development of the country and with the motto “Bank with difference”. It availed its registration as a banking company under the Banking Company Act 1993 from the Bangladesh Bank dated February 12, 1995. Currently the bank has 52 branches and lately introduced the ATM services to the people. Mr. Imam Anwar Hossain is the Chairman and Mr. M. Shajahan Bhuiyan is the Managing Director.

The equity capital and total assets are Tk. 38555.41 million and Tk. 608976.21 million at the end of the 2006. The deposit of PBL stood at Tk. 547240.80 million. Moreover the default rate is only 1.52% and the credit disbursed at the end of 2006 is 450102.18 million. The return on asset and equity for the last two year were 1.36%& 1.72% and 20.23%&, 27.25% which indicate the efficient management of the bank. The failure of the commercial bank is mainly occurs due to bad loans, which occurs due to inefficient management of the loan and advance portfolio. Actually the credit portfolio is not only constituted the banks asset structure but also a vital factor of the bank’s success. PBL has a credit policy and guideline with operational manual under which the bank will operate. The bank provide loan in almost all mode like; Overdraft, Loan (general), PAD, LIM, LTR, IBP, FDBP, Packing Credit Loan, lease finance, and CCS etc. While sanctioning of credit undergoes some steps-like collecting of related documents and information with dully filed-up credit application form, scrutinizing, investigation (appraisal), preparation of proposal, sanctioning, pre-disbursement compliance, disbursement, supervision monitoring. Credit management deals with all this process. The loan policy has established the lending limit for all loan officers and combination of officers and loan committee. In general like any other bank in PBL secured loans will carry higher limit than the unsecured loans for comparable purpose, seasonal working capital loans, might carry higher limit than term loan. The bank has 26% payable on demand loan.

Effective Credit Administration can ensure good recovery of loan and advance and good yield. When the credit proposal are approved the credit officer must have to be ensured that the disbursement of the credit facilities must comply with the directions written in the credit policy and circular made by time to time. Moreover the credit officer has to collect NOC from other bank where the client is enjoying the credit facility and the CIB report. Maintenance of the credit file is another issue that is urgent because “Credit file” must provide all the pertinent


information relating to that particular credit on the spot monitoring if required. Loan policy of the Prime Bank Limited has prescribed uniform credit files maintenance and documentation procedures.

Supervision is another vital part in the credit management procedure. The objective of supervision is to make sure that the repayment is as per condition and the loan account is not having any “EXCESS OVER LIMIT”. To ensure that they check the entire loan accounts, communicate with the borrower reminding him, performance analysis of the client’s business,

The loan review process is a crucial tool in reducing losses and in monitoring loan quality. Loan review consists of a periodic audit of the ongoing performance of some or all of the active loans in a bank’s loan portfolio. To ensure that the loan policy is consistent with the bank and BB requirements, the official has to carry out this function and also to know the overall status of the loan portfolio. While classifying the loans PBL categorizes the loans in to four: Continuous loan, Demand Loan, fixed term loan, and Agriculture and Micro credit. On both objective and qualitative basis the loans are classified. If any loan remains outstanding more than 6 months, 9 months and 12 months will be classified as substandard, doubtful, and bad and loss. (Demand, continuous). In dealing with the problem loan, PBL offer revised loan agreement, interest discount and if not recovered – filed legal suit. The accounting policy for the classified loans is different.

Proper credit appraisal is the vital factor to reduce the default culture in the banking industry. If the borrowers are assessed properly, possibility of default will reduce. Depending on the amount of the loan the appraisal procedures varies. After collecting all the documents the credit officer scrutinize the documents and then start investigation. For credibility appraisal PBL collect information from other banks, business community, suppliers etc. Management’s ability, risk-taking attitudes are appraised though evaluating the business background and investment in business. Then the products are appraised in terms of demand and user. But the problem is that the competitive position analysis is ignored in most of the cases. After the investigation, a proposal is made for loan sanctioning. Before sanctioning any credit, the committees consider the factors-Remunerative, Recovery.

The appraisal system need be improved in-terms of risk measurement-mitigation, perfect market analysis-competitive position analysis (Five force model- where competitor, supplier, new entry, buyers, potential substitute products will be highlighted and briefly discussed.) product comparisons in terms price, quality, packaging etc. For efficient management of the loan accounts the assignment system (a credit officer is assigned some number of loan account


and overall managing of the can be followed for tighter monitoring, and supervision. Beside this the importance to set up Research and Development department must be realized by the top management to reduce the data unavailability and continuous monitoring of the costs and finding out new ways reduce costs. The job description of the credit departments should be specific or defined to improve the quality of work and motivation.


1. INTRODUCTION

ORIGIN OF THE REPORTAs part of the Internship Program of Bachelor of Business Administration course requirement, I was assigned for doing my internship in The Prime Bank Limited for the period of 12 weeks starting from April 2007 to June 2007 as an intern. In PBL I am working in the Credit department of the Motijheel Branch and my organizational supervisor is Md. Abdullah- Al-Masud, VP. My project was Credit Appraisal System and Credit Management in Prime Bank Limited, which was assigned by my faculty supervisor Dr. Mosharaf Hossain, Professor of Department of Finance, University of Dhaka, also approved the project and authorized me to prepare this report as part of the fulfillment of internship requirement.

OBJECTIVESPart A: Organization Part Features of the PBL Performance analysis Part B: Credit Appraisal System and Credit management of Prime Bank Limited Finding out the credit appraisal and credit management practice by Prime Bank. Analysis and comparison of credit appraisal and management with that of standard. SWOT Analysis of Prime Bank Limited. Trend Analysis of Loans and Advances particularly of Syndication Finance and Consumer

Credit Scheme. Finding out the major and minor problems associated with that of Prime Bank Limited and

recommendations thereagainst.Beside the organization’s objective, my objective is to have a clear-cut knowledge of credit appraisal and management practice by a prominent bank and to know the effectiveness of credit appraisal system in the process of credit approval system and the portfolio of loan and advances and how they manage it.

SCOPE OF THE REPORTThe study would focus on the following areas of Prime Bank Limited. Credit appraisal system of Prime Bank Limited. Procedure for different getting credit facilities. Portfolio (of Loan or advances) management of Prime Bank Limited.Each of the above areas would be critically analyzed in order to determine the efficiency of PBL’s Credit appraisal and Management system.


SOURCES OF INFORMATIONInformation collected to furnish this report is both from primary and secondary sources. The primary sources are:

Practical desk work Face to face conversation with the officers Face to face conversation with the clients Relevant file study as provided by the concerned officer

The secondary sources are: Different Circulars issued by the Head Office and Bangladesh Bank Different ‘Procedure Manual’, published by PBL Annual Reports (2002, 2003 and 2004) of PBL Publications obtained from different libraries and from internet

METHODOLOGYThe study requires a systematic procedure from selection of the topic to final report preparation. To perform the study data sources are to be identified and collected, they are to be classified, analyzed, interpreted and presented in a systematic manner and key points are to be found out. This overall process of methodology is given in the following page in the form of flowchart that has been followed in the study.

Figure: Flow chart of methodology


Identifying Data Sources

Selection of the Topic

Final Report Preparation

Findings of the Study

Collection of Data

Classification, Analysis, Interpretation and Presentation of Data

A. Selection of the topic: The topic selected for the study was assigned by my supervisor Professor Dr. Mosharaf Hossain Before assigning the job it was discussed with me so that I can prepare a well-organized internship report.

B. Identifying data sources: Essential data sources both primary and secondary are identified which will be needed to complete and workout the study. To meet up the need of data primary data are used and the study also requires interviewing the officials and staffs where necessary.

C. Collection of data: Primary data are collected through 100% physical inspection as there is no provision and scope for using sampling technique.

D. Classification, analysis, interpretation and presentation of data: To classify, analyze, interpret and presentation of data I used some arithmetic and graphical tools to understand them clearly.

E. Findings of the study: After scrutinizing the data problems of the study are pointed out and they are shown under concerned heads. Recommendations are suggested thereafter to overcome the problems.

F. Final report preparation: On the basis of the suggestions of our honorable course teacher some deductions and additions are made and final report is prepared thereafter.

LIMITATIONS

Though I tried my level best to produce a comprehensive and well-organized report on the Credit Appraisal System and Credit Management of Prime Bank Ltd., some limitations were yet present there:

i. A period of twelve week was not sufficient to collect and understand the insights of credit appraisal and management.

ii. Banks policy did not permit to disclose various data and information related to Credit Portfolio.


2. AN OVERVIEW OF PRIME BANK LTD.

BACKGROUND:Prime Bank being Banking Company has been registered under the companies Act 1993 as a Public Limited Company on February 12, 1995 with its registered office at 5, Rajuk Avenue, Motijheel Commercial Area, Dhaka-1000, Bangladesh. Later, the office had been shifted to Adamjee Court (annex building), Motijheel Commercial Area. It started operation from April 17, 1995 with a commitment to play some social role in addition to normal banking. Its slogan is “Prime Bank Ltd. – a bank with a difference". From the very beginning, the bank has adopted the policy of diversifying its business. To achieve this objective, the bank started Consumer Credit Scheme, Lease Financing, Hire Purchase, loans in general, Secured Overdrafts etc. Under the dynamic leadership of the Chief Executive Officer, the bank earned profit within December 1995 and raised its reserve. The bank started operation its business through four branches. Now its branches stood at fifty two and by this year another two new branches will start their operation.

Prime Bank has an authorized capital of Taka 4,000 million and paid up capital of Taka 1,750 million. It is a full licensed scheduled commercial bank set up in the private sector by a group of highly successful entrepreneurs in pursuance of the government to liberalize banking and financial services. The former Governor of Bangladesh Bank Mr. Lutfar Rahman Sarker was the first Managing Director of this bank. At present, Managing Director is Mr. M Shahjahan Bhuiyan, who has a long experience in domestic and international banking. Highly professional people having wide experience in domestic and international banking are managing the bank. The bank has made a significant progress within a very short time due to its very competent board of directors, dynamic management and introduction of various customer friendly deposit and loan products. At present bank has 13 Directors, including the Chairman. The bank holds the first position in the CAMEL rating, published by Bangladesh Bank for the last consecutive four years.

VISION OF THE BANK“A Bank with a difference” is the motto of Prime Bank Limited. So the motto itself is self-explanatory to deliver the vision of the bank. Prime Bank Limited is prepared to meet the challenge of the 21st century well ahead of time. To cope with the challenge of the new millennium it hired experienced and well-reputed banker of the country from the inception. The bank has efficient and dedicated professional and equipped with modern technology to provide the best service in the need of the people and thus to realize its vision. So the Bank is defined:


Vision To be the best Private Commercial Bank in Bangladesh in terms of

efficiency, capital adequacy, asset quality, sound management and profitability having strong liquidity.

Mission To build Prime Bank Limited into an efficient, market driven, customer

focused institution with good corporate governance structure. Continuous improvement in our business policies, procedure and

efficiency through integration of technology at all levels.

Efforts focused On delivery of quality service in all areas of banking activities with the

aim to add increased value to shareholders’ investment and offer highest possible benefits to our customers.

Strategic Priorities To have sustained growth, broaden and improve range of products and

services.

OBJECTIVES OF THE BANK

The objectives of the Prime Bank Limited are specific and targeted to its vision and to position itself in the mindset of the people as a bank with difference. The objectives of the Prime Bank Limited are as follows:

To mobilize the savings and channeling it out as loan or advance as the company approve To establish, maintain, carry on, transact and undertake all kinds of investment and

financial business including underwriting, managing and distributing the issue of stocks, debentures, and other securities

To finance the international trade both in Import and Export To carry on the Foreign Exchange Business, including buying and selling of foreign

currency, traveler’s cheque issuing, international credit card issuance etc. To develop the standard of living of the limited income group by providing Consumer Credit To finance the industry, trade and commerce in both the conventional way and by offering

customer friendly credit service To encourage the new entrepreneurs for investment and thus to develop the country’s

industry sector and contribute to the economic development

MANAGEMENT OF THE BANK

Board of Directors are the sole authority to take decision about the affairs of the business. Now there are 13 directors in the management of the bank. All the directors have good academic


background and have huge experience in business. Mr. Imam Anwar Hossain is the Chairman of the bank. The board of directors holds meetings on a regular basis.

Executive Committee: The Executive Committee consists of the members of the Board of Directors. This committee exercises the power as delegated by the Board from time to time and approves all matters beyond the delegation of Management.

Management Committee: The Management Committee consists of the Managing Directors and Head Office Executives. They discuss about the progress on portfolio functions. Different ideas and decisions, guidelines regarding deposits, lending and management of Human and Material resources are the main concern of this committee. All these committees meet on a regular basis for discussing various issues and proposals submitted for decisions. Management hierarchy of Prime Bank Limited:

1. Managing Director2. Deputy Managing Director

3. Senior Executive Vice President4. Executive Vice president

5. Senior Vice President6. Vice President

7. Senior Assistant Vice President8. Assistant Vice president

9. First Assistant Vice president10. Senior Executive Officer

11. Executive Officer12. Principal Officer13. Senior Officer

14. Management Trainee Officer15. Junior Officer

DEPARTMENTS OF PBL


If the jobs are not organized considering their interrelationship and are not allocated in a particular department, it would be very difficult to control the system effectively. If the departmentalization is not fitted for the particular works there would be haphazard situation and the performance of a particular department would not be measured. Prime Bank Limited has done this work very well.

Logistic & Support Services Division (L&SSD) This Division was formerly known as General Services Division (GSD). Its main functions relate to procurements and supply of all tangible goods and services to the Branches as well as Head Office of Prime Bank Limited. These include:

i. Every tangible functions of Branch opening such as making lease agreement, interior decoration etc.

ii. Print all security papers and Bank Stationeriesiii. Distribution of these stationeries to the Branchiv. Purchase and distribute all kinds of bank’s furniture and fixturesv. Receives demand of cars, vehicles, telephones etc. from branches and different

divisions in Head Office and arrange, purchase and delivery of it to the concerned person / Branch

vi. Install & maintain different facilities in the Branches

Financial Administration Division (FAD)Financials Administration Division mainly deals with the account side of the Bank. It deals with all the Head Office transactions with bank and its Branches and all there are controlled under the following heads:

i. Income, Expenditure Posting: income and expenditures are maintained and posted under these heads.

ii. Cash Section: Cash section generally handles cash expenditure for office operations and miscellaneous payments.

iii. Bills Sections: this section is responsible for inland bills only.iv. Salary & Wages of the Employee: Salary and wages of the Head Office executives,

officers and employees are given in this department.v. Maintenance of Employee Provident Fund: Employee provident fund accounts are

maintained here.


Consolidation of Branch’s Accounts: All Branches periodically (especially monthly) sends their income and expenditure i.e. profit and loss accounts and Head Office made the consolidation statement of income and expenditure of the bank. Here branch Statements arte reviewed. This division also prepares different monthly, quarterly, half-yearly statements and submits to Bangladesh bank. It also analyzes and interprets financial statements for the management and Board of director.

Credit DivisionThe main function of this division is to maintain the Bank’s Credit Portfolio. A well reputed and hard working group of executives & officers run the functions of this division. These functions are as follows:

i. Receiving proposalsii. Proposing and appraisingiii. Getting approvaliv. Communicating and sanctioningv. Monitoring and follow-upvi. Setting price for credit and ensuring effectiveness of itvii. Preparing various statements for onward submission to Bangladesh Bank

International Division:The objective of this division is to assist management to make international dealing decisions and after decision is made, guide Branches in their implementation. Its functional areas are as follows:

i. Maintaining correspondence relationshipii. Monitoring foreign rate and exchange dealingsiii. Maintaining Nostro A/Cs and reconciliationiv. Authorizing of signing and test keyv. Monitoring foreign exchange returns & statementsvi. Sending updated exchange rates to the concerned Branches

Computer Division:Prime Banks operates and keeps records of its assets and liabilities in computers by using integrated software to maintain client Ledger and general Ledger. The main function of this division is to provide required Hardware and Software. The functions of this division are:

i. Designing software to support the accounting operationii. Updating software, if there is any lagging


iii. Improvising software to get best possible output from them.iv. Hardware and Software trouble shootingv. Maintaining connectivity through LAN, Intranet & Internetvi. Providing updated CD’s of online accounts to the Branchesvii. Routine Checking-up of computers of different Branches

Public Relations DivisionIt has to perform certain functions related to all types of communication. The broad routine functions can be enumerated as follows:

i. Receiving and Sanctioning of all advertisement applicationii. Keeping good relation with different newspaper officesiii. Inviting concerned ones for any occasioniv. Keeping good relation with different officers of electronic media

Marketing DivisionMarketing Division is involved in two types of marketing:Asset Marketing: Marketing of assets refers to marketing of various kinds of loans and advances. In-order to perform this job, they often visit dome large organizations and attract then to borrow from the Bank to finance profitable ventures.

Liability Marketing: The process of Liability marketing is more of less same as Asset marketing. In this case different organizations having excess funds are solicited to deposit their excess fund to the Bank. If the amount of money to be deposited is large, the Banks sometimes offer a bit higher price than the prevailing market rate.

Human Resources Division HRD performs all kind of administrative and personnel related matters. The broad functions of the division are as follows:

i. Selection & Recruitment of new personnelii. Preparation for all formalities regarding appointment and joining of the successful

candidatesiii. Placement of manpoweriv. Dealing with the transfer, promotion and leave of the employeesv. Training & Developmentvi. Termination and retrenchment of the employees


vii. Keeping records and personal file of every employee of the Banviii. Employee welfare fund runningix. Arranges workshops & trainings for employee & executives

Inspection & Audit DivisionInspection and Audit division works as internal audit division of the company. The officers of this division randomly go to different Branches, examine the necessary documents regarding each single account. If there is any discrepancy, they inform the authority concerned to take care of that/those discrepancies. They help the bank to comply with the rules and regulation imposed by the Bangladesh Bank. They inform the Bangladesh Bank about the Current position of the rules and regulation followed by the Bank.

Credit Card DivisionPrime Bank obtained the principal membership of Master Card International in the month of May, 1999. A separate Division is assigned to look after this card. The Marketing Team of this division goes to the potential customers to sell the card. Currently Prime Bank Ltd. offers four types of cards-

1. Local Silver Card2. International Silver Card3. Local Gold Card4. International Gold Card

Recently Prime Bank has obtained the membership of VISA credit Card and soon they will start marketing of it.

Merchant Banking and Investment DivisionThis division concentrates its operation in the area of under writing of initial public offer (IPO) and advance against shares. This division deals with the shares of the Company. They also look after the security Portfolio owned by the Bank. The Bank has a large amount of investment in shares and securities of different corporations as well as government treasury bills and prize bond.

HUMAN RESOURCES MANAGEMENT OF PBL The core competencies in banking sector can be created with the help of its personnel. The main thing in banking business is that a bank or financial institution has to avail the trust of the depositor, client for improving its performance. Availing the trust of the general people is not an easy task. Not only the directors attitude and efficiency but also that of the employees are


important for achieving the trust of the general people and thus for better performance of the bank. In the face of the today’s global competition, it is not only essential to assemble the best people to work for the company but also to equip the workforce with the latest skill and technologies and retain the high achievers to compete effectively and efficiently.

To cope with the consumers’ need Prime Bank’s human resources policy emphasize on providing job satisfaction, growth opportunities, and due recognition of superior performance. A good working environment reflects and promotes a high level of loyalty and commitment from the employees. Realizing this Prime Bank Limited has placed the utmost importance on continuous development of its human resources, identify the strength and weakness of the employee to assess the individual training needs, they are sent for training for self development. To orient, enhance the banking knowledge of the employees PBL organize both in-house and external training.

Managerial AspectThis is another important aspect of the appraisal. Managerial feasibility refers to the assessment of ability of management personnel in managing a project efficiently.

The management personnel should have-

I. Technical skill to use knowledge, method and Techniques (acquired from experience, education and training) to perform the job.

II. Human skill to maintain interpersonal relationship within or outside the organization.

III. Conceptual skill to understand the complexities in overall organization.

Socio-economic AspectThe observation of this aspect is to see whether the project is socially desirable. How much contribution will be made by the project to the G.D.P. and how many numbers of employment will be generated by the project should be ascertained.


Product Appraisal

The client has to furnish brief description of the product or services; he or she is producing or going to produce or rendered. After getting the product description, the credit officer in PBL has the job is to find the

Attribute Reason/look for USER

Customer base must be large and the client has to have good relationship in case of the garments

Last three years Volume and amount of Sales.

Look for increasing or at least stable growth.

Rate of Growth At least stable

Major competitors and position of the customer

Though the competitor is identified, position is Judged on estimation basis and some times avoided.

Volume of market demand and Supply

Not done or most of the time done on estimation basis.

Prospect of increase in demand for the product(s)/service(s)

Depending on the related information the credit officer gives his own view.


Security Appraisal & Valuation

Asset that will be offered as security must be analyzed thoroughly on the basis of few criteria as different assets as different influencing factors. The factor that has to be considered in the time of asset valuation are briefly discussed

Liquidity:

In a word it means, “ How quickly an assets can be converted into cash”. The more liquid the asset the greater its value as collateral. Stocks, bonds, and other marketable securities are easily sold and for this reason, these represent attractive value as collateral and highest liquidity.

Depriciability:

Some types of assets lose their values rapidly than others. Computers and other electronic assets are continuously upgraded so that last years models are technically obsolete. Dresses suits and apparels also quickly lose their values as public’s fashion taste change frequently. But however real estate and certain other fixed assets may increase in value day by day. These assets are attractive sources as collateral.

Marketability:

The market available for purchasing liquid assets is a vital part of having a good collateral value. Secondary market is necessary for buying and selling the liquid assets. If secondary market is not available the bank has to lose the value of the asset and has to sell it at discount. So if there exists secondary market for the collateral assets, it can yield an attractive value.

Controllability:

This refers to the banks’ ability to locate and hold the assets. Bonds and stocks posted as collateral can be held in the banks’ volt easily and highly controllable by the bank. Therefore, prior lien, offsets, warranties & other legal claims should be investigated by the credit officer before taking any thing as collateral as the higher the complexity in realizing the collateral the lower the value. Once the collateral loan value is established the commercial loan officer should deduct the costs that can be expected to be incurred if the collateral is liquidated. The bank may absorb forecasting cost (Legal & Appraisal) and holding cost (Including tax and maintenance costs) before proceeds are realized from the sale of the collateral assets. The amount remaining after deducting all this cost, the bank can expect to apply to the principal, interest and cost of the loan.


In providing loan PBL take mortgage of land and buildings along with PSP, FDR, MBDS. In the time of taking documents the borrower has to disclose all the information related to the land and buildings, which will be offered as collateral against the loan. The credit officer must collect all the documents to verify the land’s actual owner and the

updated government fees paid receipt. For justification the documents should be communicated with the bank’s lawyer. Whether the site plan of the land are permitted by the RAJUK (if applicable). The client must have to submit valuation certificate from an engineering firm. Valuation by the two Credit officers must be submitted after visiting the land and discussing

with the neighborhood about the value, and the market value and the forced value of the land and /or building must be submitted in prescribe form and duly signed by them as well.

Three photographs from three different angles of the mortgage land should be submitted photographs must be duly attested by the credit officer.

Invoice /Quotation Verification

While taking loan from banks, the instances of over invoicing and under- invoicing are common. But the privatized commercial banks are strict in monitoring this. Two or three price quotations from three different suppliers are collected and judged. Two or three invoices from suppliers collected by the borrower must be submitted and the

borrower has to take all the responsibility about the quality of the machinery or goods to be purchased.

Taking ideas about the price from other branches or banks, which has already financed this type of projects.

Taking Internet facility

Credit Demand Assessment

The client may seek for credit in terms of working capital, work-order finance, and Project loan. The credit officer has to analyze the required amount though the client revealed their credit demand in the credit application. The calculated or assessed amount by the credit officer may be lower than the client’s demand. PBL analyze the financial statements and the amount required as working capital. The credit officers analyze earning forecast, expense estimation.

Credit officer prepares a credit proposal along with the prescribed 'Credit Proposal Form'. Credit officer measures the risk associated with the credit facility. No credit proposal can be put for


approval unless there has been a complete written analysis. It is absolute responsibility of the Proposing Officer to ensure that all necessary proposal documentation have been collected before the facility request is sent to the Sanctioning Officer.

4 Approval of Credit by Higher Authority

Branch Credit Committee: Branch credit committee to be headed by the Branch Manager, other members to be selected by the manager in consultation with Head Office.

Head Office Credit committee: Head office credit in accordance with authority established and delegated by the Board of Directors.

Reviewing, analyzing and approving extension of credit in accordance with authority established and delegated by the Board of Directors.

Evaluate the quality of tending staff in the bank & take appropriate steps to improve upon. Recommending credit proposal to the Executive Committee/Board of Directors which are

beyond the delegated authority. Ensuring, that all elements of Credit application i.e. Forms, Analysis of statements and other

papers have been obtained and are in order. Confirming that the transaction is consistent with existing loan policy and Bangladesh Bank

guidelines & if not the Committee may prepare a recommendation form an exception to or change in policy for consideration by the Executive Committee/Board of Directors.

Executive Committee: Approving credit facilities as delegated by the Board of Directors. Supervising the implementation of the directives of the Board of Directors. Reviewing of each extension of credit approval by the Head Office Credit Committee/Managing Director. Keeping Board of Directors informed covering all these aspect.

Board of Directors: Establishing overall policies and procedures for approving and reviewing credits. Delegating authority to approve and review credits. Approving credit for which authority is not delegated. Approving all extensions of credit which are contrary to bank's written credit policies.

5 Sanction of Credit

Most important step of providing credit facility is the sanctioning of credit. Because sanctioning authority will be held responsible for any discrepancy. In this step all the documentation is


completed and the customer is sent an advising letter for the credit facility along with all the terms and conditions.Norms maintained in sanctioning of credits are described below:

Credit will be sanctioned and disbursed strictly in terms of the approved Credit Operational Manual of the Bank and Head Office Circulars issued from time to time.

All norms informed through the Circulars of Credit Division in particular and all other relevant circulars in general, which are to be followed meticulously while exercising power.

Credits will be subject of Bangladesh Bank restriction. The party to whom credit will be allowed should be as far as possible within the command

area i.e. Area of operation of the Branch. Deviations, if any are to be explicitly explained in the proposal.

No Sanctioning Officer can sanction any credit to any of his near relations and to any firm/company where his relations have financial interest. Such cases should be sent to the Head Office.

All Sanctioning Officers maintain a Sanctioned Register for recording serially all the credits sanctioned by him. Sanctioning officer will accountable for non-recovery due to his injudicious decision.

All approval of credit facilities must be conveyed under dual signature. Ideally both the signatories must have the required lending authority. If however, two lending officers of the required lending are not available, one of the signatories must have the required authority.

LIMIT ENHANCEMENT/RENEWAL

If the client approach for limit enhancement or time extension, his previous performance of the loan account is highly emphasized and analyzed. In that case for analyzing the account, the performance is measured din the in the following way: Recycle Time = Credit Turnover/ LimitDebit Turnover = summation of credit transactionCredit Turnover = summation of debit transactionAdjustment Time = How many times the party has adjusted the accounts, which implies that the party has made reasonable transactions. The standard is that party will adjust the account every quarter.

6 Disbursement of Credit

Disbursement of credits presupposes observance of all norms and procedures, which are conveyed through different Circulars of Head Office, issued from time to time.


7 Credit Administration and File Maintenance

Credit File Maintenance: The credit file for each facility shall contain all information necessary to facilitate ready monitoring of that facility. It should contain a through history of the customer relationship to help credit officer': track any problems, assist a newly assigned credit officer in understanding the customer and make the lending process transparent. Primary items in Credit File include:

Credit application and Credit approval notes/analysis. Evidence of credit approval and data upon which approval was granted together with any comments, if appropriate.

Copy of sanction and loan agreement. A checklist along with copies of all legal & banking documents obtained / to be obtained. Details and 6 monthly updated information of all related facilities to the name customer group,

All supporting data such as financial statements and analysis, references, credit investigation results, CIB & other Bank reports and notes of all discussions with the borrower and other relevant parties with paper clipping.

Correspondences call reports, site visit reports, stock report etc. each credit file shall be maintained in a secured location and where access restricted to authorized personnel's only. Copies of the information may be kept where regular access is required.

Facility Evidence Maintenance: All charge documents should be maintained in a place of utmost security. All charge documents as prescribed by the bank & local laws, for the relevant credit facility, Signed credit agreement, Signed guarantees or other evidence of credit security or collateral agreement shall be kept in fire proof safe under the custody of Branch manager or his designate alternative and another officer. A register of charge and security documents should be maintained under the supervision of the Branch Manager.

8 Credit Monitoring and Reviewing

It is the responsibility of the Manager to monitor the over all profile and risk aspect of the credit portfolio in accordance with the criteria set down in the Bank Credit Policy. Such monitoring shall be evidenced from the comments of the Manager in monthly Call/Visit Report and be kept in the Credit File with a copy to the Head Office.


This Review shall be formally performed at intervals prescribed by Head Office but it is the responsibility of the Manger to ensure at all times that the credit portfolio meets the standard set forth by the Bank.

Periodic Review and Follow-up should aim at ensuring:

I. Terms of approval has been maintained.II. Conduct (turnover, regularity of repayment etc.) of the borrowing accounts during the

period under the review has been satisfactory or as expected.III. Continuing value of the collateral is adequate. IV. There are no adverse trends in market, economic and political conditions which may

endanger the reliability of the facility.V. Business reciprocity offered and received is commensurate with the facilities allowed.VI. Earning from the account is cost effective (i.e. adequate to meet business cost of funds

and leave sufficient margin for adequate risk reward, overheads and profits). VII. Borrowers business is being satisfactorily conducted as reflected through a review and

analysis of the financial and operating statements.

Assessment of Group Exposure: If facilities of any one customer group are booked in a number of locations, an officer designated by Head Office shall be responsible for the management of the Bank's global exposure to that customer group. Any development in the customer's which may effect the management of the facility and in particular the credit rating assigned to the customer, shall be documented and advised by the designated officer to the concerned Branch & to the Head Office, Credit Division.

General Norms for Monitoring Credit Facilities: The Branches will submit a monthly statement of the credits allowed under the discretionary powers of the Manager to the Head Office irrespective whether the same are outstanding or not on the date of return.

9 Taking Precaution/Legal Action against Delinquent Clients

The responsibility for review and classification of credit facilities starts at Branch level. The frequency of the supervision and monitoring depends on the classification of credits.

Sub-standard Advances: This classification contains accounts where irregularities have occurred but where such irregularities are considered to be either "technical" or "temporary" in


nature. The main criteria for a sub-standard advance are that despite these "technical" or temporary irregularities no loss is expected to arise.

These accounts will require close supervision by the management to ensure that the situation does not deteriorate further.

Provision @ 15% of the base is required for debt in this classification where the base is the outstanding balance less interest kept in Interest Suspense Account less the value of eligible securities.

Doubtful Debt: This classification contains debts where doubt exists the full recoverability of the principal and/or interest. Although a loss is anticipated it is not possible at this state to quantify the exact extent of that loss. Management is required to handle such debts with the utmost caution to either avoid or minimize the Bank's losses. Provision @ 50% of the base is required for debts in this classification.

Bad-Debts: These facilities are considered to be uncorrectable shall be made a provision @ 100% of the base.

Special Mention: In addition to the above classification rating, there should be another category which is not classified but where special attention is necessary to keep the account out of classification. This category will be known as Special Mention. Facilities required special monitoring are to be flagged or put on a watch list.No provision is necessary for this category.

At present, Loan under syndication and Consumer Credit Scheme get vast popularity. Considering this view, some important features and facts about Syndication/Structured Finance and Consumer Credit Scheme are detailed here:

CONSUMER CREDIT SCHEME

Since Bangladesh is one of the poorest country the majority of our population is forced to live a sub-standard life. The middle class cannot afford to buy essential utility products. In this connection Prime Bank Limited has introduced “Consumers Credit Scheme” to increase living standard of the limited income people. Consumers Credit scheme is very popular in most of eh developed and developing countries of the world. This is designed to finance the fixed income people to buy essential commodities to be repaid by installments at different rate for different


rate for different product. Consumers Credit Scheme is based on trust in the customer ability and willingness to pay.

OBJECTIVES OF THE SCHEMEMajor Objectives:

(a) To bring our credit service to a wide range of customers. (b) To provide financial assistance to the limited group towards buying utility products (c) To help the professionals in raising their standard of living. (d) To participate in the4 socio-economic development of the country.

Subsidiary Objectives: (a) To establish a participatory economic system. (b) To provide investment facility t the depositors of the bank.(c) To popularize the bank’s products among the mass people. (d) To develop the characteristics regarding monitory transaction of general people. (e) To protect the defaulter culture of the country through supervising credit program. (f) To increase the number of beneficiaries through these types of small credit program.(g) To increase the relationship network of the bank.

ELIGIBILITY OF THE CLIENTS

Different banks set different eligibility criteria. Among them notable are: (a) Age 18 to 57 years(b) Service holder

i) Service holder in govt. semi-govt., autonomous organization, bank, insurance, other financial organization, defense, BDR, Police, Ansar, Educational Institution.

ii) Employees of well-known private organization iii) Businessman, self-employed person, professional’s etc.iv) Any Bangladeshi nationals who is eligible to contract and able to repay the loan

and can fulfill the guarantee clause.

ELIGIBLE ITEMS UNDER THE CONSUMER CREDIT SCHEME

VehiclesCar, Micro-bus, Four Wheel Drivers, Ambulance, Motor Cycle, Bi-cycle etc.

Domestic Appliances:


Air Conditioner, Refrigerator, Deep Freezer, Washing Machine, Air Cooler, Water Cooler, Room Heater, Water Pump, Phone, Cellular/Mobile Phone, Ceiling Fan, Pedestal Fan, Sewing Machine etc.

Office Equipment:

Generator (non-=commercial), Personal Computer, Photo Copiers, Facsimile Machines, IPS, UPS, Volt guard/stabilizer.

Entertainment: VCR, VCP, Music system, Sound System, Radio System, Radio, Two in one, Video Camera with accessories etc.

Kitchen Range:Oven, Micro Oven, Toaster, Blender, Pressure-cooker, Dinner se, Tea set, Crockery etc.

Furniture: Different types of furniture, home repairing, internal decoration, Redecoration etc.

Specialist-Accessory:

Clinical Instrument, Dental Instrument, Engine Architects, Chartered Accountants etc specially needed instruments.Intangibles/Service Facility:

Holidays, Education, Medical Expenses, Ornaments purchase or any other durable which bank consider fit to finance. So in our country consumer credit are provided for consumer goods, durables and non-durables. In durable category falls automobile, office equipment etc whose useful life extends over a relatively longer period. As a result these consumer purchase become consumption as well as investment. On the other hand in non-durable category there falls services of specialist, foreign tour etc. where there are straight consumptions.

SECURITY/COLLATERAL:

Generally it depends on the banks assessment of risk in making credit. However in case of consumer finance a trend is observed. Banks prefer financial instruments like Fixed Deposit Receipt (FDR), Savings Certificate (Sanchay Patra), Wage-earners Development Bond, ICB Unit


Certificate, hypothecation of assets, shares of public limited company with transfer document etc.

In most cases 100% credit is covered. On basis of bank-customer relationship coverage may vary. In case of banks running according to Shariah, require purchasing goods in bank-customer joint name.

GUARANTEE/SECURITY:

Repayment commitment is required to be guaranteed as relevant by centurion employer or higher officials. Much flexibility observed in determining who require being guarantor. Some banks ask it to be organization chief. Some banks ask guarantor from a specified graded officer above; who should be of the same rank or senior to the client. Banks also accept social elite or financially person’s guarantee in case of non-employed client. However credit equivalent bank guarantee or insurance guarantee also accepted.


DOCUMENTATIONAs per bank regulation credit/share/hire purchase contract require the following documentation:

(a)Borrower/consumer needs to submit application in prescribed from along with guarantee bond in adhesive stamp.

(b)Price quotation from supplier/seller/dealer/agent/ distributor. (c) Installment Repayment Commitment letter. (d)Security paper with transfer document/ lien marking application(e) In case of automobile or otherwise as required registration document in bank’s

name/joint name/ with transfer document.

EQUITY PARTICIPATIONAbout 10% to 50% of quoted price of the asset as per bank regulation and product category. Generally equity is taken in cash from the client, a few exception is observed where very liquid asset serve the purpose of cash equity.

INTEREST RATEThe interest rate is 15%, which may be simple or compound. If compound in some banks it is calculated on monthly rest or on quarterly.

CHARGES: There are three types of charges. Those are

1. Risk Fund: In most cases risk fund is collected up-from from client at the rate of 2 % on loan amount of credit for two to three years period respectively.

2. Service Charge: In most cases service charge is 1% of the l9oan amount. But according to Bangladesh banks instruction this type of service charge is not allowed. For this some bank charges agent commission, which is 3% of the loan amount.

3. Stamping Charge: Stamping charge differs from bank to bank. Its charge is Tk. 470.

CREDIT LIMIT, PERIOD OF LOAN, DOWN PAYMENTThe Credit limit, loan period and down payment are shown bellow at a glance which varies from bank to bank:

Name of the Item Loan Limit Down Payment Period of Loan


Car New CarRecondition

6,00,0004,50,000

40%40%

1 Years2 Years

Motorcycle 1,00,000 30% 2 YearsOthers Items 1,00,000 20% 2 Years

FIXING OF MONTHLY INSTALLMENT

Monthly installment is fixed on the basis of the loan amount. But there is a systematic way to get the different amount of installment. The Prime Bank follows the following way: For 1 year = .09073086 X Loan AmountFor 2 year = .04896312 X Loan AmountFor 3 year = .03515705 X Loan Amount*Amount of post-dated cheques shall be 5% above from actual monthly installment.

DOCUMENTATION & FILLING

a) Correspondence File – Application form/related papers/ Corresponding letters b) Charge Document’s filec) Post Dated Cheques – Item wise box.

CHARGE DOCUMENTS: 1. Demand Promissory note 2. Loan agreement under Consumer Credit Scheme3. Letter of hypothecation 4. Letter of guarantee 5. Letter of authority

For car or any other Vehicles:

6. Photocopy of Blue Book7. Photocopy of insurance certificate

DISBURSEMENT PROCEDURE: 1. Signing the requisite charge documents2. Receiving 24 or 36 post dated chwques3. Issuance of payment order to the supplier 4. Receiving cash memo with acknowledgement from the borrower 5. Ensuring proper delivery of goods


6. Receiving of the photocopy of Blue book, Insurance Certificate & other papers.

LOAN SYNDICATION OR CONSORTIUM

MEANING: SYNDICATION Syndication means joint financing by more than one bank to the same borrower against a

common terms and conditions governed by a common document (or set of documents). Recently Bangladesh bank has issued a circular to the effect that any Bank can extend credit facilities upto 15% only of its Capital to a single party/group in the funded facility form. Prime Bank’s present capital is Tk. 24760.58 lac, but textile, spinning mills etc are capital intensive project. So, at present Loans in the form of syndication arrangement are getting priority by Bangladesh Bank. It’s portion to the total loan at present is approximately 28% and shows an increasing trend.

OBJECTIVES OF SYNDICATION To spread and share the credit risk among all the participating banks.

Enhance the return on assets by arranging the deal and taking a disproportionate amount of the fees from the transaction.

Analyzing the project viability from various angles by the syndicate members.

To comply central bank’s instruction where it has been emphasized on loan syndication by more than one banks in case of large loan.

To create leadership in the syndicated credit market by the Lead Arranger.

To satisfy the minimum criteria of diverse group of banks in the syndicated market by the borrower where it was not possible for one bank.

Opportunity is created for the borrower to reach/introduce more than one bank and performance is tested in all banks instead of one bank through syndication.

TYPES OF SYNDICATION The syndication market can be segmented into international and domestic transaction. An international transaction for a borrower can be defined as one which is not denominated in


borrower’s domestic currency. A domestic transaction can be defined as one which is denominated in the borrower’s domestic currency.

TYPES OF FACILITY THROUGH SYNDICATION The syndicated credit market uses many instruments and has developed a stream of new products to meet borrower needs and to take advantage of changes in the markets. Out of many instruments SYNDICATED TERM LOAN is most popular in our country. At present, many non-funded facilities are being provided through syndication.

PARTIES OF SYNDICATION

Lead Arranger: Lead Bank or Arranger has to co-ordinate all the activities at various stages of handling proposal and raising the fund from Banks/Financial Institutions.

Lead Arranger : Captain of Loan Syndication Boat The borrower nominates lead Bank. It is very important factor for a borrower to

nominate Lead Bank/Arranger in the light of maintaining long term relationship. It leads to a Lead Bank being an Agent Bank of syndication, which is common practice. For this reason, it should be an organization with which the borrower is likely to feel comfortable over the whole loan period.

After analyzing all the relevant aspects of risks, Lead Bank will help the borrower by taking proper steps and will set a plan to raise the fund from the Banks/FIs to set up the proposed project. A Time Schedule to be prepared by the Lead Arranger to close the syndication deal (Format is enclosed).

A Good professional arranger will always be able to add something to a borrower’s own deliberations. It should be able to suggest amendments and enhancements, which will make it easier for a syndicate to take up the loan without compromising its essential elements.

It is very important that the lead bank has an in-depth knowledge of the individual borrower. This applies not only to the particular company but also to the wider environment in which it works, the economic pressures, the competitive environment and so on.


As part of the process of selecting a potential syndicate leader it will be necessary to decide whether it can sell this deal to the sort of syndicate that is desired. If a high-quality group is the aim, then a high level of past performance in similar transactions will be required in order to encourage other experienced banks into the syndicate.

Credibility can be equally important when dealing with less heavyweight players, who will rely to a much greater extent on the senior members of the syndicate.

The Lead Bank/Arranger has the responsibility for much of the selling of the loan to participants.

The Lead Bank will be the first port of call for questions and needs to be able to answer them authoritatively in order to head off problems and sensitivities before they arise. This role will be particularly important with respect to syndicate members who do not know the borrower particularly well.

Agent: Agent will preserve all security documents and will do all the administrative &

monitoring activities tenure of the loan. The agent bank’s role is to act as the agent for the banks (not for the borrower) and to

co-ordinate and administer all aspects of the credit facility once relevant documentation has been executed.

The activities of agent bank include the disbursement of monies from the syndicate to the borrower, after satisfaction of relevant conditions precedent, and will also cover collection of monies, essentially commitment fees, front-end fees, interest and repayments of principal, from the borrower on behalf of the participating banks.

The agent will also be responsible for transmitting any post-closing waivers or amendments requested by the borrower and negotiating them with the syndicate banks.

The responsibilities and role of the agent in cases an event of default has occurred.

Inform the participating banks regarding progress of the project time to time as per clause of facility agreement.


The Agent will send the audited financial statements regularly as per clause of facility agreement.

The Agent will call a review meeting time to time where the borrowers and the representatives of the participating banks will be present.

Participating Banks/Financial Institutions (FIs): A group of Banks/FIs committing to some extent for participation in the syndication under lead arranger;

Joint Arranger/Co-Arranger: a group of mandated banks who will act jointly to raise the fund from the syndicated market for the borrower.

Lead Manager: A senior underwriter or a Bank/FI committing to the highest level of participation;

Manager: A second tier underwriter or a bank committing to the second level of participation;

Co-Manager: A Bank committing to a third level of participation.

Borrower: An institution or individual that arises funds in return for contracting into an obligation to repay those funds, together with payment of interest at determinable periods over the life of a facility to the agent.

PRE-SIGNING STAGE A. PRE-MANDATE PHASE: 1. Selection/Identification of Borrower for Syndication;

2. Build-up continuos relationship with the Borrower;

3. Round Table discussion with the borrower in Loan Syndication Unit of the Bank and articulation/structuring of the borrower’s need from the syndication credit market;

4. Preparation of Term Sheet by Loan syndication unit based on discussion with the borrower:


(Term sheet is a document, which is not generally intended to be legally binding until it forms part of a formal offer, setting out the main agreed terms and conditions to a transaction between the borrower and arranger)

5. Discussion with the top management of the Bank for finalization of Term Sheet for obtaining letter of Mandate from the borrower. A meeting can be arranged in the Head Office of Lead Bank with the borrower and top management of the Bank on this issue followed by special entertainment and gift.(Mandate is the authority to act in the marketplace on behalf of a Borrower to the market is based upon terms and conditions, which have been agreed between the Arranger and Borrower.)

B. POST-MANDATE PHASE:

1. Obtaining letter of Mandate from the Borrower along with loan processing fee;

Contents of Term Sheet/Letter of Mandate:a) Name of Lead Arranger;b) Name of Borrower;c) Nature of Facility;d) Currency;e) Total Project Cost;f) Syndicated Amount;g) Minimum Participation Amount;h) Period;i) Purpose;j) Repayment;k) IDCP (Interest During Construction Period);l) Debt-equity Ratio;m) Pricing/Interest rate;n) Loan Processing Fee (Flat) : A lump-sum amount to be paid to the Lead Arranger for

processing the loan in the syndicated credit market. A loan-processing fee is non-refundable.

o) Syndication Fee/Arrangement Fee (Flat) : Fee to be paid on syndicated amount before signing of the agreement to the mandated bank/Lead Arranger or group of banks for arranging a transaction (This fee will not be shared to the participating banks);


p) Agency Fee (Flat) : Fee payable on syndicated loan amount to the Agent for preserving all security documents and for administrative & monitoring activities as agent tenure of the loan.

q) Participation Fee (Flat) : Fee to be paid on syndicated loan amount to the Lead Arranger before signing of the agreement which will be shared among the participants on pro-rata basis.

r) Management Fee (Annual) : Fee on outstanding amount of the facility after end of every loan year during loan period to be shared by all the participating banks on pro-rata basis.

s) Commitment Fee (Quarterly) : An annual percentage fee payable to the Lead Bank on the undrawn portion of a facility made available by it to a borrower. This fee is typically payable quarterly in arrears and to be shared on pro-rata among the participants.

t) L/C Commission : L/C will be opened (for import of capital machinery and equipment for the proposed project) by the Front Bank (Lead Arranger or L/C opening Bank) and some percentage of commission to be realized by the Front Bank. L/C opening Bank (Front Bank or Lead Arranger) may retain some percentage as skim of L/C commission and the rest will be shared on pro-rata basis.

u) Escrow Account: Escrow Account is opened pursuant to the Escrow Account Agreement into which all funds accrued in all accounts of the borrower permitted under this Agreement shall be paid into and in respect of which the borrower shall give irrevocable instructions to the bankers of such accounts to transfer the proceeds thereof to Escrow Account in accordance to the terms of this Agreement.

v) Supplier’s Guarantee: Guarantee from the suppliers for due performance of the machinery/commercial production will be obtained before payment to the suppliers. The suppliers will provide a Guarantee from a reputed Bank for minimum 10% of the invoice value of machinery ensuring the quality of machinery, production capacity and commercial production.

w) Availability period : The period in which the facility to be availed by the borrower after the date of signing of the facility agreement.


x) Security Packages : Against the syndicated facility will be sanctioned includes pari-passu charge by way of registered mortgage of project land and building, pari-pasu charge on machinery and equipment of the project, personal guarantee of the directors & their spouses, corporate guarantee of sister concerns etc.

y) Legal Expenses: All legal costs relating to prepare the documents by the Lead Arranger to be borne by the borrower. But vetting of the documents by the participating banks to be borne by the participating banks.

z) Syndication (Best effort Basis) : Placement in syndication market where loan facility has not been fully underwritten, the arranger will agree to use its best efforts to attract sufficient lenders to completed the syndication deal in the amount required by the borrower.

2. Obtaining Feasibility Report on the Project from the borrower;

3. Collecting CIB Inquiry Form on the customer for obtaining CIB report from Bangladesh Bank on the Borrower;

4. Obtaining Board’s Approval/Consent for raising fund under lead management of the Bank and determining Lead Bank’s stake;

5. Officials of Syndication Unit of the Lead Bank may visit the supplier’s country to observe the supplier’s (of machinery and equipment) performance and the project where the supplier supplied the same machinery. If it is not possible to visit before opening of L/C, the visit program may be arranged before shipment of machinery & equipment of the project.

6. Offer Letter may be issued to the prospective participating Banks/FIs (before sending IM) for obtaining ‘Soft Commitment’ which may touch about the project, sponsors, pricing and period.

7. Preparation of Information Memorandum (IM) after studying all relevant aspect of the project for viability of the same (if necessary, expert opinion of technical expert, market survey to be done by the lead arranger to strengthen the IM);

CONTENTS OF INFORMATION MEMORANDUM (IM)


PART-Ii) Circulating Page (Cover Page of IM); (Cover Page includes a indistinguishable, colored,

meaningful and attractive photographs) ii) Disclaimer: Second Page of IM ;

(Statement made by the lead manager as representative for the underwriting Syndicate and contained in offering documents, which asserts, inter alia, that certain information provided in the prospectus was supplied by the borrower and is therefore not the responsibility of the managers. Exculpatory language is normally placed inside the cover of the information memorandum to reinforce the importance for each bank of performing its own independent financial and economic analysis of the borrower.)

iii. Contact Persons;iv. Table of context (Section wise with page No.) v. Executive Summary vi. Management of the Company vii. Market Aspect;viii.Technical aspect;ix. Performance of Supplier;x. Financial of the Company;xi. Group performance of the Company;xii. Risks and Mitigants;xiii.CIB Report (Contents)xiv.Representation & warranties;xv. Appendices of Market Summary; xvi.Any other section may be included which depends on the nature of project & Products.

PART-IIANNEXURE- A : DETAILS OF FINANCIAL ANALYSIS

a) Total Cost of the Project b) Fixed cost of the Project c) Summarized cost of the Project d) Item wise Price of Machinery and equipment (to be imported); e) Project Implementation Schedule;f) Working Capital Assessment;g) Earning Forecast;h) Sensitivity Analysisi) Sales Estimation;j) Cost of Goods Sold;k) Detail Break-up of:


- Raw materials- Detail Duty Structure of Raw Materials;- Wages and Salary;- Water, Power and Fuel;- Stores and spares;- Repairs and Maintenance;- Rent, ax and Insurance;- Depreciation Cost;- General, Administrative and other Expense;- Financial Expenses;- Break-even Analysis;- Fund Flow Statement;- Projected Balance Sheet;- Financial Rate of Return;

ANNEXURE- B: COPIES OF SUPPORTING DOCUMENTS OF IM

a) Copies of quotation of machinery and equipment (to be imported);b) Copies of quotation of local machinery;c) Copy of Brochures of supplier of machinery and equipment;d) Copies of Performance certificate of the supplier of machinery and equipment;e) Copies of Credit Report on the supplier of machinery and equipment;f) Copies of documents of price verification of the machinery and equipment;g) Copies of Certification of valuation of land development, building and civil works;H) Copies of competitive quotations of machinery and equipment;i) Copy of BOI registration;j) Trade License;k) NOC from competent authority (i.e. Union Parishad etc.)l) TIN Certificate;m) City Corporation Certificate;n) Environmental Clearance;o) Process Flow Chart;p) Site Location Map;q) Factory Layout;r) Clearance of Gas Connection;s) Bio Data of all Directors;t) Networth Statement of all Directors;


u) Bio Data of all Technical Persons;v) Copy of Certificate of Incorporation;w) Copy of Memorandum of Association and Articles of Association;x) Bank’s Certificate/Declaration regarding liability position of all sister concerns of the

company;y) Detail Organogram (with Responsibility Accounting);

6. Offer Letter for final commitment and circulation of Information Memorandum to the Banks/FIs (to be addressed to CEO of the prospective participating Banks/FIs);

7. CONTENTS OF OFFER LETTER

- Overview of the project;- Overview of the Management;- Overview of the Group;- Speciality of the project;- Contract persons name, telephone, fax, e-mail etc.- Specific date of closing the syndication deal;

- Others if any.- To be signed by the CEO of Lead Arranger.

8. ROADSHOW: A presentation to potential syndicate members by the borrower. Usually it is organized by the arranger and held in more than geographic location.

9. Persuasion to the banks/FIs for obtaining consents;

10. Obtaining CIP (Commitment in Principle) at first from the prospective participating banks/FIs;

11. Reply all the queries of the participating banks/FIs, if any and satisfy them as soon as possible (without any delay);

12. Arrange a site visit program by all the prospective participating banks/FIs;

13. Determination the strategies for raising fund from the prospective participants and involve the top management of the Lead Arranger;


14. Build up core relationship with the dealing officials of the participating banks/FIs by the officials of Lead Arranger and find out the way to obtain final approval at the earliest and take action plan participant to participant;

15. Inform the status of fund raising position to the top management of the Lead Arranger by Syndication Unit (of Lead Arranger);

16. Obtain Final commitment from the Banks/FIs;

17. Place a Memo before the Board informing detail status of fund raising position as Lead Arranger and finalization of the stake of all the participants along with the Lead Arranger’s stake and finalization of amount extending for working capital facility to the borrower;

18. Status of fund raising of the syndication deal:- Equal Subscription: Raised amount in equal of the deal target;- Over Subscription: Raised an amount in excess of the deal target;- Under subscription: Raised an amount in lower of the deal target.

19. Giving indeed thanks (letter) to the CEOs of the participating banks/FIs (to extend their co-operation to close the deal) from the Lead Arranger (to be signed by the CEO of the Lead Arranger);

20. Preparation of documents of syndication by Bank’s panel lawyer;

21. Send the set of documents to the participating Banks/FIs for their vetting, view/suggestions, if any;

22. Incorporate the views/suggestions of the participating banks with consultation with the lawyer and finalization of documents;

NAME OF SOME SYNDICATED LOAN DOCUMENTS: Facility Agreement; Pari Passu Security Sharing Agreement; Escrow Account Agreement; Agreement for Assignment of Insurance; Agreement for Assignment of Contract; Projects Funds and Share Retention Agreement;


Subordination Agreement; Deed of Mortgage; Letter of Hypothecation (machinery to be purchased); Letter of Hypothecation (existing machinery); Letter of Hypothecation (Balance on the account of Escrow Account); Power of Attorney to sell the hypothecated machinery; Letter of Undertaking of all the Shareholders; Personal Guarantee of all the Directors; Corporate Guarantee of the sister concerns; Letter of Continuation; Demand Promissory Note; Letter of Comfort;

23. Requesting the participating banks to give the name of signatory and witnesses to execute the documents and the name of Lending Offices where the syndicated fund will be disbursed;

24. Selection of Venue, Chief Guest and send the invitation to the guests;25. Arranging a formal Signing Ceremony for signing the Facility Agreement and other

documents by the Borrower, the Management of the Lead Arranger & Agent and the participating Banks. An exclusive and attractive banner will be prepared by the Lead Arranger for formal signing ceremony.

26. Making Tombstone : Record the name of the borrower, the date, the amount and type of transaction, the name of banks that committed to the transaction, the name of Lead Arranger (Arrangers, Co-Arranger, Joint Arranger) and the name of agent (s). The position of the banks in the tombstone is determined by the status accorded to each bank based on its commitment. Banks name may appear in several times in the tombstone : for instance a sole arranger may appear as the Lead Arranger, Lead Manager, participant and as the agent also (Copy of tombstone is enclosed).It may be noted that Arrangers may have their own distinctive styles for tombstone, which are used whenever possible. Media can also be used for publication of signing ceremony.

27. Brochure : It may be produced by the borrower by giving general idea of the project on the occasion of the signing ceremony (Sample copy is enclosed).

28. Other Signing Gifts: Signing Pen, Gift Box, Special entertainment etc.


29. Closing the Syndication deal primarily and starting the syndication in real sense.

POST-SIGNING STAGE

1. Issue Sanction Letter to the Borrower from the Agent;

2. Completion of all the documentation/mortgage formalities as per sanction terms and conditions and Facility Agreement and other syndication agreements;

3. Send a copy of the set of all documents to the borrower and the participating banks attested by the authorized signatory (person) of syndication unit of agent bank;

4. Opening of L/C for import of capital machinery and equipment by Front Bank/Lead Arranger/Agent;

5. Distribution of participation fee to all the participating banks by the lead arranger/agent on pro-rata basis;

6. Distribution of L/C commission to all the participating banks by the lead arranger/agent;

7. Prepare draw down schedule and send draw down notice to the participating banks/FIs as per Facility Agreement and collection of fund;

8. Send the Audited Financial Statement of the company to the participating banks as per facility agreement;

9. Send the progress report on the project to the participating banks describing the details works of the project completed and the contribution of the equity of the borrower;

10. Preparation of Investment Schedule of the project;

11. Preparation of Repayment Schedule;

12. Arrange Site Visit Program time to time before starting Trial Production and Commercial Production by the Lead Arranger/agent;


13. Obtain NOC from the participating banks/FIs, if there is any change in Means of Finance/Project Cost or any change of terms & conditions of the Facility Agreement or other syndicated documents;

14. Arrange review meeting with the borrower, participating banks and the Lead Arranger time to time for exchanging views with each other regarding progress of the project and to enhance the relationship with the Lenders and the Borrower. Minutes of the meeting to be distributed to the borrower and participating banks/FIs in time;

15. Distribution of installment of syndicated loan to the participating banks/Fs as per repayment schedule;

16. Proper monitoring of the syndicated loan by the Lead Arranger/agent and provide any information about progress or any other issue of the project;

17. Reconcile the outstanding amount with all the participating banks along with principal and interest;

18. Closing the syndication deal by the Lead Arranger/Agent in real sense by payment of last installment to the participating banks and reconciling all the calculation of the syndication deal.

STEPS MAY BE TAKEN BY THE COMMERCIAL BANKS/FIS TO DEVELOP THE SYNDICATION MARKET

1. Bangladesh Bank has already emphasized on loan syndication and they have issued circulars on this issue time to time in case of any large loan to diversify the risk and for in depth individual analysis before financing to any project . (BRPD Circular No.13 dated December 23, 2002)

2. Establishment of separate Syndication Unit in all Banks;

3. Sending the officials of the syndication unit in the training program on Loan Syndication (domestic & foreign);


4. Understanding the nature of work of syndication unit by the top management of Lead Bank and the participating bank regarding time frame for completion a syndication deal successfully;


6. OPERATIONAL RESULT OF PRIME BANK LTD.

GROWTH OF CREDITS OF PRIME BANK LTD.

Credit Distribution: Credits are provided in different fields in different names. Prime Bank Ltd provided 16 types of credits to their clients. Actually bank started operation in 12 types of credits in 1995. It has started operation in LIM, IDBP, and QTDR in 1996 and Cash credit (Pledge) in 1997.

2006 is a successful year for the Bank The bank has made a good progress in Loan (gen.), Cash Credit (hypo) and Secured Overdrafts (SOD) this year. But, Loan against Trust Receipt (LTR) goes down in 2004. Consumer Credit Scheme (CCS) increases for the year 2005-2006. Other Types of credit grew moderately. While in 2001 we see curves are not that much steep but overall there shows a progress, this is a good sign of credit distribution.

(Figures in Million Taka)CREDIT TYPES 2004 2003 2005 2006

Loans (General) 1996.45 1463.03 54531.51 83949.62

Loan against Trust Receipt (LTR) 1826.57 1837.71 49002.17 81147.55

House Building Loan (HBL) 548.13 392.12 5265.43 9777.54

Lease Finance 1215.92 929.39 16886.36 25849.88

Payment against Document (PAD) 631.49 482.38 5567.07 9498.59

Cash Credit 3416.44 2763.54 64919.31 78810.14

Consumer Credit Scheme (CCS) 519.47 473.57 9838 13557.53

Inland Bills Purchased (IBP) 294.72 200.55 7976.97 6816.89

Foreign Bills Purchased (FBP) 1631.55 1239.00 21234.57 30210.24

Secured overdrafts 2545.52 1683.80 46348.27 59542.38

Other Loans & Advances 1865.96 1221.73 18845.17 22414.46

Source: Statement of Consolidated Affairs of Prime Bank Ltd.Table: Amount of credit disbursed for the year 2003-2006


Fig: Amount of credit disbursed for the year 2001-2004

RECOVERY OF CREDIT

The ratios of classified loans to total loans of Prime Bank Ltd. in 2002, 2003, 2004, 2005 and 2006 were 1.49%, 1.13%, 1.48%, 1.98% and 1.52% respectively. Whereas international standard is 5%. In Bangladesh the ratio of classified loans to total loans for all non-government commercial banks is 10% and for all government commercial banks is about 50%. The industry average is 65%.

So we can clearly see that recovery of credit of Prime bank Ltd. is above the International standard and better than the industry as well as non-government commercial bank's average.

As such we can say that credit management of Prime Bank Limited is effective.

PROFITABILITY ANALYSIS OF A BANK

Many Banks will have to take and manage higher risks in the 21st century in order to make acceptable returns. It will be increasingly important for a Bank to be able to measure the risk taken to produce acceptable return during the coming period of challenging external factors and deregulation. A Bank performance will affect its valuation in the market, its ability to acquire other Banks or to be acquired at a good valuation in the market, its ability to acquire


Disbursement of various types of Credit

0100020003000400050006000700080009000

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Lease

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CCS IBPFB

PSO

DOthe

rs

Credit types

Tk. i

n m

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2005

2004

2003

other banks or to be acquired at a good price, and its ability to be funded in the deposit and financial markets. The Return on Equity (ROE) model, first developed by Du Pont Corporation, desegregates ROE into its basic components, which can be analyzed to identify areas in which a business may want to improve.

ROE Model: A bank's ROE is derived from its return on assets (ROA) and its leverage multiplier. ROA, which is net income divided by total assets, should reflect the bank management's ability to utilize the bank's financial and real resources to generate net income. Many regulators believe ROA is the best measure of bank efficiency. Since ROA is lower for financial intermediaries than for most non-financial businesses, most intermediaries must utilize financial leverage heavily to increase ROE to a competitive level. The leverage multiplier to be applied to ROA is calculated by dividing assets by equity (assets minus all liabilities, borrowing and preferred stock).

Source: Hempel, George H & Donald G., Bank Financial Mgt, John Willy & Sons Publisher, 1st Edition, 1991.

Figure: ROE Model

Measuring Returns of a Bank: Bank management's primary objective is to maximize the value of the owner's investment in the bank. Useful information on the appropriate trade-off between returns and risk is obtained from restively efficient markets for most publicly held banks. The management of the smaller banks seeks to achieve the highest returns for the risk level deemed appropriate by the owners and top management. However, the Steps of measuring returns of a Bank are as follows:

The first return measurement is the Interest Margin in percentage term, which income minus interest expense divided by earning assets (all securities and loans).


Return on Assets:Net Income

Assets

Return on Equity:Net Income

Equity

Leverage Multiplier:AssetsEquity

Net Margin:Net IncomeRevenues

Asset Utilization:Revenues

Assets

Gross Margin:

Oper Income Revenues

Expense Coverage:ExpensesRevenues

= x

= x

=

Interest income less both interest expense and other expenses divided by the revenues is leveled the Net Margin.

This net margin limes the Asset Utilization {revenues divided by assets) equals the ROA. It is important to note that is asset utilization figure is strongly affected by how much a bank has invested in earning assets.

When the ROA is multiplied by the Leverage Multiplier (asset divided by equity capital) is the most important measurement of banking returns because it is the ROE. The ROE (net income divide by the equity capital) is the important measurement of returns because it is influenced by how well the bank has performed on all other return categories and indicates -whether a bank can compete for private sources of capital in the economy.

Measuring Risks of a Bank: Risk measurement is related to return to return measurement because a bank must take risks in order to earn adequate returns. Four categorizes of risks are computed here.

Liquidity Risk: A bank's liquidity risk refers to a comparison of its liquidity needs for deposit outflows and loan increases with its actual and potential sources of liquidity, from either selling an asset it holds or acquiring an additional liability. It is computed by dividing short-term securities with the deposits.

The tradeoffs that generally exist between returns and risks are demonstrated by observing that a shift form short-term securities into long-term securities or loans would raise a bank's return but would also increase its liquidity risk. The inverse would be true if short-term securities were increased. Thus, high liquidity ratio for the sample bank would indicate a less-risky and less profitable bank.

Interest Rate Risk: The bank's interest rate risk is related to the changes in interest rates. The ratio of interest- sensitive assets to interest-sensitive liabilities is the measure of interest rate risk.

Particularly in the period of wide interest rate movements, this ratio reflects the risk the bank is willing to take so that it can predict the future direction of interest rates. The difficulty of predicting interest rates, some bank has concluded that the way to minimize interest- rate risk is to have an interest sensitivity-ration to close to 100 percent.

Credit Risk: Credit risk measures the risk of medium quality loans into assets. The relative amount of past due loans or loan loss would be a better measure but such data are not


available. The credit risk is higher if the bank has more medium quality loans, but the returns are usually higher too.

Capital Risk: Capital risk is measured by dividing capital by the risk assets. Capital risk indicates the risk of creditors can be shifted to the owners if the company is in jeopardized condition. The higher the capital risks the higher the safety for the creditors and the inverse is also true.

The capital risk is inversely related to the leverage multiplier and therefore of the ROE. When a bank chooses (assuming this is allowed by its regulators) to take more capital risk, its leverage multiplier and ROE will be higher, if a other factor remains unchanged. If the bank choose (or is forced to choose) to lower capital risk, its leverage multiplier ROE will be lower.

PROFITABILITY ANALYSIS OF PRIME BANK LTD.

Prime Bank Ltd. had a record of successful years from the very beginning of its operation. It earned profit in the very first year, which is a remarkable achievement for the bank. It earned tremendous profit in 2003. Profitability of a Bank depends on ROE. But we cannot avoid Risk Factors in case of a Bank, because too much risk taking may harm the interest of the depositors. Here ROE model is applied for the profitability analysis of Prime Bank Ltd.

MEASURING RETURNS OF THE PRIME BANK LTD.:

Interest Margin: Interest margin indicates the net interest income into earning assets. Bank's main earning source is its interest income. The higher the interest income, the higher the possibility for the bank to survive. Interest margin for the bank remains steady for years, which is a good sign for a bank. In the year 2006 it was about 3.23%.

Net Margin : Net margin is the net income for the bank after covering all the expenses. Prime Bank Ltd. made an exclusive profit in 2002. From the progress of interest margin in 2006, it is quiet clear that they made such a huge profit not from interest income rather from other sources of income, probably from share market operation. By comparing the interest margin and net margin we can visualize the real source of earnings a Bank.

Category Equation 2002 2003 2004 2005 2006


Interest marginNet interest income

Earning assets 4.26% 4.36% 4.41% 3.68% 3.23%

Net marginNet incomeRevenues 24.30% 18.58% 12.52% 23.61% 32.37%

Asset utilization ratio

RevenuesAssets 12.63% 11.23% 12.38% 5.79% 5.31%


Return on assets (ROA)

Net incomeAssets

2.38% 1.72% 2.16% 1.54% 2.05%

Leverage multiplier

AssetsEquity 30.05x 33.36x 33.43x 14.78x 15.77x

Return on equity (ROE)

Net incomeEquity 30.03% 22.70% 30.43% 22.51% 31.55%

Source: Annual Reports of Prime Bank Ltd.

Table: Measuring returns of PBLNote:

Earning assets = Money at call & short notice, investments, advances Net interest income = Interest and discount - Interest paid on deposit Net income = Net profit after tax Revenues = Interest paid + Operating Income Assets = Total Assets Equity = Paid up capital + Retained Earnings

MEASURING RISKS OF PRIME BANK LTD.

Bank’s risk factors are not as usual as non-financial organizations. Risk of a bank depends on its liquidity, investment and capital.

Liquidity Risk: Bank has different type of assets. Among those assets some assets are readily convertible into money and they are termed as money equivalents. This type of assets can reduce the risk of the depositors. Prime Bank Ltd. has a satisfactory percentage of short-term securities against deposits. In 2006 it had a liquidity risk coverage of 14.33%.

Investment Rate Risk: How much interest sensitive-assets a bank has over interest-sensitive liabilities affect the risk of a bank. If interest rate fluctuates positively than this may adversely affect the bank because most of the hanks have more interest sensitive-liabilities than interest-sensitive assets. All the banks try to remain as close to 100 percent to minimize the risk. In the year 2005 and 2006 PBL had an investment rated risk of 330.22% and 342.7% respectively.


Category Equation 2002 2003 2004 2005 2006

Liquidity RiskShort term Securities

Deposits 12.67% 11.72% 12.75% 10.93% 14.33%

Investment rate risk

Interest-sensitive assetsInterest-sensitive

liabilities238% 227% 230% 330.22% 342.7%

Credit riskMedium-quality loans

Assets 45.97% 56.10% 60.11% 69.85% 67.83%

Capital riskCapital

Risk assets 12.73% 11.41% 13.29% 9.2% 8.9%

Source: Annual Reports of Prime Bank Ltd.

Table: Measuring risks of PBL

Note: Short term securities = Govt. Securities, Treasury Bills/Bonds + Shares + Prize Bonds Interest sensitive assets = Money at call & short notice + Govt. Securities, Treasury

Bills/Bonds + Advances Interest sensitive liabilities = Short term deposits + Savings deposit + Current and other

A/Cs Medium quality loans = Loans + Cash credits + Overdrafts etc. Capital = Stock holders Equity Risk assets = Money at call & short notice + Shares and Debentures + Advances


Credit Risk: Most of the banks like to take moderate risk, therefore banks try to increase its medium quality loans. Medium quality loans measure the credit risk for the bank. The higher the proportion of cash credits, overdrafts, and loans into assets the higher the credit risk for the bank. The relative amount of past-due loans or loan losses would be a better measure, but these data are not available. Bank has a gradual increase in credit risk. In 2006 bank had a credit risk of 67.83%, Bank should try to reduce credit risk through increasing high quality loans.

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

2002 2003 2004 2005 2006

Crsdit Risk

Fig-Credit risk

Capital Risk: The proportion of capital into risky assets indicates capital risk. In the last year (2004) the capital risk was 13.29%.

PROFITABILITY ANALYSIS OF PRIME BANK, DHAKA BANK AND SOUTHEAST BANK:

In 1995 three banks started their operations; they are Prime Bank Ltd., Southeast Bank and Dhaka Bank.

MEASURING RETURNS OF THE TWO BANKS:


Measuring of returns of the banks is quite similar with non-financial organizations. The difference is, here in calculation of returns on equity (ROE) a leverage multiplier is used, which makes the ROE equivalent to the non-financial organization. Assets divided by equity calculates leverage multiplier.

Category EquationPrime Bank

Dhaka Bank

Interest marginNet interest income

Earning assets 3.69%2.55%

Net marginNet incomeRevenues 18.58%

12.18%

Asset utilization ratioRevenues

Assets 11.23%10.07%

Return on assets(ROA)

Net incomeAssets 2.09%

1.23%

Leverage multiplierAssetsEquity 33.36 X 50.36X

Return on equity (ROE)

Net incomeEquity 69.57%

61.77%

Source: Annual Report of Prime Bank, Southeast Bank, and Dhaka Bank. Table: Comparison of returns of the Prime Bank and Dhaka Bank

Interest Margin: Interest margin for the Prime Bank is higher than the Dhaka Bank. Net Margin: Net margin for the Prime Bank is also higher, about 18.58%, while Dhaka Bank and Southeast Bank had 12.18% and 13.09% respectively.Asset Utilization Ratio: Prime Bank had an asset utilization ratio of 11.23%, and Dhaka Bank and Southeast Bank had 10.07% and 10.25%. Therefore, Prime Bank earned more revenues from its assets.


Return on Assets: Prime Bank, Dhaka Bank and Southeast Bank had returns on assets were respectively 2.09%, 1.23% and 1.34% respectively. Prime Bank had much higher ROA because of its abnormally higher net income.

Leverage Multiplier: Prime Bank had a leverage multiplier of 33.36 times and Dhaka Bank and Southeast Bank had 50.36 times and 47.32 times respectively. Prime Bank had lower leverage multiplier because it capitalized its huge profit in equity capital.

Return on Equity (ROE): Prime Bank, Dhaka Bank and Southeast Bank had return on equity (ROE) about 69.57, 61.77% and 63.54% respectively. Prime Bank had a much higher ROE because of tremendous Return on Assets (ROA) 2.09%.

MEASURING RISKS OF THE THREE BANKS:

Liquidity Risk: Prime Bank had a compatible liquidity risk; it was about 11.72%. South East Bank and Dhaka Bank had 12.91% and 14.87% respectively.

Investment Rate Risk: Prime Bank, Dhaka Bank had 227% and 372% investment rate risk respectively. Southeast Bank had a very low interest sensitive liability; about maximum of its deposits were fixed deposit. Therefore, its investment rate risk was about 490% in 2003, which was abnormally high.

Source: Annual Reports of Prime Bank, Southeast Bank, and Dhaka BankTable: Comparison of risks of the Prime Bank, Southeast Bank, and Dhaka Bank (2002)

Credit Risk: Prime Bank had 56.10% of its assets in medium quality loans. Dhaka Bank and Southeast Bank had 55.28% and 66.96% respectively. In present economic condition where


Category Equation Prime Bank

Dhaka Bank

Liquidity Risk Short term SecuritiesDeposits

11.72% 12.91%

Investment rate risk Interest-sensitive assetsInterest-sensitive liabilities

227%372%

Credit risk Medium-quality loansAssets

56.10%55.28%

Capital risk CapitalRisk assets

11.41%6.56%

capital market is in a grip of shock, Banks should try to maximize their profits through increasing high quality loans like L/C credits, post-import finance etc.

Capital Risk: The higher the capital risk, the lower the risk of the creditors. Risky assets, which are covered by capital, are denoted by capital risk. Prime Bank had the highest 13.29% capital risk coverage in 2003. Therefore, it can achieve more credits from the creditors, if necessary in cheaper rate than others can.

TREND ANALYSIS OF PRIME BANK LTD.

Trend Analysis of Deposits

Fig: Trend Analysis of Deposits

Conclusion: From the above graph we see that the Bank gaining deposits day by day. So, we can say that it is financially a strong Bank.


TREND ANALYSIS OF ADVANCES & INVESTMENTS

Fig: Trend Analysis of Advances & Investments

Conclusion: From the above table and graph, we see that the Bank gaining Advances & Investment day by day. It has the positive trend in gaining Advances & Investment. So, we can say that it is financially a strong Bank.

Trend Analysis of Foreign Exchange Business

Fig: Trend Analysis of Foreign Exchange Business

Conclusion: From the above table and graph, we see that the Bank gaining Foreign Exchange Business day by day. It has the positive trend in gaining Foreign Exchange Business. So, we can say that it is financially a strong Bank.


Trend Analysis of Net Profit

Fig: Trend Analysis of Net Profit

Conclusion: From the above table and graph, we see that the Bank gaining Net Profit day by day. It has the positive trend in gaining Net Profit. So, we can say that it is financially a strong Bank.


7. Findings & Recommendations

MAJOR PROBLEMS ASSOCIATED WITH PRIME BANK LIMITED

Weakness In MarketingThough there is marketing department in Prime Bank Ltd., but the activities of that particular department can’t able to take any significant role in Bank’s Business. They are just maintaining the relationship with the existing client rather than to create any new client. Basically there is no professional person who will look after this department. There is a public relation ship department under the network of marketing Department. They are just doing of publishing the news and photograph of different activities of PBL. There are only three marketing officer with two executives are running both the PR & Marketing Dept. Now a days Banking product service marketing is a sophisticated matter.

Loan Portfolio Loan portfolio is another main problem area of PBL. Most of their advances (more than 75%) are in RMG (Ready Made Garments) and textile sector. More over for some specific group they invest a lot. So, if those one or two groups collapse, then PBL will face a tremendous problem.

High Cost Of FundAs there is 52 schedule Banks now operating in Bangladesh, the power of supplier is moderate to high. Depositors want a high rate on their deposit. Due to competitive market PBL has to incur higher cost on their Deposit. PBL has more Long-term deposit than Short-term deposit, which is another reason behind the high cost of Fund. More over PBL do not get Govt. fund, which is less costly than other fund very often usually.

Limited Number Of BranchPrime Bank Limited has only 52 branches. It is very few in number considering other second generation Banks. There are some very important places in Bangladesh where PBL don’t have their Branch. Few Branch means limited income. The more Branches PBL have, the more income they can generate.

Buyers & Suppliers Turnover Is HighRecently PBL is facing a major problem that their old clients of both deposit and advances are high due to their previous Managing director. Two Key people acting as Managing Director resigned from PBL within a very short time. These two previous Managing Director Mr. Kazi Abdul Mazid and Mr. Bakhtiar is taking some of their client whom they build up at the time of


their management.


Gap Management Between Asset And LiabilityMost of the deposit of PBL is long-term deposit and against these deposit most of their loans and advances are short term. For that they can’t utilize their fund very well. Some times PBL has some idle fund with their hand. PBL has very few Project and long term loan where they can utilize their long-term deposit in an effective way. If interest rate rises in the market it will hurt bank’s profitability to a great extent.

MINOR PROBLEMS ASSOCIATED WITH PRIME BANK LIMITED

Employee Turnover rateIt is more or less a problem associated with every Bank. As with in a very short time Two Key person acting as Managing Director resigned from PBL, they are taking some of the employee whom they were used to work together by giving them higher rank into their present Bank where they are working now.

Long Hierarchy Than Other BanksPBL has a very long hierarchy than other Bank. In some bank there is only 8-9 posts before the CEO but in PBL this number is 12, which might be a cause of de-motivated employee.

Absence Of Effective Training PolicyActually PBL doesn’t have any effective training policy. PBL has a training institute but they can’t able to use this institute properly. The officers of the Bank are not properly trained in every sector of banking.

ALTERNATIVE STRATEGIES It is necessary for PBL to take some alternative strategies as opposed to that of the existing ones in order for PBL to become the market leader. Considering that PBL can consider to take up the following strategies as the alternative strategies: -

Recruitment Personnel In Marketing DepartmentNow a days Banking product service marketing is a sophisticated matter. Most of the Bank now employed some professional in this department. PBL can take some marketing officer and an Executive in marketing Division who has some experience regarding Bank product marketing. PBL also can go for some promotional activities through their PR Department. Diverse Fund In Different Loan Portfolio PBL can go for different types of loan in their loan portfolio. Transport sector in Bangladesh is highly potential now. As they don’t have any loan in this sector they can go for this sector.


More over they can restructure their Loan portfolio with long term and short term loan. By investing to small businessman in a large number they can reduce the risk to invest huge to one or two party.

Take More Govt. Fund To Reduce The Cost Of FundPBL can offer better services and facility such as any branch Banking, quick service, better environment than others and by doing this they can attract the depositor to deposit their fund in to the Prime bank Limited. With a high interest rate than others PBL also can pursue to Govt. high officials and can make a better relationship with them to get Government fund.

Expand Number Of BranchPrime bank Limited can open some more branches in some important place in Bangladesh. By doing this PBL can increase their business opportunity as well as their image so that they also do their banking network in rural area and make a significant contribution to the economy of the country.

Give More Facilities To Existing ClientPBL can upgrade the interest rate to their existing depositor and can reduce the interest rate of loans advances for their existing valued client. More over they can go for some promotional activities for their previous client. Besides that PBL also can get some new clients through their new Managing Director, which also can reduce some pressure of taking off client by other Bank.

Increase Interest Sensitive Asset Over LiabilityPBL’s management may invest more in interest sensitive asset by taking deposit of short term and lend for long to reduce gap between its interest rate sensitive assets and interest rate sensitive liabilities.

Reduce The HierarchyPrime Bank Limited can take an initiative through their HRD that they can merge two or more post and by doing this they can reduce the hierarchy, or they can reduce the time for promotion also. By giving promotion to efficient and experience bankers, PBL can avoid employee turnover that are going to other Bank.


FINDINGS

Prime Bank Limited though performing very well and hold the first position in the CAMEL rating published by the Bangladesh Bank, should be careful and control its costs. No doubt this is the good management that this bank comes to this stage only by ten years. But now the time to lengthen this time and made its capital base stronger with having insignificant percentage of non-performing assets. Though the appraisal and proposal system of the prime bank is said to the best one in this kind certain factors are overlooked. In appraisal system the competitive position analysis is not focused while doing the

appraisal system. The product appraisal is done on the customer base not any comparison is done with

other product. The suppliers’ influence is overlooked. Due to the data unavailability the credit demand assessment is not properly done.

With a view to improving the quality and soundness of loan portfolio, credit risk management methods were updated in 2004. The Bank is now applying a new system of credit risk assessment and lending procedures by striker separation of responsibilities between risk assessment and lending decisions and monitoring functions. The Bank monitors its exposure to particular sectors of economy on an ongoing basis. The Bank has undertaken the changes in policy of credit risk management, credit risk administration and credit monitoring and recovery in line with the guidelines of Bangladesh Bank, formulated in the last year.

Recently Bangladesh Bank has issued a circular that any Bank can disburse loan upto 25% of its total capital to a single customer. It actually encourages syndicated financing. Because textile/spinning/glass factory and dyeing factory etc are capital intensive and requires a lot of fund. That’s why for the last several years Prime bank achieved a landmark progress in syndication finance and arrange fund in the Rahmat Textiles Limited, Nasir Glass Industries Limited, H.P. Chemicals Limited, Appollo Ispat Complex Limited etc.

List of companies and amount in which Prime Bank acts as Lead Arranger in case of Syndication Arrangement of Loans:


Name of the Project Amount FinancedK.D.S. Textile Mills Limited Tk. 900.00 lac

Rahmat Textile Mills Limited Tk. 1300.00 lacMir Ceramics Limited Tk. 2800.00 lac

H.P. Chemicals Limited Tk. 3300.00 lacNasir Galss Industries Limited Tk. 10000.00 lac

Confidence Salt Limited Tk. 3200.00 lacColor Master Limited Tk. 2300.00 lac

Popular Pharmaceuticals Limited Tk. 3900.00 lacC.M.C. Tk. 11300.00 lac

Korea South-South Co-operation Corporation Tk. 2500.00 lac

The living standard of the middle-class is increasing. As a result, amount of Consumer Credit loan increased with the increase of the buying power.Stage in life cycle: The banking industry in Bangladesh is in growth stage of the business life cycle.The drivers of change in the Industry and impact thereon:

Product innovationFinancial product innovation can shake the structure of competition by broadening the industry’s customer base, and widening the degree of product differentiation among rival banks. Successful new product introductions strengthen the market position of the innovating banks, usually at the expense of companies who stick with their old products or are slow to follow with their own version of the new product.

Service innovationService innovation is a great driving force in banking industry, because all the banks exert their best efforts to win customers by innovating new services. That’s why innovation of superior service will place a bank in competitive position in the industry. Changes in Cost and EfficiencyWidening or shrinking differences in the costs and efficiency among key competitors tends to dramatically alter the state of competition. Especially in the face of threat from new private banks, older banks are hard-pressed to achieve highest point of efficiency resulting in lowest cost.


Regulatory Influences and Government Policy ChangesRegulatory and government actions can often force significant changes in banking industry’s practices and strategic approaches, as it is a highly regulated industry. Bangladesh Bank, the central bank of the country time to time issues different orders to the commercial banks to protect greater public interest, but it may have detrimental effects on individual bank’s operations.

Technological ChangeAdvances in technology can broaden an industry’s landscape, making it possible to produce new and /or better products at lower cost and opening up whole new industry frontier. Modern technology helped development of some attractive electronic banking products like ATM, Phone Banking, Credit Card, Electronic Fund Transfer (EFT), SWIFT, etc. With the progress of information technology we have observed the introduction of new digital financial products. This trend will continue with the improvement in Telecommunication technology. In the near future, the banking industry in Bangladesh is yet to render the services offered by the latest technology, namely, the I-Banking or Internet-Banking.

Companies in a strongest and weakest position:


Which Bank are in a strong position and which is in a weakest position or to know the strategic position of Prime Bank limited we have to look into the following strategic group map:

In Banking industry, nationalized commercial Banks are the market leaders. But due to their poor, time consuming service and their image they are in very bad position in context of the business or earning revenue. But Governmental Banks has a very good reputation in context of the security or safety. Everyone thinks that to deposit money into Governmental Bank is safe. That means acceptability of the nationalized commercial Banks are high. In case of Foreign Banks they have acceptability and are earning very good revenue.


DUTCH BANGLABANK

PRIMEBANK

LIMITED

SONALI

JANATA

SCBHSBC

DHAKABANK

CAMEL RATING

ACCEPTABILITY

From the strategic group map it is very clear that Prime Bank’s close competitors are Dhaka Bank and the Foreign Banks.


SCB

PRIMEBANK

LIMITED

SONALIBANK

DHAKABANK

BUSINESS NETWORK

ROE

RECOMMENDATION

In credit management, it is conventional that proposals of credit facilities must be supported by a complete analysis of the proposed credit. More importance should be given on refund of loans out of funds generated by the borrower from their business activities (cash flow) instead of realization of money by disposing of the securities held against the advance, which is very much uncertain in present context of Bangladesh, where a number of creditors are willful defaulters.

Credit officer measures the risk associated with the credit facility. He should not be liberal in this respect; he should strictly follow the credit evaluation principle setup by the bank. The analysis should contain information about the borrower, credit purpose, credit repayment sources, details of collateral security with valuation and guarantee. It should also contain an assessment of the competence and quality of the borrower's management ability, the general economic and competitive environment of the borrowers industry and other pertinent factors, which may affect the borrower's ability to repay the facility, should be given much importance. It should improve in file management system to faster the dealings with the client's proposal.

1. Using the five force model the client must be appraised to identify the what is the competition like and how strong each of the competitive forces are on the business of the client where the following things must be highlighted;

The rivalry among the competitor The potential entry of new competitors-interms of economies of scale,

technological Know-how, Experience curve effect, resources requirements, access to the distribution network.

Bargaining power of the buyer Suppliers’ influences and bargaining power over the business of the client. Potentiality of the substitute products.

2. Product comparison should be done between competitors in terms of Characteristic, Price, packaging, Ingredients, Unique selling Proposition (in case of services what they are offering quality of the service analysis)

3. As it has been observed that, there are some inconsistency in post approval and pre-approval monitoring. Most of the clients don’t submit the stock report, monthly statements, and overall stage report in case of large project. To reduce the difficulties in project implementation and supervision and monitoring following clue can be implemented.


A time budget for the project to be implemented with mentioning the exact time of beginning and ending must be collected. So that time over-run while project completion can be avoided.

For reducing the cost problem the credit officer must look for whether the construction be given contract and turn-key basis.

Disbursement of fund procedure must be improved –the credit officer must become sure that the funds are going to the project it is sanctioned. There must be a credit officer assigned to the project and he will be responsible for completing the “Stage Completion Report Form” which will mainly deal with the details of the cost incurred in the previous period. And percentage of project work completed. Justification whether the portion of the project works are completed in time. The management must introduce project progress reporting form for better disbursement procedure.

Most of the time the client doesn’t channel their proceeds through the accounts with the prime bank though they supposed to. Revenue Cascade and hierarchy of payment must be maintain to ensure that the installments are in time in right amount as there is a potentiality that the client will default.

The risk that can be arise while implementation of the project must be analyzed and mitigated through the perfect risk taker. Different types of risk that can be arise are

Table: Project Risk and MitigationRisk Result Features to be checkedConstruction Risk Incomplete project Date certain completion

contract, cost, performance of the contractor

Construction delayCost overrun

Operation and Market Risks Late Supply of the input. Management ability Lower Equipment

performance Force Majeure (Acts of good)

Suppliers reliability and influence

Equipment warranty and guarantee.

Insurance for the force majeure.

Credit Risk Failure to pay the debt in time

Insufficient Cash flow

Prospect of the goods or services to be produced.

Buyers payments habit & creditworthiness.

Legal risks Insufficient collateral value to pay the debt.

Proper valuation of the collateral and lending


Banks’ take-over problem in case of default.

amount must be lower than the forced sale value.

Bank’s power to participate in the management meeting and analyzing and suggestion.

The assignment system to supervise and monitor the loan account can reduce the default tendency. If each credit officer are assigned certain amount of client for close contract and supervision-there will be good relation with the clients and the recovery will be in time.

4. PBL has a great image as they have already achieved first position in CAMEL rating consecutively for three years. Using this reputation they should be more service oriented by implementing any branch services, Tele banking and introducing more new product.

5. The management of PBL may invest more in interest sensitive asset by taking deposit of short term and lend for long to reduce gap between its interest rate sensitive assets and interest rate sensitive liabilities.

6. Proper communication regarding the products and services of the bank should be enforced. As a result confusions will be minimized and customer satisfaction will enhance.

7. The HRD should look into the matter that the branches are well staffed with the right people in the right position.

8. Complaint Management: PBL should actively manage the complaints of various customers and encourage customers to give feedback about the services. The management should collect, document complaints, use that information to identify dissatisfied customers, correct individual problems where possible and identify common service failure points. Research showed that this strategy will radically improve the overall customer satisfaction.

9. Focus On Relationship Strategies: The bank should focus more on existing customers in order to build strong and loyal relationship with them as most satisfied customers recommends the bank to friends and relatives. Thus the power of relationship will foster positive Word of Mouth Communication and will attract new customers at a lower cost.

10. Employee Trainings: Employee trainings and workshops should be administered in order to give them knowledge and professionalism in customer interactions. With a more professional base, employees can better satisfy the customers. They should be taught about how to deal with problem customers and problematic situations. The survey showed significantly low scores for employee’s willingness to help. Thus this aspect should be considered.

IMPLEMENTATION PLANA strategy becomes successful only after its meaningful implementation. Crafting strategy is a


difficult task but successful strategy implementation is demanding. Following are the implementation plan to avoid failure.

Strategy implementation process should be two way not one way or directive. Every body should be involved in strategy formulation. Suggestion should be welcome. Low-level employee should take part by giving their suggestion from partially gathered knowledge and experience.

PBL can take some marketing officer and an Executive in marketing division who has some experience regarding Bank product marketing.

Managing Director can implement open door management. Once in a week every one is allowed to meet him and discussed with different issues regarding Bank’s Implement.

Internal Audit Department should be more supportive to be aware from any unethical practices.

To improve Banks official’s productivity and skill, better training and monthly incentives program can be taken.

CONTINGENCY PLAN

Everybody should be involved in strategy formulation may not be work well. So before that it is need to develop the organizational culture on that way through training and participative meeting in branch level. As managing Director is the top person, employee may not be participative to discuss with him directly. So in Branch level, Branch Managers can do this thing and letter they can discuss the same thing in monthly meeting with Managing Director and each Branch manager and all top executive can share the idea. Rotation of potential employee is needed to make him/her an essential and knowledgeable employee who can work for the Bank effectively and efficiently later on.


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