1.

1 Origin Of the Report:

As a qualification of obtaining Bachelor of Business Administration (BBA) degree,

every student has to go through an internship Program. The main reason of this course
is to experience the reality of the corporate life and relate it with the knowledge get
from academic curriculum with practical situation. This course is taken as a three
months program which creates opportunities for every student to work in an
organization where they work different working environment and gather practical
knowledge. It is a great pleasure for me to submit the Internship Report on “Analysis
of Credit Risk Management of LankaBangla Finance Limited”

1.2 Objectives of the Report:

The objectives of the report are divided in two parts one is primary objectives and
another one is secondary objectives.

1.2.1 Primary Objectives:

The primary objective of this report is to prepare a report on “Analysis of Credit Risk
Management of LankaBangla Finance Limited.” as the partial requirement of BBA
program, Dhaka City College under National University

1.2.2 Secondary Objectives:

The study was conducted to achieve the following secondary objectives-

 To present an overview of LankaBangla Finance Limited.

 To know about the overall general financing system of LBFL.
 To present the overall performance analysis of LankaBangla Finance Limited.
 To know the loan products and loan sanctioning procedures of LBFL.
 To find out the problems, related to Loans & Advances.
 To know how to open a deposit account and maintain it.
 To know the present situation and growth of the division.
 To suggest measures for the development of LankaBangla Finance Limited.

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1.3 Methodology of the Report:
Methodology is the most important component in any study proposal since it explains
the procedures and methods through which a particular study will be carried out. This
includes discussion on data requirements, sample selection, data analysis, limitations
etc.

Data Sources:
I have followed two kind of methodology for the arrangement of the report. The two
ways in which I have collected information:

 Primary Data
I have collected this data with the help of company supervisor, also discuss with the
team of Customer Service Officer (CSO), Customer Service Manager (CSM) and
Branch Division Manager (BDM). The another way to collect information’s are-

 Face to face conversation with the institutions officers and staffs.

 Direct conversation with the client.
 Study of different files of different section of the institution.
 Questioning with concerned person (Officers & Employee)
 Practical deskwork.

 Secondary Data
Secondary data was collected from-

 Annual report of LankaBangla Finance Limited

 Unpublished data from the organization
 Going through the websites.
 Official websites
 Research paper
 Periodical, Different books, journals and newspapers.

Data Processing & Analysis Method:

 Using M/S Word & Excel, data analysis has been done
 Using Sampling Procedures & Sample Size, data analysis has been done.

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1.4 Scope of the Report
LankaBangla Finance Limited is one of the leading NBFIs in Bangladesh. The report
covers the organizational structure, background, objectives, functions & products and
the credit risk appraisal procedure and its application in the company. The report also
covers an overview of LankaBangla Finance Limited with its Loan procedure, types of
loan, identification of problems regarding loan, credit appraisal division & its functions,
credit risk management evaluation procedure in LankaBangla Finance Ltd. The Scope
of the study is limited of LankaBangla Finance Ltd, Motijheel branch only.

1.5 Limitations of the Report

There are some limitations of the report and therefore it may lack some crucial data. In
preparing the report I faced some problems which are as follows:

 The main constrain of the study was insufficiency of information, which

was required for the study. There are various information the company’s
employee can’t provide due to security and other corporate obligations.
 Due to time limitation many of the aspects could not be discussed in the
present report. Learning all the functions within just 90 days is really tough.
 Since the company’s personnel were very busy, they could not provide
enough time.
 Lack of opportunity to have conversation with higher authority.

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2.1 Introduction of the Company:

LankaBangla Finance Limited started its journey long back in 1997 as a joint-venture
financial institution with multinational collaboration having license from Bangladesh
Bank under Financial Institution Act-1993. Now LankaBangla is the country’s leading
provider of integrated financial services including corporate financial services, retail
financial services, SME financial services, stock broking, corporate advisory and
wealth management services. Under the broadest umbrella of products and service
offerings, we are the lone financial institution to operate credit card (MasterCard and
VISA Card) and also provide third party card processing services to different banks in
Bangladesh. LankaBangla is a primary dealer of government securities since November
2009. Since 2006 LankaBangla has been listed in both DSE & CSE in Bangladesh.

2.2 Background of the Company

LankaBangla Finance Limited (LBFL) is a joint venture financial institution having

sponsor shareholder from Bangladesh, Sri lanka and Singapore. It started its operations
in Bangladesh as “Vanik Bangladesh Limited (VBL)” as a multi-product financing
company in 1997 under the Financial Institutions Act-1993.

VBL was established through collaboration between Vanik Incorporation Limited, a

leading financial institution of Sri Lanka and some foremost Bangladeshi
entrepreneurs. Within a few years VBL has marked its strong presence in the leasing,
credit card and corporate finance sector.

In 2003, the company entered into a new dimension with fresh equity investments from
Sampath Bank Limited, one of the leading commercial banks of Sri Lanka and the then
Chinkara Capital Limited (now First Gulf Asia Holdings Limited), a Singapore based
multi-faceted asset management and investment banking company with investments
throughout ASEAN, South Korea and the Middle East and Europe. This investment
doubled the paid up capital of the company and helped it to expand its operations
tremendously. The trend continued in the following years and in 2004 One Bank
Limited became equity partner. Thus the total paid up capital rose to Tk. 260 million in
early 2005 from Tk. 100 million in 1998.

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In order to reflect the ongoing changes in ownership and operations, the company was
renamed as ‘LankaBangla Finance Limited’ in May 2005 with a commitment to
contribute more in building up a robust financial sector in the country.

In August 2006, the Company offered shares to the general public amounting Tk. 90
million through IPO. With this raise the paid up capital of the Company will reach Tk.
350 million. Some major milestones of the company are listed below –

Our Journey so far

22 years of achieving and sustaining excellence

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Figure 1: Major Milestones

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2.3 Shareholder Structures

The shareholding structure of LBFL consists of Commercial Banks, Investment Bank, Corporate
& prominent Industrialists from home & abroad. The current structure is:

Table1: Shareholder Structures

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2.4 Vision of the Company

To be the most preferred financial service provider in creating, nurturing and

maximizing value to the stakeholders, thereby, growing together.

2.5 Mission of the Company

 Be a growth partner for our customer, ensuring financing and superior
experience
 Maintain a culture of meritocracy in the DNA of the company
 Be sustainable and ensure quality returns to our valued shareholders
 Uphold efforts to develop our community

2.6 Focus:

 To be the most sought after facilitator in creating wealth.

 To optimize the value of being their customer, shareholder or employee.
 To establish strong regional presence

2.7 Core Values

 Cherish a sense of ownership

 Be customer centric
 Grow a team
 Act with integrity & professionalism
 Deal with respect

2.8 Corporate Goals

 To exceed customer expectations through innovative financial products and

servicer.
 To establish a strong regional presence.
 To recognize shareholders expectations and optimize their reward.

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2.9 Divisions of LBFL:

All policy formulations and subsequent execution are done in the Head Office. It
comprises of 10 (ten) major divisions namely Treasury Division, Credit & Investment
Division, Accounts Division, Human Resources Division, Marketing Division, Credit
Administration Division, Information Technology Division, Research and
Development Division, Audit and Compliance Division, Training and Development
Division. Besides these main divisions, there are 27(seven) branches including Dhaka,
Chittagong and Sylhet branches to look after the non-banking operations. The structures
and sanctions of each of the divisions of LBFL are described below:

Treasury Division
Credit & Investment Division
Accounts Division
Human Resources Division
Marketing Division
Credit Administration Division
Information Technology Division
Research and Development Division
Audit and Compliance Division
Training and Development Division

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2.10 Branches of LBFL:

Figure 2: Branches of LBFL

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2.11 Corporate Social Responsibility

The socio-economic interpretation states that the existence of every organization is to

fulfill the social obligations. We generate financial value to reward our stakeholders.
Profit maximization is not our only goal. LankaBangla has profound commitments
towards the society particularly to those who are most disadvantaged and vulnerable.
With a view to execute the Company’s Corporate Social Responsibility (CSR) activities
LB Foundation (a non-profit organization of LankaBangla) was formed in 2008. The
Fund provides the base for our CSR activities. Every year LankaBangla Finance
Limited adds up 1.00% of its post-tax profit to the Fund. The fund balance at the end
of 2015 stood at Tk.14.96 million. The Company’s CSR strategy is aimed at fostering
self-reliance, independence and creativity among the most disadvantaged people.

2.12 Corporate Culture

LBFL is one of the most disciplined NBFI with a distinctive corporate culture. In this
company, it believes in shared meaning, shared understanding and shared sense
making. The people of the company can see and understand events, activities, objects
and situation in a distinctive way. They mould their manners and etiquette, character
individually to suit the purpose of the company and the needs of the customers who are
of paramount importance to them. The people in the FI see themselves as a tight knit
team/family that believes in working together for growth. The corporate culture they
belong has not been imposed; it has rather been achieved through their corporate
culture.

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2.13 LBFL Products and Services

Figure 3: Product Portfolio of LankaBangla Finance

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2.14 Operations and Company Analysis

Operational Areas of LBFL:

The mainstream (revenue generating) divisions of the organization are Credit &
Investment Division (CID), Credit Card Division, Merchant Banking Division (MBD),
and Stock Brokerage Service Division (though its subsidiary – LankaBangla Securities
Limited. LBFL mainly operates in the following areas:-

Lease &
Loan

Treasury
Credit Card
Operations

Lanka
Bangla
Finance
Stock
Corporate
Brokerage
Finance
Service

Merchant
Banking

Figure 4: Operational Areas of LBFL

Lease & Loan

The company started its leasing operations in March 1998. Initially the focus was only
on Lease for purchase of machinery, equipment needed for new project establishment,
expansion, replacement, and modernization of business, and Sale & Leaseback
facilities. Gradually product range has been increased to include Medium Term Loan,
Short-Term loan for corporate houses and Car Lease for Individuals (professionals &
businessman), SME Loan, factoring etc.

Credit Card

LBFL started its Credit Card Operations with its own brand ‘Vanik’ during the year
1998. LBFL (then VBL) is the only company among the Non-Banking Financial
Institutions (NBFI’s) to launch the first indigenous credit card. Since then customer
base has exceeded 15,000 and merchant (shops, hotels etc. who accepts credit card)
base is over 2,800.

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Credit Card Department of LBFL provides two types of Credit Cards:

Gold Credit Card

Classic Credit Card.

The distinguishing features for these two Cards basically lie in the salary or income
group. The minimum fixed monthly income expected for Classic Cardholder is Tk
20,000 or Security Deposit of Tk 60,000. And for a Gold Cardholder is Tk 60,000 fixed
monthly income or a Security Deposit of Tk 150,000. Credit card operations were
expanded to Chittagong & Cox’s Bazar in 2003. In September 2005, the Company
started issuing MasterCard Credit Card, an internationally reputed brand Credit Card
with more features and benefits to the customers.
Credit Card offered by LBFL, an indigenous domestic credit card has got technical
back up from Golden Key Credit Card Company of Sri Lanka. The product is unique
to other international cards in many respects. They can streamline product attributes
anytime to suit the requirements of the customers.

Corporate Finance

Corporate Finance is another key business of LBFL. The activities of the Corporate
Finance department concentrate on offering the following services:

 Mergers and Acquisition Activities

 Financial Restructuring

 Syndication of Loans

 Placement of Equity Capital And Debt Instruments

 Venture Capital Financing

 Financial and Corporate Advisory Services

The legacy of LBFL is rich with participation in financing projects having social
commitments both in service and manufacturing sector

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 Merchant Banking

The Merchant Banking license from Securities & Exchange Commission (SEC) was
obtained in 1998. Underwriting of Initial Public Offering (IPOs), active participation
as Issue and Portfolio Manager to important issues to be floated will continue to be
intensified. Some of the landmark issues successfully managed are the IPO and Right
Issue of Dhaka Bank Limited and Al-Arafah Islami Bank Limited including
underwriting a number of issues namely Daffodil Computers Limited, Bank Asia
Limited, and EXIM Bank Limited etc.

Stock Brokerage Service

LBFL has inherited a resourceful subsidiary stock Brokerage Company which is one
of the leading Brokerage House in Dhaka Stock Exchange (DSE) and Chittagong Stock
Exchange (CSE). It is also the authorized broker for internationally reputed fund
managers.

Treasury Operations

Treasury operations are carried out by Treasury Department Current funding sources
of LankaBangla consist of 5 instruments, which are as follows:

 Term loan (long term/ short term/ placement0

 Term deposit

 Overnight borrowing (call loan)

 Overdraft facility (secured/unsecured)

 Lease deposit

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2.15 SWOT Analysis

Figure 5: Swot Analysis

Strength

Experienced top tier management supported by strong mid and front-tier personnel. It
has a good corporate governance practices. They maintain:

 Attractive and stable operating environment promoting employee development.

 LBFL has a good capital strength and parental support with institutional
shareholding, support from home and abroad
 It is utilizing credit line facilities of a good number of reputed commercial banks
and non-banking financial institutions as their source of fund.
 Risk management lies at the core of any financial institution. LBFL has
commissioned a separate credit committee which mitigates risk as well as
monitors asset-liability mismatches on a regular basis.
 LBFL has an exclusively diversified and innovative operations in different
service areas. Product innovation is a major strength it and apart from providing
better service LBFL constantly thrives to innovate and introduce new products.
 Country’s largest brokerage house, LankaBangla securities Ltd .is the lone
subsidiary of the company.
 The subsidiary is making significant money each year.

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  LBFL has a separate IT department which is maintaining sophisticated IT
infrastructure. It is using two software “FIntelligent” and “Tally” which are
integrated accounting and lease/loan software. The company has also introduce
the internal control system

Weaknesses
 Relatively higher administrative expenses compared to similar NBFIs.
 High turnover ratio of employees.
 Higher level of financial risk

Opportunity

 Since banks focuses on trade finance and short term financing, there is still gap
long term financing. LBFL has enough opportunity to prosper

 Term deposit scheme provided by LBFL is very attractive as it gives very high
interest to the clients. If proper marketing is carried out to make it more
attractive to people, it will be very good source of their fund.

Threats

 LBFL‘s operations are governed by the charges in regulation that occur from
time to time. Ceiling in the call money market participation and interest rate
fluctuation may affect the company to a large extent

 Few banks are providing leasing services. If more and more banks start lease
financing the market for NBFIs will get distorted as banks have lower cost of
fund. As a non-bank financial institute, LBFL is prone to this risk.

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2.16 Organogram of LankaBangla Finance

Figure 6: Organogram Chart

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2.17 Board of Directors

SL No. Name of Director Designation

1 Mr. Mohammad A. Moyeen Chairman
2 Mr. I.W Swnenayake Director
(Representing Sampath Bank PLc)
3 Mr. Nanda Fernando Director
(Representing Sampath Bank PLc)
4 Mr. Mahbubul Anam Director
5 Mr. M. Fakhrul Alam Director
6 Mr. Tahsinul Haque Director
7 Mrs. Aneesha Mahial Kundanmal Director
8 Mrs. Zaitun Sayef Independent Director
9 Mr. Abdul Malek Shamsher Independent Director
10 Mr. Khwaja Shahriar Managing Director & CEO

Table 2: Board of Directors

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2.18 Managing Director

Managing Director Designation

Khwaja Shahriar Managing Director & CEO
A. K. M. Kamruzzaman, FCMA Head of Operations
Khurshed Alam Head of Personal Financial Services
Quamrul Islam Head of Treasury & FI
Mohammed Kamrul Hasan, FCA Chief Risk Officer
Mostafa Kamal, FCA Group Company Secretary
Kazi Masum Rashed Head of Branch Distribution &
Management
Mohammad Shoaib Head of Corporate Financial Services
Shamim Al Mamun, FCA Chief Financial Officer
Md. Kamruzzaman Khan Head of SME
Mohammad Faruk Ahmed Bhuya Head of Asset Operations
Sheik Mohammad Fuad Head of ICT
Mohammad Nazmul Hasan Tipu, Chief Credit Officer
CFA
Mohammad Hafiz Al Ahad Head of Human Resource
Ummay Habiba Sharmin Head of Legal Affairs
Muhammad Habib Haider Head of GIS

Table 3: Managing Director

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2.19 Corporate Profile

Name of the company LankaBangla Finance Limited

Legal form Public Limited Company
Date of Incorporation 5 November, 1996
Date of Commencement 5 November, 1996
Licensed as Financial Institution by Bangladesh 30th October, 1997
Bank
Local Shareholders 24.09%
Foreign Shareholders 9.47%
General Shareholders 66.44%
IPO 6 August, 2006
Listing with DSE 17 October, 2006
Listing with CSE 31 October 2006
Trading of Share in Stock Exchanges 1 November, 2006
Authorized Capital Tk. 1000 million
Paid-up Capital Tk. 5000 million
Term Deposits Tk. 53,231 million
Licensed as Primary Dealer 23rd November, 2009
Number of Branches 27
Number of Shareholders 513179641

Table 4: Corporate Profile

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2.20 Financial Highlights of Lanka Bangla

Particulars Amount In Taka

31.12.2018 31.12.2017
PROPERTY AND ASSETS 1,001,794,766 1,155,072,909
Cash 670,916 319,207
Cash in hand (including foreign currencies) 1,001,123,850 1,154,753,702

Balance with Bangladesh Bank and its agent banks 6,706,544,902 6,867,656,341
Balance with other banks and financial institutions 6,706,544,902 6,867,656,341
Inside Bangladesh - -
Outside Bangladesh - -
Money at call and short notice 2,409,307,374 2,127,660,042
Investment - -
Government securities 2,409,307,374 2,127,660,042
Other investments 63,784,580,057 61,913,587,489
Leases, loans and advances 63,784,580,057 61,913,587,489
Loans, cash credit and overdraft etc. - -
Bills discounted and purchased Fixed assets including 1,357,931,214 1,113,752,226
land, building, furniture and fixtures
Other assets 5,407,983,420 5,069,877,203
Non-Banking assets - -
Total Property and Assets 80,668,141,733 78,247,606,210
LIABILITY AND SHAREHOLDERS' EQUITY
Liabilities
Borrowings from BB, other banks and FI 12,639,198,866 15,061,790,454
Deposits and other accounts 53,425,834,494 51,675,158,138
Current deposits and other accounts - -
Bills payable - -
Savings bank deposits - -
Term deposits 53,252,420,679 51,552,816,766
Bearer certificate of deposits 173,413,815 122,341,372
Other deposits 5,558,400,989 4,242,851,226
TOTAL LIABILITIES 71,623,434,349 70,979,799,818

Shareholders' Equity 9,044,707,384 7,267,806,392

Paid up capital 5,131,796,410 3,182,509,410
Share money deposit for right issue - 160,307,660
Statutory reserve 1,615,433,347 1,472,602,021
Retained earnings 2,297,477,627 2,452,387,301
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 80,668,141,733 78,247,606,210

Table 5: Financial Highlights of Lanka Bangla

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2.21 Operational Performance

Amount In Taka
31.12.2018 31.12.2017
Operating Income187
Interest income 8,567,125,131 6,623,172,217
Less : Interest expenses on deposits & borrowings 6,189,678,453 4,542,057,908
Net interest income 2,377,446,678 2,081,114,310
Income from investment 111,324,841 629,295,121
Commission, exchange and brokerage income - -
Other operational income 554,527,453 566,516,751
Total operating income 3,043,298,972 3,276,926,181
Operating Expenses
Salary and allowances 871,504,067 795,440,906
Rent, taxes, insurance, electricity etc. 177,946,355 151,537,075
Legal and professional fees 20,969,653 30,932,570
Postage, stamp, telecommunication etc. 19,791,839 22,355,446
Stationery, printing, advertisement 38,421,114 52,134,306
Managing director's salary and allowance 15,479,000 10,726,667
Director fees and expenses 642,800 752,000
Audit fees 575,000 575,000
Repairs, maintenance and depreciation 149,886,801 131,206,897
Other expenses 454,865,475 438,343,936
Total operating expenses 1,750,082,104 1,634,004,803
Net Operating Income 1,293,216,868 1,642,921,379
Provisions for loans, investments and other assets 477,483,902 245,531,162
Provisions for leases and loans 368,767,746 248,441,162
Provision for diminution in value of investments 108,016,156 -
General provision for other assets 700,000 (2,910,000)
Profit before tax and reserve 815,732,966 1,397,390,217
Provision for tax 101,576,334 44,599,710
Current tax 101,576,334 44,599,710
Deferred tax - -
Net profit after tax 714,156,632 1,352,790,507
Appropriations 142,831,326 270,558,101
Statutory reserve 142,831,326 270,558,101
General reserve - -
Retained surplus 571,325,305 1,082,232,406

Table 6: Operational Performance

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3.1 Risk
Risk is the potential that a chosen action or activity (including the choice of inaction)
will lead a loss (an undesirable outcome). The notion implies that a choice having an
influence on the outcome (or existed). Potential losses themselves may also be called
“risk”.
Risk can be seen as relating to the probability of uncertain future events. The chance of
investments actual return will be different than expected. Risk includes the possibility
of losing some or all of the original investments. Different version of risk is usually
measured by calculating the standard deviation of the historical returns or average
returns of a specific investment. High standard deviations indicate a high degree of risk.
A fundamental idea in finance is the relationship between risk and return. The greater
the amount of risk that an investor willing to take on, the greater the potential return.
The reason for this is that investors need to be compensated for taking on additional
risk.

3.2 Sources of risk of LBFL

The Board of Directors has overall responsibility for the establishment and oversight of
the Company's risk management framework. The Company's risk management policies
are established to identify and analyze the risks faced by the Company, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk
management policies, procedures and systems are reviewed regularly to reflect changes
in market conditions and the Company's activities. The company has exposure to the
following risks from its use of financial instruments:

 Credit risk
 Liquidity risk

 Market risk.

 Operational risks

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 Credit Risk
Credit risk is a risk due to uncertainty in counterparty’s ability to meet its obligation.
There are many types of counterparty’s obligations ranging from individuals to
sovereign governments. Risk is inherent in all aspects of commercial operation.
However for banks and financial institution, credit risk is an essential factor that needs
to be managed. Credit risk is the possibility that a borrower counter party will fail to
meet its obligations in accordance with agreed terms. Credit risk, therefore, arises
from the banks dealing with or lending to corporate, individuals and other banks or
financial institutions. Credit risk is the risk of a financial loss to the Company if a
customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the company's receivables from customers.
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a
financial instrument fails to meet its contractual obligations, and arises principally from
the Group’s loans and advances to customers and other banks. For risk management
reporting purposes, the Group considers and consolidates all elements of credit risk
exposure (such as individual obligor default risk and sector risk).

Liquidity risk
Liquidity risk is the risk that the company will not be able to meet its financial
obligations as they fall due. The Company's approach to managing liquidity (cash and
cash equivalents) is to ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Company's reputation.
Typically, the Company ensures that it has sufficient cash and cash equivalents to meet
expected operational expenses, including financial obligations through preparation of
the cash flow forecast, prepared based on time line of payment of the financial
obligation and accordingly arrange for sufficient liquidity/ fund to make the expected
payment within due date

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 Market risk
Market risk is the risk that changes in market prices, such as interest rates, share prices
and credit spreads will affect the Group’s income or the value of its holdings of financial
instruments. The objective of the Group’s market risk management is to manage and
control market risk exposures within acceptable parameters in order to ensure the
Group’s solvency while optimizing the return on risk.

Operational risks
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes
associated with the Group’s processes, personnel, technology and infrastructure, and
from external factors other than credit, market and liquidity risks, such as those arising
from legal and regulatory requirements and generally accepted standards of corporate
behavior. Operational risks arise from all of the Group’s operations.

3.3 Credit Risk Management

Credit Risk is the risk of not being able to recover loans and other exposure owing to
deterioration in the business condition and other circumstances of counterparties in
transactions. The main task of the Credit Risk Management Department is to reduce
this risk that arises. Good risk management capabilities are essential for the success of
a financial institution. The recent controversies of Basic Bank, Sonali Bank and Agrani
Bank pointed out the outcome of not having a strong and fair lending policy and credit
risk management principles. If this process is not done fairly, then many problems
occur. Credit risk is the major portion of the total risk. So credit risk management is a
crucial issue of risk management and an essential to the long-term success of any
banking organization. The institution’s goal for credit risk management is to maximize
risk-adjusted rate of return by maintaining credit risk exposure within acceptable
parameters. So, the management has adopted appropriate policy, procedures and
methods to manage the credit risk inherent in the entire portfolio as well as the risk in
individual credits or transactions. The management also considers the relationship
between credit risk and other risks. The problems that occur when the risk analysis is
done wrongfully are:
1. Loss of Reputation
2. Risk of losing operating license.
3. Actions taken against the institution by Bangladesh Bank.
4. Losing potential shareholders.
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This topic is important for research because LankaBangla Finance operates in the
market segment that is highly saturated by other NBFI’s And Banks. In this highly
competitive market, the NBFI’s not only have to compete between themselves, but also
with the existing banks. So, in order to stay ahead in the market, some institutions lend
out to borrowers without fully analyzing the risk which sometimes may bring profit,
but most of the time it results in Non-Performing loans (NPL). Resolving these issues
and coming up with a good and sound CRM policy is the key to success for an NBFI.
The impact of resolving these problems will establish the institution’s reputation and
ensure return on loans. The guidelines of the CRM department and their work process
will ensure their success.

3.4 Principles of credit Risk management

The management of credit risk is essential to a sound credit management process, the
basic principles a bank has to follow in its credit risk management are:

 Background, Character and ability of the borrowers

 Purpose of the facility
 Term of facility
 Safety and Security
 Profitability
 Source of repayment

 Diversity of loan portfolio

3.5 Tools used in Credit Risk Management

The quality of the credit portfolio of banks depends to large extent on the quality of its
borrower. To judge the quality of a borrower the bank’s takes into consideration the
following:
a) Character: It refers to the willingness of the customers to pay.
b) Capacity: The customer’s ability to meet credit obligations.
c) Capital: The customer’s financial reserves
d) Collateral: Adequate net worth to support for the loan
e) Conditions (economic) recent trends in borrower line of credit
f) Compliance (law & regulations)

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3.6 Factoring

As the business grows, so does one need for working capital. Healthy companies need
cash for the following purpose:-

 To finance expansion
 To fund stocks
 To meet overheads/ salaries

LankaBangla specializes in providing businesses with instant cash through the purchase
of accounts receivable or debts outstanding which a financing technique is known as
Factoring. Factoring moves a business’s cash flow forward creating immediate cash to
improve its financial position and increase its purchasing power. Thereby, it provides
the business with the economic strength to expand production, increase sales and
profits. Factoring is a comprehensive sales ledger service incorporating:-

 Credit Advice
 Credit Control
 Generation of Statements & Reminders to Debtors
 Collection of Cash and Cheques
 Providing Cash in Advance of Collections and
 Providing Relevant Data to the Client on the Up-To-Date Status

Factoring is gaining recognition as a source of short-term finance worldwide. Factoring

is a service designed by LBFL to improve a business’s cash flow position by turning its
sales into ready cash. LankaBangla provides factoring with recourse to the client. We
currently offer only domestic factoring facilities, where the client, its debtors and the
factoring company are all in the same country and a single local currency is used in all
transactions. In a graphical presentation the factoring process is as follows:-

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 Figure 7: Factoring
3.7 Major Functions

The major functions of Credit and Investment Division:

Marketing
Credit implementation
Credit administration

Marketing function
The marketing function of Credit and Investment Division starts from making
promotional offer to the probable borrower, proposal collection, making appraisal
report on applicants, interpreting income up to approval for lease & loan.LBFL follows
well-structured credit appraisal and approval process for its lease and loan division.

Credit implementation
The credit implementation functions include documentation of lease agreement and
disbursement of credit amount. Disbursement takes place only after doe approval and
when the documentation is fully completed.

Credit administration
The credit administration function is mainly monitoring and recovery of lease amount.
It has credit risk committee to monitor credit administration. Recently the credit
administration function has been delegated to a complementary wing of CID which is
known as CAD or Credit Administration Division.

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3.8 Types of Credit Facilities

Lease

Lease Financing Activities are carried out by Credit and Invest Department. Services
of the Credit and Investment Department can be categorized into the following:

Services of the Credit and Investment

Department

Sale and
Lease Car Lease
Lease Back

Figure 8: Types of Credit Facilities

a) Operating & Capital Lease

Lease, in simpler words, means renting an asset in exchange of regular lease rentals for
a specified period of time. Leasing is a contract between a Lessor (the asset lender) and
a Lessee (borrower of the asset), for hire of a specific asset. The Lessee selects the asset
according to his requirement and the supplier. If found acceptable, the Lessor procures
that asset and rents it to the Lessee. The supplier of the asset is paid directly by the
Lessor. The ownership of the asset lies with the Lessor. The Lessee has possession of
the asset and uses that asset against payment of a fixed rental over the lease period to
the Lessor. At the end of the lease period the Lessee has the option to return the asset
to the Lessor or re-lease the asset for a further period or purchase the asset at a
predetermined nominal transfer price. In short, leasing is asset financing differing from
lending, which is cash financing.

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 i. Sale & Leaseback

Sale & Leaseback is a form of lease facility whereby an existing asset is purchased by
the Lessor from the Lessee, instead of a supplier, at an agreed upon price and the same
asset is leased to that Lessee. Thus the ownership of the asset is transferred from the
Lessee to the Lessor. The payment is made to the Lessee for purchase of the asset.
Through Sale & Leaseback the Lessee is provided with liquidity against his investment
in asset. This can also be called a form of cash financing.

ii. Car Lease

Car Lease is a separate product only to finance vehicles to individuals and
proprietorship concerns. This is a standard product with predetermined attributes,
which would not change depending on client

Loan

A financial institution has the chance to introduce a wide array of loan products. Loan
products are customized according to types, purpose and size of business. LBFL has a
number of loan schemes which get good responds from clients. The loan products are
as follows:-
a) Term Finance

LBFL provides Term Loan to medium and large corporate entities to meet their short,
medium & long term fund requirements for development of production facilities on
easy and flexible terms. Corporations need this type of financing mainly to procure
PPNE or to finance working capital for smooth running of operation. Term finance as
its name suggests differ only on tenure of loan. Loan for less than one year is short term,
loan less than five year is medium term and loan greater than five year is classified as
long term. Through market analysis interest rate for term finance varies between 11%
to 16%

b) Work order Finance

LankaBangla Finance Limited provide Loans to corporate entities to finance work
orders that they receive from private reputed companies, Government, multi-national
companies and defense authorities. In such cases we require that the payment to be
received from the contract be fully assigned in favor of LankaBangla which will then
facilitate direct payment of the receivables to LBFL when the work order is completed.

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Such financing will normally be for periods ranging from 6 months up to 1 year,
covering the provide requirement to complete the work order. Normally the financing
amount is decided on certain percentage of total work order for a particular time frame.

c) SME Loan

The full-fledged SME department of LBFL is a very new wing of it which started its
journey from 1st march 2010. There is no specific definition of SME loan. However the
loan products differ in terms of amount and time. SME loan is mainly provided to small
manufacturers, retail and wholesale traders, service companies which need small
amount of financing, agro based businesses, woman entrepreneurs etc. For SME loan
the loan amount ranges from 5 lac to 50 lac. To encourage small loans amount less than
10 lac is provided to the clients without any security. Amount greater than that is
financed with security like lien of inventories, business space etc. loan amount equal or
greater than 40 lac is normally financed with lien or mortgage of lands. For financing
mode normally CC hypothecation is preferred. The interest rate on SME loan varies
time to time. The range is 11% to 17%. There is a special safeguard feature in SME
financing which is known as Bangladesh Bank Refinancing Scheme. To encourage
SME sector Bangladesh Bank undertakes refinancing for some of the loans. Loan under
refinancing scheme has very small interest rate normally 9% to 10%.SME loan is
provided for 30 to 72 months. In providing this type of loan the selection criteria is
mainly profitability and Debt Burden Ratio (DBR) of the client. The permissible DBR
rate is 60%.

d) Auto Loan
Auto Loan is one of the popular schemes of LankaBangla. A vast number of individuals
and institutions have already availed the benefits of car loan scheme, which is very
simple and terms of the loan are also tailored to the needs of the borrower. We also
have number of well-known Car Show Rooms who have wide selection of Brand new
and reconditioned cars, from where cars can be purchased under our car loan scheme.
With our attractive car loan package, customers are able to repay the loan according to
their convenience.

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3.9 Risk Management in LankaBangla
We believe that sound risk management is essential to ensuring success in our risk-
taking activities. Our philosophy is to ensure risks and returns remain consistent with
our established risk appetite. To achieve this, we regularly refine our risk management
approaches to ensure we thoroughly understand the risks we are taking to identify any
emerging portfolio threats at an early stage, and to develop timely and appropriate risk
response strategies. The key elements of enterprise-wide risk management strategy are:

 Risk appetite – The Board of Directors approves the Company’s risk appetite,
and risks are managed in alignment with the risk appetite. Risk-taking decisions
must be consistent with strategic business goals and returns should compensate
for the risk taken.

 Risk frameworks – The Company’s risk management frameworks for all risk
types are documented, comprehensive, and consistent.

 Holistic risk management – Risks are managed holistically, with a view to

understand the potential interactions among risk types.

 Qualitative and quantitative evaluations – Risks are evaluated both qualitatively

and with appropriate quantitative analyses and robust stress testing. Risk models
are regularly reviewed to ensure they are appropriate and effective.

The Board of Directors and senior management provide the direction to the Company’s
effective risk management that emphasizes well-considered risk-taking and proactive
risk management. This is reinforced with appropriate risk management staff, ongoing
investments in risk systems, regular review and enhancement of risk management
policies and procedures for consistent application, overlaid with a strong internal
control environment throughout the Group. Accountability for managing risks is jointly
owned among customer-facing and product business units, dedicated functional risk
management units, as well as other support units such as Operations and Technology.
Internal Audit also provides independent assurance that the Company’s risk
management system, control and governance processes are adequate and effective.
Rigorous portfolio management tools such as stress testing and scenario analysis
identify possible events or market conditions that could adversely affect the Company.
These results are taken into account in the Company’s capital adequacy assessment.

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3.10 Credit Risk Management Procedure:

The Board of Directors and senior management provide guidelines for the company’s
effective risk management. With appropriate risk management staff, ongoing
investments in risk systems, regular review and enhancement of risk management
policies and procedures for consistent application, overlaid with a strong internal
control environment throughout the Group this is enforced. The responsibility of
managing this is distributed among customer-facing and product business units,
dedicated functional risk management units, as well as other support units such as
Operations and Technology. Internal Audit also provides independent assurance that
the Company’s risk management system, control and governance processes are
adequate and effective. Rigorous portfolio management tools such as stress testing and
scenario analysis identify possible events or market conditions that could adversely
affect the Company. These results are taken into account in the Company’s capital
adequacy assessment. The Board of Directors establishes the Company’s risk appetite
and risk principles. The Board Audit committee is the principal Board committee that
oversees the Company’s risk management. It reviews and approves the Company’s
overall risk management philosophy; risk management frameworks, major risk
policies, and risk models. The Board Audit Committee also oversees the establishment
and operation of the risk management systems, and receives regular reviews as to their
effectiveness. The Company’s various risk exposures, risk profiles, risk concentrations,
and trends are regularly reported to the Board of Directors and senior management for
discussion and appropriate action. The Board Audit Committee is supported by Risk
Management Division, which has functional responsibility n a day-to-day basis for
providing independent risk control and managing credit, market, operational, liquidity,
and other key risks. Within the division, risk officers are dedicated to establishing
Company-wide policies, risk measurement and methodology, as well as monitoring the
Company’s risk profiles and portfolio concentrations. Credit officers are involved in
transaction approvals, and personal approval authority limits are set based on the
relevant experience of the officers and portfolio coverage. Representatives from the
division also provide expertise during the design and approval process for new products
offered by the Group. This ensures that new or emerging risks from new products are
adequately identified, measured, and managed within existing risk systems and
processes.

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 Figure 9: Credit Risk Management Procedure

3.11 Risk Management Structure

Figure 10: Risk Management Structure

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3.12 Risk Analysis Unit (RAU) at LankaBangla
Broadly, Risk Analysis Unit (RAU) will be responsible solely to identify and analyze
all sorts of risks appropriately and timely. It (RAU) will act as the secretariat of Risk
Management Forum. In compliance with the Bangladesh Bank guidelines RAU works
independently from all other units/divisions of the FI, e. g. no member of this unit will
be involved in any sort of ratings of transactions, or setting/working to achieve any
target imposed by the FI. S/He will not also be involved in the process of determining
any standard or threshold ranges for risk management goals. Risk Analysis unit will be
responsible only for the followings:
Promote broader understanding of risk and work closely with risk management to
ensure risk management initiatives are in place for risk controlled LBFL practices.
Work as an active risk associate by identifying departmental risk issues and perform
analysis. Escalate respective risk issues to risk management unit in a monthly basis for
discussion and enforce mitigation in monthly risk associates' forum. Assist RMF to
plan and reduce operational surprises and losses by recommending risk mitigation
strategies. Finalize enterprise level risk issues to RMF meeting for management
evaluation and resolutions. Implement RMF resolutions and monitor the risk mitigation
process within the given deadline & update status to RMF. Interact with all the relevant
stakeholders of LBFL to create risk awareness and encourage control of risk at
enterprise level. Business and Support functions risk associates will escalate risks to
this forum under supervision of Chief Risk Officer (CRO). Other Risk management
committees have been established for active senior management oversight,
understanding, and dialogue on policies, profiles, and activities pertaining to the
relevant risk types. These include the Management Credit Committee, the Asset and
Liability Management Committee, the Steering Committee for BASEL-II
Implementation, Central Compliance Unit for Anti-Money Laundering and the ICT
Committee. Both risk-taking and risk control units are represented on these committees,
emphasizing shared risk management responsibilities. LBFL Internal Audit conducts
regular independent reviews of loan portfolios and business processes to ensure
compliance with the Company’s risk management frameworks, policies, processes, and
methodologies.

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3.13 Credit Risk Mitigation
From forward looking perspective borrower selection process is the most important
credit risk identification measure employing fundamental analysis of credit including
purpose and utilization of loan, company analysis including cash flow, industry
analysis, credit rating , credit risk grading, entrepreneurial track record, repayment
performance including CIB status among others. Identifying the extent of credit risk
eventually determines the scope of credit risk mitigation measure.However following
credit risk mitigation measures are typical employed by lenders

Collateral coverage: Collateral coverage may be in the form of land and

building, financial instrument such as TDR, Marketable securities etc. In the
event of downside, value from liquidation of collateral securities may provide
some degree of protection against credit risk. Valuation of land and building is
usually done third party surveyor. Cash security by default provides maximum
protection against credit risk and exposure is usually calculated net-off cash
security.

Hypothecation: Leased assets are primary security which inherently provide

some degree of protection against credit risk. Hypothecated capital machinery
and stock of goods is are usual primary security measures whereas marketability
and control of the asset is important in credit risk mitigation.

Guarantee: Guarantee of high net worth individuals/directors and corporate

guarantee with good business standing usually provides credit enhancement.
Cross default option plays a vital role because due to guarantee of an entity
favoring a borrowing concern is also reflected in CIB report. Bank guarantee is
also a prolific credit enhancement instrument.

Risk transfer: Comprehensive Insurance against assets covering loan amount is

a usual risk mitigation measure in the event of unforeseen event that may occur
in future.

Exposure management: Single borrower exposure limit and sectoral exposure

limit are both used as risk management tools and in the credit policy both issues
are addressed complying regulatory stipulations.

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 Risk-based pricing: Risk based pricing method is being used for the customers
where there is a probability that the borrower will default on the loan. A risk
premium is added to the base price considering the risk profile. Different factors
like Credit risk grading score, credit history, property use, property type, loan
amount, loan purpose, income, and asset amounts, as well as documentation
levels, property location, and others, are common risk based factors currently
used.

Besides diversifying credit risk through extending small sized loan to numerous
borrowers across different customer segments who are essentially unrelated with each
other may be considered policy level credit risk diversification strategy

3.14 Application process and assessment:

Figure 11: Application process and assessment

Credit processing is the stage where all required information on credit is gathered and
applications are screened. Credit application forms are sufficiently detailed to permit
gathering of all information needed for credit assessment at the outset. First, the Product
Marketing Officer (PMO) procures clients by marketing and campaigning in different
companies, institutions, campuses etc. The PMO analyzes all applications and screens
out the ones that match with the existing criteria. Then he forwards the chosen
applications to the Relationship Manager (RM). He performs all the necessary

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procedures and does a pre-analysis of the client’s profile. The applications which are
seen as viable by the RM are then recommended 20 and forwarded to the CRM
department. Here, the analysts are given authority to analyze and verify the
applications. If there are any discrepancies, the analyst gives the file a query. That query
is then sent back to the RM and he meets that query and then forwards the file as ‘Query
Met”. Then, after all the necessary analysis, if the whole application is found to be
complete and viable, the analyst recommends the file to the CRM Unit Head. There are
different Unit Heads for Retail, SME and Corporate. The amount of the loan facility
determines the approval authority for the application. After approval, the application is
sent to operations where the loan sanctioning procedure is carried out.

3.15 General Procedure of Sanctioning Loan

The following procedure is applicable for giving advance to the customer. These are:

a) Party’s application
b) Filling LBFL application form of lease & loan
c) Collecting CIB report from Bangladesh Bank
d) Processing loan proposal
e) Project appraisal
f) Credit Committee Approval
g) Executive Committee approval
h) Sanction letter
i) Documentation
j) Disbursement

A. Party’s application:

At first borrower had to submit an application to the respective department for loan.
He/she has to clearly specify the reason for loan. After receiving the application from
the borrower respective officer verifies all the information carefully. He also checks the
account maintains by the borrower with Bank through bank statement of at least one
year. If the official becomes satisfied then he gives LBFL application form of Lease &
Loan Facilities

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B. Filling LBFL Application:
It is the prescribed form of Lease Loan It is the prescribed form provides by the respective
department that contains information of the borrower. It contains- Name of the concern
with its factory location, Official address and Telephone number, Details of past and
present business, it achievement and failures, type of loan availed etc.

C. Collecting CIB Report from Bangladesh Bank:

After receiving the application for advance, LBFL sends a letter to Bangladesh Bank
for obtaining a report from there. This report is called CIB (Credit Information Bureau)
report. LBFL generally seeks this report directly from Bangladesh Bank office for all
kinds of Investment. Steps for collecting CIB are as follows: -

1. Each owner (proprietor/partner/director) must sign an Undertaking

providing details of his/her personal and business details.
2. Undertaking forms are sent to CIB for the verification of information
given in the under taking form.

Based on the result of CIB report appraisal is done. If the report is satisfactory, appraisal
report is made, else the proposal gets rejected. The purpose of being informed that
whether the borrower has taken loan from any other Bank; if ‘yes’ then whether the
party has any overdue amount or not.

D. Processing loan Proposal:

After receiving CIB report, respective department prepare an Investment proposal,

which contains terms and conditions of Investment for approval of Credit Committee
& Executive Committee. Documents those are necessary for sending Investment
proposal are Loan application, photograph of the borrower duly attested, personal
informant of borrower, CIB report, legal opinion, trade license, stock report, net worth
calculation of business & individual, working capital assessment, financial statement,
SME information and CRG. LBFL prepares the proposal in a specific form. It contains
following relevant information- Borrower, capital structure, address, Account opening
date, introduced by type of business, particulars of previous sanctions, security (existing
and proposed), movement of accounts, components on the conduct of the account,
Details of deposit, liabilities of allied concerns, liabilities with other Banks, CIB report,

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Rated capacity of the project (item wise), Production/purchase during the period, Sales
during the period, Earning received for the period.

E. Project Appraisal:

It is the pre-investment analysis done by the officer before approval of the project.
Project appraisal in the financial sector is needed for the following reasons:

 To justify the soundness of an investment,

 To ensure repayment of Bank finance,
 To achieve organizational goals,
 To recommend if the project is not designed properly

Techniques of Project Appraisal

An appraisal is a systematic exercise to establish that the proposed project is a viable

preposition. Appraising officer checks the various details submitted by the promoter in
first information sheet, application for Investment and Investment proposal. LBFL
considers the following aspects in appraising a proposal.
 Technical viability
 Commercial viability
 Financial viability
 Economic viability
The executive committee mainly checks the technical, commercial and financial
viability of the project. For others EC is dependent on visit report. But when the
investment size is big, then the EC verifies the authenticity of information physically.

Approval Procedure for Lease & Loan

Initial Procedure:

A. The proposal is submitted to the Management Committee, comprising of Senior

Officials of different departments of the company.
B. After review of the Management Committee, the proposal is forwarded to the
Managing Director. Final Approval: For proposals up to Tk. 2 million:
Managing Director approves/rejects the proposal.

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Final Approval: For proposals exceeding Tk. 2 million:

Managing Director approves/rejects the proposal.

Final Approval: For proposals exceeding Tk. 2 million:

 Managing Director approves/rejects the proposal.

 If approved, the proposal, along with Managing Director’s recommendations, is
forwarded to the Executive Committee/Board of Directors for final approval.
 Executive Committee/Board of Directors approves/rejects the proposal in
meeting or through circulars. There are two paths in the approval process

F. Sanction Letter:

After getting the approval of the BOD the department issues sanction letter to the
borrower. A sanction letter contains- Name of borrower, Facility allowed, Purpose,
Rate of interest, Period of the Investment and mode of adjustment, Security and Other
terms and condition.

G. Documentation

If the borrower accepts the sanction letter, the Documentation starts. Documentation is
a written statement of fact evidencing certain transactions covering the legal aspects
duly signed by the authorized persons having the legal status. The most common
documents used by the NCC Bank for sanctioning different kinds of Investment are
Joint Promissory Note, Letter of Arrangement, Letter of Disbursement, Letter of
Installment, Letter of Continuity, Trust Receipt, Counter Guarantee, Stock Report,
Letter of Lien, Status Report, Letter of Hypothecation, Letter of Guarantee and
Documents Relating to Mortgage.

H. Disbursement:

Finally respective officer disburses the loan after sanction and completion of all
formalities. The officer writes cheque and provides it to the borrower. For this borrower
has to open an account thorough which he/she can withdraw the money.

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3.16 Recovery Procedures

It is the duty of the Department to recover the landed fund within the stipulated time
and if the borrower fails to repay the money within the said period LBFL will declare
him as a defaulter and recover the fund by selling the securities given by the borrower
or by freezing his account or make a suit against him. Recovery of loan can be made in
the following 3 methods.

1) Persuasive
2) Voluntarily
3) Legally

Persuasive recovery:
If the borrower didn’t paid the due amount of loan in time then the first step of bank is
private communication with him. It creates a mental pressure on borrower to repay the
loan amount. In this case LBFL can provide some advice to the borrower for repaying
the loan.

Voluntarily recovery:
In this method, some steps are followed for recovering loan. This are- • Building Task
Force
 Arranging seminar
 Loan rescheduling policy
 Waiver of interest rate

Legal recovery:
When all steps fail to keep an account regular and the borrower does not pay the
installments and interests then bank take necessary legal steps against the borrower for
realization of its dues. In this case “Artha Rin Adalat Ain-2003” plays an important role
for collecting the loan.

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3.17 Loan Monitoring
Loan monitoring implies that the checking of the pattern of use of the disbursed fund
to ensure whether it is used for the right purpose or not. It includes a reporting system
and communication arrangement between the borrower and the lending institution. The
following steps are followed by respective officer.

a) Regular checking the balance of SB/CD/STD accounts of the borrower.

b) Regular communication with the defaulter customers and guarantors physically
over telephone.
c) Issuance of letter to customers immediately after dishonor of cheque.
d) Issuance of legal notice to the defaulter customers and guarantors prior to
classification of the loans.
e) Issuance of appreciation or greeting letter to the regular customers.
f) Periodical visit with the customers to maintain relationship and supervision of
supplied articles.
g) Legal action to be taken after failings all possible efforts to recover the bank’s
due

3.18 Prohibited Business types:

 Lending to companies listed on CIB black list or known defaulters
 Production or trading of illegal products as per country and international law
 Production or activities involving harmful or exploitative forms of forced
labor
 Finance of Speculative Investments
 Gambling, casinos and equivalent enterprises
 Production or trade in radioactive materials
 Share lending
 Mining or other activities that are harmful to the environment
 Lending to holding companies

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3.19 Credit Risk Grading:

Well-managed credit risk grading systems may promote safety and soundness by
facilitating informed decision-making. Grading systems will measure credit risk and
differentiate individual credits and groups of credits by the risk they pose. This will
allow management to monitor changes and trends in risk levels. The process also allows
management to manage risk to optimize returns. Credit risk grading is an important tool
for credit risk management as it helps the Financial Institutions to understand various
dimensions of risk involved in different credit transactions. The process allows to
compare different borrowers under a standardized scale and the aggregation of such
grading across the borrowers, activities and the lines of business can provide better
assessment of the quality of credit portfolio. The credit risk grading system is vital to
take decisions both at the pre-sanction stage as well as post-sanction stage. At the pre-
sanction stage, risk grading helps the sanctioning authority to decide whether to lend or
not to lend, the lending price, the extent of exposure etc. At the post-sanction stage,
credit grading helps decide about the depth of the review or renewal, frequency of
review, periodicity of the grading, and other precautions to be taken. Well-managed
credit risk grading systems promote financial institution safety and soundness by
facilitating informed decision-making. In line with Bangladesh Bank core risk manual
and following the industry best practices, for each and every loan cases CRG score is
calculated using the predetermined CRG format suitable for respective loan products.
This allows FI management and examiners to monitor changes and trends in risk levels.
The process also allows FI management to manage risk to optimize returns.

3.20 Use of Credit Risk Grading:

 The Credit Risk Grading matrix allows application of uniform standards to
credits to ensure a common standardized approach to assess the quality of an
individual obligor and the credit portfolio as a whole.
 As evident, the CRG outputs would be relevant for credit selection, wherein
either a borrower or a particular exposure/facility is rated. The other decisions
would be related to pricing (credit spread) and specific features of the credit
facility.

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  Risk grading would also be relevant for surveillance and monitoring, internal
MIS and assessing the aggregate risk profile. It is also relevant for portfolio
level analysis.

3.21 Credit Risk Grading Process:

The following step-wise activities outline the detail process for arriving at credit risk
grading.
Step I: Identify all the Principal Risk Components (Quantitative & Qualitative)
Step II: Allocate weightings to Principal Risk Components
Step III: Input data to arrive at the score on the key parameters.
Step IV: Arrive at the Credit Risk Grading based on total score obtained.

3.22 Credit Risk Concentration:

Credit risk concentration means lending to single customer groups, borrowers engaged
in similar activities, or diverse groups of borrowers that could be affected by similar
economic or other factors. To manage these concentrations, exposure limits are
established for single borrowing groups, counter parties, industry segments, countries,
and cross border transfer risks. Limits are aligned with the Company’s business strategy
and resources, and take into account the credit quality of the borrower, available
collateral, regulatory requirements, and country risk ratings.
Limits are typically set taking into consideration factors such as impact on earnings and
capital as well as regulatory constraints. The company is diversifying their business into
different areas which means they would not be easily affected if any one or two sectors
may collapse due to unforeseen circumstances. Their main areas of concentrations are
the food industry, the iron and steel industry, trade and commerce, housing and
brokerage securities.

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3.23 Approval process:
To ensure a fair and unbiased approval process, the segregation of the Relationship
Management and the approval authority is necessary. The responsibility for preparing
the Credit Application should rest with the RM within the corporate financial services
division. Credit Applications should be recommended for approval by RM and Head of
Corporate Financial Services/Head of business unit, which will be forwarded to the
Credit Risk Management Division for approval. FI may wish to establish various
thresholds, above which, the recommendation of the Head of Corporate Financial
Services is required prior to onward recommendation to Chief Credit Officer for
approval. In addition, FI may wish to establish regional credit centers within the
approval team to handle routine approvals.

 Relationship Manager (RM) prepares the loan proposals and supports &
forwards to Head of Corporate Financial Services (HOCFS) for onward
recommendation.
 HOCFS places it to Credit Risk Management Division for their approval /
recommendation through MCC
 Managing Director & CEO approves/recommends as per delegated
authority by the board/EC
 Managing Director & CEO presents the proposal to Board/EC
 Board/EC advises the decision in exceptional circumstances when approval
of an extension of Credit is required at short notice, the Managing Director
may get approval of the proposal by circulation with recommendation of
Credit Risk Management. Concern approver can approve waiver on any
documentation deficiency at the time of disbursement, if required justified.
However, Board may review the above delegated approval authority time to
time based on business volume, product nature and Bangladesh Bank
guidelines. The approval of a transaction is valid for 90 days. There is also
an appeal process if the applicant wishes. But there is no room for appeal
process beyond the Managing Director.

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 Figure 12: Approval process

3.24 Non Performing loan:

Non-Performing Loan (NPL) is a debt obligation where the borrower has not paid
previously agreed upon interest and principal repayments to the designated lender for
an extended period of time. The recovery strategies are formulated based on analysis
carried out through the following three sub-functions:
Classification of loan portfolio
Trend analysis of the overdue installments
Processes of recovery

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 Classification of Loan Portfolio:
Loans are classified into the following categories:
a) Regular accounts
b) One month’s overdue accounts
c) Two months’ overdue accounts
d) Three months’ overdue accounts
e) Four months’ overdue accounts
f) Five months’ overdue accounts
g) Suspended accounts (Special Asset)
The classification is based on the age of the loan portfolio. The strategy of recovery is
based on the age of overdue of the loan facility.

Trend Analysis of the Overdue Loans

The data of the outstanding loan portfolio is analyzed in two respects, namely, Sector-
wise Age Analysis and Client-wise Age Analysis. From each of these two reports a
trend analysis is carried out. The details are given below. External data are utilized to
do the analysis:

Sector-wise Age analysis

This report provides information on the sectoral default level of the loan portfolio. If
the default happens to be random in nature for a particular sector, the client-wise age
analysis is emphasized. If any sectoral default is evident the following further analysis
is carried out.

Industry Sales Analysis:

This analysis is carried out by collecting data from the external sources to find the
causes of the sectoral sales decline. The nature of the causes (temporary or permanent)
is also analyzed.

Industry Profitability Analysis:

This analysis is carried out in order to find out the fluctuation of the profit margin of
the sectors. The causes of the fluctuations are also analyzed to uncover the nature of the
fluctuations (temporary or permanent).

Page | 49
Industry liquidity Analysis:

This analysis is carried out in the context of national economic activity, monetary
condition to find out the immediate liquidity situation of the industry and be prepared
to face the reality of the business.

Industry Change Analysis:

This analysis is carried out to find out changes in the industry in terms of technology,
investment, development of substitute product, etc. The objectives of the sector-wise
age analysis are following:

i. Take immediate action to realize the default outstanding by way of

rescheduling, suspending or terminating the agreement.
ii. Provide investment advices to the client to help them recovering
from turmoil.
iii. Adopt alternate strategies with respect to loan finance to the sector.
iv. Adopt new criteria for future reference in appraisal procedure.
Client-wise Age Analysis
This analysis is carried out to discover the clients’ integrity and sincerity to pay the loan
installments, their business profitability, and affectivity of their business strategy in the
context of present business situation. The objective is to adopt correct strategy to
recover the investment.

Recovery Processes:
The various recovery actions in order of intensity is given below:
1. Phone Call/ SMS
2. Letter/ E-mail
3. Visit
4. Reminder
5. 2nd Reminder
6. Visit conducted by higher level employee/s
7. Letter to guarantor/s
8. Final letter for legal notice
9. Legal Notice
10. Report to Central Bank and to other agencies
11. Terminate the loan
12. Ask the guarantor of payment/ encashment of security
13. Litigation

Page | 50
3.25 Compliance with Bangladesh Bank Regulations:

LankaBangla has established an independent Credit Risk Management Division which

is separate from business and operations divisions.
Risk Management Forum (RMF) and Risk Analysis Unit (RAU) has been
established in LankaBangla during 2013 in compliance with the Bangladesh
Bank’s DFIM Circular No. 01 of 07 April, 2013.
Risk Management structure with board and senior management.
Lending guidelines that are updated annually known as PPG.
Diversified risk concentration areas.
Single borrower limit of 35% of funded and non-funded facilities is ensured.
Proper credit risk grading is ensured and each risk criteria is addressed properly.
Risk measurement, monitoring and management information systems are in
place for sound credit assessment and early warnings help the analysts in
making decisions.
Green banking
A sound Risk Appetite Framework
Risk Management Unit
Quarterly, half yearly and Annual Reports are generated and submitted to the
board.
No provision of loans for defaulters

3.26 BASEL II
LankaBangla has implemented Bangladesh Bank’s Guidelines (Basel Accord for
Financial Institutions) on Risk Based Capital Adequacy Requirements for FIs
incorporated in Bangladesh with effect from 1 January 2011. Bangladesh Bank adopts
the Basel Committee on Banking Supervision’s proposal on “International
Convergence of Capital Measurement and Capital Standards,” commonly referred to as
BASEL II. This framework provides a stronger linkage between capital requirements
and the level of risks undertaken by FIs to enhance their risk management practices and
establishes minimum capital requirements to support credit, market, and operational
risks. Enhanced public disclosures on risk profile and capital adequacy are required
under the mentioned guidelines.

Page | 51
3.27 Analysis and Evaluation

Analysis of Year Wise Credit

Figures in Million
Year 2014 2015 2016 2017 2018

Total Credit 24265.99 36018,82 46,749.20 61913.59 63784.58

Growth Rate 25.99% 48.43% 29.79% 32.43% 3.02%

Table 7: Analysis of Year Wise Credit

Growth Rate of Credit

60.00%
48.43%
50.00%

40.00%
32.43%
29.79%
25.99%
30.00%

20.00%

10.00%
3.02%
0.00%
2013-14 2014-15 2015-16 2016-17 2017-18

Figure 13: Analysis of Year Wise Credit

Interpretation: Growth rate of LBFL was 25.99% in 2013-14 that increases to 48.43%
in 2014-15 as a greater increase in credit disbursement. After that credit are continuously
decreases. In 2017-28 credit are fall into 3.02% compare to 2016-17.

Page | 52
Sector wise Credit Distribution
Figures in Million
Sector 2014 2015 2016 2017 2018
Garments and Knitwear 1286.59 1420.35 1894.19 2338.24 2,138.69
Textile 742.62 1523.75 2209.53 1161.73 1,820.80
Food Production and Processing
1264.14 3866.04 4722.68 4326.35 4,008.56
Industries
Jute and Jute-Products 450.32 255.78 301.83 347.76 183.67
Leather and Leather-Goods 51.49 40.60 63.79 533.11 521.55
Iron, Steel and Engineering 1708.68 2466.93 3300.47 1933.14 2,101.06
Pharmaceuticals and Chemicals 90.58 966.84 929.40 891.62 933.98
Cement and Allied Industry 740.05 971.41 358.56 1113.59 1,525.51
Telecommunication and IT 493.48 659.16 726.11 842.46 971.65
Paper, Printing and Packaging 631.09 572.28 581.37 540.91 601.38
Ship Manufacturing Industry 0.00 0.00 0.00 0.00 -
Glass, Glassware and Ceramic
577.15 820.02 537.59 18.62 440.98
Industries
Power, Gas, Water & Sanitary
475.68 366.80 639.18 710.18 852.71
Service
Transport and Aviation 489.69 599.99 641.42 1249.06 1,049.67
Trade and Commerce 1277.69 3024.08 6031.68 10201.34 9,513.67
Agriculture 338.00 315.36 255.53 860.01 831.28
Housing 3553.12 4299.03 6543.90 12284.33 13,196.62
Brokerage & Securities 4153.14 3806.27 3128.67 3537.03 3,719.31
Others Loan 5940.32 10044.11 13883.31 19024.10 19,373.50
Total 24263.83 36018.81 46749.20 61913.59 63,784.58

Table 8: Sector wise Credit Distribution

Interpretation: Lanka Bangla finance limited specially concentrate in Housing and

other loan sector.

Page | 53
Analysis of Classified Loans and Advances

Figures in Million

Year 2014 2015 2016 2017 2018

Sub-standard (SS) 145.08 271.12 392.82 376.86 667.27

Doubtful (DF) 408.47 312.4 177.58 334.35 344.41

Bad/loss (BL) 678.36 755.66 1077.24 1188.15 1286.77

Total 1,231.91 1339.18 1647.65 1899.36 2298.45

Table 9: Classified Loans and Advances

Classified Loans and Advances

2,500.00

2,000.00

1,500.00
2298.45
1899.36
1647.65

1,000.00
1339.18
1,231.91

500.00

0.00
2013-14 2014-15 2015-16 2016-17 2017-18

Figure 14: Classified Loans and Advances

Interpretation: LankaBangla finance limited strictly follows the rules and regulations
of Bangladesh Bank regarding classification of loans and advances. The classified loan
position of the LBFL as on 2018 stood at 2298.45 million.

Page | 54
Analysis of Unclassified Loans and Advances
Figures in Million

Year 2014 2015 2016 2017 2018

Standard (UC) 21968.3 33985.89 44335.78 58716.96 59088.49

Special Mention
1065.78 693.75 765.77 1297.27 2397.64
Accounts (SMA)
Total 23034.08 34679.64 45101.55 60014.23 61486.13

Table 10: Analysis of Unclassified Loans and Advances

Unclassified Loans and Advances

70000

60000

50000

40000

61486.13
60014.23

30000
45101.55
34679.64

20000
23034.08

10000

0
2013-14 2014-15 2015-16 2016-17 2017-18

Figure 15: Analysis of Unclassified Loans and Advances

Interpretation: The unclassified loan of LBFL was 2303.08 million in 2013-14 after that it
increases day by day as 61.486.13 million in 2007-18.

Page | 55
Analysis of Non-Performing Loans

Figures in Million

Year 2014 2015 2016 2017 2018

Non-Performing Loan 1231.91 1339.18 1647.65 1899.36 2298.45

Table 11: Analysis of Non-Performing Loans

Non-Performing Loan
2500

2000

1500

2298.45
1899.36
1647.65

1000
1339.18
1231.91

500

0
2013-14 2014-15 2015-16 2016-17 2017-18

Figure 16: Analysis of Non-Performing Loans

Interpretation: In 2018 the company has highest amount of non-performing loan and
it was the caused the highest amount of loan disbursement in all division by the
company.

Page | 56
Analysis of Loans and Advances to Deposit Ratio

Year 2014 2015 2016 2017 2018

Credit To Deposit
68.90% 108.27% 108.90% 113.23% 108.95%
Ratio

Table 12: Analysis of Loans and Advances to Deposit Ratio

Loans and Advances to Deposit Ratio

120.00% 113.23%
108.27% 108.90%
108.95%
100.00%

80.00%
68.90%
60.00%

40.00%

20.00%

0.00%
2013-14 2014-15 2015-16 2016-17 2017-18

Figure 17: Analysis of Loans and Advances to Deposit Ratio

Interpretation: From above figure and graphical chart, we can see that the loans and
advances to deposit ratio increased from 2014 to 2017 in a gradually manner. In 2018
it decreases into 108.95%.

Page | 57
Analysis of Loans and Advances to Total Assets Ratio

Year 2014 2015 2016 2017 2018

Credit to Total Assets 42.72% 77.30% 79.62% 82.06% 79.07%

Table 13: Analysis of Loans and Advances to Total Assets Ratio

Loans and Advances to Total Assets Ratio

90.00% 82.06%
77.30% 79.62%
80.00% 79.07%

70.00%
60.00%
50.00% 42.72%

40.00%
30.00%
20.00%
10.00%
0.00%
2013-14 2014-15 2015-16 2016-17 2017-18

Figure 18: Analysis of Loans and Advances to Total Assets Ratio

Interpretation: From above this figure, in 2013-14 loans and advances to total asset
ratio was 42.72% after that it increases continuously to 2016-2017. In 2017-18 the ratio
fall into 79.07%.

Page | 58
An analysis of Interest income
Figures in Million

Year 2014 2015 2016 2017 2018

Interest Income 3965 4,787 5661 7076 9095

Table 14: An analysis of Interest income

Interest Income
10000
9095
9000
8000 7076
7000
5661
6000
4,787
5000 3965
4000
3000
2000
1000
0
2013-14 2014-15 2015-16 2016-17 2017-18

Figure 19: An analysis of Interest income

Interpretation: From the above figure we can see that LBFL have highest interest
income from loan than the other sector. In 2017-18 interest income was 9095 million.

Page | 59
Analysis of financial Statement
Current Ratio:
Current Ratio= Current Asset/ Current Liabilities

Year 2014 2015 2016 2017 2018

Current Ratio 1.42 1.11 1.14 1.11 1.08

Table 15: Current Ratio

Current Ratio
1.42
1.11 1.14 1.11 1.08

2014 2015 2016 2017 2018

Figure 20: Current Ratio

Interpretation: If a company's current ratio is in this range then it generally indicates

good short-term financial strength. If current liabilities exceed current assets (the
current ratio is below 1) then the company may have problems meeting its short-term
obligations. Here LBFLs’ current ratio is over 1. So LBFL has good short-term financial
strength.

Page | 60
Debt Equity Ratio:

Debt Equity ratio= Total Debt/ Shareholders Equity

Year 2014 2015 2016 2017 2018

Debt Equity
ratio
5.53 6.67 7.86 9.18 7.29

Table 16: Debt Equity Ratio

Debt Equity Ratio

9.18
7.86
7.29
6.67
5.53

2014 2015 2016 2017 2018

Figure 21: Debt Equity Ratio:

Interpretation: The debt to equity ratio is a financial liquidity ratio that compares a
company's total debt to total equity. The debt to equity ratio shows the percentage of
company financing that comes from creditors and investors. A higher debt to equity
ratio indicates that more creditor financing (bank loans) is used than investor financing
(shareholders).Here due to decreasing debt equity ratio liquidity is increasing of LBFL.

Page | 61
Earnings Per Share:

Earnings Per Share = EAT/ Number of common Stock

Year 2014 2015 2016 2017 2018

EPS 2.05 3.24 3.37 2.95 1.40

Table 17: Earnings Per Share:

EPS
3.24 3.37
2.95

2.05

1.4

2014-15 2015-16 2016-17 2017-18 2018-19

Figure 22: Earnings Per Share:

Interpretation: Earnings per share (EPS) is the portion of the company’s distributable
profit which is allocated to each outstanding equity share (common share). Earnings
per share are a very good indicator of the profitability of any organization and it is one
of the most widely used measures of profitability. Here LankaBangla’s profitability is
decreasing year to year.

Page | 62
Price Earnings Ratio

Price Earrings Ratio= Market value per share/ EPS

Year 2014 2015 2016 2017 2018

Price Earnings Ratio 19.53 8.96 10.33 16.18 16.30

Table 18: Price Earnings Ratio

Price Earrings Ratio

19.53

16.18 16.3

10.33
8.96

2014-15 2015-16 2016-17 2017-18 2018-19

Figure 23: Price Earnings Ratio

Interpretation: The price earnings ratio often called the price earnings ratio or price to
earnings ratio is a market prospect ratio that calculates the market value of a stock
relative to its earnings by comparing the market price per share by the earnings per
share. In other words the price earnings ratio shows what the market is willing to pay
for a stock based on its current earnings. Here the ratings of Lanka Bangla’s price
earnings ratio is upgrading in 2018 after that I decreases as 16.3 in 2018.

Page | 63
Return on Assets

Return on Asset= EAT/ Total Asset

Year 2010 2011 2012 2013 2014

ROA 2.21% 2.68% 2.10% 1.99% 0.90%

Table 19: Return on Assets

ROA
2.68%

2.21% 2.10%
1.99%

0.90%

2014-15 2015-16 2016-17 2017-18 2018-19

Figure 24: Return on Assets

Interpretation: Return on assets (ROA) is an indicator of how profitable a company is

relative to its total assets. ROA gives an idea as to how efficient management is at using
its assets to generate earnings. Calculated by dividing a company's annual earnings by
its total assets ROA is displayed as a percentage. Here Lanka Bangla’s management
uses their Asset properly from2014 to2015 but in 2016 to 2018 asset management is
not maintain properly.

Page | 64
Return on Equity:

Return on Equity= EAT/ Shareholders Equity

Year 2014 2015 2016 2017 2018

Return on Equity 14.54% 20.38% 18.44% 20.13% 8.76%

Table 20: Return on Equity

Return on Equity

20.38% 20.13%
18.44%

14.54%

8.76%

2014-15 2015-16 2016-17 2017-18 2018-19

Figure 25: Return on Equity

Interpretation: This ratio indicates how profitable a company is by comparing its net
income to its average shareholders' equity. The return on equity ratio (ROE) measures
how much the shareholders earned for their investment in the company. The higher the
ratio percentage the more efficient management is in utilizing its equity base and the
better return is to investors. Here Lanka Bangla’s indicates that its management cannot
properly utilized its equity base because its ROE is become decreasing year to year.

Page | 65
Capital Adequacy Ratio:

Year 2014 2015 2016 2017 2018

Capital
15.07% 14.17% 13.23% 11.81% 15.74%
Adequacy Ratio

Table 21: Capital Adequacy Ratio

Capital Adequecy Ratio

15.07% 15.74%
14.17%
13.23%
11.81%

2013-14 2014-15 2015-16 2016-17 2017-18

Figure 26: Capital Adequacy Ratio

Interpretation: The CAR has rose to 15.74% in 2018 compared to 11.81% in 2017.
This is well above the Bangladesh Bank requirement of 10%. The Company always
endeavors to keep more than adequate capital in order to be compliant and risk free.
Continuous monitoring of capital adequacy is undertaken.

Page | 66
Cost/Income Ratio

Year 2014 2015 2016 2017 2018

Cost/Income Ratio 49.18% 46.01% 51.35% 49.86% 57.51%

Table 22: Cost/Income Ratio

Cost/Income Ratio
57.51%
51.35%
49.18% 49.86%
46.01%

2013-14 2014-15 2015-16 2016-17 2017-18

Figure 27: Cost/Income Ratio

Interpretation: Costs to income ratio increased in 2018 by 57.51 percentage points

due to decrease in operating income during the year while the operating expenses was
under tight control.

Page | 67
NPL Ratio

Year 2014 2015 2016 2017 2018

NPL Ratio 5.08% 3.72% 3.51% 3.07% 3.60%

Table 23: NPL Ratio

NPL Ratio

5.08%

3.72% 3.51% 3.60%

3.07%

2013-14 2014-15 2015-16 2016-17 2017-18

Figure 28: NPL Ratio

Interpretation: Though NPL slightly increased by 0.53 percentage points comp

ared to 2017 continuos effort in credit risk management helped the Company manage
the quality portfolio management.

Page | 68
4.1 Findings of the Study

 LBFL follows the rules and regulations of Bangladesh Bank correctly.

 Their loan disbursement procedure is quicker. However, their assessment
quality doesn’t decrease due to that
 The RM’s can’t persuade the analysts by unfair means.
 Sometimes query files take a lot of time to be processed.
 Centralization of CRM is causing the process time to be longer because files
outside of Dhaka are also processed here and constant communication with
other RM’s take more time.
 The RM’s can’t persuade the analysts by unfair means.
 They have conducted three to four meetings since I have joined on how to
increase productivity. But every time they have a meeting every one falls behind
their work leading to unproductively. I have observed that even an hour delay
in the work of Credit Risk Management adversely affects the entire day’s work.
 The flow of credit cards is very low at the beginning of the month, so there is
too much pressure by the end of the month.
 Credit officer depends largely on the balance sheet and income statement figure
supplied by applicants. Sometimes financial statements supplied by client
cannot be relied upon.
 Sometime the employees of the Department were not able to give their valuable
time to discuss about internal activities.
 Every credit card application has a serial number which needs to be put into
Credir Risk Management sector before its status can be checked or updated. It
is a bit arduous job to input the serial number when working with large number
of files. Sometimes due to pace of work, some employee might input wrong
number and also update the status of the wrong credit card application file.
 Documents availability and documents eligibility problem while filing.
 At the end of the month, the number of risk management files is huge so analysts
have to work overtime.

Page | 69
4.2 Recommendations

Lanka Bangla Finance Limited is a Non-Bank Financial Institution so they cannot do

their transactions through cash. It has to complete its actions/transactions through
different Banks and this give rise to many conflicts. After having a professional
experience with LBFL, I have included few suggestions–

 In Credit Risk 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.

 Decentralization of CRM is necessary. Every branch should have separate

analysts to process the files. This will help to reduce the Turnaround Time.
 Credit risk management officer measures the risk associated with the credit
facility. He should strictly follow the credit evaluation principle setup by the
company. It should improve in file management system to faster the dealings
with the client's proposal.

 RM’s need to ensure that updated documents such as utility bill, salary
certificate etc. are up to date because it was found that some of them were more
than 1 year old and couldn’t be verified on the website of DPDC, DESCO etc.

 At least 2 MIS officers should be in charge of receiving, sending files and make
entries into the CMS. This way, the process would remain unaffected if one of
them is absent.

 Maintaining an electronic register and recording all the sanction detail in a

shared Loan MIS when the event takes place rather than waiting for the month
to end. Using bar codes instead of serial numbers to keep record of the files.

 More marketing and campaigning is needed for other products.

Page | 70
 File organization should be better. Sometimes it takes time to find a file in the
pile.
 Automated approval to reduce file & paper cost of the company
 Attach interns in those activities where an intern can actually learn and apply
his/her academic knowledge.
 Although the credit card campaign was a success, it still isn’t enough to put
LBFL in line with the existing competitors. The number of customer needs to
rise in the future.
 CPV reports should be submitted after they have met all the necessary
documents and criteria. Otherwise, the file would be sent back with a query and
it would take more time.

Page | 71
4.3 Conclusion

In the end, Non-Bank Financial Institutions are vital elements for sound and stable
financial system. It can be said that Lanka Bangla Finance Limited has been a very
successful Financial Institution. Their slogan “GROWING TOGETHER” is reflection
of their success. Its success is a result of capable leaders, right business decisions,
profitable business functions, cost-effective business departments, skilled manpower
and many other things. Financial institutions provide many types of financial services
to their clients based on the demand. This CRM division of LBFL is always committed
to serve the institution. Their major part of income is coming from this department
(credit section). A financial institution should follow a guarded policy. More it will
increase its internal fund, more it will be able to increase its profit. However, by
providing additional and alternative financial services, NBFIs have already gained
considerable popularity both in developed and developing countries. In one hand these
institutions help to facilitate long term investment and financing, which is often a
challenge to the banking sector and on the other; the growth of NBFIs widens the range
of products available for individuals and institutions with resources to invest. Another
important role which NBFI’s play in an economy is to act as a buffer, especially in the
moments of economic distress and contributes to the overall goal of financial stability
in the economy.

Page | 72
 1. Bibliography
Books and Articles:

 Krishna G. Palepu, Paul M. Healy, Victor L. Bernard, Business Analysis &

Valuation, 2nd Edition
 J. Keown, Arthur, John D. Martin, & J. Willam Petty. Financial Management:
Principles and Application, 10th edition. New Jersey: McGraw- Hill.
 Frank K. Reilly Keith C. Brown-‘Investment analysis & Portfolio
Management, Tenth Edition; South- western, Cengage Learning: 2012,2009
 Iruka.J.O- Risk Management in Developing Countries, Witherby &
Company Ltd. 1991.
 C. Jeffrey, P. Michael (2001) “The Development and Regulation of Non-
Bank Financial Institutions”

Prospectus:

 Annual Report, Lankabangla Finance Limited, (2014-2018)

 Bangladesh Bank ( Non-Banking Financial Institutions Supervision and
Regulation Department)
 Credit Policy and risk management guide of Lankabangla Finance limited
 Credit Risk grading Manual corporate manuals and cirlulars of lankabangla
finance limited

Web Reference:

 https://www.lankabangla.com
 https://www.linkedin.com/company/lankabangla-finance
 https://en.wikipedia.org/wiki/LankaBangla_Finance_Llimited
 https://www.dsebd.org/displayCompany.php?name=LANKABAFIN
 https://www.investopedia.com/articles/professionals/021915/risk-
management-framework-rmf-overview.asp
 https://www.bangladesh-bank.org/

Page | 73
 https://www.bb.org.bd/aboutus/regulationguideline/fi/integrated_risk_manage
ment.pdf
 https://www.assignmentpoint.com/business/management/credit-risk-
management.html
 https://www.academia.edu/Credit_Risk_management_in_Non_Banking_Finan
cial_Institutions_NBFI_in_Bangladesh_A_study_on_Lankabangla_Finance_L
imited
 https://blfa.org.bd
 https://www.lbsbd.com/News/LankaBanglaNews.aspx

Page | 74
 2. Result of Operations
Financial Highlights of LankaBangla Finance Ltd.
201 5 Year
Financial Position 2014 2015 2016 2018 Growth
7 Average
Total Assets 32,353 44,615 57,622 78,248 80,668 3.09% 25.66%
Total Liabilities 27,705 39,156 51,453 70,980 71,623 0.91% 26.80%
Business Disbursement 19,750 35,770 45,539 56,726 38,754 -31.68% 18.35%
Property Plant and
129 878 999 1,114 1,358 21.92% 80.22%
Equip.
Deposits 16,717 30,081 40,033 51,553 53,252 3.30% 33.60%
Total Investment
31,228 42,600 55,176 74,966 76,656 2.25% 25.17%
Portfolio
Operational Performance
Operating Revenue 4,090 5,298 5,997 7,819 9,233 18.08% 22.57%
Operating Expenses 718 957 1,248 1,634 1,750 7.10% 24.96%
Financial Expenses 2,631 3,219 3,565 4,542 6,190 36.27% 23.85%
Net Profit Before Tax 465 1,046 1,107 1,397 816 -41.62% 15.08%
Net Profit After Tax 652 1,030 1,072 1,353 714 -47.21% 2.31%
EBITDA 3,415 4,310 4,737 6,048 7,129 17.86% 20.20%
Financial Ratios
Gross Profit Ratio 35.69% 39.25% 40.55% 41.91% 32.96% -21.35% 38.07%
Operating Profit Ratio 18.14% 21.19% 19.73% 21.01% 14.01% -33.34% 18.81%
Return on Capital
2.36% 2.85% 2.22% 2.10% 0.96% -54.36% 2.10%
Employed
Capital Adequacy Ratio 15.07% 14.17% 13.23% 11.81% 15.74% 33.24% 14.00%
NP assets to advances 5.08% 3.72% 3.51% 3.07% 3.60% 17.38% 3.80%
Cost to Income Ratio 49.18% 46.01% 51.35% 49.86% 57.51% 15.33% 50.78%
Debt Equity Ratio 5.53 6.67 7.86 9.18 7.29 -20.66% 7.31
Financial Expense
1.28 1.35 1.33 1.36 1.21 -11.22% 1.31
Coverage Ratio
Return on Equity (%) 14.54% 20.38% 18.44% 20.13% 8.76% -56.51% 16.45%
Return on Assets (%) 2.21% 2.68% 2.10% 1.99% 0.90% -54.86% 1.97%
Equity Parameters
Authorized Capital 3,000 3,000 10,000 10,000 10,000 0.00% 35.12%
Paid-up Capital 2,188 2,406 2,767 3,183 5,132 61.25% 23.76%
Shareholders' Equity 4,647 5,459 6,170 7,268 9,045 24.45% 18.11%
No. of Share Outstanding 218.77 240.64 276.74 318.25 513.18 61.25% 23.76%
Net Asset Value Per
14.60 17.15 19.39 15.87 17.62 11.04% 4.81%
Share
Earnings Per Share
2.05 3.24 3.37 2.95 1.40 -52.46% -9.00%
(EPS)
Market Price Per Share 40.00 29.00 34.80 47.80 22.90 -52.09% -13.02%
Price Earnings Ratio 19.53 8.96 10.33 16.18 16.30 0.78% 14.26
Dividend Payment 10% C 15% C 15% C 7.5% C 15% C - -
Dividend Payout Ratio 101.54
97.67% 61.80% 89.06% 106.80% 5.18% 2.26%
(%) %
Dividend Coverage 1.49 1.43 1.29 1.97 0.94 -52.46% -10.97%
Dividend Yield (%) 3.01% 4.55% 10.34% 6.28% 6.55% 4.37% 6.14%
Profit Per Employee 1.38 1.98 1.59 1.63 0.80 -50.98% 1.47

Table 24: Financial Highlight of Lankabangla Finance Ltd.

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 3. Sample Questionnaire

Male Female

Age Occupation

1. Company should introduce new service?

Strongly Disagree Disagree Agree Strongly Agree

   
2. Frequency of new product development of company?

Strongly Disagree Disagree Agree Strongly Agree

   
3. Are you happy with the loan disbursement service of the company?

Yes No

4. The overall service Structure?

Positive Negative

5. The Speed of the Service??

Positive Negative

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6. The cooperation of Lanka bangle Finance Limited?

Positive Negative

7. Are you satisfied with the interest rate charged by the company?

Yes No

8. Behavior of the Customer Service of the company?

Positive Negative

9. Is the loan process different in government bank than NBFI’s?

Agree Disagree

10. Do you believe that LBFL will prosper in Bangladesh?

Yes No

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