Chapter 1

INTRODUCTION

1
1.1 Introduction
Economy of Bangladesh is in the group of word's most underdeveloped economics. One of the
reasons may be its underdeveloped banking system. Modern banking system has been plays a vital
role for a nation’s economic development. Over the last few years, the banking world has been
undergoing a lot of change due to deregulation, technological innovations, globalization etc. These
changes also made revolutionary changes of a country's economy. It is well recognized that there
is an urgent need for better qualified management & better-trained staff in the dynamic global
financial market. Bangladesh is no excepting in that trend. Banking sector in Bangladesh is facing
challenges from different angles though its prospect is bright in the future.

Banking is a business, which is run on the confidence and trust of people. This confidence enjoyed
by banks & enables the bank to mobilize funds from various sources. The main function of a Bank
may broadly be divided into two categories- (i) Borrowing money from the public by accepting
deposits (ii) Lending the money to public for development of trade, commerce, industry &
agriculture. The Bank act as financial intermediaries between savers and investors. So, we may
treat the banker as a dealer in money & credit. Most individuals and organizations make use of the
banks, either as depositors and borrowers.

The credit is the king's pin of trade and commerce and the cause of progress of economy as a
whole, because without it the economy either stops totally or moves very slowly. For doing lending
business, a bank has to face lots of uncertainties or risk. In short, lending is a risky business but
profitable also. To minimize the risk of default bank must need credit risk management. The Credit
Risk Grading (CRG) is a collective definition based on the pre-specified scale and reflects the
underlying credit-risk for a given exposure. A Credit Risk Grading deploys a number as a primary
summary indicator of risks associated with a credit exposure. Credit Risk Grading is the basic
module for developing a Credit Risk Management system.

This study is an attempt to produce a constructive report on Credit Risk Management of National
Credit & Commerce Bank Limited with special reference to the Credit products, Credit
procedures, Credit risk grading etc.

2
I tried my level best to highlight Credit procedure and its risk in the perspective of NCC Bank Ltd which

has also fulfilled my thirst to know about the riskiest business of banking.

1.2 Background of NCCBL

National Credit and Commerce Bank Limited bears a distinctive history of its own. This institution
came into existence as an investment company in the name and style of National Credit Ltd (NCL)
on 25.11.1985 with its Head Office at 7-8, Motijheel C/A, Dhaka-1000.
The endeavor of the company was to mobilize resources from within and invest them in such ways
so as to develop country’s industrial and trade sector and playing a catalyst role in the formation
of capital market as well. The company also obtained membership of Dhaka Stock Exchange Ltd,
which helped it to fulfill its mission. Initial paid-up capital of the company (i.e. NCL) was TK. 5
core at that time. Its membership with the glance through helped the company to a great extent in
this regard.

The company operated up to 1992 with 16 branches and thereafter with the active inactive taken
by the members of the Board of Directors and Management and with the permission of the Central
Bank, it was converted into a full-fledged private Commercial Bank in the name and style of
National Credit and Commerce bank Ltd (NCCBL) on 17.05.1993 with paid up capital of Tk.
19.50 corer and Authorized capital of Taka 75.00 corer which opened the way to serve nation from
a broader platform. All operations of the bank are performed under three major heads- General
Banking, Advance and Foreign Exchange, General Banking has a major contribution in building
banker- customer relationship. Advances are the major source of bank’s income. This department
plays a vital role in augmenting the bank’s growth and earnings. Foreign Exchange plays a vital
role in facilitating export and import.

Since its inception NCC Bank Ltd. has acquired commendable reputation by providing sincere
personalized service to its customers in a technology-based environment.
The Bank has set up a new standard in financing in the Industrial, Trade and Foreign exchange
business. Its various deposit & credit products have also attracted the clients-both corporate and
individuals who feel comfort in doing business with the Bank.

3
1.3 Objectives of the Study

The Objectives of the study are shown as under:

• To investigate the credit products and services of NCC Bank Ltd.

• To examine the credit operations of NCC Bank Ltd.

• To Highlight the credit risk of NCC Bank Ltd.

• To evaluate to impact of credit management on profitability of NCC Bank Ltd.

1.4 Methodology of the Study

This study has been prepared based on the experience gained during the period of internship. The
significant feature of the study is the use of both primary and secondary data. Primary data has
been collected from the sample units by direct interview method and focus group method. The
secondary data or the sources of secondary data were as manuals, papers, reports, periodicals,
documents and records of the organization.

This study is based on primary and secondary information. Both primary and secondary information
have been utilized in designing and preparing this study.

Primary sources:

• Face to Face conversation with the respective officers and staffs.

• Interview with the Clients.

• Practical desk task.

Secondary Sources:
• Annual Report of NCCBL.

• NCC Bank training material and officer's guidebook.

• Periodicals, Bulletins, Circular.

• Monthly transaction record of the bank.

• Banks financial statement.

• Bangladesh Bank Guide Lines of CRG.

4
 • Official Website of NCCBL.
The collected data and information have been tabulated, processed, analyzed and graphically presented

in order to make the study more informative, useful and purposeful.

1.5 Scope and Limitations of the Study

This is a fair-haired opportunity for me to get myself familiarized with banking environment.
Working in a Bank like an employee is an interesting matter for me. To attain my main objective I
work in all departments (General Banking Division, Credit Division, and Remittance Division) by
rotation giving emphasis on Credit Department. This study is based of on theoretical and practical
analysis. However, the scope of the study is confined within the region of Pahartali Branch, Raozan
Chittagong- NCC Bank Limited. The study will focus on the following areas -

 The kinds of lending facilities extended by NCC Bank Limited.

 General Procedure for getting different kinds of lending facilities.

 How different kinds of projects are appraised at NCC Bank Limited for minimizing credit

Risk.

From the beginning to end, the study has been conducted with the intention of making it as a complete

and truthful one. However, many problems appeared in the way of conducting the study.

The study considers following limitations:

The Bank was a busy one having heavy rush of people, whom officers need to deal with.
So, allocation of time for an internet is very much tough for the officers of the bank.

Lack of in-depth knowledge and analytical ability for writing such report.

The time period for this study was short.

Another limitation of this report is Bank’s privacy and policy of not disclosing some data and

information.

5
1.6 Chapter Summary
Bangladesh is in the group of word's most underdeveloped economies. One of the reasons may
be its underdeveloped banking system. Modern banking system plays a vital role for a nation's
economic development. Banking sector in Bangladesh is facing challenges from different angles
though its prospect is bright. The Credit Risk Grading (CRG) is a collective definition based on
the pre-specified scale and reflects the underlying credit-risk for a given exposure. The study is
an attempt to produce a constructive report on Credit Risk Management of National Credit &
Commerce Bank Ltd.

The study was shown the credit operations of NCC Bank Ltd. and highlight the credit risk of the
bank. The Objectives of the study were to investigate the credit products and services as well as
examine the impact of credit management on profitability.

This study is based on primary and secondary information. Primary data has been collected from
the sample units by direct interview method and focus group method. Secondary data or the
sources of secondary data were as manuals, papers, reports, periodicals, documents and records
of the organization.

Since its inception NCC Bank Ltd. has acquired commendable reputation by providing sincere
personalized service to its customers. The Bank has set up a new standard in financing in the
Industrial, Trade and Foreign exchange business. Its various deposit & credit products have also
attracted the clients-both corporate and individuals who feel comfort in doing business with the
Bank. Aims to be a pioneer in Banking in Bangladesh and contribute significantly to the growth
of the national economy. The bank will be a confluence of the following three interests: profit
maximization, sustained growth and welfare of the society. The Motto of the Bank: "A Bank that
integrates Credit & Commerce".

Working in a Bank like an employee is an interesting matter for me. This study is based of on theoretical
and practical analysis. The scope of the study is confined within the region of
Pahartali Branch, Raozan Chittagong- NCC Bank Limited.

The study was conducted with the intention of making it as a complete and truthful one.
However, many problems appeared in the way of conducting the study. The time period for this
study was short and the Bank's privacy and policy of not disclosing some data and information
was also a limitation.

6
 Chapter 2

ORGANIZATIONAL OVERVIEW

7
2.1 Introduction

National Credit and Commerce Bank Limited bears a distinctive history of its own.
This institution came into existence as an investment company in the name and style
of National Credit Ltd (NCL) on 25.11.1985 with its Head Office at 7-8, Motijheel
C/A, Dhaka-1000.

The endeavor of the company was to mobilize resources from within and invest them
in such ways so as to develop country’s industrial and trade sector and playing a
catalyst role in the formation of capital market as well. The company also obtained
membership of Dhaka Stock Exchange Ltd, which helped it to fulfill its mission. Initial
paid up capital of the company (i.e. NCL) was TK. 5 core at that time. Its membership
with the glance through helped the company to a great extent in this regard.

The company operated up to 1992 with 16 branches and thereafter with the active
inactive taken by the members of the Board of Directors and Management and with the
permission of the Central Bank, it was converted into a full-fledged private
Commercial Bank in the name and style of National Credit and Commerce bank Ltd
(NCCBL) on 17.05.1993 with paid up capital of Tk. 19.50 corer and Authorized
capital of Taka 75.00 corer which opened the way to serve nation from a broader
platform. All operations of the bank are performed under three major heads- General
Banking, Advance and Foreign Exchange, General Banking has a major contribution
in building banker- customer relationship. Advances are the major source of bank’s
income. This department plays a vital role in augmenting the bank’s growth and
earnings. Foreign Exchange plays a vital role in facilitating export and import.

Since its inception NCC Bank Ltd. has acquired commendable reputation by providing sincere
personalized service to its customers in a technology-based environment.

8
The Bank has set up a new standard in financing in the Industrial, Trade and Foreign
exchange business. Its various deposit & credit products have also attracted the clients
both corporate and individuals who feel comfort in doing business with the Bank.

2.2 Mission & Vision

Mission of the bank:

1. Achieving the satisfaction of Almighty Allah both here & here after.

2. Quality financial services adopting the latest technology.

3. Fast and efficient customer service.

4. Maintaining high standard of business ethics.
5. Steady & competitive return on shareholders' equity.

6. Innovative banking at a competitive price.

7. Attract and retain quality human resources.

8. Extending competitive compensation packages to the employees.

9. Firm commitment to the growth of national economy.

Vision of the bank:

1. To be a pioneer in Banking in Bangladesh and contribute significantly to the growth of the

national economy.

2. "To make our customers prosper, our staff excel and to create value for our stakeholders."

9
2.3 Corporate Information

CHAIRMAN MR ABUL BASHAR

VICE CHAIRMAN MS. TANZINA ALI

CHAIRMAN MR. S.M. ABU MOHSIN

EXECUTIVE COMMITTEE OF THE BOARD
CHAIMAN ALHAJ MD. NURUN NEWAJ
RISK MANAGEMENT CIMMITTEE OF THE
BOARD
CHAIRMAN MR.NURUL ISLAM CHOWDHURY,FCA
AUDIT COMMITTEE OF THE BOARD
MANAGING DIRECTOR & CEO MR. MOHAMMAD MAMDUDUR RASHID

HEAD OF INTERNAL CONTROL & MR. M. ASHEQ RAHMAN

COMPLIANCE

CHIEF FINANCIAL OFFICER MR. MOHAMMED MIZANUR

RAHMAN,FCA

COMPANY SECRETARY MR. MD. MONIRUL ALAM,FCS

STATUTORY AUDITORS M/S. Hoda Vasi Chowdhury & Co.

Chartered Accountants
BTMC Bhaban(8th Floor)
7-9,Kawran Bazar C/A, Dhaka-1215
LEGAL ADVISOR BARRISTER KHAN MOHAMMAD
SHAMEEM AZIZ
Shamim Aziz & Co
Suit no. 502(5th floor),Paramount Height
65/2/1,Box Culvert Road,Purana paltan Dhaka-
1000,Bangladesh.

10
 CREDIT RATING AGENCY Credit Rating Information & Service Ltd.
Nokshi Homes(4th Floor),6/1/A,Segun Bagicha
Dhaka-1000
INDEPENDENT SCRUTINIZER OF AGM Mohammad Sanaullah & Associates
Chartered Secretaries & Management
Consultant

INVESTORS ENQUIRY SHARE DEPARTMENT

NCC Bank Bhaban(5th Floor)
13/1-2,Toyenbee Circular Road
Motijheel C/A, Dhaka -1000
Phone- +880 2223381085
REGISTERED OFFICE NCC Bank Bhaban(5th Floor)
13/1-2,Toyenbee Circular Road Motijheel
C/A, Dhaka -1000. phone- +880
2223381910,223381903-4
Fax : +8802223386290
E-Mail : [email protected]
Web : www.nccbank.com.bd
CORPORATE GOVERNANCE CERTIFICATE M/s. Howlader Yunus & Co.
ISSUER Chartered Accountants
House 14(4th Floor)
Road-16A,Gulshan,Dhaka-1212

11
 2.4 Vision of NCCBL

To become one of the most adorable commercial bank in serving the nation as a progression and
socially responsible financial institution by bringing credit & commerce together for increased
shareholders value and sustainable growth.

2.5 Mission of NCCBL

Delivering excellent financial service to our communities based on strong customer relationship.
Providing long lasting solution combining our cutting edge technology, experience and financial
strength to our clients and shareholders. Creating a cohesive and friendly environment where customers
and our people can excel.

2.6 Goal of NCCBL

General goal : To Share a significant portion of the banking sector by utilizing available
manpower and state of the art technology for maximizing the shareholders
wealth.

Long term goal : To maximize the wealth of shareholders

Short term goal : To earn satisfactory rate of return on investment by providing wide range of
banking services.

2.7 Target Customers

Due to the predecessor Company’s involvement investment financing sector of the country the bank
inherited its top corporate customers. Moreover the bank is involved in import trade financing. Bulk
importers of consumer durable, food gains industrial raw materials are its customers. The bank has
financed in textile and apparels sectors. The bank has a tread of choosing customer from diversified
groups. The bank has first class customers in the construction sectors involved in high-rise building,
heavy construction and roads and high way construction.
 2.7 Management Hierarchy position of NCCBL

 Managing Director (MD)

 Additional Managing Director (AMD)
 Senior Executive Vice President (SEVP)
 Executive Vice President (EVP)
 Senior Vice President (SVP)
 Vice President (VP)
 Senior Assistant Vice President (SAVP)  Assistant Vice President (AVP)

 Senior Principal Officer (SPO)

 Principal Officer (PO)

 Senior Officer (SO)

 Junior Officer (JO)

 Assistant Officer (AO)

13
 Chapter3
3
Credit Product and Services &
The Credit Operation of NCC
Bank Ltd.
3.1 Credit Product and Services & The Credit Operation of NCC Bank Ltd.

Bangladesh banking sector relative to the size of its economy is comparatively larger than many
economies of similar level of development and per capita income. The total size of the sector at
26.54% of GDP dominates the financial system, which is proportionately large for a country with
a per capita income of only about US$370. Access to banking services for the population has
improved during the last three decades. The core objective of this study, in broad objective was to
find out the products and services offered by National Credit & Commerce Bank Limited.
Emphasis was given to cover all the products, Deposit, loan products of NCC Bank. NCC Bank
has 11 types of deposit products. They are Current Account, Savings Bank Deposit, Special Notice
Deposit, Term Deposit, Premium Term Deposit, Instant Earning Term Deposit, Special Savings
Scheme, Special Fixed Deposit Scheme, Money Double Program and Special Deposit Scheme.
Currently NCC Bank started a new product, which is called youngster banking for the school and
college going children.

Different account has different requirements. Different Card products of NCC Bank areCredit
Card, Debit Card and Mbridge Card. The Remittance Product of NCC Bank is – Welfare Deposit
Pension Scheme, Overseas Employment Loan Scheme, Special Interest on Deposit and Loan. Loan
and Advanced Products are- Working Capital Financing, Commercial and Trade Financing, Long
Term Capital Financing, Agricultural Financing, Import and Export Financing. And finally the
Retail/ Consumer Loan Products of NCC Bank are- Personal Loan, Car Loan Scheme, Education
Loan, House Building Financing, Consumer Finance Scheme, House Repairing and Renovation
Loan, Home Improvement Loan. And finally SME Banking Products are- Small Business Loan,
Lease Finance, Working Capital Loan, Festival Business Loan and Festival Personal Loan. From
1985 NCC Bank is servicing the people with these products.

3.2 Products and Services:

Loan & Advanced Products

• Working Capital Financing

• Commercial & Trade Financing
• Long Term capital Financing
• Retail & consumer Financing
• Agricultural Financing
• Import & Export Financing

15
Retail/Consumer Loan Products

• Personal Loan
• Car Loan Scheme
• Education Loan
• House Building Financing
• Consumer Finance Scheme
• House Repairing & Renovation Loan
• Home Improvement Loan

SME Banking

• Small Business Loan

• Lease Finance
• Working Capital Loan
• Festival Business Loan
• Festival Personal Loan

Cards:

• Credit Cards
• Debit cards
• Mobridge cards

Remittance products:

• Wage Earners Welfare DPS

• Overseas Employment Loan Scheme
3.3 Lending Procedure and Recovery System

Credit Management

This is the survival unit of the bank because until and unless the success of this department is
attained, the survival is a question to every bank. If this section does not properly work the bank
may become bankrupt. It decides what type of lending product will be offered, to whom it will be
offered, how much it will be offered and analyze and measure the credit risk on loans and manage
all the activities regarding the loans. The aim of the credit management is to have a secured loan
portfolio so that the bank can earn profit by keeping the depositors savings secured. The entire job
regarding that consist the credit management.

General Concept of Loan and Advance:

These are the Asset based products of a bank and reflected in the asset side of the balance sheet.
There are various types of loans and advances offered by bank depending on the purpose of the
borrowing customer.

Loan: Loan means lending a fixed amount of money to borrower for a certain period time. The
borrower must repay the loan within the given time period. In Loan, the disbursement will take
place only for one time. The borrower can repay the loan all at a time or by installment.

Advance: Advance is a little bit different than Loan. In Advance, the borrower is allowed and
credit limit for a given period of time. In that given period, the borrower can withdraw money as
many times as he wants but he cannot exceed the credit limit. Again, he can repay several times
whenever he wants. In Advance, disbursement and repayment occurs several times. But at the end
of the period, whole credit amount must be repaid to the banks. This type of credit is allowed to
business for their working capital requirement.

Objectives of Lending Program:

The main objectives of lending program in Bangladesh are:

• To provide financial assistance for purchasing necessary goods and services.

• To improve the living standard of middle-class income group • To provide loan that can

be repaid in some easy installment

• To facilitate loan with quick accessibility.
• To contribute in the socio-economic development of the country
17
Functions of Credit Department

Credit Administration

The Credit Administration department is mainly concentrated with the post approval functions of
the division. The aspects that is critically tracked and monitored by Credit Administrations are:
• Past dues
• Excess over limit
• Document
• Reporting
• Credit expiry

Loan Monitoring

The important aspects of this part are:

• Follow approval terms

• Proper disbursement
• Monitor interest payment
• Monitor principal Repayment
• Balance with general ledger

Documentation

The important functions of this part are:

• Look at sanction items

• Fill up documentation checklist
 • Ensure proper loan documentation
• Obtain client sign off
• Filling with the Registered Joint Stock Corporation ( RJSC )
• Registered mortgage deed execution

Lending Products of NCC Bank

i. Continuous Loan
• Secured over draft Against Financial obligation • Secured over draft against Work

order/Real Estate etc.

• Cash Credit (Hypothecation)
• Cash Credit (pledge)
• Export Cash credit
ii. Demand loan
• Loan general
• Demand loan Against ship breaking
• Payment Against Document (PAD)
• Loan Against Imported Merchandise (LIM)
• Loan Against Trust receipt (LTR)
Forced Loan
Packing Credit
• Secured Over Draft Against Cash Incentive
• Foreign Documentary Bills purchased (FDBP)
• Local Documentary Bills purchased (LDBP)
• Festival Business Loan

iii. Term Loan

• Project Loan

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 • Transport Loan
• House Building Loan
• Small Business Loan
• Consumer Finance Scheme
• Lease Finance
• Personal Loan

Loan Pricing Mechanism

In NCCBL the guidelines for loan pricing are summarized below:

• In NCCBL, interest on various loans depends on the level of risk and type of
security offered. It should be borne in the mind that interest rate is the reflection of
risk in the transaction. The higher the risk, the higher the interest rate will be.
• Interest rate on different loans are reviewed in every 6 month or less if required.
• Fixed interest rate is discouraged.
• The rate must be reflected by cost of fund. That is the variation in the COF can
cause the change in the loan rate.
• Effective yield can be enhanced to the extent the borrowers are required to maintain
the deposit to support the borrowing activities.
• Yield is increased by the commitment fee and service charge where possible.
• All pricing of loan must have the relevance with the market condition.
• Calculation of loan pricing followed by NCCBL is given below:
Interest rate = cost of fund+ administrative costs+ risk premium + expected profit.

Fees of Loans and Advances:

Pre-Sanction Charge:

• 3 copy CIB inquiry from tk.50 each

 Survey Report Charge: Tk.2000 and above (based on collaterals value and number) Legal
opinion charge about the security offered to mortgage.

Post Sanction Charge:

• Stamp charge: Tk.150 to Tk.550

• Mortgage Fee: From Tk.5000 to above (Based on collateral assets’ value )
• Insurance of hypothecated goods (If goods are pawned as security) : Insurance
charge on the hypothecated goods’ value. • Service Charge: 1% in the total loan
amount.
• Security Charge (For Small Business Loan, House Renovation and Repairing Loan,
Personal Loan): 1% on total loan value.
• Risk Charge (For Small Business Loan, House Renovation and Repairing Loan,
Personal Loan): 1% on total loan value

Documents:

For execution of different types of loans, the bank usually uses two types of documents. One is
application form and other is charge document. A detail of these documents are given below:

a) Application Form: NCC bank ltd uses two types of application form for different types of
loans. For CC (H), CC (P), Loan (G), HBL, Project / Term loan, BG etc., the application form
contains:

• Name of the Applicant /Firm/ Company.

• Applicant’s Address.
• Nature of the A/C
• Telephone/ Fax number.
• Particulars of proprietor.
• Nature of Business/ Industry.
• Trade License No. and Validity

21
 • Date of Establishment/ Commencement/ Incorporation of Business. • Nature
and Amount of Limit
• Purpose.
• Period
• Mode of Repayment.
• Details of Security Offered.
• Particular of Guarantor.
• Full particulars of Liabilities (if any) of the Borrower and their Allied/ sister
concerns with NCCBL, other Banks and Financial Institutions etc. Other Relevant
Particular/ Information. Declaration
• Certificate of the organization
• Photograph (two copies)

b) Charge Document: Before disbursing the loan, the following documents must be
completed by borrower. On these documents, the stamp needed for legislative reasons, which is
paid by the borrower.

• Letter of Guarantee
• Letter of Hypothecation
• Demand Promissory Note
• Letter of Disbursement
• Letter of Agreement
• Letter of Authority
• Letter of installment

Security of Loan

Three securities of loan: i) most preferred is business’s income cash flow from which the customers
will repay loan, ii) second security consists of customer’s balance sheet / his assets that can be
liquidated or adjustment of loan and iii) Guarantees from owners from a third party.
Primary security: Primary security means the security offered by the borrower himself as cover
for the loan. It refers to the asset, which has been bought with the help of the bank machinery and
goods constitute the primary security.

Collateral security: Collateral security serves two purposes for a lender first, if the borrower
cannot pay, the collateral gives the lender the right to seize or sell those properties to cover the
amount of loan default. Secondly, collateral security gives the lender a Psychological advantage
over the borrower. Borrowers in this situation feel more obligated to work hard to repay the loan
to avoid losing valuable asset. Collateral security must have the following characteristics:

• Tangible
• Transferable/ Negotiable
• Easy marketability
• Adequacy of margin
• Price stability
Durability
Genuineness of title (free from encumbrance)

Procedure for Sanctioning Loan:

Step -1: Duly filled up information sheet (FIS)

First information sheet in the prescribed form provided by the respective branch that contain the
basic information of the borrower such as name of the concern with its factory location, office
address, and telephone no, name of the sponsors, business experience of the sponsors, details of
fixed assets personally owned by the sponsors, details of liabilities, purpose of loan, estimated cost
of the project & means of finance.

Step-2: Application for credit line

It includes name; address; telephone no of factory, date & place of establishment, name & net
worth of directors, capital structure, details of properties, name& address of the subsidiaries, nature
of business, latest audited/ in-audited financial statement, management structure, details of
securities offered, type; extent; & period of credit facilities required.

23
Step-3: Selection of borrower

It is the most important step in lending. After getting the application for loan NCCBL official
studies the past track record of the applicant. Generally the study includes:

• Account balance & past transaction.

• Credit report from other bank.
• Information of the industry by studying market feasibility.
• Past & projected financial statement analysis.

Borrower analysis: The quality of the applicant depends on following things:

Character:

Integrity:

• Past activities of the borrower

• By collecting & analyzing various information
• Analyzing collected documents
• Transaction analysis
• Analyzing the period of relation with the bank
Reliability:

• Fulfillment of promise or repayment of earlier loans properly

• Proper usage of earlier loans
• Social Status
• Realistic Business plan.

Capacity:

Business capacity: To select the borrower, the most important thing is Borrower’s business. From
the followings, one can have idea about the business capacity:

• Business’s previous growth

• Competitive advantage
• Adopted method and capacity to implement
• Ability to use the strength and remove the weakness
• Cash flow

Management Capacity: The capacity of the owner, director, managers depends on the several
things such as physical ability, educational qualification, training, experience,willing to work
perseverance, self-confidence, self-reliability, presence of mind etc.

Capital: Capital is a compulsory item to run the business. To know the condition of capital the
following things are analyzed:

• Asset and liability Position

• The probability of owner to provide additional capital
• Ratio Analysis

Condition: The following things should be considered to have an idea about the related condition
of the business:

• Growth of the Industry

25
 • Competitive condition
• Threat of new entry

• Government assistance
• Demand of the product

Collateral: Which assets are acceptable as collateral can be known by analyzing the following
things?

• Whether the ownership of property and documents of ownership are correct?

• Whether the connected assets can be mortgaged?
• Whether the borrower can influence the legal authority?
• The size, type, and location of property should be such that it can be take over?
• Whether any other person or organization has taken authority over the assets?
• Do the assets have demand in the market?
• How much time will be required to sale the assets by taking legal steps?
• What would be the approximate sale price?
• How much would be the approximate expenditure to sale the assets?
• What is the present market value of the assets?

By analyzing the above things, bank will decide whether the assets can be taken as collateral or
not.

Step-4: Collection of CIB report from the Bangladesh Bank.

Seep-5: Making credit line proposal

Step-6: Project appraisal

Project appraisal in banking sector is needed for following reasons:

• To justify the soundness of an investment.

 • To ensure about repayment of loan.
• To achieve organizational goals.

Step-7: Credit approval process

Step-8: Head office approval

Step-9: Sanction letter

Step-10: Acceptance by the borrower

Step-11: Documentation of loan & advances

Common charge of documents for all sorts of advances:

• Demand promissory note duly signed with revenue stamp

• Letter of arrangement
• Letter of acceptance

Additional charge documents required for the following sorts of advance:

Loan general:

• Letter of installment
• Letter of disbursement
• Letter of authority

Over draft:

• Letter of continuity
• Letter of installment Cash credit (Hypo):

• Letter of hypothecation

27
 • Insurance cover note
• Letter of guarantee
• Stock report signed by borrower
• Letter of continuity

Cash credit (Pledge):

• Letter of pledge
• Insurance cover note
• Letter of guarantee
• Stock report signed by borrower

Step-12: Disbursement

For disbursement following factors are taken into consideration:

a) After machinery contract is finalized, the bank will open irrevocable letter of credit on behalf of
the borrower in the join names of the bank and the borrower.

b) Disbursement of foreign currency loan is made automatically as soon as possible. Irrevocable

letter of credit for import of machinery is established and the foreign supplies make shipment of
machinery.

c) The local currency loan is to be made available to the project after satisfactory and full utilization
of equity by borrowers by creating required physical facilities for the project.

d) The local currency loan is to be distributed within 3or 5 installments as per nature of the project.

e) The borrower must use the loan for the purpose for which advance is extended.

Step-13: Monitoring and Follow-up:

• Regular checking of the balance of the client’s account. Banks recover the continuous and
demand loan by daily recover basis and recover the term loan by installment basis (monthly).
• Regular communication with the defaulting customer and guarantors physically/ over telephone.

• Issuance of letter to customers immediately after dishonor of cheque.

• Issuance of letter to defaulting customers and respective guarantors.

• Contacting the employers of the defaulting customers (after their overdue installments)

• Issuance of legal notice to the customers and guarantors’ prior classification of loans.

• Issuance of application/ greeting letter to the regular customers.

• Periodical visit to the customer to maintain relationship and supervision of supplied goods/ items.

• Legal actions to be taken after all possible efforts to recover the Bank’s dues have in vain.

3.4 Foreign Remittance Service of NCCBL:

Foreign remittance is an imperative dominant economic element of Bangladeshi economy. It has a
noticeable influence in our nationwide economy. It impacts more precisely in our GDP (Gross
domestic production). The Bangladeshi labors and migrants in various parts of the world are source
of a considerable influx of foreign exchanges (Known as remittance) in Bangladesh. This inflow
aids Bangladesh to face the current economic crisis globally. Diverse studies revealed that when
developed country’s economy was dwindling from mid of 2008 and stock markets crashed
globally, but Bangladesh is still maintaining its steady GDP progress and the economy is in a decent
state. It turns out to be imaginable because of enormous transfer of funds in Bangladesh.

National Credit and Commerce Bank Ltd (NCCBL) revolved into one of the leading and crucial
performers of Bangladesh into remittance sector. Currently, NCCBL is in trade with more than 15
overseas banks and exchanges by which a remitter can propel money in shortest possible time.

Types of foreign remittance in NCCBL:

29
Inland remittance:

Remittance is substantial portion of the overall banking. The bank accepts and transfers numerous
kinds of bills over the remittance inside the country. Understandably the bank charges commission
considering the amount of the bill. This remittance does not go straightly to the target banks. If a
bank obtains the remittance and transfer the currency to the target banks at that point for target
banks it is acknowledged as Inland Remittance such as Pay orders, Demand drafts, Telegraphic
transfers etc.

Foreign remittance

Foreign remittance is the currency straight received by the remitters target banks. Various exchange
businesses or currency transfer organizations labor as an intermediate for foreign remittance. NCC
Bank is the associate of Money Gram and SWIFT linkages. Consuming the facilities of this
worldwide linkage, non-resident can send money from overseas to home within a few minutes
without incurring any risk.

Current Procedure of managing Remittance Products in NCCBL:

National Credit and Commerce Bank Ltd is now managing more than 20 remittance products from
more than 15 foreign exchanges or banks. Various technology and devices are used for processing
the data obtained from these exchanges concerning remittance. MoneyGram:

MoneyGram is a collaborating net-based process of receiving currency in minutes globally. The

person who obtains needs to enter his reference digit in software delivered by Money gram termed
Delta works to acquire money. If the given information conforms to the requirement then the
officials make the payments. In the process sender finishes a “send” form and acquires a receipt.
Its Agent provides a Ref. No. This needs to be delivered to the receiver. NCC Bank makes an
investigation on the MoneyGram computer link to attain permission to pay receiver and receiver
gets the fund. It offers one of the fastest means to transfer currency. Clients by means of
MoneyGram can direct or accept currency commonly within 10 minutes from anyplace. To get the
money the receiver need not to have a bank account with NCC Bank Ltd. NCCBL does not impose
additional charge. It provides better conversation rate to the receiver. The receiver can go to any
branches of NCC Bank at his suitability with the reference No. and a photocopy of Voter
ID/Citizenship Certificate.

Xpress Money:
The straightforward characteristics of Xpress Money are analogous as Money gram. It’s also an
prompt cash arrangement where receivers acquire definite PIN number and branch officials
approve the disbursement by passing in a website of Xpress Money.

Placid Spot Cash

Placid Spot cash is a net centered remittance product like other instantaneous cash products (MG,
AFX). Like other analogous products in Placid SP, Recipient acquires a PIN No for performing
his/her disbursement. The Devoted server to Placid aids to implement the outlays. Approved officer
pass in placid website and perform the disbursement by means of user ID, Password and PIN No
for the deal.

3.5 Chapter Summary

Overall, the chapter exposes investigate the credit products and services and examines the credit
operation of NCC Bank Ltd. NCC Bank offers so many products and services to its customers.
Such as Deposit Products, Loan and advanced Products, Retail/Consumer Products, SME Banking,
and Cards. The Credit operation aims to have a secured loan portfolio so that the bank can earn
profit by keeping the depositors' savings secured.

31
 Chapter 4

Credit Risk Management

of NCC Bank Ltd
4.1 Credit Risk Management of Bangladesh Bank Guidelines

Amendment of section 13 of Act N.14 of 1991: In section 13 of the said Act- the words “previous
financial year”, wherever they are mentioned, the words “accounting year” the following
explanation shall be added, namely: – “For the purpose of this section, demand liabilities and
temporary liabilities shall not include the paid-up capital, the consolidated fund, the liabilities
shown in the profit and loss account and loans received from the Bangladesh Bank and interbank
liabilities.”

INDUSTRY BEST PRACTICES AS SUGGESTD BY BANGLADESH BANK

Policy Guidelines
This section details fundamental credit risk management policies that are recommended for
adoption by all banks in Bangladesh. The guidelines contained herein outline general principles
that are designed to govern the implementation of more detailed lending procedures and risk
grading systems within individual banks.

Lending Guidelines
All banks should have established Credit Policies (“Lending Guidelines”) that clearly outline the
senior management’s view of business development priorities and the terms and conditions that
should be adhered to in order for loans to be approved. The Lending Guidelines should be updated
at least annually to reflect changes in the economic outlook and the evolution of the bank’s loan
portfolio, and be distributed to all lending/marketing officers. The Lending Guidelines should be
approved by the Managing Director/CEO & Board of Directors of the bank based on the
endorsement of the bank’s Head of Credit Risk Management and the Head of
Corporate/Commercial Banking. (Section 2.1 of these guidelines refers) Any departure or
deviation from the Lending Guidelines should be explicitly identified in credit applications and a
justification for approval provided. Approval of loans that do not comply with Lending Guidelines
should be restricted to the bank’s Head of Credit or Managing Director/CEO & Board of Directors.
The Lending Guidelines should provide the key foundations for account officers/relationship
managers (RM) to formulate their recommendations for approval, and should include the
following:

33
Industry and Business Segment Focus
The Lending Guidelines should clearly identify the business/industry sectors that should constitute
the majority of the bank’s loan portfolio. For each sector, a clear indication of the bank’s appetite
for growth should be indicated (as an example, Textiles: Grow, Cement: Maintain, Construction:
Shrink). This will provide necessary direction to the bank’s marketing staff.

Types of Loan Facilities:

The type of loans that are permitted should be clearly indicated, such as Working Capital, Trade
Finance, Term Loan, etc.

Cross Border Risk:

Risk associated with cross border lending. Borrowers of a particular country may be unable or
unwilling to fulfill principle and/or interest obligations. Distinguished from ordinary credit risk
because the difficulty arises from a political event, such as suspension of external payments

Synonymous with political & sovereign risk

Third world debt crisis. For example, export documents negotiated for countries like Nigeria.

Credit Assessment & Risk Grading

Credit Assessment
A thorough credit and risk assessment should be conducted prior to the granting of loans, and at
least annually thereafter for all facilities. The results of this assessment should be presented in a
Credit Application that originates from the relationship manager/account officer (“RM”), and is
approved by Credit Risk Management (CRM). The RM should be the owner of the customer
relationship, and must be held responsible to ensure the accuracy of the entire credit application
submitted for approval. RMs must be familiar with the bank’s Lending Guidelines and should
conduct due diligence on new borrowers, principals, and guarantors. It is essential that RMs know
their customers and conduct due diligence on new borrowers, principals, and guarantors to ensure
such parties are in fact who they represent themselves to be. All banks should have established
Know Your Customer (KYC) and Money Laundering guidelines which should be adhered to at all
times. Credit Applications should summaries the results of the RMs risk assessment and include,
as a minimum, the following details:

• Amount and type of loan(s) proposed.

• Purpose of loans.
• Loan Structure (Tenor, Covenants, Repayment Schedule, Interest)
 • Security Arrangements.

In addition, the following risk areas should be addressed:

Borrower Analysis: The majority shareholders, management team and group or affiliate companies
should be assessed. Any issues regarding lack of management depth, complicated ownership
structures or intergroup transactions should be addressed, and risks mitigated Industry analysis.
Supplier/Buyer Analysis. Any customer or supplier concentration should be addressed, as these
could have a significant impact on the future viability of the borrower.
Historical Financial Analysis. An analysis of a minimum of 3 years historical financial statements
of the borrower should be presented. Where reliance is placed on a corporate guarantor, guarantor
financial statements should also be analyses. The analysis should address the quality and
sustainability of earnings, cash flow and the strength of the borrower’s balance sheet. Specifically,
cash flow, leverage and profitability must be analyzed.
Projected Financial Performance: Where term facilities are being proposed, projection of the
borrower’s future financial performance should be provided, indicating an analysis of the
sufficiency of cash flow to service debt repayments. Loans should not be granted if projected cash
flow is insufficient to repay debts.
Account Conduct: For existing borrowers, the historic performance in meeting repayment
obligations (trade payments, cheques, interest and principal payments, etc) should be assessed.
Adherence to Lending Guidelines: Credit Applications should clearly state whether or not the
proposed application is in compliance with the bank’s Lending Guidelines. The Bank’s Head of
Credit or Managing Director/CEO should approve Credit Applications that do not adhere to the
bank’s Lending Guidelines.
Loan Structure: The amounts and tenors of financing proposed should be justified based on the
projected repayment ability and loan purpose. Excessive tenor or amount relative to business needs
increases the risk of fund diversion and may adversely impact the borrower’s repayment ability.
Security: A current valuation of collateral should be obtained and the quality and priority of
security being proposed should be assessed. Loans should not be granted based solely on security.
Adequacy and the extent of the insurance coverage should be assessed.
Name Lending: Credit proposals should not be unduly influenced by an over reliance on the
sponsoring principal’s reputation, reported independent means, or their perceived willingness to
inject funds into various business enterprises in case of need. These situations should be
discouraged and treated with great caution. Rather, credit proposals and the granting of loans
should be based on sound fundamentals, supported by a thorough financial and risk analysis.
Appendix iv contains a template for credit application.

Risk grading
All Banks should adopt a credit risk grading system. The system should define the risk profile of
borrowers to ensure that account management, structure and pricing are commensurate with the

35
risk involved. Risk grading is a key measurement of a bank’s asset quality, and as such, it is
essential that grading is a robust process. All facilities should be assigned a risk grade. Where
deterioration in risk is noted, the Risk Grade assigned to a borrower and its facilities should be
immediately changed. Borrower Risk Grades should be clearly stated on Credit Applications. The
following Risk Grade Matrix is provided as an example. The more conservative risk grade (higher)
should be applied if there is a difference between the personal judgment and the Risk Grade
Scorecard results. It is recognized that the banks may have more or less Risk Grades; however,
monitoring standards and account management must be appropriate given the assigned Risk Grade:

Approval Authority, Segregation of Duties & Internal Audit

Approval Authority
The authority to sanction/approve loans must be clearly delegated to senior credit executives by
the Managing Director/CEO & Board based on the executive’s knowledge and experience.
Approval authority should be delegated to individual executives and not to committees to ensure
accountability in the approval process. The following guidelines should apply in the
approval/sanctioning of loans:

• Credit approval authority must be delegated in writing from the MD/CEO & Board (as
appropriate), acknowledged by recipients, and records of all delegation retained in CRM.
• Delegated approval authorities must be reviewed annually by MD/CEO/Board.
• The credit approval function should be separate from the marketing/relationship
management (RM) function.
• The role of Credit Committee may be restricted to only review of proposals i.e.,
Recommendations or review of bank’s loan portfolios.
• Approvals must be evidenced in writing, or by electronic signature. Approval records must
be kept on file with the Credit Applications.
• All credit risks must be authorized by executives within the authority limit delegated to
them by the MD/CEO. The “pooling” or combining of authority limits should not be
permitted.
• Credit approval should be centralized within the CRM function. Regional credit centers
may be established; however, all large loans must be approved by the Head.
• Credit and Risk Management or Managing Director/CEO/Board or delegated Head Office
credit executive.
• The aggregate exposure to any borrower or borrowing group must be used to determine the
approval authority required.
 • Any credit proposal that does not comply with Lending Guidelines, regardless of amount,
should be referred to Head Office for Approval.
• MD/Head of Credit Risk Management must approve and monitor any cross-border
exposure risk.
• Any breaches of lending authority should be reported to MD/CEO, Head of Internal
Control, and Head of CRM.

Segregation of Duties

Banks should aim to segregate the following lending functions:

• Credit Approval/Risk Management
• Relationship Management/Marketing
• Credit Administration
The purpose of the segregation is to improve the knowledge levels and expertise in each
department, to impose controls over the disbursement of authorized loan facilities and obtain an
objective and independent judgment of credit proposals.

Internal Audit
Banks should have a segregated internal audit/control department charged with conducting audits
of all departments. Audits should be carried out annually, and should ensure compliance with
regulatory guidelines, internal procedures, and Lending Guidelines and Bangladesh Bank
requirements.

Preferred organizational structure & responsibilities

The appropriate organizational structure must be in place to support the adoption of the policies
detailed in Section 1 of these guidelines. The key feature is the segregation of the
Marketing/Relationship Management function from Approval / Risk Management /Administration
functions. Credit approval should be centralized within the CRM function. Regional credit centers
may be established; however, all applications must be approved by the Head of Credit and Risk
Management or Managing Director /CEO Board or delegated Head Office credit executive.

Key Responsibilities
The key responsibilities of the above functions are as follows:

37
Credit Risk Management (CRM)

• Oversight of the bank’s credit policies, procedures and controls relating to all credit risks
arising from corporate/commercial institutional banking, personal banking, & treasury
operations. • Oversight of the bank’s asset quality.
• Directly manage all Substandard, Doubtful & Bad and Loss accounts to maximize recovery
and ensure that appropriate and timely loan loss provisions have been made.
• To approve (or decline), within delegated authority, Credit Applications recommended by
RM. Where aggregate borrower exposure is in excess of approval limits, to provide
recommendation to MD/CEO for approval. • To provide advice/assistance regarding all
credit matters to line management.
• To ensure that lending executives have adequate experience and/or training in order to carry
out job duties effectively. • Credit Administration:
• To ensure that all security documentation complies with the terms of approval and is
enforceable.
• To monitor insurance coverage to ensure appropriate coverage is in place over assets
pledged as collateral, and is properly assigned to the bank.
• To control loan disbursements only after all terms and conditions of approval have been
met, and all security documentation is in place.
• To maintain control over all security documentation.
• To monitor borrower’s compliance with covenants and agreed terms and conditions, and
general monitoring of account conduct/performance.

Relationship Management/Marketing (RM)

• To act as the primary bank contact with borrowers.

• To maintain thorough knowledge of borrower’s business and industry through regular
contact, factory/warehouse inspections, etc. RMs should proactively monitor the financial
performance and account conduct of borrowers.
• To be responsible for the timely and accurate submission of Credit Applications for new
proposals and annual reviews, taking into account the credit assessment
• To highlight any deterioration in borrower’s financial standing and amend the borrower’s
Risk Grade in a timely manner. Changes in Risk Grades should be advised to and approved
by CRM.
 • To seek assistance/advice at the earliest from CRM regarding the structuring of facilities,
potential deterioration in accounts or for any credit related issues. Internal Audit/Control
• Conducts independent inspections annually to ensure compliance with Lending Guidelines,
operating procedures, bank policies and Bangladesh Bank directives. Reports directly to
MD/CEO or Audit committee of the Board.

Procedural guidelines

This section outlines of the main procedures that are needed to ensure compliance with the policies
contained in Section 1.0 of these guidelines.

Approval Process

The approval process must reinforce the segregation of Relationship Management/ Marketing from
the approving authority. The responsibility for preparing the Credit Application should rest with
the RM within the corporate/commercial banking department. Credit Applications should be
recommended for approval by the RM team and forwarded to the approval team within CRM and
approved by individual executives. Banks may wish to establish various thresholds, above which,
the recommendation of the

Head of Corporate/Commercial Banking is required prior to onward recommendation to CRM for

approval. In addition, banks may wish to establish regional credit centres within the approval team
to handle routine approvals. Executives in head office CRM should approve all large loans. The
recommending or approving executives should take responsibility for and be held accountable for
their recommendations or approval. Delegation of approval limits should be such that all proposals
where the facilities are up to 15% of the bank’s capital should be approved at the CRM level,
facilities up to 25% of capital should be approved by CEO/MD, with proposals in excess of 25%
of capital to be approved by the EC/Board only after recommendation of CRM, Corporate Banking
and MD/CEO.

Credit Administration

The Credit Administration function is critical in ensuring that proper documentation and approvals
are in place prior to the disbursement of loan facilities. For this reason, it is essential that the
functions of Credit Administration be strictly segregated from Relationship

39
Management/Marketing in order to avoid the possibility of controls being compromised or issues
not being highlighted at the appropriate level. Credit Administration procedures should be in place
to ensure the following:

Disbursement:
Security documents are prepared in accordance with approval terms and are legally enforceable.
Standard loan facility documentation that has been reviewed by legal counsel should be used in all
cases. Exceptions should be referred to legal counsel for advice based on authorization from an
appropriate executive in CRM. Disbursements under loan facilities are only be made when all
security documentation is in place. CIB report should reflect/include the name of all the lenders
with facility, limit & outstanding. All formalities regarding large loans & loans to Directors should
be guided by Bangladesh Bank circulars & related section of Banking Companies Act. All Credit
Approval terms have been met.

Custodial Duties:
Loan disbursements and the preparation and storage of security documents should be centralized
in the regional credit centers. Appropriate insurance coverage is maintained (and renewed on a
timely basis) on assets pledged as collateral. Security documentation is held under strict control,
preferably in locked fireproof storage.

Compliance Requirements:
All required Bangladesh Bank returns are submitted in the correct format in a timely manner.
Bangladesh Bank circulars/regulations are maintained centrally, and advised to all relevant
departments to ensure compliance. All third-party service providers (value’s, lawyers, insurers,
CPAs etc.) are approved and performance reviewed on an annual basis. Banks are referred to
Bangladesh Bank circular outlining approved external audit firms that are acceptable.

Incentive Program:
Banks may wish to introduce incentive programs to encourage Recovery Unit (RU) Account
Managers to bring down the Non-Performing Loans (NPLs).
The table below shows an indicative incentive plan for RU account managers:

Recovery as a % of principal Recommended incentive as % of net recovery amount

plus interest

If CG 7-8 If written off

76% to 100% 1.00% 2.00%

51% to 75% 0.50% 1.00%

20% to 50% 0.25% 0.50%

4.2 Credit Risk Management of NCCBL

The word credit comes from the Latin word “credo” meaning “I believe”. It is a lender trust in
persons/ firms/ company’s ability or potential ability to command goods or service of another in
return for promise to pay such goods or services at some specified time in the future and extend
credit to customers and others out of the funds at the bank limited made in different forms, such as
loans, overdraft, cash credits, bill purchased and discounted, bank guarantee etc. NCCBL usually
grant short-term advances, which are utilized to meet the working capital requirements of the
borrower. Only a small portion of a bank’s demand and time liabilities is advanced on longterm
basis where the banker usually insists on a regular repayment by the borrower in installments.

4.3 Credit Risk Grading

A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary summary indicator of
risks associated with a credit exposure. Credit Risk Grading is the basic module for developing a
Credit Risk Management system. It helps NCCBL to understand various dimensions of risk
involved in different credit transactions. The aggregation of such grading across the borrowers,
activities and the lines of business can provide better assessment of the quality of credit portfolio
of NCCBL. The credit risk grading system is vital to take decisions both at the pre-sanction stage
as well as post-sanction stage.

4.4 Functions of Credit Risk

Grading Well-managed credit risk grading systems promote bank safety and soundness by
facilitating informed decision-making. Grading systems measure credit risk and differentiate
individual credits and groups of credits by the risk they pose. This allows bank management and
examiners to monitor changes and trends in risk levels. The process also allows bank management
to manage risk to optimize returns.

41
4.5 Applications 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 individual obligor, credit portfolio
of a unit, line of business, NCCBL as a whole.
• CRG provide a quantitative measurement of risk which portrays the risk level of a borrower
and enables quick decision making.
• Risk grading is also relevant for surveillance and monitoring, internal MIS and assessing
the aggregate risk profile of NCCBL. It is also relevant for portfolio level analysis.
• CRG provide a quantitative framework for assessing the provisioning Requirement of
NCCBL's credit portfolio.

4.6 Procedures of Credit Risk Grading (CRG)

Analysis of Analysis of Business Analysis of Security

Financial Risk Risk Risk

Financial risk – 50% Business Risk Security Risk

18% 10%

Coverage Size of Business Security coverage

5% 5% 4%

Profitability Age of Business Collateral coverage

15% 3% 4%

Liquidity Business Outlook Support

15% 3% 2%

Leverage Industry growth

15% 3%
 Market Competition
2%

Entry/Exit Barriers
2%

4.7 Lending Process

The main function of commercial bank is to take deposit and invest this fund. But in the process
of lending, it has to safeguard the depositor’s money as well as business of the bank. Therefore
proper management supervision and follow-up is very important in the lending and recovery
process. NCCBL follows a three-step process firmly to supervise and follow-up the lending and
recovery process.

Pre-Sanction Stage

The very supervision of loans starts during pre-sanction. At this stage credit investigation is very
important as it involves selection of right and qualitative borrower. The following steps are
conducted to make sure that the loans are authorized to the right persons.

Information collection
• Credit information bureau of Bangladesh Bank.
• Declaration of the party with regard to liability with other banks, financial institutions.
• Account performance, reputation, track record, repayment capacity through NCCBL
internal sources.

Post-sanction/Pre-disbursement

Proper documentation and securitization are very important at this stage for safety of the credit
facility to be extended and enabling NCCBL to liquidate the loan liability in the event of the
borrower's default.

Proper documentation serves three basic purposes to NCCBL:

1. Borrower's unqualified assets of availing credit facility.
2. Bank's legal right created to securities offered as loan.

43
3. In case of default, the documents can be placed before court for a decree to realize the dues.

Principle Of Sound Lending

Risk relate with advance may be have at minimum if sound lending are principles are followed:
• Safety: To ensure the safety of lending NCCBL follows the following factors: Factors
needed

• Purpose: Purpose of providing loan is a sensitive point to know about the customer.
Weather the customer is or good. It helps the Banker to know the course of action of the
borrower as regards landing. So, the banker can have the idea whether the loan will be in
productive purpose or not.

• Liquidity: Every Bank has to keep enough liquidity in their locker because of fulfill the
demand of customer. If customer cannot get the amount when they need then they will be
dissatisfied and transferred their specific bank.

• Security: All the bank when they provide loans to the borrowers then they take collateral
or security against the loan because of the safety purpose of this loan. If the borrower don
not able to provide the loan back to the bank, then the bank will repay their loss by sale
this security.

• Profitability: Profit is the blood for every business. Without blood a person cannot live
same to same without profit a business cannot run for long time. So, when bank is going to
provide the loan to the borrower then they analyst about the provable profit of this
business.

• National interest: A bank also has to think about the development of the economy of a
country, if they only think about them then it will be the unethical work.

Five C's of Analysis Credit Character:

 • Character: In character stage bank always try to judge a customer his or her credit
history. In past is he properly maintaining his previous credit or he make mistake. Bank
generally judges this side.

• Capacity: Capacity means the customer is able to repay his credit in time or not, bank
generally this side in this stage.

• Capital: Capital means the investing source, that a customer want to investing his credit
on a specific sector is this sector is profitable or not bank basically judge it.

• Collateral: For example, I receive a credit of take 40000 from NCC Bank. Against these
40000 takas I have to keep something collateral to the bank which value has to equal
40000. This is called collateral.

• Conditions: During the borrower take loan bank always give some conditions to the
customer for the safety of their money a customer have obey these conditions.

After measuring this 5 CS a bank then takes the decision that the bank will provide the loan
or not. They judge the customer by bellow grading scale.

4.8 Chapter Summary

Amendment of section 13 of Act N.14 of 1991: Demand liabilities and temporary liabilities shall
not include the paid-up capital, the consolidated fund, the liabilities shown in the profit and loss
account and loans received from the Bangladesh Bank and interbank liabilities. A thorough credit
and risk assessment should be conducted prior to the granting of loans, and at least annually
thereafter for all facilities. All banks should have established Know Your Customer (KYC) and
Money Laundering guidelines which should be adhered to at all times. The Bank's Head of Credit
or Managing Director/CEO should approve Credit Applications that do not adhere to the bank's
Lending Guidelines. The amounts and tenors of financing proposed should be justified based on
the projected repayment ability and loan purpose. Loans should not be granted if projected cash
flow is insufficient to repay debts.

The word credit comes from the Latin word "credo" meaning "I believe". It is a lender trust in
persons/ firms/ company's ability or potential ability to command goods or services. NCCBL
usually grant short-term advances, which are utilized to meet the working capital requirements of

45
the borrower. The main function of commercial banks is to take deposit and invest this fund, but
in the process of lending, it has to safeguard depositor's money as well as business of the bank.
Proper documentation and securitization are very important at this stage for safety of the credit
facility to be extended.

This enables NCCBL to liquidate the loan liability in the event of the borrower's default. In case
of default, documents can be placed before court for a decree to realize the liability. They judge
the customer by bellow grading scale. A bank also has to think about the development of the
economy of the country if they only think about them then it is unethical work.
 Chapter4 5
Measuring the Credit
Performance of Ltd
NCC Bank

47
Introduction

This chapter contains the evaluation of the last five years (2019-2023) performance of the Bank.

It represents the performance on deposit total loan, loan growth rate of the total loan deposit and
deposit growth rate, ratio of the total deposit and total loan and loan recovery.

5.1 TOTAL LOANS AND GROWTH RATE OF NCCBL:

Table 4.1: TOTAL LOANS AND GROWTH RATE OF NCCBL

Years Total Loan Growth Rate

2019 153982 -

2020 134765 -0.12%

2021 183273 35.9%

2022 187960 2.56%

2023 195524 4.02%

Source: Annual reports of NCC Bank Ltd

Form the above chart we can find that the amount of increasing gradually. In 2020 it was 134765
with the growth rate -0.12% which was lower than the previous year due to Corona pandemic. In
2021 the amount was 183273 the growth rate of the loan was 35.9% which was increased than
previous year and again in the year 2022 the amount was 181960 and the growth rate of the loan
was fall down which was 2.56% and in 2023 it was increased and growth rate was 4.02% the
growth rate of the loan was fluctuated year by year
Figure 5.1: TOTAL LOANS AND GROWTH RATE OF NCCBL

Source: Different annual reports of NCC Bank Ltd Analysis:

5.2 RATIO OF TOTAL LOAN & TOTAL DEPOSIT OF NCCBL:

Table 4.2: RATIO OF TOTAL LOAN & TOTAL DEPOSIT OF NCCBL

Years Total Loan Total Deposit Loan to deposit

Ratio

2019 153982 159837 0.96 %

2020 134765 134765 1%

2021 183273 194303 0.94 %

2022 181960 189941 0.95 %

49
2023 195524 178168 1.09 %

Source: Annual reports of NCC Bank Ltd

Figure 5.2: RATIO OF TOTAL LOAN & TOTAL DEPOSIT OF NCCBL

Source: Different annual reports of NCC Bank Ltd Analysis:

From the graph it is clear that the amount of total loan and total deposit are gradually increasing
but increasing of total loan are much lower than the total amount of deposit which means the banks
don’t utilize its idle money properly.
5.3 TOTAL RECOVERY OF POSITION OF NCCBL:

Table 5.3: TOTAL RECOVERY OF POSITION OF NCCBL:

Years Total Loan Recovery Amount Rate

2019 153982 153575 99.73%

2020 134765 130536 96.86%

2021 183273 183247 99.98 %

2022 181960 181668 99.83 %

2023 195524 195584 100 %

Source: Annual reports of NCC Bank Ltd

Figure 5.3: TOTAL RECOVERY OF POSITION OF NCCBL:

Source: Different annual reports of NCC Bank Ltd Analysis:

51
5.4 SECTOR WISE LOAN PERFORMANCE OF NCCBL PAHARTOLI BRANCH
SME LOAN OF NCCBL:

Table 5.4: SECTOR WISE LOAN PERFORMANCE OF NCCBL PAHARTOLI BRANCH SME
LOAN OF NCCBL:
Years SME LOANS GRWOTH RATE

2019 168

2020 150 -0.10%

2021 227 51.3%

2022 264 16.19&

2023 271 2.56%

Source: Annual reports of NCC Bank Ltd

Figure 5.4: SECTOR WISE LOAN PERFORMANCE OF NCCBL PAHARTOLI BRANCH SME
LOAN OF NCCBL:
5.5 HOUSE BUILDING LOAN OF NCCBL PAHARTOLI BRANCH:

Table 5.5: HOUSE BUILDING LOAN OF NCCBL PAHARTOLI BRANCH:

Years HOUSE GRWOTH RATE

BUILDING LOANS

2019 68

2020 57 -16.17 %

2021 62 8.77 %

2022 51 -17.74 %

2023 79 54.90 %

Source: Annual reports of NCC Bank Ltd

Figure 5.5: HOUSE BUILDING LOAN OF NCCBL PAHARTOLI BRANCH:

house growth rate Column1 Linear (house)

90
79
80
68
70 62
57
60 51
50
40
30
20
10 -16.17% 8.77% -17.74% 54.90%
0
-10 2019 2020 2021 2022 2023

Source: Different annual reports of NCC Bank Ltd

53
5.6 BUSINESS LOAN OF NCCBL PAHARTOLI BRANCH:

Table 5.6: BUSINESS LOAN OF NCCBL PAHARTOLI BRANCH:

Years BUSINESS LOANS GRWOTH RATE

2019 200

2020 147 -26.5 %

2021 275 87.07%

2022 196 -28.72 %

2023 223 13.7 %

Source: Annual reports of NCC Bank Ltd

Figure 5.6: BUSINESS LOAN OF NCCBL PAHARTOLI BRANCH:

275

223
200 196

147

-26.50% 87.07% -28.72% 13.70%

2019 2020 2021 2022 2023

Source: Different annual reports of NCC Bank Ltd

5.7 INDUSTRY LOAN OF NCCBL PAHARTOLI BRANCH:

Table 4.7: INDUSTRY LOAN OF NCCBL PAHARTOLI BRANCH:

Years INDUSTRY LOAN GRWOTH RATE

2019 176

2020 198 12.5 %

2021 215 8.58 %

2022 221 2.79 %

2023 227 2..64 %

Source: Annual reports of NCC Bank Ltd

Figure 5.7: INDUSTRY LOAN OF NCCBL PAHARTOLI BRANCH:

100%
2.79% 2.65%
8.58%
12.50%

176
221 227
215
198

100%
2019 2020 2021 2022 2023

Source: Different annual reports of NCC Bank Ltd Analysis:

55
5.8 AGRICULTURE LOAN OF NCCBL PAHARTOLI BRANCH:

Table 4.8: AGRICULTURE LOAN OF NCCBL PAHARTOLI BRANCH:

Years AGRICULTURE LOAN GRWOTH RATE

2019 24

2020 27 12.5 %

2021 36 33.33 %

2022 19 -47.2 %

2023 30 57.89 %

Source: Annual reports of NCC Bank Ltd

Figure 5.8: AGRICULTURE LOAN OF NCCBL PAHARTOLI BRANCH:

2023

2022

2021

2020

2019

-5 0 5 10 15 20 25 30 35 40

2019 2020 2021 2022 2023

growth rate 12.50% 33.33% -47.20% 57.89%
agricultural loan 24 27 36 19 30

Source: Different annual reports of NCC Bank Ltd Analysis:

 Chapter 6
Summary of findings,
Recommendation & conclusion

57
6.1 Summary of Findings

 NCC Bank emphasize about marketing. Like youngster a/c is a new product of NCC Bank,
for school and college going children. If they go to schools and colleges, the children could
know about this product.
 NCC Bank Debit Card didn’t have the facility to shopping somewhere. Other bank Debit
Card has this facility.
 NCCBL Doesn’t charges money to the clients to print out their balance in deposit account
and loans. So, a client can come every day to ask for the print out for his/her balance, this
will be a loss for the banks. However other banks charges for this kind of activities. NCCBL
could also charge money and make profit by this.
 Lack of updated products is also a demerit of the general banking. The bank provides only
some limited traditional services.

6.2 Recommendation

The current condition of NCC Bank is good enough. The clients are satisfied with the service.

 To hold their current client and to attract new clients NCC Bank needs improvement in the
following area-
 They should update their website.
 There is a noticeable absence of the bank from mainstream media, with hardly any well-
planned promotional activities.
 There should be more ATM Booths.
 With other Debit Cards people can do their shopping, but NCC Bank doesn’t have this
facility in their debit card.
 NCCBL must pursue a strong an effective recruitment system so that right people are
recruited at the right job. It is worth spending more on attractive qualified human resources
rather than recruiting staffs by reference.
 Online banking should be updated to attract more clients.
 Should give more concentration on decoration part of the branch, and take initiatives to
maintain the line in cash counter. They can provide token to each client to maintain the line.
6.3 Conclusion

Though NCC Bank Ltd faced lots of challenges from different competitors still they succeeded to
hold its image and achieved a sustainable growth. NCCBL did several CSR activities started from
urban to rural areas. NCC bank has gained acceptance for its csr activities as a voluntary effort in
promoting equitable and sustainable development of the society Further, the Bank should pay
attention to manage liability also so as to build up a strong deposit base to satisfy investment need
of the market. NCCBL has been awarded various trophies from exchange companies like Money
gram for its initiatives in motivating people in this part of the World to avail of the opportunity of
sending money through these enterprises.

The Bank maintains transparency in its entire works. All decision of the Management comes
through discussions in appropriate forum and required follow-ups are also made to see their
effectiveness. To train up the fresh appointees, the Bank undertakes various training programmers
in its Training Institute. Further, training is arranged for making other officers acquainted with
changing atmosphere of the sector so as to enable them to be on the race. The Bank is always
concerned to keep up its good image through various promotional measures.

References

 Annual Report 2017-2021 of NCCBL.

 NCCBL prospectus and manual.
 Statement of Affairs of NCCBL, Pahartoli, Raozan, Branch.
 Reading Materials of basic training course for the probationary officers of NCCBL.
 Web site: www.nccbank.com.bd
 Credit Risk Grading (CRG) Manual, Published by Bangladesh Bank.

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