INTRODUCTION

1.1 Origin of the Report After completion of 4 years in the BBA program of the faculty of business studies, department of management studies, University of Dhaka, three months organizational attachment is must. So the preparation and submission of this report is partial requirement for the completion of the Bachelor of Business Administration (BBA).This report is outcome of the three month long internship program conducted in Jamuna Bank Limited, one of the reputed private commercial banks of the country .While working in the bank the standard operating procedures carried out by the bank the standard operating procedures carried out by the bank were observed and understood.

1.2 Objectives of the Report This report is prepared primarily to fulfill the Bachelor of Business Administration (BBA) degree requirement in BBA program of the faculty of business studies, department of management studies, University of Dhaka. Re secondary objectives of this report are:

To have exposure to the credit operation and other function of Jamuna Bank Limited. To have a clear understanding of the business operation of Jamuna Bank Limited. To discuss the services offered by Jamuna Bank Limitcd. To assess and evaluate the growth trends of Jamuna Bank Limited. To evaluate the profitability of Jamuna Bank Limited. To identify the major strength and weakness of Jamuna Bank Limited in respect to other banks. 1

To recommend ways and means to solve problems regarding banking of Jamuna Bank Limited.

1.3 Methodology This report is based mainly on observations that I experienced during the internship period. Data required for this report were collected from the annual report of Jamuna bank. Apart from these, helpful information was collected from online resources. To analyze the performance of Jamina bank limited different statistical and financial tools such as ratio analysis, growth analysis were done.

1.4 Limitation Although the officials were so busy, they gave me wholehearted cooperation in the time of internship also in preparing this report. It was such a nice experience I have gathered from JBL. But I have faced the following that may be terns as die limitations of the study. No remuneration was provided The first obstacle was that they would not provide any remuneration even TAJDA for doing internship in JBL.

Lack of records Sufficient books, publications and figures were not available. If this limitation were not been there, the report would have been more useful. 1.5 Background Information of Jamuna Bank Limited Jamuna Bank Limited is one of the leading private commercial banks in Bangladesh that has achieved tremendous popularity and credibility among the people for its products & services. It is a public limited company and its shares are traded in Dhaka and Chittagong stock exchange. The bank undertakes all types of banking transaction

to support the development of trade and commerce in the country. JBLs service is also available for the entrepreneurs to set up new ventures and BMM-,, of industrial units. To provide clientele services in respect of international trade it has established wide, corresponded Banking relationship with local and foreign banks covering major trade and financial interest home and abroad.

1.6 Historical Background of JBL Jamuna Bank Limited (JBL) is a Banking Company registered under the Companies Act 1994 with its Head Office at Printers Building, 5 Rajuk avenue Dhaka-1000. The bank started its operation from 3rd June 2001. Jamuna Bank Limited (Jf31,) is a highly capitalized new generation Bank with an Authorized capital and paid-up capital of Taka 1600.00 million and Tk 390.00 million, Paid up capital of the Bank raised to Tk.429 million as of December, 2005 and the number of branches raised to 29.Thc bank gives special emphasis on export, import, trade finance SME finance Retail credit and finance to woman Entrepreneurs.

1.7 Corporate Slogan of JBL Your Partner For Growth

1.8 Vision of JBL To become a leading banking institution and to play a pivotal role inthe development of the country.

1.9 Mission of JBL The Bank is committed to satisfying diverse needs of its customers through an array of products at a competitive price by using appropriate technology and providing timely service so that a sustainable growth, reasonable return and contribution to the development of the country can be ensured with a motivated and professional workforce.

1.10 Objectives of JBL

To earn and maintain CAMEL Rating Strong. To establish relationship banking and improve service quality through

development of strategies marketing plans.

To remain one of the best banks in Bangladesh in terms of Profitability and

assets quality . To introduce full y automated system through integration of Information Technology.

To ensure an adequate rate of return on investment To keep risk position at an acceptable range (including an y of balance sheet risk)

To maintain adequate liquidity to meet maturing obligation and commitments. To maintain a healthy growth of business with desired image To maintain adequate control systems and transparency in procedure To develop and retain a quality work force through an effective Human Resources Management System

To ensure optimum utilization of all available resources To pursue an effective system of management by ensuring compliance to clinical norms, transparency and accountability

1.11 Strategies of JBL

To manage and operate the Bank in the most efficient manner to enhance financial performance and to control cost of fund.

To strive for customer satisfaction through quality control and delivery of timely services.

To identify customers credit and other banking needs and monitor their perception towards our performance in meeting those requirement.

To review and update policies, procedures and practices to enhance the ability to extend better services to customers.

To train and develop all employees and provide adequate resources so that customer needs car, be responsibly addressed.

To promote organizational effectiveness by openly communicating company plans, policies, practices and procedures to all employees in a timely fashion

To cultivate a working environment that fosters positive motivation for or improved performance

To diversify portfolio both in the retail and wholesale market To increase direct contract with customers in order to cultivate a closer relationship between the bank and its customers.

1.12 Organogram of JBL

Chairman

Managing Director (MD)

Deputy Managing Director (DMD)

Senior Executive Vice President (SEVP)

Senior Executive Vice President (SEVP)

Senior Executive Vice President (SEVP)

Executive Vice President (EVP)

Executive Vice President (EVP)

SVP (Board Secretary)

SVP (HRD)

SVP (Credit)

SVP

SVP

VP

VP

SAVP

SAVP

1.13.1 Corporate Governance

Board Of Directors

The Board of Directors consists of 13 members elected from the sponsors. The Board of Dirc-7 supreme body of the Bank. Executive Committee All routine matters beyond the delegated powers of management are decided upon by or routed through the Executive Committee, subject to ratification by the Board of Directors. Audit Committee In line with the guidelines of Bangladesh Bank, a three-member Audit Committee of the Board of Directors been formed to assists the Board in matters related to Audit and Internal Control System of the Bank. Chairman AI-Haj Nur Mohammed Vice Chairman Mr. Md. Sirajul Islam Varosha Directors Al-haj M. A. Khayer Engr. A. K. M. Mosharraf Hussain Mr. Arifur Rahman Mr. Golam Dastagir Gazi, Bir Protik Mr. Fazlur Rahman Mr. Md.Tajul Islam Mr. Md. Mahmuclul Hoque Mr. Md. Irshad Karim Mr. Shaheen Mahmud Mr. Mohammad Nurul Alam Sponsor Directors Engr. Md. Atiqur Rahman Al-haj Md. Rezaul Karim Ansari Mr. Md. Belal Hossain Mr. Sakhawat Abu Khair Mohammad Mr. M.N.H. Bulu Mr. Farhad Ahmed Akand Mr. Md. Ismail Hossain Siraji Mr. Gazi Golam Murtoza Mr. Kanutosh Majumder Shariah Council Professor Dr. Mustafizur Rahman Mawlana Mufti Ruhul Amin Mawlana Abdur Razzak Professor Mowlana Md.Salahuddin Mr. M Azizul Huq Managing Director Mr. Mohammed Lakiotullah Additional Managing Director Mr. Md. Motior Rahman Company Secretary

Mr. Md. Anwar Hossain Auditors M/s. G. Ki b ria & Co. Chartered Accountants

1.14 SWOT ANALYSIS OF JBL

STRENGTHS

WEAKNESSES

Experienced top management. Satisfactory capital base. Low infection in loan exposure. Prospective IT infrastructure.

Limited market share. Exposure to large loanExcessive dependency on term deposits. Weak fund management. High cost of fund. Islamic Branch funds are not ring fenced.

OPPORTUNITIES Regulatory environment favoring private sector Development. Credit card. Small and medium enterprises.

THREATS Increased competition in the market for quality assets. Supply gap of foreign currency. Over all liquidity crises in money market.

CH PTER A -2

Products and Services of Jamuna Bank Limited

2.0 Products & Services

The products and services can be classifying in two ways & those arc.

The deposit products & services The lending products & services

Deposits products & services Corporate Banking Personal Banking Online Banking Monthly Savings Scheme
i Monthly Benefit Scheme

Lending/Investment products & services Hi-her Purchase Lease Finance Personal loan for woman Project Finance
i Loan Syndication

Double/Triple Benefit Scheme Marriage Scheme Education Scheme Lakhpati Deposit Scheme Q-Cash ATM

Consumer Credit Import and Export. Handling Financing

2.1 Corporate Banking

The motto of JBL's Corporate Banking services is to provide personalized solutions to their customers. The Bank distinguishes and identifies corporate customers' need and designs tailored solutions accordingly.

Jamuna Bank Ltd. Driers a complete range of advisory, financing and operational combining trade, treasury, investment and services to its corporate client groups coin transactional banking activities in one package. Whether it is a project finance, term loan, import or export deal, a working capital requirement or a forward cover for a foreign currency transition, there Corporate Banking Managers will offer you the accurate

solution, their corporate Banking specialists will render high class service for speedy approvals and efficient processing to satisfy customer needs. Corporate Banking business envelops a broad range of businesses and industries. Every one can leverage on our know-how in the following sectors mainly:

Agro processing industry Industry (Import Substitute / Export oriented) Textile Spinning, Dyeing / Printing Export Oriented Garments, Sweater. Food & Allied Paper & Paper Products Engineering, Steel Mills Chemical and chemical products etc. Telecommunications. Information Technology Real Estate & Construction Wholesale trade Transport Hotels, Restaurants Non Bank Financial Institutions Loan Syndication Protect Finance Investment Banking Lease Finance Hire Purchase International Banking Export Finance. Import Finance

10

2.2 Personal Banking

Personal Banking of Jamuna Bank offers wide-ranging products and services matching the requirement of every customer. Transactional accounts, savings schemes or loan facilities from Jamuna Bank Ltd. make available to all a unique mixture of easy and consummate service quality. They make every endeavor to ensure their clients' satisfaction. Their cooperative & friendly professionals working in the branches will make your visit and enjoyable experience.

2.3 Online Banking

Jamuna Bank Limited has introduced real-time any branch banking on April 05, 2005. Now, customers can withdraw and deposit money from any of its 30 branches located at Dhaka, Chittagong, Sylhet, Gazipur, Bogra, Naogaon, Naray anganj and Munshigonj. Their valued customers can also enjoy 24 hours banking service through ATM card from any of Q-cash ATMs located at Dhaka, Chittagong, Khulna, Sylhet and Bogra. All the existing customers of Jamuna Bank Limited will enjoy this service by default.

2.4 Monthly Savings Scheme (MSS)

Savings is the best friend in bad days. Small savings can build up a prosperous future. Savings can meet up any emergences. JBL has introduced Monthly Savings Scheme (MSS) that allows saving on a monthly basis and getting a handsome return upon maturity. If anyone wants to build up a significant savings to carry out youre cherished Dream, JBL MSS is the right solution. 2.5 Monthly Benefit Scheme (MBS) Jamuna Bank Limited has introduced Monthly Benefit Scheme (MBS) for the prudent persons having ready cash and desiring to have fixed income on monthly basis out of it without taking risk of loss and without enchasing the principal amount. This scheme offers highest return with zero risk. Everyone can plan your monthly expenditure with the certain monthly income under the scheme.

11

2.6 Double/Triple Growth Deposit Scheme For people who have cash flow at this moment and want to get it doubled/tripled quickly JBL has introduced Double/Triple Growth Deposit Scheme that offers to make double/triple money within 6(six) years and 9.5 (nine and a half) years respectively resulting a high rate of interest.

2.7 Marriage Deposit Scheme

Marriage of children, especially daughter is a matter of great concern to the parents. Marriage of children involves expense of considerable amount. Prudent parents make effort for gradual building of fund as per their capacity to meet the matrimonial expense
of

their children

specially daughters. Parents get relief and can have peace of mind if they can arrange the necessary fund for marriage of their children, no matter whether they survive or not till the marriage occasion. It can be a great help to the parents if there is any scope of deposit of a modest mount as per their financial capacity, which groves very fast at high rate of interest yielding a sizeable amount on maturity. With this end in view JBL has introduced Marriage Deposit Scheme, which offers you an opportunity to build - up your cherished - fund by monthly deposit of serial, amount at your affordable capacity.

2.8 Education Savings Scheme Education is a basic need of every citizen. Every parent wants to impart proper education to their children. Education is the pre-requisite for socio-economic development of the country. As yet, there is no arrangement of free education to the citizens from the government level. As such, there should
be

pre-arrangement of fund to ensure higher

educations the children. Otherwise higher education may be hindered due to change of economic condition, income of the parents at the future time when higher education shall be required. Today's higher education is becoming expired day by day. Parents can get relief and can have peace of mind if they can arrange the necessary fund for higher education of their children. As such, JBI, has introduced 'Education Savings Scheme' which offers you an opportunity to build up your cherished fund' by monthly deposit of

12

small amount it at your affordable capacity or initial lump sum deposit to yield handsome amount on a future date to meet the educational expenses. Under this Scheme you have the different attractive options to avail the future benefit i.e. withdrawal of the total amount accumulated in lump sum or withdrawing monthly benefit to meet educational expense keeping die principal amount intact or to withdraw both principal and accumulated profit monthly for a certain period. 2.9 Lakhpati Deposit Scheme To become a lakhpati is a dream to most of the people of Bangladesh specially to the lower and lower middle class income group. They experiences their expectations and wants are enormous in nature in our small span of life. To meet our deposit and wants we need right plan. Keeping the above in mind JBL has introduced "Lakhopati Scheme" which has flexibility report of maturity and monthly installment as per affordable capacity. 2.10 Q-Cash Round The Clock Banking Jamuna Bank Q-Cash ATIM Card enables the costumers to withdraw- cash variety of banking transactions 24 hours a day. Q-Cash ATMs are conveniently located covering major shopping centers, business and residential areas in Dhaka and chittagong. ATMs in Sylhet, Khulria and other cities will soon start be introduced. The network will expand to cover the whole country within a short span of time.
With customers Jamuna Bank Q-Cash ATM card they can: Cash withdrawal Round The Clock from any Q-Cash logo marked ATM booths. POS transaction (shopping malls, restaurants, Jewell Aries etc) Enjoy overdraft facilities on the card (if approved) Utility Bill Payment facilities Cash transaction facilities for selective branches nationwide

ATM service available in Dhaka and Chittagong Withdrawal allowed from ATM's

of Jamuna Bank Ltd., AB Bank, The City Bank, Janata Bank, IFIC Bank, Mercantile Bank, Pubali Bank, Eastern Bank Ltd. respectively

13

And more to come Is Q-Cash

2.11 Hire Purchase Hire purchase is a type of installment Credit wider which the Hire purchase agrees to take goods on hire at a stated rate which is inclusive of the repayment of principle as well as interest for adjustment of the loan within a specified period. 2.12 Lease Finance
Lease means a contractual relationship between the owner of the asset and its utter- fur a specified period against mutually agreed upon rent. The owner is called the Lessor and the user is called the Lessee. Lease finance is one of the most convenient source of financing of assets viz machinery, equipment vehicle, etc. The user of the assets i.e. Lessee is benefited through tax advantages, conserving working capital and preserving debt capacity. Moreover, Lease is an off-balance sheet item 1.e lease amount is not shown in the balance sheet of the lessee and does not affect borrowing capacity. Leasing enables the lessee to avail the services of a plant or equipment without making the investment or incurring debt obligation. The Lessee car, use the asset by paying a series of periodic amounts called "lease payment" or "lease rentals" to the owner of the asset at the predetermined rates and generally in advance. The payments may be made monthly or quarterly. Jamuna Bark Ltd., the highly capitalized private Commercial 1 Bank in Bangladesh has introduced lease finance to facilitate funding requirement of valued customers & growth of their business houses.

2.13 Personal loan for women

Goal

To make financially sound and solvent surd self dependent the women. Three categories of women are under this loan1. 2. Self Employed Women Working Women

14

3.

House Wife

2.14 Project Finance Project loan is considered as long term investment of the bank. If the period is helpful to improve the economy and has a wide market then the bank thinks about giving project loan. To give this kind of lona the bank observes the willingness of the customer, his capacity and his ability to run the project. Having obtained this kind of information the bank makes a credit report about the customers loan proposal. Interest rate on loan varies from project Ratio of investment of customer and bank varies from customer to customer and the customers relationship with the bank.

2.15 Loan syndication

Bank cannot invest more then 15% of its paid up capital on one individual. When the loan amount exceeds 15% of its paid up capital then the bank share the loan with other bank for giving one individual and this is call loan syndicate. 2.16 Consumer Credit Consumer credit scheme is relatively new field of micro-credit activities. People with limited income can avail of this credit facility to buy any household effects including car, computer and other consumer durable. It is a special credit scheme and the customers allow the loan on soft terms against personal guarantee and deposit of specified percentage of equity. The loan is repayable by monthly installment within a fixed period.

2.17 Import and Export handling and financing 2.17.1 import Financing

15

Is the most important method of import -financing International trade take place between sellers and buyers located in different countries. The parties to a trade transaction are not always known to each other. Even if they are known to each other the seller may not have full confidence in the carried worthiness of the buyer or the buyer may not like to pay before he actually receives the goods. In letter of credit the bankers credit worthiness is substituted for the credit worthiness of the importer. Under a bank- cards letter of credit, the issuing bank gives a written undertaking on behalf of the buyer that the bank will honor the obligation of payment or expectance as the case may be on presentation of stipulated documents. As the request of the importers bank issue the letter of credit at a merging by the govt. instruction. Bail: does not generally issue the letter of credit less then 50% margin. JBL follow the margin prescribed by the government strictly.

2.17.2 Export Financing The Exporter needs finances at various stages, some at pre-shipment stage and the other at the post shipment stage.

16

CHAPTER-

03

FINANCIAL PERFORMANCE OF JBL

3.1 PROFIT In 2006 Jamuna Bank Limited posted an operating profit of Tk.701.32 million as against Tk.419.94 million in 2005 with a spectacular growth of 67.00 percent over the preceding year. After having made necessary provisions for loans and advances in accordance with the instructions of Bangladesh Bank Net Income Before Tax (NIBT) stood at Tk.499.97 million in the year under review against Tk.363.31 million in the preceding year registering a growth of 37.62 percent. An amount of Tk. 246.57 million has been kept as provision for payment of Tax. Thus Net Income after tax and provision stood at Tk.253.40 million in 2006 which was Tk.199.82 million in 2005.

17

3.2 CAPITAL STRUCTURE

Jamuna Bank Limited has a conviction of maintaining a strong capital base in carrying on opereat operation on June 03,2001 with a paid-up capital of Tk.390.00 million divided into 3.90 million o of Tk.100 each. The authorized capital of the Bank is Tk.1600 million divided into 16.00 million of Tk.100 each. The Bank's paid-up capital as at 31st December 2006 stood at Tk.1072.50 million.Tk was raised through initial public issue of 4.29 million ordinary shares of TkA 00 each with a premiu- each while Tk.214.50 million was raised by issue of Bonus Shares in the ratio of 1:4, i.e. one bonus _s-holding of 8.58 million ordinary shares as on 31.12.2005, for every 4 shares out of profits upto the Thus, as on 31st December 2006, the total shareholder's equity and reserve stood at Tk.1701.82 mil!"

3.3 CAPITAL ADEQUACY RATIO The Bank adopted BIS risk adjusted capital standards to measure the capital adequacy in line with set by Bangladesh Bank. According to the instructions contained in Bangladesh Bank's BRPD Circ dated September 07, 2002 relating to Capital Adequacy every commercial bank operating in the required to maintain at minimum 9 percent of its riskweighted assets as capital. Jamuna Bank Li-maintain Capital Adequacy ratio of 14.79 percent as at 31.12.2006 which was higher than the requ Adequacy Ratio. The amount of capital with break-up is given below :

Particulars Tier I Capital Paid up Capital Non-repayable Share Premium Account Statutory Reserve Retained Earnings Proposed Bonus Share Tier II capital 1 % Provision against Unclassified Loans Exchange Equalization Fund Total Capital (Tier I +Tier 11)

2006 1562.47 1072.50 85.80 249.67 154.50 139.35 139.02 0.33 1701.82

"Fig in BDT Million" 2005 807.14 429.00 149.67 228.47 109.32 108.99 0.33 916.46

18

From the above it reveals that Jamuna Bank Limited was able to increase its core capital by 93.58 percent from Tk.807.14 million to Tk. 562.47 million and supplementary capital by 27.47 percent from Tk.1 09.32 million to Tk. 39.35 million and total capital by 85.69 percent from Tk.916.46 million to Tk.1 701.82 million. 3.4 TREASURY OPERATIONS The Bank made its mark in Treasury operation. In money market the Bank played active role in local and foreign currency. Besides, it carried on operation as Primary Dealer. Having participated in local currency and foreign currency market and taken part in secondary trading of Govt. securities the Bank made significant growth. It would not be out of place to mention that Jamuna Bank Limited was the only third generation bank, which was selected as Primary Dealer by Bangladesh Bank owing to its excellent performance in money market. Treasury operation has been identified as one of the best sources for earning by the Bank through effective participation. JBL's dealing room is well equipped with modern and updated equipments like voice recorder, reuter 3000xtra, CDBL electronic system etc. The activities of FX and local money market have been synchronized with complete segregation of activities of front and back offices. Intensive monitoring is ensured by the Bank's Asset Liability Management Committee (ALCO) which sits in regular meetings to review the asset liability position and interest rates and takes important decisions thereon. In the year 2006 there was a bit volatility in the local money market sometime in MarchApril but this market .vas more or less stable with a little fluctuations in interest rate during most of the time of the year. On the contrary, FX market was to a great extent volatile in 2006 having pressure on Taka against dollar. But our professionally skilled human resources were quite tactful in handling operations and could reap the benefits of local money market and FX market with significant growth. They were prudent enough to maintain the regulatory requirements of CRR and SLR of the Bank. 3.5. DEPOSITS AND DEPOSIT MIX In commercial banks operation starts with mobilization of resources i.e. tapping of deposits and then the said resources are deployed as loans, advances and investments for the purpose of maximizing wealth which -sans deposits have dominance in commercial bank's operations. That is why, there is a common saying that deposit is the lifeblood of a bank. In keeping with this axiom JBL attaches utmost importance to the deposit mobilization

19

campaign and to the optimal deposit mix for minimizing COF as far as practicable. A stiff competition persisted in the market as to deposit mobilization and there was a pressure on interest rate. 3esides, instability in political atmosphere was adversely affecting business, which stood as a hindrance to the smooth operation of banks including deposit mobilization. Despite all these unfavorable factors JBL was able to instill confidence in customers as to its commitments to the depositors and borrowing customers and

thereby could mobilize a total deposit ofTk.17284.81 million in 2006 against that ofTk.14454.13 million in the preceding year showing an increase of Tk.2830.68 million being 19.58 percent. Endeavor is underway for augmenting low cost deposit by accommodating good customers at competitive price. For healthy growth of business JBL puts emphasis on no cost and low cost deposit all the time. A number of savings schemes are in place for mobilizing long term deposits which can be planned to be invested in term loans in-the area lease finance, project finance and consortium finance with a view to having better yields. JBL's such move will motivate the people to have good savings habit, as well. The comparative position of deposit mix of the Bank as on 31.12.2006 and 31.12.2005 is depicted below:

20

Types of Deposit Current A/C & other Bills Payable Savings Deposit Short term Deposit Fixed Deposit Scheme Deposits Foreign Currency Deposit Total Deposits

As on 31.12.2006 2088.47 169.80 1084.01 636.87 11804.01 1470.29 31.36 17284.81

As on 31.12.2005 1543.06 109.29 749.52 384.03 10899.42 73107 37.74 14,454.13

Changes +545.41 +60.51 +334.49 +252.84 +904.59 +739.22 -6.38 +2830.68

Changes in & over the year 35.35 55.37 44.63 65.84 8.30 101.11 -16.91 19.58

3.6 LOANS & ADVANCES

Though there was an unfavorable business environment due to political turmoil throughout the year JBL was in constant efforts to explore different areas of credit operation and could raise the credit portfolios to Tk.12796.63 million in 2006 with an increase of Tk.1784.80 million (16.21%) over that of the preceding year. The total credit as on 31.12.05 was Tk.11011.83 million. In order to ensure compliance with requirements for avoiding risk of exposure to regulatory

single borrower, concentration on large loans, to bring in excellence in credit operation in relation to risk management, yield, exposure, tenure, collaterals, security valuation etc. JBL strived for further diversification of credit portfolios. Its credit facilities were concentrated on Trade Finance, Agriculture and related sector, project finance, wholesale and retail trade, transport sector, hospital & diagnostic centers and syndicate financing for big projects, capacity additions to the manufacturing sector and structured financing for developing infrastructure of the country. Initiatives are underway for helping small and medium entrepreneurs in the ventures for which, in JBL, we are developing SME credit products and strategies. JBL has also increased lending activities to small consumers through Consumer Credit Scheme.

3.7 RISK MANAGEMENT

21

As a regulatory body Bangladesh Bank wants all banks to take effective measures for implementation of risk management in banking operations covering the major risks in assetliability management, credit risk management, Foreign Exchange Risk Management, Internal Control & Compliance and Money Laundering Prevention. As these risks are integral parts of banking business JBL has put highest priority on management of such risks with intense monitoring of credit portfolios. We believe these will improve our operational and financial performance along with meeting the regulatory requirements. The Bank is in constant efforts to establish superior monitoring of credit risks and returns. For bringing in harmonious matching between assets and liabilities ALCO reviews these on a regular basis for keeping risk in this area to an acceptable level. The Bank's credit policy guidelines and procedures are continuously reviewed and upgraded by its internal committees. The Bank also pursues an effective internal control system by establishing systems and procedures for scrutinizing the transactions periodically, encompassing key back-up supports and commissioning regular contingency plans. Through establishment of proper governance structure risk and returns are evaluated with a view to producing sustainable revenues, reducing volatility in earnings and enhancing value to shareholders. Maintenance of quality of assets is always the key issue to the JBL Management. Continuous efforts are made to maintain earning assets at the highest possible level so as to maximize profits and minimize cost of operation.

3.8 NVESTMENT
The investment portfolio of the Bank as on 31.12.2006 rose to Tk.2552.67 million from Tk.2037.84 million as on 31.12.05 registering an increase of Tk.514.83 million being 25.26 percent. The investment portfolio was blended with Government treasury bills amounting to Tk.345.88 million, Treasury Bonds of Tk.1939.78 million, investment in primary shares and Zero Coupon Bonds. Its investment was made in acquisition of Preference Shares of (5.00-2.50) 2.50 million of Aftab Automobiles Limited. Besides, Tk.2.00 million has been invested in acquisition of two shares of Central Depository Bangladesh Limited (CDBL). The Bank's major portion of investment is in Govt. Treasury Bills and Bonds for the purpose of fulfilling Statutory Liquidity Requirement.

22

23

3.9 IMPORT BUSINESS The total import business handled by the Bank in 2006 was Tk.15457.80 million compared to Tk.12151.90 million in the preceding year registering a rise of Tk.4305.80 million being 27.20 percent. A sizeable L/C's were also opened by the Bank in the year under review. The import items included industrial raw materials, machinery, consumer goods, fabrics, accessories etc.

24

3.10 EXPORT BUSINESS The Bank handled export business worth TO 1583.70 million in the year under report. In 2005 total export business handled by the Bank was Tk.6521.80 million. Thus there was an increase of Tk.5061.90 million in export business handled by the Bank, being 77.62 percent over the preceding year. The major export item was Ready made Garments.

25

Chapter -04
Credit Management
4.0 Loans and Advances This section lends the fund what the bank mobilizes through its various deposit accounts This is the second function of banks two generic function -deposit mobilization and credit creation. The major part of banks income is derived from credit and since the banks credit is customers fund, bank takes extreme caution in lending. 4.1 Sanctioning Loans and Advance To have a clear idea about the credit management of JBL the following points are essential. a. b. c. Credit policy of the Bank Credit Sanctioning Authority of JBL and Processing and Screening of credit proposal

4.1.1 Credit Policy of the Bank JBL Credit Policy contains of total macro-economic development of the country. as a whole by way of providing financial support to the trade, commerce and industry. Throughout its credit operation JBL goes to every possible corners of the society. They are financing large and medium scale business house and industry. At the same time they also take care entrepreneur through its operation of lease finance and some micro credit, small loan scheme etc. The bank has came up with a scheme where women will be 91-verL financial support for their self employment and development.

4.1.2 Credit Sanctioning Authority of JBL Delegated power are expected to be exercised by the authorized executives sensibly keeping the banks interest in mind. In exercising the power so delegated authorized

26

executives shah also have credit restriction, tools and regulations .as governed by Banking Company Act, Bangladesh Bank, and other usual credit norms . However, the following guidelines are laid down before the executives of JBI. for exercising the delegated power

The borrower must be a man of integrity and must enjoy good reputation in the market.

The borrower must have the capacity and capability for utilizing credit. Properly and profitably.

The enterprise of the borrower must be viable and profitable i.e. proposal of

(lie borrower must be evaluated properly and carefully so as to ascertain its profitability. The enterprise must generate sufficient fund for debt and servicing."

A customer to whom credit is to be allowed should be far as possible within

the command area. .

No sanctioning officer can sanction any credit to any of his near relatives

and to any company where his relatives have financial interest. 4.1.2.1 Tools for Appraisal Credit The 10 Cs of Good and Bad Loan In addition to the formal credit appraisal, the credit an official of JBL tries to judge the possible client based on some criteria. These criteria are called the C's of good and bad loan. These are described below:
1. Character: Make sure that the individual or company they are lending has

outstanding integrity.
2. Capacity: Make sure that the individual or company they are lending has the capability of repaying the

loan.
3. Condition: Understanding the business and economic conditions that whether it

will change after the loan is made.

27

4. Capital: Make sure that die individual or the company they are lending has in

appropriate level of investment in the company.

5. Collateral: Make sure that there is a second way out of a credit but do not allow that to

drive the credit decision.

6. Complacency: Official do not rely on past. They remain alert every time whether any

mistake is taking place or not.

7. Carelessness: They believe that documentation, follow up and consistent

monitoring are essential to high quality loan portfolio.

8. Communication: They share credit objectives and credit decision making both

vertically and laterally within the bank.

9. Contingencies: Make sure that they understand the risk, particularly the

downside possibilities and that they structure and price the loan consistently with the understanding.

10. Competition: They do not get swept away by what others are doing.

Lending Risk Analysis (LRA) Lending Risk Analysis is a financial tool to analyze the risk associate in a loan proposal. According to Bangladesh Banks order every bank has to conduct LRA. For every loan amounting Tk. I Core and above. JBL is frequent user of this technique. 4.1.2.3 SWOT Analysis It is a technique used by the credit officers to evaluate credit proposal submitted by the company especially by the production concern. Here, S stands for Strength 28

stand's for Weakness stands for Opportunity stands for Threat

0 T

Strength It analyze the inherent of the company, resilience, and brand loyalty, endowment etc. Weakness This analyzes the inherent weakness of a company, such as management, supply risk etc. Opportunity This analyzes the opportunity, which will be available to a company in a near future, such as tax incentives export credit facilities etc. Threat It analyzes the threats, which the company may face such as legal barriers withdrawals of tax exemption and international law, withdraw of most favorable nation (MFN) and GSP facilities etc.

29

4.1.2.5 Credit Monitoring and supervision Cell JBL is a unique characteristic in its loan management to make sure that there will be no bad loan in its-loan portfolio, JBL established a loan monitoring and supervision cell headed by an First Assistant Vice President. He along with other official frequently visit customer premises or business whether loan amount, which is taken is used properly or not. Sometimes customer need more fund or ether types of facilities to run business profitably, then the monitoring authority takes necessary steps to meet customers need.

4.1.2.6 COMPUTATION CREDIT RISK GRADING

The following step-wise activities outline the detail process for arriving at credit risk grading.

Step I : Identify all the Principal Risk Components

Credit risk for counterparty arises from an aggregation of the following: Financial Risk

Business/Industry Risk Management Risk Security Risk Relationship Risk Each of the above mentioned key risk areas require to be evaluated and aggregated to arrive at an overall risk grading measure.
a)

Evaluation of Financial Risk: Risk that counter parties will fail to meet obligation due to financial distress. This typically entails analysis of financials i.e. analysis of leverage, liquidity, profitability & interest coverage ratios. To conclude, this capitalizes on the risk of high leverage, poor liquidity, low profitability & insufficient cash flow. Evaluation of Business/Industry Risk: Risk that adverse industry situation or unfavorable business condition will impact borrowers' capacity to meet obligation. The evaluation; of this category of risk looks at parameters such as business outlook, size of business, industry 30

b)

c)

growth, market competition & barriers to entry/exit. To conclude, this capitalizes on the risk of failure due to low market share & poor industry growth. Evaluation of Management Risk: Risk that counter parties may default as a result of poor managerial ability including experience of the management, its succession plans and teamwork. Evaluation of Security Risk: Risk that the bank might be exposed due ':o poor quality or strength of the security in case of default. This may entail strength of security & collateral, location of collateral and support. Evaluation of Relationship Risk: These risk areas cover evaluation of limits utilization, account performance, conditions/covenants compliance by the borrower and deposit relationship.

d)

e)

31

CREDIT RISK

Financial risk

Business/Industry Risk

Management Risk

Security Risk

Relationship Risk

Leverage

Size of Business

Experience

Security Coverage

Account Conduct

Liquidity

Age of Business

Succession

Collateral Coverage

Utilization of Limit

Profitability

Business Outlood

Team Work

Support

Compliance of Covenants/Condition

Coverage

Industry Growth Market Competition Barriers to Business

Personal Deposits

32

Step II

Allocate weight ages to principal Risk Components

According to the importance of risk profile, the following weitght ages are proposed for corresponding principal risks. Principal Risk Components Weight: Financial Risk 50% Business/Industry Risk 18% Management Risk 12% Security Risk 10% Relationship Risk 10% Step IIIEstablish the key parameters Principal Risk Components: Financial Risk Business/Industry Risk Key Parameters: Leverage, Liquidity, Profitability & Coverage Ratio Size of Business, Age of Business, Business Outlook, Industry Growth, Competition & Barriers to Business Experience, Succession & Team Work. Security Coverage, Collateral Coverage and Support. Account Conduct, Utilization of limit, compliance of Covenants/conditions & Personal Deposit.

Management Risk Security Risk Relationship Risk

Step IIIEstablish the key parameters Principal Risk components: Financial Risk Key parameters: --Leverage -Liquidity -Profitability -Coverage -Size of Business -Age of Business -Business Outlook -Industry growth - Market Competition - Entry/Exit Barriers -Experience -Succession Weight: 50% 15% 15% 15% 15% 18% 5% 3% 3% 3% 2% 2% 12% 5% 4%

Business Industry Risk

Management Risk

33

-Team Work Security Risk

Relationship Risk

3% 10% -Security coverage 4% -Collateral coverage 4% -Support 2% 10% -Account conduct 5% -Utilization of limit 2% -Compliance of covenants/condition 2% -Personal deposit 1%

Step V Input data to arrive at the score on the key parameters. After the risk identification & weightage assignment process (as mentioned above), the next steps will be to input actual parameter in the score sheet to arrive at the scores corresponding to the actual parameters. This manual also provides a well-programmed MS Excel based credit risk scoring sheet to arrive at a total score on each borrower. The excel program requires inputting data accurately in particular cells for input and will automatically calculate the risk grade for a particular borrower based on the total score obtained. The following steps are to be followed while using the MS Excel program. Open the MS XL file named, CRG_SCORE_SHEET b) The entire XL sheet named, CRG is protected except the particular cells to input data. c) Input data accurately in the cells which are BORDERED & are colored YELLOW.
a)

Some input cells contain DROP DOWN LIST for some criteria corresponding to the Key Parameters. Click to the input cell and select the appropriate parameters from the DROP DOWN LIST as shown below.
d)

No experience
More than 10 gears in the related line of business 5-10 years in the related line of business 1-5 gears in the related line of business

34

All the cells provided for input must be filled in order to arrive at accurate risk grade, b) We have also enclosed the MS Excel file named, CRG_Score_Sheet in CD ROM for use. Step VI Arrive at the Credit Risk Grading based on total score obtained.
a)

The following is the proposed Credit Risk Grade matrix based on the total score obtained by an obligor.
Number 1 Superior Risk Grading Short Name SUP 0

Score 100% cash covered Government guarantee International Bank guarantees 85+ 75-84 65-74 55-64 45-54 35-44 <35

2
3 4

Good Acceptable Marginal/Watch list Special Mention Sub-standard Doubtful Bad & Loss

GD ACCPT MG/WL SM SS DF BL

5 6 7
8

4.1.3 Processing and screening of Credit Proposal There are some common regulations governed by Banking Company Act, 1991 Bangladesh Bank and the law of the State, which has to be followed strictly at the time of screening a credit proposal. In addition. Credit proposals are appraised critically by JBL credit officials from various angle to judge the feasibility of proposal. The customer at the branch of the bank place credit proposals. When a customer comes with accredit proposal , the credit department officials of the branch make an open discussion with the customer on different issues of the proposal to judge. worthiness of tile proposal and customer. if the proposal scenes worthwhile in all aspect then the proposal is placed before credit committee of the bank. After threadbare discussion, if the committee agrees in principle the proposal is sanctioned as per the delegated business power of the branch.

35

However, if the magnitude of the proposal is beyond the delegated business power of the branch they forward it to t h e H e a d O f f i c e w i t h , s a n c t i o n o f approval. On receiving rile proposal, the Credit Division of Head Office places the proposal in the Head Credit Committee. The committee further analyzes proposals critically and if agree in principle they sanction the same as per delegated business power.. Again if the merit and magnitude of the proposal is beyond the delegated business power of the Head Office Credit Committee or Managing Director forward proposal to the Board of the Bank with recommendation for approval. If the proposal is found unviable at the branch level they decline the same from their desk. In the same way, proposals are also declined from the Head Office Credit Committee and from Board if it is not feasible.

Branch Office
Customer Credit Officer Credit Committee

Head Office
Credit Committee Executive Committee Board

36

4A.3A Securities It is essential that the proposals define clearly the purpose of . the sources of repayment. the agreed repayment schedule. the value of security (land, machinery security papers, bond, sanchay patra etc.) and the customer relationships consideration implicit In, The credit division. Where the security is to be accepted as collateral for the facility all documentation relating to the security shall be in the approved from. All approval procedures and required documentation shall be completed and ail securities shall be place prior to the disbursement of the facility. For creation of mortgage on the property-A3L requires die following documents:

Original sale deed favoring owner of the land. Certified copy of the sale deed of the previous owner of the same property. Duplicate Carson Receipt (DCR) Up to date rent receipt and Municipal Tax Receipt Certified copy of C.S.S A. and R.S. Khatians Up to date Non-Encumbrance Certificate Valuation Certificate Clearance from RAJUK/WORKS MINISTRY RAJUK approved plan of the building with the approval letter Photograph of the property from three different angles and the over of the property Site Plan/ Mouza Map Board Resolution for mortgaging property if the same belongs to any limited company.

The borrower is requested to submit the above-mentioned papers in original for Verification by the Bar-1n lawyer and creation on the property intended to mortgage against advance.

37

4.2 Documentation
A document is a written statement of facts of proof. or evidence arising out of particular transaction, which on placement may bind the parties there to answerable and liable to the law for satisfaction of the charge in question. The execution of documents in proper from and according to the requirements of the law is known as documentation. The documentation does establish a legal relationship between the lending bank and the borrower. The terms and conditions of loans and advances, the securities charged and the repayment schedule are recorded in writing Proper documentation is necessary to safeguard the future interest of the bank. Documents are necessary for the acknowledgement of the debt by the borrower and charging of securities to the bank by him. Proper and correct documentation is essential not only for the safety of advance but also necessary for taking legal action against the debtors in case of non-repayment of dues. Depending on the types of loans and advances different documents are required. Such as 4.2.1 Documentation of Loan 1 2 Demand of Promissory (DP) Note Letter of partnership (in case of partnership concern) or resolution of the board of Directors (in case of Limited concern) 3 4 5 6 7 8 Letter of Agreement Letter of Disbursement. Letter of Pledge (in case of pledge of goods) Letter of Hypothecation (in case of hypothecation of goods) Trust Receipt (in case of LTR facility) Letter of Lien and Ownership (in case of advance against share)

38

9 10 11 12

Letter of lien for packing credits (in case of packing credits) Letter of lien (in case of advance against FOR) Letter of Lien and transfer authority (in case of advance against PSP, SSP etc. Legal documents for mortgage of the property (as drafted by legal advisor)

4.2.2 Documentation of Overdraft 1 2 3 4 5 6 7 8 Demand of Promissory (DP) Note Letter of partnership (in case of partnership concern) or resolution of the board of Directors (in case of Limited concern) Letter of Agreement Letter of Continuity Letter of Lien and Ownership (in case of advance against share) Letter of Lien (in case of advance against FOR) Letter of Lien and transfer authority (in case of advance against PSP, SSP etc, Legal documents for mortgage of the property (as drafted by legal advisor)

4.2.3 Documentation of Cash Credit 1. 2. 3. 4. 5. 6. 7. 8. Demand of Promissory (D.P) Note. Letter of partnership (incase of partnership concern) or resolution of the Letter of Agreement Letter of Continuity Letter of Pledge (in case of pledge of goods) Letter of Hypothecation (in case of hypothecation of goods) Letter of Lien and Ownership (in case of advance against share) Letter of Lien (in case of advance against (FDR)

board of Directors (in case of Limited Concern.

39

9. 10.

Letter of Lien and transfer authority (in case of advance against PSP, Legal documents for mortgage of the property (as drafted by legal

SSP etc, advisor) 4.2.4. Documentation of Bills Purchased Demand of Promissory (D.P) Note. 2. 3. 4. Letter of partnership ( in case of partnership concern) or Letter of Agreement Letter of Hypothecation of Bill resolution of the board of Directors (in case of Limited Concern)

All required Documents as mentioned before should be obtained before any loan is disbursed. Disbursed of any credit facility requires approval of the component authority that should ensure before exercising such delegated authority that all the required documentation have been completed.

4.3 Credit Facilities Extended by JBL

The man functions of a commercial bank are tow:1) to take deposit and 2) to make advance. Making advance is the most important function of a bank. The is expends the profitability of the bank. Moreover, Bank make advance out of the deposits to the public which are payable at demand. A Commercial Bank makes advances to different sectors for different purpose i.e. financing of trade and commerce, Export and import, industries Agriculture, Transport, House-Building etc.

40

44 Classification of loan

41

4.4.1 CC Hypo (Cash Credit Hypothecation) Cash Credit allowed against hypothecation of an asset is known as Cash Credit (Hypo) of goods on which charge of lending bank is created. For Cash Credit (Hypo) Bankers takes following precaution:

The banker carefully verifies the stocks of the hypothecated assets and their market price Obtains periodical statement of stock duly signed by the borrower Ensure dial docks are duly insured against fire, burglary with bank clause Obtains sufficient collateral securities. Identify that whether the goods are ready saleable and whether they have good demand in the market.

Ensure the borrowers trustworthiness. 4.4.2 CC Pledge (Cash Credit Pledge) Cash credit allowed pledge Of goods is known as "Cash credit (Pledge). For Cash Credit (Pledge) the borrower pledges his goods to the bankers as a security against the credit facility. The ownership of pledge goods remains with the pledged. The bank remains the effective control of the pledged goods. Pledged goods can be stored in the custody of borrower but under lock and key of the bank. Banks appointed guards are take care of those goods round the clock. The banks delivered the pledged gods to the party by turns against payment.

For Cash Credit Pledge following points arc taken into consideration before allowing.

Whether the quality of goods is ascertained. Whether the goods are easily saleable and those goods must have good demand in the market. The quality of goods is ensured. The goods cannot be perishable and will not deteriorate in quality as a result for short and long duration.

42

4.4.1 CC Hypo (Cash Credit Hypothecation) Cash Credit allowed against hypothecation of an asset is known as Cash Credit (H y p oIn ) cash of hypothecation die borrower retains the ownership possession of goods on which charge of lending bank is created.

For Cash Credit (Hypo) Bankers takes following precautions: The banker carefully verifies the stocks of the hypothecated assets and their market price Obtains periodical statement of stock duly signed by the borrower Ensure Mai stocks are duly insured against fire, burglary with bank clause. Obtains sufficient collateral securities. Identify that whether the goods are ready saleable and whether they have good demand in the market Ensure the borrowers trustworthiness.

4.4.2 CC Pledge (Cash Credit Pledge) Cash Credit allowed against pledge of goods i s mown as Cash Credit (Pledge) For Cash Credit (Pledge) the borrower pledges his goods to the banker as a security against the credit facility. The ownership of pledge goods remains with the pledged. The bank remains the effective control of borrower but under lock and key of the bank. stored in the custody of borrower but under lock and key of the bank. Banks appointed guards are take care of those goods round the clock. The banks delivered the pledged gods to the party by turns against payment. For Cash Credit Pledge following points are taken into consideration before allowing.

Whether the quality of goods is ascertained.

Whether the goods are easily saleable and those goods must have good demand in the

market. 43

 The quality of goods is ensured. The goods cannot be perishable and will not

deteriorate in quality as a result for short and long duration. The borrower has the absolute title of goods. The prices of the goods have to steady and are not subject to violent change. Goods should be stored in the presence of a responsible bank office. Ensure that stocks are duly insured against fire, burglary, with bank clause. Stocks must be invocated regularly by responsible bank office. The locks of the store are scaled and keys are kept in the bank.

4.4.3 Overdraft The overdraft is always a l l owed on a special A/C operated upon cheques. The customers may be allowed a certain limit up to which he can overdraw within a specific period of time. In an overdraft A/C withdrawal and deposit can be made any number of times within the limit and prescribed period. Interested is calculated and charged only on the actual debit balances on daily product basis.

Overdraft are three types

1. 2. 3.

Temporary overdraft (TOD) Clean overdraft (COD) Secured overdraft (SOD)

4.4.3.1 Temporary overdraft (TOD) Temporary overdraft (TOD) is allowed to honor cheques which is future dated for the valued client . without any prior arrangement. This kind of facilities is provided for short time. 4.4.3.2 Clean overdraft (COD) Sometimes Overdrafts are allowed with no other security except personal security of borrowers. 44

4.4.3.3 SOD Secured overdraft (SOD) When Overdrafts are allowed against security is known as secured overdraft (SOD) Purposes

To businessman for expansion of their business. To contractors and suppliers for carrying construction works and supply orders.

Securities

Lien on fixed/term deposits. Shares/Debentures/Protiraksha Sanchay Patra Insurance Policy. Mortgage on real estates and properties.

Interest Rate: 15 % per annum Payment against Document (PAD)

Eligibility PAD is generally granted to importer for import of goods. Interest Rate: 16 % per annum 4.5.2Internal Bills Purchased (IBP) This kind of arrangements is allowed for purchase of internal bills. Some times Contractors need money to his liquidity problem. To avoid thus kind of situation they want to take loan against their future dated cheque. Eligibility Internal Bills Purchased is usually provided for future dated cheque against some service charge before 21 days of the maturity date.

45

4.5.3 Loan against Imported Merchandise (LIM) This is as similar as CC Pledge. But these loans are provided to the selected customers with internal contract. Eligibility This loans only fur old and some special customers. 4.5.3Loan against Trust Received (LTR) Under this arrangement, credit is allowed against trust receipt and the exportable goods remain in the custody of exporter but he is required to execute a stamped export trust receipt in favor of the bank. Where the declaration is made that he holds Purchased with financial assistance of the bank lit trust for the 'bank.

Eligibility LTR is generally granted to exporter for exportation of goods. Interest Rate: 16 % per annum. 4.5.4 Local/Foreign Documentary Bills Purchased (LDBP/FDBP) Under this arrangement, credit is allowed for exporter for or exportable goods. Banks provide all the agency commission. Its pay back period is 21 days.

Eligibility LDBP/FDBP is generally granted to exporter for exportation of goods. Interest Rate: 16 % per annum 4.5.5 Letter of Credit Issuing letter of credit is one of the important services for JBL. A letter of credit is a document authorizing by the bank for a specific amount of money. Two types of L/C is provided by JBL.

46

Demand Loan Loan ABP Mack T o Back L/C) Demand Loan ABP (Deferred Payment, L/C) Eligibility This facility is given to the exporter/manufacturer /producer Terms and Conditions

It should stipulate the name of the loan/credit/grant. It should bear the name of the designed bank. Item mentioned in the LCA form must contain with the permissible item.

4.6.1 Hire Purchase The feature of hire purchase is that borrower pays his remaining amount over a period of 6 month to 2 years & some times more then 2 years. For this kind of credit tic goods, which has been purchased, registered to the bank- as owner. And after end of final payment goods are registered to owner formally.

Eligibility Hire purchase facility is allowed to [hose people who have either fixed source of income or desire to pay it in lump stun. Interest Rate: 16 % per annum 4.6.2 Loans (General) When an advance is made in a lump sum repayable either in fixed monthly installment or in lump sum and no subsequent debit is ordinarily allowed except by way in interest and incidental charges etc. This is loans (general). Loan is allowed for a single purpose where the entire amount may be required at a time or in a number of installments within a period of short Spam. After disbursement of the entire loan amount, there will be only repayment made by the borrower. Loan once repaid in full or in part cannot be drawn again by the borrower. Entire amount of the loan A/C in the name

47

of the customer and is paid to hen through his SB/CD A/C. Sometimes loan amount are disbursed in cash. This loan is repayable within few months or few years. Securities: 1. Lien on fixed/term deposits. 2. 3. Shares/Debentures/Protiraksha Sanchay Patra. Insurance Policy

4. Moftgaze of Real estates and properties 5. Hypothecation of stock/Stock/Machinery. Interest Rate: 16 % per annum 4.6.3 Lease Finance Jamuna bank Ltd. is the first private commercial bank, in Bangladesh who introduced lease finance facilities for funding requirement of valued customers & growth of their business.
Lease Items

Vehicles like luxury bus, Mini bus, Taxi Cabs Cars, Pick-Up Van Etc. Factory equipment. Medical equipments. Machinery for agro based industry. Construction and office equipment. Sea or river transport and computer for IT education center.

48

Lease Period By Items Sectors Vehicles like luxury bus, Mini bus, Taxi Cabs Cars, Pick-Up Van Etc Factory equipments Medical equipments Construction equipment. Office equipment. Generators, Lift & Elevators for Commercial place Sea or river transport Computer for IT education center Machinery for agro based industry 5 5 3 3 3-5 4 2-3 5 Period Up to Years 4

Maximum Limit: 70% of acquisition Cost, Security /Collaterals. The following securities are acceptable.

Ownership of leased assets before the period of loan adjustment. Collateral securities in the form of land & building/Fixed Deposits/other cash collateral /Wage Earners Development Bond having liquidation value covering at least 100% amount of finance.

Deposit Of A category shares, National Savings Certificates, ICB Unit Certificates, assignment of life insurance policies, Bank Guarantee also be allowed as collateral securities.

Creation of charge of axed assets of file existing industrial units requiring BMRE. Creation of charge on the existing vehicle will also be acceptable as securities.

Charges Bank charges are modest and competitive.

49

Lease Deposit Before disbursement of lease finance, the lessee shall have to deposit 3 months rentals in advance, which will be adjusted at the end of the lease period. Grace Period For capital machinery and equipment, maximum grace period of 6 (six) months may he allowed for installation/commercial production. Payment Date
Rental payments shall be made every month and there shall be three payment dates as detailed below.

If Lease executed. Between 1st to 10th 5th of subsequent months Between I la' to 20th15th of subsequent months After 20th 25th of subsequent months.

Insurance Coverage The vehicle /Equipment /Lease asset shall have to be covered by a comprehensive insurance policy throughout the whole lease term at lessee's own cost in the name of Jamuna Bank Limited. The premium shall be on account of lessee.

Repair and Maintenance of Leased items The lessee is obliged to maintain the vehicle/Equipment in good working order and is solely responsible for any loss or damage as long as it is in his possession. Repair and maintenance cost for taking care of normal wear and tear and keeping it in good running condition during the lea-se, pen-0d shall' be the responsibility of lessee.

50

Transfer price/Lease Renewal Rental On final adjustment of the lease finance, the lessee may have an option to purchase the equipment at 5% of the lease finance. Besides the above option, tile lessee may renew the lease on year-to-year basis or return, the equipment to the bank. 4.6.4 Personal Loan for Woman This is one of the new events in Bangladesh in credit sector. Woman who are interested and has the ability to pay it back in time those can get this kind facility To encourage the woman JBL provide loan with low interest. Eligibility: The borrower must be the following profession. Service holder of Government Organization Service holder of Semi-Government Organization Service holder of Multinational Organization Service holder of Bank and Insurance Company Shop owner/has small business.

Interest Rate : 15.5% per annum

4.6.5 Consumer Credit Scheme Consumer credit is recently new field of micro credit activities; people who have limited income can avail of this credit facility to buy any household effects including car, computer, household and other commercial durables. JBL plays a vital role in extending the consumer credit. Eligibility: The borrower must be the employee of the following organization. Government Organization Semi- Government Organization Multinational Organization 51

 Nature

Bank and insurance Company Reputed Commercial Organization Professionals

Mid term Micro Credit Interest Rate: 16 % per annum Terms And Conditions Client will procure the specified articles from the dealer/agent /shop

acceptable by the Bank. All of the papers /cash memo etc. related to the procurement of the goods will be in

the name of bank ensuring ownership of the goods. The ownership will be transferred in the name of the client after full adjustment of Banks due. etc. The clients will have to bear the cost of repair and maintenance of the acquire The clients will have to bear all the expenses of license, registration and insurance

articles.

52

CHAPTER -05
5. CREDIT RISK GRAD NG SYSTEM

Credit risk grading is an important tool for credit Risk management as if helps the Banks & financial institutions to understand various dimensions of Risk moved in different credit (transactions. The aggregation of such grading across the borrowers, activities and the lines of business can provide hello assessment of the quality of credit portfolio of a bank or a branch The credit risk grading system is vital to take decisions both al the pre-sanctum stage as well as postsanction stage. At the pre-sanction stage, credit grading helps the sanctioning authority to decide whether to lend or not to lend, what should be the loan price. what should be the extent of exposure, what should be the appropriate credit facility. what are the various facilities, what ;are the various facilities, what are the various risk mitigation tools to put a cap on the risk level. At the post-sanction stage, the bank can decide about the depth of the review or enewal, frequency of review, periodicity or the grading and other precautions to be taken. review, periodicity of the mid other precautions to be taken Having considered the significance of credit risk ) - ,lading, it becomes imperative for the banking system to carefully develop a credit risk grading model which meets the objective outlined above. The lending Risk Analysis (LRA) mammal introduced in 1993 by the Bangladesh Bank has been in practice for mandatory use by the Banks & financial institutions for loan size of BDT 1.00 core and above. However, file LRA manual suffers from a lot of subjectivity, sometimes creating confusion to the lending Bankers in terms of selection of credit 53

proposals on the basis of risk exposure. Meanwhile, in 2003 end Bangladesh Bank provided guidelines for credit risk grade scorecard for risk assessment of credit proposals

Since the two-credit risk models are presently in vogue. The Governing; Board of Bangladesh institute of Batik Management (13113M) under (he chairmanship of the Governor, 13;mf; ladcsh Bank decided (hat an integrated Credit Risk Grading; Model be developed incorporating file significant features of the above mentioned models with a view to render a need based simplified and user friendly model for application by the Banks and financial institutions in processing credit decisions and evaluating the magnitude of risk involved therein.

Bangladesh Bank expects all commercial franks to have a well-defined credit risk management which delivers accurate and timely risk grading. This manual describes file elements of an effective internal process for grading credit risk. It also provides a comprehensive but generic discussion of the objectives and general characteristics of effective credit risk grading system In practice a banks credit risk grading system should reflect the complexity of its lending activities and the complexity of risk involved.

DEFINITION OF CREDIT RISK GRADING (CRG)

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/ alphabet/ symbol as a primary

summary indicator of risks associated with a credit exposure.

Credit Risk grading is the basic module for developing for developing a credit risk

management system.

54

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. 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 individual obligor, credit portfolio of aunt, line of business, the branch of the Bank as a whole. As evident, the CRG outputs would be relevant for individual credit selection, wherein ether a borrower or a particular exposure/facility is rated. The other decisions would be relative to pricing (credit-spread) and specific feathers of the credit facility. These would largely constitute obligor level analysis. Risk grading would also be relevant for surveillance and monitoring, internal MIS and assessing the aggregate risk profile of a Bank. It is also relevant for portfolio level analysis. NUMBER AND SHORT NAME OF GRADES USED IN THE CRG

The proposed CRG scale consists of 8 categories with Short names and numbers are prow\vided as follows:

55

GRADING Superior Good Acceptable Marginal/Watch list Special Mention Sub standard Doubtful Bad & Loss

SHORT SUP GD ACCPT MG/WL SM SS DF BL

NUMBER 1 2 3 4 5 6 7 8

CREDIT RISK GRADING DEFINITIONS A clear definition of the different categories of credit risk grading is given as follows

Superior- (SUP)-1
Credit facilities, which are fully secured i.e. fully cash covered. Credit facilities fully covered by government guarantee Credit facilities fully covered by the guarantee of a top tier international Bank

Good (GD)-2

Strong repayment capacity of the borrower The borrower has excellent liquidity and low The company demonstrates consistently strong earnings and cash flow. Borrower has well established, strong market share. Very good management skill &, expertise. All security documentation should be in place. Credit facilities fully covered by N, the guarantee of a top tier local Bank. Aggregate Score of 85 or greater basest oil the Risk Grade Score Sheet

56

A cce pt ab l e - (A CC 19) - 3 These borrowers arc not as strong as COOD Grade borrowers, hug still demonstrate Consistent earnings, cash flow and have a good back record. Borrowers have adequate liquidity, cash flow and earnings. Credit in this grade would normally be secured by acceptable collateral ( its charge over inventory / receivables / equipment / property). Acceptable management Acceptable parcel/sister company guarantee Aggregate Score of 75-84 based oil the Risk Grade Score Sheet

Marginal/Watch list - (MG/WL) - 4

This grade warrants greater attention due to conditions affecting; the borrower . 111c inclusion, or the economic environment. These borrowers have an above average risk due to strained liquidity, higher than normal leverage, thin cash flow and/or inconsistent canings. Weaker business credit &' early warning; signals of emerging business credit detected. The borrower incurs a loss Loan repayments routinely fall past due Account conduct is poor, or other untoward factors arc present. Credit requires attention Aggregate Score of 65-74 based oil the Risk Grade Score Sheet

Special Mention - (SM) - 5

This grade has potential weaknesses that deserve management's 's close attention. If left uncorrected, these weaknesses may result in a deterioration of the repayment prospects of the borrower. Severe management problems exist Facilities should be downgraded to this grade if sustained deterioration in financial condition is noted (consecutive losses , negative net worth, excessive Leverage. An Aggregate Score of 55-64 based oil the Risk Grade Score sheet.

57

Substandard - (SS) - 6 Financial condition is weak and capacity or inclination to repay is in doubt. These weaknesses jeopardize the full settlement of loans.

Bangladesh Bank criteria for sub-standard credit shall apply. Ali Aggregate Score of 45-55 oil the Risk grade Score Sheet

Doubtful - (DF) 7

Full repayment of principal and interest is unlikely and Hic possibility of loss is extremely high.

However, due to specifically identifiable pending factors. Such as litigation, liquidation procedure or capital injection, the asset is not yet classified as Bad & loss.

Bangladesh Bank criteria for doubtful credit shall apply. An Aggregate Score of less than 35-44 based on the Risk grade score sheet

Bad & Loss - (13L) - 8

Credit of this grade has long outstanding wills no progress in obtaining repayment or on the verge of wind up/liquidation,

Prospect of recovery is poor and options have been pursued. Proceeds expected from the liquidation or realization of security may be awaited. The continuance of the loan as a bankable asset is riot warranted, and the anticipated loss should have been provided for.

This classification reflects that it is not practical or desirable to defer writing off this basically valueless asset even though partial recovery may be affected in the future, Bangladesh Bank guidelines for timely write off of bad loans must be adhered to. Legal procedures /suit initiated.

Bangladesh Bank criteria for bad & loss credit shall apply. An Aggregate Score of less than 35 based on the Risk Grade Score Sheet.

58

CHAPTER- 06
6. CREDIT RECOVERY
The Recovery Department should directly manage accounts with sustained dc1crioralion (a risk Rating of Sub Standard (6) or worse). Hanks may wish to transfer EXIT accounts graded 4-5 to the RU for efficient exit based on recommendation of CRM and Corporate Banking. Whenever an account is handed over from Relationship Management to RU, a Handover/1Downgrade Checklist (Annexure - 9) should be completed Down Grading process should be done nomadically and should not be postponed unit the annual review process, The RU's primary functions arc:

Determine Account Action Plan/Recovery Strategy Pursue all options to maximize/c recover, Ensure adequate and timely loan loss provisions arc made based on Regular review of grade 6 or worse accounts. Management of classified loans and special mention Accounts and related works writing off' B/L loans with the approval of the

including placing customers into receivership or liquidation as appropriate. actual and expected losses.

Board The management of problem loans (NPLs) must be a dynamic process, and the associated strategy together with the adequacy of provisions muss be regularly reviewed. A process should he established to share the lessons learned from f1w experience of credit losses in order to update the lending guidelines.

59

C AT R H P E -07
7.1 Problems Identification
During internship period in Jamuna Bank Limited Dilkusha Branch tile following problems are observed.
Human resource of any organization is considered as a valuable asset. But

human resources, in the branch, are not equipped with adequate banking knowledge. Majority of the human resources have lack of basic knowledge regarding money, banking finance and accounting. Without proper knowledge in these subjects, efficiency cannot be optimized. Bank program on these subjects.
There is shortage of computer in general banking section. Sometimes the
can

arrange training

shortage of computer makes some unfortunate event in that section.

Flora On-line banking software is used by JBL and this is quite difficult to use for

the employee as the employees are not well trained.

This bank does not have any plan to enter into the Credit Card Market. It is well

versed that tomorrow's payment will be consisted of only plastic money (Credit Card). A large part of business transaction will be done by credit card III near future. In western world, more than 50% of transactions are in credit card this bank does not prepare from now on, it cannot compete in the future market. So, the branch should give special attention to the introduction of Credit Card
Since a number of new banks are coming to existence with their extended

customer

service

pattern

in

completely

competitive

manner.

Customer-services must be made dynamic and prompt. Now a days, people especially business people have very little time to waste. So the

60

bank should make its service prompt so that people need not give more time in the banking activities

7.2 Recommendation
Now a day's on-line banking is not a very uncommon service 1,01-ally private

commercial bank. JBI, provide On-line banking service but they take source charge for it, if the customers do not use his/her mother branch. To encourage customers to use On-line banking facility this service charge should not be taken charge from the customers.
Though JBL using very popular software i.e. Flora bank on--line software but the

use of it is quite difficult for the employee. (According to the statement of some employee software).
JBL are not taking their clearing cheque for otherof

JBL who has the experience to use more then one banking

They are using IBC/OBC

systems to take that kind of clearing cheque.

JBI, not providing the credit cards in market which now a days one of the

most important part of banking. So for it they are loosing too many customers.
Customer service of bank has a greater impact on its customer. To provide

smarter customer service they need a call center department is very popular now a day.
Foreign exchange operations of other banks are more dynamic and less time

consuming. JBL should take some initiative to compete with those banks.
In our country financial problem is a great constraint in foreign trade. JBL Is

very conservative for post-shipment finance. 11' it stays in liberal position the exporters can easily over-come their financial constraint.

61

BIBLIOGRAPHY

Annual Report 2006., Jamuna Bank Ltd. 2007. Credit Risk Grading Manual, Bangladesh Bank, 2005 Credit Policy Guidelines, Jamuna Bank Ltd. 2005.

62