Credit Policy and Risk Management A Case Study On Bank Asia Limited

2.1 Introduction
Bank Asia Limited is a schedule Bank under private sector established with in the ambit
of Bank Company Act, 1991 and was incorporated as a Public Limited Company Under
Company Act, 1994 on September 28, 1999. The Bank started commercial banking
operations from November 27, 1999 with the inauguration of the Bank’s Corporate
Office at the Rangs Bhaban. A huge public response has enabled the Bank to keep up the
plan of expanding its network. The opening of the principal office was the big leap
forward and successively the opening of Gulshan and Chittagong branch expanded the
horizon of Bank Asia to bring its services to valued clients more effectively. Within a
short period, the bank has opened four more branches in Dhaka and two branches in
Sylhet and Kishorgonj. In February 2001, Bank Asia took over the Bangladesh operation
of The Bank of Nova Scotia, the first acquisition of a foreign bank by a local bank in the
banking history of Bangladesh. Later, Bank Asia took over the Bangladesh operation of
Muslim Commercial Bank of Pakistan in December 2001. These courageous moves were
possible for some visionary decision makers and also dedicated team of professionals
who are constantly putting their best efforts to establish the bank as one of the leading
concerns in the industry.

Bank Asia has so far been highly successful in keeping its customers satisfied with its
high quality service, while continuing its expansion to reach more people around the
country. Bank Asia conducts all types of commercial banking activities. The Bank is
involved in most of the areas of commercial banking operations. The core business of the
Bank comprises of trade finance, term finance, working capital finance and corporate
finance. Bank Asia has acted as the lead arranger in raising term loan for a number of
projects under syndicated finance and also participated in some cases under such
financing arrangement. The Bank is also providing personal credit, service related to
local and foreign remittances and several other products. The “Personal Credit” scheme
of the Bank, which is designed to help the fixed income group in raising standard of
living is competitively priced and has been widely appreciated by the customers. Bank
Asia’s program under “Poverty Alleviation Scheme” delivered through rural branches in

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the form of micro credit is playing an important role towards socio economic
development of the poor people in the rural areas.

The management of Bank Asia is determined to maintain and upgrade the quality of these
resources through continuous training and upgrading technology to keep pace with
market demands, new developments and practices of the competitors. Bank Asia entered
the market at a time when economic policy environment of the country is poised for
higher level of business activities and growth. The prevailing macroeconomic
management and the government’s determination to carry on reforms in the banking
sector provide a supporting and encouraging environment.

2.2 Structure of the Corporate Office

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Figure-2.1: Structure of the Corporate Office

Board of Directors Chairman

Managing Director Advisor

Deputy Managing Director

Company Secretary General Service Operations

Board Affairs Share Implementation of

Department Board Decisions

Human Resource Development & MIS/IT Accounts/

Planning Budget

Credit International Division Treasury Specialized

Services

Foreign Ex. Dealing Room Call Market

Corporate/Retail Product Development & Public Relations

Marketing

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2.3 Directors’ and Key Persons’ Profile

The Board of Directors of Bank Asia Limited consists of 13 Directors including one
Chairman, one First Vice Chairman and one Second Vice Chairman. The list of Directors
is given below:
Figure-2.2: Structure of Board of Directors

Mr. M. Syeduzzaman
Chairman

Mr. A. Rouf Chowdhury Mr. Arifur Rahman Sinha

First Vice Chairman Second Vice Chairman

Dr. Md. Shafiuddin Md. Anwar Hussain

Chowdhury Director
Director

Mr. Rumee A. Hossain Mr. Faisal Samad

Director Director

Mr. M. Shamsul Alam

Mohd. Safwan Choudhury Director
Director

Md. Sirajul Haque Mr. Fariduddin Ahmed

Director Director

Ms. Sohana Rouf Chowdhury

Mr. Jahir Uddin Director
Director

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2.4 Mission Statement of Bank Asia

 To assist in bringing high quality service to their customers and to participate in
the growth and expansion of our national economy.
 To set high standards of integrity and bring total satisfaction to their clients,
shareholders and employees.
 To become the most sought after bank in the country, rendering technology
driven innovative services by their dedicated team of professionals.

2.5 Corporate Objectives

Bank Asia’s objectives are reflected in the following areas:
 Highly personalized service.
 Customer-driven focus.
 Total commitment to quality.
 Contribution in the economy.
 Quality of human resources.
 Commitment to its clients at each level.

The company believes that communication with, and feedbacks from its clients help it
achieve its goal of providing world-class product and services. Bank Asia regularly
conducts client satisfaction surveys and make immediate accommodations and
adjustments where needed. It also constantly monitors its standards, and strives to meet
clients’ requirements.

2.6 SWOT Analysis of Bank Asia

Every organization is composed of some internal strengths and weaknesses and also has
some external opportunities and threats in its whole life cycle. The following will briefly
introduce the customer to the Bank Asia’s internal strengths and weaknesses, and
external opportunities and threats as I have explored in the past ten weeks.

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2.6.1 Strength
 Superior Quality: Bank Asia provides its customers excellent quality of service.
It gives the first priority to customer satisfaction.
 Dynamism: Bank Asia draws its strength from the adaptability and dynamism it
possesses. It has quickly adapted to world class standard in terms of banking
services. Bank Asia has also adapted state of the art technology to connect with
the world for better communication to integrate facilities.
 Financial Strength: Bank Asia is a finally sound company backed by the
enormous resource base of the mother concern Rangs Group. As result customers
feel comfortable in dealing with the company.
 Efficient Management: All the levels of the management of Bank Asia are
solely directed to maintain a culture of the betterment of the quality of the service
and development of a corporate brand image in the market through organization
wide term approach and open communication system.
 State of the Art Technology: Bank Asia utilizes state-of-the-art technology to
ensure consistent quality and operation. The corporate office is equipped with
SWIFT (SWIFT is a banking software, used by Bank Asia). All other branches
are also equipped with SWIFT system.
 Experts: The key contributing factor behind the success of the Bank Asia is its
employee, who are highly trained and most competent in their own field. Bank
Asia provides their employees training both in-house and out side job.
 In-House Utility: Bank Asia is free from dependence on ever disruptive power
supply of our public sources. The company generates the required power through
generator fed on diesel. Water generation is done by deep tube wells on site and
in abundance.
 Excellent Working Environment: Bank Asia provides its workforce an
excellent place to work in. Total complex has been centrally air conditioned. The
interior decoration was done exquisitely with choice of soothing colors and blend
of artistic that is comparable to any overseas bank.

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2.6.2 Weaknesses
 Limited Workforce: Bank Asia has limited human resources compared to its
financial activities. There are not many people to perform most of the tasks. As a
result many of the employees are burdened with extra workloads and work late
hours with out any overtime facilities. This might cause high employee turnover
that will prove to be too costly to avoid.
 Problem in Delivery: Few of the Bank Asia’s products offered to its clients like
“Personal Credit (PC)” is lying idle due to proper marketing initiative from the
management. These products can easily be made available in attractive ways to
increases its client base as well as its deposit status.
2.6.3 Opportunities
 Government Support: Government of Bangladesh has rendered its full support
to the banking sector for a sound financial status of the country, as it has become
one of the vital sources of employment in the country now. Such government
concern will facilitate and support the long-term vision of Bank Asia.
 Evaluation of E-Banking: Emergence of e-banking will open more scope for
Bank Asia to reach the clients not only in Bangladesh but also in the global
banking arena. Although the bank has already entered the world of e-banking but
yet to provide full electronic banking facilities to its customer. A proper blend of
Banking and information technology might give the bank leverage to its
competitors. Nevertheless there are ample opportunities for Bank Asia to go for
product innovation in line with the modern day need. The bank has yet to
develop credit card facility, lease financing and merchant banking.
2.6.4 Threats
 Merger and Acquisition: The worldwide trend of merging and acquisition in
financial institution is causing concentration. The industry and competitors are
increasing in power their respective areas.
 Poor Telecommunication Infrastructure: As previously mentioned, the world
is advancing e-technology very rapidly. Though Bank Asia has taken effort to

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join the stream of information technology, it is not possible to complete the

mission due to poor technology and infrastructure of our country.
 Frequent Currency Devaluation: Frequent devaluation of Taka exchange rate
fluctuations and particularly South-East Asian currency crisis adversely affects
the business globally.
 Emergence of Competitors: Due to high customer demand, more and more
financial institutions are being introduced in the country. There are already 52
banks of various types are operating in the country. Many banks are entering the
market with new and lucrative products. The market for banking industry is now
a buyer dominated market. Unless Bank Asia can come up with attractive
financial products in the market, it will have to face steep competition in the days
to come.

2.7 Values Considered as Guiding Factors

All the activities and decisions of Bank Asia are based on, and guided by, these values:
 Placing the interests of clients and customers first.
 A continuous quest for quality in everything the company does.
 Treating everyone with respect and dignity.
 Conduct that reflects the highest standards of integrity.
 Teamwork- from the smallest unit to the enterprise as a whole.
 Being good citizens in the communities, in which they live and work.

2.8 Equity Formation

AUTHORISED CAPITAL
12,000,000 Ordinary Shares of Tk. 100.00 each Tk. 1,200,000,000.00

PAID UP CAPITAL

Issued
3,000,000 Ordinary Shares of Tk. 100.00 each have already
been subscribed for and fully paid up by the Sponsors.
Tk. 300,000,000.00

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To be Issued
3,000,000 Ordinary Share of Tk. 100.00 each are being hereby
offered to the General Public for Subscription in cash.
Tk. 300,000,000.00

Pre-IPO
1,000,000 Ordinary Shares of Tk. 100.00 each at par have been
subscribed by investors under private placement arrangement
Tk. 100,000,000.00

IPO
2,000,000 Ordinary Shares of Tk. 100.00 each at par are being
hereby offered to the general Public for Subscription in cash.
Tk. 200,000,000.00
TOTAL Tk. 600,000,000.00

2.9 Performance of the Bank

2.9.1 Profit and Operating Results

The Bank earned as operating profit Tk. 705.69 million during 2005 after all provisions
including the 1% general provision on unclassified Loans and Advances. Provision for
income tax for the year amounted to Tk. 168.81 million resulting into a net profit after tax
of Tk. 293.74 million. The growth in net profit over the previous year was 215.86
million.
2.9.2 Deposit
A strong deposit base is necessary for the success of a Bank. During the year 2005 the
Bank mobilized a substantial amount of deposits from mid-level income group people
under Deposit Savings Scheme. After critical handling the Bank mobilized total Deposit
of Tk. 14,884.91 million as at December 31, 2005, thus recording an increase in
comparison with Tk. 13,470.98 million as at December 31, 2004. The significant growth
in deposit enabled the Bank to expand its business, performing assets and also had an
impact on the profit position of the Bank.

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2.9.3 Advance
The Bank’s Loans and Advances portfolio also indicates an impressive growth. Total
Loans and Advances amounted to Tk. 17,897.15 million in 2006 up to July against Tk.
11,861.19 million in 2005. Bank Asia’s Advance portfolio is well diversified and covers
a wide range of businesses and industries. The sectors financed include Manufacturing,
Trading, Construction, Transport, Agriculture, Fishing and Forestry, Edible Oil,
Pharmaceuticals, Information Technology, and Consumer Credit amongst others.
Advances constitute the most significant indicator of the health of a Bank. The Bank has
formulated its policy to give priority to SME (Small and Medium Enterprise) and at the
same time the Bank is financing large-scale enterprises through consortium of Banks.
Bank Asia is committed to maintain a very high quality of assets. Close monitoring and
efficient asset management has resulted in minimal creation (1.50%) of classified loans to
total Loans and Advances.

2.9.4 Foreign Exchange Business

International Trade constitutes the main stream of business activities of Bank Asia. They
offer a full range of trade finance and services namely, issue, advise and confirmation of
Documentary Credit, arranging forward exchange coverage; pre-shipment and post
shipment finance; negotiation and purchase of export bills; discounting bill of exchange;
collection of bills, inward and outward remittance etc.
 Import Business: The Bank established Letters of Credit amounting to Tk.
21,747.60 million during 2005; showing over the volume of Tk. 18,942.40
million in the year 2004.
 Export Business: The total export handled by the bank amounted to Tk.
7,103.50 million for the year 2005 compared to Tk. 5,996.48 million for 2004.
 Foreign Correspondents: The number of foreign correspondents and agents
of Bank Asia in 2005 stood at 150 covering most of the important business
centers in different countries of the world. The Bank has maintained excellent
relationship with leading international Banks and has successfully established
credit lines with major banks to support global Foreign Trade Business.

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2.9.5 Investment
Investment stood at Tk. 4,048.58 million at the end of 2005. This consists of Tk. 3,240.51
million in Treasury Bills and Prize Bonds, Tk. 529.75 million in Debentures and Tk.
202.34 million in Shares.

2.9.6 Dividend
Bank Asia has distributed a substantial amount of dividend in the preceding years and
also strengthened the platform of the Bank. The percentages of distribution of dividend
are as follows.

Table-2.1: The percentages of distribution of dividend

Year Cash Dividend Bonus Dividend Total

(%) (%) (%)
2003 16% 8% 24%
2004 17% 8% 25%
2005 18% 8% 26%

2.10 Special Features of the Bank

 Bank Asia is engaged in conventional commercial banking. It is also in the
process of introducing banking functions on Islamic Banking Principles.
 It is the pioneer in introducing and launching different customer friendly deposit
schemes to tap the savings of the people for channeling the same to the productive
sectors of the economy.
 For uplifting the standard of living of the limited income group of the population,
the Bank has introduced Consumer Credit Schemes by providing financial

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assistance in the form of loan to the consumers for procuring household durables,
which have had encouraging responses.
 The Bank is committed to continuous research and development so as to keep
pace with modern banking.
 The operations of the Bank are computer oriented to ensure prompt and efficient
services to the customer.
 The Bank has introduced camera surveillance system (CCTV) to strengthen the
security services inside the Bank premises.
 The Bank has introduced customer relations management system to assess the
needs of various customers and resolve any problem on the spot.

2.11 Products and Services

Bank Asia launched several financial products and services since its inception. Among
them are Monthly Savings Scheme, Monthly Benefit Scheme, Special Savings Scheme,
Consumer Credit Scheme, Small Loan Scheme, Rural Finance Scheme and E-cash
(ATM). All of these have received wide acceptance among the people.

 Monthly Savings Scheme (DG+): The Prime objective of this scheme is to

encourage people to build up a habit of saving. In this scheme, one can save a
fixed amount of money every month and receive substantial lump sum of money
after three to five years.

 Monthly Benefit Scheme (MB+): MB+ is a five (05) years scheme that lets
Depositors earn monthly benefit of Tk. 1000 or its multiple by minimum initial
deposit of Tk. 100,000 or its multiple and after maturity depositors will get refund
of his/her principal amount.

 Special Savings Scheme (DB+): DB+ is a 7 (seven) or 10 (ten) year’s scheme.

The Deposit doubles in 7 years and triples in 10 years.

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 Bonus Savings Scheme: A savings Account with a minimum balance of Tk.

50,000 will attract not only the usual savings interest but also a further 10% bonus
on interest.

 Personal Credit: Personal credit is a relatively new field of collateral-free

finance of the Bank. People with fixed income can avail of these credit facilities
to buy household goods, consumer items, or to renovate existing house, etc.

 Credit Loan: If customers are in possession of BSP (Bangladesh Sanchay Patra),

which will mature within the next 5 years, but they are in dire need of funds now,
this scheme can come to their rescue.

 Rural Development Scheme: Rural Development Scheme has been evolved for
the rural people of the country to make them self-employed through financing
various income generating activities. This scheme is operated through the rural
branches of the Bank.

 E-Cash Banking Facility: The E-cash card is an ATM card. It can be used as a
combination of debit facility. The E-cash card network offers all banking
requirements without ever setting foot in a bank. It’s more than just an ATM
service for quick cash withdraws or account enquiries. E-cash card provides round
the clock banking.

 Credit Card Facilities: Bank Asia introduced credit card which name is Master
card.

Acceptance: Bank Asia credit card is accepted more than 4,800 merchant outlets around
the country. Our wide range of merchants include hotels, restaurants, airlines& travel
agents, shopping malls and departmental stores, hospital & diagnostic centers, Jewellery
shops, electronics’ & computer shops, leather goods, mobiles & internet service
providers, patrol pumps and many more.

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Credit facility: Bank Asia credit card offers free credit facility up to 45 days & minimum
15 days without any interest.

Cash advance: Bank Asia master card gives facility to draw cash up to 50% of the credit
limit against local master card and can enjoy this facility by using any ATMs across the
country which shows “Master Card” logo. Besides this can also withdraw cash from any
of our branches.

2.12 Correspondence Relationship

On the eve of launching, Bank Asia established local correspondent arrangements with
Uttara Bank’s sixty four branches, National Bank Limited and Agrani Bank Limited, thus
covering almost the entire country and facilitating the ability to meet taka transaction
requirement for the customers.

The bank established correspondent relationships with a number of foreign banks, namely
CITI Bank N.A, Bank of Tokyo, Standard Chartered Bank and AB Bank Limited. The
bank is maintaining foreign currency accounts in New York, Tokyo, Calcutta and
London. During this period the Bank has set up letter of credit on behalf of its valued
customers using its correspondents as advising and reimbursing banks. The bank
maintains a need based correspondent relationship policy, which is gradually expanding.

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