Report of the City Bank Ltd

Stamford University BangladeshInternship Affiliation Report onCredit Approval and Monitoring Process of TheCity Bank LimitedSupervised To:Nusrat JahanAssistant Professor Department of Business Administration Stamford University BangladeshSubmitted By: Farzana HoqueId # BBA 02808868BBA Program28th K BatchMajor in FinanceDate of Submission: 13/01/2012

Stamford University Bangladesh744, Satmosjid Road, Dhanmondi, Dhaka-1209To Whom It May ConcernThis is to certify that, Farzana Hoque; a student of BBA program, Major in Finance, Department of Business Administration, Stamford University Bangladesh has completed the internee report titled Credit Approval and Monitoring Process of The City Bank Limited successfully under my supervision.

I wish him every success in his life. Supervisor

----------------------- Nusrat Jahan Assistant Professor

Department of Business Administration

Stamford University Bangladesh

Letter of Transmittal31/01/2012

Nusrat Jahan

Assistant Professor



Subject: Submission of Internship Affiliation Report.Dear Madam,

It is a great opportunity to submit the internship report on Credit Approval and Monitoring Process of The City Bank Limited as a requirement of the Bachelor of Business Administration Program. I have prepared this report according to your instructions. In the preparation process, I came to know some very interesting facts about Retail Finance Centre of The City Bank Limited. In this paper I mainly focused on the Credit approval and monitoring process in The City Bank.

In affairs of preparing the report I tried my best and be specific as much as possible. I thank you very much for your guidance, diligent effort and awareness, whenever it was required. I would appreciate any query regarding this report.

Sincerely yours,

-----------------------

Farzana HoqueId # BBA 02808868

Major in Finance,



Students DeclarationI hereby declare that the report of internship namely Credit Approval and Monitoring Process of The City Bank Limited by me after the completing of 3 (three) months of internship with THE CITY BANK LIMITED at Retail Finance Center (Head Office) and a comprehensive study of the existing activities of The City Bank Limited and its implementation.

I also declare that this paper is my original worked and prepared for academic purpose which is a part of BBA and THE PAPER MAY NOT BE USED IN ACTUAL MARKET SCENARIO.

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Farzana HoqueID # BBA 02808868

BBA Program28th K Batch



Supervisors DeclarationI hereby declare that the concerned report entitled Credit Approval and MonitoringProcess of The City Bank Limited is an original work by Farzana Hoque, Id # BBA02808868, Major in Finance, Department of Business Administration, Stamford University Bangladesh, completed his internship under my supervision and submitted for the partial fulfillment of the requirement of the degree of Bachelor of Science in Business Administration (BBA) at Stamford University Bangladesh.

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Nusrat JahanAssistant Professor



PREFACEThe discussing report is the terminal formalities of the internship program for the degree of Bachelor of Science in Business Administration course of Department of Business Administration of Stamford University Bangladesh which is compact professional progress rather than specialized. This report has prepared as per academic requirement of after the successfully completion of 3 (three) months internship organized at The City Bank Limited, Retail Finance Center (Head Office) with the view to familiarized the students with the practical implementations of the knowledge provides the theoretical aspects of practical life.

It is my pleasure and great privilege to submit my report titled Credit Approval and Monitoring Process of The City Bank Limited worked out at Retail Finance Center (Head Office) during May 2011 to July 2011.

As the presenter of this report, I have tried my level best to get together as much information as possible to enrich the report while working at Retail Finance Center on loan & credit card product of The City Bank Limited. I believe that it was a fascinating experience to work in the banking section and it has enriched both my knowledge and experience.

However, after all this, as a human being, I believe everyone is not beyond limitation. There might have problems regarding lack and limitation in some aspects and also some minor mistake such as syntax error or typing mistake or lack of information. Please pardon me for that mistake and clarify these of my further information on those matters.

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BBA Program28th K Batch



ACKNOLEDGEMENTThis is my humble attempt to present gratitude in preparing this report. This report would not have been possible without the dedication and contribution of a number of individuals. First and foremost, I would like to express my gratitude to Nusrat Jahan for his support during the preparation of this report. Her eagerness helped me in every step of the way and encouraged me to propel myself higher.

Subsequently, I would like to thank my honourable supervisor Imtiaz Mahmood, Manager, MIS Retail Finance Centre, Who gave me to the opportunity to work in Retail Finance Centre and experience the factual environment of a bank.

I decided to prepare the report on Credit Approval and Monitoring Process of The City Bank Limited. I am very much obliged for the cordial cooperation from mangers, Executives, Officers and especially the analysts of Retail Finance Centre Department. I want to express my whole hearted gratitude to them for their precious cooperation without which. It would not have been possible to bring the report in present form.

Last but not in the least, I am very much thankful to Md. Assaduzzaman, Head of RFC and Rajesh Kumar Barua, Senior Manager of RFC and also all of the analysts of Retail Finance Centre as well as MIS operation department of city Bank ltd.

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Major in Finance


EXECUTIVE SUMMARYCity Bank is the first bank in Bangladesh to have issued Dual Currency Credit Card. The bank is a principal member of VISA international and it issues both Local Currency (Taka) & Foreign Currency (US Dollar) card limits in a single plastic. VISA Debit Card is another popular product, which the bank is pushing hard in order to ease out the queues at the branch created by its astounding base of some 400,000 retail customers. The launch of VISA Prepaid Card for the travel sector is currently underway.

City Bank prides itself in offering a very personalized and friendly customer service. It has in place a customized service excellence model called GAP (Graceful-Appropriate- Pleasing) that focuses on ensuring happy customers through setting benchmarks for the bank's employees' attitude, behavior, readiness level, accuracy and timelines of service quality.

City Bank is one of the largest corporate banks in the country with a current business model that heavily encourages and supports the growth of the bank in Retail and SME Banking. The bank is very much on its way to opening many independent SME centers across the country within a short time. The bank is also very active in the workers' foreign remittance business. It has strong tie-ups with major exchange companies in the Middle East, Europe, Far East & USA, from where thousands of individual remittances come to the country every month for disbursements through the bank's large network of 83 online branches.

Table of contentsTopic: Credit Approval & Monitoring Process of The City Bank LimitedCHAPTER ONE : INTRODUCTION1-3

1.1 BACKGROUND OF THE STUDY2

1.2 STATEMENT OF THE PROBLEM2

1.3 SCOPES OF THE STUDY2

1.4 OBJECTIVE OF THE STUDY3

1.5 METHODOLOGY3

1.6 LIMITATIONS OF THE STUDY3

CHAPTER TWO : ORGANIZATIONAL PROFILE OF THE CITY BANK LIMITED4-17

2.1 THE CITY BANK LTD - Making Sence of Money5

2.2 STRATEGIC TASK ANALYSIS7

2.2.1 Corporate Vision7

2.2.2 Corporate Mission7

2.2.3 Corporate Objective7

2.3 PERFORMANCES OF THE CITY BANK8

2.3.1 Operating Income9

2.3.2 Deposit9

2.3.3 Loans & Advances10

2.3.4 Export10

2.3.5 Import10

2.3.6 Five years Performance (Business)10

2.4 THE CITY BANK ACTIVITIES11

2.4.1 Online Banking11

2.4.2 Islamic Banking11

2.4.3 SME Financing11

2.4.4 SWIFT Banking11

2.4.5 City Card12

2.4.6 Capital Market Service12

2.5 BROAD CATEGORIES OF CITY BANKS CREDIT12

2.5.1 Retail Financing of CBL13

2.5.1.1 Objective13

2.5.1.2 Retail Financing Products13

2.5.2 SME FINANCING OF CBL13

2.5.2.1 CBL - Definition of SME14

2.5.2.2 Product14

2.5.2.3 Target Segment14

2.5.3 CORPORATE CREDIT14

2.5.3.1 CBL Customized Definition15

2.6 CREDIT FACILITIES OF THEIR CORPORATE CLIENTS15

2.6.1 Trade Finance15

2.6.2 Project Finance15

2.6.3 Working Capital (For Industrial Finance)16

2.6.4 Working Capital (For Work Order)16

2.6.5 Commercial Lending16

2.6.6 Finance of NBFI16

2.6.7 Specialized Scheme16

2.6.8 Export Oriented Business16

2.6.9 Advance Against Financial Obligation16

2.7 SWOT ANALYSIS OF THE CITY BANK LIMITED17

CHAPTER THREE : CREDIT APPROVAL OF MONITORING PROGRESS18-45

3.1 CREDIT POLICY IN THE CITY BANK LIMITED19

3.2 LENDING PRINCIPLES FOLLOWED BY THE CITY BANK LIMITED19

Principle # 1 - 319

Principle # 4 - 1420

Principle # 15 - 2321

3.3 FLOW CHART FOR CREDIT PROGRESSING22

3.4 PROCESSING OF LOAN APPLICATION & APPROVAL23

3.4.1 The Progress23

3.4.1.1 Beginning of Relationship23

3.4.1.2 Placement of Application by The Client23

3.4.1.3 Credit Rating Verified23

3.4.1.4 Key Document's Collected23

3.4.1.5 Site Visit and KYC23

3.4.1.6 Conformity to Credit Policy23

3.4.1.7 Management Analysis23

3.4.1.8 Financial Analysis23

3.4.1.9 Features of Existing CRG For Advance Exceeding23

3.4.1.9.1 Demand & Supply Analysis24

3.4.1.9.2 Technical Aspect (where applicable)24

3.4.1.9.3 Economic Aspect (where applicable)24

3.4.1.9.4 Ecological Aspect (where applicable)24

3.4.1.9.5 SWOT Analysis24

3.4.1.9.6 International Certification to ISO Certificates24

3.4.1.10 Structuring The Proposal24

3.4.1.11 Move The Proposal25

3.4.1.12 Sanction Advice25

3.4.1.13 Documentation (Security / Charge documents)25

3.4.1.14 Legal & Regularity Compliance25

3.4.1.15 Disbursement25

3.4.1.16 Periodic Review25

3.4.1.17 Collection25

3.4.1.18 Workout of Advance Warning Process25

3.4.1.19 Legal Procedures of Delinquent Loans25

3.5 CREDIT RISK MANAGEMENT (CRM)25

3.6 CREDIT RISK GRADING (CRG)26

3.7 CREDIT ADMINISTRATION27

3.7.1 Limit Maintenance27

3.7.2 Authentication of Documentation Checklist, Issuance of Disbursement Authority28

3.7.3 Verification Security28

3.7.4 Credit Portfolio Review28

3.7.5 Custodian28

3.7.6 Monitoring & Follow up29

3.7.7 Compliance29

3.7.8 Supervisory or Audit Levels Questionnaire29

3.8 CREDIT RECOVERY30

3.8.1 Strategy30

3.8.2 Procedure For NPL Account Management31

3.9 CLASSIFIED LOAN REVIEWED31

3.10 NEWLY ESTABLISHED REGULATIONS IN THE BANKING MANAGE CREDIT32

3.10.1 Screeing Regulations32

3.10.2 Monitoring Regulations32

3.10.3 Transparency Regulations32

3.10.4 Lenders Recourage Regulations33

3.11 BANGLADESH BANK'S GUIDE LINES [UPDATE TILL 2009)33

Guide Line - 1 Pricing33

Guide Line - 2 Lending And Risk Management34

Guide Line - 3 Restriction on Lending to Director of Private Bank34

Guide Line - 4 Instructions for Preparation of Financial Statements34

Guide Line - 5 Policies on Single Brower Exposure36

Guide Line - 6 Large Loan Restructuring Scheme (LLRS)36

Guide Line - 7 Requirements for Obtaining Information on Large Loan37

Guide Line - 8 Interest Rates on Deposit & Lending37

Guide Line - 9 Bank Charges37

Guide Line - 10 Managing Core Risks in Banking37

Guide Line - 11 Credit Rating37

Guide Line - 12 Prudential Guidelines for Customer Enterprise Financing37

Guide Line - 13 Implementation of Credit Risk Grading Manual38

Guide Line - 14 Supervision, Monitoring And Recovery of Loss40

Guide Line - 15 Policies on Loan Classification and Provisioning41

Guide Line - 16 Policies For Rescheduling of Loan43

Guide Line - 17 Policies For Loan Write off44

3.12 DEVIATION OF BANGLADESH BANKS POLICY GUIDELINES45

3.13 COMMENTS ON CREDIT APPROVAL & MONITORING PROCESS OF THE CITY BANK LIMITED45

CHAPTER FOUR : ANALYTICAL PART47-78

4.1 TREND ANALYSIS OF LOAN AND ADVANCES OF THE CITY BANK LIMITED48

4.2 TREND ANALYSIS OF DEPOSIT OF THE CITY BANK LIMITED48

4.3 CREDITPOSITION OF THE CITY BANK LIMITED50

4.3.1 Credit Portfolio50

4.3.2 Lead Time50

4.3.3 Growth of Loan and Advances51

4.3.4 Classification of Loan & Advances51

4.4 RECOVERY OF NONPERFORMING LOAN53

4.5 PERFORMANCE EVALUATION53-58

4.6 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER, 200859

4.6.1 Pie-Chart60

4.6.2 Definition60

4.7 PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER, 200862

4.7.1 Pie-Chart63

4.7.2 Definition63


4.8.1 Pie-Chart66

4.8.2 Definition66


4.9.1 Pie-Chart71

4.9.2 Definition71


4.10.1 Pie-Chart74

4.10.2 Definition74


4.11.1 Pie-Chart77

4.11.2 Definition77

4.12 Disbursement Situation78

CHAPTER FIVE : FINDINGS & SUGGESTIONS79-83

5.1 Five FINDINGS80

5.1.1 Major Problems80

5.1.2 Minor Problems81

5.1.3 Suggestion81-83

CHAPTER SIX : RECOMMENDATION & CONCLUSION84-85

BIBLIOGRAPHY87-89

References88

Acronyms89

Balance Sheet, Profit & Loss Account, Cash Flow Statement91-97

Balance Sheet92

Profit & Loss Account94

Cash Flow Statement95

THE END

CHAPTER ONE:INTRODUCTIONCredit Approval & Monitoring Process of The City Bank LimitedPage 1

1.1. Background of the Study:The business world is getting dynamic and competitive. It is hard for an organization to run & even survive in a fast paced, growing and uncertain world if it cannot keep tracks with the go of business dynamism. Business plays and links important roles in developing the economy of a country. So, as a business graduate, I think I need to be attached with any organization to get a handy & versatile experience about the business world before starting our career. Internship is the arrangement, which makes a bridge between our academic knowledge and practical world to have an acquaintance with the real business world as well as to gear me up to lead the future competitive business.

The report is a requirement of the internship program for my BBA program. My internshipinstructorNusratJahan,AssistantProfessor,Dept.ofBusiness Administration, Stamford University Bangladesh, has duly approved the topic of my report. During my internship, I was concentrated on different functions regarding the credit administrative division, corporate & investment banking division, which inspired me to choose this topic. The report thus was titled as Credit Approval & Monitoring Process of The City Bank Limited.

1.2. Statement of the Problem:I was authorized to prepare a report on Credit Approval & Monitoring Process of The City Bank Limited for partial fulfillment of my course requirement. I was attached with The City Bank Limited, worked as an intern from May 07, 2011 to July 08, 2011. This report has been prepared to reflect my knowledge about Credit Approval & Monitoring Process with my practical experience on the day-to-day work with tracking and analyzing different activities of credit activities of the bank.

1.3. Scopes of the Study:This report has prepared to gain a clear view of the credit approval & monitoring process. It includes all my experience in the City Bank Limited. I tried to show how the City Bank handles all the credit approval & monitoring activities necessary to approve credit, disburse, sanction, monitor etc. I focus on how the loan and advances were marketed to the customers, how the relationships were built and how each customer were followed up or handled by the Relationship Managers. Purpose of the report would be to focus on how the credit management practice is being carried out by the respective department like what is the mode of operation, what is the evaluation techniques followed by the officers

during evaluating a loan proposal and so on so forth.Credit Approval & Monitoring Process of The City Bank LimitedPage 2

In addition, the report will not cover various legal issues regarding disbursement and recovery procedures of a loan. Finally entire risk management issues in the report will revolve around corporate loan proposals only.

1.4. Objective of the Study:The basic objectives of this study are as follows:

1. To demonstrate the experiences of the seven weeks internship program at The

City Bank Limited.

2. Tobe familiar with day-to-day functioning and services offered by a commercial bank.

3. To make a bridge between the theories and practices on banking operations.

4. To analyze the credit approval process in The City Bank Limited.

5. To analyze the credit monitoring process in The City Bank Limited.

6. To understand and evaluate which component is influential to loan &

advances

7. To understand and assess the relationship among deposit, interest income, loan

& advances

1.5. Methodology:Methodology refers to the essential part of the study and the process of collecting information and arranging it in terms of the relevant issues of the study. It is designed in a way so that it correspondent to achieve the objectives of the study.

1.6. Limitations of the Study:The following limitations are apparent in the report

1. Time is the first limitation as the duration of the program was of two months only.

2. Another limitation of this report is Banks policy of not disclosing some data and information for obvious reason, which could have been very much useful.

3. All the employees were always busy with heavy workload. Therefore, they got

few times to extend their co-operationCredit Approval & Monitoring Process of The City Bank LimitedPage 3

CHAPTER TWO:ORGANIZATIONAL PROFILE OF THE CITY BANK LIMITEDCredit Approval & Monitoring Process of The City Bank LimitedPage 4

2.1 THE CITY BANK LIMITED--- Making Sense of MoneyUntil the beginning of the eighties, the banking business in Bangladesh was only restricted to the nationalized sector in addition to two or three foreign banks. It is only in

1983 that the Government changed its policy on the banking sector paving the way for setting up new banks with private sector. In fact, 1983 saw the emergence of a bevy of local banks with private entrepreneurship of which The City Bank limited stands out prominently. It came on stream on the 27th March 1983. The City Bank Limited is the first private sector Bank in Bangladesh. The Bank has been operating since 1983 with an authorized capital of TK. 1.75 Billion under the entrepreneurship of twelve prominent and leading businessman of the country. The fine intention behind starting this Bank was to bring about qualitative changes in the sphere of Banking and Financial management. The bank currently has 88 online branches and 10 SME service centers and 1 SME Agro center spread across the length & breadth of the country that include a fully fledged Islami Banking branch. Besides these traditional delivery points, the bank is also very active in the alternative delivery area. It currently has 99 ATMs of its own; and ATM sharing understanding with a partner bank that has more than 550 ATMs in place; SMS Banking; Interest Banking and so on. It already started its Customer Call Center operation. The bank has a plan to end the current year with 100 own ATMs.

City Bank is the first bank in Bangladesh to have issued Dual Currency Credit Card. The bank is a principal member of VISA international and it issues both Local Currency (Taka) & Foreign Currency (US Dollar) card limits in a single plastic. VISA Debit Card is another popular product which the bank is pushing hard in order to ease out the queues at the branch created by its astounding base of some 400,000 retail customers. The launch of VISA Prepaid Card for the travel sector is currently underway. City Bank has launched American Express Credit Card and American Express Gold Credit card in November

2009. City Bank is the local caretaker of the brand and is responsible for all operations supporting the issuing of the new credit cards, including billing and accounting, customer service, credit management and charge authorizations, as well as marketing the cards in Bangladesh. Both cards are international cards and accepted by the millions of merchants operating on the American Express global merchant network in over 200 countries and territories including Bangladesh. City Bank also introduced exclusive privileges for the card members under the American Express Selects program in Bangladesh. This will

entitled any American Express card members to enjoy fantastic savings on retail andCredit Approval & Monitoring Process of The City Bank LimitedPage 5

dining at some of the finest establishment in Bangladesh. It also provides incredible privileges all over the globe with more than 13,000 offers at over 10,000 merchants in 75 countries. They have a distinguished Board of Directors which consists of thirteen successful and reputed businessmen. Mr. Aziz Al-Kaiser, a top leading businessman, industrialist, pioneer personality and entrepreneur of private sector bank of Bangladesh, is the Chairman of the Bank. Mr. Kazi Mohmood Sattar a dynamic, nationally and internationally reputed banker is the Managing Director and CEO of the Bank. These directors commenced the journey with only Taka 3.4 crore worth of Capital, which now is a respectable Taka 330.77 crore as capital & reserve

The bank was adorned with prestigious honors like one of the top ten companies, large tax payer, one of the top five hundred banks in Asia. From 1984 through 1992 the bank earned profits consistently and the performance was remarkable. The bank, however, ran into rough waters from 1993 due to multiple events like business slump, default culture, rigorous provisioning etc. The bank posted net losses after provision during the years from 1993 through 1995. The downtrend, however, could be arrested in 1995 when the net losses ebbed and the year 1996 showed net profits after provision. This trend could be sustained from 1997 onward. In the year 2000, the bank managed to offset its total accumulated losses. The year 2003, 2004 and 2005 are the heralded years of success showing encouraging performance in all the area of its operations. In year 2009, profit after provision of the Bank is 808.46 million. In 2010 City Bank wins The Asian Banker "Strongest Bank in Bangladesh 2010" Award.

City Bank is among the very few local banks which do not follow the traditional, decentralized, geographically managed, branch based business or profit model. Instead the bank manages its business and operation vertically from the head office through 4 distinct business divisions namely:

Corporate & Investment Banking;

Retail Banking (including Cards);

SME Banking; &

Treasury & Market Risks.Credit Approval & Monitoring Process of The City Bank LimitedPage 6

2.2 STRATEGIC TASK ANALYSIS2.2.1 Corporate VisionTo be the leading bank in the country with best practices and highest social commitment

2.2.2 Corporate MissionTo contribute to the socio economic development of the country.

To attain highest level of customer satisfaction through extension of services by dedicated and motivated team of professional team of professionals.

To maintain continuous growth of market share ensuring quality. To maximize banks profits by ensuring its steady growth.

To maintain the high moral and ethical standards.

To ensure participative management system and empowerment of Human Resources. To nurture and enabling environment where innovativeness and performance is rewarded.

2.2.3 Corporate ObjectiveThe City Banks objectives are reflected in the following areas: Highly personalized service.

Customer-driven focus.

Total commitment to quality. Contribute 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 products and services. The City Bank Ltd 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.

Credit Approval & Monitoring Process of The City Bank LimitedPage 7

2.3 PERFORMANCES OF THE CITY BANK:The City Bank Limited, functioning as a conventional bank in the country, has been able to consolidate its position in this sector, the bank has been able to establish a solid presence with the customers and general public, through its improved services, value addition in the economy and increasing shareholders value.

Income Statement20072008200920102011

Interest income4752.135809.656446.267772.078183.26

Interest expenses3172.284109.965366.986567.277325.36

Noninterest income1722.911898.192030.583445.364624.29

Noninterest expenses1626.891657.831861.011155.461316.32

Profit before provision1675.871922.052248.852494.72255.87

Profit before tax803.46923.051130.921453.022808.46

Profit after tax313.46480.26640540.02843.46

Balance Sheet

Authorized capital4001750175017501750

Paid up capital24048072010801188

Reserve fund and surplus557.21937.471238.41450.91686.37

Total shareholders equity797.211417.471958.42530.92874.37

Deposits20046.3122236.9630647.8340881.4140539.

63

Loans and advances14778.5517027.8423326.3430789.0226788.

47

Investments3379.263161.383648.276405.087550.61

Fixed assets686.69682.37764.91282.091390.73

Total assets23698.5626375.5635303.7447445.7548755.4

Off balance sheet exposures5216.276374.328459.6412901.578277.64

FOREIGN EXCHANGE

BUSINESS

EXPORT7719.712198.6918218.9728211.2219151.

15

IMPORT17292.7417909.9421363.2132096.3920308.

89

REMITTANCE1493.382466.834158.784734932.05


TOTAL CAPITAL ADEQUACYRATIO6.57%9.78%9.63%9.21%12.6%

CREDIT QUALITY

PROVISION FOR

UNCLASSIFIED LOAN124.66149.66250.79334.03500.83

PROVISION FOR CLASSIFIED

LOAN926.18943.91413.87943.26462.78

PERCENTAGE OF NPL OVER

TOTAL LOANS AND DEPOSITS14.16%10.57%5.71%7.18%6.24%

SHARE INFORMATION

NO OF SHARE OUTSTANDING

(IN MILLION)2.44.87.210.811.88

EPS5.6179.2275.1320.228.91

STOCK DIVIDEND50%50%10%15%

MARKET VALUE PER SHARE227.49877.76769.33390725.25

PRICE EARNINGS RATIO40.5511.0810.2419.3125.09

NET ASSETS VALUE PER

SHARE332.17295.31272234.34241.95

OPERATING PERFORMANCE RATIO

CREDIT DEPOSIT RATIO73.72%76.57%76.10%75.31%66.08

%

COST OF FUNDS6.37%5.63%5.34%6.94%7.55%

YIELD ON LOANS &

ADVANCES15.54%13.23%12.67%13.30%13.15

%

RETURN ON ASSETS2.85%1.52%1.75%0.58%0.71%

RETURN ON EQUITY1.70%34.34%32.05%10.69%12.71

%

2.3.1 Operating Income:Operating income for the year 2011 stood at tk.3672 million compared to that of tk. 4550 million in 2010.operating income decreased by tk. 82 million (3.9%) from 2010 primarily due to increased cost of deposit.

2.3.2 Deposit:Total deposit of the bank as on December 31,2010 stood tk.40540 million against tk.

40881 million of the previous year registering a marginal negative growth of tk. (0.83%)this reduction in deposit was the result of the strategic plan by reducing high interest deposit, to not only reduce interest expense but also to match reducing in order to improve NPL of the bank.


2.3.3 Loans and Advances:The loans and advances portfolio of the bank at the end of the year 2010 stood at tk.

96788 million with loans diversified in both conventional credit and finance based on islami shariah.total loan volume of the bank during the reviewed year decreased by tk.4001 million reductions from previous year.

2.3.4 Export:The amount of export business including local bills was tk.19151 million in the year under review compared to tk. 28211 million in the previous year.

2.3.5 Import:The volume of import business including local L/Cs of the bank stood at tk. 90309 million in the year 2011 compared to tk. 132096 million in the year 2010.

2.3.6 Five years performance (Business):Five years performance of The City Bank Ltd is increasing day by day. The most important areas of the bank such as deposits, advance, import, export and investment are given below.

DepositsLoans and advancesInvestmentsEXPORTIMPORT

200530647.8323326.343648.2718218.9721363.21

200640881.4130789.026405.0828211.2232096.39

200740539.6326788.477550.6119151.1520308.89

200846589.5320765.819564.5425131.1625256.65

200944698.1319056.319836.3125980.0328625.35

201054698.1329046.3110856.3155780.03128725.35

201164698.1339046.3111856.3156780.03158725.35


2.4 THE CITY BANK ACTIVITIES:2.4.1. Online Banking:With computerization the bank had gone another step ahead towards providing pragmatic, safe and prompt banking services. All 84 branches including Islamic Banking Branch are brought under computerization net. Bank has implemented online real time banking through an agreement with Info sys Technologies Limited for supply of world reputed banking software FINACLE. Within March 2008 real time banking facilities have been introduced in 37 branches of the CBL.

Under this system, client will be able to do the following type of transactions:

Easy to withdraw or deposit from any online branch

Fund transfer with one click, no need TT/DD.

Customer can easily tell which payments have cleared

2.4.2. Islamic Banking:CBL started its Islamic Banking operation by opening its first Islamic Banking Branch at

9/H, Motijheel, Dhaka. The salient features of Islamic Banking are as follows:

To conduct all its activities as per Islamic Shariah.

To conduct its monetary matters free of interest.

To establish banker-customer relationship on the basis of partnership.

To follow Islamic principle in its entire investment portfolio.

To develop living standard of the poor incoming group.

To conduct welfare related activities to the people.

2.4.3. SME Financing:SME Division was formally formed in the bank in the middle of 2005.Before that, banking facilities (with focus on extending credits) were available for SMEs in traditional and conventional unstructured-method. Moreover, the work processes in place has been largely geography-based branch banking system.

2.4.4 SWIFT Banking:CBL is one of the first few Bangladeshi Banks who has become member of SWIFT (Society for Worldwide Inter-bank Financial Telecommunication) in 1983. SWIFT is a member owned co-operative, which provides a fast and accurate communication network for financial transactions such as Letters of Credit, Fund transfer etc. By becoming a


member of SWIFT, the bank has opened up possibilities for uninterrupted connectivity with over 5,700 user institutions in 150 countries around the world.

2.4.5 City Card:The City Bank Limited launched their smart card - ATM card, credit card, debit card & utility bills payment card all in a single card in the name & style of "City Card" The city card provides round the clock banking through ATMs from which customers can avail:

Cash withdrawals Balance inquiry Mini statement

Cheque book request

PIN charge

Utility bills payment facilities

2.4.6. Capital market service:In an effort to promote and economic development of Bangladesh, City Bank considered it appropriate to seize this opportunity by playing its due role in capital market related activities. Accordingly, the bank obtained Membership of Dhaka Stock Exchange (DSE) for operating a brokerage house. To provide infrastructure facilities for local & Non- Resident Bangladeshi (NRB) Investors through this brokerage house and all other capital market related activities, a new Division namely Capital Market Services Division (CMSD) has been created and a Consultant with proper a background has been appointed.

2.5 BROAD CATEGORIES OF CBLs CREDITCBLs credit can be divided into three broad classes:Retail FinancingCBLs credit

SME FinancingCorporate CreditCredit Approval & Monitoring Process of The City Bank LimitedPage 12

2.5.1 Retail Financing of CBLProcess of identifying individual needs and satisfy them accordingly. It can also be termed as consumer banking.

What is Retail Credit/Loan?

One of the credits, which is extended to people having fixed, but regular income for acquiring consumer durables and other purposes for satisfying personal needs.

Consumer Credit is a collateral free credit and backed by the monthly income of the loonies and guarantees of guarantors acceptable to the bank.

2.5.1.1 Objective Improve living standard of limited income segment by providing collateral free easy credit.

To take part in the Scio-economic development of the country

To ensure access to credit by mass people

To diversify loan portfolio to minimize risk

To maximize bank profit as well as to minimize pressure on liquidity through quicker recycling but higher yielding loan operation

2.5.1.2 Retail Financing Products Personal Loan (Secured)

-OverdraftPersonal Loan (Unsecured)

-Car loan- Advance Against Salary

-Education Loan

-Doctors Loan- Hospitalization Loan

- Any Purpose Loan

-Travel Loan

-Household durables loan- CNG Conversion Loan

- Home loan

-Marriage Loan- Credit Card

2.5.2 SME Financing of CBLConsidering the growth potentially and demand situation The City Bank extended credit facilities to Small and Medium Enterprises through SME in larger volume in 2006. A


separate division was established in the Head Office to process and loans under SME for attaining a respectable market share and successful operation of the scheme.

2.5.2.1 CBL definition of SMEMinimum 2 years in business (Exceptional cases for Start-up business will be considered if projections are very good)

An Enterprise with minimum 3 and maximum 60 employees

Minimum Annual Turnover BDT 5,00,000 to maximum BDT 5 Crores (BDT

5 m)

Loan size of minimum taka 1,00,000 to a maximum BDT 1 crore (BDT 10 m)

2.5.2.2 Products:Installment Loan

Installment Loans against lien on eligible financial instrument and FDR

Residential/Commercial mortgage backed loan

Loan against Stocks (under hypothecation to bank)

Trade/Working capital loan

Overdrafts (secured and unsecured)

Deposit Products & Remittance

Letter of Credit

Guarantees/Bonds

2.5.2.3 Target Segment:Shop keepers

Small and Medium Entrepreneurs, Manufacturers,Traders, Suppliersto

Corporate Business

Professionals (Doctors, Engineers etc)

Cottage Industries

2.5.3 Corporate CreditCorporate clients are distinct from an individual in respect of their legal status. Registering with a government agency creates business of a Corporate Client. In Bangladesh Companies that are registered with Registrar of Joint Stock Company, Security Exchange Commission, Stock Exchange or Registrar of Firms & have a distinct incorporation registration number are considered to be corporate business entities.


2.5.3.1 CBL Customized Definition:Incorporation under a statutory body is indeed a distinct hallmark for identification of corporate entity. This category of clients is invariably the corporate clients in CBL. However, recent Bangladesh Bank (BB) guidelines have set yet another parameter for alienating the corporate clients. BB had defined the Small Enterprise Financing (SEF) and Consumer Financing (CF) as those falling under an exposure range of between TK.

50,000 to 1 crore (as at March 2005)

For avoidance of conflicting parameterization, CBL benchmarked its own definition of

Corporate Credit, which is as follows:

1) Excluding SEF or SME and CF loans all credits that are considered by PCFD

irrespective of their amount will be treated as Corporate Credit Portfolio.

2) In case of credit line which is less than TK> Five core yet considered by PCFD it is assumed that the client has the potentially of doing larger transaction and thus categorized under Corporate Credit.

3) Other characteristics of Corporate Credit Portfolio in CBL are:

a) All project/industrial loans

b) Working Capital Financing

c) Commercial Transport Loans

d) Trade Financing

e) Commercial House Building Loans

f) Loans to Trading House

2.6 Credit Facilities to their Corporate Clients:The City Bank Limited is continuously introducing diversified, tailor made and derivatives products along with usual Banking Products. At present CBL offers the following facilities:

2.6.1 Trade Finance:a) Non-Funded: Letter of Credit (L/C), Acceptance, Bank Guarantee, etc.

b) Funded: Loan against Trust Receipt (LTR), Payment against Documents (PAD), Inland Bills Purchase (IBP), Foreign Documentary Bills Purchase (FDBP), Inland Documentary Bills Purchase (IDBP), Short Term Loan (STL), Short Term Revolving Loan (STRL) etc.

2.6.2 Project Finance: (Large and Medium Industries / Small Industries including Agro-based Industries):a) Non-Funded: L/C for import of Machinery, Acceptance, Bank Guarantee, etc.

b) Funded: STL, STRL, Term loan for retirement of documents of importedCredit Approval & Monitoring Process of The City Bank LimitedPage 15

machinery / Local machinery / other project fixed costs, Hire Purchase, Lease

Finance, Loan (General), HBL (Commercial).

2.6.3 Working Capital (For Industrial Finance):a) Non Funded: L/C for import of Raw Materials, Acceptance, Bank Guarantee, etc.

b) Funded: Overdraft Cash Credit (Hypo), Cash Credit (Pledge), PAD, LTR, STL, STRL, IBP, SODSE, etc.

2.6.4 Working Capital (For Work Order):a) Non Funded: Letter of Credit, Bank Guarantee, etc.

b) Funded: SOD (work order), SOD (General), etc.

2.6.5 Commercial Lending:a) Non Funded: L/C for import of goods, Acceptance, Bank Guarantee, etc.

b) Funded: Cash Credit (Hypo), Cash Credit (Pledge), SOD, PAD, LTR, STL, STRL, IBP, etc.

2.6.6 Finance to NBFI:a) Non Funded: L/C for import of machinerys / equipment for their clients, Bank

Guarantee, etc.

b) Funded: SOD, STL, STRL, Term Loan (Credit line), Call Loan, and Zero

Coupon Bond Purchase.

2.6.7 Specialized Scheme:a) SME Products: SME Installment Loan, SME Revolving Loan, SME Muldhan Revolving Loan, SME Shulov Revolving Loan, Munafa Installment Loan, Munafa Installment Loan, SME Muldhan Installment Loan, SME Sheba Installment Loan, SME Shulov Installment Loan, SME (OD) Fully Secured, SME (OD) Partially Secured

b) Retail Products: City Express Cash Branch, Loan against Deposit, SOD

against Deposit, City Solution, City Drive, ATM, VISA Credit Card etc.

2.6.8 Export Oriented Business:a) Non Funded: Back-to-Back L/C, Acceptance, Bank Guarantee, Letter of

Credit, etc.

b) Funded: Packing Credit, Overdraft, Hire purchase, Lease Finance, FDBP, and

IDBP etc.

2.6.9 Advance against Financial Obligation:Funded: SODDP, SODOR and SODSECredit Approval & Monitoring Process of The City Bank LimitedPage 16

2.7 SWOT ANALYSIS OF THE CITY BANK LIMITEDThe Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis of CBL is described in the following table (Table 1.3):

Table 1.3: SWOT Analysis of CBLSound profitability and growth with good internal capital generationSLarger corporate client baseExperienced and efficient management team and human resourceQuality products and servicesCompany reputation and goodwillLarge number of on line Branches all over the country

WO TLack of adequate marketing (advertising and promotion) effortLack of trained employees.Lack of full automation

Scope of market penetration through diversified productsAutomation of transaction processes and online branch bankingRegulatory environment favoring private sector developmentValue addition in products and services.

Increased competition for market share in the industryFrequent changes of banking rules by the Central BankMarket pressure for lowering of lending rateNational and global political unrestDefault culture of credit


CHAPTER THREE:CREDIT APPROVAL & MONITORING PROCESSCredit Approval & Monitoring Process of The City Bank LimitedPage 18

3.1 CREDIT POLICY IN THE CITY BANK LTD:Banks are the principal source of credit for borrowers. Banks provide loan able funds for millions of households (individuals and families), for most local units of government and for agricultural, commercial and industrial activities of a nation. Worldwide, banks grant more installments loans to consumers than any other financial institution. Without adequate finance, there can be no growth or maintenance of a stable output. Bank lending is important to the economy, for it makes possible the financing of different sectors. At the same time, a bank will distribute its funds among various businesses in a manner as to derive sufficient income.

One of the primary functions of commercial banks is sanctioning of credit to the potential borrowers. Bank credit is an important catalyst for bringing about economic development in a country. Without adequate finance, there can be no growth or maintenance of a stable economy. At the same time, a bank will distribute its funds among various sectors in a manner as to derive sufficient incomes.

The objective of the credit management of a bank is to maximize the performing asset and the minimization of the non-performing asset as well as ensuring the optimal point of loan and advance and their efficient management. Credit management is a dynamic field where a certain standard of long-range planning is need to allocate the fund in diverse field and to minimize the risk and maximizing the return on the invested fund. Continuous supervision, monitoring and follow-up are highly required for ensuring the timely repayment and minimizing the default. Actually, the credit portfolio is not only constitutes the banks asset structure but also a vital factor of the banks success. The overall success in credit management depends on the banks credit policy, portfolio of credit, monitoring, and supervision and follow-up of the loan and advance. Therefore, while analyzing the credit management of The City Bank Limited, it is required to analyze its credit policy, credit procedure and quality of credit portfolio.

3.2 LENDING PRINCIPLES FOLLOWED BY CBL: CBL Credit Policy is guided by the following Principles:Principle # 1Credit is not to be making available or services to a customer where we lack an

understanding of the customer or the customers business.

Principle # 2Insider loans and self-dealing loans are prohibits.

Principle # 3Name lending is to be avoiding in respect of all customers/ counter parties.Credit Approval & Monitoring Process of The City Bank LimitedPage 19

Principle # 4All companies in a group shall be assesses individually and collectively. Applies for

approval, reporting and regulatory ceiling compliance purpose.

Principle # 5Lending to the holding companies is prohibiting.

Principle # 6Lending to the Govt. or sector corporations should not always be considering as low risk.

Principle # 7(a) Money should not be lent in property merely because of evident collateral.

(b) Companies or individuals who are seeking to develop their property should have a proven title or legitimate construction authority.

Principle # 8No lending or deal is to be making with a bank or the appropriate authority unless its

credit worthiness is establishing through due diligence and appropriate counter party limit approves financial institution.

Principle # 9While dealing with the groups their tendency of drawing accommodation bills and

originating in-house transactions should be clearly identifying and avoided. Banks own acceptance is not to be purchasing unless business case supports it and specific permission from head office authority.

Principle # 10Per party credit, exposure to be clearly worked out and determined.

Principle # 11Only the products that are covered by approved product program guidelines (PPGs) or

Departmental operating Instructions (DOI) may be provided to CBL customer.

Principle # 12Facilities should be priced on risk adjustment basis. Nature of product or facilities,

Customer credit grades, security, risk transfer factor (customer guarantee from another bank/insurance cover) should be considered.

Principle # 13Products that are appropriate for the nature of business and amount of loan that is

appropriate for the scale of operation of the customer should provided.

Principle # 14Tenor &terms of financing should be structured in relation to customers own business

cycle.Credit Approval & Monitoring Process of The City Bank LimitedPage 20

Principle # 15Specialized areas for bank financing should be defined, measured and clearly understood.

Only those areas where CBL has competence and capacity may be taken up for financing.

Principle # 16Facilities will be provided after a full analysis of the risks associated with customers as

well as facilities proposed & review of the risk adjusted return has been completed

&documented.

Principle # 17All Corporate clients should be allocated a credit grade using appropriate grading

methods as adopted from the best practices & in compliance with central banks

Prudential Guide Lines.

Principle # 18All loan application should be obtained in banks standard format and signed by the

authorized signatories.

Principle # 19Loan origination and disbursement authority must generate from two different persons

and/or Department/Divisions.

Principle # 20Facilities may be drawn only after authorization from credit Administration & Monitoring

Department, which must be organizationally independent of the credit marketing and credit approval process.

Principle # 21All items that are pledged, mortgaged, collateralized to the bank must be tangible, have

quantifiable value and should be under physical (actual or constructive) control of CBL or have legal title/charge thereto. These characteristics should be backed by appropriate documentation.

Principle # 22All loans and advances originated and disbursed should be collected or realized from the

borrower at maturity.

Principle # 23All decision makers should be aware of the risk concentration at portfolio level. They

must proactively manage, define and diversify the risk concentration.Credit Approval & Monitoring Process of The City Bank LimitedPage 21

3.3 FLOW CHART FOR CREDIT PROCESSING


3.4 PROCESSING OF LOAN APPLICATION AND APPROVALAppraisal and approval process of a bank loan application involve a series of activities. These activities reveal a true element of banking intermediation ranging from establishing relationship with a stranger (walk-in customer) to structuring a credit line for the existing clients. In order to manage the risk inherent in lending, banks across the world development many tools. These processes are generally benchmarked for application across the bank.

3.4.1 THE PROCESS3.4.1.1 Beginning of Relationship: Relationship Manager (RM) or contacts prospective client.

3.4.1.2 Placement of Application by the client: Client will place a credit request through banks prescribed application from.

3.4.1.3 Credit Rating Verified: CIB report or peer group reports obtained (CIB blacklist clients are rejected at this stage)

3.4.1.4 Key Documents Collected: Bank statement for new customer, Financials, regulatory permissions, business charters like Trade License, Article and Memo of Assn., Boars Resolution etc.

3.4.1.5 Site visit and KYC: Business premise/factory visit and call report made. Banks

KYC package completed.

3.4.1.6 Conformity to credit policy: conformity to credit policy in force is to be verified while accepting a credit proposal.

3.4.1.7 Management Analysis: Management capability to run the business is checked. Customers ability in relation to risk is measured, security examined, pricing for the product and remuneration for CBL

3.4.1.8 Financial Analysis:a)The Spreadsheet analysis

b)Profitability analysis

c)Leverage/gearing analysis

d)IRR (where applicable/if possible)

e)Breakeven point and Sensitivity analysis (if possible)

3.4.1.9 Some of the Features of existing CRG from in use to be considered for advances exceeding TK 5 crore:Credit Approval & Monitoring Process of The City Bank LimitedPage 23

3.4.1.9.1Demand and Supply analysis:a)Major competitors b)Aggregate demand c)Supply position

d)Market share of the firm under appraisal

e)Production capacity

f)Distributions channels and marketing policies in use

3.4.1.9.2Technical Aspect (where applicable):a)Availability of the raw materials, power and other inputs has been established

b)Production process chosen is suitable

c)Equipment and machineries chosen are appropriate

d)Proposed layout of the site/location, buildings and plant is sound

e)Human resources assessment and competency

3.4.1.9.3Economic Aspect (where applicable):a)Direct benefit of the society

b)Employment opportunity

c)Contribution to GDP

3.4.1.9.4Ecological Aspect (where applicable):a)The likely damage caused by the project to the environment

b)The certificate is obtained from the competent authority (like directorate of

Environment)3.4.1.9.5SWOT Analysis: SWOT refers Strength & weakness of the client,

Opportunity & Threats of the industry--- Where possible SWOT analysis can be made.

3.4.1.9.6International Certification to ISO certificates

3.4.1.10 Structuring the proposal: Based on financial and management analysis andneed of the client and his capability of operating the business, RM shall design the credit keeping in mind on the following issues:

a)Purpose of the credit

b)Experience in the similar business

c)Risk, Remuneration

d)Ancillary business

e)Validity Loan Period & Business Profitability

f)Debt Equity Ratio

g)Repayment capacity & Production capacity

h)Market demand of the productCredit Approval & Monitoring Process of The City Bank LimitedPage 24

3.4.1.11 Move the proposal: If the preliminary findings are positive and acceptable to the bank as per Credit Policy, BB Regulations, Remuneration and Risk profile.

3.4.1.12 Sanction Advice:3.4.1.12.1 Bank will prepare a detailed approval advice for the client. Banks standard format shall be used for advising the approval to the client. Rejection intimation should be promptly sent.

3.4.1.12.2 Clients signature on the duplicate copy of the sanction advice should be obtained as the confirmation of having accepted the terms and condition of approval.

3.4.1.13 Documentation (security/charge documents): The respective official/officer shall complete documentation as per the sanction advice.

3.4.1.14 Legal and regulatory compliance: For legal and regulatory compliances, reference should be made to head office legal department (where applicable)

3.4.1.15 Disbursement: Disbursement to be made after due diligence.

3.4.1.16 Periodic review: Periodic review of all loan accounts should be made in the bank given format.

3.4.1.17 Collection: Branch will collect the installments or the money for adjustment of liability as per the sanction advice. Proper record should be kept in the loan file regarding their collection status. In cases of default this should be reported to credit administration department (CAD)

3.4.1.18 Workout of advance warning process: Workout on each slow or potentially risky account should be made and reported to Head Office on quarterly basis. Account that fall under BB norms of Special Mention Accounts should be carefully identified and reported to HO as per guidelines provided in circular no 2005/01 dated 8th march, 2005 issued by Project & Corporate Finance Division.

3.4.1.19 Legal procedures for delinquent loans: Legal process starts only when a loan is classified and considered non recoverable under normal interaction with the borrower. Decision for a legal action is made on case-to-case basis.

3.5 CREDIT RISK MANAGEMENT (CRM)CRM refers to credit risk management that means robustly manage credit risk in order to attain profit and contribute to GDP. The core risks of commercial banks are:

The Bank has formulated Credit Risk Manual, Departmental Operating Instruction, Departmental Control Function Checklist and Credit policy to address credit risk.


Asset Liability Risk:To address the issue of Foreign Exchange Risk Management, all foreign exchange activities are segregated into Front & Back Office operation. Bank has developed Departmental Operating Instruction to minimize foreign exchange risk.

Foreign Exchange Business Risk:To identify & control of operational risk bank have been place various exception reports, Management Action Triggers (MAT), early warning system.

Operation Risk:The Bank had formed Assets Liability Committee (ALCO), which holds meeting and reviews issues like interest rate trends, foreign exchange position, balance sheet risk, pricing on deposit, advances, and take appropriate action.

Internal Control and Compliance:To implement the desired roadmap of risk management under the prudential guideline of Bangladesh Bank, the bank had effectively responded to build a proper Internal Control & Compliance (ICC) to identify and mitigate risk.

Money Laundering Prevention Risk:Money laundering risk is defined as the loss of reputation and expenses incurred as penalty for being negligent in prevention of money laundering. Nominated Anti Money Laundering Compliance Officers in branches is required report to Chief of Anti Money Laundering Compliance Officer at Head Office level on any suspicious transaction. Steps are taken to have KYC, transaction profile completed before opening any account.

3.6 CREDIT RISK GRADING (CRG)As a recommendation of BASEL-2 Bangladesh Bank establish a CRGM (Credit Risk

Grading Manual) aiming to form a good credit system in the country.Credit Approval & Monitoring Process of The City Bank LimitedPage 26

Marks 100%Distribution forGrading

Under Business/Industrial Risk (18%)Financial Risk50%Size of business5%

Business/Industrial Risk18%Age of business3%

Management Risk12%Outlook3%

Security Risk10%Industrial Growth3%

Relationship Risk10%Market competition2%

Entry/Exit2%

Total50%Total18

%

Under Management risk (12%)Under Security Risk (10%)

Management experience5%Coverage

Second in line4%Primary4%

Team work3%Collateral4%

Support security2%

Total12%Total10

%

Under Relationship Risk (10%)Under Financial Risk (50%)

Account conduct5%Leverage Risk

Utilization of limit2%Liquidity Risk

Compliance2%Profitability Risk

Personal deposit1%Coverage Risk

Total10%Total50%3.7 CREDIT ADMINISTRATIONCredit Administration Division (CAD) will be responsible for the followings:Limit maintenance

AuthenticationofdocumentationChecklist,issuanceofDisbursement authority

Verification of Security Management of Exposure Credit Portfolio Review Custodianship

Monitoring & Follow up

Compliance3.7.1 Limit Maintenance:Limit creation and maintenance of limit i.e. origination of loan account & verification, limit setup, renewal, rescheduling, enhancement, reduction, rate of interest modification and other important issues will be done centrally by Credit Administration Division. On receipt of copy of limit approval letter/sanction advice and upon confirmation regarding completion of documentation, Credit Administration Division (CAD) will create and maintain limit(s) for the clients and take necessary steps for managing MIS/Database.


3.7.2 Authentication of Documentation Checklist, issuance of Disbursement authority:Credit Administration Division (CAD) will check and sign the documentation checklist. Thereafter, the Head of Credit Administration Division (CAD) will issue Satisfactory Security Certificate Security Clearance Certificate/ Disbursement Authority.

3.7.3 Verification of Security:Credit Administration Division must check all collateral, primary securities and, legal opinion may be obtained to protect banks interest.

Ensure Mortgage documents are properly vetted by legal counsel /panel lawyer as per existing norms of the bank.

Project appraisal unit (PAU) will primarily check valuations of inventory and Credit

Administration Division will crosscheck machineries and the same.

The bank will collect a statement of Financial Obligations against which credit facilities has been allowed in February, May, August, and November to head of Credit Administration Division as per following format:

A/cFacilities

TypeLimitOutstanding

as onIssuing

authorityFO

ValueIssue

dateMaturity

dateSafe inSafe

out

3.7.4 Credit Portfolio Review:Credit administration Division will review credit portfolio on quarter basis in light of the following

Top 10 sectors

Overall sectorised dispersal/concentration

Sector wise performance: overdue, import/export

Client wise security yield

Top 10 clients concentration & performance & SMA status

Asset quality: Based on grading

3.7.5 Custodian:After receipt of the sanction advice from the Corporate & Investment Banking Division, CAD will maintain the following:

Maintain all sanction/renewal advice of each clientCredit Approval & Monitoring Process of The City Bank LimitedPage 28

Preserve security documentations along with the security documentation checklists, security satisfaction certificate/disbursement authority.

Preserve the verification report of all collateral security

3.7.6 Monitoring & Follow up: Monitor adherence to the approved terms & conditions

Review documentation periodically but at least annually

In case of any Excess Over Limit (ECL) /Temporary Accommodation is allowed to any case account, ensure that there is approval

Check & review the periodical statement to ensure compliance to the conditions laid down in the loan approval advice and/or the covenants of loan reschedule agreement, if any. Prepare client to the consolidated exception/deficiencies reports/statements in regard to the following:

1.Past due/non collection of loan installment at maturity, non-collection of

Principal at maturity and non-servicing of interest

2.Unauthorized EOL (Excess Over Limit)

3.Expired limit

4.EAL (Early Alert List)

5.SMA (Special Mention Account)

6.Covenant violations & document deficiencies

Follow up for regularization/rectification accounts

3.7.7 Compliance:Submission of returns to Bangladesh Bank

Ensure timely collection of CIB report & forward a copy of the same to the Corporate

& Investment banking Division as & when received from Bangladesh Bank

Ensure default lost circulations

Ensure compliance of Credit policy

3.7.8 SUPERVISORY OR AUDIT LEVELS QUESTIONNAIRESLQuestionnaireCompliance(Yes/No)

ORIGINATION STAGE

i.Whether loan application in standard format obtained

ii.KYC procedure followed and documents

iii.Business/factory site visited and documented

iv.Financial obtained, analyzed & spread sheet made

v.End use of funds clearly identified

vi.CBI & other credit reports satisfactory

vii.Loan approved as per delegated power


viii.Ownership & title of collateral fully verified & physically in

possession

ix.In the case of limited companies charge with registrar JT

Stock Companies created within mandatory period

x.Disbursement authority obtained from Head Office

xi.Sanction offer letter accepted by the borrower

xii.Security documents adequate

xiii.Regularmeetingwithborroweratappraisalstage

documented.

xiv.Regularmonitoringofstockreport/DP/pledgedgoods

(documented)

xv.Charge documents obtained

MONITORING

i.If exception report on interest or principal payment failure on record

ii.If periodic review made on

iii.Borrowers security, financial results are reviewed periodically and documented

iv.Key administrative dates such as renewal of security doc. Dates, charge registration with RJSC etc. are properly recorded

COLLECTION & CONFIRMATIONS

i.If record of principal & interest collection are maintained.

ii.If arrear payments are followed up on timely basis

iii.Work out for special Mention Account carried out periodically

3.8 CREDIT RECOVERY:3.8.1 Strategy:Recovery Strategy includes but not limited to the followings:

Meeting with the client

Phone call

Checking & verification of collateral security

Explore the possibility of amicable settlement

Initiate legal action

Any other strategy depending on the situation deemed appropriateCredit Approval & Monitoring Process of The City Bank LimitedPage 30

Transfer of NPL account to Recovery & Legal DivisionOn updating status of each account, if any account becomes substandard or worse, the Recovery Division will obtain file from Credit Division and the account would be assigned to an account manager. All correspondences made with the client during the last sent to the credit division

3.8.2 Procedure for NPL Account ManagementWithin 15 days from the receipt of file from Credit Division, Recovery Division will initiate office note/classified review report on stand-alone basis. Information must be included:

Name of client

Cl status

Name of the sponsor/owner/proprietor/partner

Name of the guarantors

Sanctioning authority

Primary/collateral security

Present dues

Written off or not

Present proposal of client

Drawing against the account being downgraded to sub-standard or worse are prohibited

Defaulting borrowers are pursued vigorously to repay the banks dues.

If the defaulting borrower cant repay the dues for the moment and applies for rescheduling, loan amount, upon approval of the competent authority may be rescheduled as per Bangladesh Bank guidelines.

If the borrower does not come forward to settle the liability, due process should be initiated to take legal action against the borrower if the borrower is not capable to repay loan due to his genuine financial hardship, waiver of interest may be considered

3.9CLASSIFIED LOAN REVIEWEDEvery quarter a comparative position will be submitted & placed before the higher management where the following issues will be highlighted Comparative CL position of present quarter & 4 precedent quarter

Provision required for Unclassified & Classified loans

Provision kept for Unclassified & Classified loans

Provision excess/shortfall for Unclassified & Classified loans

Suspended interest (including SMA)Credit Approval & Monitoring Process of The City Bank LimitedPage 31

Newly classified loan

SMA3.10 NEWLY ESTABLISHED REGULATIONS IN THE BANKING SECTOR TO MANAGE CREDITThough the ultimate or combined objective of each of the regulations, established in the banking sector is the same (improvement of loan quality), yet in terms of individual or specific objectives, they differ from each other.

According to these discussions Credit Management regulations can be classified in the following categories:

1) Monitoring Regulations

2) Screening Regulations

3) Transparency Regulations

4) Lenders Recourse Regulations

3.10.1 SCREENING REGULATIONSWhether a particular loan will perform or not, mainly depends on the quality of screening of the loan proposal. This quality of screening again depends on the availability of the information on the borrowers, methodology for screening and the expertise of the credit officers. The screening mechanisms that are being employed include:

Credit risk (CRG)

Credit Information Bureau (CIB)

Loans to insiders and connected parties (The Banking Companies Act 1991 with amendments)

Interest Rate Deregulation

3.10.2 MONITORING REGULATIONSNot just only loan screening, but also the performance of a loan is equally dependent on the monitoring system (regarding loan use and repayment) of the loan giving agencies. This sort of monitoring method is very weak in the Bangladesh banking financial system. To overcome such shortcomings several method have been introduced, which are:

New Loan Ledger Card (NLLC)

Large Loan Reporting System (LLRS)

Performance Planning System (PPS)

Off-site SupervisionCredit Approval & Monitoring Process of The City Bank LimitedPage 32

3.10.3 TRANSPARENCY REGULATIONSLack of appropriate accounting standard for recording the present performance position of loans hinders the process of reflecting the actual financial position or health of banking financial institutions.

The measures (regulations in regard to transparency) as adopted in our financial system are as mentioned below:

Loan Classification and Provisioning

Risk-Based Capital Adequacy

3.10.4 LENDERS RECOURSE REGULATIONSIn case a borrower is unable to repay, whether willingly or unwillingly, the lenders must have access on the borrowers to get back their money. In the context of Bangladesh, lenders recourse base was not only weak but also delay prone. In order to break through this weak recourse base, some new legal frameworks had been instituted, which are:

Artha Rin Adalat Act 1990

Bankruptcy Act 1997

3.11 BANHLADESH BANKS GUIDELINES [UPDATED TILL MARCH15, 2009]Guidelines 1-Loan PricingOne of the most important jobs of a bank is to correctly fix banks interest rates for lending. Interest rates play a crucial role in the overall growth of a bank. The rate of interest on loan & advances should be fixed by the bank that the interest margin would be sufficient.

Considerations of Loan PricingInternal factorsExternal factor Amount of loan able fund Govt. & regulatory agencies

Cost of bank fund Money Market competitions

Administrative & transaction cost

Overhead expenses

Credit investigation & analysis cost

Supervision & collection expenses

Amount bad debtCredit Approval & Monitoring Process of The City Bank LimitedPage 33

Methods of calculating interest margin1.Interest to be paid on deposit at weighted averageIOD

2.Interest to be paid on borrowings at weighted averageIOB

3.Total interest paid (Add IOD + IOB) =TIP

4.Add operating expensesOE

5.Total expenses (Add TIP + OE) =TEX

6.Interest to be received from loan at weighted average lending rateIOL

7.Interest to be received from investment at weighted average

lending rateIOI

8.Calculate fees & other incomes expectedFOI

9.Total interest earned (Add IOL + IOI)TIE

10.Interest margin (TIP TIE) =IM

11.Interest surplus / deficit (IM OE) =IS or ID

Guideline -2 - Lending and Risk ManagementThe policies, in respect of appraisal of loan/investment proposal, sanction, disbursement, recovery, reschedule and write-off thereof shall be made with the board's approval under the purview of the existing laws, rules and regulations.

Guideline -3 - Restrictions on Lending to Directors of Private Banks1. Any loan facility provided to a Director or to his relatives must be sanctioned by the Board of Directors & amount of the loan should not exceed 50% of the paid-up value of the shares.

2. The quarterly statement of liabilities of Directors & Ex-Directors of the bank as defined in the latest amendment of Bank Companies Act, 1991, will have to be submitted to B.Bank in the format as enclosed with BRPD Circular Letter No. 8 dated 19 June, 1997.

3. If re-scheduling is required in case of loans extended before the issuance of BRPD Circular No. 07 dated 5.8.99 in favor of Director or any organization wherein he has interest, time of repayment in case of term loan can be extended for maximum 03(three) years and in case of working capital latest up to 31st December, 2001.

Guideline 4 - Instructions for Preparation of Financial StatementsLoans and Advances:(a)Loans and advances should be shown as per the remaining maturity grouping in the following order:

(i)Repayable on demand

(ii)Not more than 3 months

(iii)More than 3 months but not more than 1 year (iv)More than 1 year but not more than 5 years (v)More than 5 years.


(b) The items of loans and advances i.e., loans, Cash credits, Overdrafts should be segregated into two sub-heads viz.

(i) Within Bangladesh and

(ii) Outside Bangladesh

(c) Loans & advances should be analyzed to disclose any significant concentration such as:-

(i)Advances to allied concerns of directors;

(ii)Advances to Chief Executive and other senior executives;

(iii)Advances to customers' (number of clients & outstanding amount of loans & advances each amounting more than 15% of bank's total capital, classified amount therein and measures taken for recovery of such loan should be mentioned);

(iv)Industry-wise & Geographical location-wise.

Provision for loans and advances:The note on movement in specific provision for bad and doubtful debts should be presented in the following format:

ParticularsTaka

Provisions held at the beginning of the yearxxxx

Fully provided debt written off(-)xxxxx

Recoveries of amounts previously written off(+)xxxx

Specific Provision for the year(+)xxxxx

Recoveries and provisions no longer required(-)xxxx

Net Charge to Profit & Loss A/C(+)xxxxx

Provisions held at the end of the yearxxxxxx

Interest Suspense Account:This should be shown according to the following format:ParticularsTaka

Balance at the beginning of the yearxxxx

Amount transferred to "Interest Suspense" Account during the year(+)xxxxx

Amount recovered in "Interest Suspense" Account during the year(-)xxxx

Amount written off during the year(-)xxxxx

Balance at the end of the yearxxxxx


Guideline -5 - Policies on Single Borrower Exposure01. As a result of increase in capital of almost all the banks, now it has been decided to reduce the single borrower exposure limit from 50% to 35%.

02.(a)Loan sanctioned to any individual or enterprise or any organization of a group amounting to 10% or more of a bank's total capital shall be considered as large loan.

(b)The banks will be able to sanction large loans as per the following limits set against their respective classified loans:

Rate of net classified loansThe highest rate fixed for large loan against bank's total loans & advances Up to 5

Up to 5%56%

More than 5% but up to 10%52%



More than 20%40%

04.(a) Banks should collect the large loan information on their borrowers form Credit

Information Bureau (CIB).

(b) Banks must perform CRG before sanctioning or renewing large loans.

05. For the loans that have already been disbursed with the approval of Bangladesh Bank, and that have exceeded the limit as stipulated in Section 01 (mentioned above), banks shall take necessary steps to bring down the loan amount within the specified limit.

Guideline 6 - Large Loan Restructuring Scheme (LLRS)The scheme will be known as "Large Loan Restructuring Scheme (LLRS)". The objective of the scheme is to ensure a transparent mechanism for restructuring of loans and to involve all the financing banks in the restructuring process.


Guideline 7 - Requirements for obtaining Information on Large Loan from CreditInformation BureauPrevious Circular on the above matter was issued vide CIB Circular No. 02 dated December

27, 1992. In the this circular, branches of the bank were directed to collect from January 01,

1993 onwards, before taking effective steps on fresh loan-application of any borrower after receipt of the same or before renewal of regular loan account or rescheduling.

Guideline 8 - Interest Rates on Deposit and LendingBanks are now free to fix their rates of interest on their deposits of different types after withdrawal of restriction about the floor rate of interest in 1997[37]. Banks are also free to

fix their rates of interest on lending except for export sector, which has been fixed at 7%[38]

per annum with effect from January 10, 2004.

Guideline 9 - Bank Charges1. With the rescinding of F.F. Circular No. 16 dated 31-3-1982 and BCD Circular No. - 7, dated 12-3-1986 on the captioned subject; the banks are now free to fix the fees and commissions relating to the services offered by them to their customers.

2. Each bank will forward to BCD (now BRPD), Bangladesh Bank a copy of the schedule of charges and commissions.

Guideline 10 - Managing Core Risks in BankingDue to deregulation and globalization of banking business, banks are now exposed to diversified and complex risks Bangladesh Bank has issued guidelines on 'Managing Core Risks in Banking' on 07 October 2003. The five core risks are

a) Credit Risks,

b) Asset and Liability/Balance Sheet Risks,

c) Foreign Exchange Risks,

d) Internal Control and Compliance Risks and

e) Money Laundering Risks.

Guideline 11 - Credit RatingIn terms of the BRPD Circular Letter No. 05 dated May 29, 2004 it was made mandatory for the banks to have themselves credit rated to raise capital from capital market through IPO. Banks will be required to complete their credit rating by June 30, 2007.

Guideline 12 - Prudential Guidelines for Consumer Financing and Small EnterpriseFinancingDue to significant increase in credit disbursement in the arena of Consumer Financing and encouraging credit flow in the Small Enterprise Financing sector in the recent time, two separate guidelines have been issued to the banks for better management of credit in those two sectors [45] where-in loans will have to be classified into 8(eight) categories (in light of Credit Risk Grading Manual).


Guideline 13 - Implementation of Credit Risk Grading ManualWith the aim to fully implement a Risk Grading System, an Integrated Credit Risk Grading

Manual has been developed and forwarded to the banks.RiskRatingGradeDefinition

Superior

Low Risk1 Credit facilities, which are fully secured, fully cash covered.

Credit facilities fully covered by government guarantee

Credit facilities fully covered by the guarantee of a top tier international Bank

Good

Satisfactory

Risk2[Score

85+ ] Strong repayment capacity of the borrower

The borrower has excellent liquidity and low leverage

The company demonstrates consistently strong earnings and cash flow

All security documentation should be in place

Credit facilities fully covered by the guarantee of a top tier local bank

Aggregate Score of 85 or greater based on the Risk grade

Score Sheet

Acceptable

Fair Risk3[score

75-84] These borrowers are not as strong as GOOD Grade

borrowers, but still demonstrate consistent earnings, cash flow and have a good track record.

Borrowers have adequate liquidity, cash flow and earnings.

Credit in this grade would normally be secured by acceptablecollateral(1stchargeoverinventory/ receivables/equipment/property).

Acceptable parent/sister company guarantee

Aggregate Score of 75-84 based on the Risk Grade Score

Marginal -

Watch list4[Score

65-74 ] These borrowers have an above average risk due to strained

liquidity, higher than normal leverage, thin cash flow and/or inconsistent earnings.

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 are present

Aggregate score of 65-74 based on the RGSS

Special

Mention5[Score

55-64 ] Thisgrade

has potential

weaknessesthatdeserve managementscloseattention.Ifleftuncorrected,these weaknesses may result in a deterioration of the repayment prospects of the borrower


RiskRatingGradeDefinition

Special

Mention5[Score

55-64 ] 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 on the RGSS

Substandard6[Score:

45-54] Financial condition is weak and capacity or inclination t6o

repay is in doubt.

These weaknesses jeopardize the full settlement of loans

Bangladesh Bank criteria for sub-standard credit shall apply


Doubtful

(nonperforming)7[Score:35-

44] Full repayment of principal and interest is unlikely and the possibility of loss is extremely high

However, due to specifically identifiable pending factors, such as litigation, liquidation procedures or capital injection, the asset is not yet classified as Bad & Loss

Bangladesh Bank criteria for doubtful credit shall apply


Bad & Loss

(nonperforming)8[Score:

Report of the City Bank Ltd

Documents

Transcript of Report of the City Bank Ltd