Policy & Procedural Guidelines on Credit Risk Management (CRM)

Sk. Md. Golam Mustafa, EVPCredit Operations Divisions-I

Lending Guidelines

Industry & Business Segment Focus

Trading, RMG, Textile, Chemicals/ Toiletries, Entertainment, Telecommunication/IT, Power Generation & Distribution, Energy (Power/Fuel/Gas), Electric Goods, Service, Steel & Re-rolling, Engineering

Grow

SME, Agro-based Industry, Export Oriented Industries, Pharmaceuticals, Consumer loans

Encourage

Food & Allied, Ship Scrapping, Real Estate, Paper Maintain

Transport, Cold Storage, Cement Discourage

Types of Facilities

CC Hypo & Pledge)

SOD (General)

SOD (Export)

Loan (General)

LCA (Loan Against Cash Assistance)

L/C

PAD

LTR

LIM

PC

LDBP/FDBP

BTB L/C

BG Local/Foreign

Single Borrower/Group Limits/Syndication

Lending Caps Amount

Total Exposure (Funded & no-Funded)

35% of Bank’s total capital

Maximum Funded exposure 15% of Bank’s total capital

Maximum non-funded exposure where there will be funded exposure

35% of Bank’s total capital

Maximum exposure for export sector

50% of Bank’s total capital (Funded facility will not exceed 15% of the total capital

Lending Caps (Sectoral)

Sector Caps % of total Advance

Trade & Commerce 45%

SME 10%

Industry-working capital 10%

Project Finance-Long Term 10%

Retail/Consumer (CCS) 10%

Agro Credit 5%

Work/Supply order (Contractual Finance) 5%

Others 5%

Total 100%

Discouraged Business Types

Military Equipment/Weapon Finance

Highly leveraged transaction

Finance of speculative business

Logging, Mineral Extraction/Mining or other activities that is ethically or environmentally sensitive

Defaulter borrower as per CIB

Counter parties in countries subject UN sanctions

Share lending

Taking an equity stake in borrowers

Lending to holding companies

Bridge loans relying on equity/debt issuance as a source of repayment

New Cold Storage Finance

Financing Cement Industries

Loan Facility Parameters

Nature of Advance Purpose Limit/Amount of Facility/Maximum size Margin/Equity Rate of Interest Rate of Commission/charges Mode of disbursement Mode of repayment Security Validity/Maximum tenor General/ Special conditions/Covenants

Nature of Advance

Each advance to be made will be categorized

under one of the arranged types and will be

governed under the terms & conditions related

thereto

Purpose

Lending to be made for legitimate purpose

Financing for hoarding, speculative purpose and which may degrade the character of the people will be avoided

Credit for production, trade, commerce, import, export, development of industries, development activities/economic growth, infrastructural development, employment generation, poverty alleviation etc will be stressed

Limit/Amount of facility/maximum size

Facility will be considered based on assessment of

requirement & justification subject to the overall lending

cap as per Bangladesh Bank single party exposure limit

Margin/Equity

It will be general policy of the Bank to judiciously ensure

stake of the borrower in any financing plan

Margin will be subject to institutional policy and

Bangladesh Bank guideline where applicable

Rate of Interest

Rate of Interest will be charged as per declared rate of the Bank

Pricing will be basically risk based. Higher is the risk, higher is the price

Low CRG rating considered higher risk 100% cash covered or Govt./ International top bank

guarantee are considered low risk In fixing rate of interest, cost of fund, prevailing market

rate etc are considered Concessional rate of interest may be charged for

deserving customer within band. Commission/charges to be realized based on market

condition and risk involved

Mode of disbursement

In disbursing loan, bank shall ensure drawing for the purpose it was sanctioned

Where required, visit of the site/business is recommended

In subsequent disbursement, utilization of the previous disbursement shall be ensured

For acquisition of assets, payment is suggested on receipt on assets

For commercial lending, LIM/Pledge storage of merchandise/goods be ensured

Mode of Adjustment/Repayment

For the borrower to exhibit capability to periodically

adjust the drawings taken and as such to have idea

regarding the rationale for continuation of the facility,

adjustment mode is given

Where revolving transaction is not allowed monthly,

quarterly etc. installment are suggested

Security

Bank continue to rely on security based lending, taking into consideration, the character of the borrower, nature of business cash flow, environmental, economic, business and other influencing factor

Primary and collateral security is preferred

Primary securities are valued on the basis of landed cost/factory price/whole sale market price

Collateral security to be valued by the surveyor and by the officials of the branch prudently.

Goods and machinery taken as security to be ensured

Validity/Expiry/maximum tenor

Continuous loan Not exceeding 1 year

Short term loan Upto 12 months

Medium term loan 12 months to 60 months

Long term loan More than 60 months

Security and support

Machinery Raw materials, WIP, FG Land & building Financial obligation Bills receivable against work order Vehicle Shipping documents as lien against L/C

Trust receipt for LTR

Export document under lien for LDBP/FDBP

Following securities are generally accepted:

Security and support (cont.)

Following securities are generally accepted:

Export L/C/Contract under lien for BTB

Packing Credit letter for PC

Personal/corporate/cross-corporate guarantee

Post dated cheque

1ST /2nd charge/1st ranking pari passu charge

Authorization to debit clients account

Quality of Security

Primary security having adequate market value Perishable and seasonal goods are discouraged Acceptable financial obligations are preferred Receivable against bill funded by foreign agencies Documents drawn in conformity with L/C Personal guarantee of those persons having high net-worth Subordinated rank are generally discouraged Land, building having defectless title, located in important

urban area NOC from appropriate authority where applicable to be

obtained 1st ranking pari passu in case of syndicated loan

Legal Interest Protection

Title searches are conducted periodically for collateral both with RJSC and land Registrar for mortgage

Collateral arrangements are detailed in the credit

proposal

Bank’s legal advisor establishes legal documentation

Registered mortgage are supported by registered irrevocable power of attorney to sell the property

Insurance

Insurance policy shall be obtained on all insurable properties

Insurance policy shall cover all possible risk

Insurance shall be current and renewed in time

Insurance to be taken from reputed company

General/Special conditions/Covenants

General/Special conditions/Covenants will be according to the nature of advance, security arrangement,

ownership pattern, mode of acquisition, institutional norms/instructions, guidelines of central

bank/regulatory authority

Cross Boarder Risk

Bank takes care of risks involved with Cross Border lending. Risk associated with import of a commodity which may arise from failure of:

Supply of goods of specific standard and quality

Supply of contracted goods in time

Risks are tried to handle by obtaining suppliers credit report, track record of exporter, past performance, capability of exporter

Advance payment against import is avoided in order to avert credit associated risk

Thank You