Credit Appraisal Policy of

ONE Bank Limited

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Chapter One

1.1 IntroductionBanks are the most financial institution in the economy of a nation. They are the principal sources of credit for million of individual and families and for many unit of government. Moreover, for small local business ranging from grocery stores to automobiles dealer, banks are often the major sources of credit. World wide, banks grant more installment loan to consumers than any other financial institution.

Financial institutions of a country play an important role in mobilizing the unutilized savings and guiding their way through to useful investment projects. The financial institutions go a long way in building the financial backbone of the country’s economy. Through capital rising, loan providing, lending support to venture new entrepreneurs with their concerns, the financial institutions is driving the nation towards financial solvency. In a developing country such as Bangladesh, the role of financial institutions is imperative. Here the financial institutions mostly comprise of Nationalized Commercial Banks (NCB), Privatized Commercial Banks (PCB) and Foreign Commercial Banks (FCB) that is, the major portion of financing for businesses and a majority of the core financial services are provided by banks. By the nature of their business, banks are very good at mobilizing savings and providing payment services and liquidity. As such they facilitate economic growth for the country.

When money became an accepted medium of exchange, the need arose to keep the money safe. In addition, some people needed to borrow money. These needs led to the development of banks. There are many financial institutions to control the national economy of a country. Bank is one of the institutions of such kind. By the nature of their business; banks are very good at mobilizing savings and providing payment services and liquidity. As such they facilitate economic growth for the country. A major source of the revenue’s is the varieties of loan products that they offer.

Loan products are one the key components of the banks assets. Most of the revenues generated by banks are generated through the loan products. One of the market leaders of the banking sector of Bangladesh, ONE Bank Limited is no exception in this regard. Through tits strong brand image and affiliation with a domestic renowned company, it is able to provide innovative services to the consumers of a developing country such as ours. Among its various products, one of the key products is the “Credit Appraisal Policy” which I have selected as the area for my study.

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The history of banking is closely related to the history of money. As monetary payments became important, people looked for ways to safely store their money. As trade grew, merchants looked for ways of borrowing money to fund expeditions.

1.2 Banking System (Modern) 

Although there is no formal evidence of the existence of banks in Bengal during the period before 400 BC, traders of this period were known to have carried out activities to provide financial assistance among them. The wealthy people of that period used to put their surplus money and valuables under the soil in brass-made pitchers and maintained accounts for them by writing on the body of dishes made of gold or silver. The VEDAS mentions the practice of informal banking in the form of borrowing and lending during the Vedic period. Such activities, however, were centred in temples and other religious places. Borrowing and lending gave way to banking during the period of Manu, who believed that wise men should deposit money with a person bearing good moral character, having respectable and rich relatives, and well conversant with law and the existence of banking and payment of interest on deposits in the Vedic period.

During the Munhall period, there were different types of gold coins in circulation that encouraged people to engage in monetary transactions and profit-motivated financial activities. Many individuals and some families attained special reputation in trading and in finance. One such family, that of JAGAT SHETH, had branches of its monetary business in DHAKA, Hughli and MURSHIDABAD. Mughal rulers patronised the banking business of Jagat Sheth family and others, and also used to borrow money from them when needed. People could convert their valuables, mostly gold and silver, into currency with minimum cost at Mughal mints. Monetary transactions and transfer through hundi (BILL OF EXCHANGE), along with cash transaction, was in vogue during the Mughal period. The revenue received from ZAMINDARs and dues there from were sent to the government treasury through family-based financial or banking institutions. People from different classes were also involved in monetary trading which helped the evolution of banking in that period. A major landmark was the establishment of the Hindustan Bank in 1700 AD at CALCUTTA. After the stewardship of Bengal, Bihar and Urissha was assumed by the EAST INDIA COMPANY, Jagat Sheth's family and other traders in money and finance suffered great losses in their business because of the activities of new elite subservient to British rulers. The decline in banking brought some instability in the economy of that time and, upon quick realization of the fact, the British set up the English Agency House.

Established in 1784, the Bengal Bank was the first British-patronised modern bank in India. Dhaka Bank started to operate as a commercial bank in 1806. The Bengal Bank opened its first branch in Dhaka by purchasing Dhaka Bank in 1862. In 1873, it opened its two branches in SIRAJGANJ and CHITTAGONG. Another branch of Bengal Bank was opened in CHANDPUR in 1900. Six branches of Bengal Bank were in operation in the Bangladesh region until the PARTITION OF BENGAL in 1947 and these branches were located at Dhaka, Chittagong, MYMENSINGH, RANGPUR, Chandpur and NARAYANGANJ.

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1.3 The History of Banking in the WorldWhen money became an accepted medium of exchange, the need arose to keep the money safe. In addition, some people needed to borrow money. These needs led to the development of banks. The earliest banking records, dated around 2000 B.C., indicate that Babylon had a highly developed banking system. Babylonian banks were not unlike the banks of today, except that you might say they had a monopoly. Many years later, in the sixth century B.C., the first private bank emerged-the Igibi bank. Like today's bank, it accepted for deposit money on which it paid interest. It also lent money to persons who needed the money for worthwhile purposes and who repaid the borrowed funds with interest. By the fourth century B.C., Greece was the dominant nation in the world. Private and city-state-owned banks existed in the outlying lands of the Greek Empire, but only privately owned banks were allowed in Greece. Government to a great extent regulated these banks; however, Rome then became the dominant empire. Under early Roman law, banks could only be privately owned, but they were regulated by law. With the fall of the Roman Empire, banking became essentially illegal until the third century A.D. By the fourteenth century, when trade routes were being developed, privately owned banks were once again a1lowed. And by the fifteenth century, banks were needed to advance the huge sums of money required to send out ships to bring back valuable commodities such as spices; silk, and gold. At this time in history, banking was big business.

1.4 Earliest BanksThe first banks were probably the religious temples of the ancient world, and were probably established sometime during the 3rd millennium B.C. Banks probably predated the invention of money. Deposits initially consisted of grain and later other goods including cattle, agricultural implements, and eventually precious metals such as gold, in the form of easy-to-carry compressed plates. Temples and palaces were the safest places to store gold as they were constantly attended and well built. As sacred places, temples presented an extra deterrent to would-be thieves. There are extant records of loans from the 18th century BC in Babylon that were made by temple priests to merchants. By the time of Hammurabi's Code, banking was well enough developed to justify the promulgation of laws governing banking operations. Ancient Greece holds further evidence of banking. Greek temples, as well as private and civic entities, conducted financial transactions such as loans, deposits, currency exchange, and validation of coinage. There is evidence too of credit, whereby in return for a payment from a client, a moneylender in one Greek port would write a credit note for the client who could "cash" the note in another city, saving the client the danger of carting coinage with him on his journey. Pythius, who operated as a merchant banker throughout Asia Minor at the beginning of the 5th century B.C., is the first individual banker of whom we have records. Many of the early bankers in Greek city-states were “metics” or foreign residents. Around 371 B.C., Pasion, a slave, became the wealthiest and most famous Greek banker, gaining his freedom and Athenian citizenship in the process.

The fourth century B.C. saw increased use of credit-based banking in the Mediterranean world. In Egypt, from early times, grain had been used as a form of money in addition to precious metals, and state granaries functioned as banks. When Egypt fell under the rule of a Greek dynasty, the Ptolemies (330-323 B.C.), the numerous scattered government granaries were transformed into a network of grain banks, centralized in Alexandria where the main accounts from all the state granary banks were recorded. This banking

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network functioned as a trade credit system in which payments were effected by transfer from one account to another without money passing.

In the late third century B.C., the barren Aegean island of Delos, known for its magnificent harbor and famous temple of Apollo, became a prominent banking center. As in Egypt, cash transactions were replaced by real credit receipts and payments were made based on simple instructions with accounts kept for each client. With the defeat of its main rivals, Carthage and Corinth, by the Romans, the importance of Delos increased. Consequently it was natural that the bank of Delos should become the model most closely imitated by the banks of Rome.

Ancient Rome perfected the administrative aspect of banking and saw greater regulation of financial institutions and financial practices. Charging interest on loans and paying interest on deposits became more highly developed and competitive. The development of Roman banks was limited, however, by the Roman preference for cash transactions. During the reign of the Roman emperor Gallienus (260-268 CE), there was a temporary breakdown of the Roman banking system after the banks rejected the flakes of copper produced by his mints. With the ascent of Christianity, banking became subject to additional restrictions, as the charging of interest was seen as immoral. After the fall of Rome, banking was abandoned in Western Europe and did not revive until the time of the crusades.

Religious Restrictions On Interest

Most early religious systems in the ancient Near East, and the secular codes arising from them, did not forbid usury. These societies regarded inanimate matter as alive, like plants, animals and people, and capable of reproducing itself. Hence if you lent 'food money', or monetary tokens of any kind, it was legitimate to charge interest. Food money in the shape of olives, dates, seeds or animals was lent out as early as c. 5000 BC, if not earlier. Among the Mesopotamians, Hittites, Phoenicians and Egyptians, interest was legal and often fixed by the state. But the Jews took a different view of the matter.

The Torah and later sections of the Hebrew Bible criticize interest-taking, but interpretations of the Biblical prohibition vary. One common understanding is that Jews are forbidden to charge interest upon loans made to other Jews, but allowed to charge interest on transactions with non-Jews, or Gentiles. However, the Hebrew Bible itself gives numerous examples where this provision was evaded Johnson holds that the Hebrew Bible treats the lending as philanthropy in a poor community whose aim was collective survival, but which is not obliged to be charitable towards outsiders.

1.5 During Late Antiquity and Middle agesJews were ostracized from most professions by local rulers, the Church and the guilds, were pushed into marginal occupations considered socially inferior, such as tax and rent collecting and money lending, while the provision of financial services increasingly demanded by the expansion of European trade and commerce.

Medieval trade fairs, such as the one in Hamburg, contributed to the growth of banking in a curious way: moneychangers issued documents redeemable at other fairs, in exchange for hard currency. These documents could be cashed at another fair in a different country or at a future fair in the same location. Beginning around 1100, the need to transfer large sums of money to finance the Crusades stimulated the reemergence of banking in Western

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Europe. In 1156, in Genoa, occurred the earliest known foreign exchange contract. Two brothers borrowed 115 Genoese pounds and agreed to reimburse the bank's agents in Constantinople the sum of 460 bezants one month after their arrival in that city. In the following century the use of such contracts grew rapidly, particularly since profits from time differences were seen as not infringing canon laws against usury. In 1162, Henry II levied a tax to support the crusades -- the first of a series of taxes levied by Henry over the years with the same objective. The templar and hospitable acted as Henry's bankers in the Holy Land. The Templars' wide flung, large land holdings across Europe also emerged in the 1100-1300 time frame as the beginning of Europe-wide banking, as their practice was to take in local currency, for which a demand note would be given that would be good at any of their castles across Europe, allowing movement of money without the usual risk of robbery while traveling.

By 1200 there was a large and growing volume of long-distance and international trade in a number of agricultural commodities and manufactured goods in Western Europe, including corn, wool, finished cloth, wine, salt, wax and tallow, leather and leather goods, and weapons and arm our. Individual trading concerns and combines often specialized in one or more of these, as did individual producers; because a large amount of capital was required to establish, e.g., a cloth manufacturing business, only the largest firms could diversify. As a result, businesses and clusters of businesses tended to market fairly narrow product lines. Big firms like the Medici bank could and did specialize; the Medici’s manufacturing division had a number of manufacturing facilities producing many different types of cloth. Perhaps the best example of product policy comes from the Cistercian monastic order, where individual monasteries and granges tended to specialize in particular agricultural products or types of industrial production, usually with an eye to meeting particular local or regional market needs.

Ironically, the Papal bankers were the most successful of the Western world. When Pope John XXII (born Jacques d'Euse (1249 - 1334) was crowned in Lyon in 1316, he set up residency in Avignon. Civil war in Florence between the rival Guelph and Ghibelline factions resulted in victory for a group of Guelph merchant families in the city. They took over papal banking monopolies from rivals in nearby Siena and became tax collectors for the Pope throughout Europe. In 1306, Philip IV expelled Jews from France. In 1311 he expelled Italian bankers and collected their outstanding credit. In 1327, Avignon had 43 branches of Italian banking houses. In 1347, Edward III of England defaulted on loans. Later there was the bankruptcy of the Peruzzi (1374) and Bardi (1353). The accompanying growth of Italian banking in France was the start of the Lombard moneychangers in Europe, who moved from city to city along the busy pilgrim routes important for trade. Key cities in this period were Cahors, the birthplace of Pope John XXII, and Figeac. Perhaps it was because of these origins that the term Lombard is synonymous with Cahorsin in medieval Europe, and means 'pawnbroker'. Banca Monte dei Paschi di Siena SPA (MPS) Italy, is the oldest surviving bank in the world.

After 1400, political forces turned against the methods of the Italian free enterprise bankers. In 1401, King Martin I of Aragon expelled them. In 1403, Henry IV of England prohibited them from taking profits in any way in his kingdom. In 1409, Flanders imprisoned and then expelled Genoese bankers. In 1410, all Italian merchants were expelled from paris. In 1401, the Bank of Barcelona was founded. In 1407, the Bank of St George was founded in Genoa. This bank dominated business in the Mediterranean. In 1403 charging interest on loans was ruled legal in Florence despite the traditional Christian prohibition of usury. Italian banks such as the Lombards, who had agents in the main economic centres of Europe, had been making charges for loans. The lawyer and

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theologian Lorenzo di Antonio Ridolfi won a case which legalised interest payments by the Florentine government. In 1413, Giovanni di Bicci de’Medici appointed banker to the pope. In 1440, Gutenberg invents the modern printing press although Europe already knew of the use of paper money in China. The printing press design was subsequently modified, by Leonardo da Vinci among others, for use in minting coins nearly two centuries before printed banknotes were produced in the West.

By the 1390s silver was short all over Europe, except in Venice. The silver mines at Kutná Hora had begun to decline in the 1370s, and finally closed down after being sacked by King Sigismund in 1422. By 1450 almost all of the mints of northwest Europe had closed down for lack of silver. The last money-changer in the major French port of Dieppe went out of business in 1446. In 1455 the Turks overran the Serbian silver mines, and in 1460 captured the last Bosnian mine. The last Venetian silver grosso was minted in 1462. Several Venetian banks failed, and so did the Strozzi bank of Florence, the second largest in the city. Even the smallest of small change became scarce.

1.6 Western Banking HistoryModern Western economic and financial history is usually traced back to the coffee houses of London. The London Royal Exchange was established in 1565. At that time money changers were already called bankers, though the term "bank" usually referred to their offices, and did not carry the meaning it does today. There was also a hierarchical order among professionals; at the top were the bankers who did business with heads of state, next were the city exchanges, and at the bottom were the pawn shops or "Lombard"'s. Some European cities today have a Lombard street where the pawn shop was located.

After the siege of Antwerp trade moved to Amsterdam. In 1609 the Amsterdamsche Wisselbank (Amsterdam Exchange Bank) was founded which made Amsterdam the financial centre of the world until the Industrial Revolution.

Banking offices were usually located near centers of trade, and in the late 17th century, the largest centers for commerce were the ports of Amsterdam, London, and Hamburg. Individuals could participate in the lucrative East India trade by purchasing bills of credit from these banks, but the price they received for commodities was dependent on the ships returning (which often didn't happen on time) and on the cargo they carried (which often wasn't according to plan). The commodities market was very volatile for this reason, and also because of the many wars that led to cargo seizures and loss of ships.

1.7 Global BankingIn the 1970s, a number of smaller crashes tied to the policies put in place following the depression, resulted in deregulation and privatization of government-owned enterprises in the 1980s, indicating that governments of industrial countries around the world found private-sector solutions to problems of economic growth and development preferable to state-operated, semi-socialist programs. This spurred a trend that was already prevalent in the business sector, large companies becoming global and dealing with customers, suppliers, manufacturing, and information centers all over the world.

Global banking and capital market services proliferated during the 1980s and 1990s as a result of a great increase in demand from companies, governments, and financial institutions, but also because financial market conditions were buoyant and, on the whole,

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bullish. Interest rates in the United States declined from about 15% for two-year U.S. Treasury notes to about 5% during the 20-year period, and financial assets grew then at a rate approximately twice the rate of the world economy. Such growth rate would have been lower, in the last twenty years, were it not for the profound effects of the internationalization of financial markets especially U.S. Foreign investments, particularly from Japan, who not only provided the funds to corporations in the U.S., but also helped finance the federal government; thus, transforming the U.S. stock market by far into the largest in the world.

Such growing internationalization and opportunity in financial services has entirely changed the competitive landscape, as now many banks have demonstrated a preference for the “universal banking” model so prevalent in Europe. Universal banks are free to engage in all forms of financial services, make investments in client companies, and function as much as possible as a “one-stop” supplier of both retail and wholesale financial services.

Many such possible alignments could be accomplished only by large acquisitions, and there were many of them. By the end of 2000, a year in which a record level of financial services transactions with a market value of $10.5 trillion occurred, the top ten banks commanded a market share of more than 80% and the top five, 55%. Of the top ten banks ranked by market share, seven were large universal-type banks (three American and four European), and the remaining three were large U.S. investment banks who between them accounted for a 33% market share.

This growth and opportunity also led to an unexpected outcome: entrance into the market of other financial intermediaries: nonbanks. Large corporate players were beginning to find their way into the financial service community, offering competition to established banks. The main services offered included insurances, pension, mutual, money market and hedge funds, loans and credits and securities. Indeed, by the end of 2001 the market capitalization of the world’s 15 largest financial services providers included four nonbanks.[

1.8 Scenario of Banking in BangladeshThe banking in Bangladesh has passed three decades through different policy environments and comprises central bank at the apex, nationalized commercial banks (NCBs), private commercial banks (PCBs), foreign commercial banks (FCBs) and specialized financial institutions. In the decade of seventies, in an atmosphere of fully regulated banking, the nationalized commercial banks played the active role in intermediation and allocation of credit along with the specialized financial institutions. The decade of the eighties witnessed the active operation of both the NCBs and PCBs (local and foreign) in the banking sector. Before liberation of Bangladesh in 1971, the total banking system was private owned, urban-based and Profit oriented. But after the liberation, the Government of Bangladesh nationalized all the banks operating in Bangladesh in 1972, except a few foreign bank branches. It was due to the economic policy of Pakistan Government that we were having a privatized banking structure, till the independence of Bangladesh in 1971. After the separation from Pakistan the party, which came to power was politically committed to adopt such an economic policy which would endure social control and ownership of large industries, banks, insurance companies, etc. moreover, the ownership of these enterprises (including the banks) was largely controlled by west-Pakistani

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entrepreneurs who left Bangladesh after its independence. Therefore, under such a situation, Bangladesh government had no other alternative but to take up the control and nationalize the enterprises including the banks.

Following nationalization, the government also recognized the existing commercial banks into six (6) distinct new banks in the following manner in terms of the Bangladesh Banks (Nationalization) order, 1972:

Table: 1.1 Reorganization of the commercial banks of Bangladesh in 1972

Existed Banks Reorganized bank

Source: Khan, Mohammad Khalid, “Banking System in Bangladesh: 1972-1982”. The Bangladesh times, March 20, 1982. After the nationalization of banks in 1972, it was expected that the banks would play their due role for protecting social interest and in the economic development process of the country and thus reverse the trend as set in before liberation. Though Bangladesh Banks (Nationalization) Order, 1972 did not specifically spell out the objectives of the nationalization of banks, but considering the discontentment prevailing during Pakistan period and the basic principles of the country which were constitutionally established in 1972, the following major objectives of the nationalization of commercial banks might be discerned:1) Expansion of bank branches for extension of bank services into rural areas.2) Mobilization of domestic savings, particularly rural savings more effectively.3) Providing of adequate credit to priority sectors such as agriculture, small industries,etc.4) Ensuring balanced regional development.5) Removal of control of banks by few individuals.6) Appropriation of bank profits by the government and uses it up for public purposes.

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The National Bank of Pakistan

The Bank of Bahawalpur Sonali Bank

The Premier Bank Ltd. The Habib Bank Ltd. The Commerce Bank Ltd. Agrani bank

The United Bank Ltd. The Union Bank Ltd.

Janata Bank

The Standard Bank Ltd. The Australasia Bank Ltd Rupali Bank

The Eastern Mercantile Bank Ltd. Pubali Bank

The Eastern Banking

Corporation Ltd.Uttara Bank

After nationalization, the commercial banking in Bangladesh underwent a rapid transformation. The total number of branches of 42 scheduled commercial banks increased from a total of 1,116 in December 1972 to 5983 in December 1999. Again out of the total branches 61.76 percent belongs to the rural areas as on December 1999.

During the transformation, the Nationalized Commercial Banks (NCBs) were expected to abandon profit-orientation and urban-based character and instead to accept rural-based developments character. Besides performing their traditional functions, the NCBs were also required to participate in the development finance activities like providing credit to agriculture sector and non-farm activities, expanding branches in un-banked rural areas, widening their range of services, etc. it was observed that while performing their duties, the customer services of NCBs deteriorated to some extent, specifically in urban areas and so also their profit and profitability. Number of rural branches of NCBs was, in fact, running at losses. Therefore, under the consideration of falling level of customer services and profitability of NCBs, the Government of Bangladesh decided in 1982 that some of the NCBs would be gradually denationalized and new commercial banks would be allowed to function in the private sector. This decision was taken with a view to improve primarily the customer services and ultimately the profitability of the commercial banks, but without hampering their participation in developmental activities.After this decision, till December 1986, 2 out of 6 NCBs have been denationalized and 6 newly formed private commercial banks have been allowed to operate in the banking sector of Bangladesh. These Banks have been considered as first generation Private Commercial Banks (PCBs). Now fourth generation of PCBs is operating their activities.

1.8.1 1st Generation Banks (Established 1982-1988)National Bank Limited, The City Bank Limited, United Commercial bank Limited, AB Bank Limited, IFIC Bank Limited, Islami Bank Bangladesh Limited and Oriental (Al-Baraka) Bank Bangladesh Limited.

1.8.2 2nd Generation Banks (Established 1992-1996)

Eastern Bank Limited, National Credit & Commerce Bank Limited, Prime Bank Limited, Southeast Bank Limited, Dhaka Bank Limited, Al Arafa Islami Bank Limited, Social Investment Bank Limited and Dutch-Bangla Bank Limited.

1.8.3 3rd Generation Banks (Established 1996-2000)

Mercantile Bank Limited, Standard Bank Limited, One Bank Limited, EXIM Bank Limited, Premier Bank Limited, Mutual Trust Bank Limited, First Security Bank Limited, Bangladesh Commerce Bank Limited, Bank Asia Limited and The Trust Bank Limited.

1.8.4 4th Generation Banks (Established 2000-till now)Shahjalal Islami Bank Limited, Jamuna Bank Limited, and BRAC Bank Limited.

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Chapter Two

2.1 History/BackgroundONE Bank Ltd. is sponsored by a group of renowned and dynamic Bangladeshi industrialists, business persons and highly qualified professionals like medical practitioners, scientists and chartered accountants.

ONE Bank Limited was incorporated in May, 1999 With the Registrar of Joint Stock Companies under the Companies Act.1994, as a commercial bank in the private sector.

The Bank is pledge-bound to serve the customers and the community with utmost dedication. The prime focus is on efficiency, transparency, precision and motivation with the spirit and conviction to excel as ONE Bank Ltd. in both value and image.

The name 'ONE Bank' is derived from the insight and long nourished feelings of the promoters to reach out to the people of all walks of life and progress together towards prosperity in a spirit of oneness.

2.2 Company Profile2.2.1 Third generation private commercial bank

OBL is a private sector commercial bank dedicated in the business line of taking deposits from public through its various saving schemes and lending the fund in various sectors at a higher margin. However, due attention is given in respect of risk undertaking, risk hedging and if not appropriately hedged, reflection of the same in pricing. In the financing side, the bank's major concentration is in trade finance covering about 20.88% of total financing as on YE2006 which is mainly a short-term investment. The banks financing concentrate in both, working capital finance and long-term finance. OBL has major concentration of financing in medium and large industries. Since the short-term finance carries low risk compared to long-term finance; the financing strategy of OBL will assist the bank to keep the risk at minimal.

While financing the industrial sector, the major concentration of the bank appeared to be in the textile and RMG sector; both the above sectors cover 30.89% of the total portfolio. OBL also involved in cement construction and transport sector financing. In the investment portfolio, OBL have substantial investment in quoted and non-quoted shares of different organization including some very prospective financial institutions. The bank has shown its acumen in reducing its exposure from ship scrapping sector, steel re-rolling where the bank had investment earlier. With the increase in exposure to RMG, the bank has increased its non-funded business income substantially. With an age of only 8 years, the OBL has taken initiative to launch IT based banking products like ATM facilities, E-banking etc that are praiseworthy.

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2.2.2 Corporate Vision & MissionVision:

To establish ONE Bank Ltd. As a role model in the Banking sector of Bangladesh. To meet the needs of the customers, provide fulfillment for the people and create shareholders value.

Mission:To constantly seek to better serve the customersBe pro-active in fulfilling social responsibilitiesTo review all business lines regularly and develop the best practices in the industryWorking environment to be supportive of teamwork, enabling the employees to perform to the very best of their abilities

2.2.3 Slogan:..... WE MAKE THINGS HAPPEN…………………………………Make It Yours….

2.2.4 Motto:The Bank will be a confluence of following three interests:

Of the Bank: Profit maximization and optimum growth Of the Customers: Maximum benefits and satisfaction Of the Society: Maximization of welfare

The Bank will also cater to the new expectations of the customers. It will be a customer-driven Bank.

2.2.5 Functions:

Deposit mobilization ( Saving / Current / STD / FDR /Special Deposit Scheme Accounts)LendingGuaranteesTrade Finance ( Import / Export LCs)Remittances ( Local / Foreign)Investment advicesRetail Banking ( SME / CCS)Counter for Utility BillsLocker facility for safe keeping of valuables and documentsState of the technology facilities: ATM ServicesCredit CardsMobile Banking ( SMS Banking)Online Banking ( Any Branch Banking)

2.2.6 Future Plans:

Introduction of Islamic BankingLouder corporate social welfare activitiesIntroduction of Merchant BankingStrengthened global networking (Branch expansion/Increase of correspondent networking)

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2.3 Operational Area

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Figure – 2.1 Operational Areas2.3.1 Branches of ONE Bank Limited:

Corporate HQHRC Bhaban, 46 Kawaran Bazar C/A, Dhaka Phone : (PABX) 8122046Fax : 88 02 9134794E-mail : obl@onebankbd.comWeb Site : www.onebankbd.com

NarayangonjHaque Plaza, Plot05 B.B. Road Chashara C.A. NarayangonjPhone : 9752288Fax : 7635242

E-mail : oblnarayan@onebankbd.com

BananiPlot 158, Block E Banani R.A. DhakaPhone : 8824423Fax : 8824561E-mail : oblbanani@onebankbd.com

Bogra BranchJamil Building, Borogola BograPhone : 051-69850, 051-69860, 01713-20Fax : 051-69870E-mail : oblbogra@onebankbd.com

Principal Branch45, Dilkusha C/A, Dhaka Phone : (PABX)-9564249Fax : 88 02 9561960E-mail : oblpb@onebankbd.comSWIFT : ONEBBDDHOO1

Joypara BranchMonowara Mansion, Joypara Bazar Latakhola, Raipara Dohar, Dhaka Phone : 0173005868Fax : 88 02 06223-87230E-mail : obljoypara@onebankbd.com

Agrabad BranchAgrabad, Chittagong

Motijheel BranchSharif Mansion (Ground Floor) 56-57

Motijheel Commercial Area Dhaka 1000Phone : 9564191, 9566896, 9570544Fax : 88 02 9563746E-mail : oblmotijheel@onebankbd.comWeb Site : www.onebankbd.com

Gulshan Branch97, Gulshan Avenue, DhakaPhone : (PABX) 9890138-40Fax : 88 02 8819550Telex : 632113 OBLPB BJE-mail : oblgul@onebankbd.comSWIFT : ONEBBDDHOO3

Uttara BranchHouse # 14, Road # 14B, Sector # 4 Uttara Model Town, Dhaka-1230 Phone : 895144-50Fax : 88 02 8924261E-mail : obluttara@onebankbd.comSWIFT : ONEBBDDHOO6

Kawaran Bazar BranchHRC Bhaban, 46 Kawaran Bazar C/A, Dhaka Phone : 8156054, 8155158, 9128584Fax : 88 02 8155158E-mail : oblkawran@onebankbd.comSWIFT : ONEBBDDHO12

Mirpur BranchPlot # 2, Road # 11 Section-6, Block-C Mirpur-11, Dhaka Phone : 9012969, 9016165Fax : 88 02 9016165E-mail : oblmirpur@onebankbd.com

Imamganj Branch18, Roy Iswar Chandra Shill Bahadur Street, (1st floor) Imamganj, Dhaka-1100 Phone : 7316477, 7316488

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Phone : 9139224, 9120790, 9143965Fax : 88 02 9143965E-mail : oblagra@yahoo.comGanakbari (EPZ) BranchSomser Plaza (2nd Floor) Ganakbari, Savar, Dhaka Phone : 7701653-4Fax : 88 02 7701654

E-mail : oblsavarepz@onebankbd.com

Sylhet Branch:'Firoz' Centre (Ground floor) 891/KA, Chouhatta, Sylhet Phone : 0821-725472, 725093, 810381Fax : 88 0821-725094E-mail : oblsylhet@onebankbd.comIslampur Branch, SylhetKaium complex, (1st floor) Islampur Bazar, Sylhet Phone : 0821-81454, 011604070E-mail : oblislam@onebankbd.com

Chowmuhuni BranchBhuiyan market, D.B.road Railgate, Chowmuhuni, Noakhali Phone : 0321-52098, 017404036Fax : 88 0321-52098

E-mail : oblchowmu@onebankbd.com

Jessore BranchM.S. Orchid Centre 44 M.K.road, Jessore, Phone : 0421-68046-48

Fax : 0421-68046-48E-mail : obljess@onebankbd.com

Chandragonj BranchChandragonj Bazar Lakshmipur Phone : 0173-045518Fax : 0173-050217

E-mail : oblchandra@onebankbd.com

Fax : 88 02 7316499E-mail : oblimam@onebankbd.comKhatungonj Branch110-111, Khatungonj, Chittagong Phone : (PABX) 031 619377, 621252, Fax : 88 031 624454Telex : 63301 1 OBLKTG BJE-mail : oblktg@onebankbd.com

Chittagong Port BoothTerminal Bhaban Chittagong Por Authority Cittagong -4100 Phone : 88 31 800570, 011708889E-mail : oblagra@onebankbd.com

Dhanmondi BranchDhanmondi-8,DhakaPhone : 9139224, 9143965E-mail : obldhan@onebankbd.com

Sherpur BranchRoyel Market (1st Floor), Sherpur, Moulvi Bazar, SylhetPhone : 01713458183E-mail : oblsherpur@onebankbd.com

Kakrail BranchMusafir Tower, 90 Kakrail, DhakaPhone : 8332957, 01713458178Fax : 8332957E-mail : oblkakrail@onebankbd.com

Jubilee Road BranchKader Tower, 2nd Floor, Tinpool, 128 Jubilee Road, ChittagongPhone : 031-2853112-5, 01713458151Fax : 88-031-2853116E-mail : obljubilee@onebankbd.com

2.4 Management and Human Resources of ONE Bank Ltd.

Mr. Sayeed Hossain Chowdhury, Chairman Mr. Zahur Ullah, First Vice Chairman.Mr. Hefazatur Rahman, Director.Mr. Asoke Das Gupta, Second Vice Chairman.Mr. M. H. Choudhury, Director. Ms. Farzana Chowdhury, Director Mr. Kazi Rukunuddin Ahmed, Director .

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Mr. A. S. M. Shahidullah Khan, Director. Mr. Ajmalul Hossain , Director. Mr. Khandkar Sirajuddin Ahmed, Director. Mr. Shawket Jaman, Director. Mr. Farman R. Chowdhury, Managing Director.

Management ProfileExecutive Committee Audit Committee

Mr. Sayeed H. ChowdhuryChairman

Mr. Zahur UllahMember

Mr. Asoke Das GuptaChairman

Mr. Zahur UllahMember

Mr. Asoke Das GuptaMember

Mr. Hefazatur RahmanMember

Ms. Farzana ChowdhuryMember

Ms. Farzana ChowdhuryMember

Mr. Farman R ChowdhuryEx-Officio Member

Company secretaryMr. John Sarkar

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Asset Liability CommitteeMr. Farman R. ChowdhuryChairmanMr. Shamim A. ChaudhuryMember

Mr. Arif QuadriMember

Ms. Rozina A. AhmedMember

Ms. Johora BebeMember

Mr. Quazi Shairul HassanMember

Mr. Md. Aftab Uddin KhanMember

Mirza Ashraf AhmadMember Secretary

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CEO

Head of corporate & institutional

Banking

Head of Treasury

Head of Legal &

Compliance

Head of Human

ResourceHead of IT

Head of corporate &

external affairs

Head of consumer Banking

Unit Head Unit Head Unit Head Unit Head Unit Head Unit Head Unit Head

Senior Managers

Senior Managers

Senior Managers

Senior Managers

Senior Managers

Senior Managers

Senior Managers

Managers Managers Managers Managers Managers Managers Managers

Assistant managers & officersofficers

Assistant managers & officersofficers

Assistant managers & officersofficers

Assistant managers & officersofficers

Assistant managers & officers

Assistant managers & officers

Assistant managers & officers

Figure – 2.2 The organization structure of ONE Bank Limited

2.4.1 Organization Chart of ONE Bank Limited (OBL)

Figure – 2.3 Organization Chart of ONE Bank Limited (OBL)

HO HR and A & C: Head of Human Resource and Audit & Compliance HOM: Head of MarketingRM: Relationship ManagerHOC: Head of Credit

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CO: Credit OfficerHOO: Head of OperationsCAD: Central Accounts DepartmentIT: Information Tech. ID: International dept. (Treasury)

Strategy:To have sustained growth, broaden and improve range of products and service.2.4.2 Designation Structure of OBL

Chairman↓

Board of Directors↓

Managing Director↓

Deputy Managing Director↓

Senior Executive Vice President↓

Executive Vice President↓

Senior Vice President↓

Vice President↓

Senior Assistant Vice President↓

First Assistant Vice President↓

Assistant Vice President↓

Senior Principal Officer↓

Principal Officer↓

Senior Officer↓

Officer↓

Junior Officer↓

Assistant Officer↓

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Trainee Assistant Officer

Figure – 2.4 Designation Structure of OBL

Each of the branches of ONE Bank Limited work independently towards a common goal set by the management of the bank. Each of these branches is arranged according to the customer base of the branch and their banking needs. Motijheel branch where the internship took place is no exception in this regard. The organ gram is as follows,

Figure – 2.5 Organ gram of Consumer Banking

2.5 Workforce:The Bank’s Human Resources Policy emphasize on providing Job Satisfaction, Growth Opportunities, and due recognition of superior performance. A good working environment reflects and promotes a high level of loyalty and commitment from the employees. Realizing this ONE Bank limited (OBL) has placed the utmost importance on continuous development of its Human Resources, identify the strength and weakness of the employee to assess the individual training needs, they are sent for training for self-development. To orient, enhance the Banking knowledge of the employees the Bank organizes both in-house and external training. The Bank has a strong focus on imparting training towards enhancement of the skills and competencies of the employees. During the year a total of forty-seven training for the employees were organized, both at home and abroad.

Total full time regular employee strength had increased to 300 by the year-end. Excepting for the new inductees, the remaining employees are all skilled banking professionals with varying degrees of experience and exposure, recruited from the leading local and foreign banks.

2.6 Achievements

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Branch Sales & Service Manager

Sales team Manager Cash Service Manager Service Ambassador

Personal Financial ConsultantSales Executives

Cash Service Officers

Credit Service Ambassador

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2004 has been a good year for our bank. ONE Bank limited achieved many of key objectives, made significant provisions and have strengthened our bank's foundation for a rapid growth in the coming years. OBL manage our Bank for the benefit of all of our key stakeholders - including shareholders, customers, employees, and the communities serve. It is a pleasure to inform that OBL in 2004 recorded an impressive operating profit of Taka 501.49 million during the year, as compared to Taka 260.78 million in 2003. This represents a growth of 92.30 percent over the preceding year. While, during the same period Deposits grew by 35.39 percent and Advances by 58.86 percent.

As reported in the media, the operating profit of the country's private commercial banks (PCBs) was estimated to have grown by Taka 5.0 billion during the year 2004, which translates to 28.63 Percent growth for the industry over the previous year. Therefore, the growth in percentage terms for ONE Bank has been three & half times the average industry growth. This achievement in a very competitive industry is something that should make us all very proud.

In order to ensure optimization of shareholder capital and our human resources, OBL continuously assess all of our businesses, based on their return on capital, overall performance and long term potential. In all of business lines, OBL continue to pursue ways to reduce cost and operate more efficiently, including technological enhancement. OBL are also developing standards that are not merely "Common Industry Practice" but the best practices in a given area. This is being appreciated and acknowledged by valued clients.

ONE Bank limited is extremely vigilant in terms of risks monitoring. OBL keep an eye on loan portfolios and amount of, and changes in, risk provision.

Client in increasing numbers are choosing to do business with OBL because it is customer-driven. No matter whether a corporate or a consumer, constantly seek to better serve customer OBL shall adapt to changing economic conditions, while continuing to develop and enhance our products and services. OBL continued customer focus will determine our success in this intensely competitive market place and we shall remain ever committed in meeting this objective. In so doing, we shall strengthen the value of ONE Bank brand. 2.5.3 CAMEL Rating among the Commercial Banks

2.7 Resources & FacilitiesTotal full time regular employee strength had increased to 300 by the year-end. Excepting for the new inductees, the remaining employees are all skilled banking professionals with varying degrees of experience and exposure, recruited from the leading local and foreign banks.

The Bank has a strong focus on imparting training towards enhancement of the skills and competencies of the employees. During the year a total of forty-seven training for the employees were organized, both at home and abroad.

Management of the Bank, on a continuous basis, undertakes in-house training initiatives towards raising awareness among the Bank employees with respect to Bank's policies and instructions and directives of the various regulators so as to ensure that the employees are well informed and empowered towards providing customer services within the framework of laid-down regulatory requirements. The Bank offers a competitive compensation package towards successfully attracting, retaining and motivating its work force.

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2.8 Social Commitments2.8.1 Bangladesh Flood 2004

Bank tried to mitigate the sufferings of the flood stricken people in the villages of Meradia/ Shatarkul (Dhaka), by distributing Family Bags amongst 1,100 families. Each bag contained the following items: Rice: 3 Kg, Pulses: 1 Kg, Salt: 1Kg, Molasses (Gur): 1 Kg, Two pieces of Sari & 2 pieces of Lungi (one large and one small). The recipients very much appreciated our endeavor.111 new houses constructed for the flood affected families at Sylhet and Dohar

After the Floodwaters had receded, the Bank constructed or repaired 111 houses, at an average cost of Taka fifteen thousand each, in the following two areas:a) Mahmudpur Union council-07, P.0 Horichandi, P.S: Dohar, Dhaka- 53 housesb) Mullargoan Union council, Dhakin Surma, Sylhet Sadar, Sylhet- 58 houses.The Bank spent around Taka three million in flood related relief activities.

2.8.2 Cricket

Bank has been actively supporting the flourishing of Cricket in Bangladesh. To facilitate the movement of cricket officials, the Bank has presented one microbus to the Bangladesh Cricket Control Board. In addition, your bank has been the official tickets sponsor for the New Zealand, India and Zimbabwe cricket (Test and ODI) series, during the year 2004. OBL are very pleased that during our above described association, Bangladesh Team's performance has started to turn around and the victory against India and Zimbabwe has made the nation proud!

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Chapter Three

Methods followed to perform a job or conducting activities to complete a task is called methodology. In conducting this study the following methodology will be adopted in collecting data and information, preparation of reports etc.

3.1 Origin of the ReportThis Report is Southeast University (SEU) curriculum requirement for Batchelor of Business Administration (BBA) Degree, assigned by my Internship Supervisor Professor Prof. Dr. Laila Anjuman Ara, for Internship and Placement Committee, based on Project assigned by ONE Bank Limited (OBL). It took 3 months to analyze and evaluate the various aspects of Banking System of ONE Bank Limited (OBL) with emphasis on Customer Service. This repot is submitted to Prof. Dr. Laila Anjuman Ara, Faculty of Business Studies, Southeast University (SEU). This is a potential requirement of Business Student of SEU. All the materials and data presented in this report collected from different sources, which are believed to be true.

In today’s world academic education is not enough to enable student to compete with confidence and reach his/her goal without having experience with the outside world. In order to have idea and gain experiences, the students from all fields of Southeast University have to undertake 12 weeks internship program at any organization.

Southeast University (SEU) is a leading private institution; committed to producing international standard graduates, who will be able to provide leadership through skilled employment, entrepreneurship and applied research. Internship program is an opportunity for the student to learn to face the real world and thus keeping its promise to produce world-class graduates.

3.2 Topic of the Report

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A topic has to be selected for the report. A well-defined topic reveals what is going to be discussed throughout the report. The topic that has been assigned by the organizational supervisor is “Expense Control Capability of ONE Bank Ltd. Compared to Other Competing Local Private Banks”.

3.3 Background of the Study

ONE Bank Limited (OBL) has started its Business with all the features of a Corporate Bank and the Products of both Corporate and Retail Banking System; to facilitate the daily clientele requirements. OBL is always trying to improve their Customer Services in every sector, but in today’s Competitive Business World. Banks need to offer additional concentration to the Clients’ requirements in order to stay at the top. Therefore, besides dealing with the general attributes of Different Products, they have been trying to put more emphasis on the Customer Benefits and other Customer related Facilities.

Under this course the students were sent to gather practical knowledge about banking environment and activities. For gathering this knowledge I was assigned to One Bank Limited, Motijheel Branch. I worked as an internee from 18 November, 2007 to February, 2008. I have prepared this report on the basis of my practical observations on the day-to-day workings of the bank.

A common view among bank managers and analysts is that bank must relay less on net interest income and more on non-interest income to be more successful. The highest earning banks will be those that generate an increasing share of operating revenue from non-interest sources. A related assumption is that not all fees are created equal. Some fees are stable and predictable over time, while others are highly volatile because they derive from cyclical activities. The fundamental issue among managers is to determine the appropriate customer mix and business mix to grow profits at high rate, with a strong focus on fee-based revenues. This report describes the strength and weakness of commonly used financial ratios of expense control.

3.4 Scope of the Study

This report covers comparison of 1st, 2nd, and 3rd generation Local Commercial Banks in Bangladesh. As I am assigned to the topic “Credit Approval Capability of ONE Bank Ltd.”, this report only covers the expenses incurred. The study has many dimensions and covers a broad spectrum. The subject matter of the study includes the analysis of the product in the three consecutive fiscal years from2004 to 2006. If a larger time period was covered then a more comprehensive understanding of the study would’ve been possible.

The study focuses mainly on the performance of one loan product rather than all the consumer credit schemes. In so doing the loan system, loan evaluation criteria along with the loan administration was covered in the study. In order to gain an insight into the progress of the bank the growth of the bank since introduction has already been assessed. The loan products applicants have been segmented and analyzed based on the secondary data provided which could’ve been conducted on an even broader spectrum. Inclusion of various other topics would have also been helpful.

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There are various types of organization in our society. So I have taken that particular company where the organization practices different groups. My main focus is only the group behavior on the organization that which types of groups are used by that organization and their impact on the organization.

The Report describes the Services of ONE Bank Limited (OBL) and also investigates the Perceptions of the Customers towards the Services and other Operational Activities performed by the Bank and their effects on the Satisfaction of the Customers. The scope of the report is to get an overview of each and every function of deposit, cash, remittance, clearing and accounts department as well as to co-ordinate among them.

3.5 Methodology of the StudyDeveloping of Data CollectionI developed the research plan for collecting data and information on research problems and adjusted it in the light of the research objective. I determined what types of data, facts, figures, and information are needed for the research. Then I design our research plan considering the following issues.

3.5.1 Sources of DataThree different types of data will be used in this report:

a) Primary Data

I have collected Primary Data by surveying from the employee on the ONE Bank Ltd. Motijheel Branch and the Clients of the Bank who come to the Bank to meet up Ancillary Banking Needs. Primary data will from the books of account. I have collected Primary Data in the following ways:The “Primary Sources” are as follows –

1. Face-to-face conversation with the respective officers of One Bank Ltd, Motijheel Branch and Discussing and briefing by the Executives of the Bank

2. Informal conversation with the clients.3. Practical work exposures on different desks of the Branch covered. 4. Relevant files study as provided by the officers concerned.

Field Work The data collected by using in-depth personal interview to the high officials who are engage in syndicated loan practices. The researcher collected all the data through direct approach while conducting interview with the respondents.

b) Secondary Data

Secondary Data are must to conduct an Efficient Research and to have a fruitful. I have used different types of Secondary Data in my Research. Sources of Secondary Data are: The “Secondary Sources” of data and information’s are-

1. Annual Report (2006), One Bank Limited.2. Periodicals published by Bangladesh Bank.3. Different publications regarding banking functions, foreign exchange operation

and credit policies4. The Internet was also used as a theoretical source of information

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5. Banking Manual, Literature, Reading various Journals, Leaflets6. Banks Own Record and Publications of the Bank’s Official Sources

c) External Sources

Different Books & Periodicals on Banking Government Report Newspaper, TV news & magazine Searching the Website of the ONE Bank Limited (OBL) and others.

The data for the report has been mainly collected from the secondary sources. The secondary data were provided from the principal office of the ONE Bank Limited situated at Motijheel rather than the branch where the internship took place. Based on the collected data during the last three years, the customers have been analyzed through a segmentation analysis.In addition to the data provided from the Motijheel office, data has also been collected from different brochures of the bank, newspapers and annual reports of the bank, the banks official website and consultation to related books. The bank officials of the human resources department of ONE Bank Limited provided useful guidance and help.The analysis was also set on the loan evaluation criteria set by the bank. Here separate factors had been used to separate good loans from bad ones. The information had been analyzed by utilizing the data collected from the secondary sources. In order to make the Report more meaningful and presentable, two sources of data and information have been used widely.

3.6 Sample DesignThe Report is actually divided into 2 portions:

1. The Descriptive Part &2. The Analysis Part.

In the Descriptive Part, a vivid description about the Organization ONE Bank Limited (OBL) and the Products and Services offered by the Bank to its Customers is given. The part has 2 divisions too. They are:

(a) The Description of the ONE Bank Limited (OBL). &(b) The Description of the Products and Services

In the Analysis Part, I try to find the assumption of the Customers about the Service Standard of the ONE Bank Limited (OBL). The required data and information for the Analysis Part have been collected by undertaking a survey and taking personal interview with the Customers.

The Population for the survey was all the Customers who have accounts in the Bank in Bangladesh. The Sample Size for the survey was 25. As conducting the survey hampers the general operation of the Bank the Sample Size was kept small. And in order to overcome this short coming personal interview of the Customers was taken about various aspects of Products and Services provided by the Bank.The standards of the Products and Services that have been measured are given below.

Perception quality of the Bankers about the Problems of the Customers The promptness of the Bankers of solving the problems of the Customers The manner of the Bankers to the Customers The spread-ness/availability of the Service

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The introduction of high-tech equipments and Banking System The transparency of the Bank regarding the cost and charges of the Services to its

Customer The overall Service of the Bank.

3.7 Research DesignThis study will be exploratory research in nature, because the study will try to define a problem more precisely. The Major objective of exploratory research is to discover of ideas and insights of the organization about the problem.

a) Target Population

The target populations are Dutch Bangla Bank Ltd., AB Bank Ltd., EXIM Bank Ltd., and Prime Bank Ltd.

b) Sampling Technique

In this study judgmental sampling was used. This is a form of convenience sampling in which the population elements are selected by the judgment of the researchers. Judgmental in the logic of_:NBL—First local commercial bank as National Bank Ltd. in Bangladesh with large most branches,PBL—Second generation bank as Prime Bank with top most customer acceptance,OBL—3rd generation bank, though it was named as ONE Bank Ltd. but operates like any other local commercial bank. Almost all of the four banks have same product, savings deposits, consumer loan, lease finance, securities, credit card (except OBL), etc.

c) Sampling Frame Calculation of the expense ratios Making the necessary comparing tables Incorporate graphical charts

Calculations of the above-mentioned tools are done by the help of Microsoft Excel d) Implementing the Research Plan

Then I have processed the collected information. I have analyzed the information in light of my course with report objectives.

e) Reporting the Finding Then I have tried to find our report Banking Performance and findings from our research problem. Then I have drawn a conclusion and made a recommendation.

f) Scope of the report My report mainly focused on the main the “Credit Appraisal Policy of ONE Bank Limited”

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Every Study has some Objectives of the study. My main objective to select an organization where the organizational practices various groups, then analyze their behavior and impact on that particular organization. For this report I have chosen a financial organization named “ONE Bank Limited” It is observed that the study covers a broad area such as the consumer credit schemes, loan administration and performance evaluation etc.

Main purpose of this study is to further enhance my understanding on the practical orientation during my internship period. I believe that my involvement as an internee has not only helped me to learn about the banking procedure but also helped me grow positively in the professional arena. We know theoretical knowledge makes better sense when it’s associated with practical experience. For me, my exposure to banking started not with the theoretical knowledge but rather from direct involvement. This report is based on what I have learned from my practical experiences.

3.8 The report has several objectives-a) Objective of the report

The core objectives of the practical orientation program in banks are as follows –

To provide a detailed description of the product “Credit Appraisal Policy” among other consumer credit schemes.To present an overview and get an overall idea about the performance of ONE Bank Limited (OBL).To fulfill the requirement of the internship program under B.B.A. programTo acquire knowledge about the quality of Services, Customers’ Credibility and Quality of Information of ONE Bank Limited (OBL).To gain practical exposures in banking activities.To evaluate the performance of the loan product in terms of segmentation analysis, trend analysis, statistical analysis etc.

b) Objectives of the Study

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The primary objective of the study is given below in brief:

Identify the strategies for ONE Bank Ltd. expense control To analyze the loan evaluation criteria as well as the loan system for the product

“Credit Appraisal Policy”. To assess the loan administration of the bank. To discuss the growth of the bank since introduction. To assess the impact of the loan product on the performance of the bank. To show the readers which expense should be consider

This Study has been undertaken with the following Objectives:

Identifying relevant expenditures of interest bearing and non interest bearing expenses and justifying expendituresComparative analysis on expense ratios of ONE Bank Limited with its key competitors in the private sector banksTo familiar with the working environment in bank.To apply theoretical knowledge in the practical field.To observe and analyze the performance of the specific branch and the bank as a whole and comply with the entire branch banking proceduresTo be acquainted with day to day functioning of service oriented banking business and analyzes the performance of the branch as well as OBL as a whole.To study existing banker customer relationship.To make a bridge between the theories and practical procedures of banking day to day operations.To analyze and evaluate the Customer Service of ONE Bank Limited (OBL).

However, the specific objectives of the study are as follows,

1. Strengthen the Banking Business in Bangladesh as a dynamic and action-oriented organization, equipped with adequate professional, financial and technological resources as well as requisite operational tools to enable it to “respond effectively and professionally to its increasing responsibilities in the wake of the widening scope of regional cooperation in ONE Bank Limited.

2. The strength of the Secretariat may be revised to give it greater functional leverage and mission-oriented on banking operational capacity.

3. Augment Banking Business in Bangladesh capacity to serve as catalyst in the economic and social development of our region.

4. Strengthen and upgrade the existing transportation and communication links across the region.

5. Expand inter-regional collaboration in selected areas of mutual interest, and build linkages with major global economies.

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6. Promote good governance, democracy, “political socialization” and rule of law as the preferred norms for ONE Bank Limited the region.

7. Closer cooperation in the areas of finance and banking, and harmonization of monetary and fiscal policies, including external tariffs and customs rules and procedures.

Although I tried my best to make this report based on facts and complete information available, but I had t pass through some limitations that I believe are inevitable. I had to do a lot of hard work in order to gather all the information, carrying out the calculation and complete the assignment. I could not get much information from websites. So, I had to get appointment from the persons working there and collected as much information they allowed us to take from them, bus it is no easy to sit with them.

There was lot of limitation also. First limitation was about gathering the information. Avoid some direct questions to answer. I had to visit couple of office; I also had to visit the share market. After managing information from here it wasn’t sufficient to carry out the comparison between two banks. I also took information from the internet.

My second limitation was about comparing the results. I did the calculation and then based upon the result I compared the banks. But I had no source of justifying the comparison by any other way. That was the limitation about perfection.

Another limitation was the time management. Lack of coordination from the particular management personnel. I had to do our scheduled classes, I had to study and at the same time I had manage time to go to different offices, share market and searching the internet to find information. Southeast University (SEU) library service and other required were not available.

Like all survey works, this research was subjected to a number of limitations. The duration that is for internship program is not enough to learn about an organization as well as it’s expenditure towards organization like ONE Bank Ltd. There fore the report may lack some crucial data. Since it is a profit maximizing organization, the probability of getting the accurate data was always biased. The survey was conducted among four commercia1local Banks. This is a small figure for such a survey considering the fact that the 3rd generations Banks may have several strategies. The major problem is that the annual report is not available in the market, because in all the banks they are going to publish within the few months. So the data are almost one and four month back. Due to

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the security purpose they don’t allow most of the information. The report involved identifying the unexpected expenses among the considered banks.

3.9 Limitations of the StudyAlthough I received co-operation from the concerned officials, they were not always able to give me much time, as they were busy with their works. Time is an important issue in Report writing. As I have been given a specific deadline for submission, observation and learning all the Banking Operations within 3 months was really tough. Another limitation of this Report is non-availability of the most Recent Data and Information of different activities of ONE Bank Limited (OBL) and Bank’s Policy of not disclosing some Data and Information for some reasons, which could be very much useful. In spite of all these limitations, I have tried to put the best effort as far as was possible.

The limitations faced in conducting the study are,

A more comprehensive knowledge of the subject matter might have helped to carry out a more thorough study.

Continuous modification in the product offering is another limitation in judging the performance of the product.

Most of the data used in the report are given on an approximate basis due to banks tendency towards confidentiality. It also served as a major limitation.

This report basically presents the various groups in the organization. The findings and recommendations might not match accurately with the same types of other organization. The strategy of a particular organization is different than other same types of organization.

3.10 Limitations Include:

Limitation of time:We had a little opportunity to spend enough time to prepare this type of big report within a short period of time. For this reason we have to hurry for complete this report within the time.

Incomplete information: In collecting many data, we got incomplete answer from the source. That also hampers our work done correctly and in time. We also found some misleading responses.

Short experience: We are in learning stage and have little experience for reporting on such a big project. We tried heart and soul to prepare the report professionally.

Lack of Current Data: While preparing this report we faced a problem of lacking current and most updated data. That really made obstacles for preparing this report.

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Chapter Four

ONE Bank Limited had taken decision to establish a branch at the prime location of the Motijheel Commercial Area, Sharif Mansion, 56-57, Motijheel C/A, Dhaka-1000. The branch started its operation at May25, 2006. It dose not get the license to operate as an A.D. branch. But very soon it will get the license. The process is in the pipeline. There are 29 branch of ONE Bank Ltd. and Motijheel Branch is the one. At present Motijheel Branch of ONE Bank Ltd. of have 12 nos. of PCs for 20 employees of Motijheel Branch.  As business of branch is increasing day by day, Motijheel Branch are in need of few more PCs and one leaser printer to cope up with the work pace and to satisfy branch customer need & to carryout the day-to-day activities smoothly.

4.1 Executives & Officer of Motijheel BranchSl. No. Name of Executives &

OfficerDesignation

1. Mr. Mahfuzur Rahman Khan SVP (Senior Vice President)2. Mr. Qamrul Chowdhury AVP (Assistant Vice President)3. Mr. Md. Abdus Salam AVP (Assistant Vice President)4. Mr. Mostofa Meer Khaled

OmarSPO (Senior Principal Officer)

5. Ms. Jahan Ara Begum PO (Principal Officer)6. Mr. Md. Fazlur Rahman PO (Senior Principal Officer)7. Mr. Md. Momtaz Goni SO (Senior Officer)8. Mr. Nasir Uddin Mamun SO (Senior Officer)9. Mr. Khaled Al Fesani Officer

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10. Ms. Tasmin Hossain Mousumi Officer

11. Mr. A.K.M. Jashim Uddin Officer

12. Ms. Champa Khatun Officer

13. Mr. S. M. Ziaul Haque JO (Junior Officer)

14. Ms. Tahnia Akhtar Quadery AO (Assistant Officer)

15. Ms. Sandra Florance Almeida AO (Assistant Officer)

16. Ms. Rokshana Akhter AO (Assistant Officer)

17. Mr. Md. Fuad Abdul Hamid AO (Assistant Officer)

18. Ms. Nazir Hossain Mamun TAO (Trainee Assistant Officer)

19. Mr. Mohammad Rafiul Karim TAO (Trainee Assistant Officer)

20. Ms. Farzana Akhter TAO (Trainee Assistant Officer)

4.2 Overall functionsDepartment =General Banking-Customer service, Cash, Clearing, Accounts, Credit, Credit Administration, Trade Finance, HRD, Establishment, Marketing, Retail Banking.

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Figure – 4.1 Overall functions

4.3 Number of Employees in the branch: 26

SVP & Manager

General Banking Credit Trade Finance Retail Loan Admin AVP: 1 AVP: 1 Sr. PO: 1

Officer: 1 Assist. Officer: 1

Principal Officer : 1 Principal Officer: 1Sr. Officer : 2Officer : 2Probationary Officers: 4 Assist. Officer : 4 TAO: 1 Assist. Officer: 1Tr. Assist. Officer : 5 _________ _________ Total 18 Total 4 Total 1 Total 1 Total 2

Figure – 4.2 Number of Employees in the branch

Table: 4.1 Present Status & Requirement

Name of the Dep. Man Power

No. of Computers

Present Use

Printer

Manager 1 1 For CC TV

Credit 4 4

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Two Laser

One Epson Dot

Loan Admin 2 2

Trade Finance 1 1

Accounts 3 1

Clearing/Remittance 1 1

Cash 4 3

General Banking 1 1

A/C Opening 4 2

Retail Banking 1 0

Total 22 16

Business Volume

(Figure in '000)

  Present Projected (Upto June Quarter)Deposit 501,803.00 900,000.00Loans 84,265.00 450,000.00

4.4 Performance of Motijheel Branch

Table: 4.4.1 Branch performance as on November, 2007 (Amount Tk in Lac)

Particulars As on September 30, 2007 As on October 31, 2007 As on November 8, 2007

Position Position PositionDeposit 5,704.75 4740.83 4735.48Loans 1,796.66 1897.31 1892.99L/C 181.91 328.72 410.88

Table: 4.4.2 Deposit Mix as on November, 2007 (Amount Tk. in Lac)

Types of Deposit Amount in CroreWeight

Current Deposit 140.65 2.84%Savings Deposit 145.8 2.95%Short Term Deposit 15.49 0.31%Fixed Deposit 4226.38 85.48%Scheme Deposit (DPS) 182.14 3.68%Sundry Deposit 30.37 0.61%Other Deposit Liability 203.4 4.11%Total 4944.23 100.00%

Table: 4.4.3 Business Plan for remaining two months of the year 2007 (Amount Tk inCrore) Particulars November DecemberDeposit 130.00 135.00Loans 70.00 75.00LC 12.00 12.00

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BG 3.00 3.00

Table: 4.4.4 Position of SMA & Classified Loan as on November, 2007 (Amount Tk. in Lac)

Facility Type Status Amount Recovery Status

CCS SMA 46.70 Monitored by Retail DivisionCCS SS 27.30

CCS BAD 2.25

Table: 4.4.5 Retail Borrower as on November, 2007 (Amount Tk in Lac)Facility Type No. of Borrower Amount

CCS – Retail 244 502.86Car Loan 40 325.07Professional Loan 1 3.11Small Business Loan 10 57.71Total 292 899.51Table: 4.4.6 Expected Profit & Loss Position from November, 07 to December, 07

(Amount in Tk Lac)

November DecemberTarget Target

Income 156.67 167.92Exp. 115.92 119.88Profit 40.75 48.04Cumulative 277.02 325.06

Major Head of Expenses1. Average Interest rate on deposit 11.00%2. Average Salaries & Benefits 7.00 Lac

Table: 4.4.7Status & Number of Accounts with Deposit Campaign Progress

Type of account As on July 31

As on August 31As on Sep 30

Campaign progress

JulyTotal

AugustTotal

SeptemberTotal July to September

CD 11 198 5 203 16 219 32SB 26 582 50 632 30 662 106

STD - 7 1 8 1 9 2FDR 90 342 60 402 13 415 163DPS 36 565 32 597 83 680 151Total 163 1694 148 1842 143 1985 454

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Chapter Five

5.1 Deposit Product 

  SCHEME DEPOSIT

Interest Rate Tk 500

Tk 1,000 Tk 1,500 Tk 2,000

5 Years 12% Tk 41,243 Tk 82,486 Tk 123,730 Tk164,973 8 Years 12% Tk 80,763 Tk 161,527 Tk 242,290 Tk323,053 10 Years 12% Tk 116,170 Tk 232,339 Tk 348,509 Tk 64,678

* Same details apply for EDUSAVE, MARRYSAVE & PENSAVEONE-2-3 DEPOSIT SCHEME

Double in 6 Years 2.50 Times in 8½ Years Triple in 11 Years

MONTHLY MONEY MAKER  

DURATION AMOUNT TO BE INVESTED MONTHLY INCOME

5 Years Tk. 50,000.00 & its multiple(s). Tk. 500.00 & its multiple(s)

DEPOSITS (SAVINGS, STD & FIXED)  

Types of Deposits Upto Tk. 1 Crore

Above Tk. 1 crore upto below Tk. 5

Crore

Tk. 5 Crore and

aboveSavings (Urban & Rural) 8.00%Short Term Deposits (STD) 6.00% 8.50%FDR (3 months & above but less than 6 months) 12.00% 12.00% 12.00%

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InstallmentDuration

FDR (6 months & above but less than 1 year) 12.00% 12.00% 12.25%

FDR (1 year) 12.00% 12.50% 12.50%

* The above rates of interest are subject to change at the discretion of the bank. (January'08)Table: 5.1 DEPOSIT PRODUCT

Monthly Deposit Services:1. Pensave is a specially designed scheme for the socially conscious citizens. This

special saving scheme will provide financial security during your retirement days.2. EDUSAVE Education is getting more and more expensive day by day. Hence

Edusave is a far-sighted scheme that bridges your dream and reality.3. MERRYSAVE is a special designed scheme for the socially conscious citizens. This

saving scheme will provide the financial security during your marriage.4. ONE-2-3 Scheme is a lucrative offer from ONE Bank Limited making your deposits

grow by folds over a certain period of time ONE-2-3 Scheme requires a fixed deposit of Tk. 5,000/- or its multiple for your chosen tenor.

5.2 Products & ServicesProduct details: 01. Liability= Deposit; 02.Asset=Loan

PRIZE BONDNon-funded =LC, Bank Guarantee

Table: 5.2 Products & Services

5.3 Financial Products and services5.3.1 Service of the Professional Personal

The Officers of ONE Bank Limited have, to their credit, decades of banking experience with National/ international banks at home and abroad. They are suitably equipped to meet customer expectations and are available at all times to provide a single-window customized and confidential service.

5.3.2 Retail Banking

Bank limited offers individuals the best services, including the following, to provide complete customer satisfaction:

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01. Liability product:SB Low CostSTD Low CostPSP High costFDR High costCD Cost freeMM High costONE-2-3 High costDPS High cost but bank gainer

02. Asset ProductFunded: 1OverdraftSmall Business LoanTime LoanConsumer creditCar LoanProfessional LoanTerm Loan

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Deposit services. Current Account in both Taka and major foreign currencies. Convertible Taka Accounts. Local and foreign currency remittances. Various types of financing to cater to the banking requirements of multinational clients.

5.3.3 Institutional Banking

ONE Bank Limited will offer various services to foreign missions, NGOs and voluntary organizations, consultants, airlines, shipping lines, contractors, schools, colleges and universities. The services include mainly the following:

Deposit services. Current Account in both Taka and major foreign currencies. Convertible Taka Accounts. Local and foreign currency remittances. Various types of financing to cater to the banking requirements of multinational clients.

5.3.4 Corporate Banking

ONE Bank Limited caters to the needs of the corporate clients and provides a comprehensive range of financial services, which include:

Corporate Deposit Accounts. Project & Infrastructure Finance, Investment Business Counseling, Working Capital and other finances. Bonds and Guarantees.

5.3.5 Commercial Banking

Being a commercial bank, ONE Bank Limited provides comprehensive banking services to all types of commercial concerns. Some of the services are:

Trade Finance. Commodity Finance. Issuance of Import L/Cs. Advising and confirming Export L/Cs. - Bonds and Guarantees. Investment advice.

ONE Bank Limited will provide specialized services to Ministries, Autonomous and Semi-autonomous bodies.

5.3.6 On-Line Banking

ONE Bank Limited offers 'Any Branch' banking service that facilitates its customers to deposit, withdraw and transfer funds through the counters of any of its branches within the country.

5.3.7 Merchant Banking Advisory Services

The Bank will provide Merchant Bank advisory services, offer complete packages in areas of promotion of new companies, evaluation of projects, mergers, take-over and

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acquisitions, liaise with the Government with regard to rules and regulations, management of new issues including underwriting support etc.

5.3.8 Capital Market Operation

The Bank will also introduce capital market operation which will include Portfolio Management, Investors Account, Underwriting, Mutual Fund Management, and Trust Fund Management etc.

5.3.9 Islamic Banking Services

ONE Bank Limited will open Islamic Banking Branches to serve the customers who are interested in banking based on Islamic Shariah.

5.3.10 State-Of-The-Art Technology Banking

The Bank will provide a state-of-the-art technology banking such as Any Branch Banking, ATM Services, Home-Banking, Tele-Banking, Mobile-Banking etc.

5.3.11 Deposit servicesCurrent Account in both Taka and major foreign currencies. Savings AccountFixed Deposit Account

5.3.12 Farm and Off-Farm Credits (Rural)

Out of Bank's social commitment towards the population at the grass-root level, it will participate in farm and off-farm credit programmers in rural Bangladesh to bring in economic buoyancy in the periphery.

5.3.13 Seed Money for Self-Employment

The educated young people with an aptitude for organizing enterprises will be provided with the seed money primarily for self-employment and subsequently will be given advisory services as well as required fund for expansion into a fast growing productive and employment generating venture.

5.3.14 Consumer Credit Facility

The Bank offers a Consumer Credit Scheme, facilitating financial ease in acquiring various day to day consumer products such as usable appliances and other items.

5.3.15 Counter For Payment of Bills

Dedicated counters are available at ONE Bank Limited's branches to receive the payment of various utility (DESA, Mobile Phones) bills.

5.3.16 Other ServicesRemit funds from one place to another through DD, TT and MT etc.

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Conduct all kinds of foreign exchange business including issuance of L/C, Traveler’s Cheque etc Collect Cheques, Bills, Dividends, Interest on Securities and issue Pay Orders, etcAct as referee for customers.

Locker facility for safe keeping of valuables and documents.

Chapter Six

6.1 GENERAL BANKINGI have been also placed in the General Banking Department. General Banking department performs the majority functions of a bank. It is the core department. GB job description:GB Department Format Maintains:GB Registered:GB MB Posting Procedure:Statement Categories:GB File Maintain:

Account opening Account closeAccount amendment Account TransferAddress confirmation letter issue to client Cheque book issueStop Payment Instruction Account Block, Inactive, DormantAmount Block ONE-2-3 issue & EncashmentDPS issue & Encashment DPS Standing instructionFDR issue & Encashment FDR Statement, FDR Forwarding. Tax

corticatedBank statement issue to client daily basis any account, monthly basis, Lone account, CD account .STD account half yearly basis, SB, DPS yearly basis

Bank Solvency certificate, No objection certificate, and Balance confirmation certificate

Signature card scanning procedure Pay order issue & Liquidation

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Fund transfer Savings certificate issue & EncashmentMonthly moneymaker issue & Encashment DD issue & EncashmentOBC, IBC PROCEDURE Western Money Transfer Student file open Plastid express, FC account MIS Figure sends to Accounts, BB Time to time BB Cheque issue Mandate Accounts maintain FTT, TT outgoing, TT In comingWestern union money transfer

In fact, bank operates with the people’s money. And this process starts with the General Banking department. The activities of the General Banking Department of OBL are mainly divided into the following categories:

Account Opening Section, Local Remittance Section, Online Branch Banking Section, One Stop Utility Services Section, Deposit Schemes Section, Collection Section.

6.1.1 Account Opening Section:To establish a Banker and customer relationship Account opening is the first step. Opening of an account binds the Banker and customer into contractual relationship. But selection of customer for opening an account is very crucial for a Bank. Indeed, fraud and forgery of all kinds start by opening account. So, the Bank takes extremely cautious measure in its selection of customers.

Types of Account:Motijheel Branch has the following types of accounts:

1. Current Account ( Individual)2. Current Account (Proprietorship Firm)3. Current Account (Partnership Firm)4. Current Account ( Limited company)5. Current Account ( NGO/ Association)6. Current Account ( School, Colleges/ Somity, Clubs, Society)7. Savings Account (Rural & Urban.)8. Fixed Deposit Account9. Short Term Deposit Account (STD)

Activities & papers necessary for opening an account:

1. Current Account (Individual):The prospective customer should be properly introduced by the followings:

An existing introducer of the bank. A respectable person of the locality who is well known to the Manager or authorized officer. Two copies of passport size photograph duly attested by the introducer. Signature of the prospective account holder in the account opening form and on

the specimen signature card duly attested by the introducer. TIN certificate One copy passport size photo graph for each nominee. Then the concerned authority will allocate a number for the new account. The customer than deposit the “initial deposit” by filling up a deposit slips. Initial

deposit to open a current account in OBL is Tk. 10000.00 and saving account is Tk. 5000.00.

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After depositing the initial deposit, the account is considered to be opened. OBL maintains all of its accounts in computer. After depositing the initial deposit, OBL records it in the computer by giving new account number. Then it issues chequebook requisition slip by the customer. Then it distributes all relevant papers to respective department.

2. Current Account Proprietorship:The requirements of opening a current account for proprietorship business are given below:

1. Photocopy of valid passport/ Voter ID Card/Ward Commissioner Certificate each of the Authorized Signatures.

2. 2 copies of Passport size photographs for each of authorized signatory (ies)3. 1 copy of passport size photographs for each of the nominees.4. Transaction profile and KYC must be filled up by the client.5. TIN Certificate.6. Copy of up to date Trade License.7. Seal of the Firm.

3. (Current Account) Partnership firm:The following documents have to be submitted for preparing an account of a partnership firm:

Partnership deed. If the partnership firm is a registered one, then one copy of registration forms. If not, then a copy of certificate from the notary public. Photocopy of valid passport/ voter ID Card/ Ward commissioner certificate/ Two copied of passport size photocopy of each partner. TIN Certificates Copy of up to date Trade Licensee Seal of the Firm. Application for opening account in OBL duly signed by all partners.

4 Limited Company:For the opening of an account of a limited company, following documents have to be submitted:

A copy of resolution of the company that the company decided to open an account in the Bank.

Certified true copy of the Memorandum & Articles of Association of the Company.

Certificate of Incorporation of the company for inspection and return along with a duly certified Photocopy for Bank’s records.

Certificate from the Registrar of Joint Stock Companies that the company is entitled to commence business (in case of Public Ltd. Co. for inspection and return) along with a duly certified Photocopy for Bank’s records.

Latest copy of balance sheet. Extract of Resolution of the Board/General Meeting of the company for opening

the account and authorization for its operation duly certified by the Chairman/Managing Director of the company.

List of Directors with address.

5 Club/Society/ School/ College/ Somity:Following documents have to be obtained in case of the account of the club or society:

Name of Management committee. Photocopy of valid passport/ Voter ID Card. 2 copies passport size photocopies

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Up to date list of office bearers. TIN certificate Certified copy of Resolution for opening and operation of account. Certified copy of Bye-Law and Regulations/Constitution. Copy of Government Approval (if registered) Seal of the company.

6 Current Account (NGO/ Association):Following documents have to be obtained in case of the account of NGO/ Association:

Copy of Bye-Law duly certified by the NGO Officer. Copy of Registration from NGO Bureau. TIN Certificates. Seal of the Company. Copy of Trade License. Transaction Profile Up to date list of office bearers. Resolution of the Executive Committee as regard of the account Application signed by all authorized Signatories on OBL from for opening

account.Short Term Deposit:

Same as current account.Fixed Deposit:

One copy of passport size photographs for each of applicants. One copy passport size photo graph for each of the nominees.

6.1.2 Deposit Schemes Section:Bank is the largest organization of mobilizing surplus domestic savings. For poverty alleviation, we need self-employment, for self-employment we need investment and for investment we need savings. In the other words, savings help capital formations and the capital formations help investments in the country. The investment in its turn helps industrialization leading towards creation of wealth of the country. And the wealth finally takes the country on road to progress and prosperity. As such, savings is considered the very basis of prosperity of the country. The more the growth of savings, the more will be the prosperity of the nation.OBL has formulated the following Savings Schemes:

PENSAVE EDUSAVE MARRYSAVE

PENSAVEPensave is a specially designed scheme for the socially conscious citizens. This special saving scheme will provide the financial security during your retirement days.

Table: 6.1 PENSAVE

Installment Tk. 500 Tk. 1,000 Tk. 1,500 Tk. 2,000

Tenor Amount Payable on Maturity at 12%

5 Years Tk. 41,243 Tk. 82,486 Tk. 1,23,730 Tk. 1,64,973

8 Years Tk. 80,763 Tk. 1,61,527 Tk. 2,42,290 Tk. 3,23,053

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10 Years Tk. 1,16,170 Tk. 2,32,339 Tk. 3,48,509 Tk. 4,64,678

EDUSAVEEducation is getting more and more expensive day by day. Hence Edusave is a far-sighted scheme that bridges your dream and reality.

Table: 6.2 EDUSAVE

Edusave is a Deposit Scheme that offers you to select from monthly installment amounts of TK. 500 / 1 ,000 / 1 ,500 / 2,000 and a tenor of 5 / 8 / 10 years, as you feel convenient.

Installment Tk. 500 Tk. 1,000 Tk. 1,500 Tk. 2,000

Tenor Amount Payable on Maturity at 12%

5 Years Tk. 41,243 Tk. 82,486 Tk. 1,23,730 Tk. 1,64,973

8 Years Tk. 80,763 Tk. 1,61,527 Tk. 2,42,290 Tk. 3,23,053

10 Years Tk. 1,16,170 Tk. 2,32,339 Tk. 3,48,509 Tk. 4,64,678

MERRYSAVEMarrysave is a special designed scheme for the socially conscious citizens. This saving scheme will provide the financial security during your marriage.

Table: 6.3 MERRYSAVE

Marrysave is a Deposit Scheme that offers you to select from monthly installment amounts of TK. 500/1,000/1,500/2,000& a tenor of 5/8/10 years, as you feel convenient.

Installment Tk. 500 Tk. 1,000 Tk. 1,500 Tk. 2,000

Tenor Amount Payable on Maturity at 12%

5 Years Tk. 41,243 Tk. 82,486 Tk. 1,23,730 Tk. 1,64,973

8 Years Tk. 80,763 Tk. 1,61,527 Tk. 2,42,290 Tk. 3,23,053

10 Years Tk. 1,16,170 Tk. 2,32,339 Tk. 3,48,509 Tk. 4,64,678

ONE-2-3 Scheme is a lucrative offer from ONE Bank Limited making your deposits grow by folds over a certain period of time.ONE-2-3 Scheme will make your deposit Double in 6 years, 2.5 times in 8.5 years and Triple in 11 yearsONE-2-3 Scheme requires a fixed deposit of Tk. 5,000/- or its multiple for your chosen tenor.

Table: 6.4 Maturity ValueMaturity Value (Figures in Taka)

Maturity Value (Double)

Maturity Value (2.5 Times)

Maturity Value (Triple)

Period 6 years 8 years 6 months 11 years

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Interest Rate 12.25% 11.38% 10.52%Amount Double 2.5 Times Triple

6.1.3 Local Remittance Section:Local remittance is one of the main components of general banking. The activities of local remittance are ---

a)Telegraphic Transfer,b)Demand Draft issue,c) Pay order.

a) Telegraphic Transfer: It is an order from the issuing branch to the drawee bank / branch for payment of a certain sum of money to the beneficiary. The payment instruction is sent by telex and funds are paid to the beneficiary through his account maintained with the drawee branch or through a pay order if no account is maintained with the drawee branch.

Procedure of issuing TT:Following procedures are followed while issuing of TT:

1. The applicant fills up the relevant parts of the prescribed application form in triplicate, duly signed the same and gives it to the GB.

2. GB will fill up the commission part for bank’s use and request the applicant to deposit necessary cash or cheque at the cash booth.

3. The first copy of the application form will be treated as Debit Ticket while the second copy will be treated as Credit Ticket. The third copy will be handed over to the applicant as customer’s copy.

4. GB will prepare telex in appropriate form, sign it and send it to the telex operator for transmission of the message.

5. GB will prepare necessary advice. Debit advice is sent to the client if clients account is debited for the amount of T.T.

6. T.T. Confirmation Advice is sent to the drawee branch. 7. Credit Ticket (second copy of the application form) is used to credit the PBL

General Account.Payment of T.T.On receipt of T.T. payment instructions the following entries are passed by the drawee branch if the T.T. is found to be correct on verification of the Test number—In case the beneficiary does not maintain any account with the drawee branch a pay order will be issued in favor of payee and sent to his banker/local address as the case may be.Every branch maintains a prescribed T.T. Payable Register. All the particulars off T.T. are to be properly recorded in this register duly authenticated. A separate Type of T.T. confirmation advice is sent to the drawee branch on the same day. On receipt of T.T. confirmation advice, the particulars of T.T. are verified with reference to particulars already recorded in the T.T. payable register.

b) Demand Draft (DD) Issue:Sometimes customers use demand draft for the transfer of money from one place to another. For getting a demand draft, customer has to fill up an application form. The form contains date, name and address of the applicant, signature of the applicant, cheque number (if cheque is given for issuing the DD), draft number, name of the payee, name of the branch on which the DD will be drawn and the amount of the DD. The form will be duly signed by the applicant and by the authorized officer. OBL charges .15% commission on the face value of DD as service charge.

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Process of issuing Local Draft:Followed procedures are followed while issuing local draft—

1. Get the application form properly filled up and signed by the applicant.2. Complete the lower portion of the form for the bank’s use.3. Calculate the total amount including the bank’s commission.

If the cheque is presented for of the local draft, the officer should get the cheque duly passed for payment by the authorised person and record the particulars of local draft on the back of the cheque.

If the client wants to debit his account for the payment of the draft amount, the officer should get the account holder’s signature verified properly, from signature card on record of the branch and debit clients account for the total amount including commission.

The first copy of the application form will be treated as Debit Ticket while the second copy will be treated as Credit Ticket and kept by the GB. The third copy is handed over to the applicant as customer’s copy.

The GB Department maintains a prescribed L.D. Issue Register. All the required particulars of LDs issued by OBL should be entered in that register duly authenticated.

c) Pay Order: For issuing a pay order, the client is to submit an application to GB in the prescribed form. This form should be properly filled up and signed. The procedure of the issuing pay order is similar to that of the Local Draft. For issuing pay order PBL charges commission on the following rate—

# For Tk. 1 to 100000, the commission is Tk.115.# For Tk. 100000 to 500000, the commission s Tk. 265.# For Tk 500000 to above, the commission is Tk. 350.

Payment of Pay Order:The pay order is presented to the bank either through clearance or for credit to the client’s account. While payment, relative entry is given in the pay order register with the date of payment.

Cancellation of Pay Order:The following procedure should be followed for the cancellation of the pay order:

i) The client should submit a written request for canceling the pay order attaching therewith the original pay order.ii) The signature of the purchaser will have to be verified from original application form.iii) Manager’s prior permission is to be obtained before refunding amount of pay order.

Cancellation charge is to be recovered from the applicant and only the amount of the pay order less cancellation charge should be refunded. Commission recorded for issuing of the original pay order should not be refunded.

1. Then the officer should write “cancelled” on the pay order.2. The original entries should be reversed with narration.3. Cancellation of the pay order should also be recorded in the register.

d) Issuing Process of a Cheque book: Verification Phase

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Issuing Phase Delivery of the Cheque Book Recording, Preservation & Safe custody Issuance of Cheque Book to a Dormant Account Holder Issuance of Cheque Book in case of lost CRS ( Cheque Requisition Slip)

6.1.4 One Stop Utility Services Scheme Section:Like any other country of the world, the people living in the urban areas of our country lead a very busy life. Time is very valuable to them. Despite this, they are to waste their valuable time at the counter of different Banks and other Institutions for payment of their monthly bills of different utility services like Electricity, Telephone, Water, Gas etc. They, as such, face enormous difficulties for payment of their monthly bills in time. Such inconveniences of the urban people can be removed by making an arrangement to collect all the bills of various utility services at One Point.With this end in view, Prime Bank Limited has introduced a Scheme entitled “ONE STOP UTILITY SERVICES SCHEME”. The scheme is designed to provide all the required services to the customer in making payment of their following bills on their behalf from the counter of the Bank:

To pay Electricity BillsCash deposit in his/her account at any branch of the Bank irrespective of location.Cash deposit in other's account at any branch of the Bank irrespective of location.Transfer of money from his/her account with any branch of the Bank.

6.2 CASH DEPARTMENTCash section is a very sensitive organ of the branch and handle with extra care. Operation of this section begins at the start of the banking hour. Cash officer begins his/her transaction with taking money from the vault, known as the opening cash balance. Vault is kept in a much secured room. Keys to the room are kept under control of cash officer and branch in charge. The amount of opening cash balance is entered into a register. After whole days’ transaction, the surplus money remain in the cash counter is put back in the vault and known as the closing balance. Money is received and paid in this section. The officer of a cash department has to provide prompt service to the customer. Cash department deals with receiving and payment of money.

Money counting machine is available at the Motijheel Branch. It makes easier for the teller to provide quick service to the clients. As in The ONE Bank Limited the online banking system is available so the clients of any branch can deposit money from any branch and receive payment from any branch.

6.2.1Cash Department Job Responsibility:Cash DEPARTMENT FORMAT MAINTAIN:Cash Registered:Cash MB Posting Procedure:Statement Categories:Cash File Maintain:

01. Cash receive 02. Insurance maintain03. Payment 04. Cash reserve sheet maintain

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05. IBCA Maintain 06. Teller sheet marinating bill receive and maintain07. IBDA Maintain 08. Fake note09. Excess Cash transfer 10. Torn note identify and monitoring11. Shortage cash bring from other branch 12. Day end money soughing13. Vault limit maintain 14. Stapling15. Counting, 16. Cash reserve sheet maintain

6.2.1.1 Cash Receipt: At first the depositor fills up the Deposit in Slip. For saving account and current account same Deposit in Slip is used in this Branch. After filling the required deposit in slip, depositor deposits the money. Officers at the cash counter receives the money, count it, enter the amount of money in the register kept at the counter, seal the deposit in slip and sign on it with date and keep the banks’ part of the slip. Other part is given to the depositor.In this branch, i.e., Motijheel Branch, two different officers maintain two different books for entering such entries. All deposits of saving account are maintained by one officer and other accounts by another officer.At the end of the day entries of both of these registers are cross checked with the register kept at the cash counter to see whether the transactions are correct or not.

6.2.1.2 Cash Payment:When a person comes to the bank to cash a cheque, (s) he first gives it to the computer desk to know the position of the check and posting of the cheque. If the account has sufficient fund the computer in charge will post it into the computer, will sign it and seal it.This cheque is then sent to the concerned officer. There are two officers who verify the cheques – one for savings and similar types of account and another for current and similar types of account.After receiving the cheque respective officer first checks it very carefully for any kind of fraudulent activity. (S) He also checks the date of the cheque, amount in word, amount in figure and signature of the drawer.

6.2.1.3 Maintenance of Vault:Other than providing the Tellers necessary supervisory assistance to do their assigned jobs the Cash in charge/ The Head Teller also act as the joint custodians with the Manager? Sum Manager of the Vault and Vault keys.

6.3 CLEARING DEPARTMENT According to the Article 37(2) of Bangladesh Bank Order, 1972, the banks, which are the member of the clearinghouse, are called as Scheduled Banks. The scheduled banks clear the chouse drawn upon one another through the clearinghouse. This is an arrangement by the central bank where everyday the representative of the member banks gathers to clear the chouse. Banks for credit of the proceeds to the customers’ accounts accept Chouse and other similar instruments. The bank receives many such instruments during the day from account holders. Many of these instruments are drawn payable at other banks. If they were to be presented at the drawee banks to collect the proceeds, it would be necessary to employ many messengers for the purpose. Similarly, there would be many chouse drawn on this the messengers of other banks would present bank and them at the counter. The whole process of collection and payment would involve considerable labor, delay, risk and expenditure.

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All the labor Risk, delay and expenditure are substantially reduced, by the representatives of all the banks meeting at a specified time, for exchanging the instruments and arriving at the net position regarding receipt or payment. The place where the banks meet and settle their dues is called the Clearinghouse.Registered MaintainMB Posting Procedure:Statement Categories:Department File Maintain:

6.3.1Clearing job responsibility:Clearing inward cheque receive, Outward cheque received, Inward cheque received, Nikash posting, IBDA, IBCA,Pay order cheque received BDA Maintain, Same day clearing IT Transfer

1) Clearing house Clearing is one of the anomalies of banking system. By name Clearinghouse we may understand that the house which is clearing something. Yes, all the bank's personnel or officials get clearance for their inward & outward cheque through clearing house of Bangladesh Bank. Now question may arise what is inward & outward cheque? 2) INWARD Cheque: If our client (ONE Bank) submits ours cheque to the account of another bank, the cheque will come to our branch through clearinghouse, its called inward cheque.3) OUTWARD Cheque: If our client submits another bank's cheque to the account of our branch for collection, that is considered outward cheque for us.4) Tasks of clearing house: Bank's personnel appear at clearing house by 9:45 a.m. At first they have their table and hand over their floppy to central Bank's employees and give separate bunch of cheque to the respective bank official. After getting cheques from other officials they start to sort those cheques by observing certain procedures & usually it is sorted by branch wise. They make a bunch for Pay Order & another for Dividend Warrant.

In the mean time a banker of central bank gives a balance sheet to aware about our balance with Central Bank, on the basis of this balance sheet all are used to make voucher to inform their Head Office about balance in central bank account. Either it may be favorable or disfavor able on daily basis. After differentiate all those cheques, they calculate cheque amount on a white page & use to fasten branch wise.

5) SAME DAY: When official's are giving cheque, they accentuate on Same Day cheque because it’s a different sorts of service for hierarchical client's or the client's who want to transfer his balance between the bank within a day. Same Day cheque also jell or maintain as above precise. What is Same Day Cheque: Usually we receive Same Day cheque in the very early of banking hour. Only that branch can receive Same Day cheque that is within a kilometer of central bank. Its have some criteria:

Cheque amount must be five lac or above.

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Drawn branch must be within a kilometer of Central Bank.Checking those criteria we receive & make up cheque to send principal branch with a floppy by 9:30 am. Principal branch will send it to central bank with a different floppy by 9:45 am.6) Return House: With all the returns from branches representative branch of each bank get in clearinghouse by 3:30 pm with their fellow. To return cheque officials follow the same procedure as 1st house held.

7) Activities of the Section:(a) Preparation of Clearing Outward & Inward Lodgment, record maintenance of same.(b) Batch posting as and when required.On receipt of instruments, the same is endorsed here. Then clearing section will sent IBDA to head Office for clearing purpose and on receipt of IBCA from Head Office amount is credited to customers account and vice versa. If the instrument is return then the same is given back to the customer.

6.4 ACCOUNTS DEPARTMENTIn banking business transactions are done every day and these transactions are to be recorded properly and systematically as the banks deal with the depositors’ money. Any deviation in proper recording may hamper public confidence and the bank has to suffer a lot. Improper recording of transactions will lead to the mismatch in the debit side and credit side. To avoid these mishaps, the bank provides a separate department whose function is to check the mistakes in passing vouchers or wrong entries or fraud or forgery. This department is called Accounts Department.Besides these, the branch has to prepare some internal statements as well as some statutory statements, which are to be submitted to the Central Bank and the Head Office. This department prepares all these statements.

6.4.1Accounts Department Job Responsibility:Registered MaintainMB Posting Procedure:Statement Categories:Department File Maintain

General ledger/Affairs print out taking and daily position prepare.

Daily department wise voucher soughing, checking with Transecting journal.

Voucher keeping Weekly positionMonthly position Sector wise statementSBS-1,2,3 prepare monthly, Quarterly Depreciation CalculationAsset booking & Amortization Monthly profit loss Calculation & submit to hoInterbranch income calculation All income & Expenditure monthly monitoringSalary & Bills pay Personal file maintain & leave monitoringMIS figure submit time to time as per head

office instruction.Branch budget monitoring

6.4.2Functions of Accounting Department:We can divide the functions of accounting department into two categories. One is day-to-day task and another is periodical task.

a. Day to day functions: Here day-to-day function refers to the every day tasks. Accounting department of OBL performs the following day to day functions:

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Recording of transaction in the cashbook, general and subsidiary ledger. Preparing the daily position of deposit and cash. Making the payment of the expense of the branch. Recordings of inter branch fund transfer. Checking whether all the vouchers are correctly passed. Recording the voucher in the voucher register. Packing and maintains the total debit and total credit vouchers.

b. Periodical functions: Periodical functions of accounts department include the preparation of different weekly, fortnightly, monthly, quarterly and annual statement. The accounts department prepares the following statements:

Monthly statement of deposits, loans and advances, profit and loss etc. Quarterly statement of deposits, loans and advances, profit and loss etc. Yearly statement of deposits, loans and advances, profit and loss etc. Yearly statement of classified Loans and Advances. Statement of Affairs. Yearly Budget of the Branch, etc.

6.5 CREDIT DEPARTMENTAt first I have been placed in the Credit Department at ONE Bank Ltd. Motijheel Branch. Credit department performs the critical functions of a bank. One of the primary functions of commercial banks is the sanctioning of credit to borrowers. Bank credit is a catalyst for bringing about economic development. 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 agriculture, commercial, and industrial activities of a nation. At the same time, a bank will, therefore, distribute its funds among various assets in a manner as to derive sufficient income.

6.5.1Types of Loans and Advances Offered By OBL:OBL offers following types of loans and advances, -

Secured Overdraft (SOD)Loan (General)House Building Loan (Staff)Demand LoanTransport LoanIndustrial CreditHouse Building Loan (General)Transport Loan (Staff)Cash Credit (Hypothecation) Past Due BillsLoan against Trust Receipt (LTR).

6.5.2Job Description of Loan Admin OfficerCore Functions:In relation to our risk assets, ensure that OBL is adequately protected at all times through complete, valid and legally enforceable documents, under approved facilities.

Functions & Responsibilities:1. To ensure accuracy, completeness and validity of offer letter, sanction advice, loan

documentation, loan agreement and other related documents under approved facilities.

2. To ensure that the above documents comply with the Bank’s standard format.

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3. To meticulously abide by the ‘risk controls’ as given in the CM.4. Preparation of non-standard documentation and getting them vetted by legal counsel

and subsequently verified by the Bank’s legal affairs / recovery department. 5. Reviewing insurance policies for amount of coverage, type of risks covered and the

expiry dates.6. Ensuring that hypothecation and mortgage documentation are registered with

appropriate authorities.7. Inputting or amending limits, interest rates and expiry dates.8. To ensure that all pre-disbursement conditions are met prior to loan draw down.9. To monitor that waivers and deferrals are approved from the competent authority. 10. To maintain registers, diaries and other records.11. To monitor exceptions like expired limits, overdue installments, excess over limit etc12. Prepare loan MIS and periodic returns / statements as per the calendar of returns.13. Handling Micro-Bank posting.14. To realize handling / disbursement fees as per approval terms.15. To maintain and update security management system.16. Issuance of letter of guarantee and maintaining register there of.17. Drafting checking of mortgage deed, power of attorney, filing of suit, appearance in

court, etc. publication of notice, sideboard etc.18. Visit of collateral factory office premises, godown, etc.19. Generally to comply with security check list, bank circulars, regulations, guidelines,

instructions and audit comments and to take corrective steps for any breach. 20. To alert the relationship manager if any weakness in any account is observed which,

in the opinion of the loan admin officer, may compromise the safety of our risk asset.

6.6 FOREIGN TRADE DEPARTMENTModern banks facilitate trade and commerce by rendering valuable services to the business community. Apart from providing appropriate mechanism for making payments arising out of trade transactions, the banks gear the machinery of commerce, specially in case of international commerce, by acting as a useful link between the buyer and the seller, who are often too far away from and too unfamiliar with each other. According to Foreign Exchange Regulation act 1947, “Any thing that conveys the right to wealth in another country is foreign exchange”. Foreign exchange department plays significant roles through providing different services for the customers. Opening or issuing letters of credit is one of important services provided by the banks. Letters of credit is the key player in the foreign exchange business. With globalization of economies, international trade has become quite competitive.

Foreign exchange business of OBL has been divided into two sections:a) Import sectionb) Export sectionc) Function of Foreign exchange (An overview)d) Foreign exchange

6.6.1Documentary credit/letter of credit (LC)Documentary Credit is an assurance of payment by the bank. It is an arrangement under which the bank at the request of the buyer or on its own undertakes to make payment to the seller provided specified documents are submitted. Documentary Credit is an arrangement whereby a bank (issuing bank) acting at the request and on the instruction of a customer (the applicant) or on its own behalf

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undertakes to make payment to or to the order of a third party (the beneficiary) or to accept and pay bills of exchange (draft) drawn by the beneficiary, or authorize another bank to negotiate against stipulated documents provided the terms and conditions to the credit are complied. Thus, documentary credits are akin to bank guarantees. In popular language, they are known as letters of credit (L/Cs). Bank guarantees are, however, issued to cover situation of non-performance whereas documentary credits are issued on behalf of the buyer to cover situation of performance, i.e., the issuing bank agrees to make payment to the beneficiary once he surrenders the requisite complying documents. However, the term documentary credit has of late been extended to cover the situation of non-performance too. Documentary credits have gained wider acceptance in international trade for they try to safeguard the interest of both the buyer and the seller by reducing their risks. Thus, documentary credit offers a unique and universally used method of achieving a commercially acceptable arrangement by providing for payment to be made against complying documents that represent the goods and making possible the transfer of those goods.

Bank as a party of documentary credit:Parties to the documentary credit may be an issuing bank, an advising bank, a confirming bank, a reimbursing bank or a negotiating bank.Issuing Bank: The Issuing Bank or the Opening Bank is one which issues the credit, i.e., undertakes, independent of the undertaking of the applicant, to make payment provided the terms and conditions of the credit have been complied with. The payment may be at sight if the credit provides for sight payment, or at maturity, dates if the credit provides for deferred payment. Especially the issuing bank should satisfy himself on the credit worthiness of the applicant. The credit application must be in accordance with UCP 500 and in a workable format.Advising Bank: The Advising Bank advises the credit to the beneficiary thereby authenticating the genuineness of the credit. The advising bank is normally situated in the country/place of the beneficiary.

Confirming Bank: A Confirming Bank is one which adds its guarantee to the credit opened by another bank, thereby, undertaking the responsibility of payment/negotiation/acceptance under the credit in addition to that of the issuing bank. A confirming bank normally does so if requested by the issuing bank and it is normally the advising bank. Negotiating Bank: A Negotiating Bank is the bank nominated or authorized by the issuing bank to pay, to incur a deferred payment liability, to accept drafts or to negotiate the credit.Reimbursing Bank: A Reimbursing Bank is the bank authorized to honor the reimbursement claims in settlement of negotiation/acceptance/ payment lodged with it by the negotiating bank or accepting bank. It is normally the bank with which the issuing bank has account from which payment is to be made.

6.6.2Import ProcedureAn importer is required to submit the following documents in order to get a license to import through Motijheel, Branch of OBL Bank –

A bank account with the branch; Import Registration Certificate (IRC); Tax Payer’s Identification Number (TIN);

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Proforma Invoice Indent; Membership Certificate from a recognized Chamber of Commerce & Industry or

Town Association or registered Trade Association; Letter of Credit Authorization (LCA) Form properly filled in duplicate signed by

the importer; L/C Application duly signed by the importer; One set of IMP Form; Insurance Cover Note with money receipt; VAT Registration Certificate (for Commercial Importers);

In case of Public Sector, attested photocopy of allocation letter issued by the allocation authority, Administrative Ministry or Division specifying the source, amount, purpose, validity and other terms and conditions against the imports;Any such documents as may be required as per instruction issued/to be issued by the Chief Controller of Imports & Exports (CCI&E) from time to time.On receipt of the LCA Form and the other documents, the branch officials carefully scrutinize the documents and lodge the same in their respective registration books and duly verify the signature of the importer put on the LCA Form. To import, a person should be competent to be an ‘importer’. According to the “Import & Export Control Act, 1950”, the office of the Chief Controller of Imports & Exports (CCI&E) provides the registration (IRC) to the importer. After obtaining the IRC, the person has to secure a “Letter of Credit Authorization” (LCA) registration from the Registration Unit of Bangladesh Bank. After getting the LCA registration, a person becomes a qualified importer. He is the person who requests or instructs the opening bank to open an L/C is also called the “Opener” or “Applicant” of the credit.

6.6.2.1 Procedure involved in L/C opening:There are few steps involved in L/C opening process.A. APPLICATION At first, the L/C opener is required to fill the prescribed application form for requesting to open a L/C for him.L/C Application Form is a sort of an agreement between customer and bank based on which letter of credit is opened. Motijheel Branch provides a printed form for opening of L/C to the importer. A special adhesive stamp of value of Tk.150 is affixed on the form in accordance with Stamp Act in force. While opening, the stamp is cancelled. Usually the importer expresses his decision to open the L/C quoting the amount of margin in percentage.

Usually the importer gives the following information –1. Full name and address of the importer;2. Date and place of expiry of the credit;3. The mode of the transmission of document (mail/courier/telex);4. Whether the confirmation of the credit is requested by the beneficiary or not;5. Whether the partial shipment is allowed or not;6. The type of loading (loading on board;7. Brief description of the goods to be imported;8. Availability of credit by sight payment acceptance/negotiation/deferred payment;9. The time bar within which the document should be presented;10. Sales terms (FOB/C &F/CIF);11. Account number;12. L/C amount;

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13. Shipping mark;14. IRC Number;15. LCA Number;16. Insurance cover note;17. Country of origin.

B. PRESENTATION OF THE DOCUMENTS:As soon as the seller /exporter receives the L/C and is satisfied that he can deliver the goods mentioning in the L/C he is going to make shipment of the required goods to the buyer and after that, he presents the documents evidencing dispatching of goods to the negotiating bank on or before the stipulated expiry date of the credit. After receiving all the documents, the negotiating bank then checks the documents against the credit. The documents are sent to the issuing bank i.e. NCCBL and the bank will scrutinize all the documents and terms and conditions mentioning in the L/C.

The bank will check the following documents: Insurance cover note; Commercial/Performa Invoice; Bill of lading; Certificate of origin; Packing list; Shipping advice; Bill of exchange; Pre-shipment inspection report; Shipment certificate Clean report of finding (CFR).

C. Examination of Documents:Documents generally include the following & basic points of checking by OBL are:

Letter of CreditThe documents should have been negotiated or presented before expiry of creditThe amount which drawn should not exceed the amount available under the credit

Figure – 6.1 Letter of Credit Operation & Settlement Mechanism

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Commercial Invoice1. It has to be verified that the commercial invoice has been properly drawn and

signed by the beneficiary according to the terms and conditions of L/C.2. The beneficiary should properly invoice the merchandise.3. The merchandise is invoiced to the importer on whose account the L/C is opened.4. The description of merchandise and the unit price correspond with that given in

the L/C. 5. The import license or IRC number of the importer, indenter’s registration number

and Letter of Credit Authorization number are incorporated in the Invoice.

Bill of Exchange:1. It has to be verified that the bill of exchange has been properly drawn and signed

by the beneficiary according to the terms and conditions of L/C.2. The amount in the Bill is identical with amount mentioned in the invoice.3. The amount drawn does not exceed the amount mentioned in the L/C.4. The amount in words and figures should be same.5. The bill of exchange should be properly endorsed.

The Bill of Lading:1. First, it has to be cleared that the Bill of Lading is showing “Shipped on Board”

and it has to be properly endorsed to the bank.2. The B/L should include the description of the merchandise according to invoice.3. The port of shipment and destination, date of shipment and the name of the

consignee are in agreement with those mentioned in the L/C.4. The shipping company or their authorized agents properly sign the B/L.5. The date on the B/L is not ‘stale’ which means it is not dated in unreasonably long

time prior to negotiation.

The Insurance Cover Note:1. Is the insurance documents specified in the credit submitted?2. Does the insurance cover the risks mentioned in the credit in the currency of the

credit and for the prescribed amount but not less than CIF value?3. Is the insurance documents dated not later than the shipping documents?4. Does the insurance policy/Certificate agree with other documents as regards

description, weight & marks of the goods, mode of transport & the route?5. Does the insurance company attached and as far as necessary, endorsed issue all

the copies?

Certificate of Origin:The Merchandise described in the Certificate is in accordance with the L/C.

D. Advising a letter of credit:The advising or notifying bank is the bank through which the L/C is advised to the exporter. It is a bank situated in the exporting country and it may be a branch of the opening bank. It becomes customary to advise a credit to the beneficiary through an advising bank. Advising depicts the proof of authenticity of the credit to the seller. The opening bank has a corresponding relationship or arrangement throughout the world by which the L/C is advised. Actually, the advising bank does not take any liability if otherwise not requested.ADVISE & CONFIRME. Adding confirmation:

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The confirming bank does adding confirmation. Confirming bank is a bank, which adds its confirmation to the credit, and it is done at the request of the issuing bank. The confirming bank may or may not be the advising bank. The advising bank usually does not do it if there is not a prior arrangement with the issuing bank. By being involved as a confirming agent the advising bank undertakes to negotiate beneficiary’s bill without recourse to him. . F. L/C TransmittingLetter of credit can be transmitted to the advising bank through SWIFT (Society for Worldwide Interbank Financial Telecommunication). After verifying all that the respective officers open an L/C. Sending message by SWIFT

In the SWIFT following information are provided Address of the L/C issuing bank; Input message type (700 for the new L/C, 702 for amendment and some other

message number); Name of the advising bank; Form of documentary credit (Revocable /irrevocable); L/C no; Date and place of expiry; Applicant/Importer; Beneficiary /Exporter; USD; Draft at (sight/usance); Partial shipment allowed or not; Trans-shipment; Ships on board or deck; Description of goods and services.

After giving the message to the advising bank, the bank keeps Margin on total L/C value. Normally the margin is kept 25%or it is based on banker customer relationship or based on goods imported.

G. NegotiatingThe beneficiary (exporter) receives the letter of credit from advising bank. After proper shipment of goods as per terms and conditions of the L/C, required documents like Commercial Invoice, Bill of Lading, and bill of exchange are presented to the negotiating bank by the beneficiary for negotiation. If the documents are in order as per L/C then the negotiating bank negotiates the drafts making payment to the beneficiary. Then the negotiating bank forwards the drafts along with the shipping documents to the L/C opening bank. The negotiating bank reimburses the amount paid against the draft from reimbursement bank (authorized by opening bank) by debiting Nostro A/C of the opening bank. Negotiating banks have the option to send the drafts and documents to the opening bank for collection.

H. AmendmentAfter opening of L/C sometime alteration to the original terms and conditions become necessary. These amendments involve changes in

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L/C opening/issuing bank Advising bank/negotiating bank

(I) Unit price (ii) Extension of validity the L/CSuch amendments can be affected only if all the concerned parties agree i.e. the beneficiary, the importer, the issuing bank and the advising bank. For any amendment the importer must request the issuing bank in writing duly supported by revised Indent/ Proforma invoice. The issuing bank then advises the required amendment to the advising bank. L/C amendment commission including postage is charged to the clients A/C.

I. Making the payment through the Reimbursing BankThe L/C issuing bank after getting the document and check the document and if the terms and condition meet the requirement, the issuing bank take initiative to make payment to the exporter through reimbursing bank

6.6.3 Export Department1. Export L/C:The other type of L/C facility offered by Motijheel Branch is Export L/C.

2. Parties involved in export L/C: L/C issuing bank Importer Exporter L/C advising bank Negotiating bank The paying /reimbursing bank

3. Documents for Export L/C:These documents should be submitted to the bank for negotiation:Export L/CEXP formProforma invoiceBill of ExchangeAmount of bill differs with InvoiceNot drawn on L/C issuing bankInvoiceNot issued by the beneficiaryNot signed by the beneficiaryNot made out in the name of the ApplicantDescription, Price, quantity, sales terms of the goods not correspond to creditNot marked one fold as originalShipping marks differs with B/L & packing listCertificate of originBill of LadingFull set of bill not submitted;B/L is not drawn or endorsed to the Order Of Eastern Bank Ltd;“Shipping on Board”, “Freight Prepaid” or “Freight Collect” etc. notations are not marked on the B/L;B/L not indicate the name and capacity of the party i.e. carrier or master, on whose behalf the agent is signing the B/L;Shipped on Board Notation not showing name of pre-carriage vessel/ intended vessel;

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Shipped on Board Notation not showing port of loading and vessel name (In case B/L indicates a place of receipt or taking in charge different from the port of lading);Short Form B/L;Charter party B/L;Description of goods in B/L not agree with that of Invoice, B/E & P/L;Alterations in B/L not authenticated;Loaded on deck;B/L bearing clauses or notations expressly declaring defective condition of the goods and / or the packages.Packing listGross weight, net weight & measurement, number of cartoons/ packages differs with B/L;Not marked one fold as originalNot signed by the beneficiary Shipping marks differs with B/LInspection certificateInsurance documentAny other document as per L/CRespective officer must scrutinize all the documents with reasonable care to confirm whether the terms and conditions are right or wrong.

6.6.3.1 Procedure for Export L/C:These procedures are enumerated as follows:1. ERC: The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Imports and Exports (CCI & E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI & E and holds valid Export Registration Certificate (ERC). The ERC is required to be renewed every year. The ERC number is to be incorporated on EXP forms and other documents connected with exports.

2. Obtaining EXP: After having the registration, the exporter applies to NCCBL with the trade license, ERC and the Certificate from the concerned Government Organization to get EXP. If the bank is satisfied, an EXP is issued to the exporter.

An EXP-Form contains the following particulars:Name and address of Authorized DealerParticulars of the commodity to be exported with codeCountry of destinationPort of destinationQuantityL/C value in foreign currencyTerms of SaleName and address of Importer/ ConsigneeBill of Lading/ Railway Receipt/ Airway Bill/ Truck Receipt/ Post Parcel Receipt no. and datePort of ShipmentLand Custom PostShipment DateName of the Exporter with addressCCI & E's Registration number and date of the Exporter

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Sector (Public or Private) under which the Exporter falls.

3. Securing the order: Upon registration, the exporter may proceed to secure the export order. Contracting the buyers directly through correspondence may be done. Some buyers of goods like jute and jute goods maintain liaison office, representative of local agents who can be contracted to secure a deal. Sometimes, TCB, BJMC and BJEC secure bulk contracts and pass or allocate the contracts to the actual exporters.

4. Signing of the contract:

While making a contract, the following points are to be mentioned,1. Description of the goods2. Quantity of the commodity3. Price of the commodity4. Shipment5. Insurance and marks6. Inspection7. Arbitration

5. the following points are to be looked for, 1. The terms of the L/C are in conformity with those of the contract.2. The L/C is an irrevocable one, preferably confirmed by the advising bank.3. The L/C allows sufficient time for shipment and a reasonable time for registration.4. If the exporter wants the L/C to be transferable, divisible and advisable, he should

ensure those stipulations are specially mentioned in the L/C.6. Procuring the materials: After making the deal and on having the L/C opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise.

7. Registration of sale:This is needed when the items proposed to be exported are raw jute and jute goods.8. Shipment of goods: The following are the documents normally involved at the stage of shipment:

EXP Formphotocopy of registration certificatephotocopy of the contractphotocopy of the L/CFreight certificate from the bank in case of payment of the freight at the port of lading is involved.Railway Receipt, Berge Receipt or Truck Receipt.Shipping instructions.Insurance policy.

6.4.4 Foreign Documentary Bill Purchase (FDBP)After those, exporter submits all these documents along with a Letter of Indemnity to OBL for negotiation. An officer scrutinizes all the documents. If the document is a clean one, OBL purchases the documents based on banker- customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP).

1. ADVISING L/C: When export L/C is transmitted to the bank for advising, the bank sends an Advising Letter to the beneficiary depicting that L/C has been issued.

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2. INLAND LETTER OF CREDIT (ILC):ILC means L/C within the same country. This type of L/Cs is opened when the seller does not believe the buyer though they are of the same country and also in the cases where the sales contract is of a big amount.

3. BACK-TO-BACK LETTER OF CREDIT (L/C)In case of a Back to back letter of credit, a new L/C (an Import L/C) is opened based on an original L/C (an Export L/C). Under the 'Back to Back' concept, the seller as the Beneficiary of the first L/C offers it as a 'security' to the advising Bank for the issuance of the second L/C. The Beneficiary of the Back to Back L/C may be located inside or outside the original Beneficiary's country. In case of a Back to Back L/C, no cash security (no margin) is taken by the Bank; Bank liens the first L/C. In case of a Back to Back L/C, the drawn bill is a Usance/ Time bill. The export L/C is marked lien and no margin is taken. OBL facilitates about 75% back to back facility to the party.

In OBL, papers/documents required for submission for opening of back to back L/C:

CD account in the bank.Master L/CValid Import Registration Certificate (IRC) & Export Registration Certificate(ERC)VAT /TIN NumberL/C application & LCA form duly filled in signed.Proforma Invoice or Indent.Insurance Cover Note with Money ReceiptBonded warehouse licenseEXP form duly signed by the authorize officerIn addition to above the following papers/documents are also required for export oriented garment industries while requesting for opening of back to back L/C Textile permissionValid Bonded Warehouse LicenseQuota allocation letter issued by Export Promotion Bureau (EPB) in favor of the applicant in case of quota items.Membership of chamber of commerce.In case the Factory premises is a rented one, Letter of Disclaimer duly executed by the owner of the house/premises to be submitted.

6.4.5 Payment of Back-To-Back Letter of Credit:In case of back to back L/C of 60-90-120-180 days of maturity period, deferred payment is made. Payment is given after realizing export proceeds from the L/C issuing bank.

6.4.6 Reporting To Bangladesh Bank:At the beginning of the each month (within the first week), the reporting regarding the following information is mandatory. Filling of E-2/P-2 schedule of S-1 category; which covers the entire month amount of import, category of goods, currency, country etc.Filling of E-3/P-3 schedule for all charges, commission with T/M form.

Disposal of IMP form, which includes:

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1. Original IMP is forwarded to Bangladesh Bank with invoice;2. Duplicate IMP is kept with the bank along with the bill of entry;3. Triplicate IMP is kept for office record;4. Quadruplicate is kept for Bangladesh Bank;

Chapter Seven

7.1 Credit-What is it?The word ‘credit’ is inherited from a Latin world “credo” which stands for” I believe”. It is an immediate purchasing power, which is exchanged for a promise to repay it with or without interest at a later date.

Actually credit is nothing but making provision of fund by one party to another party under some rules and regulation. In general, credit is an act of allowing person or person’s immediate use of money with payment deferred until an agreed future date.

The term credit may be defined broadly. Speaking broadly, credit is finance made available by one party (lender, seller or share holder) to another (borrower, buyer. corporate, non- corporate firm).Financial claims or securities can be divided primary securities and secondary securities. The former are financial claims against real –sector units. The secondary securities are financial claims issued by financial institution or banks against themselves to raise funds from the public. It represents liability of the borrowing (or the Government) to banks and asset of banks.

7.2 Concept of creditCredit in general sense means an act of allowing person / person immediate use of money with payment deferred until an agreed future date. Bank is highly levered firm. It collects money from different types of deposit and utilizes this money for different purpose. Loans and advance is one of the most important and fruitful area to utilize money.

The central function of all banks is to collect deposits from surplus economic unit, and to lend those on deficit spenders. Both the surplus unit and spenders belong to real sector of the economy. Bank credit is catalyst for bringing about economic growth or development & without adequate finance there can be no growth or maintenance of actable output. So bank lending is important to the economy, for it makes possible financing of agriculture,

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commercial and industrial activities of a nation. At the same time a bank will, therefore, distribute its funds among different assets in a manner as to derive sufficient income.

A sound credit is one where timely repayment is assured. So, before giving financial accommodation, a banker should consider the source from which repayment is promised. In some instances, debentures, which are to be redeemed in few months time or a life policy, which is to mature in near future, may be offered as security. An advanced against such security gives to trouble.

7.3 Mission StatementTo deliver credit facilities to customers of ONE Bank Ltd. with prudence and efficiency and establish OBL as the preferred credit service provider in the country in terms of wide range of credit products, competitive price, adherence to credit norms, exercising due diligence and effective management of risk assets.

7.4 Credit PrinciplesIn our quest for maximizing the stakeholders’ value by establishing OBL as fundamentally sound financial institution, we will abide by the following ten credit principles which should always guide our behavior in our lending decisions:

1. Assess the customer’s character for integrity and willingness to repay2. Only lend what the customer will have the capacity and ability to repay3. Plan for the possibility of default 4. Only extent credit where we can sufficiently understand and manage the risk5. Ensure independent credit participation in the credit process6. Behave ethically in all credit activities7. Be proactive in identifying, managing and communicating credit risk8. Be diligent in ensuring that credit exposures and activities comply with OBL

requirements9. Optimize risk and reward10. Build and maintain a diversified credit portfolio

7.5 Credit department job responsibilities01. Client/Project visit02. CIB report prepare03. Call report prepare04. Transaction Approval Memo (TM) report prepare05. Letter of sanction advice06. Lending Risk Analysis (LRA)07. Credit memorandum /CM Prepare08. Arrange client asset valuation by enlisted surveyor09. CRG Prepare10. Business Development11. Credit pipeline monitoring12. Managers Marketing meeting 13. Budget planning

7.6 Department File MaintainCredit Administration department:

01. Approval wise Loan disburse arrangement & disbursement02. Client legal paper vetting by enlisted lawyer & proper monitoring03. Client’s Individual Credit file

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04. Loan recovery, documentation, & Monitoring05. Registered Maintain06. MB Posting Procedure07. Statement Categories

7.7 Procedure for Giving Advance:The prospective borrower has to apply to OBL for loan by filling up of a specific Application form.The Application form (Request for credit Limit) contains following particulars

a) Name of the Borrowerb) A/C No. - Business address (with telephone no.) [Residential address and

Permanent address] -c) Introducer's name, A/C no. & address-d) Date of establishment/ Incorporation-e) Trade license number, issue date, and expiry date (Photocopy of trade license

enclosed) f) Credit facilities required (type, amount, period, purpose, and mode of adjustment)g) Details of securities offered with estimated value (Primary security, Collateral

security, market value of the security)-h) Balance Sheet/ Income Statement or Statement of Accounts of the following years

attached (Preferably last 3 years)i) Other relevant informationj) Proposed debt/ equity ratiok) Signature of the Applicant

After receiving the loan application form, OBL sends a letter to Bangladesh Bank for obtaining a report from there. This report is called CIB (Credit Information Bureau) report. This report is essential if the loan amount exceeds Tk.50 Lac. But OBL usually collects this report if the loan amount exceeds Tk.10 Lac. The purpose of this report is to being informed that whether the borrower has taken loan from any other bank; if 'yes', then whether these loans are classified or not.

After receiving CIB report if the Bank thinks that the prospective borrower will be a good borrower, then the bank will scrutinize the documents. In this stage, the Bank will look whether the documents are properly filled up and signed then comes processing stage. In this stage, the Bank will prepare a Proposal.

A proposal contains following relevant information- a) Name of the Borrower- b) Nature of Limit- c) Purpose of Limit- d) Extent of Limit- e) Security- f) Margin- g) Rate of Interest- h) Repayment-

Lending Risk Analysis (LRA): In LRA, following aspects are analyzed- Supplies risk Sales risk Performance risk

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Resilience risk Management ability Level of Managerial teamwork Management competent risk Management integrity risk Security control risk Security covers risk.

7.8 Credit Monitoring, Follow-Up and Supervision:OBL Officer Cheque on the following points,

The borrower’s behavior of turnover The information regarding the profitability, liquidity, cash flow situation and trend in sales in maintaining various ratios.The review and classification of credit facilities starts at Credit Department of the Branch with the Branch Manager and finally with Head office credit division.

Statements Prepared by the Credit Department:Table 7.1: Showing monthly statements prepared by Credit department for Bangladesh bank

Monthly statements for Bangladesh bank Due DateMonthly Credit (Rescheduled/ Increased/ Newly Sanctioned) Schedule of Tk.1 Core and above

Within 10th of the next month

Statement of Post-Import Finance against commercially imported goods

Do

Monthly statement of advance of Inland bills purchased/ discounted for month ended (Last Thursday)

Do

Agriculture Loan (Sub-Sector wise) DoLoans and advances for Govt./Autonomous organization DoOverdue and Classified Loan Within 5th of the next month

Table 7.2: Showing quarterly statements prepared by Credit department for Bangladesh Bank

Quarterly statements for Bangladesh Bank Due DateStatement of Loans given to Directors of Bank or to Institutions in which Directors have interest

Within 7th of the next month

Statement of Loans given to Directors of other Bank or to the Institutions in which the Directors have interest

Do

Statement of Industrial Loans Within 10th of the next month

Statement of Loan Outstanding Tk.1 core and above DoStatement regarding sector-wise Outstanding of Loan and Advances

Do

Statement of Advances (SBS-3) Within 15th of the next month

Statement regarding Outstanding & Overdue position (Up to Tk.1 Lac, Above Tk.1 Lac to Tk.10 Lac

Do

CIB Statement Do

Table 7.3: Showing monthly statement prepared by Credit department for Head officeMonthly Statements for Head Office Due Date

Overdrafts cash Credit Within 1st week of the next month

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Term Loan, Demand Loan, House Building Loan DoFBP, FDBP DoPacking Credit, Bank Guarantee, Statement of L/C opened and Outstanding commitment

Do

Table 7.4: Showing Fortnightly statements prepared by Credit department for Head Office

Fortnightly Statements for Head Office Due Date

PAD (Cash) Within 2nd & 17th of each month

LTR Do

7.9 Credit Policy Guidelines7.9.1 Preamble:

In their continuous pursuit to establish OBL as a valuable economic enterprise striving to increase stakeholders’ value, they must have solid earning capacity stemming from a vibrant, diversified quality credit portfolio backed by capital adequacy, low cost and stable deposit base, wide range of products and services, and competent and committed human resources.

While credit portfolio is their main source of earning, it is also our great cause of concern, as there remains the possibility that the borrowers or counter parties might fail to meet their obligations in accordance with the agreed terms. This uncertainty of credit risk needs to be understood, evaluated and managed.

Thus, based on the credit principles, they undertake to establish a credit risk management culture though outlining and practicing minimum credit standards, assessing and managing risks, segregating risk taking and risk managing activities, etc.In the end, they must ensure that all their business pursuits are focused on building and marinating a diversified and rewarding quality credit portfolio which will reflect their

Risk taking appetite andRisk managing skills and wisdom

In light of the above, their Credit Policy Guidelines are laid down to tap business opportunities within the parameters of their Credit Risk Management constraints.These guidelines focus on corporate and commercial segment of their credit portfolio. A separate guideline for Retail Portfolio (Consumer and SME) is in place.

7.9.2 Annual Review of Policy Guidelines:Policy guidelines are not static; they are reshaped with the changes of the economic and business environment. As such, there will be continuous updates, but focus will remain the same – maintaining a rewarding quality credit portfolio through anticipating and managing risks. However, formally Credit Policy will be reviewed once a year by the Board of Directors.

7.9.3 General Policy Guidelines:OBL extends loans to individuals, proprietorships, partnerships, limited companies – both private and public, government organizations, financial institutions, joint ventures and such other organizations having legal existence and necessary permissions for conducting business in Bangladesh.

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OBL extends loans only to productive and legitimate business activities, which are socially desirable, nationally important, and financially viable; & will not lent for unproductive purposes, speculative ventures or socially undesirable schemes.While extending loans, OBL will abide by its Know Your Customer (KYC) policy, money – laundering regulations and will conduct its credit activities within the prescribed regulatory parameters of Bangladesh Bank and Bank Company Act. All statutory guidelines outlined in BOI guidelines, Industrial Policy, Export Policy, Import Policy, Transfer of Property Act, Registration Act, etc. are to be strictly abided by.Intending borrower must legitimate source of earnings, clear purpose utilizing loans, specific sources of repayment, capacity to enter into loan agreements.OBL discourages low net-worth, or highly leveraged borrowers – who might jeopardize their repayment commitment or, even in worse situations may face liquidity problem.OBL does not engage in Name Lending or lending solely on the basis of market reputation of the borrower. All relevant information as required by OBL is to be furnished to support the credit proposal. However, exception may be allowed in specific cases where the borrower is not willing to divulge financial or proprietary information on plea that dissemination of the management and on exception basis.OBL primarily extends loan in Taka.OBL does not allow any credit facility against owner’s cheque or pledge of goods.OBL’s unsecured lending practices are to be limited to extension of credit for short term, self liquidating transactions.Overdraft or other continuous loans should have the provision of annual clean up unless there are evidences that such accounts have 3/4 times’ turnover.OBL may consider term loans for five years or more.OBL does not accept subordinate position to other lenders.Credit Portfolio must be in line with Bangladesh Bank guidelines of Capital Adequacy.OBL will primarily depend on its own deposits for lending and inter – bank borrowing will not exceed 20% of its loan portfolio.The tenor of Loans and Deposits should be matched as much as possible.OBL extends credit facilities in the areas where it has branch network and branches are sufficiently staffed to monitor the loans.OBL does not extend credit facilities where it does not have the industry / business knowledge or highly specialized skills needed to properly evaluate the loan proposals.Exceptions to the credit policy guidelines are to be referred to Board of Directors.

7.10 Brief of Job Description: Core Job responsibilities:

o New business generation: Introducing the Bank to the potential clients and preparation of call report; new business generation

o Project appraisal: Preparation of credit memorandum and transaction approval memo in line with Bank’s Credit Policy;

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o Intra & inter bank communications: Responding to and meeting Head Office Credit Division’s queries and observations;

o Service delivery interface with clients: Assisting and guiding Loan Admin of the Branch to Prepare and vet security documents, checking of mortgage deed, legal opinion, sanction advice and completion of security documentation including loan covenants and pre-disbursement conditions;

o Relationship Management: Maintain liaison between client and OBL operating departments;

Supervision and monitoring roles: Conduct stock inspection and collateral verifications; Supervise and Monitor loan accounts and keep installment and interest up-to-date,

ensure covenants are met, insurance policies are valid; Respond to audit queries and HO, Bangladesh Bank requirements if any as and

when arises; Collection of CIB Seek out depository and prospective loan clients; Mentoring probationary officers and counseling. Preparing Annual budget and observing Branch’s progress in comparison to

budget target and formulating strategies to achieve targets.7.11 CREDIT CIRCULAR7.5 Table: CREDIT INSTRUCTION CIRCULAR, 06Circular No. DATE Particulars06/06 18.05.06 Enlistment of surveyors for valuation of securities against bank

loan. 08/06 21.08.06 Revised lending caps of the bank as of 30th June, 200607/06 18.12.06 Revised policy for allowing sod against OBL FDR.09/06 23.10.06 Term lending “Tax’s to foreign owned firms in Bangladesh. 08/06 25.09.06 Creating of forced loan.

7.6 Table: CREDIT INSTRUCTION CIRCULAR, 07Circular No. DATE Particulars04/07 20.08.07 Interest rate for import financing.02/07 02.06.07 Registered mortgage with RIGPA

Letter of hypothecation with notarized IGPA.01/07 28.01.07 Bangladesh bank instruction on credit risk management.07/06 18.05.07 Introduction of rely alert report.

7.7 Table: CREDIT INSTRUCTION LETTERCircular No. DATE Particulars05/07 01.08.07 Revised lending caps of 30.06.07 02/07 02.04.07 Lending caps for singe borrowers as of 31.12.0601/07 31.01.07 Lending caps of the bank a of 31.12.0606/06 18.04.06 Sector wise allocation of credit of the bank for 200608/06 21.08.06 Revised lending caps as of 30.06.0607/06 25.07.06 Revised lending caps as of 30.12.057.8 Table: DMD OPERATIONS CIRCULARCircular No. DATE Particulars39/07 12.06.07 Expired guarantee & revised38/07 19.03.07 Centralization of limit MB system by LN Admin & monitoring

dept.

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36/06 13.11.06 Signboard & Mortgaged properly addition to sanction advice.35/06 13.11.06 Procedures on follow up overdue CCS& small business.

7.9 Table: LOAN ADMINCircular No. DATE ParticularsEmail 10.02.07 In house workshop finding on loan admin.01/06 27.04.06 Loan disbursement authorization & security documentation

checklistInter office 14.02.07 Notice before creating mortgageEmail 04.02.07 Procedure of standing instruction of term Lon“” 06.12.06 Signature of loan paysMemo 03.12.06 Legal procedure & negotiation amicable settlement of loansMemo 03.12.07 Advice to arrange rest payment to the Email 24.07.06 Branch assessment format for valuation of mortgaged propertyEmail 04.10.06 Up to date ground tax receipt of lend wed property.Inert office 01.10.06 Photograph of mortgaged property

7.10 Table: INFORMATION CIRCULARCircular No. DATE Particulars26/07 01.03.07 Issues & Purchase of bank documentsEmail 19.02.07 Requirement of new GLEmail 13.12.07 Conversion of small business GLInter office 06.12.06 Registered mortgage of property & registered IGPAInter office 08.10.06 Auction of the mortgaged.110/06 05.09.06 Master circular on capital adequacy of banks92/06 26.07.06 Revised mid rate of interest

7.11 Table: INTER OFFICE MEMOCircular No. DATE ParticularsMemo 04.12.06 Collection of monthly rent mortgage properties notice before

creating mortgage.Memo 30.06.06 Collection of date on SMEMemo 09.08.06 Bifurcation of loan admin division.

7.12Credit Portfolio Mix:7.12 Table: Credit Portfolio to be guided by the following Sector CapsSector Caps PercentageTrade Finance 40%Industry – Short term working capitals 30%Retail & SME 10%Project – Finance Medium & Long Term 10%Others 10%Total 100%* The Caps will be revised from time to time depending on the market conditions, shift in Government Policy and ONE Bank’s credit focus.

Trade Finance is ONE Bank’s prime focus: Being a new bank, trade finance is their primary focus in the present context as-

o Relationship consists of specific transactions (deal basis)o Fund based income is supplemented by FX gains, commission and feeso Transactions are short – term and self – liquidating in nature.

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Retail and SME is the future focus: as it is a very promising sector because of-o Growth of micro, small and medium enterpriseso Burgeoning middle class with rising disposable incomeso Installment loans allow for cash repayment on monthly basis matching the

salary cycle of borrowers commensurate with monthly disposable incomeo Risk is minimized spreading among large number of borrowerso Higher interest rate

Corporate / Project financing is preferred: To take advantage of stream of multiple earnings over the years. But this is subject to meticulous appraisal of market, technical, financial and management aspects of the project over a period of 5 – 7 years in order to assess inherent risk because of long tenure.

Agro based industries / business is encouraged: As a thrust sector declared by the GOB to contribute to national goal of poverty alleviation through employment generation.

7.13 Discouraged Business TypesIn the context of present economic situation vis – à – vis Government Policy as well as market scenario, the following industries and lending activities are considered as discouraged –

Military Equipment / Weapon FinanceHighly leveraged TransactionsFinance of speculative businessLogging, Mineral Extraction / Mining or other activity that is ethically environmentally sensitiveLending to companies listed on CIB black list or known defaultersCounter parties in countries subject to UN sanctionsShare lendingTaking an equity stake in borrowersLending to holding companiesBridge Loans relying on equity / debt issuance as a source of repayment

7.14 Loan Products and Services of OBLThe range of products and services of OBL includes Trade finance (i.e., export, import and domestic trading), Project Finance, Retail Finance, Correspondent Banking, Treasury etc. Each of these areas may involve credit risk to a client or to a third party, providing both revenue as well as risks.

However, ONE Bank offers the following loan products:

Table 7.13: Showing different types of Advances offered by OBLName: Description Purpose Risk/Payment Tenor/ ValiditySOD Secured Overdraft -General Purpose. -100% cash covered.

-No Credit Risk.-Evergreen.

-12 Months

OD Overdraft General Purpose. -High Credit Risk.-Recourse on Sales.-Ever Green.

-12 Months.

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Time loan

Time Loan Against other security/collateral.

To Finance Inventory & accounts receivables on short time.

Recourse on Sales. 12 Months.

Term Loan

Term Loan against Fixed Assets.

-To finance fixed Assets/

-Recourse on fixed asset.-High credit risk.

-Over 12 Months-Max 7 years

PC Packing Credit Against Export Order.

- To finance export LC pre – shipment Finance

-Performance Risk-Lien on Export LC.

180 Days.

Fwd FX Forward contract. Cover exchange risk against LC

Performance Risk. 180/360 Days.

PAD Payment Against Document.

-Advance Against Sight LC.-Forced Loan

Recourse on title to import documents.

21 Days as per Bangladesh Bank rules.

LATR Loan Against Trust Receipt.

-To finance import LCs. -Recourse on Sales.-Clean finance.

180 Days

CC Cash Credit against Inventory and Book debts.

-To finance inventory.-Other businesses operation.-General Purpose.

-Recourse on Sales.-Evergreen.

12 Months.

OAP Own Acceptance Purchase.

-To refinance OBL acceptance.-Forced loan.

-No recourse.-Clean finance-Evergreen.

12 Months.

LDBP Local Documentary Bill Purchase.

-To purchase against Usance LC.-Upfront interest to realize.

-Recourse on Banks through acceptance.-Residual on client.

180 Days.

FDBP Foreign Documentary Bill Purchased.

-To purchase / discount/ negotiate export document against sight export LC.- Upfront interest to be realized (diff in FX rate)

-Recourse on Banks.-Residual on client.

45/180 Days

SLC Sign Letter of Credit. For imports Recourse on titles to import documents.

12 Months.

ULC Usance Letter of Credit.

For imports. Recourse on sales. 12 Months.

BBLC Back to Back Letter of Credit against Master Export LC and subsequent Acceptance.

For imports of raw materials and accessories for subsequent.

From export proceeds.

-BBLC Max 180 Days.-Accept Max 180 Days.

LG -Letter of Guarantee.BB/PG/APG/Retention Bond/ Payment Guarantee.

For contractual obligations.

-Performance Risk-Evergreen.

-Specific Period-Open ended to be discouraged

7.15Table:7.14 Facility Parameters1. Size Maximum up to Bangladesh Bank’s lending cap2. Form Working Capital, Project Finance, Term Loan, Non – funded facilities3. Tenor Short Term: Maximum 12 months

Medium Term: Maximum 5 to 7 years4. Debt : 60 : 40 or to be decided on the basis of the risk profile of the borrower, nature of

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Equity business, exposure of the Bank in the particular business sector, etc.5. Price On the basis of loan pricing module of the Bank, focusing on the risk rating of the

borrower and sector preference.6. Repayment Cash flow from the business / other sources of sponsors7. Security Coverage normally should be 100 – 120% on funded facilities, however, will depend on

risk profile of the client and industry.

7.16 Loan PricingLoan pricing decision is taken by the ALCO, where among others HOM, HOC and Head of Treasury are members. The basis of pricing are:

Cost of FundsRisk exposure of obligor and industryRisk appetite of OBL in the industry / business segmentMaturity of loans

However, OBL will offer competitive price to remain as preferred banker to existing and potential clients. Their pricing schedule will be published in ranges with Mid Rates for different sectors. ALCO will decide in the Mid Rates considering the above factors. Lower ranges of price will be considered for prime clients on the basis of their low risk grades. Similarly higher range of prices will be considered for riskier clients because of their higher score in the risk grade.

7.17 Total Exposure to a Single Borrower / Group

Loan concentration to a single borrower or a group under one obligor is very risky as there is a danger that a huge fund of the Bank may be stuck – up in case of unexpected cash flow shortage or inadequacy of realizable value of securities and collaterals.Loan concentration to a single borrower is discouraged. For large loans, syndication will be preferred for spreading the risks among two or more banks or financial institutions.

Table: 7.15 However, ONE Bank will follow Bangladesh Bank Guidelines of lending cap to single borrower /group under one obligor as under:Lending cap to single borrower AmountTotal exposure Funded and non funded 35 % of Bank’s total capitalMaximum funded exposure 15 % of Bank’s total capitalMaximum non – funded exposure with no funded exposure 35 % of Bank’s total capitalMaximum exposure for export oriented business with maximum funded facility being 15% of Bank’s total capital

50 % of Bank’s total capital

The above Single Borrower / Group is currently mandatory as per Bangladesh Bank instruction. However, this is subject to change depending on Bangladesh Bank’s policy and / or ONE Bank’s capital base and reassessment of more stringent borrower exposure limit.

The Total Capital is to be determined in accordance with the Section 13 of the Bank Company Act 1991.

7.18 Large Exposure ParametersBorrowers scoring favorably on the following criteria will be eligible for having maximum exposure of OBL lending cap to single Borrower / Group:

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Years in primary line or core of business / industry / serviceMarket reputation (Market Share, Sales trend, Brand image etc.)Non cyclical, stable and diversified sources of revenuesTotal exposure in the Banking sectorFinancial strength as reflected in capital and leverageTrend of sales, operating profit, cash flow, retained earnings, liquidity and activity

ratios Market reputation of the main sponsorsCorporate setup of the Group / BorrowerGenuine requirement of credit of the borrowerCredit worthiness of the borrowerBank’s risk tolerance (percentage of bad debt to total loan portfolio)Credit rating of the Borrower / GroupSecurity CoverageDebt servicing capacity of the Group / Borrower

7.19 Term Financing / Project FinancingTerm financing is one of the more risky areas of the Bank because of longer repayment period, which casts uncertainties on repayment. The assumptions underlying the projections are subject to change in a dynamic global economic scenario, resulting in variations of cash flows. Thus they consider / look into:

o Higher borrower stake in the project / enterprise / businesso Capability of the borrower to run the projecto Pricing to reflect the expected return on the risk takeno Adequacy of security and support

In addition, utmost care is to be exercised while considering long term financing. Such as:

Long term relationship with the borrower or borrower’s proven track record in the economy should be considered in long term financing.

Extra diligence is to be exercised for assessing viability of the project in terms of managing capability, market gap, technical suitability and financial viability.

Facility is to be structured in line with cash flows and cash conversion cycles of the customer.

From the perspective of overall fund management of the Bank, sources and uses should be evenly matched as far as practicable. (i.e. long term loans should be funded with long term deposits and short term loans by short term deposits).

Probable changes in the regulatory regime and their likely impact over the medium and long term should be reviewed.

Environmental factors like threats of technology shift resulting in obsolesce / becoming uncompetitive, excess capacity, relative deregulation, barrier to entry, demography change, relative bargaining power of buyers / sellers etc. to be duly addressed and analyzed.

7.20 Security and SupportNature, types, quality of the securities acceptable to OBL are as follows:

Types of Security Hypothecation of stock – in – trade / inventory and raw materials, work in

process and finished goods Hypothecation of movable machineries and equipment

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Registered mortgage of land and building Pledge of financial obligations / instruments Assignment of bills receivables Documents of title of goods Lien on sinking Fund to be built up, L/C, Corporate Guarantee, etc.

Quality of Security Preferably Land and building within city corporations and / or municipal area, title in the name of 1st party. In case of collateral security, Land and Building, title in the name of 3rd party may be accepted on Banker – Customer relationship Property outside municipal area will be accepted for the Branches not located within the purview of Municipal area For syndicated Loans / Joint Financing, mortgage / hypothecation of property should be on pro rata Pari – passu 1st charge basis Leasehold properties from RAJUK / CDA / KDA / BSCIC / Public Works Department (PWD) or any other Govt. / Semi Govt. / Autonomous bodies

Value of SecurityGenerally, expected realizable value of the tangible security should be 100 – 120% of the sanctioned loan amount. There may be exceptions on Low Risk graded accounts. Assessment of value of security is to be conducted as under:

Value of stock shall be assessed be the Branch Manager / RM / Credit Officer taking into consideration the procurement cost / market value which ever is lower.Value of fixed assets property (land, building and machinery) should be assessed by Banks enlisted / recognized surveyor and also jointly by the Manager / Credit – in – charge and another Credit Officer / RM of the Branch.

7.21 InsuranceTable: 7.16 Preferable insurance under mortgage clause are:Transportation Risk CoverageMarine Including ICC (A/B/C) with adequate other coverage if not ICC(A), such

as War & SRCC, TPND, etc.Air / Rail / Road All Air / Rail / Road coverage, if not, the adequate other coverage

including TPND, SRCC, etc.Machinery / Equipment

Fire, RSD, MBD, Flood, Cyclone, Earthquake

Stocks Fire, RSD, Flood, Cyclone, Earthquake, DS(for perishable items)Building Fire, RSD, Flood, Cyclone, EarthquakeVessel Hull and Machinery Insurance (H & M), and Protection and Indemnity

Insurance (P& I)Vehicle Comprehensive Insurance to cover Asset Value, which should be more

than related loan valueCross border transportation must always be covered by Non – delivery (ND) clause.Transit insurance coverage is to be taken for imported goods from ports to final destination viz. factory, godown, shops, etc.

Insurance coverage should be adequate as under – coverage reduces claim value. Standard minimum insurance coverage is 110% of value of items insured.

For export oriented garment unit, BBLC / Acceptance Limit coverage for hypothecation raw materials, work in process and finished goods is to be determined on the basis of average stocks being held at the factory or on declaration basis.

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Marine cover note for imported items is to be upto 110% of CFR value.Overall, required insurance should be determined by scrutiny of type of client, underlying transaction, risk involved, etc. Insurance like flood in established highland, etc. may be avoided. Again MBD for small machinery may not be necessary.

Table: 7.17 Names of the Insurance Companies enlisted with1. Bangladesh General Insurance Company Limited 2. Green Delta Insurance Company Limited3. United Insurance Company Limited 4. Progati Insurance Company Limited5. Prime Insurance Company Limited 6. Mercantile Insurance Company Limited7. Meghna Insurance Company Limited 8. City General Insurance Company Limited9. Northern General Insurance Company Limited 10. Provati Insurance Company Limited11. Pioneer Insurance Company Limited 12. Peoples Insurance Company Limited13. Bangladesh National Insurance Company Limited 14. Agrani Insurance Company Limited15. South Asia Insurance Company Limited 16. Paramount Insurance Company Limited17. Islami Commercial Insurance Company Limited 18. Global Insurance Company Limited19. Continental Insurance Company Limited 20. Sonar Bangla Insurance Company Limited21. Islami Insurance Company Limited 22. Reliance Insurance Company Limited23. Republic Insurance Company Limited 24. Standard Insurance Company Limited25. Asia Pacific Insurance Company Limited 26. Estarn Insurance Company Limited27. Eastland Insurance Company Limited 28. Kornofuli Insurance Company Limited29. The Loyeds Insurance Company Limited 30. Janata Insurance Company Limited

(Source: The above-approved list collected from administration, HO, Dhaka; letter ref# CSD/F-3/2002-109 dated February 12, 2002)

7.22 General Covenantsa) The Borrower Shall

Obtain and maintain in full force & effect all Govt. of Bangladesh authorizations, licenses and permits required to implement & operate Borrower’s business.Pay all fees, duties, taxes, etc. that are due to the Government of Bangladesh (except where waivers or deferrals have been granted by GOB) when due.Agree that the Bank shall always be at a liberty to obtain and gather full financial and credit information on the borrower(s) from other financial institutions.Agree that the Bank shall be at liberty to publish notices and information on the borrower if the borrower fails to repay Bank’s dues as per repayment schedule & in that case all legal and other expenses incurred there on will be borne by borrower.Maintain current ratio of not less than 1.0 time. Maintain Debt Service Coverage Ratio (DSCR) of not less than 1.5 times.Obtain NOC from the Board of Directors of the Bank for any change in the constitutions of its Board, i.e. change of directors / shareholding.Agree that OBL will have the right to set off any outstanding in one account against any other account in the name of the borrower or any other allied account.Agree that OBL’s loan shall be senior debt over all other debts except syndicated loans and joined financing.Submit annual audited / un - audited / projected financial statements regularly where applicable.

b) The Borrower shall not Create any charge, mortgage or any encumbrances or any other security interest

over any of its assets without the prior written consent of OBL.

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Execute disposal/ sale by a single transaction or series of transaction (whether related or not) of any assets without the prior consent of the Bank.

Enter into any investment activities other than regular business for which the loan facility is approved without the prior consent of the Bank.

Make any amendment / alteration in the Company’s Memorandum an Articles of Associations without obtaining prior approval of OBL in writing.

Provide any loan and / or make any investment for any other purpose out of the funds of the business.

Provide any loan or advance by whatever name called to any of its Directors, shareholders or firm / company in which its directors of shareholders have interest.

Furnish any corporate guarantee to any other firm / company without Bank’s prior written permission.

Avail any credit facility from other source without prior written consent of OBL.c) All sanctions are subject to changes in Bangladesh Bank directives. d) Disbursement / drawings will be allowed subject to availability of funds with the

Bank.

7.23 Events of DefaultONE Bank will have the right to call back the loan / advance in the event of default under the following circumstances:

Failure to repayBreach of covenants of the loan agreement Bankruptcy of liquidation or insolvency event affecting the borrowerOccurrence of a material adverse change in the financial position of the BorrowerAny change in GOB directives, which in the opinion of the Lenders would prejudice the Borrowers ability to meet the financial obligation in respect of any credit facilityAny security interest over any asset of the Borrower becomes enforceable or any execution or distress is levied against, or any person is entitled to or does take possession of the whole or any part of the asset or under takings of the Borrower.

7.24Cross Border RisksRisks are also associated with cross border lending. Borrowers of a particular country may be unable or unwilling to fulfill principal and /or interest obligations these particular risk factors are to be distinguished from ordinary credit risks because they directly evolve from a political event, such as suspension of external payments. Cross border risk is synonymous with political and sovereign risk.

7.25Credit Risk Analysis (CRA)Credit Risk is the possibility that a borrower or counter party will fail to meet obligations. Credit Risk arises from the bank’s dealing with or lending to the corporate, individual and other banks or the financial institutions. To minimize credit risk ONE Bank Limited has comprehensive Credit Risk Management (CRM) policies and procedures. They are –

7.25.1 Risk Identification:Risk factors internal to bank and financial institutions.Risk factors on account of borrowing parties.

Internal Risk Factors: External Risk Factors:

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Risk in planningRisk in execution Marketing riskFinancial risk Managerial risk

Input utility availabilityGovernment policies Natural calamities Technological obsolescencePolitical situation

7.25.2 Risk Assessment:In this case, ONE Bank Limited measures the risk before the loan disbursement. It is a pre- sanction stage. Here the management tries to assess the risk which may be raised from the policy. Then the risk obligations are included in the agreement between the bank and party.

7.25.3 Credit Risk Grading (CRG)It is an important tool of CRM to understand dimensions of the risk in credit transactions. ONE Bank Limited aggregates grading across the borrowers’ activities and lines of business reflecting the quality of credit portfolio of a branch, region or a bank. It is a pre sanction of lending decision and price setting and post sanction of review of grading and precautions.7.25.4 Credit Risk Rating Model:ONE Bank Limited follows the following steps in the credit risk rating model –

Include all relevant aspects Rating scale: Beginning from the minimum risk category to loss asset

category Rating parameters:

o Financialo Industrialo Management etc

Weightage of risk parameters Preview period of risk rating Authority to approve risk rating

The following approaches are used by ONE Bank Limited in credit risk grading –01. Borrower level analysis02. Credit selection and pricing03. Monitoring and internal MIS04. Relevant for portfolio level analysis

The Computation of Credit Risk Grading:ONE Bank Limited follows the following steps in the computation of credit risk grading

01. Identify the principal risk components02. Distribution of Weightage to risk components03. Assigning weight to key parameters04. Input data to arrive at score05. Arrive at CRG based on total score.

But risk grading does not imply credit decision. Credit Decision = RG + Other Factors.

Table: 7.18 Short Name and Number which is used by ONE Bank Limited is-Grading Short Name Number

Superior SUP 01Good GD 02Acceptable ACCPT 03Marginal MG 04Special Mention SM 05

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Sub Standard SS 06Doubtful DF 07Bad &Loss BL 08

Source: ONE Bank Limited7.26 Applications Received & DeclinedTable 4.1 reveals the loan application received by the bank for the year’s 2004 to2006. It is observed from the table that the major source of application was the sales force. The table given shows the member of loan application received for the last three years.

Table: 7.19 Loan Applications Received Year No. of loan application % Change2004 3027 --2005 5700 88.30%2006 6128 7.51%

Source: ONE Bank LimitedThe reason behind the massive increase in the loan application from 2004 to 2005 is due to the flexible loan evaluation policy during that period and the aggressive marketing policy of the bank. It is observed from table 4.2 that the volume of loan application has received quite a lot in the last three years. In terms of volume the number of loan applications received are shown on table below,

Table: 7.20 Loan Amount Received Form Applicant Year Volume of loan application % Change2004 1653,000 -2005 3175,920 92.14 %2006 3550,875 11.81 %

Sources: ONE Bank LimitedThe loan application received in terms of volume varies a little from the number of loan applications received. The loan applications received were much higher in 2005 than it was in 2004 and 2005 although it increased its growth rate was not as high.

The loan applications that have been received are not all approved. Some of these are approved while others are declined which can be observed from table 4.3. The following table states the approved loan applications.

Table: 7.21 Approved Loan ApplicationYear Number Volume (BDT in ‘000) % Change (No)2004 1850 964,856 -2005 4077 2186,940 120.38%2006 4555 2490,875 11.17%

Sources: ONE Bank LimitedAs discussed earlier not all the loan applications are approved. Some applications although are approved for different or lesser amount than the one applied for. The rest of the loan applications are declined as they fail to pass the loan evaluation criteria set by the bank which has already been discussed. The declined loan applications are those which are not approved by the Central Compliance Unit (CCU) as they fail to meet the loan evaluation criteria set by the bank. Table 4.4 in the next page states the figures for these declined loan application in terms of their number and volume,

Table: 7.22 Declined Loan Application

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Year Number Volume (BDT in ‘000) % Change (No.)2004 1177 688,144 -2005 1623 988,980 37.89%2006 1573 1060,000 - 3.08%

Source: ONE Bank LimitedWe can see in the table that the performance of personal loan appraisal policy was good for the years. This has been possible due to the bank’s aggressive campaign in getting the loans and setting challenging yet attainable targets to the bank officials.

Chapter Eight

A thorough credit and risk assessment is to be conducted before granting of loans and once approved; all facilities are to be reviewed at least annually.

8.1 Origination of Credit ProposalsThe result of such assessment is to be presented in a Credit Memorandum (CM) for approval. The CM is to be originated from Relationship Manager (RM), who should be the owner of the customer relationship and is responsible for ensuring the accuracy of the entire CM. RMs shall follow the OBL Credit Principles, Credit Guidelines and Conduct due diligence on new borrowers, principals and guarantors to ensure such parties are in fact who they are.

The RMs shall adhere to the OBL is established Know Your Customers (KYC), Money Laundering Guidelines and Bangladesh Bank regulation at all times.

8.2 Call ReportFor initiating relationship, RM will call the client, visit factory/ Business centers to see production facility/ stock/ business transactions and to assess possibilities of establishing a remunerative relationship. He/She will also conduct due diligence to get market information on the borrower from industry sources, competitors, local area. Branch Manager/ Head of Marketing (HOM) will be part of this process. In this regard, if required, the RM will also take help of Head Office engineer for initial assessing credit needs in large manufacturing concerns.

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Based on findings of such calls/ visits, RM along with Branch Manager will send a Call Report to Head of Marketing, containing initial information on client’s Background, Business, Market share, Integrity, Credit exposure/ existing banking relationships and indicative credit needs along with pricing.

The Call Report is to be routed through Head of Credit (HOC) and Managing Director (MD), for initial review and guidance to the RMs for subsequent actions.

8.3 Credit Memorandum (CM)On the basis of the Head Office (HO) guidelines/ positive nod on the Call Report, RM will go for preparing a full blown CM after undertaking a thorough credit check, and critical credit and risk assessment of the client in light of Credit Policy Guidelines of the Bank. The CM is to be send to the Head of Marketing (HOM) along with of the Branch Manager to indicate credit approval process.

The CM is to be fully documented along with all legal, business, financial information with full discloser so that approving authority can take an informed decision.

1. Profile of the company & group,2. Audited /management prepared financial statements for last 03 years,3. Projected financial statements for next year and business projection,4. Last year total import5. Memorandum & article of association,6. TIN certificate,7. Copy of Trade License, VAT Registration Certificate, IRC,8. Shareholding structure of the company:

SL # Name Share % Amount in lac Designation

9. Brief details of affiliated concerns:Name of concern

Nature of business

Year of establishment

Sales/operating profit

Assets Liability Name of bankers

10. Liability position(both funded & non funded) with present bankers of the loan applicant company:

Name of Banks Type of facility Limit Outstanding Security

11. Personal net worth statements of all directors (preferable return submitted income tax office),

12. CIB undertaking duly signed,13. Proposed security,14. Application for credit facilities,15. Is the company member of any trade association?

CM should contain:A unique control number for each borrower which will include base number for the Branch, RM, Client/Client groupThe assigned risk grade of each borrowerApproval authorityAllocation of total credit exposure for the sectorFacilities- existing and proposed- on a one obligator basis

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Large loan and lending cap statusJustification for the facilities in the light of assessment of cost of the project/ assessment of working capital etc.Repayment capacity is to be substantiated from the earning forecasts and other financial indicators in normal capacity utilization/ present business target and in stress situationProjected earning from the relationship is to be calculatedFor renewals, account conduct, turnover, limit utilization, capacity utilization etc. are to be highlighted. Change in pricing is to be justified.Lending covenants are risk mitigatesCompliance of Bangladesh Bank GuidelinesBank’s policy status

8.4 Loan Facility ParametersThe CMs should also contain among others loan facility parameters an under-

Facility ScheduleType of credit products/ credit linesExisting lines/ proposed lines/ outstanding (as applicable)PurposeTenure/ Validity/ ExpiryPricing/ MarginMode/ Source of Repayment

Security Scheduleo Security- primary, collateralo Valuation by professional surveyor & Branch Manager/ RM/ Credit Officer

Security Supporto Personnel/ Corporate/ 3rd party guarantee etc.o Guarantors detailso Personal Financial Statement (PFS)

Disbursement: Precondition for disbursement/ activation: viz. Perfection of documentation including vetting, valuation of securities, execution of mortgage, deposit of fees, margin, equity investment by the client in project/ business, insurance cover etc.

Lending Covenants: Financial/ Management/ Environmental/ Regulatory etc.

Risks and Mitigateso Business risks/ Financial risk/ Management risk / Industry risko Security risk

Visit and Inspectiono Inspection Report by RM/ Credit Officer/ Engineer on projecto Inspection report on Stock/ Business centerso Inspection report on security

Repayment: Source of repayment, repayment schedule, repayment frequency, expiry and second way out

Table: 8.1 At The Time of Issuance A Document

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SL. No.

Name of the Document

Procedure followed by the branch at the time of issuance and final settlement of these negotiable Banking Instruments

01 Cheques Receiving of address confirmation letter from the client Receive Check Book Requisition Slip duly signed by the

Account Holder Stipulate initial/ signature in all check book leaf by a

designated officer Entry made in the cheque book register Deliver upon verification of signature

02 P.O (Pay Order) Receive PO Application Form duly Filled up and signed by the Applicant

Receive cash and confirm by cash division Receive Check and debit confirmation by remittance dept. Entry made in the PO Register

03 T.T Nil04 D.D (Demand Draft) Receive DD Application Form duly Filled up and signed by the

Applicant Receive cash and confirm by cash division or Receive Check and debit confirmation by remittance dept.

05 Inter-Customer Bills Nil06 Inter Bank Bills Nil08 Credit Instruments,

if any Receive Loan request Letter from the Clients Verify signature of the clients Prepare a Call report/ TAM/CM Creation of Charges Collect CIB Report Board regulation, if needed Mortgage, if any Personal Guarantee, if needed Receive Post dated cheque , if needed

09 Other Documents, if any

Nil

Table: 8.2 At The Time of Purchase of These Document

SL No.

Name of the Document Procedure followed by the branch at the time of issuance and final settlement of these negotiable Banking Instruments

01 Cheques Nil02 P.O(Pay Order) Nil03 T.T Nil04 D.D (Demand Draft) Nil05 Inter-Customer Bills06 Inter Bank Bills Authenticate the Acceptance from our HO ID/ nearest

branch of Acceptance issuing Bank. Confirmation from the Acceptance issuing Bank. TAM sent to HO for approval Necessary charge Documents

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08 Credit Instruments, if any Nil09 Other Documents:

- FDRIn case of FDR issued by our branch: Receiving application from the clients Verify the signature of the applicant Prepare TAM for approval from HO if the desired loan

is more than 80% of the FDR value. Discharge the instrument by the clients Marked Lien on the FDR, Issuing register and FDR

Application form. Creation of Charges Original FDR & charge Documents kept in safe custody Input Security Management System (SMS) in software. Prepare Credit Risk Grading (CRG) Prepare Check List Prepare Sanction Advice Seek permission from HO Loan Admin

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Table: 8.3 Filing and Recording System

SL No.

Name of the Document Procedure followed by the branch at the time of issuance and final settlement of these negotiable Banking Instruments

01 Cheques Counting with requisition slip Entry in Security Register and counter signed by

authorized Officer Kept is safe custody

02 P.O(Pay Order) Counting with requisition slip Entry in Security Register and counter signed by

authorized Officer Kept is safe custody

03 T.T Nil04 D.D (Demand Draft) Counting with requisition slip

Entry in Security Register and counter signed by authorized Officer

Kept is safe custody05 Inter-Customer Bills Nil06 Inter Bank Bills Prepare each set of documents against one bill.

Preserved in locked file cabinet08 Credit Instruments, if any Maintain one file for each Guarantee

Preservation of Charge Documents in safe custody.

09 Other Documents, if any Borrower’s Charge Documents and related papers are kept in the vault, all other documents i.e. account opening form and daily vouchers are kept under locked file cabinet of respective department.

8.5 Small Business Overdraft Facility1. Facility

Nature : Small Business Overdraft Facility.Amount : Tk. 10,00,000/- (Taka Ten Lacs) only Purpose : To finance working capital requirement.Interest : 17.00% p.a with quarterly rest. Tenor : 02 Years.Repayment : Principal amount to be repaid through 08 equated quarterly installments of Tk 1,25,000/- (Taka One Lac Twenty Five Thousand) only each. Or, Overdraft Limit Tk 10,00,000/- will be reduced quarterly by Tk 1,25,000/- at every 90 days from the date of disbursement or 12.50% of the outstanding/limit will be reduced quarterly or on demand. Quarterly interest and any charge to be realized separately on quarterly basis. Expiry : Processing fees : 2% of the approved limit i.e., BDT 20,000.00 (BDT Twenty Thousand) only Plus 15% Vat.

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2. Security

The Loan is available in consideration of the following security and documentation (the “Security”) completion, in form and substance satisfactory to the Bank:

i. Demand Promissory Note for the amount of the Loan.ii. One undated cheque for Tk 10,00,000/- and 08 Post dated cheques equal to the amount

Equated Quarterly Installments as the Bank may require, with a Memorandum of Deposit of Cheques.

iii. Personal Guarantee of

3. Conditions Precedent

The Loan is available subject to receipt by the Bank of the following documents, in form and substance, or evidence of compliance, satisfactory to the Bank:

i. This letter is unconditionally accepted by you/yourselves,ii. Payment of the processing fees, verification cost, stamp charges etc.

iii. Acceptance of the loan agreement terms & conditions, iv. Loan once approved, if not availed within 30 (thirty) days of the approval date will be

deemed to have been cancelled.

4. Lending Covenants:

i. Route current and future sales proceeds, bills/cheques through a/c with ONE Bank Ltd. Motijheel Branch.

ii. 3% penal interest on overdue amount for any overdue period.iii. Under no circumstances Excess Over Limit will be allowed.

5. Documents To Be Executed:(1) Demand Promissory Note, (2) Letter of Arrangement, (3) Letter of Continuity, (4) Letter of Hypothecation of movable assets in the business including machineries and stocks, (5) Memorandum of deposit of Cheque, (6) Personal Guarantees. [[

6. Availability

i. Notwithstanding the date of expiry of the Loan stated above, the Loan facility may be withdrawn or accelerated by the Bank at any time by written notice, following any default or breach under this letter, or any document or agreement referred to in this letter. Any amounts outstanding in connection with the Loan on such date shall continue to be outstanding on the terms and conditions of this letter or on such other terms and conditions as the Bank may from time to time require.

ii. Without prejudice to the foregoing, at the Bank's sole discretion, in the absence of any termination or acceleration on or before the expiry date, the Loan Facility may continue to be available to you for utilization on the terms and conditions of this letter or on such other terms and conditions as the Bank may from time to time require.

7. General

i. All expenses (such as management fees, verification cost, stamp charges etc.) incurred in documentation and execution thereof referred to herein shall be payable by the Borrower.

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The Bank is further authorized to debit all sorts of fees and other required charges from the Borrower's account without prior permission of the Borrower.

ii. The credit facilities should be availed of within the purview of credit norms/restrictions set by Bangladesh Bank from time to time and the applicable interest rate to the Borrower would be floating as per the banks commercial considerations unless specifically fixed.

iii. The bank at any time if it wishes to call back the credit facilities allowed to the Borrower, the Bank shall be at liberty to do so. The Bank preserves right and discretion to set-off and have general and, 'specific lien against the amount of money deposited/retained in any other account maintained by the borrower.

iv. The bank is authorized to sell or assign or transfer all or any portion of the credit facilities disbursed to a third party and also authorized to transfer or assign the security documents collateral's/Guarantee executed by the Borrower/Guarantor(s) in favor of the Bank, without the permission of the Borrower.

v. The Borrower shall not assert and hereby waive, any claim against the Bank, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with this letter or any agreement or arrangement contemplated hereby any loan or other credit facility.

vi. The loan facility to be liquidated prior to the end of the tenure.

vii. All taxes, duties, levies and fees, in connection thereto are on your account.

viii. The terms and conditions shall be binding on your heirs, successors, and legal representatives.

ix. This shall not be assigned without the prior permission of the Bank.

8. Dispute:

In the event of any dispute between the parties, they shall try to resolve the dispute amicably. In the event of failure to resolve, it shall be referred to the competent court(s) in Bangladesh. The dispute shall be governed by and construed in accordance with the laws of the People's Republic of Bangladesh.

8.6 Loan and AdvanceThe loan and advance department Two types of credit facility are enjoyed by our clients/ customers. They are-

8.6.1Advance:Frequent drawing power up to a limit. Borrower can enjoy the facility to withdraw money from this account frequently within the expiry date. It is a continuous process to enjoy the credit facility. According to the Bangladesh Bank’s classification of loan and advance, there are four types of loan as follows:

1. Continuous loan2. Demand loan 3. Fixed term loan

8.6.2Loan:Loan is the act of lending (money); a banking account where upon approval, a loan account is opened in the customer’s name, the sum being made available by transfer from

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the loan account to the customer’s current account, whence he may draw sum out. The loan is to be reduced at agreed intervals by an installment taken from the current account. Loan interest is charged daily or monthly quarterly or half-yearly on the outstanding amount of the loan and debited to the current account.

a) Continuous Loan: The credit which has limit and expiry date but no specific repayment schedule is called the continuous loan. Such as; CC (pledge), CC (hypo), SOD (FO), SOD (WO) etc.

b) Demand Loan: The credit which is paid on demand is called the demand loan. Such as: PAD, FBP, IBP, Forced LIM etc.

c) Fixed Term Loan: The credit which has limit, expiry date and specific repayment schedule is called the Fixed Term Loan. Such as: Project Loan, House building Loan, Transport Loan etc. In another Way:

1. Loan General2. Staff Loan3. Cash Credit4. Loan against Imported Merchandise5. Loan against Trust Receipt6. Overdraft7. Consumer Credit Scheme8. Commercial Loan 9. Industrial Loan (Project Loan)10. Lease Finance

8.6.2.1 Loan General: The credit system, which is not either an advance or project loan, is called the loan general. Otherwise the credit system which has an expiry date or one-year period, specific repayment schedule, one time disbursement and fixed installment amount is called loan general. Anyone can enjoy this facility against various types of instruments; scheme etc., such as FDR, Sanchayapatra, Bond, DPS, CSS, and Three Stage Savings Scheme. Maximum 80% of the balance of the a/c can be given as loan.

Procedure: Party will apply for loan mentioning the loan amount and

specimen signature which was put in the previous account. Of the party wants to get loan general against instrument then

his sign must be verified by the officer of the concern department. Next the officer will take a statement against the lien scheme

account or instrument. Loan general related officer makes and fixed the amount and

margin in office note with date and details of instrument or scheme. Margin= Balance-Ln Limit ; installment= Ln Limit×int. rate

Balance 12 Then it is send to the in-charge to sign after scrutinizing Then it is sent to manager Then a loan general a/c is opened by filling a loan conversion

input from in details. A cheque book is issued to the party for transaction A sanction letter is prepared in order to supply the party, duly

signed “accepted and received” in our office copy by the party.

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Changed Documents:a) Demand promissory note [with adhesive stamp]b) Letter of disbursementc) Letter of arrangement d) Letter of liene) Letter of undertaking of regular repayment of installment f) Letter of guaranteeg) Letter of Authority/encashment etc

Interest rate3% above of the instrument rate but generally the minimum rate is 11% and the maximum rate is 18%.8.6.2.2 Staff Loan/ Loan against Provident Fund: ONE Bank Ltd. provides loan for the employee against their fund. The loan is adjustment by debiting his/her salary a/c through installments.

Procedure:1. Application for loan 2. If there is no previous loan then proposal for P.F. send to head office

with signature in charge/manager. 3. If loan is sanctioned then sanction letter comes.

Charge Documents:1. Lien of PF Balance2. Letter of arrangement 3. Letter of disbursement 4. Demand promissory note (with revenue stamp)5. Letter of authority to realize installment from salary.

Interest rate: 12%

8.6.2.3 Cash credit (CC): Cash credit is an argument by which a banker allows his customer to borrow money up to a certain limit. This is a permanent arrangement and the customer needs not to draw the sanctioned amount at once, but draw the amount as and when required. Thus, CC is an active and running account to which deposit and withdraws may be effected frequently. Interest is charged only for the amount withdraws that means on outstanding amount and not for whole amount. Thus the main advantages of a cash credit arrangement to a borrower are that, unlike the party borrowing on a fixed loan basis, he may operate the a/c within the stipulated limit as and when required and can save interest by reducing the debit balance whenever he is in a position to do so. CC arrangement is usually made against the security of commodity hypothecated and pledged with the bank.Interest rate- 15 to 16.50% (Depending on the nature of the business)

CC (HYPOTHECATION):The mortgage of movable property for securing loan is called hypothecation. Hypothecation is legal transaction whereby goods are made available to the leading banker as security for a debt without transferring either the property or the possession. The banker has only equitable charge on stocks, the goods remaining in the possession of the borrower. The letter of hypothecation creates an equitable, and not a legal charge. Thus this facility is available only for the most reliable clients of the bank.What can be hypothecated:-

1. Raw materials 2. Goods

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3. Products 4. ork- in- process

After the maturity period, party can apply for renewal

CC (PLEDGE):Pledge id the ailments of goods as security for payment of a debt or performance of a promise. Transfer possession in the judicial sense, is essential in the valid pledge. In case of pledge goods the bank acquire the possession of goods or a right to hold goods until the repayment for credit with a special right to sell after due notice to the borrower in the event of no-payment. Possession may be ‘Actual or’ or “constructive”.

What can be pledged:- Financed goods Stocks Shares Debentures Documents of title to goods Any other moveable property

Process of Opening Cc AccountIn order to avail for CC arrangement, the borrower and the banker of the CBL follow the following process:

The party must have the depository a/c [CD a/c in better]. The party must maintain a transaction with the bank minimum 6 months and

have a good turned over. If the ownership of the firm is proprietorship, then a trade license must be

submitted and in case of limited company, all the documents required opening CD a/c. The firm also has to submit financial statements of the firm with 3 yrs balance sheet.

The party will apply to the Manager of the branch for CC [pledge] or CC [hypothecation] arrangement.

The concerned officer will give him a credit application form and the party will fill up the form. In this form he dispossesses all the information about his business.

Points to remainder:Valuation:

1. Stocks should be valued at landed cost/ in voice price or market price whichever is less.

2. As the securities are liable to fluctuation and there is also possible shortage in long storage, it is advisable that sufficient margin be maintained. Constant watch is to be kept on the market to fix up valuation of the prices according to prevailing rates and deficit in market price should immediately be regularize by reducing drawing power.

3. The stocks are entered and valued in the stock register; and after allowing the stipulated margin, drawing power is worked out.

Insurance:The stocks must be insured against all risk for full value in joint names of borrower and the bank.

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Inspection:Inspection is a must in pledge advance. Inspection of the securities pledged to the bank is to be made regularly at irregular intervals. Inspectors will verify the actual stock stored in the godown ledgers.Register:Register is maintained to keep record of incoming and out going goods. The primary quantity of the goods is recorded as per stock report supplied by the party. Individual stock report is submitted for each entry of the goods into the godown.

Delivery Order:Goods are delivered by Delivery Order. This is a prescribed from supplied by the bank to the client. Upper no circumstances, goods should be realized by godown keeper from the godown without a written delivery order signed by the Manager or authorized officer of the bank.

Charge Documents Demand promissory note Letter of arrangement Letter of disbursement Letter of continuity Letter of hypothecation/pledge Letter of guarantee Memorandum of deposit of Title Deed [in case of CC hypothecation arrangement] Stock report Letter of disclaimer Insurance cover note Trading and Profit and Loss statement for last 3 years CIB report if the credit amount is more than 20 lac. LRA is required for scoring (Y score and Z score) about the credit proposal.

8.6.2.4 LIM (Loan against Imported Merchandiser) At the time of opening the letter of the credit the banks obtained from the importer an agreement on stamped paper which provides for financing and if necessary, clearance and storage of goods by debating importer’s account at his risk and responsibilities.Importer may also request the bank’s prescribed form for clearance of goods from the port when the consignment arrives. In most of the cases, banks extend credit facility to the importer of the retirement and clearance of the consignment. In that case, the bank charges further margin from the importer to cover the custom duty, sales tax or VAT etc. A defining repayment schedule is also given to the importer to make delivery of the goods from bank’s custody against payment.

When the document received under a letter of credit are in order and the same are presented before the importer for payment but the bill is dishonored either by non-payment or non-acceptance. It is in the interest of the credit-issuing bank to taka proper care of the goods and on forced circumstance, to clear the imported consignment on arrival to avoid demurrage at the port which adds the burden of commitment.

In both case, the liabilities under PAD or B/E are converted to “Loan Against Imported Merchandiser (LIM)” account. The overdue interest from the data of accompanying Bill of Exchange or negotiation data to the date of transfer to LIM account is charged and incorporated to LIM.

The goods of the LIM A/C delivered by Delivery Order.

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Procedure1. Party’s application for LIM2. Proposal to Head Office with additional margin.3. If proposal approved the LIM A/C is opened.

Enclosure1. Application 2. Invoice3. Bill of landing

8.6.2.5 LATR (Loan Against Trust Receipt) Letter of Trust Receipt is a document duly stamped and signed in bank’s prescribed format by the importer before getting delivery of the import shipping documents. In the Receipt, the importer specifies the goods and agrees that he holding the goods not as their owner but as an agent for the bank until the goods are sold or used for the express purpose for which they were released to him. Thus the bank continues to have right of pledge.Procedure: same as LIM.8.6.2.6 OD (Over Draft) The over draft is a kind of advance always allowed on a current account operated upon by cheques. Overdraft is an arrangement between a banker & his customer by which the letter is allowed to withdraw over his credit balance in the current account up to an agreed limit. The borrower is permitted to draw and repay any number of times, provided the total amount overdraw does not exceed the limit. Here the interest is charged on daily product basis only on the actual debit balances i.e. the amounts withdraw over the limit, not for the whole amount. In an over draft account the balance may fluctuate day to day. It may increase by drawing of cheques by the customer may decrease by payment into the account overdraft facilities are given against the securities of stock in trade, shares, debentures, government promissory note, fixed deposit, life policies, gold and gold ornaments etc. Without these there clean overdraft for personal security.

Figure – 8.1 OD (Over Draft)

8.6.2.7 SOD [FO] The party must have a depository a/c. The party must maintain a good transaction with the bank and have a good turn

over. If party wants to enjoy SOD [FO] he must apply with his financial instrument to the

manager of the branch. If the ownership of the firm is proprietorship then a trade license must be submitted

and incase of a limited company and all the documents required opening CD a/c.

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Over Draft

Secured Over Draft Temporary Over Draft

SOD against Financial Obligation SOD against Work Order

All the submitted papers and instrument will be observed by the concerned officer very carefully.

The instruments must be marked “Under lien” by the related department in their register.

The concerned authorized officer then fills up a office note by giving date and details of instruments with mentioning the margin.

The maximum time the margin be within 10% to 20% but for some special case loan amount be sanctioned maximum 95% of face value of the instrument that means minimum margin is 5% according to head office circular.

Then it will be send to the authorized officer to manager for signing. For this kind of SOD [FO] the following documents are required.

1 Demand promissory note2 Letter of disbursement 3 Letter of arrangement 4 Letter of continuity 5 Letter of guarantee 6 Letter of lien [executed by depositor. This generally contains clause of set-off ]7 Letter of encashment8 Letter of appropriation etc.

A sanction letter will be made and delivered to the party and party will receive his part after writing in the office part “accepted and received” with signature.

Next the financial instrument will be kept in vault for safe custody under a responsible officer up to expiry and adjustment period. A register is maintained to keep record of the instruments under lien.

Caution If the deposits by instruments are in two or more names, payable to them on their

joint signatures, the loan documents should be signed by all of them and loan amount should also be paid under joint signatures.

The receipt should be discharged by all the depositors on an appropriate revenue stamp on the reverse of the receipt, especially when the receipt is payable “jointly” or “either or survivor”. The signature must be tailed with the specimen signature in the bank’s record.

No advance should be ordinary be granted against a deposit standing in the name of minor.

The bank’s lien should be prominently noted in the register, ledger and also on the face of the receipts under the signature an authorized officer to avoid any complications at some latter stage.

Interest will be charged only to the out standing amount of the loan a/c. The party must accept the loan within 60 days. Otherwise loan a/c will be closed

automatically.SOD (WO)The system is same for the SOD [WD], in this case party must submit to the bank the work order which is duly certified and discharged by the related authority. Besides this party will also give surely that the bills/cheque delivered by the work order authority will be issued in favor of the bank to adjust the loan liability. SOD [WD] is granted against work order in case of shortage of fund to execute the order.

ProcedureSame as SOD [FO] except.

Letter to work order issuing authority for verifying authenticity of instrument. Confirmation letter send issuing authority.

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Power of attorney given to the bank authority.For collateral security the following documents are needed-

Mortgage deed, bia deed [where applicable] registered by sub registry office. RS, SA, CS, DCR [TAX RECEIPT] Mutation porcha. Non encumbrance certificate Evaluation certificate Certificate of lawyer. Memorandum of deposit of title deed Power of attorney to sell.

8.7 Consumer Credit SchemeLike other commercial bank, The City Bank Limited gives the facility of consumer credit for limited income people to buy consumer goods like T.V., refrigerator, computer etc. The consumer credit scheme is as follows:

Procedure of application Party will purchase the bank formatted form of Tk 25/- by cash. Party will fill up the form of property and submit to concern officer of branch. After the getting the filed up form the party the concerned officer will put a

controlling No. with entering in the register. After taken other needful action the concerned officer will send it to the Head

Office will sanction the loan within 7 days.

The Eligible Sector for the schemeHousehold instruments (including motor cycle) and purchase of motor car (new / recondition).

Eligibility for Loans1. Officer and employee of the bank, insurance company, govt. and semi govt.,

autonomous, BDR, Police, Ansar and any financial institution’s employee.2. Permanent teacher of school, college and University.3. Permanent executive of the established non-Govt. and multinational company.4. Doctor, engineer, Lawyer, architecture, chartered accountants and self established

business persons.Age limitService holder: 25-55 yrs.Self employee: 55-60 yrs.

Table: 8.4 Eligibility for LoansTake Home Pay (Tk.) Loan Limit5000-9999 2000010000-14999 4000015000-24999 6000025000 and above 80000If take home pay 40000 and above (for motor car) loan limit is 600000

Expiry Date:For household purchase instruments (including motor cycle) highest 30 months. But if party wishes, can adjust his loan within 12 or 24 months.

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Equity ratio: Loan : Equity

Household instruments 85 : 15Motor car 70 : 30Interest Rate: 15%Charges:Risk fund 2%Service charge 2%Service charge & risk fund will be paid by party at once/by adding with loan amount.Papers to Be Submitted By the Party with Application

o Employer’s certificate.o Salary structure from the authority with details.o Memo from the seller, which will be duly accepted with specimen, signed by the

customer with details.o 2 passport size photographs.o Tex receipt (for self employed)o Bank account statement (for businessmen).

Charge Document Demand promissory Note. Letter of arrangement. Letter of Disbursement. Letter of Guarantee (Personal) Letter of third party’s guarantee. Letter of agreement for CCS loan. Letter of authority. Letter of Hypothecation. Under taking. Other related documents.

Documentation ChargeTk. 500/- will be charged from the party by cash. After documentation expenditure the rest amount will be transferred to the income a/c miscellaneous earnings.

Industrial Loan (Mid and Long Term) / Project FinanceMid and long term loan are sought for balancing, modernization, replacement and expansion of existing industrial enterprise or for selling up new projects. These loans are repaid out of their surplus profit.

Project is a temporary endeavor. Project loan is granted as mid-term and long-term loan to industrial sector for purchase or renovation of lands, factory sheds, machinery etc.

Credit Application Form for Project LoanAt first party will apply for project loan in their company / project pad with relevant papers and documents, such as-

Board resolution Certificate of incorporation Certificate of commencement [if public limited company] Memorandum and articles of association Photos of all boards of directors 3 years balance sheet Name of the company auditors

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Name of the company competitors [minimum 2] Project profile with details of the company Branch will investigate the project by the own officer of the branch.

Beside this, bank supplies the party their own format form named “application for project loan part-1”. Party will fill up this form properly on the basis to the following information-

Name of the address of the business unit Types of organization Date and number of registration Details of proprietors / partners / directors. Previous borrowing if any Brief description of existence company Existing land, buildings Nature of the proposed project Proposed products / services Project cost and means of finance Loan required for Security offered for loans Market of the products / services, etc.

Project AppraisalIt is the reinvestment analysis done by the banker before a project he approved. Project appraisal in the banking sector needed for the following reason:

To justify the soundness of an investment To endure repayment of bank finance To achieve organization goals To recommend if the project is not designed properly.

Techniques of Project AppraisalAn appraisal is a systematic exercise to establish that the proposed project is a viable preposition. The appraising officer checks the various details submitted by the promoter in first information sheet credit application form, feasibility report. CBL (PO) consider the following aspects in appraising.

Viability of the projectThe project should be viable from organizational, technical, commercial, financial and economic points of view.

a) Technical viability: It implies the assessment of various requirements of actual production process. It involves a critical study of following factors.

Location and site of the project Selection of the optimum location, therefore, revolves around the joint consideration and evaluation of the following factors:

oRaw materials suppliesoTransportation facilitiesoPower and fuel supply oWater and supply of manpoweroNatural and climate factorI. Size of the project/plan

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II. Technology, plant & equipment- The study should consider some important technological factors with regard to plant and equipment, viz.oAdequacy and suitability of the plant and equipments and their specificationoPlant lay outoBalancing of different section of the plantoReputation of the machinery supplies, etc.oBuilding and lay out the operative efficiency of industrial project also depends on

the lay out.

b) Commercial viability:Feasibility study in terms of market. The market analysis contains:-oAnalysis of past and present demandoAnalysis of past and present supplyoEstimates future demand of the projectoEstimates project share in the market etc.oMarketing channel for the product should be accessible to the entrepreneur.

c) Financial viability:Analysis of financial viability is an essential part of project appraisal. The financial analysis focuses the following for judging this viability:-

o Cost of the project and means of finance is necessary to make a preliminary assessment of the project and the means of the financing it. If the cost of the project is too high that it is not possible to mobilize the resources of that magnitude through the available resources, the project is out of question

o Investment profitability analysiso Financial ratio analysiso Break even analysiso There should be reasonable debt equity ratio as determined by the bank on

individual case basiso Debt service coverage ratio should be at least 2.5 times at the optimum level of

productiono IRR should preferably be not less than 20%

d) Economic viability:The project should ensure benefit to the national economy and create sufficient opportunity as follows:-

o Generation of employmento Income distributiono Self relianceo Development of small – scale industries and ancillary businesso Improvement of quality of life and well - beingo Environment issueso Opportunity cost

e) Management and organizational viability:-It is very important for the success of a project. Because, if the management is incompetent a good project fail. So it’s necessary to evaluate the following things:-

o Overall background of the promotero Their academic qualificationo Business and industrial experience

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o Their past performance.

8.8 Lending Risk Analysis (LRA)Before deciding whether to accept or reject a loan proposal, a banker is faced with then following questions:

a) What is the risk that the bank does not fully recover the loan?b) What is the likelihood that the borrower will repay the loan?

Before completing the lending risk analysis form the lending officer must collect and analyze the relevant data.

Major Problems of LRA Implementationo Inadequate or inaccurate data provided by the applicantso Unwillingness to disclose informationo Lack of auditor’s performanceo Luck of experienced assessor.

Credit Appraisal To assess the creditability of a borrower the bank must monitor the following things of the applicants:6 Cs: Character, Capacity, Cash, Collateral, Conditions, Controls3 Rs: Reliability, Resource, ResponsibilityFour questions that must be satisfactorily answered in each credit application:

o Is the borrower creditworthy?o Can the credit agreement be properly structured and documented so that the

bank and its depositors are adequately insured?o Can the bank perfect its claim against the assets and earnings of the customer, so

that, in the event of default, bank funds can be recovered? o Can the bank perfect its claim against the assets and earnings of the customer, so

that, in the event of default, bank funds can be recovered?

8.9 Head Office ApprovalUpon receipt of the credit line proposal from the branch, the Head Office Apprises the project. If it seems to be viable one, the HO sends it to the Head Office credit committee (HOCC) for the approval of the loan. The Head Office credit committee (HOCC) considers the proposal and takes decision whether to approve the loan or not. If the loan is approved by the HOCC the HO sends the approval to the concerned branch.

Section LetterAfter getting the Head Office approval, the branch issues the section letter to the borrower. A section letter contains the following particulars amongst other details:

o Name of borrowero Facility allowed o Purposeo Rate of interesto Margino Period of the loan and mode of repaymento Securityo Other terms and conditions which is required.

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The borrower received the letter and returns a copy of this letter, duly signed, as a taken of acceptance of the terms and conditions above.

Documentation:If the borrower accepts the sanction letter, the documentation starts. Documentation is a written statement of fact evidencing certain transactions covering the legal aspects duly signed by the authorized persons having the legal status. For the term loan, following documents should be obtained:-

Joint promissory note Certificate copy of memorandum and articles of association Letter of arrangement Letter of disbursement Letter of installment Letter of continuity Letter of revival Letter of request Letter of counter guarantee Letter of disclaimer(If applicable) Letter of line Letter of hypothecation Letter of guarantee Stock report Trust receipt Documents relating to mortgage

8.10 MortgageA mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, existing or future debt or performance of an engagement which may give rise to pecuniary liability. The transferor is called a mortgagor and the transferee is called mortgagee. The principal money and the interest of which payment is secured for the time being are called the mortgage money and the instrument (if any) by which the transfer is effected is called the mortgage deed. The term immovable property includes land, building and similar other assets.

The main characteristic of a mortgage is the mortgage does not transfer the ownership of the property to the mortgagee. He transfers only some of his right as an owner that means he can not now sell the property without the consent of the mortgagee.There are 6 types of mortgage, such as –

1. Simple mortgage2. Mortgage by conditional sale3. Usufructuary mortgage4. English mortgage5. Equitable mortgage6. Registered mortgage

We have practiced equitable mortgage and registered (legal) mortgage in the branch.

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Equity MortgageIn case of an equitable mortgage, the mortgagor deposits the title deeds with the mortgagee with the intention of giving the mortgagee an equitable interesting the property. It does not require the registration. It is only for the reliable clients of the bank.

Procedure for Equitable Mortgage The mortgagor or his agent should deposit the title deeds relating to the property

with the bank at a notified place. In case the advance is made by a bank which is not situated at a notified place, the title deeds may be deposited with another branch of the bank which is at a notified place. The situation of the property at a notified place is not required.

The mortgagor is required to send a covering letter with the title deeds acknowledging the deposit of title deeds with the intention to create an equitable mortgage thereon to secure a specific debt or debts.

The bank should accept documents only in original. Usually the bank gets a list of documents from its lawyer which the mortgagor has to deposit with the bank.

The mortgagor has to furnish periodically an encumbrance certificates declaring that no charge has been created against the mortgaged property subsequent to the date of the mortgage.

Periodical tax receipts shall also be verified. In case the mortgage happens to be a limited company, the mortgage must be

registered with in 30days of execution of the mortgage.The disadvantages for this mortgage are property mortgaged can be realized, when required, only through the court’s orders. This is a time consuming as well as expensive process.

Register Mortgage or Legal MortgageIn a register mortgage, the mortgager transfers to the mortgagee the legal title to the property. It must be registered by the sub registry office. On repayment of the loan the mortgagee transfers the title to the mortgagor.

Procedure of a legal mortgage:

1. An instrument mortgaging the property is executed. It is signed by the mortgagor and two witnesses.

2. The mortgage is complete as soon as the deed is registered but it will be effective from the date of execution.

In case the instrument is not duly attested and registered when it is so required, the mortgage will be void. However he may use the instruments to establish personal convenient to pay.

DisbursementAfter verifying all the documents, the client disburses the loan to the borrower by issuing a cheque book. A loan repayment schedule is also prepared by the bank and supplied to the borrower.Follow – Up

Continuous supervision Working capital assessment Stock report Break even analysis

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Rescheduling of repayment.

8.11 RecoveryIn general, the loans are repaid in installment. This installment is according to bank directives. Some loans are repaid all at a time. If any loan is not repaid then notices are server to the customer. Sometimes legal action is also taken for recovery of the loan.Assessment of Risk AreaThe CM should also contain assessment of the following risk areas:

Borrower Analysis: The majority shareholder management team and group of affiliate companies shall be assessed. Any issue lack of management dept, succession, complicated ownership structure or inter- group transactions shall be addressed and related risk should be mitigated.

Industry Analysis: The risk factors of the borrowers industry shall be assessed. Any issues regarding the borrower’s position in the industry, overall industry concerns or competitive focus shall be addressed and the strengths and weaknesses of the borrower compared to its competitors shall be identified.

Supplier/Buyer Analysis: Any customer or supplier concentration shall be addressed, as these will have a significant impact on the future viability of the borrower.

Historical Financial Analysis: An analysis of a minimum of three years historical financial statements of the borrower shall be presented. Where reliance is placed on a corporate guarantor, guarantor’s financial statement shall also be analyzed. The analysis shall address the quality and sustainability of earnings, cash flow and the strength of the borrower’s balance sheet. Specifically, cash flows, leverage and profitability must be analyzed.

Projected Financial Performances: Where term facilities (tenor more than 1 year) are being proposed, borrower’s future/ projected financial performance should be provided, indicating an analysis of the sufficiency of cash flow to service debt repayment. Loans should not be granted if projected cahsflow is insufficient to repay debts.

Account Conduct: For existing borrowers, the historical performance in meeting repayment obligations (trade payments, cheque payments, interest and principal payment etc.) should be assessed.

Mitigating Factors: Mitigating factors should be specified against risks identified in the credit assessment. Possible risks include but are not limited to the margin sustainability and/or volatility, high debt load (leverage/ gearing), over trading, overstocking or debtor issues; rapid growth, acquisition or expansion; management changes or succession issues; customer or supplier concentration and lack of transparency or industry issues.

Loan structure: The amount and tenors of financing proposed should be justified based on the projected repayment ability and loan purpose. Excessive tenor or amount compared to business needs load to increase in risk of fund diversion and adversely impact the borrowers repayment ability.

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Security: A current valuation of collateral should be obtained and the quality and priority of security being proposed should be assessed. Loans should not be grated based solely on security. Adequacy and the extent of the insurance coverage should be assessed.

Name Lending: Credit proposals should not be unduly influenced by an over reliance on the sponsoring principals, reported independent means, or their perceived willingness to inject funds into various business enterprises in case of need. These situations should be discouraged and treated with great caution. Rather, credit proposals and granting of loans should be based on sound fundamentals, supported by thorough financial and risk analysis.

Adherence to Lending Guidelines: Credit Memorandum should clearly state whether or not the proposed loan is in compliance with the Bank’s lending guidelines. Exceptions are to be referred to the EC/ Board.

All directories sourced and syndicated loans are too assessed similarly.

At the time of review the consistency and accuracy of risk grades are to be examined carefully and to be mentioned in CM at Section D in the following format with comments on reasons for change of score / risk grades, if applicable.

Name of the Risk Highest Score

Score Obtained RemarksPrevious Present

Financial Risk 50Business/Industry Risk

18

Management Risk 12Security Risk 10Relationship Risk 10Total Score 100Risk Grade

8.12Proposal for introducing OBL’s `Small Business Loan Scheme’

OBJECTIVE:Historically, OBL’s Risk Asset portfolio has comprised mainly of medium to large scale business houses.

It is felt that focus may now be given to small business units, taking into cognizance the following:

Diversification of asset portfolio, consequently the credit riskBroadening of clientele baseProviding necessary opportunity to build up asset base to those branches where scope to secure business of medium to large scale business houses is limited (e.g. Gakanbari, Uttara branches)Providing assistance to small business units which can not offer tangible security, in turn, enhance OBL’s image as a friendly financial institutionImprove Small/Large Loan ratioDevelop credit expertise of future lending officers

The Scheme:

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With a view to extending loans, customized to meet the needs of small business set-ups, a product package under the name and style ` SMALL BUSINESS LOAN SCHEME’ is proposed to be introduced.

Small Business Definition:For Urban Branches

Establishment having a minimum monthly sales volume of Tk. 500,000 (daily sales volume of Tk. 16,000 approx.).

For Rural BranchesEstablishment having a minimum monthly sales volume of Tk. 250,000 or daily sales volume of Tk. 10,000 approximately.

NOTE : Daily/monthly sales may be determined by physical verification of the respective business concern’s Cash Register for the previous 6 months period.

Target Group:Shops/Stores operating in important business places/shopping centers or complexes. Groceries, Readymade Garments Store, Hardware & Paint Store, Cosmetics, Food & Confectioneries, Crockery, Bookshops & Stationeries, Audio/Video Shop, General Stores, Drug Stores and Shops/Stores trading in other fast moving items.Small & Medium Size Printing Press.

Minimum Critera to be Eligible for SBL: The Establishment:

Must be in the same line of business for a minimum period of 2 years.Must have a valid Trade License.Must have an Account Relationship with OBL, satisfactorily conducted, for a minimum period of 3 months. These criteria may be waived in case of customers solicited by the bank.Must be located within a reasonable distance from the respective branch.

NOTE: Partnership concerns to be avoided.

Salient Features of SBL Maximum Credit Limit:

For Rural area : Tk. 5,00,000For Urban area : Tk. 10,00,000

Facility Type: Overdraft

Nature: Revolving

Purpose: To finance stock & receivables.

Tenor: Facility Period: Maximum 2 years

Repayment: Facility to be reduced @12.50% every quarter. Interest to be serviced separately at quarterly intervals.Client to deposit entire sales proceeds to the overdraft account.

Rate of Interest:16% p.a. with quarterly rest 1% p.a. Monitoring Fee.Risk Fund – 2% at the time of draw down.

Security:

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Possession of the Shop/PremisesInventory & ReceivablesMachinery (in case of a small industry e.g. printing press)Furniture, Fixture, Equipment and other movable assetsPersonal Guarantee of the owner and family members supported by PFS

If business is operated in rented premises:Assignment of advance/security deposit with the owner (Assignment to be documented, if possible, through a Tripartite Agreement)Inventory & ReceivablesFurniture, Fixture, Equipment and other movable assetsPersonal Guarantee of the owner and family members supported by PFSThird Party Guarantee from a reputed person (1st class Government Official/Bank Executive/High Net Worth Individual/Businessman etc.).Letter of Awareness from the local Trade Body.Deposit buildup @1% of sale on a monthly basis.

Limit Determination:Limit will be determined on the basis of Stock/Sales.Gross Profit margin assumed at minimum 15% i.e. Value of Stock assumed to be 85%.Maximum 70% of the value of stock to be financed (subject to Maximum Credit Limit as defined above).Average stock holding period assumed at 45 days.

The Branch/RM will use common credit judgment while processing SBL proposals. Every SBL proposal will be considered on the basis of individual merit. Basic Financial Information (Capital, Receivables, Stock, Payables, Fixed Assets,

Sales, GP, NP) to be incorporated in the Credit Memorandum (Specially designed). SBL proposals to be approved by Head Office.

8.13 Marketing StrategiesTo launch and sustain popularity of the product, following steps will be taken:

Periodic media coverage.Roadside advertisements (billboard etc.).Distribution of product brochure among the target customers.Display product highlights through posters in all branches.

Following steps will be taken to ensure sound quality of SBL accounts:Branches will be allocated specific targetAll RMs to make at least 2 SBL calls per week.Performance to be reviewed by HO on quarterly basis.

Conclusion and Recommendation:The objective of introducing the proposed `Small Business Loan Scheme’ is to enhance our asset base by extending credit to good quality small business organizations. By identifying good and credit worthy small business organizations for SBL, we will be able to earn a high rate of return from our investment (interest @ 17% p.a. and one-off risk fund of 2% on the loan amount).

The scheme will particularly enable enhancement of asset base in those branches where opportunity to secure medium and large volume business is limited. Considering the

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above, it is recommended that we introduce the `Small Business Loan Scheme’. Placed before the Executive Committee for review and approval.

As discussed, following information and documents are required to prepare a Small Business Loan Proposal. Attached documents are for ready references.

Basic parameters of SBL are:1. Overdraft Limit up to Tk 10.00 Lac (for rural branch Tk 5.00 Lac) 2. Facility is allowed for Two years 3. Limit reduced equally on quarterly basis (for example: Tk 10.00 Lac will be

reduced by Tk 1.25 Lac at the end of every 90 days from the date of disbursement and accordingly customers drawing power and OD limit will be reduced)

4. Current rate of interest: 17% p.a. with quarterly rest. 5. Current processing fees: 2% 6. This is a collateral free asset product but secured by cheques and Personal

Guarantee of 03 individuals of which 01 is to be from spouse or parents level and rest 02 should be eligible guarantors. Registered mortgage supported by power of attorney as collateral is appreciated and in such case personal guarantee might be waived and processing fee is applicable @ 1% instead of 02%.

7. Allocated GLSL are 12609 8. Minimum length of business establishment is required for 02 years.

 SBL CM should be attached by:1. Personal Net-worth Statement of the Proprietor duly signed by the

proprietor*. 2. Photographs of applicant and guarantors duly attested by RM*. 3. Business Card and copy of TIN Certificate of the Proprietor and the

guarantors*. 4. Copy of trade license (latest and at least two years old) and vat registration (if

available)* 5. Copy of passport of the applicant and the guarantors (if available). 6. Stock report duly signed by the proprietor and verified by RM*. 7. Statement of Book Debts / Receivables duly signed by the proprietor. 8. Statement of Other Assets and Fixed Assets in the business duly signed by the

proprietor*. 9. Bank account statement at least for last 06 months*. 10. Latest Copy of telephone / electricity bill *. 11. Documents relating to possession/ownership of the business house. Incase of

rented premises copy of rental agreement and advance rent*. 12. Photocopy of Rent Receipt of residence of the proprietor if permanent address

and present address are same. In case of rented house copy of agreement (if possible).

13. Proof copy of other source of income, incase customer has other source of income*.

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14. RM/Credit Officer and Branch Manager should sign all the pages of CM. Supporting documents should be signed by RM/Credit Officer*.

15. Attached documents contain SBL CM format, Policy Guideline, sample copy of CM and Format of Personal Net-worth Statement for your ready references.

Chapter Nine

OBL will adopt the Risk Grading System prepared by Bangladesh Bank as a mandatory requirement for all exposure irrespective of amount for corporate and commercial lending. The aggregation of such grading across the borrowers, activities and lines of business will provide a better assessment of the quality of the credit portfolio of the branches and the Bank as a whole.

9.1 Definition of Credit Risk Grading (CRG) The Credit Risk Grading (CRG) is a collective definition based on the pre-

specified scale and reflects the underlying credit-risk for a given exposure. A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary summary

indicator of risks associated with a credit exposure. Credit Risk Grading is the basic module for developing a Credit Risk Management

system.

9.1.1 Functions of Credit Risk GradingWell-managed credit risk grading systems promote bank safety and soundness by facilitating informed decision-making. Grading systems measure credit risk and differentiate individual credits and groups of credits by the risk they pose. This allows bank management and examiners to monitor changes and trends in risk levels. The process also allows bank management to manage risk to optimize returns. Bangladesh Bank has prepared a CRG manual with the participation of bankers and advice all bank to adopt a risk grading system out lined in the manual. The grading system is designed with the minimum standard of risk rating with the option to adopt and adapt more sophisticated risk grades in line with the size and complexity of business of the bank.

9.2 Use of Credit Risk GradingThe Credit Risk Grading matrix allows application of uniform standards to credits to ensure a common standardized approach to assess the quality of individual obligor, credit portfolio of a unit, line of business, the branch or the Bank as a whole. As evident, the CRG outputs would be relevant for individual credit selection, wherein either a borrower or a particular exposure/facility is rated. The other decisions would be related to pricing (credit-spread) and specific features of the credit facility. These would largely constitute obligor level analysis. Risk grading would also be relevant for surveillance and monitoring, internal MIS and assessing the aggregate risk profile of a Bank. It is also relevant for portfolio level analysis.

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The Risk Grading System is vital for decision making at pre and post sanction stages. At pre-sanction stage, it helps in approval decisions in terms of extent of exposure, appropriates of credit facilities, credit structure, loan pricing, mitigating tools, etc. to put a cap on the risk level. At post sanction stage, it helps in deciding the debt and frequency of grading and other precautions to be taken. Risk Grading System will be a key measurement of OBL to measure the asset quality and as such, it is essential that grading is a robust process.

9.2.1 Risk Grading MatrixThe purpose of credit Risk Grading Matrix is to apply uniform standards to credits to ensure a common standardized approach to assess the quality of individual obligor, credit portfolio of a unit, line of business, the breach or the Bank as a whole. These will largely constitute obligor risk level analysis and portfolio risk level analysis.

9.2.2 Principal Risk Components, Key Parameters and Assigned Weightages

To compute Credit Risk Grading Score, five principal risk components are identified. Certain parameters are set for each risk components to evaluate the respective principal risks. Weightage are allocated against each principal component according to the importance of risk profile. Weightage of each principal component are again allocated to the key parameters. Each of the above mentioned key risks are required to be evaluated and aggregated to arrive at an overall risk grading measure.

9.3 MIS on Risk GradingBank should have comprehensive MIS reports on credit risk grading to evaluate entire credit portfolio of the Bank. Format of such MIS reports on credit risk grading has been presented in – Appendix – E of Credit Risk Grading Manual of Bangladesh.

Credit Risk Grading Report (Consolidated)Credit Risk Grading Report (Branch Wise)Credit Risk Grading Report (Branch & Risk Grade Wise)Credit Risk Grading Report (Grade Wise Borrower List)

MIS reports as mentioned above should be prepared and circulated at least on a quarterly basis.

Table: 9.1 Credit Risk Grading of ………………..at ………….. Branch

Name of the risk Score Areas require to evaluate Remarks & Score given

Financial Risk 50 Risk that counterparties will fail to meet obligation due to financial distress. This typically entails analysis of financials i.e. analysis of leverage, liquidity, profitability & interest coverage ratios. To conclude, this capitalizes on the risk of high leverage, poor liquidity, low profitability & sufficient cash flow.

Mr. ………….n is a high net-worth (Tk.21.13 crore) individual. So it is expected that he will not fail due to financial distress.As such we may allow 70% mark i.e 35.

Business / Industry Risk

18 Risk that average industry situation or unfavorable business condition will impact borrowers’ capacity to meet

The Client proposed the loan to purchase a land in a prime location having potential to

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obligation. The evaluation of this category of risk looks at parameters such as business outlook, size of business, industry growth, market competition & barriers to entry / exit. To conclude this capitalizes on the risk of failure due to low market share & poor industry growth.

increase the value in future. So risk due poor industry growth is low and we may give 70% mark i.e 12.

Management risk 12 Risk that counterparties may default as a result of poor managerial ability including experience of the management, its succession plans and teamwork.

The Client is an experienced businessman so failure due to poor managerial ability is less.Score given is 9 (being 75%).

Security risk 10 Risk that the bank might he exposed due to poor quality or strength of the security in case of default. This may entail strength of security & collateral, location of collateral and support.

Proposed security has good value and will cover the loan fully.

Score given 10.

Relationship risk 10 These risk areas cover evaluation of limits utilization account performance conditions/ covenants compliance by the borrower and deposit relationship.

The Client has been banking with the Branch with satisfactory performance. Have good amount of FDR. So score given is 10.

Total score 100 76

Risk Grade Acceptable

9.4 Risk Grading Process Credit Risk Grading is a regulatory requirement for all exposures irrespective of

amount for corporate and commercial lending. It is to be used for all credit facilities and new or renewal for specific transactions or regular limits.

For superior Risk Grading (SUP – 1), the score sheet is not applicable.

All Risk Grades are to be prepared by RMs and to be completed in consultation with the Branch Manager and documented as per Credit Risk Grading Sheet of Credit Risk Grading Manual (CRGM) which is to be taken concurred be Head Office Credit Division. The Credit Risk Grading Manual of Bangladesh Bank of November 2005 is annexed with this report.

All Credit proposals whether new, renewal or specific facility should include the following four forms as specified by Credit Risk Grade Manual (CRGM) of Bangladesh Bank (Appendix in A to D):

Data Collection Check ListLimit Utilization FormCredit Risk Grading Score SheetCredit Risk Grading Form

The Credit Officer will then pass the approved Credit Risk Grade Form to Credit Administration, Marketing Division / Line of Business / Recovery Unit.

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Early Alert Report should be completed by RM / Marketing Division and to be forwarded to CRM when deterioration is noted.

If deterioration in risk is noted or adverse information is received on any borrower, the Risk Grade assigned to the Borrower will be lowered immediately.

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

Credit risk for counterparty arises from an aggregation of the following: Financial Risk Business/Industry Risk Management Risk Security Risk Relationship Risk

Each of the above mentioned key risk areas require be evaluating and aggregating to arrive at an overall risk grading measure.

a) Evaluation of Financial Risk: Risk that counterparties will fail to meet obligation due to financial distress. This typically entails analysis of financials i.e. analysis of leverage, liquidity, profitability & interest coverage ratios. To conclude, this capitalizes on the risk of high leverage, poor liquidity, low profitability & insufficient cash flow.

b) Evaluation of Business/Industry Risk: Risk that adverse industry situation or unfavorable business condition will impact borrowers’ capacity to meet obligation. The evaluation of this category of risk looks at parameters such as business outlook, size of business, industry growth, market competition & barriers to entry/exit. To conclude, this capitalizes on the risk of failure due to low market share & poor industry growth.

c) Evaluation of Management Risk: Risk that counterparties may default as a result of poor managerial ability including experience of the management, its succession plan and team work.

d) Evaluation of Security Risk: Risk that the bank might be exposed due to poor quality or strength of the security in case of default. This may entail strength of security & collateral, location of collateral and support.

e) Evaluation of Relationship Risk: These risk areas cover evaluation of limits utilization, account performance, conditions/covenants compliance by the borrower and deposit relationship.

According to the importance of risk profile, the following weightages are proposed for corresponding principal risks.

Principal Risk Components: Weight:

Financial Risk 50%

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Step I : Identify all the Principal Risk Components

Step II Allocate weightages to Principal Risk

Business/Industry Risk 18% Management Risk 12% Security Risk 10% Relationship Risk 10%

Principal Risk Components: Key Parameters: Financial Risk Leverage, Liquidity, Profitability & Coverage ratio. Business/Industry Risk Size of Business, Age of Business, Business

Outlook, Industry Growth, Competition & Barriers to Business

Management Risk Experience, Succession & Team Work. Security Risk Security Coverage, Collateral Coverage and Support. Relationship Risk Account Conduct ,Utilization of Limit, Compliance of

Covenants/conditions & Personal Deposit.

Each of the above mentioned key risk are require to be evaluated and aggregated to arrive at an overall risk grading measure. The overall picture is shown below:Table: 9.2 Overall risk grading measure

Principal Risk Components: Key Parameters: Weight: Financial Risk 50%

Leverage 15% Liquidity 15% Profitability 15% Coverage 5%

Business/Industry Risk 18% Size of Business 5% Age of Business 3% Business Outlook 3% Industry growth 3% Market Competition 2% Entry/Exit Barriers 2%

Management Risk 12% Experience 5% Succession 4% Team Work 3%

Security Risk 10% Security coverage 4% Collateral coverage 4% Support 2%

Relationship Risk 10%

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Step III Establish the Key Parameters

Step IV Assign Weightages to each of the key parameters.

Account conduct 5% Utilization of limit 2% Compliance of covenants

/condition 2% Personal deposit 1%

After the risk identification & weightage assignment process (as mentioned above), the next steps will be to input actual parameter in the score sheet to arrive at the scores corresponding to the actual parameters.

Figure – 9.1 Credit Risk

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Step V Input data to arrive at the score on the key

The following is the proposed Credit Risk Grade matrix based on the total score obtained by an obligor.

Number and Short Name of Grades Used in the CRGThe proposed CRG scale consists of 8 categories with Short names and Numbers. Credit Risk Grading for each borrower should be assigned at the inception of lending and should be periodically updated. Frequencies of the review of the credit risk grading are mentioned below: Table: 9.3 Credit Risk Grading scoreNumbe

rGrading Short

Name Score Review

Frequency*1 Superior SUP Fully Secured –100 Annually2 Good GD 85+ Annually3 Acceptable ACCPT 75 – 84 Annually4 Marginal/Watch list MG/WL 65 – 74 Half Yearly5 Special Mention SM 55 – 64 Quarterly6 Sub standard SS 45 – 54 Quarterly7 Doubtful DF 35 – 44 Quarterly8 Bad & Loss BL < 35 Quarterly

Table: 9.4 Risk Grade ProfileRisk Grading

Grade Borrower Profile

SuperiorScore : 100

SUP - 1 - Credit facilities, which are fully secured i.e. fully cash covered- Credit facilities fully covered by Govt. guarantee- Credit facilities fully covered by guarantee of a top tier international bank

Good Score : 85+

GD – 2- The borrower has strong repayment capacity- The borrower has excellent liquidity and low leverage- The borrower has structured management setup, a good MIS and produces yearly audited Balance Sheet.- The borrowers key management has very good management skills and experience- Credit facilities fully covered by guarantee of a top tore local Bank- All security documents should be in place- Aggregate Score of 85 or greater based on the Risk Grade Score Sheet

AcceptableScore : 75 – 84

Accept – 3

- The borrower is not as strong as Good Grade borrowers, but still demonstrates consistent earnings, cash flows and has a good track record- Credit in this grade would normally be secured by acceptable collateral ( 1st charge over inventory / receivables / equipment / property)- Aggregate Score of 75 – 84 based on the Risk Grade Score Sheet- The borrower should not be graded higher than Grade 3 if

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StepVI. Arrive at the Credit Risk Grading based on total score

authentic audited financial statements are not received, and financial and business data are not readily available from them- Such borrower should be downgraded to Grade 4 should phenomena like incurring loss, loan repayments routinely falling past due, account conduct becoming irregular, other unfavorable conditions / factors develop

Marginal / Watch ListScore :65 – 74

MG/ WL-4

- This grade warrants greater attention due to conditions affecting the borrower, the industry or the economic environment such as, uncertainty has developed in future business outlook and affecting the borrower due to severe stress from the prevalent conditions in the industry / economy. The borrower might be under distress due to undesirable development in its internal operation / management and management weakness is evident- Weaker business credit & early warning signals of emerging business crisis detected- The borrower incurs a loss- Loan repayment routinely falls past due. Over due situations frequently occur exceeding 30 / 60 days but not exceeding 90 days- Account conduct is poor, or other untoward factors are present- Aggregate Score of 65 – 74 based on the Risk Grade Score Sheet- The borrower thus has considerably high risk though credit facilities are secured viz., 1st charge over stocks / receivables / machinery / equipment / land / building properties, etc. - Full repayment of facilities is still expected and interest can be taken into income account of the Bank. But the borrower requires greater attention and closer monitoring- However, if improvement, supported by better account conduct, is not apparent within reasonable time (90 days) such borrowers should be put on exit list and account should be down graded to Grade 5 if past due exceeds 90 days

Special MentionScore : 55 – 64

SM – 5

- This grade has potential weaknesses that deserve management’s close attention. If left uncorrected, these weaknesses may result in a deterioration of the repayment prospects of the borrower. - Past due situation has occurred and remains for more than 90 days. Bangladesh Bank rules to be followed viz., interest income against such accounts is to be taken into suspense account and due provision to be built up (currently 5%)- Facilities should be downgraded to this grade if sustained deterioration in financial conditions such as consecutive losses, negative net worth, excessive leverage, etc. are noted- If left unattended / uncorrected these weaknesses may result in a deterioration of the repayment prospect of the borrower. Exit option should be pursued- An Aggregate Score of 55-64 based on the Risk Grade Score Sheet.

SubstandardScore : 45 – 54

SS – 6

- Financial condition is weak and capacity or inclination to repay is in doubt- These weaknesses jeopardize the full settlement of loans- Past dues remain for 6 months but less than 9 months for continuous and demand loans; 6 months but less than 12 months for term loans up to 5 years; and 12 months but less than 18 months for term loans more than 5 years – which are presently criteria for SS classification of BB- Bangladesh Bank criteria for sub-standard credit shall apply i.e. interest against such accounts to be booked into Interest Suspense

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Account and Loan loss provisions to be made- An option of rescheduling of the loans might be considered if there are genuine reasons for non repayment of Banks dues and the borrower is willing to give due down payment with supporting cash flows showing repayment capacity after rescheduling

DoubtfulScore : 35 – 44

DF – 7 - 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. - Past dues remain for 9 months but less than 12 months for continuous and demand loans; 12 months but less than 18 months for term loans up to 5 years; and 18 months but less than 24 months for term loans more than 5 years – which are presently criteria for DF classification of BB- the adequacy of provisions must be reviewed at least quarterly on all non – performing loans, and the Bank should pursue legal options to enforce security to obtain payment or negotiate an appropriate loan rescheduling- In all cases, the requirement of Bangladesh Bank in CIB reporting, loan rescheduling and provisioning must be followed - An Aggregate Score of 35-44 based on the Risk Grade Score Sheet.

Bad / LossScore : 0 – 34

BL – 8

- Credit of this grade has long outstanding with no progress in obtaining repayment or on the verge of wind up/liquidation. - Past dues remain for 12 months for continuous and demand loans; more than 18 months for term loans up to 5 years; and 18 more than 24 months for term loans more than 5 years – which are presently criteria for BL classification of BB- Prospect of recovery is poor and legal options have been pursued. - Proceeds expected from the liquidation or realization of security may be awaited. The continuance of the loan as a bankable asset is not warranted, and the anticipated loss should have been provided for. - This classification reflects that it is not practical or desirable to defer writing off this basically worthless asset, even though partial recovery might be a possibility in the future- Charging of interest is to be stopped but interest to be charged while initiating legal actions and booked into Interest Suspense Account- Bangladesh Bank guidelines for timely write off of bad loans must be adhered to. Legal procedures / suit initiated. - An Aggregate Score of less than 35 based on the Risk Grade Score Sheet.

9.5 Regulatory Definition On Grading Of Classified Accounts

Irrespective of credit score obtained by a particular obligor, grading of the classified names should be in line with prevailing Bangladesh Bank guidelines on classified accounts (ref : Credit Risk Grading Manual of Bangladesh Bank dated Nov. 2005).

9.6 Early Warning Signals (EWS)Despite a prudent credit approval process, loans may still become troubled. Early Warning Signals (EWS) indicate risks or potential weakness of an exposure requiring

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monitoring, supervision, or close attention by management to ensure swift action to protect the Bank’s interest. Irrespective of credit score obtained by any obligor as per the Risk Grading Matrix, the grading of the account highlighted as Early Warning Signals (EWS) accounts, among others, shall have the following risk symptoms:

i. Marginal / Watch list (MG /WL – 4) : if – Any loan past due / overdue for 60 days and aboveFrequent drop in security value or shortfall in drawing power exists.

ii. Special Mention (SM – 5) : if – Any loan past due / overdue for 60 days and aboveMajor document deficiency prevails (such deficiencies include but not limited to : board resolution for borrowing not obtained, sanction letter not accepted by client, charges / hypothecation over assets favoring bank not filed with registrar of Joint Stock Companies, mortgage not in place , guarantees not obtained, etc.)A significant petition or claim is lodged against the borrower.

More symptoms for EWS may be observed about the borrower from the following: Are we receiving Financials regularly? Monthly sales deposit receipt and adjustment by the Bank: (for last 6

months)Is client in business? What is happening to sister company cash flow? Do we have corporate guarantee? What is the risk grade of guarantor? Is loan documentation 100% OK? Are stock of client verified / When / What is the valuation? When last client / factory visit was made by RM and comment by RM?

The Credit Risk Grading Form of accounts having EWS should be completed by the RM and sent to the Credit Division of Head Office for updating risk grade score as soon as possible. Referring EWS accounts or any problem accounts to the Credit Division should not be delayed.

9.7 Exception to Credit Risk Grading

In case an account is rated marginal, special mention or unacceptable credit risk as per the risk grading score sheet, this may be substantiated and credit risk may be accepted if the exposure is additionally collateralized through cash collateral, good tangible collaterals and strong guarantees. These are exceptions and should be approved as exceptions by the appropriate approving authority.

Head of Credit Risk Management may also downgrade / classify an account in the normal course of inspection of a branch or during the periodic portfolio review. In such event, the Credit Risk Grading Form will then be filled up by Credit Risk Management Department and will be referred to Corporate Banking / Line of Business / Credit Administration Department / Recovery Unit for updating their MIS / records.

Recommendation for upgrading of an account has to be well justified by the recommending officers. Essentially complete removal of the reasons for downgrade should be the basis of any upgrading.

Whenever required an independent assessment of the credit risk grading of an individual account may be conducted by the Head of Credit Risk Management or by

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the Internal Auditor documenting as to why the credit deterioration and also pointing out the lapses.

Chapter Ten

10.1. Original StructureSince inception, OBL has in place segregated credit functions of risk taking and risk approving managing. Business solicitation / relationship management and credit risk management are separated to ensure a check and balance and that quality of credit is never compromised to achieve business targets of the Bank.

Table: 10.1 The lending functions are segregated as follows:

Functions Activities

MarketingBusiness Solicitation / Relationship management for timely repaymentAchieving business targets of the Bank – deposit, advance and profit

Credit Risk ManagementCredit approval:

Credit ApprovalCredit ReviewCredit Risk Grading

Credit MIS:Returns and MISInternal UseBangladesh Bank and Others

Credit management: Classification and provision, rescheduling & write off

Credit Administration Disbursement:

DocumentationDisbursement Authorization

Monitoring: Monitoring account conduct and reporting past dues

Early AlertsExceptions Reports

Recovery: Managing classified loans (Grade 6 – 8) Workout plan / Recovery StrategyLitigation process of classified accounts

10.2. Marketing / Head of Marketing (HOM)

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Planning, developing and managing OBL corporate, commercial, retail and institutional business to ensure high profitability and sustained growthFormulating annual business plans, strategies and steps to achieve targets / budgetsLeading, guiding and supporting the marketing team compromising RMs both at HO and Branches for booking new relationships as well as deepening relationshipsDrawing up performance tracking system of RMsReviewing and recommending credit proposals by the RMs and recommend by Credit Analysts.

10.3. Relationship Manager (RM)Act as the primary bank contact with customersInitiating and ultimately owning all relationships of OBLMaintaining thorough knowledge of borrower’s business and industry through regular contact, factory / warehouse inspection, etc. and ensuring timely repayment of all advances along with interestResponsible for the timely and accurate submission of CM for new proposals and annual reviews, taking into account the credit assessment requirementsMonitoring account conduct and performance of the borrower continuously and detecting any deterioration in borrower’s financial standing and amend the borrower’s Risk Grade in a timely manner with the approval of HOC / CRM Seeking assistance / advice at the earliest from CRM / HOC regarding the structuring of facilities, potential deterioration in accounts or for any credit related issuesEnsuring compliance with internal policies and procedures and external regulatory Requirements, and that all internal and external audit Recommendations are implemented.

10.4. Credit Risk Management (CRM) / Head of Credit (HOC)

Oversight of OBL’s credit policies, procedure and controls–relating to all credit risks arising from corporate / commercial / institutional /and treasury operationsOversight of OBL’s asset quality / Credit approval and reviewApproving loans within delegated authority and recommending loan for approval by the EC / BoardOverseeing loan classification and provisioning, rescheduling and write offEnsuring appropriate training for credit officers for skill development in CRMEnsuring compliance on all credit related regulations

10.5. Credit AdministrationEnsuring that all loan and security documentation are perfect and enforceable as per credit sanction termsAuthority disbursement / drawdown after ensuring full documentation and compliance of conditions precedentEnsuring that insurance coverage is adequate, covers the risks and properly assigned to the Bank

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Monitoring past dues in principal or interest, trade bills, account excesses and expired facilitiesDetecting exceptions and early warning signals of deterioration in account conduct performance, generation of related MIS and suggest remedial steps to be taken by the RMs.

10.6. Credit RecoveryDirectly managing accounts with sustained deterioration (a risk rating of substandard or worse)Determining work – out plan / recovery strategyPerusing all avenues to maximize recovery, including placing customers into receivership or liquidation as appropriateEnsuring adequate and timely loan loss provisions are made based on actual and expected losses

10.7. Internal Audit- To conduct independent inspections annual to ensure compliance with lending

guidelines, operating procedures, bank policies and Bangladesh Bank directions- Internal Audit Department will report directly to the Managing Directors and Audit

committee of the Board

10.8 Regulatory Definition on Grading of Classified Accounts Irrespective of credit score obtained by a particular obligor, grading of the classified names should be in line with Bangladesh Bank guidelines on classified accounts, which is extracted from “PRUDENTIAL REGULATIONS FOR BANKS: SELECTED ISSUES” (updated till August 07, 2005) by Bangladesh Bank are presently as follows:

Basis for Loan Classification:(A) Objective Criteria:

□ Any Continuous Loan if not repaid/renewed within the fixed expiry date for repayment will be treated as irregular just from the following day of the expiry date. This loan will be classified as Sub-standard if it is kept irregular for 6 months or beyond but less than 9 months, as `Doubtful' if for 9 months or beyond but less than 12 months and as `Bad & Loss' if for 12 months or beyond.

□ Any Demand Loan will be considered as Sub-standard if it remains unpaid for 6 months or beyond but not less then 9 months from the date of claim by the bank or from the date of forced creation of the loan; likewise the loan will be considered as ‘Doubtful' and ‘Bad & Loss’ if remains unpaid for 9 months or beyond but less then 12 months and for 12 months and beyond respectively.

□ In case any installment(s) or part of installment(s) of a Fixed Term Loan is not repaid within the due date, the amount of unpaid installment(s) will be termed as `defaulted installment'.

In case of Fixed Term Loans, which are repayable within maximum 5 (five) years of time: -

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If the amount of `defaulted installment' is equal to or more than the amount of installment(s) due within 6 months, the entire loan will be classified as ‘Sub-standard’.If the amount of 'defaulted installment' is equal to or more than the amount of installment(s) due within 12 months, the entire loan will be classified as ‘Doubtful’.

If the amount of 'defaulted installment' is equal to or more than the amount of installment(s) due within 18 months, the entire loan will be classified as ‘Bad & Loss’.

In case of Fixed Term Loans, which are repayable in more than 5 (five) years of time: - □ If the amount of ‘defaulted installment' is equal to or more than the amount of

installment(s) due within 12 months, the entire loan will be classified as 'Sub-standard.'

□ If the amount of ‘defaulted installment' is equal to or more than the amount of installment(s) due within 18 months, the entire loan will be classified as 'Doubtful'.

□ If the amount of 'defaulted installment 'is equal to or more than the amount of installment(s) due within 24 months, the entire loan will be classified as 'Bad & Loss'.

Explanation: If any Fixed Term Loan is repayable at monthly installment, the amount of installment(s) due within 6 months will be equal to the amount of summation of 6 monthly installments. Similarly, if repayable at quarterly installment, the amount of installment(s) due within 6 months will be equal to the amount of summation of 2 quarterly installments.

(B) Qualitative Judgment: If any uncertainty or doubt arises in respect of recovery of any Continuous Loan, Demand Loan or Fixed Term Loan, the same will have to be classified on the basis of qualitative judgment be it classifiable or not on the basis of objective criteria.

If any situational changes occur in the stipulations in terms of which the loan was extended or if the capital of the borrower is impaired due to adverse conditions or if the value of the securities decreases or if the recovery of the loan becomes uncertain due to any other unfavorable situation, the loan will have to be classified on the basis of qualitative judgment.

Besides, if any loan is illogically or repeatedly re-scheduled or the norms of re-scheduling are violated or instances of (propensity to) frequently exceeding the loan-limit are noticed or legal action is lodged for recovery of the loan or the loan is extended without the approval of the proper authority, it will have to be classified on the basis of qualitative judgment.

Despite the probability of any loan's being affected due to the reasons stated above or for any other reasons, if there exists any hope for change of the existing condition by resorting to proper steps, the loan, on the basis of qualitative judgment, will be classified as 'Sub-standard'. But even if after resorting to proper steps, there exists no certainty of total recovery of the loan, it will be classified as ‘Doubtful' and even after exerting the all-out effort, there exists no chance of recovery, it will be classified as ' Bad & Loss' on the basis of qualitative judgment. The concerned bank will classify on the basis of qualitative judgment and can declassify the loans if qualitative improvement does occur.

But if any loan is classified by the Inspection Team of Bangladesh Bank, the same can be declassified with the approval of the Board of Directors of ONE Bank Limited. However, before placing such case to the Board, the CEO and concerned branch manager shall have to certify that the conditions for declassification have been fulfilled.

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10.9 Originating of Credit ProposalsThe Relationship Manager (RM) who owns a credit relationship is responsible for originating credit proposals. He / she prepare the credit proposal after getting the positive nod / name clearing on the Call Report from Head Office.

The full blown CM is prepared after undertaking a through credit checks, and conducting critical credit and risk assessment of the client in light of Credit Policy Guidelines of the Bank. The full fill documented CM is to be sent to the Head of Marketing (HOM) along with the recommendation of the Branch Manager – to initiate credit approval process. Head of Marketing (HOM) will send the CM to HOC with his recommendation. Head of Credit (HOC) / Credit Risk Management (CRM) on recommendation of HOM will recommend / approve credit proposals with Managing Director (MD) as per delegation of business power of OBL.

Executive Committee (EC) of the Board of Directors will approve all credit proposals beyond delegated power of the Management and exceptions to Credit Guidelines. The Board of Directors will review and approve on past – fact basis all credit approvals of the Executive Committee.

Head of Credit (HOC) sign – off is a must for all credit approvals. Exceptions are structured retail loans viz. Consumer Loans, Credit Card Limits, etc.

OBL has in place an On – Line Banking System and all branch managers, HO executives and EC members are connected through a web mail system with individual confidential access code and E-mail I.D. The Branch Managers, being the head of business units, send fully documented CMs to HOM who, with recommendation passes the CMS to HOC through the On –Line System. HOC in due process throws the CMs to EC members along with Managing Director’s recommendation for an online approval. If the EC Chairman sends web support and no objection is raised by other members within 24 hours, the CMs are considered approved. However, if other members give any conditions those become integral part of the approval.

Such approvals are again reviewed at full –fledged regular EC Meetings where MD / HOC presents each CM with latest developments and the EC after discussion gives post fact approval of the CM which are then minutes for record.

The regular EC meetings also give post fact approvals of urgent specific transactions approved by the management beyond their delegated authority. However, rescheduling / write off / declassification etc. proposals are approved by the Board of Directors as per Bangladesh Bank’s Guidelines.

Appeal ProcessThe RM / Branch Manager? HOM / MD will have the authority to refer / appeal any disagreement with HOC to the Executive Committee / Board of Directors of OBL. Such appeal should be backed by enough facts and figures to nullify / override the disagreements of HOC.

10.9.1 Review / Renewal ProcessAll Loan Facilities - Specific or Revolving – are to be reviewed at least once annually. The RMs is to send fully documented CMs to head office 6 – week prior to expiry.

The Annual review, among others, will focus on the following:

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1. Credit Check (CIB, Other Bank Credit Reports, Market Sources, etc.)2. Overall exposure of client in the banking sector vis-à-vis net worth & total assets3. Account Conduct, Turnover, Repayment position, & earning form Relationship4. Review of Sector / Market / Economy5. Review of Risk Grade and Relationship Policy6. Factory / Stock / Security Inspection7. Documentation Status8. Covenants Compliance9. Insurance Compliance10. Audit Compliance11. Projections / Spread Sheet and Financial Analysis (at least past two years and

projected one year). Comments on variance on past projections in sales, earnings, etc.

12. Justification of limits proposed for renewal / enhancement / reduction vis-à-vis projections of client’s business in the next one / more years

13. Justification for change in pricing 14. Uses of borrowed funds are confirmed through Financial Statement Analysis

10.9.2 Other issues related to approval:I. All approvals are to be done on single obligor basis within the lending cap of the

Bank. Substantive clarification requires the approval of all original officials related to approval process.

II. Time frame for declining proposals is (30 days for fully documented CMs).III. Approved CMs along with the Web supports are sent to MD, HOC, HOM and

Branches through Banks E-mail system.IV. RMs to prepare sanction advice which is to be issued to the clients with counter

signature of Branches Managers.V. Deferrals for rollover of expired limits are to be obtained from competent

authority for genuine reasons with adequate justification.VI. Change of sanction terms will require approval of the sanctioning authority.

10.10 DelegationONE Bank has adopted a centralized approval process based on its on line IT system with comparatively medium size of the credit portfolio having large and corporate client concentration in limited number of branches. Marketing approval and disbursement function are segregated at Head Office Level.

Branch Managers, being heads business units / profit centers and engaged in business procurement, are not involved in the approval process. Their business procurement activities are directly supervised and monitored by Head of Marketing as on – going process who is not also involved in approval process except for recommending the CMs. Bringing loans administration function of branches directly under HO Loan Admin is an on-going initiative.

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Approval function is still centralized. However, business power is being delegated to the Management on reviewing the size of loan portfolio, number of branches, concentration of loans, credit knowledge and exposure of senior credit executives. OBL, for the sake of transparency and accountability, follows delegation to individuals, not to a committee.

Table: 10.2 Delegations to Managing DirectorFacility Type AmountLoans Against Pledge Of FDR / MMM / Other Financial Instruments Up to Tk. 20.00 croreLoans under approved Consumer Credit Scheme and structured Small Business Loan

Up to Tk. 10.00 lac

Issuance of Sight LC including inland LC, Bid Bond, Performance Bond, Advance Payment Guarantee at 100% cash margin

Up to Tk. 20.00 crore

Issuance Of Bid Bond / Performance Bond Up To 1 Year Favoring Bangladeshi Individuals Or Institutions Against Counter Guarantee Of A 1st Class International Bank

Up to Tk. 3.00 crore

Purchase of Inland Documentary Bills, Governments Cheques, Pay Orders, Drafts, Sight and 180 days usance bills under LCs of 1 st class banks

Up to Tk. 3.00 crore

Table: 10.3 Delegation to the Executive Committee of the Board of Directors of the Bank

Facilities AmountAll facilities beyond the delegated business power of the Managing Director

35% of the total capital of the bank of which maximum funded facilities will be 15% of Total capital or as amended from time to time by Bangladesh Bank for Single Obligor Exposure Cap.50% of bank’s total capital for export oriented clients or as amended from time to time by Bangladesh Bank for Single Obligor Exposure Cap.

All stock investment carries an implicit risk, as there is no guarantee of return on investment. Thus, trading or variability risk is the amount that the return may vary, up or down, from the expected return from investments.

Chapter Eleven

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11.1 Credit Management ProcessBusiness procurement, Credit approval & loan disbursement process are separate. While RMs & Head of Marketing are responsible for business procurement, Head of Credit is responsible for approval & Head of Loan Admin will handle disbursement. All disbursements activation of limits is to be done on completion of documentation formalities which starts after receipt of acceptance of the sanction by client.

Continuous monitoring of the transactions within approved limits and recovering the Bank’s dues in time will be core function of post sanction part of CRM. Review of loans MIS is to done on regular basis to detect early alert signals for taking timely corrective actions and avoiding credit surprises.

Client all, factory visit, godown inspection, maintaining industry intelligence should be the part of ongoing proactive monitoring functions of RMs and heads of business units. NPL management strategies should be set by the management for each loan and timely legal actions should be taken to recover bank’s dues and keep the credit portfolio healthy.

11.2 DocumentationCredit Administration Division is to ensure that all approval and documents are in placeSecurity documents are to be prepared in accordance with the approved terms and to be ensured that those are legally enforceableVetting of required documents by Bank’s approved lawyers and credit administration officers are to be done to ensure that bank’s security interests are perfectedExceptions are to be referred to legal counsel for advice after receiving authorization from HOC

11.3 DisbursementDisbursements under loan facilities are only made when all standard charge documents and security documentations are in place and preconditions for disbursements are metRM and Credit Administration officer to jointly prepare Documentation check listCredit Administration Division is to authorize disbursementEvidence of disbursement is to be documented in Disburse Authorization FromCredit Administration Divisions loads the approved facilities in the IT systemIncomplete documentation receives a temporary waiver from the approving authorityExcess Over Limit (EOL) are allowed under pre – fact approvalsAllowing one facility by earmarking unutilized credit lines of the client or the group will require pre – fact approvalA clean updated CIB report must be obtained before any disbursementAll formalities related to large loans and loans to Directors should be guided by Bangladesh Bank circulars and related section of Bank Company Act.

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Lending cap of the Bank should be maintained on single obligor basis.

11.4 Custodian DutyStorage of security documents shall be maintained in fire proof cabinets in strong room at Branch under joint custody of two authorized officialsAlternate officers are to be designated by Branch Manager in writingDocumentations are to be recorded in the Security Document Register and Safe – in & Safe – out RegisterAppropriate insurance coverage is to be maintained and renewed on timely basis. Authorization to debit client’s account to be taken to keep policy in order.

11.5 Compliance RequirementI. All required Bangladesh Bank returns are submitted in the correct format as per

scheduleII. Bangladesh Bank circulars / regulations / guidelines / advises are communicated

down the line immediately to ensure meticulous complianceIII. All third party service providers, viz., professional surveyors, lawyers, insurer etc.,

are approved and reviewed on annual basis.

11.6 Credit FilesCredit files are maintained at branch which should contain among others:

Credit application of the borrowerMemorandum and Articles of Association of the client and authentic copies other legal paper evidencing existence and operation of the client viz. Trade license, TIN certificate, Audited Balance Sheet, etc.Call reports / Site Visits / Inspection reportsSurveyor’s valuation report / Branch valuation reportApproved CMSanction adviceAll other approvalsAll disbursement recordLoan MISAudit report and compliance reportAll chronological correspondences with the client and offices

Head Office Credit Division, Marketing Division and Credit Administration Division should maintain shadow credit files with chronological correspondences and documents. List of credit files are to be maintained at branches and Credit Division at Head Office and only authorized persons should handle the files.

11.7 Credit MonitoringTo minimize credit loss, a robust monitoring procedure and system to be in place that provides an early indication about the deteriorating financial health of a borrower. At a minimum, system shall be in place to produce and report the following status reports to MD, HOC, HOM, and Branch Managers and RMs:

Past due principals or interest payments, past due trade bills, EOLsBreach of covenantsLoan terms and conditions that are not complied with, financial statements that are nor received on a regular basis

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Documentation deficienciesAny covenant breach or exception to be referred to HOC and RMs for timely follow up Expired Credit Lines / Expired CMs

Timely corrective actions are taken to address the above, and the findings of any internal, external, or regulatory audit.

Branch Monitoring:Monitor transactions in accounts to ensure turnover and utilization of limitsThoroughly reviewing all pars dues, collateral short fall, covenant breach, and other irregularities, if anyRectify all audit objections and follow their suggestionsPeriodic client calls and reviewed by Branch headFormal periodic review of all relationships and approved through submission of CMs at least annually. The review process is vigorous. Besides, usual account conduct and documentation, compliance of lending covenants and risk mitigates are reviewed and followed upFactory visit / stock inspection / and progress of work against work / implementation of projects are to be recorded and reviewedBorrower to be communicated about past dues, over due installments, expiry of insurance, guarantee, limits, etc.Early Alert reports are prepared within 7 days of identification weakness in the business and financial weakness of the client and sent to HO Loan Admin.

Loan Review Committee (LRC)

OBL’s IT system produces over due positions on three periods viz, 30 days, 60 days and 90 days and above. It also produces expired limits, and EOLs. The loan MIS are duly distributed to branches, HOM, HOC, HOO, HOCA and MD. A designated Loan Admin Officer follows up the positions with the branches on daily basis. Besides, the Loan Review Committee (LRC) of the Bank formally follows up the overdue position, expired limits and EOL with the branches on monthly basis which is minted for taking actions at the earliest, before the account further deteriorates.

11.8 Early Alert Process An Early Alert account is one that has risks or potential weaknesses of a material

nature requiring monitoring, supervision, or close attention by management

If these weaknesses are left uncorrected, they may result in deterioration of repayment of the loan with the possibility of the asset being downgraded.

Early identification, prompt reporting, and proactive management of Early Alert Accounts are prime credit responsibilities of all RMs and must be undertaken one continuous basis. An Early Alert Report should be completed by the RM that is showing signs of deterioration within seven days from the identification of weakness. The Risk Grade should be updated as soon as possible and no delay should be made in referring problem accounts to CRM for assistance in recovery.

Despite a prudent credit approval process, loans may still become troubled. Therefore, it is essential that early identification and prompt reporting of deteriorating credit signs be done to ensure swift action to protect bank’s interest.

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Moreover, regular contact with the customer will whence the likelihood of developing strategies mutually acceptable to both the customer and the bank.

An account may be upgraded as a regular account form Early Alert Account status when the symptom or symptoms causing the Early Alert status have been regularized or no longer exist. The concurrence of HOC is required for conversion of classification status.

11.9 NPL (Non Performing Loan) Management

All non – performing accounts (grade 6 or worse) should be transferred to the Recovery Unit. Within 7 days of an account being down grading to 6, a Request for Action (RFA) and a hand over / down grade check list shall be completed by the concerned RM and forwarded to Recovery Unit for acknowledgement.The account shall be assigned to an Account Manage / Workout Officer within the Recovery Unit, who will review all documentation, meet customer and prepare a Classified Loan Review Report (CLR) within 15 days of transfer. The CLR should be approved by HOC and copied to branch where the loan was originally sanctioned.The initial CLR shall highlight any documentation issues, loan structuring weaknesses, proposed workout strategy, and shall seek approval for any loan loss provision that are necessary.

Recovery Unit shall ensure that the following are carried out when an account is classified as grade 6 i.e. substandard or worse:

Facilities are withdrawn or repayment is demanded as appropriate. Any further drawings or advances should be restricted, and only approved after careful scrutiny and approval from HOC

CIB reporting is updated according to Bangladesh Bank Guidelines and the borrower’s risk grade is changed as appropriate.

Loan Losses are taken on based on Forced Sale Value (FSV).Loans are only rescheduled in accordance with the Loan Rescheduling guidelines

of Bangladesh Bank. Any rescheduling should be based on projected future cash flows, and should be strictly monitored.

Prompt legal action is taken if the borrower is uncooperative.NPL Account Manager / Workout Officer should be responsible for coordinating

and administering the action plan / recovery of the account, and serve as primary customer contact after the accounts are down graded to substandard.

While some assistance from the RMs may be sought, it is essential that the autonomy of the Recovery Unit be maintained to ensure that appropriate recovery strategies are implemented.

The management of Non Performing Loans must be a dynamic process, and the associated strategy together with the adequacy of provision must be regularly reviewed.

A process should be established to share the lessons learned from the experience of credit losses in order to update the lending guidelines.

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On quarterly basis, a Classified Loan Review Report (CLR) should be prepared by the Recovery Unit Manager to update the status of the action / recover plan, review and assess the adequacy of provision, and modify the bank’s strategy as appropriate.

MD and HOC of the Bank will approve the CLR for NPLs under intimation to the Board.

11.10 NPL Provisioning and Write OffThe guidelines established by Bangladesh Bank for CIB reporting, provisioning, and write off of bad and doubtful debts, and suspension of interest should be followed in all cases.Regardless of length of time a loan is past due, provision should be raised against

actual and expected loss at the time they are estimated.The approval to make provision, write offs release of provisions/ upgrade of an

account shall be restricted based on recommendation of HOC.On quarterly basis, a Classified Loan Review Report (CLR) should be prepared by

the Recovery Unit Manager to update the status of the action / recovery plan, review & assess adequacy of provision, & modify bank’s strategy as appropriate.

11.11 Guideline for Loan AdministrationA separate Process Guideline is being prepared by Loan Administration Division for Documentation, Loan Monitoring, and NPL Management.

11.12 Loan MIS ReportingThe following statements are to be placed the Senior Management and the Board for reviewing: Table: 11.1 Loan MIS ReportingSL Loan Statement Origination Frequency1 Activity Statement Branches Daily2 Daily Position Treasury Daily3 New Loan Approved Credit Division Monthly4 Loans renewed / enhanced Credit Division Monthly5 Loans declined Credit Division Monthly6 Past due position Loan Admin Monthly7 Loan portfolio status of the bank-branch and product wise Credit Division Quarterly8 Loan Classification Status Credit Division Quarterly9 Status report on top 20 defaulters Credit Division Quarterly10 Loan Concentration (Borrower, group, sector, branch) Credit Division Quarterly11 Large Loans Credit Division Quarterly12 Syndicate Loans Credit Division Quarterly13 Directors’ Loan Credit Division Quarterly14 Credit Risk Grading Report (consolidated, Branch Wise,

Grade Wise Borrower List)Credit Division Annually

Chapter Twelve

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12.1 Data Analysis:At each stage of survey, data is checked, edited & coded. By using Statistical techniques, data is summarized to find out expected result and presented that by graphical presentation. Data from various sources is coded entered into database system using Microsoft Excel Software. Preliminary data sheets are compared with original coding sheets to ensure the accuracy of data entered.

12.2 Accounting Statement & Ratio Analysis (June 30, 2006, Unaudited Provisional Annual Report)

A. Return on Assets : (Net Profit/Total Assets)*100

Net Profit 154014002Total Assets 336895645

ROA= 45.71564052

B. Return On Equity: ( Net Profit/Equity)*100Net Profit 154014002

Share Capital 888030000Reserve 319193341Retained Earnings

Equity= 1207223341

ROE= 12.75770578

C. Return On Capital: (Net Profit After Tax)/Capital Employed

Net Profit After Tax 157014002Capital Employed= Fixed Assets + (CA -CL) 13388488671

Fixed Assets 221092656Current Assets 13843204524

Current Liabilities (Total Liabilities-Term Deposit) 675808509(17933462141-17257653632)

ROC 1.172753743

D. Liquidity Ratio: Current Assets/ Current LiabilitiesCurrent Assets 13843204524Current Liabilities 675808509L Ratio = 20.48391569

E. Debt Management Ratio: Total Debt / Total AssetsTotal Debt: 17933462141

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Total Assets: 19255702509

DM Ratio= 93.13325303

F. Basic Earning Power: EBIT / Total AssetsEBIT: 292409316Total Assets: 19255702509

BEP = 1.518559584

G. Times Interest Earned Ratio: EBIT / Interest ChargesEBIT: 292409316

General Provision 19109928Specific Provision 12180616Interest Charges: 6929312

TIE Ratio = 42.19889594

H. Price Earning Ratio: Price Per share / EPS

Price Per Share 200EPS 17.68PE Ratio = 11.31221719

Figure – 12.1 Expenses of OBL

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Figure – 12.2 Assets of OBL

12.3 Impact on the BankThe product “Credit Appraisal Policy” is a key product for ONE Bank Limited as it contributes a good portion to the overall profitability of the bank. As a product of consumer banking, it contributes 8% to the consumer banking revenue. Since consumer banking consists of 50% of the overall revenue generated from the bank, the product “Personal loan Appraisal Policy” contributes approximately 4% to the overall profitability of the bank.

The balance sheet and income statement for ONE Bank Limited show that it is a very profitable bank. Its sales as well as the number of loans disbursed have been increasing steadily over the years. The operation of ONE Bank Limited is mainly divided into two portions namely consumer and corporate banking. 50% of the total profit comes from consumer banking and the other 50% comes from corporate banking. Of the 50% profit of consumer banking, personal loan for consumers accounts for approximately 8% of the total consumer revenue. The total number of loan accounts that have made this possible was 13000.

The contribution of loan for consumers in consumer banking through the last three years for ONE Bank Limited as a whole is as follows,

Table: 12.1 Contribution of personal loans in the overall profitability20048.2%

20058.25%

20068.3%

Source: ONE Bank Limited

The contribution of “Credit Appraisal Policy” relies on some key factors including the approval rate, decline rate as well as the net bad debt rate. The higher approval rate the higher contribution impact on the profitability of the bank. The empirical evidence of the product “Credit Appraisal Policy” shows that it has performed relatively well and contributes a good portion to the overall profitability of the bank. The salaried personnel, who comprise the major portion of the loan applicant has helped the product to attain this state. The trend analysis affirms the fact that the product is continually doing well.

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Loan & Advance

InvestmentFixed asset short time

Others bankCash

Fixed AssetUnbanking assetOther asset

12.4 SWOT Analysis of ONE Bank Limited.

Strength1. Superior Asset quality.2. Experienced Top – level Executives.3. Satisfactory IT’s Infrastructure.4. It has a strong financial condition.5. Diversified product line.6. Comfortable capital base.

Opportunities1. CAMEL rating (A) grade bank.2. Goodwill to marketing sector.3. Using the Internet and e-commerce technologies.4. Reputation to new geographic areas.5. DSE and CSE member.6. High Dividend payer and capital base business.

Weakness1. Exposure of large loans.2. Limited delegation of authority.3. Internal operation problems.4. Tight liquidity position.5. Dependence on interest rate sensitive fund.

 Threats1. Increased competition in the market quality assets.2. Costly new regulatory requirements.3. Growing bargaining power of customer or supplier.4. Market pressure for lowering the interest rate.

12.4.1 Strengths of ONE Bank Limited (OBL):

ONE Bank Limited (OBL) is newly established Commercial Bank in the Banking Sector but it builds strong reputation in short time.

The Financial Condition of OBL is very strong. It’s Loan and Deposit Quality is better than most other Private Commercial Banks in Bangladesh.

OBL has strong network throughout the country and provide quality services to every level of Customers.

OBL’s Correspondents Relationship with more than 200, International and Local Banks created Global Accessibility and Relationship with People.

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Installation and use of highly sophisticated, automated System (For example, FLEXCUBE) enables ONE Bank Limited (OBL) to have on time communication with all Branches reduces excessive paper-works waste of time for Valued Customer Transaction.

ATM Cards of OBL give the Customers 24-hours Banking Facilities from his/her Accounts.

Phone Banking of OBL gives the Customers, opportunity to make Enquiries and Service Request over the Telephone.

Cash Advance from Credit Cards of OBL attracts more Customers to interact with the bank.

. 12.4.2 Weaknesses of ONE Bank Limited (OBL):

One of the greatest weaknesses for ONE Bank Limited (OBL) is the Shortage of Manpower in every Division. During the Working Hours of the Bank, the Employees have to be fatigued and cannot provide proper attention that type of Services, which create dissatisfaction of the Customers.

Higher Service Charge in some areas of Banking Operations than that of the Nationalized Commercial Banks discourage the Customers for opening and maintaining Accounts with OBL.

Growth in Assets of a Bank depends on hoe fast its Deposits grow. But in the Deposit side OBL is facing some problems from its Competitors. Because the Competitors are giving a Higher Interest Rate in Deposits without any reason, which could be deteriorated its Position than before. Because of this a lot of Depositors are leaving the Bank.

There is a very little practice for increasing Motivation in the Employees by the Management of ONE Bank Limited (OBL), which discourages them to provide the best Service to the Customers. This is another Weakness of the Bank.

12.4.3 Opportunities of ONE Bank Limited (OBL):The greatest Opportunity for ONE Bank Limited (OBL) lies in the increase of standard of living of a certain mass of the Population as well as their acceptance of the Nation of Consumer Financing and Short Term Lending.

The Credit Facility offered by ONE Bank Ltd. (OBL) attracted Security & Status conscious Businessmen & as well as Service holders with Higher Income Group.

12.4.4 Threats of ONE Bank Limited (OBL):The Central Bank exercise strict control over all Banking Activities in Local Banks likes ONE Bank Limited (OBL). Sometimes the restrictions impose barrier in the Normal Operations and Policies of the Bank.

Revival Banks easily copy the Product offering of ONE Bank Limited (OBL). Therefore the Bank is in continuous of Product Innovation to gain Temporary Advantage over its Competitors. This is another Treat of the Bank.

Sometime Political Loans are the Threat for the Banking Service.

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Chapter Thirteen

During the course of the undertaken study, several findings have been stumbled upon with which have been summarized and discussed below-.

1. Loan administration of ONE Bank Limited enables it to ensure a smooth loan system.

2. The empirical evidence of the product suggests that it is performing quite well and contributes a good portion to the overall profitability of the bank.

3. Over the years the loan applications received, approved have all seen an increasing trend while the number of loan declined has a decreasing trend.

4. The bank should try to arrange more training programs for their officials. Quality training will help the officials to enrich them with more recent knowledge of International Trade Financing.

5. In case of Export L/Cs, the Government encourages the exporters by giving different facilities like tax-cuts. I think the bank should also think about such type of facilities to be given to the Exporters because Bangladeshi exporters like Readymade garments exporters are going to face a tough situation in coming years from the exporters of other countries.

6. OBL Motijheel branch has not adequate number of skilled manpower in foreign exchange department.

7. OBL is one of the largest private commercial bank in our country. Therefore, it must think seriously to adopt ON LINE banking.

8. The superior customer service providing by ONE Bank Limited is due largely to its affiliation and strong brand image.

9. OBL Motijheel branch has ATM facilities. Very few bank in our country offer this. By using this modern technology Motijheel branch, provide fastest service on loan for customer, any type of account opining, L/C operating to its client.

10. The bank is constantly expanding and improving its performance.

11. The segmentation analysis further suggests that among the loan takers, the salaried employees are the highest. The salaried employees are safe for the bank and they have almost no default risk scenario.

12. Although the current offering for the personal loan is a lucrative one, there is still scope for further improvement which would be beneficial for the bank as well as the customers.

Financial institutions have always played an imperative role in strengthening the economic infrastructure of the country. Banks such as ONE Bank Limited has been at the forefront on this role. Among its various products, personal loan appraisal policy plays an

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important role in maintaining its profit. Although right now the products contribution in comparison to the other products is not that high, it can certainly be hoped that with proper modification and policy change it will surely become a large profit earning sector for the bank. The different features of the product identifies it as a convenient way for the consumers to avail loan for a variety of purposes and the loan evaluation criteria’s also help to assess the different aspects of the products applicant.Finally it can be argued that personal loan appraisal policy for consumers’ credit program of ONE Bank Limited has been operating more or less in the desired direction. However, I have identified some loopholes of the program which needs special attention. I hope that if the existing problems are addressed properly the bank will be able to expand the program as per their target and it will continue to provide more revenues in maximizing the wealth of the bank in the years to come.

13.1 Major Problems Relevant to Customer Service

There are some major problems relevant to Customer Service of ONE Bank Limited (OBL). They are:

Delay in Cheque Book delivery is one of a major problem of Customer Service. Cheque Book delivery takes at least 4 days. Very often Customers express strong dissatisfaction over the delay of Cheque Book and all the Cheque Books are printed and prepared centrally at ONE Bank Main Branch. In some cases, it has been observed that it takes around 10 days to prepare the Cheque Book.

Sometime problems arise due to the system failure and a long queue is found during the system failure. System failure gives arise to a longer time in providing Services and Signature Verification and Balance Check become impossible which leads to a long queue at the Counter.

In the first week of the month and on Sunday and Thursday, long line is found at the Counter. Sometime it kills around one and half hours for a transaction.

Lower Interest Rate on Fixed Deposit than other Private Commercial Banks. Marketing Policy of the Bank is not strong enough to attract Potential

Customers. Lesser number of Outlets is not enough to the Customers. Through all the

Branches are well placed, they are not adequate to serve large number of Potential Customers.

OBL loan policy is so lengthy process, that why they can not sanction or provide enough loans for the customer and as a result they can not full fills their target to profit maximization policy.

13.2 Observations of the Study:1. Interest rates for different types of loans and advances vary to different customers. A

prospective customer is allowed to take credit facilities at a lower interest rate. Again, the interest is charged at a higher rate to a customer who is not so prospective.

But I think that there should be a transparent interest policy that will be prospective for the bank, the borrower and the country.

2. Though Lending Risk Analysis (LRA) is done here; it is not with so much importance in case of loan disbursement. Sometimes customers argue that LRA is an unnecessary thing and the Bank should avoid it. They try to argue that even their LRA is not good,

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thy will be good borrower. For these reasons, Bank cannot follow the policy to disburse loans according to LRA so strictly.

I think that LRA should be maintained properly in banks. In the course of time, it proves its necessity.

3. The percentage of classified loan in the year 1998 was 2.04%, which is satisfactory.As the amount of loans and advance disbursement by the bank, the bank should be more careful about its credit operation. It should make its employees more trained and more skilled about the credit approval system.

One Bank Ltd. is one of the most potential Banks in the banking sector. It has a large portfolio with huge assets to meet up its liabilities and the management of this bank is equipped with the expert bankers and managers in all level of management. So it is not an easy job to find out the drawbacks of this branch. I would rather feel like producing my personal opinion about the ongoing practices in Motijheel Branch.For the improvement of the service the following measures should be taken:

Providing more industrial loans: It seemed to me that the bank having a large amount of deposit isn’t encouraging large scale producers that much of long term industrial loans to accelerate economy as well as to help the economy to solve unemployment problem.

Ensure Proper Division of Labor In The Desk: There is lack of division of labor in the branch. Therefore every body has to handle every type of banking services. This decreases the level of performance of the personnel, though it reduces monotonousness. But lack of division of labor hampers the discipline of working environment. So customers are to wait for some time for the desired service, which is contrary to the ONE Bank Ltd. objective.

Ensure Sufficient Manpower: The number of human resources in import section and in clearing section is really insufficient to give services to huge number of customers. So, number of staff should be increased in those sections for OBL.

Development of Human Resources: Human resource is another sector for the branch to be developed urgently. Human resources, in Motijheel branch, need to be equipped with adequate banking knowledge. Majority of the human resources must be having basic knowledge regarding money, banking, finance and accounting. Without proper knowledge in these subjects, efficiency cannot be optimized. Bank can arrange training program on these subjects. Ensure Proper Maintenance of Files: One Bank Ltd. gives personalized services. All the officers have to give concentration to the customers, while doing this they cannot properly maintain the customer files. In many cases, application forms are not properly filled up and documents are not properly filed. Every staff should try to reduce these irregularities.

Ensure Proper Maintenance of Office Premises: Motijheel Branch is supposed to be very neat and clean and well decorated. But sometimes it loses its glamour. The cleaners are not regular in their duties and files and papers are kept here and there by the officers during the busy hour. This habit must be changed. Moreover, the sitting arrangement is very insufficient comparing with the number of customers. So, Motijheel Branch of OBL must pay attention to this issue.

Ensure Proper Communication System and Maintenance of Machineries: Most of the time the branch’s computers remain out of order and it is also true for the photocopiers

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and printer machine. Attention should be given on proper maintenance of phone, CC TV, computer, fax machine and photocopier.

Ensure Sufficient Forms and Brochures: There are always shortages of application forms, brochures, etc. in the branch. These Forms and Brochures must be maintained in sufficient quantity. Otherwise, customer service will be hampered.

More Gifts and Discounts for the Premium Customers: Premium Customer should be offered occasional gifts and discounts, which can make the Premium Service more attractive and keep consumer delight. The interest rates on several loan and deposit schemes should be differentiated for the Premium customers.

Offer Some Loan and Deposit Scheme Exclusively for the Premium Customers: All the lending and savings packages offered to the Premium customers are same as offered to the general customers, excepting the waiver of service charges for Premium Ones. One Bank Limited should try to introduce more attractive lending and savings scheme to its Premium customers to create more business for the Bank. The OBL can pay more attention to this segment of customers, as it is the most solvent group from which income can be generated if the package is designed properly.

More Strict Security should be maintained: Motijheel Branch is such a branch, where millions of Taka transactions are handled regularly. The security guards assigned in the branch do not have any arms. Sometimes, it has been observed that miscreants try to enter into the premises and Managers have to face these odds. Therefore, more strict security should be maintained.

Bank should be computerized: There are computers almost in every branch in the ONE Bank Ltd., but it does not mean that the bank is maintaining a network among them. The networking system obviously charges a high installation cost, but it will definitely reduce the overhead costs and an error free banking may be in progress. Moreover by adopting this system the bank can join the modern banking along with e-commerce concept. The main problem is that the foreign banks and other private commercial banks have started providing these facilities. So introduction of these facilities are very necessary for surviving and thriving in the modern competitive banking.

In the event of a borrower's bankruptcy, the lender may have to share the borrower's assets with competing creditors and may receive only partial satisfaction or even none at all. Lenders, therefore, urge borrowers to give security for the loan unless the credit standing of a specific debtor is free from any doubt. A security interest on goods (called collateral) entitles the creditor to satisfy his outstanding claim from the charged good to the exclusion of the other creditors of the borrower to take the of banker’s action.

Term loans involve more risk to the lender than do short-term loans. The lending institution's funds are tied up for a long period, and during this time the borrower's situation can change markedly. To protect themselves, lenders often include in the loan agreement stipulations that the borrowing company maintain its current liquidity ratio at a specified level, limit its acquisitions of fixed assets, keep its debt ratio below a stated amount, and in general follow policies that are acceptable to the lending institution. A loan is a contract between lender and borrower. It may consist of the immediate giving of money against the borrower's promise of repayment, or the contract may contain a promise of the lender to give the money at a future date. In the latter case it may sometimes happen that a borrower must sue an unwilling lender for performance of the promise to make the loan. So it is very carefully to take the action when to make a loan.

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Chapter Fourteen

Bank is an institution that deals in money and its substitutes and provides other financial services. Banks accept deposits and make loans and derive a profit from the difference in the interest rates paid and charged, respectively. Banks are critical to our economy. The primary function of banks is to put their account holders' money to use by lending it out to others who can then use it to buy homes, businesses. When you deposit your money in the bank, your money goes into a big pool of money along with everyone else's, and your account is credited with the amount of your deposit. When you write checks or make withdrawals, that amount is deducted from your account balance. Interest you earn on your balance is also added to your account.

14.1 Baking SystemA bank is a commercial or state institution that provides financial services , including issuing money in various forms, receiving deposits of money, lending money and processing transactions and the creating of credit. A commercial bank accepts deposits from customers and in turn makes loans, even in excess of the deposits; a process known as fractional-reserve banking. Some banks (called Banks of issue) issue banknotes as legal tender. Many banks offer ancillary financial services to make additional profit; for example, most banks also rent safe deposit boxes in their branches.

Currently in most jurisdictions commercial banks are regulated and require permission to operate. Operational authority is granted by bank regulatory authorities who provide rights to conduct the most fundamental banking services such as accepting deposits and making loans. A commercial bank is usually defined as an institution that both accepts deposits and makes loans; there are also financial institutions that provide selected banking services without meeting the legal definition of a bank.

A bank generates a profit from the differential between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities. This difference is referred to as the spread between the cost of funds and the loan interest rate. Historically, profitability from lending activities has been cyclic and dependent on the needs and strengths of loan customers. In recent history, investors have demanded a more stable revenue stream and banks have therefore placed more emphasis on transaction fees, primarily loan fees but also including service charges on array of deposit activities and ancillary services (international banking, foreign exchange, insurance, investments, wire transfers, etc.). However, lending activities still provide the bulk of a commercial bank's income.

14.2 Services Typically Offered By BanksAlthough the basic type of services offered by a bank depends upon the type of bank and the country, services provided usually include:

Extending loans to individuals and businesses

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Cashing cheques Facilitating money transactions such as wire transfers and cashier's checks Issuing credit cards, ATM cards, and debit cards Storing valuables, particularly in a safe deposit box Cashing and distributing bank rolls Consumer & commercial financial advisory services Pension & retirement

planning

14.3 Types of BanksThere are several types of banking institutions, and initially they were quite distinct. Commercial banks were originally set up to provide services for businesses. Now, most commercial banks offer accounts to everyone.

Savings banks, savings and loans, cooperative banks and credit unions are actually classified as thrift institutions. Each originally concentrated on meeting specific needs of people who were not covered by commercial banks. Savings banks were originally founded in order to provide a place for lower-income workers to save their money. Savings and loan associations and cooperative banks were established during the 1800s to make it possible for factory workers and other lower-income workers to buy homes. Credit unions were usually started by people who shared a common bond, like working at the same company (usually a factory) or living in the same community. The credit union's main function was to provide emergency loans for people who couldn't get loans from traditional lenders. These loans might be for things like medical costs or home repairs.

Now, even though there is still a differentiation between banks and thrifts, they offer many of the same services. Commercial banks can offer car loans, thrift institutions can make commercial loans, and credit unions offer mortgages!

Cheque, Postal Order, Credit Card, Bank Giro Transfer, Direct Debit…There are many factors that will affect which payment methods should accept. The products sell, the media through which sell them and the countries are targeting are three important considerations in choosing payment options. Another important thing to consider is, whether can convert the payment instruments customers prefer to cash in a convenient, cost-effective way.

Banks create money in the economy by making loans. The amount of money that banks can lend is directly affected by the reserve requirement set by the Federal Reserve. The reserve requirement is currently 3 percent to 10 percent of a bank's total deposits. This amount can be held either in cash on hand or in the bank's reserve account with the Fed. To see how this affects the economy, think about it like this. When a bank gets a deposit of $100, assuming a reserve requirement of 10 percent, the bank can then lend out $90. That $90 goes back into the economy, purchasing goods or services, and usually ends up deposited in another bank. That bank can then lend out $81 of that $90 deposit, and that $81 goes into the economy to purchase goods or services and ultimately is deposited into another bank that proceeds to lend out a percentage of it.

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In this way, money grows and flows throughout the community in a much greater amount than physically exists. That $100 makes a much larger ripple in the economy than you may realize!

Banks make money by charging interest on loans, of course. In fact, there used to be a standard, tongue-in-cheek answer to this question: According to the 3-6-3 rule, bankers paid a 3 percent rate of interest on deposits, charged a 6 percent rate of interest on loans, and then headed to the golf course at 3 o clock. Like most good jokes, the 3-6-3 rule mixes a grain of truth with a highly simplified view of reality. To be sure, the interest margin banks earn by intermediating between depositors and borrowers continues to be the primary source of profits for most banking companies.

Bringing an idea into life and benefiting the community, as a whole is what progress, development, and prosperity are all about. Believe that the spirit of the entrepreneur is what drives the wheel of progress and development. We know that the key to national development is the growth of your financial assets in the capital market. As your savings grow, so does the nation. The nations first private bank with more than 20 years of knows- how, have been working relentlessly at the forefront of wealth-creation through our commercial banking operations.

At the advent of the new millennium, has expanded its service horizon toward investment banking with an important object: to better cater to the customers' needs by offering a comprehensive range of financial solutions staring from debt, to equity through public offering.

Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to High Net Worth Individuals and families; and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profits.

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Central banks are non-commercial bodies or government agencies often charged with controlling interest rates and money supply across the whole economy. They generally provide liquidity to the banking system and act as Lender of last resort in event of a crisis.

14.4 Banks in The Economy

Role in the money supply

A bank raises funds by attracting deposits, borrowing money in the inter-bank market, or issuing financial instruments in the money market or a capital market. The bank then lends out most of these funds to borrowers.

However, it would not be prudent for a bank to lend out all of its balance sheet. It must keep a certain proportion of its funds in reserve so that it can repay depositors who withdraw their deposits. Bank reserves are typically kept in the form of a deposit with a central bank. This behavior is called fractional-reserve banking and it is a central issue of monetary policy. Note that under Basel I (and the new round of Basel II), banks no longer keep deposits with central banks, but must maintain defined capital ratios.

Size of Global Banking Industry

Worldwide assets of the largest 1,000 banks grew 15.5% in 2005 to reach a record $60.5 trillion. This follows a 19.3% increase in the previous year. EU banks held the largest share, 50% at the end of 2005, up from 38% a decade earlier. The growth in Europe’s share was mostly at the expense of Japanese banks whose share more than halved during this period from 33% to 13%. The share of US banks also rose, from 10% to 14%. Most of the remainder was from other Asian and European countries.

Bank Crisis

Banking crises have developed many times throughout history when one or more risks materialize for a banking sector as a whole. Prominent examples include the U.S. Savings and Loan crisis in 1980s and early 1990s, the Japanese banking crisis during the 1990s, the bank run that occurred during the Great Depression, and the recent liquidation by the central Bank of Nigeria, where about 25 banks were liquidated.

Banks have taken many measures to ensure that they remain profitable while responding to ever-changing market conditions. Merging banking, investment, and insurance functions allows traditional banks to respond to increasing consumer demands for "one-stop shopping" by enabling cross-selling of products (which, the banks hope, will also increase profitability). They have expanded the use of risk-based pricing from business lending to consumer lending, which means charging higher interest rates to those customers that are considered to be a higher credit risk and thus increased chance of default on loans. This helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories, and offers credit products to high risk customers who would otherwise been denied credit. They have sought to increase the methods of payment processing available to the general public and business clients. These products include debit cards, pre-paid cards, smart-cards, and credit cards. These products make it easier for consumers to conveniently make transactions and smooth their consumption over time (in some countries with under-developed financial systems, it is still common to deal strictly in cash, including carrying suitcases filled with cash to purchase a home).

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14.5 Banking PolicyCustomer's satisfaction is the top priority of the Bank. Bank being the first private sector bank is always one step ahead of the other competitors in serving the customers need.Bank in its goal has mentioned that customer's expectations will be met through innovative financial products and services. A bunch of young and energetic work force is engaged to serve the valued customers.

14.6 Banking ProductsDeposit Term Deposit Loan & AdvancesSavings Deposit AccountCurrent Deposit AccountShort Term Deposit AccountResident Foreign Currency DepositForeign Currency DepositConvertible Taka AccountNon-Convertible Taka AccountExporter's FC Deposit(FBPAR)Current Deposit Account-BankShort Term Deposit Account-Bank

MONTHLY TERM DEPOSITTERM DEPOSIT 3 MONTHSTERM DEPOSIT 6 MONTHSTERM DEPOSIT 12 MONTHSTERM DEPOSIT 12 MONTHSTERM DEPOSIT 24 MONTHSTERM DEPOSIT 24 MONTHS 1 Year PAYOUTTERM DEPOSIT 36 MONTHSTERM DEPOSIT 36 MONTHS 6 Months PAYOUTTERM DEPOSIT 36 MONTHS 1 Year PAYOUTTERM DEPOSIT ABOVE 36 MONTHSMONTHLY TERM DEPOSIT BANKSTERM DEPOSIT 3 MONTHS BANKSTERM DEPOSIT 6 MONTHS BANKSTERM DEPOSIT 12 MONTHS BANKS1 MONTH TD NFCD3 MONTHS TD NFCD6 MONTHS TD NFCD

Loan agst. Trust ReceiptTransport LoanConsumer Credit SchemeReal Estate Loan (Res. & Comm.)Loan Agst. Accepted BillIndustrial Term LoanAgricultural Term LoanLease FinanceOther Term LoanFMO Local currency Loan for SMEFMO Foreign currency LoanCash Credit (Hypothecation)Small Shop Financing SchemeOverdraft

14.7 Highlight ONE Bank Limited

1.0 RATIONALECRISL has reaffirmed “A” (Pronounced “A”) rating in the Long Term and ST-3 in the Short Term to One Bank Limited above rating has been assigned on the of its satisfactory capital base, strong no funded income base, diversified product adequate liquidity position and satisfactory asset quality. However, the above ratings are somewhat outshined by the market share, moderate corporate governance, dependency on term deposits and higher cost of fund. These ratings been carried out on the basis of financials to 31st December, 2006. Financial Institutions rated in this category adjudged to offer adequate safety for repayment of financial obligations. This of rating indicates a bank with an adequate credit profile. The short-term indicates the high certainty with regard the obligor’s capacity to meet its financial commitments. This also indicates the factors are moderate in short term.

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2.0 CRISL PREVIOUS RATINGONE Bank Ltd. is under rating surveillance of CRISL since 2005. CRISL’s last Rating Report was on the basis of information and financial position available up to 1H2006

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wherein the bank was rated 'A' in the long run and ST-3 in the short run. It was done on the basis of the bank’s satisfactory capital base, strong non-funded income base, diversified product lines, satisfactory asset quality and prudent investment policy.

3.0 CORPORATE PROFILE3.1 GenesisThe One Bank Limited (hereinafter called OBL) is a third generation private sector bank incorporated on May 12, 1999 as a public limited company under Companies Act 1994. It commenced operation on July14, 1999 under the Banking Companies Act, 1991, with the vision to establish it as a role model in the Banking Sector of Bangladesh through meeting the customers’ need and ultimately to create value for the shareholders. The bank has been operating successfully through general banking and catering to the need of rapidly growing clientele. Over the years, OBL has been increasing its service coverage through setting up branches at different strategically important areas of the country. The bank has gone for Initial public offering of its shares on June 29, 2003 and raised its share capital to Tk.600 million at YE2003. The above had assisted the bank to maintain its Capital Adequacy Ratio to a great extent. The paid up capital as on 31st December 2006 stood at TK. 888.03 million. The OBL is now a publicly traded bank listed with both stock exchange of the country. The bank has been sponsored by different business Groups having exposure to trading, manufacturing and services covering various economic sectors of the national economy. Mr. Sayeed Hossain Chowdhury, Chairman of the bank, is the founder and Chairman of HRC Group as well as a member of British Institute of Management. With diversified product lines, the bank has been carrying out its business strategically with 23 branches.The staff strength of the bank as on December 31, 2006 stood at 576. With a market capitalization of Tk. 1038.99 million as on 31st December 2006 the shares of the bank are actively traded in the capital market. (Average market price for YE2006 Tk. 267.59).

3.2 Ownership PatternWith the IPO flotation in 2003 the ownership has been diversified among the sponsors, institutions and general shareholders, which was co ncentrated among the sponsors in the inception of the bank. Although the ownership of the sponsor group changes immediately after the IPO floatation it stood at 52.84% at the YE2006. The institutional shareholding of the bank stood at 17.83% keeping the remaining 29.33% with the general public. The directors of the bank hold 32.61% of total outstanding shares as on 31st December, 2006. The family shareholding composes of 8.68 % of total outstanding share by Mr. Sayeed Hossain Chowdhury and Ms. Farzana Chowdhury who are the members of the board of directors. Having two directors from the same family is against theBangladesh Bank rule which is pending in the honorable court for decision. Mr. Hefazatur Rahman and Mr. Zahur Ullah are two board members holding the highest number of shares of 5.10% and 4.79% individually. There are 14 shareholders who are holding shares (54.25%) above 100,000 indicating share concentration among few sponsors.

3.3 Branch NetworkThe bank has been operating its business through 23 branches (at YE2006) located at different important business areas. Of the above branches, five are located in rural areas. The bank has a philosophy to establish one rural branch along with 4 urban branches. There are 13 branches including the principal branch, in the Dhaka division covering the city’s main business points. Four branches are operating in Chittagong Division. Branches are also established in some important places like Bogra, Jessore, Sylhet, Chowmuhuni, Sherpur and Chandragonj. It has a plan to open four more branches during 2007. As a

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third generation bank, the branch distribution is in line with the peer and industry. It is expected that the existing branch network and the expansion program will be able to maintain its growth and Profitability in the coming future.

3.4 Products and ServicesOBL offers a wide range of commercial banking products and services, including On-Line Banking, ATM Services, home-banking, telephone-banking, sms-banking etc. Retail banking services of OBL includes deposit services, Current Account in Taka and major foreign currencies, convertible Taka Accounts, local and foreign currency remittances etc. to cater the banking requirements of multinational clients. In order to serve the institutional customer OBL’s Institutional banking covers the customer like foreign missions, NGOs and voluntary organizations, consultants, airlines, shipping lines, contractors, schools, colleges and universities. Under the Corporate Banking scheme, a comprehensive range of financial services including corporate deposit accounts, project and infrastructure finance, investment business counseling, working capital and other finances, bonds and guarantees are provided. Commercial Banking services include the conventional banking services like other banking institutions. OBL is also intended to introduce some other banking services to enhance its customer service base like merchant banking advisory services, capital market operation, Islamic banking services, farm and off-farm credits (rural), seed money for self-employment, credit to women entrepreneurs, consumer credit facility, and counter for payment of bills. The above products are appeared to be satisfactory to maintain OBL’s velocity of services.

4.0 HIGHLIGHTS OF OBL PERFORMANCEThe OBL has shown considerable improvement in the financial and operating performance during 2006. The percentage of term deposit in the total deposit composition has decreased and thus helping to reduce the interest expenditure. The investment composition shows new investment in shares and securities of capital market. Operating profit has increased by 41.52% in YE 2006 compared to YE2005. Income from non-funded activities has increased by 23.56%. The bank have tried to reduce the NPL and have kept sufficient provision as coverage, thus the gross NPL coverage increased to 162.76 million in YE2006 from 116.29 million in YE2005. OBL maintained sufficient assets against the liabilities in every bucket in terms of maturity and stepped toward reducing liquidity threat. The Capital Adequacy ratio has increased and stood at 10.03% at YE2006 from 9.47% at YE2005. As a third generation private commercial bank, OBL has been offering a good number of products and the intention to move for e- banking will enhance their customer base. For the improvement of the human resources, OBL has arranged foreign training and have recruited new professional during 2006. However, the performance of the bank shows decrease in market share in terms of deposit collection. The efficiency ratio shows the bank has been incurring more cost for the operation compared to the previous year.

5.0 OBL BUSINESS PROFILEOBL is a private sector commercial bank dedicated in the business line of taking deposits from public through its various saving schemes and lending the fund in various sectors at a higher margin. However, due attention is given in respect of risk undertaking, risk hedging and if not appropriately hedged, reflection of the same in pricing. In the financing side, the bank’s major concentration is in trade finance covering about 20.88% of total financing as on YE2006 which is mainly a short-term investment. The banks financing concentrate in both, working capital finance and long-term finance. OBL has major concentration of financing in medium and large industries.

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Since the short-term finance carries low risk compared to long-term finance; the financing strategy of OBL will assist the bank to keep the risk at minimal. While financing the industrial sector, the major concentration of the bank appeared to be in the textile and RMG sector; both the above sectors cover 30.89% of the total portfolio. OBL also involved in cement construction and transport sector financing. In the investment portfolio, OBL have substantial investment in quoted and non-quoted shares of different organization including some very prospective financial institutions. The bank has shown its acumen in reducing its exposure from ship scrapping sector, steel re-rolling where the bank had investment earlier. With the increase in exposure to RMG, the bank has increased its non-funded business income substantially. With an age of only 8 years, the OBL has taken initiative to launch IT based banking products like ATM facilities, E-banking etc that are praiseworthy.

6.0 INDUSTRY ANALYSIS6.1 Bangladesh Banking SectorKeeping pace with the global changes, the banking sector of the country has been undergoing a remarkable change during the last couple of years. In order to bring the sector in line with the international norms, the central bank has taken a number of steps under the Financial Sector Reform Program. The Bangladesh Bank has taken a number of steps through prudential circulars and through best practice guidelines to improve the governance practice of the sector in the last few years. Some of the worth mentioning steps were: limiting the percentage of family shareholding and directorship from the same family, limiting the number of directors in the board, obtaining prior permission of the central bank in appointment and termination of the services of CEO, issuance of best practice guidelines for core risk management, mandatory requirement of Risk grading system in order to minimize risk of credit etc. Most recently the central bank introduced the mandatory requirement annual credit rating for all schedule banks. The Bank for InternationalSettlement (BIS) has finalized the Basel-II Accord after issuing several consultative papers and impact studies and published the same under the title “International Convergence of Capital Measurements and Capital Standards” in June 2004 to be effective from 2006. Most of the developed and developing countries have drawn up the implementation plan of Basel-II in the irrespective countries. The neighboring countries in the process of implementing Basel –II Accord.Although the Basel Accord is not mandatory for the banks but international convergence and market forces will force the banks to adopt the same within next couple of years. The BangladeshBank has also decided to go for adoption of Basel-II with effect from January 2009 and formed two committees to explore the various aspects of its implementation and now conducting an impact study. Bangladesh Banking sector has 48 banks consisting of 4 NCBs, 5 specialized banks, 9 foreign banks, 24 private sector commercial banks and remaining 6 private sector banks operating on Shariah principles. The NCBs occupy 38.84% and 36.23% of market share of deposits and loans & advances respectively and others share the balance. The market share of private sector banks is in increasing trend. The Government has the plan to ultimately privatize the NCBS. CRISL expects a paradigm shift in the management pattern of the entire banking system on implementation of BaselCapital Accord. In the New Accord the risk emphasis has been expanded to both credit risk, market risk and operational risk. In order to assess the risk our neighboring countries like India and

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Pakistan has adopted standardized approach for Credit Risk and Basic Indicator Approach for operational risk which is considered to be easy for the banks at the initial stage. Under theStandardized Approach, the banks will determine the capital adequacy on the basis of the rating report of the counter parties from the rating agencies. In addition, 15% of the gross income of the banks will be applied in de training the capital base for operational risk. The above would warrant the financial institution to invest more in IT infrastructure systems and Human resources. The business operation will be more sensitive to risk and capital and in this connection the supervisory oversight will be stronger. Under the above backdrop CRISL believes that the OBL management will devise its operational strategy.

6.2 Market ShareOne Bank Limited is operating in the market only for eight years. During this period it has captured 1.01% of the total deposits of the market in YE2006. The banking industry of Bangladesh had aDeposit of Tk. 2,015,784 billion and Loans & Advances of Tk. 1,948,465 billion at YE 2006. OBL‘s customer Deposits and Loans and Advances stood at Tk.20.25 billion and 15.68 billion as on 31st2006, represents only 1.01% and 0.81% of industry deposits and loans and advances. The growth rate of the bank in term deposit is quite higher than its growth in making loans and advances. The bank has failed to maintain the increasing trend of its market share in terms of deposits (from 1.17% to 1.01% in YE2006) and loans & advances (from 1.15% to 0.81% in YE2006), which was supported by the low growth in deposits and loans & advances in comparison to the industry growth.

6.3 Non Funded Business (NFB)OBL achieved significant improvement in the non-funded activities. Total non-funded business income of OBL was Tk. 377.81 million in YE2006, which was 23.56% higher than the previous year.Non-funded income holds the major share of the total operating income (64.65% in YE2006 and 60.42% in YE2005), indicates bank has direct relation with foreign trade.

6.4 Saving MobilizationOBL with its 23 branches has been mobilizing savings through different deposit schemes. The, bank’s total deposit stood at Tk.20, 253.34 million as on 31st December 2006 which was 12.33% higher than the amount of the same period in YE2005. The growth rate of OBL’s saving mobilization (12.33%) was lower than the peer (22.14%) and industry (30.54%), indicates the bank may give low preference on deposits collection.

7.0 CORPORATE GOVERNANCEThe Corporate governance principles play a vital role in running an organization as a corporate citizen. It establishes trust among the interested parties, provides reliable information for the stakeholders, establishes professionalism, builds capacity to operate business efficiently and creates a congenial working environment, which ultimately assists the bank to enhance shareholders value and protects the interest of the stakeholders. The appropriate governance is inevitable to face the challenges of the present competitive business environment. Corporate governance in OBL may be outlined as follows:

7.1 Board of DirectorsThe Board of OBL is constituted with 11 Directors and Managing Director Mr. Sa yd Nurul Amin (Ex- Officio Member). The Board is headed by Mr. Sayeed Hossain Chowdhury as its Chairman. Mr. Chowdhury is the Chairman of HRC Group of

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companies, which is involved in different business sectors with wide business exposure. Out of 11, five directors are representing institutional shareholders. The Board conducted 14 and 16 meetings in YE2006 and YE2005 respectively. The Board deals with the policy issues, business philosophy and guides the management in achieving it desired targets. For smooth functioning of the bank, the board has formed two Board Committees namely Executive Committee and Audit Committee as per the guidance of Bangladesh Bank.

7.2 Executive Commit tee (EC)The EC of OBL consists of 6 members including the Managing Director Mr. Syed Nurul Amin. The EC is headed by the Board’s Chairman Mr. Sayeed Hossain Chowdhury. The EC held 08 and 10 meetings during the YE2006 and YE2005 respectively. The EC assists the management in various policy issues; offers approval to sanctions of loan and advances. It provides strategic guidance to the management and oversees the function of internal controls. The Executive Committee is headed by same person who is also the Chairman of the Board which is against the philosophy of appropriate corporate governance. Corporate governance practice suggests that the above two positions should be held by two different persons.

7.3 Audit CommitteeThe Board has a three-member Audit Committee (AC) as per Bangladesh Bank guidelines. The Audit Committee is headed by Mr. Asoke Das Gupta. The other two member of the AC are Mr. Zahur Ullah and Ms. Farzana Chowdhury. Out of above three members, Mr. Zahur Ullah has a business degree. It is to be noted that all the above three member are also the members of the Executive Committee which foils the objectives of forming independent Audit Committee. They are participating in the operational decisions as the member of EC, which is against the philosophy best corporate governance practice. The AC has conducted 5 meetings in the YE2006. In those meeting the Audit Committee reviewed internal audit functions, regulatory framework, compliance issues and recommended the course of action to internal and external auditors for removing the irregularities.

7.4 Delegation of PowerThe OBL follows the practice of moderate delegation to the operating management in order to continue smooth functioning of the Management. However, management can decide the approval of loans by taking consent of EC members through Internet. A centralized approval process is followed for credit approval, product launching etc at head office level. Business power is delegated to the management depending on the size of loan portfolio, concentration of loans, credit knowledge and experience of senior credit executive. However, for smooth functioning, some financial and operational power has also been delegated to the Managing Director and Deputy Managing Directors.

7.5 Management TeamThe Management team of OBL is headed by Mr. Syed Nurul Amin, Managing Director of the bank. Mr. Amin started his career in Muslim Commercial Bank Limited as an officer in 1965. During his four decades of banking career, he served AB Bank in different capacities, The City Bank Limited as its DMD and he was a nominated director of the bank in the board of directors of IDLC. He joined OBL in April 2003 as its Managing Director. In the management team, Mr. Amin is aided by a Chief Consultant and two Deputy Managing Directors, One Senior Executive Vice President, Four Executive Vice Presidents, Five Senior Vice Presidents, Eight Vice Presidents, Ten Senior Assistant Vice Presidents, Seventeen First Assistant Vice Presidents and Twenty seven Assistant Vice

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Presidents. The day-to-day banking functions are handled by these professionals who have modern banking knowledge and experience in respective fields. The above management team provide succession plan and has the acumen to carry the objectives of the bank smoothly.

7.6 Human Resources ManagementOBL has approved service rules covering various policies on employment conditions, performance appraisal, training and development, salary and other perquisites, leave etc. The bank provides long term benefits like provident fund, gratuity, bonuses etc for their employees. The total numbers of employees stood at 576 and 386 as YE2006 and YE2005 respectively. OBL has recruited 220 employees of different designation during YE2006 while the recruitment in YE2005 was 110 professionals. OBL has been increasing its staff strength to support its business expansion through need, OBL has established its policy for opening new branches. The OBL has also employee turnover vis a vis its new employments. During YE2006 and YE2005 OBL lost 32 and 22 employees respectively, including 2 higher officials (VP) in 2006. In order to improve the human resources and their quality in line with the modern banking training the employees. Generally the probationary officers are trained in different training institution. During 2006, 13 employees have gone abroad on 9 training courses with 3 workshops. Local training covers 119 officers and executives in 33 training courses and 7 Workshops regarding various issues of banking operation. However, the bank is still to have its own training institute.

7.7 Management Information SystemThe Management Information System (MIS) of One Bank Limited is in line with its requirement. The bank has been using “Micro Banker” banking software, in-house built personnel management information system (PMIS) and Nostro Account Reconciliation software etc. Presently OBL is operating online banking as a pioneer among local private banks of the country, through 23 installations in different locations and having some new proposed branches. All the branches of the bank are connected through microwave radio link as main link and several branches within Dhaka city are linked by fiber optic line. Recently the bank has introduced SMS banking and ATM services over the country. The bank has moderate safeguard against any disaster situation in order to continue the operation, where it has two servers- one as Main Server and other as back up server.Beside this, Bank has stored data in the form of soft copy in Hard Disk and preserve in a fire proof volt. One copy of that will send to a different branch as precaution against disaster situation. As a traditional safeguard system, all branches maintain the hard copy of all data in daily basis and send one copy to Head Office in order to reduce the risk. In order to investigate the IT activities of the bank a two member internal audit committee has been formed under direct supervision of the Head of Internal Control and developed their own policy for implementation of comprehensive IT audit.The bank has a plan to establish a full-fledged MIS platform with upcoming implementation of new banking solutions by the year 2008 to cope with Basel-II requirement.

8.0 RISK MANAGEMENTRisk Management system and its application in practice is an important part of the bank management. In order to implement the system -based banking through appropriate risk management system, the Bangladesh Bank has circulated Five Core Risks Management Best Practice Guidelines- Internal Control & Compliances, Credit Risk Management, Foreign Exchange Risk Management, Asset Liability Management and Prevention of

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Money Laundering. Under the above scenario the risk management system as practiced in OBL is outlined below:

8.1 Credit Risk ManagementCredit Risk management is one of the main functions of Bank/FI management. The Credit Risk Management System of OBL is still at its primary stage. Although the bank has adopted the best practice guideline suggested by Bangladesh Bank, it is yet to be made operational to a great extent. If any loan exceeds the discretionary power of any base line authority, it goes to the Executive Committee/Board. The product pricings are still not based on risk mapping. OBL is still to develop and implement sophisticated system based risk management system which is essential to cope with changing environment.

8.2 Asset Liability ManagementAsset Liability Management (ALM) is one of the most important functions of the banks and FIs. The OBL has formed an Asset Liability Management Committee (ALCO) comprising of 9 members of the senior management, headed by the Managing Director. Though the Committee should meet at least once in a month, OBL conducted 09 meetings in YE2006. ALCO meeting reviewed and resolved issues relating to money market situation, balance sheet gap, product pricing, assets growth, sensitivity analysis, recovery status, business plan for investment, deposit mobilization etc. The bank has a board approved ALM manual which was developed as per Bangladesh Bank best practice guide line for Assets liability management.

8.2.1 Gap AnalysisWhile analyzing the maturity structure of assets and liabilities, it has been observed that the bank has surplus in each maturity bucket. The cumulative balance in short run was Tk.254.29 million and in total was Tk.1518.82 million, indicates the bank has maintain a good match in the liquidity position in different maturity bucket. The performance at the YE2005 showed a shortage in the one to three months and three to twelve months maturity buckets which are covered successfully according to the reported financial position at YE 2006. This improvement may reduce the dependence on the money market.

8.3 Operational Risk ManagementIn the financial sector, banks are most regulated entity by Bangladesh Bank and the pressure for implementing BASEL-II requires more prudent policies for risk management. Risks for money laundering and adequate internal control and compliance are folded under the head of Operational Risk. OBL addressed such risk as follows:

8.3.1 Internal Control and ComplianceOBL has adopted its own board approved internal control manual to comply with the core risk management guidelines of Bangladesh Bank. The internal control division deals with the laws and regulation, audit and inspection, monitoring activities and risk assessment through three subdivisions namely compliance department, monitoring unit, audit and inspection. It undertakes comprehensive / special internal audit of the branches in order to

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find out the deficiencies in operations, weaknesses in the control system and report to the Board’s Audit Committee and Managing Director for their review and taking appropriate actions. The bank audit and inspection department has audited 22 branches and 16 branches out of total 23 branches during 2006 and 2005 respectively.

8.3.2 Prevention of Money LaunderingMoney laundering has potential devastating impact on economy, security and social values. OBL has developed it’s own Anti Money Laundering Manual in October 2002 and revised the policy in August 2004, as per Bangladesh Bank Guideline. A committee (Central Compliance unit) has been formed in the head office to monitor money laundering allied matter, headed by Mr. Md. Aftab Uddin Khan, Chief Anti Money Laundering Compliance Officer (CAMLCO). Anti Money Laundering Compliance Officer (AMLCO) is the head of operation of different branches, which is responsible for the reporting of AML related compliance issue of the branch to CAMLCO. Know Your Client (KYC) or Customer Due Diligence is used to collect customer details to prevent money laundering. The employees are being trained for detecting money laundering activities, though in some branches training was not held as per scheduled time. The internal audit division is responsible for scrutinize the branches practice regarding AML.

8.3.3 Market RiskMajor market risks are arising from Interest rate risk, Equity Risk, Commodity Risk and Foreign Exchange Risk. The position of OBL on market risk is as follows:

8.3.3.1. Interest Rate riskThe volatile trend of interest rate creates substantial interest rate risk for the banks. The OBL has been following a flexible interest rate system whereby the bank has the flexibility in increasing the interest rate and in some cases the bank has been revising the rates with the recommendation of the branch managers. Under the present scenario of money market most of the commercial banks including OBL has substantial interest rate risk which is being reflected through the decreasing trend in Net Interest Margin.8.3.3.2. Equity and Commodity Financing RiskOBL is increasing investment in capital market portfolio through the shares of different organization. In a stable capital market at present it does not have significant equity investment risk. However, the bank has investment in trading sector involving commodity finance. The commodity price has the volatility for which OBL carries commodity finance risk.

8.3.3.3. Foreign Exchange RiskForeign exchange risk is defined as the potential change in earnings that may arise due to change in market prices. Su ch risk may also arise from forward and future options. In the recent past, some of our local banks sustained a huge amount of loss in Foreign Exchange dealings. Considering this fact, Bangladesh Bank imposed restrictions on forward dealings and issued guidelines on Foreign Exchange Risk Management. OBL has a foreign exchange risk manual and investment policy, through which the foreign exchange operation is being dealt with. The bank has also developed different strategies of handling foreign currency risk and sets different limits. Bank maintains various nostro accounts in order to conduct operations in different currencies including Bangladeshi Taka. The senior management of the bank set limits for handling nostro accounts transactions that include time and amount limits.

9.0 PERFORMANCE

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One Bank Limited has shown stable performance over the period of 2005 to 2006. The overall performance of the bank may be reviewed under two heads, financial performance and Operating efficiency which are reviewed as follows:

9.1 Financial PerformanceThe financial performance of OBL was average in comparison to the peer. Financial performance of the bank is judged in terms of Net Interest Margin (NIM), Return on average assets (ROAA) andReturn on Average Equity (ROAE). OBL’s gross interest income of Tk. 2,157.12 million in EY2006 compared to Tk. 1,525.48 million in YE2005 shows a satisfactory growth of 41.41% whereas a 26.37% growth in the net interest income was reflective of relatively higher increase (45.32%) in the interest expenditure. Though the Net interest income of OBL was increased by 26.37% in comparison to the previous year and shows a stable performance (2.44% in 2006, 2.43% in 2005) compared to the previous period however it was lower than the peer average (3.25%) at the YE2006. The earning per share of the bank stood at Tk. 39.06 compared to Tk. 37.46 in the previous year. In case of ROAA and ROAE, the bank performance was below peer average. It indicates that the return on the new investment of the bank was less profitable than previous.

9.2 Operating EfficiencyThe Operating Efficiency of OBL is average, which is judged in terms of its efficiency ratio (Cost to Income), personnel expenses to average assets and yield per Tk.100 staff cost. The cost to income ratio of the bank in 2006 has increased to 40.14% compared to 38.93% in 2005 indicating cost escalations and decrease in operating efficiency. On the other hand, the yield per Tk.100 staff costs is Tk.344 in YE2006, which is higher than the peer average Tk.300.65. The Overhead expenses were 56.71% and 61.91% of the total operating expenses in YE2006 and YE2005. The income composition of the bank is diversified and shows mixed picture over the last four years.Its interest income grabs the larger portion in the total income pie followed by fee income in YE2006 and YE2005. The bank’s interest income stood at Tk.398.42 million and Tk.315.27 million in YE2006 and YE2005 representing 35.35% and 39.58% share of total operating income respectively. The fee income stood at Tk.377.81 million in YE2006 compared to Tk.305.77 million in YE2005 indicating 23.56% growth. OBL’s share of commission, exchange and fees income was 64.65% and 60.42% in the total operating income during 2006. Its investment income contributes 5.78% and 5.42% in operating income pie in YE 2006 and YE 2005 respectively.

10.0 ASSET MANAGEMENTThe overall assets quality of OBL is quiet satisfactory in comparison to its peer. The bank’s total ,assets volume stood at Tk. 23,143.13 million as on 31st December 2006. The assets base of the bank has increased by Tk. 3038.15 million (15.11% increase) at the YE 2006 compared to total asset of 20104.98 million in YE 2005.

10.1 Non-Performing LoansThe OBL had a non performing loan (NPL) of Tk.226.00 Million in YE2006 compared to Tk.213.61 Million in YE2005, indicates 5.80% increase over the period. The gross NPL ratio (1.44% in 2006 and 1.54% in 2005) and the Net NPL ratio (0.65% in 2006 and 0.80% in 2005) both were decreasing indicating improved position in classified loan management. The gross NPL coverage ratio was 162.76% in YE2006 and 116.29% in YE2005 also indicates a good asset management position. The total non-performing assets to total loans ratio decreased from 1.54 of YE2005 to 1.44 of YE2006, indicates prudent judgment policy was used for taking investment decision.

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10.2 Sect oral ConcentrationThe portfolio of the bank is well diversified. The management sets privileged sectors every year after appropriate assessment of economic outlook and profitability. The main concentration of the bank is on RMG (34.62%) which is followed by Textile (15.94%) and Trade finance (12.72%). Most of the non-funded exposure was for RMG (55.24%) while Trade Finance (24.73%) leaded the funded exposure for the bank. The gross NPL of the bank was Tk.226.00 million as on 31st December, 2006 among those the leading contributory sectors are Trade Finance Tk.34.20 million (15.13%) and Transport Tk.22.26 million (9.85%). The bank has to consider positive and negative factors of credit risk at the time of issuing working capital loan.

10.3 Large Loan ExposureTotal number of loan defined as large loan as per the Bangladesh Bank guidelines was with 48 accounts as on YE2006, representing Tk.6,831.7 million and 43.57% of total outstanding loans and advances. These loans were given for different business purpose covering both funded and nonfunded facilities for different clients. Major contributory sector in the large loans exposure wareRMG followed by textile and spinning, steel re-rolling, cement and others.

10.4 Rescheduled loans and advancesThe bank has rescheduled its loans and advances to the amount of Tk.417.2 million (against 12 accounts) and Tk. 415.66 million (against 7 accounts) in YE2006 and YE2005, which was 2.66% and 3.03% of the total loans and advances respectively. During the YE2006, OBL has recovered Tk.122.42 million, which was satisfactory. However there are 5 accounts which have been rescheduled for 2nd times and declassified.

10.5 Off-Balance Sheet ExposureOBL manage its off-balance sheet (OBS) exposure in a traditional manner. The bank does not have documented guidelines to deal with this activity. The performance of the bank in respect to OBS is above the peer average. The total contingent liability of the bank accounts for 25.76% of total footings (assets with contra) and 34.70% of total assets as on YE2006 in comparison to 25.93% and 42.39% respectively in YE2005. Contingent liabilities are the mix of irrevocable Letters of credit (35.63%), Letter of guarantees (16.72%), Acceptance & Endorsement (47.35%) and Bills for collection (0.29%).

11.0 CAPITAL ADEQUACYThe capital adequacy ratio of One Bank Limited is satisfactory and in line with the peer average. The bank’s risk we lighted capital adequacy stood at 10.03%, 9.48% and 11.51% as on YE2006, YE2005 and YE2004 respectively against the Bangladesh Bank requirement of 9%. Risk weighted assets of the bank stood at Tk.16456.91 million as on YE2006 indicating 19.26% growth during last twelve months compared to YE2005 (Tk.13,798.65). The internal capital generation ratio stood at 23.94% and 20.25% in YE2006 and YE2005 respectively against the peer average 25.27% in YE2006. There is a positive trend in the shareholders fund to total assets, deposits and net loans & advances compared to YE2005 indicating an improvement in the resource base.

12.0 LIQUIDITY AND FUNDINGOBL has adequate Cash Reserve Ratio (CRR) and Statutory Liquid Ratio (SLR) as on 31st December, 2006. The Bank’s liquid asset ratio stood at 27.06% in YE2006 compared to 27.77% in YE2005.The bank has surplus in cash reserve Tk.22.70 million and Tk.50.21 million and other than CRR Tk.440.59 million and Tk.362.52 million in YE2006 and YE2005 respectively.

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The bank’s loans and advances to deposit ratio was 81.66% and 85.57% in YE2006 and YE2005 respectively, when peer average was 85.74% in YE 2006 indicating a conservative lending policy.

12.1 Fund ManagementThe bank is largely funded through customer deposit which was 96.38% and 98.94% of the total deposit in YE2006 and YE2005 respectively. The bank’s total deposits were increased by 15.32% inYE2006 in comparison to YE2005. The average cost of fund was 11.91% and 10.85% in YE2006 and YE2005 respectively. The cost of fund is high and is in upward trend, this indicates upper trend in the cost due to less efficiency in operation. The average cost of deposits including inter-bank borrowing was 9.46% as on 31st December, 2006 whereas it was 8.41% in YE2005. Most of the term deposits (82.82% in YE2006) of the bank were FDRs and the share of current and savings deposits stood at 16.39% and 15.25% in YE2006 and YE2005 respectively. In comparison to the peer average, OBL has more dependency on term deposits which is considered to be vulnerable for the bank.

12.2 Investment PolicyThe bank has written guideline on investment and follows conservative policy in this respect. About 78.01% of the investment is in Government Securities earning low interest. The above investments are mainly for SLR maintenance. There are investments in shares of listed and non listed organizations. During the year 2006 the bank has purchased 268,695 nos. of shares of the City Bank Ltd. from the capital market, received 335,137 nos. Bonus shares and sold 292,025 shares which was generated capital gain of Tk.133.03 million. It observes that the bank increased their investment in capital market which will create opportunity to earn more return on the investment.

13.0 PROSPECTSThe financial sector of Bangladesh is now considered to be the most regulated sector compared to mother sectors in the country. There are 48 banks operated in a small economy like Bangladesh resulting tough competition to grab the market share. Macroeconomic indicators of Bangladesh were volatile during the last six months of the fiscal year 2006-07. The economy is facing high inflation and turmoil in the money market due to exorbitant rate of imported oil and several times devaluation of local currency against foreign currency. In order to ease the inflationary pressure and to control excessive credit, Bangladesh Bank has been following concretionary monetary policy from the beginning of the year 2005. Banks are being encouraged to increase interest rate, both in deposit and lending. The central Bank has increased the CRR from 4.00% to 5.00% from March 2005.

Despite the above setbacks, the macro-economy outlook for fiscal year 2006-07 remained favorable due to enhanced remittances from abroad, strong performance in the ready-made garments industry and overall growth in the industrial and service sectors. After reviewing the favorable state of the economy, the Government and development partners envisage a 6% to 6.5%

GDP growth in the fiscal year 2006-07 which is still, however, lower than the 7%, required to achieve the Millennium Development Goals. Industrial production continues

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to register strong performances reflecting steady growth despite the earlier concerns about the adverse effect on the industrial sector on account of the ending of MFA quotas. Bank for International Settlement (BIS) has issued Basel-II Capital Accord, which is in the process of implementation globally. Under this framework, capital adequacy will be determined in either Standardized Approach or Internal Rating Based Approach. Most of the developed and developing countries even our neighboring countries have already taken initiatives to implement Basel-II beginning of 2007. Realizing the importance, Bangladesh Bank has already declared the implementation strategy of Basel-II by the beginning of 2009 as said earlier.

As a third generation bank OBL has been operating successfully in the banking arena for seven years. Modern banking depends on comprehensive risk management, modern banking knowledge and swift customer services through real time online banking. In the upcoming days, for maintaining the accelerated pace of business growth and operating performance, the bank will have to invest money for the development of IT infrastructure, HR quality and research. However, the present Management has been trying to overcome the shortcomings of the bank to make it as one of the best private commercial bank in Bangladesh in terms of efficient performance in capital, adequacy, good asset quality, sound management, good profitability and strong liquidity deploying the best efforts with strong support from sponsors. However, the success of the bank will depend on proper implementation of Core Risk Management, achieving good profitability and at the same time maintaining good asset quality.

Information used herein is obtained from sources believed to be accurate and reliable. However, CRISL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Rating is an opinion on credit quality only and is not a recommendation to buy or sell any securities. All rights of this report are reserved by CRISL.

Capital History:

A. BALANCE SHEETAmount in million Tk.

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B. INCOME STATEMENTAmount in Million Tk.

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1. Expense ConceptA sum spends for goods or services, which therefore no longer represent an asset of the purchasing organization. They are used in the process of revenue earning. Expenses represent actual or expected cash outflows (payments). The effect of expenses is negative, a decrease in owner’s equity coupled with a decrease in assets or an increase in liabilities. Expenses are normally shown as charge against profit in the profit and loss account.1

An expense may be defined as a measured outflow of goods or services, which is matched with the revenue to determine income, or:…The decrease in net assets as a result of the use of economic services in the creation of revenues or of the imposition of taxes by governmental units. Expense is measured by the amount of the decrease in assets or the increase in liabilities related to the production and delivery of goods and the rendering of services…expense in its broadest sense include all expired costs which are deductible from revenues.2 Expenses are outflows or other using up of assets or incurrence of liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations.3

2. Interest ExpenseInterest expense is the sum of interest paid on all interest-bearing liabilities, including transaction accounts, time and savings deposits, short-time non-core liabilities, and long-term debt. Interest Expense Ratio = Interest Expense (IE) / Average Total Assets (aTA) a

1Jerry J. Weygandt and Donald E. Kieso, Accounting Principles, 5th Edition, page 152Milton F. Usry and Lawrence H. Hammer, Cost Accounting, 10th Edition, page 233Donald E. Kieso and Jerry J. Weygandt, Intermediate Accounting, 9th Edition, page 41This ratio can be better understand by a simple example,

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For ONE Bank the total interest paid on deposits in the year 2002 is tk.1, 421,108,863 and the average assets, total assets in 2002 plus total assets in 2001 divide by two, is tk.19, 114,378,197. So, Interest Expense Ratio for the year 2002 = tk.1, 421,108,863 / tk.19, 114,378,197 = 7.43%

3. Non- Interest ExpenseNon interest expense is composed primarily of personnel expense, which includes salaries and fringe benefits paid to bank employees, occupancy expense from rent and depreciation on equipment and premises, and other operating expenses, including technology expenditures, utilities, and deposit insurance premiums.

Non interest Expense Ratio = Non interest Expense (OE) / Total Average Assets (aTA) b

Again for DBL total non-interest expense for 2002 is tk.360, 744,420 and average assets are tk.19, 114,378,197.So, Non interest Expense Ratio = tk.360, 744,420 / tk.19, 114,378,197 = 1.89%

4. FormulasThe report is deal with the expenses that can be controlled or minimize to maximize the profit. In banks there are mainly two types of expenses and those are mentioned previously, interest and non-interest expenses. For better evaluation of a banks performance we should take other ratios into consideration. In this study we use:Provision for Loan Loss Ratio = Provision for Loan Losses (PLL) / Total Average Assets (aTA)c

Net Overhead Expense or Burden Ratio = (Non-interest Expense – Non-interest Income) / Total Average Assets (aTA) d

Efficiency Ratio = Non-interest Expense / (Net Interest Income + Non-interest Income) e

Assets per Employee = Average Assets / Number of Full-time EmployeesAverage Personnel Expense = Personnel Expense / Number of Full-time EmployeesLoans per Employee = Average Loan / Number of Full-time EmployeesNet Income per Employee = Net Income / Number of Full-time Employees

Better understanding and knowledge about the annual report or financial report of any organization can help any individual to calculate all of the above ratios. a,b,cTimothy W. Koch and S. Scott Macdonald, Bank Management, 5th Edition, Chapter 3, page 114d,eTimothy W. Koch and S. Scott Macdonald, Bank Management, 5th Edition, Chapter 5, page 201-2 f,g,h,iTimothy W. Koch and S. Scott Macdonald, Bank Management, 5th Edition, Chapter 5, page 204 f,g,h,iTimothy W. Koch and S. Scott Macdonald, Bank Management, 5th Edition, Chapter 5, page 204 Finding the expenses of any bank or organization is not that much difficult job. We can easily identify the expenses of a bank from its annual report. But all the data should be disclosed in the annual report. It is important to know the opinion of the officers who set up the criteria of expenses and also to identify which expense should be interest or non-interest bearing.

Chapter Fifteen

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The key to the success of banking, however, still lies in the confidence that consumers have in the bank's ability to grow and protect their money. Because banks rely so heavily on consumer trust, and trust depends on the perception of integrity, the banking industry is highly regulated by the government. a). Every Taka of expense saved will add to profit. Hence expenditures on all heads must be checked every month and queries will be made to the branch concerned about unusual and unapproved expenditures. Monthly statements of expenditures shall be thoroughly examined in Head Office and comments be sent to branches for correction/improvement. Delinquent branch managers shall be warned against irregularities in expenditures at the earliest but not later than 30 days from date of expenses incurred &reported to Head Office.b) Except small limits allowed to branch Managers to incur certain expenses viz. conveyance, entertainment, fuel, table stationeries and miscellaneous items all expenditure shall be made by Head Office or approved by Head Office. Expenditures on account of new furniture, office equipment, vehicles, air-conditions, computers and security stationeries must be made with approval of Head Office. For economy and uniform standard, it is advisable that relevant department at Head Office procure the items for the branches timely.

c) Interest paid account must be checked to check any over payment. Unusual increase must be commented and investigated by physical inspection.d) Postage, telex, fax and other expenses must not be allowed to increase without corresponding increase in income and business. It must be ensured that branches make recoveries of certain expenses incurred by it from the customers. Head Office must develop checking tools in this respect and use them to ascertain correctness.e) Constant reminders must be issued to branches for correct reporting of expenditure. Lapses must be handled firmly.f) One of the worst wastage made by branches is in stationary and printing of forms etc. These must be very carefully watched and compared with standard consumption ratios with volume of business and size of branch. Branches must explain any excess consumption. g) Repairs of various kinds especially repairs in vehicles must be strongly controlled.h) Expenses on consumption of fuels for vehicles are another area that needs to be controlled.i) Standard expenditure ratios in different head shall be developed for comparison and deviations must be looked into to find out reasons of deviations. Total expenditures including interests paid shall not exceed 75/80 per cent of total incomes of the bank.‘ j) Spot inspections by Departmental Officers from time to time should be made for more effective control and corrective measures.

Revenue Enhancement: ONE Bank Ltd. (OBL) now reforms their several products to element the hidden cost for customers. This way they will surely attract new customers as well as their old once. As they are new in Credit Card business so for the initial years they are spending more. They are trying to come up a better risk assessment to lower their default customer list and reducing other exercise cost that is lowering the profit.

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Expense Reduction: Because of the high cost of employee benefits, they appointed casual stuff (temporary) in their several divisions. Those stuffs are mainly collected for data processing, customer service, sales and recovery team. Those employees are from nonblank organizations, who are giving management consultancy. For those employees they do not have to pay health insurance, bonus, and other benefits.

Operating efficiencies: To improve the workflow of their employees they are rescheduling and reengineering their existing workforce. New recruiting employees are sending to their training center for further advancement

Contribution Growth: For better contribution growth recently OBL collected new upgraded software, which is Flex cube for online banking and PC banking. Though they have to pay a lot of money but by serving better to its customer, they are confidence enough to compete the market.

SuggestionsSuggestions Need to extend Branch Network and more New Branch to be opened in other Cities

and Towns of Bangladesh to reach out the Potential Customers. Adequate measures are to be taken to reduce System failure. As long queues are found in the first week of the month and on Sunday as well as on

Thursday, Flexible Multipurpose Counter can be opened for Customer Services. Check Book delivery time needs to be quickened and ONE Bank Ltd. (OBL) needs to

be liberal in issuing Counter Check of Customers required amount. ONE Bank Ltd. (OBL) needs to advertise through various Media about Credit Cards,

ATM Cards, Tele Banking and its other Products and Services. Apart from Advertising in Media, the Bank can take some steps for Personal Selling.

Staffs/Officers can be hired or Internees can be used for this purpose. The Brochures of the Products and Services of the Bank can be mailed or Circulated

by the Internees to the Potential Customers and Internees can give brief Idea to the Customers about the Products and Services of ONE Bank Ltd. (OBL)

The Brochures of the Products and Services of the bank can be mailed with the welcome letters along with the Statements of the Customers via courier. No extra cost will be incurred in this.

Like other bank, who arranged Money Link, Phone Link Nights to promote its Products and Services via Press and Public Exposures, ONE Bank Ltd. (OBL) can arrange Party, Meetings and Press Conferences to create Quality Image for the Bank.

For Cash Withdrawals and Deposits more ATM can be installed in major cities and towns across the Country through which Customers can easily get access to their Accounts.

As the Competitors offering a Higher Interest Rate on Deposits and Lower Charges in Loans, ONE Bank Ltd. (OBL) should think about it and if possible then maintain the Interest Rate and Bank Charges as similar as to its Competitors.

As other Private Commercial Banks like ONE Bank Ltd. (OBL) offering a more relaxed Individual Loan, so in order to compete the market ONE Bank Ltd. (OBL) should make their personal Loan more relaxed than other Competitors.

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Banking has become the inseparable part of social transactions. From the very early age, it has taken place in out society in a non – institutional form. Today is not like yesterday and tomorrow will be different from today. Given the fast changing, dynamic global economy and the increasing pressure of globalization, liberalization, consolidation and disintermediation, it is essential that OBL has a robust credit risk management policies and procedures that are sensitive to these changes. To improve the risk management culture further, OBL should adopt some of the industry best practices that are not practiced currently. Whereas short-term loans are repaid in a period of weeks or months, intermediate-term loans are scheduled for repayment in 1 to 15 years. Obligations due in 15 or more years are thought of as long-term debt. The major forms of intermediate-term financing include (1) term loans, (2) conditional sales contracts, and (3) lease financing. Most short-term business loans are unsecured, which means that an established company's credit rating qualifies it for a loan. It is ordinarily better to borrow on an unsecured basis, but frequently a borrower's credit rating is not strong enough to justify an unsecured loan. The most common types of collateral used for short-term credit are accounts receivable and inventories.

As the Central Bank has prescribed the common format for lending risk analysis, commercial banks have limitations to rearrange it anymore. So in most of the cases financial institutions and banks have to analyze the crucial factors on the basis of their subjective judgments.

Bank has to measure the effective and crucial factors, related to credit quality problem of the loan taking firms or individual borrowers. In this regard, financial institutions have to show their highest responsibility, commitment, potentiality as well as ethics and accountability to the loan screening process. Otherwise, bank would extremely suffer from credit quality problem and incur a great loss in the long run.

The role of credit is imperative in a financial institution. These credit schemes serve as the major source of revenue generation for the bank and as such needs to be handled with a lot of care. Successful loan application will have positive impact in attaining corporate mission and vision and ultimately to capitalize the wealth maximization objectives of the corporation. This report deals with the personal loan appraisal policy of ONE Bank Limited. Here, we have focused on different aspects of the program that are crucial for the management and for the best interest of the stakeholders.

“Loan Appraisal Policy” is one of the key products of ONE Bank Limited. The study mainly focuses on the performance of the product relying on the secondary data collected. During the course of the study a broad spectrum of topics within the loan product was covered.

The consumer credit schemes of ONE Bank Limited have helped a great deal to achieve the high performance of the bank. The bank has been able to retain its high performance

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through loan products such as auto loan, flexi loan, cash line, business installment loan, mortgage and personal loan for consumers.

Loan administration of the bank helps to administer the loan taking procedure through loan system, loan evaluation criteria as well as the consumer banking division’s administration under which the product operates on.

In assessing the performance of the product, the segmented analysis was used which show a prevalence of salaried employees. The trend analysis also suggests improved performance through increasing approval rate and decreasing decline rate. In addition to that we also see a stable contribution of the product to the overall profitability of the bank which was ultimately followed by the discussion regarding the growth of business since introduction.

The year 2007 faced the challenges due to several uncertainties. TK are confident that OBL will be excelling towards excellent growth in all sphere in 2007. The board of the directors of the bank take the opportunities to express gratitude to the shareholders, valued customers, patrons and well wishers of the bank for their appreciation and continued support and co-operation .the board of directors also places on record in deep appreciation for the employees, the steering wheels of the bank .the bank indebted to the government o the people’s republic pf Bangladesh ,Bangladesh bank, register of joint stock companies and firm securities and exchange commission, Dhaka and Chittagong stock exchange for their continued support towards the growth of the bank.

ONE Bank Ltd. (OBL) should practice a Participant Marginal Process because in this all the Employees get chance for Participating in Problem Recognition and Problem Solving and thi9s will make the Employees feel better which will work as a Motivation Weapon. Also Award System should be activated depending on the Performance Appraisal of the Employees.

To control expenditures is to increase profit. Every taka of expense saved is added to profit. Consider the competitive environment they should focus on the cost management strategy. They should adopt this strategy of allocating resources to the most profitable line to improve performance. For reducing the expense ONE Bank Limited takes certain strategies.

Bank with the power to make loans that, at least in part, eventually become new demand deposits. Because a commercial bank is required to hold only a fraction of its deposits as reserves, it can use some of the money on deposit to extend loans. When a borrower receives a loan, his checking account is credited with the amount of the loan; total demand deposits are thus increased until the loan is repaid. As a group, then, commercial banks are able to expand or contract the money supply by creating new demand deposits

The name commercial bank was first used to indicate that the loans extended were short-term loans to businesses, though loans later were extended to consumers, governments, and other non-business institutions as well. In general, the assets of commercial banks tend to be more liquid and carry less risk than the assets held by other financial intermediaries. The modern commercial bank also offers a wide variety of additional services to its customers, including savings deposits, safe-deposit boxes, and trust services.

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