The Report for ULC

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“Implementing Efficient Credit Analysis System at United Leasing Company”

United Leasing Company is a top rated Non Banking Financial Institute in Bangladesh. It is operating its business with clear vision and young talented management team. Credit department is the most important department for any NBFI. ULC has divided their credit department in 2 segments one is credit small enterprise and another one is credit corporate and medium enterprise. Both the credit department follows the same credit analysis guide line. The only basic difference is during credit analysis period visit is mandatory for Credit small and it’s not mandatory for credit corporate. In my report I tried to focus on how ULC has implemented efficient credit analysis system.

The report ‘‘Implementing Efficient Credit Analysis Process of United Leasing Company (ULC) Limited’’ is the outcome of Internship Program under Credit Small Enterprise of United Leasing Company (ULC) Limited. Internship Program is a precondition for acquiring BBA Degree, which gives a perfect opportunity to blend our theoretical knowledge with practical experience from a certain organization. Only curriculum activities are not enough for handling the real business environment, so it is necessary to get the better knowledge about the real scenario of an organization.

The prime objective of the internship program is to provide prospective undergraduates with on the job exposure and an opportunity to apply theoretical knowledge so far received into real life situation and the objective of the internship report is to meet the requirement for the degree of BBA. Now, the objectives of this report are being illustrated below:

To know about overall scenario of United Leasing Company. To illustrate the organization profile, structure and performance. SWOT Analysis of United Leasing Company. To illustrate its products and/or services and their benefits and costs. Finally, to give an overall and clear idea about Implementing Efficient Credit Analysis System.

This report solely deals with the ULC and the primary emphasis has given to Credit analysis system of United Leasing Company (ULC) Limited. The project is base on both primary and secondary information.

Primary Source:Mainly information for efficient credit analysis system had been collected through taking interviews from ULC employees. ( Mr. Mahmudur Rahman Khan, Management Trainee, Corporate Credit & Mr. Asif Ul Haque, Officer- Credit Small Enterprise)

Secondary Sources: Official Web Site of ULC (www.ulc.com.bd)

Annual Reports of ULC (2009)

1.1 BACKGROUND OF THE REPORT

1.2 OBJECTIVE OF THE REPORT

1.3 SCOPE AND METHODOLOGY

1.0 INTRODUCTION

http://www.ulc.com.bd/

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The major limitation I faced in preparing this report was the sensitivity of the data. As it is a highly competitive market, if the margin information is released to other competitors, it may have a negative impact on their business. Resultantly, in some cases management were reluctant to give some specific data.

Limitation of time was one of the most important factors that shortened the present study. Due to time limitation many aspect could not by discussed in the present study.

Confidentiality of data was another important barrier that was confronted during the conduct of this study. Every organization has their own secrecy that is not revealed to others. While conducting interviews with different personnel did not disclose enough information for the sake of confidentiality of the organization.

United Leasing Company (ULC) Limited is the second oldest leasing company in Bangladesh. It started its operation back in 1989 as a joint venture with reputed foreign and local sponsors.

Incorporated as a public limited company under the Companies Act 1913, ULC was also granted license under the Financial Institutions Act, 1993. The shares of the company are quoted on the Dhaka Stock Exchange since 1994.

The Company’s customers include most of the top corporate groups in the country including some of the multinationals. However, the Company’s major and most profitable business segments are leases to the small and medium enterprises.

The Company enjoys a sound reputation for excellent customer service. As an associate of a long established foreign company, it is recognized as a reliable financial partner among the business community. Its access to multilateral institutions like ADB and The World Bank permits it to arrange funds at competitive rates and get their assistance in areas such as staff training and information technology.

The main objectives of the company are to assist the development of productive private sector industries particularly in their balancing and modernizing programs. The company mainly extends lease financing for machinery, equipment to the industries & vehicles for commercial purpose. In addition it also provides project finance for expansion of business. The primary activity of the company is to provide leases to different commercial organizations. It provides lease for all sorts of manufacturing equipment and for vehicles.

1.4 LIMITATIONS

2.12.1 CCORPORATEORPORATE O OBJECTIVEBJECTIVE

2.0 BACKGROUND OF ULC

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Authorized Capital of ULC is Tk. 1000 million and issued, subscribed and paid up capital is Tk. 140 million. The sponsors and their current shareholding in the company are as follows:

Table 01: Type, Name and Share (%) of Sponsors. (ULC web site)

Figure 2.1: Shareholding Structure of ULC.

2.2 CAPITAL, SPONSORS AND SHARE STRUCTURE

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Its Board of Directors consisting of nine members who are the nominees of the Institutional Shareholders supervises the Company’s management. The Board appoints the Chairman from among the Directors.

Table 02: Board of Directors. (ULC Annual report 2009)

Name Nominee of

Chairman Imran Ahmed Lawrie Group Plc of the U.K.

Managing Director Syed EhsanQuadir Ex-Officio Director

Directors Peter J. field Lawrie Group Plc of the U.K.

Mr. A. Rouf Macalms Bangladesh Trust

Mr. S. Aziz Ahmed Surma Valley Tea Co. Ltd

Mr. M. A. Azim The Chandpore Tea Co. Ltd

Mr. M. Moyeedul Islam United Insurance Company Ltd

Mr. M. M. Alam The Allynugger Tea Co. Ltd

Comp. Sec. M. AtaulHoque

The Company policy is to attract, motivate and retain top quality financial service professionals. At present ULC’s staff strength is 185. There are six branches in Dhaka, Chittagong, Gazipur,Jessore, Sylhet, Bogra. The Managing Director with the power and authority vested in him by the Board of Directors manages the overall operation of the Company. An Executive Committee of the Board of Directors comprising of three Directors nominated by the Board and the Managing Director approve lease proposals, periodical accounts and other administrative matters.

The Board of Directors comprising the Managing Director and three other directors nominated by the Board appoints the Executive Committee. The Committee is authorized to approve all financing proposals without any limit subject to the exposure limit specified in the policy statement. It also reviews periodical accounts and other administrative matters.

The Board has given authority to the Managing Director for approval of lease proposals up to an amount of Taka 1.0 million in the case of new lessees and up to Taka 2.5 million in case of existing lessees.

2.3 BOARD OF DIRECTORS

2.3.1 Executive Committee

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Here, organizational structure of United Leasing Company Limited has been illustrated.

2.4 ORGANIZATIONAL STRUCTURE

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Name and designation of management personnel are given below:

Table 03: Management of ULC. (ULC web site)

Name DesignationMr. Syed EhsanQuadir : Managing DirectorMr. M. A. Azim : Deputy Managing Director

Mr. M. AtaulHoque : General Manager & Company Secretary

Mr. Md. Din Islam Miah : Chief Financial Officer

Mr. MohiuddinRastiMorshed

: Head of Risk Management-1; Corporate & Syndicate Financing & Financial Institution

Mr. QuaziNizam Ahmed : Head of Investment Marketing Ms. Eva Rahman : Head of Channel Financing Mr. FahadRahman : Head of Enterprise Financing Mr. Md. AbulAhsan : Head of Small Enterprises Financing

Mr. Jamal Mahmud Choudhury : Head of CSAM & Admin

Mr. Shahidul Islam Mazumder : Head of ICTMs. Sabrina Mehnaz : Head of Human Resource Ms. Sharmi Noor Nahar : Head of Board Secretariate

Mr. Mohammad NeazurRahman : Head of Operations

Mr. KhandakerTanbir Islam : Head of Credit (small Enterprise)

Mr. Imran Khan: Head of Credit (corporate & medium Enterprise)

ULC provides lease finance to the following sectors:1. Textiles2. Transport3. Apparels and accessories4. Construction and engineering5. Financial intermediations6. Food and Beverage7. Paper and printing 8. Telecommunications9. Agro based industries10. Chemicals11. Pharmaceuticals12. Other manufacturing industries

2.4.1 Management

2.5 LEASE PORTFOLIO AND SECTOR WISE EXPOSURE

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13. Hospitals14. IT firm

In this portion I’ve tried to show the ULC performance from 2005-2009. ULC has steady growth rate over the last 6 years. Some of the major changes are given below in graph.

Figure 2.1: Loan Portfolio of ULC (Source: ULC Annual Report 2009)

Figure 2.1: Net Operating Income & profit after Tax

2.6 PERFORMANCE OF ULC AT A GLANCE

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(Source: ULC Annual Report 2009)

Figure 2.1: Shareholders’ equity (Source: ULC Annual Report 2009)

Figure 2.1: Return on equity (Source: ULC Annual Report 2009)

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Figure 2.1: Earning Per Share & Cash dividend (Source: ULC Annual Report 2009)

Figure 2.1: Expenses per taka after tax profit (Source: ULC Annual Report 2009)

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Strengths:

It was among the first in this industry and therefore enjoys first mover advantages. At the moment they are the market leader as they are paying 32% Dividend and giving 2:1

Bonus Share to its shareholders this year, which is more than any other leasing company in the country.

ULC has very high skilled, energetic, hard working and motivated human resources. ULC believes and practices participative management. ULC is engaged in product diversification, this year they have introduced a new product

syndicate financing and they are also planning to introduce house loan in near future. ULC has a very strong client base among the leasing companies; most of which are the

giant local and multinational organization such as, British American Tobacco Bangladesh, HSBC, Square, Navana, Transcom etc.

ULC do not comply undue political influence. With its diversified business, ULC is better equipped to compete in an ever changing and

challenging business environment.

Weaknesses: One thing might be their lack of commitment to one big huge investment project since they

do not want to put all their eggs in one basket. Another major weakness of ULC is it has a very low pay structure for entry-level

employees, which can become a de-motivating factor. ULC discriminates private university students and public university ( Dhaka University)

students.

Opportunities: With growth in our corporate sector, the demand for lease financing is also growing and

consequently, the lease financing industry. Among visible non-functioning of development financial institutions, ailing capital market

and lack of interest of commercial banks in term financing, the leasing industry remains the only vibrant financial intermediaries for the medium term financing with less than 5 % non-performing loans.

By introducing new products such as house loan ULC can expand its market.

Threats: Continuously increasing deflation rate result into less disbursement of fund. There is a clear trend of increasing competition in the lease market with the entry of more

leasing companies and leasing by commercial banks. Employees of ULC are not satisfied with their low salary structure and other benefits as a

result they can switch to other competing financial organization.

2.7 SWOT ANALYSES OF ULC

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Lease financing is the main product of United Leasing Company. The company started with this product and with time they have diversified their product range.

ULC has also introduced Hire Purchase scheme in their product portfolio. This will give the clients other options to choose. This scheme is allowed only for institutional clients. ULC does not offer this to individuals.

Lease or Hire Purchase is asset financing whereby the lessor (financier) gives the right to use an asset to the lessee (user) against regular payments termed as rent. (ULC Web site)

Mainly ULC does asset based financing. The major modes of finance offered by ULC are:

Sale and Lease back:When ULC purchases the equipment/vehicle from the client and gives it on lease to the client. In this case the client will be regarded as the supplier.

Local Purchase:When ULC purchases the equipment/vehicle on behalf of the client, from a local supplier.

Foreign purchase:When ULC purchases the equipment/vehicle on behalf of the client, from a foreign supplier. It is worthwhile to note at this point, that in the case of foreign purchase, the documentation department prepares the lease agreement only and the rest of the documents are prepared by the commercial section under the Finance department. But for local purchase, the documentation department has plenty of work.

Leasing is fairly a new concept in Bangladesh and it provides finance for acquisition of asset as an additional source. The procedures adopted in leasing are fast, flexible with minimum documentation. What leasing offers is not the money alone, but value added to it in the form of assistance in acquiring the asset itself and other services. In a situation where the entrepreneur intends to acquire equipment urgently for balancing and modernizing without straining the resource otherwise available, leasing provides an ideal opportunity.

1. Provides up to 100% of the cost of the equipment:

Often no deposits or advance payments are required. For a Lease or Hire Purchase of very low cost equipment, for a lessee which is a borderline credit risk or when there is a tax benefit arising from the lessee making a substantial initial rental. Clearly, any leasing facility, which requires rentals to be paid in advance, is not 100% financing. Nevertheless, leasing often does provide a higher percentage of financing than an equivalent installment credit facility.

2. Does not tie up valuable working capital or credit lines:

A leasing facility preserves liquidity for other more appropriate uses. There may, however, be other sources of finance, which a lessee could also tap.

3.0 LEASE FINANCE AND HIRE PURCHASE

3.0.1 Advantages Lease Finance and Hire Purchase

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3. Offers cash flow benefits:Rentals fixed at the inception of a Lease or Hire Purchase assist expense budgeting and cash flow forecasting. The lease term is normally related to the useful life of the equipment.

4. Provides certainty: A Lease or Hire Purchase is non-cancelable, unlike an overdraft, which is repayable on demand and may be reduced during a credit squeeze.

5. A sound hedge against inflation: Equipment can be acquired at current prices and rentals met out of future earnings.

6. May be off balance sheet: Leasing is not borrowing and in many countries there is no accounting requirement to show leased equipment and the corresponding liability to make future rental payments on the balance sheet of the lessee. This treatment also has the effect of showing an artificially low gearing.

7. May avoid loan covenants or capital investment restraints: While leasing is not legally borrowing and so may circumvent restrictive loan covenants and capital budgeting, constraint lenders and head office financial controllers are now more aware of the leasing loophole. This feature should not encourage a lessee to overspend.

8. Avoids dilution of share ownership:Leasing may be the only way of acquiring the long-term use of major assets required by a business without increasing the capital base. Only a lessor may be willing to seek part of his reward through an arrangement to share in the residual value of leased assets.

9. Straightforward:Leasing and hire purchase minimizes administrative costs and simplifies tax and accounting procedures. Asset depreciation normally becomes the lessor’s responsibility. Documentation is simplified.

10. Tax efficient:Lease rentals are generally fully tax deductible as operating expenses. The tax benefits arising on the acquisition of equipment may also be maximized through a leasing arrangement by reflecting in the rentals the value of an investment incentive, which because of shortage of tax capacity or other reason, is not fully available to the lessee.

Lease and Hire Purchase Items:

Industrial Machinery or Equipment

Office Equipment

Medical Equipment

Transport/VehicleTenure:

Lease: 3 to 5 years.

3.0.2 Terms & Conditions

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Hire Purchase: 1 to 2 years.

Maximum Limit Depends on:

Requirement and Equity Participation.

Merit of the Proposal.Modes of Repayment:

Equal monthly installment.

Payment structured to clients cash flow.

Insurance Coverage:

Leased assets are to be duly covering all possible risk and premiums are to be paid by clients

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Figure 3.0: Finance Procedure Lease/Hire Purchase

Besides Financing, Factoring services includes: Sales Ledger Maintenance Collection of Receivables Reporting

Only Seven steps:

1. Buyer (customer) places order on seller (ULC client).2. Seller approaches ULC for approving of factoring facility.

3.1 FACTORING OF ACCOUNTS RECEIVABLES

3.0.3 Finance Procedure of Lease & Hire Purchase

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3. ULC approves the facility.4. Seller delivers goods/services to buyer.5. Seller submit/assign invoices to ULC.6. ULC disburse prepayment to seller.7. Buyer makes payments against invoices directly to ULC.

ULC reimburses the balance amount to seller after prepayment, discount and service charges.

Benefits:

Reduced Investment in Receivables: Sellers’ receive payment right after delivery and therefore sellers’ fund no longer tied up in receivables.

Expansion of Business: As cash flows improve, sellers’ can increase business by delivering higher volume to existing buyers and also expand business with new ones.

Sales Ledger Administration: ULC will administer clients’ sales ledger for the assigned customers.

Collection of Receivables: ULC will monitor and collect the receivables on due time from customers.

High Quality Reports: ULC will provide detailed reports on the performance of client’s customers that will help the client direct client’s sales efforts.

Scope for Additional Financing: when seller (client) utilizes factoring facility properly, it will help ULC support the client with other services.

Costs:

Discount: ULC charge competitive discount for prepayment against invoices. Service Charge: A nominal service charge is obtained for collecting receivables from

buyers and providing reports.

(ULC Web site)

There are three options of fixed return investment:

Cumulative Term Investment:The investment will mature to a bulge figure on completion of term. Profit will be accumulated and paid along with the original investment on maturity.

Annual Profit Term Investment:Allow receiving profit every year against investment. It will help to maintain a regular income flow while keeping the original investment amount intact

Multiple Investment Program:Depending on time horizon of future requirement, client may choose between two following variant:

Double Money Return: Doubles investment on completion of the term.Triple Money Return: Triples investment on completion of the term.

3.2 FIXED RETURN INVESTMENT

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Minimum Investment Amount:

Table 04: Minimum Investment Amount. (ULC Website)

Investment Option Minimum Amount (taka)Cumulative Term Investment 300000Annual Profit Term Investment 300000Double Money Return 200000Triple Money Return 250000

Profit Rates:

Attractive return is offered on the investment products to ensure fast growth of invested funds.

Table 05: Profit Rates. (ULC Website)Amount Profit Rate %

3 Lac- 99 Lac 11.00%1 Crore& above 11.25%

Double Money Return: 6years 6 months.

Triple Money Return: 10 years 6 months.

(ULC Web site)

Documentation Requirement: The following documents are required to apply for investment: A copy of recent passport size photograph. Copy of passport/Tin Certificate/Voter ID Card or any photo identification document.

Period:Minimum investment period is one year. As per the rule of Bangladesh Bank, investments cannot be en-cashed before one year. In case of premature encashment beyond one year, client will receive profit at less than 2% of the rate applicable for the period completed.

Easy Loan:

ULC recognize the reality of sudden unforeseeable requirement of fund. To facilitate such meeting of sudden requirements, client can avail loans of up to 80% of invested amount. In case of monthly earners investment, client can avail loan up to 60% of invested amount. For these loans, client needs to pay only 2% higher than applicable profit rate.

Nomination Facility:A client can nominate one or more individuals as his/her nominee. The nominee can withdraw the invested amount in client’s absence.

Profit Rates:

3.2.1 Features of Fixed Return Investment

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Profit rates are subject to change at any time without any notice. The profit rate prevailing on the date of investment will be applicable for profit calculation. Clients are advised to review the latest rate.

Renewal:Profit accrual will stop on maturity date of the investment unless renewed. All renewals will be at the prevailing profit rate.

Customer Service:Service quality is not limited to the initiation process. In every interaction that a client will have with ULC, it will be for a quick processing of loan or the return of investment when it matures.

(ULC Web site)

It is a short-term finance product that allows credit facility to clients against selected receivables for supply of goods and services to meet the short-term need. The credit facility is extended against Taka receivables only.

Any company/institutions/firm can avail this facility. And the customer that is the companies or firms for whom the client supplies or performs services in the ordinary course of client’s business has to be approved by ULC.

The minimum loan limit will be Taka 1 million and maximum will be Taka 10 million. And a certain percent of each bills/invoice will be offered in cash to the client. And this percent will also be selected by ULC.

Same securities that are provided for lease financing can also be used when clients apply for bill discounting.

This facility ranges from 30 to 120 days. It provides liquidity to the client and they are allowed to avail this facility 2 times per month.

The mechanism of bill discounting can be summarized as follows:After selling the goods on credit, the client (supplier/dealer) invites his customer/debtor with the notification that all monies due on the invoice are assigned to and be paid to ULC, by printing an assignment clause on the invoice.

After entering into the Bill Discounting Agreement with ULC, the client sells the invoice to ULC.

ULC makes prepayment (advances) to client up to a specific percentage of the invoice value in accordance with the approval.

ULC assumes the collection function (obtaining a post-dated cheque) and sends statements and reminders to the customer (debtor). ULC gets the payment and at periodic intervals the details of unpaid invoices and other control reports are submitted by ULC to the client.

After collecting the debt from the debtor/customer, ULC pays the client the remaining percentage of the invoice value, after deducting the service charge, and the discounting charge.

3.3 BILL DISCOUNTING

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BENEFITS:

Getting Instant Cash: As soon as the client sale the credit they get the instant cash on that credit sales directly from ULC. Thus, the client’s cash flow is accelerated, purchasing power increases and eventually, their production and business moves up and credit rating improves.

Relieved of debt Collection:As ULC undertakes/assumes, the responsibility of debt collection (obtaining post-dated checks) on all the invoices factored and the client is relieved of the problems of debt collection.

Sales ledgers is no more your headache:ULC’s operation is fully computerized and they keep the client informed through monthly sales analysis, overdue invoice analysis and debtor payments report. Thus the client is relieved entirely of the cares and responsibility of maintaining a sales ledger and credit control.

Besides the client gets the benefit of credit information systems available to ULC and a wealth of experience in the vital business of collecting cash.

CCOSTOST::

Interest: Competitive rateService charge: 0.25% of the total disbursed amount, minimum Tk. 5,000 (plus 15% VAT) and maximum Tk. 10,000 (plus 15% VAT) to cover administrative expenses, legal and documentation costs.

Project financing has been introduced from 2001. This is offered mainly to the existing client base that has good payment history and long-term relationship with ULC.

Institutions/companies/corporations can apply for this term loan. Application should be made on ULC’s standard format. And the clients have to provide additional information required.

Any proposal would be processed within shortest possible time. This will save the client’s time and faster service would also be ensured.

The client needs to have adequate stake in the project so that the completion and continuation of the project is not solely ULC’s interest. In this case the top management will decide the stake of ULC. And the interest rate will be as per Bangladesh Bank’s regulation.

In consideration of any project the following aspects will be analyzed thoroughly: Market Management aspect Technical aspects Financial aspects

3.4 PROJECT FINANCE

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ULC also monitor the project and work with the clients for the successful completion of the project.

Syndicate finance is new concept in our leasing industry. This year United Leasing Co. has also introduced syndicate finance for a leading industry.

Syndicate financing is now a very useful and prospective product for non-banking financial institutes. Large size of financial intermediation is essential for the industrial development of our country. But it is impossible for many NBFI’s for the government regulations. As per Bangladesh Bank rule, a financial institute can finance at best 30% of their paid up capital. But a project might require more than their said limit. Here the syndicate finance is fruitful.

In the syndicate financing process- there is a leader lessor who makes all types of negotiations, transactions, documentations, and other formalities. The lessee will contact with only the leader lessor. In exchange of those the leader lessor takes the commission, negotiation charge from the whole financial income out of their portion. The risk of the project will be distributed equally among all the members of the syndicate.

Syndicate finance has some advantages over lease and other financial intermediations. Now days it is considered as one of the most risk free project for the financial institutions. If the huge amount distributed to many lessees, there has some possibilities for to default. The organization has to give individual efforts for the individual clients. But in syndicate financing there is the only particular client to monitor, and precisely the client should be financially sound.

3.5 SYNDICATE FINANCE

4.0 CREDIT ANALYSIS PROCESS OF ULC

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Figure 4.0: Credit Analysis Process Of ULC

Over the years, ULC has established its line of products and tentative conditions (subject to client specification) for different financing modes. The company is rather conservative in its selling approach, but that does not sway any substantial number of companies away from its customer base. As one of the major players in the leasing industry, the company has adopted a practice for appraising prospective clients and their purpose for credit request.

Credit appraisal fits into the workflow, as a part of marketing and marketing service activities. In fact, Credit appraisal begins in the marketing department of ULC, right from the time of customer contact. Credit Appraisal is done for different financing modes such as: Lease and/or Sale and Lease Back, Hire Purchase and Bill Discounting.

People from the Marketing or marketing services department, prepare credit appraisals of both the new and existing client. There is a sanction of lease money for existing and new clients. If existing/new clients wish to borrow within the amount sanctioned by the MD, a “short appraisal” is prepared and duly approved by the MD of ULC. However if the client wishes to borrow above the sanctioned limit, an “executive summary” is prepared and the MD recommends this. It is then sent to the Executive Committee this committee may then give their approval or reject the appraisal.

Table 06: Sanction of Lease Money. (Credit Appraisal Manual)

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Credit appraisal process of New Clients is done in the following manner:

1. Identifying and Interacting with Target CustomersInformal sector clients, small-scale sole proprietorships and established medium-scale businesses are all considered the target market where leasing is concerned. A leasing product is targeted to clients that can repay a larger loan over a longer term, not necessarily first- or second-time clients that need access to credit for working capital. In fact, leasing is most appropriate for clients that have outgrown typical micro finance credit products and have the potential to increase business output and product quality by using more sophisticated equipment.

A typical leasing client is a repeat loan client on at least the third loan cycle, has experience using and managing the leased item, is able to store and care for the item, and has additional income or appropriate savings to cover the loan payment.

The marketing department of ULC is mainly responsible for finding prospective clients, informing them of the advantages of lease; in short, to sell the products of ULC. (Credit Appraisal Manual)

The marketing activities begin with the client search. A variety of methods may be used to accomplish this.

They look up the yellow pages for prospective clients. They use personal relations (e.g. associates, friends, relatives) to bring in new clients.They also use business cards to call up companies

All of these clients are pursued by ULC. The company does business with walk-in clients who have come to ULC on their own as well as those who have been referred to ULC by their existing clients. (Credit Appraisal Manual)

For those, whom ULC pursues, the marketing department people have to call them up, inform them of the various product choices available, convince them of the advantages and finally persuade them to consider a product based upon their needs and requirements. (Credit Appraisal Manual)

2. Client Check Once it has been established that the client has a need, which can be fulfilled by any of the products offered by ULC, and then the marketing executive (ME) of ULC pays a visit to the respective company premises. The marketing executive visits both the factory and the offices. The information needed to be gathered:

The condition of the factory—the level of production, reliability of supply of raw materials, level of unsold stock at hand, demand of the product in the market etc. The standing of the company within its competitive environment.

Sanction of lease money (Taka)Approved by MD Requires approval by EC

New clients 1 million Above 1 million

Existing clients 2.5 million Above 2.5 million

4.0.1 Credit Analysis Process for New Clients

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It is imperative for the marketing executive to visit the office and talk with the management and directors of the company and make a judgmental analysis of the type of people in charge of the company. The marketing executive also talks to the employees of the company to get their opinion of their workplace and company activities. He also gathers information about the MD or directors of the company from other respectable people in society who know about/are in association with them.

(Credit Appraisal Manual)

3.3. RREPORTINGEPORTING

The marketing executive reports back to ULC all the information he has gathered from the visit and other sources. If all information seems favorable then the GM or MD of ULC, along with the marketing executive, pay a visit to the company’s factory and offices. In this second visit the confirmation of the report given by the ME, is made. If the GM and MD find that all is satisfactory, they will tell the ME to move onto the next step. (Credit Appraisal Manual)

The next step is lease application. ULC has a 12/16-page application form, which has to be filled up by either the lessee himself or the ME handling the client. It states information such as the legal status of the company; bankers of the lessee and Documents such as the Memorandum of Association of the company, financial forecasts and bio-data of the directors etc are required as well. (Credit Appraisal Manual)

4. Credit appraisalOnce the lease application has been made, ULC then prepares an appraisal. The appraisal is done to check if the company is of sound financial strength and whether it would be feasible to have dealings with this company. Information on the company as well as description of the equipment to be leased, the terms of the lease (rental, advance etc), security offered and details of the background of the directors and sponsors of the company is given here. Furthermore they appraise a summary version of the financial data of the company such as balance sheets, profit and loss accounts, ratios etc. All this information is evaluated and a risk rating is assigned to the company. ULC has its own risk assessment procedure and categories of risk. Companies which receive a risk rating of 1 are those with the lowest risk, whereas 3 indicates average risk and 5 is unacceptable risk. (Credit Appraisal Manual)

The marketing executive who has prepared the appraisal assigns this rating to the company. Both the ME and AGM sign the document. The appraisal is then passed on to the GM who reviews it and gives it his signature. Finally it is sent to the MD who can either approve of it right away or say that it is recommended, in which case it is sent to the Executive Committee. There is a sanction of lease money for new and existing clients and Marketing Executives know that the MD will readily approve those appraisals within the limit of lease money. (Credit Appraisal Manual)

ULC can ask for or the company may give security such as:Shonchoy PotroFDRBank GuaranteeCorporate and/or Personal GuaranteeLandFlatShares/stockSupplementary Lease Deposit (SLD)

ULC accepts many applications with the sole security of personal guarantee of the directors of the company. This appears attractive to prospective clients because they know that bank loans will require

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much more security. After the appraisal has been approved or recommended by the MD, the next step is preparing the Lease Agreement. The people working in Documentation/Marketing Services prepare this agreement. The lessee and the MD of ULC then sign it. Then Disbursement of funds take place i.e. the funds are given to the client. Lastly, repayment comes as the sequential activity. Clients repay the leased upon amount depending on which mode of payment (lease, hire-purchase) they have taken and the conditions stipulated in the agreement for the respective service. (Credit Appraisal Manual)

It takes approximately 30-45 minutes to prepare a short appraisal for an existing client, if all the necessary information is readily available and not many changes are to be made from the previous appraisal done for the same client. For lease proposals/executive summary, it may even take an entire day to prepare the appraisal, especially if all information is not readily available.

1.1. CCONTACTONTACT ANDAND INITIALINITIAL DISCUSSIONDISCUSSION::

The credit appraisal process begins with the client contact and initial discussion. An existing client may contact a marketing executive from the ULC marketing department with a new request for credit. In this initial discussion, the Marketing Executive has to find out the client’s requirements and suggest a leasing service suited to serve the client needs. The Marketing Executive has to consult the AGM/Marketing Manager before reaching any negotiation with the client. The Marketing Manager approves the financing option (i.e. lease/sale and lease back/hire purchase/term loan) and determines the rate of interest to be charged to the client in question. Then the appraiser/ME collects the following documents from the client:

ULC application form filled up by the client (or by the ME on behalf of the client)Lease application on the company letterhead (of the client’s) as per the format of ULCQuotation/ Pro-forma invoice of the supplier. Financial accounts of the past 3years

(Credit Appraisal Manual)

2.2. Referring to Exposure:

In case of existing clients, the marketing executive will now refer to exposures (from View 21- company software) of previous and existing lease agreements of the whole group. If it is nil on View 21, it means all agreements have been terminated. (Credit Appraisal Manual)

The Lease Agreement (LA) exposure shows the LA numbers and the marketing executive takes note of the last LA done with the existing client. Files are organized as per the LA numbers so the appropriate file is then looked up. The marketing executive checks who had prepared the appraisal for the last LA, if he did it himself it will be on his pc, otherwise he gets a copy of the appraisal from the person who did it. He works on this copy and changes information, which are specific to the new lease agreement (such as equipment description, lease conditions, business and market (if any differences are expected as a result of installing the new equipment], security). (Credit Appraisal Manual)

3.3. Getting Net Lease Receivables (NLR):

4.0.2 Credit Analysis Process for Existing Clients

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The marketing executive will be able to get the Net Lease Receivables (NLR) of all agreements with the client from the exposure, except for the Net Lease Receivables (NLR) on bill discounting agreements. This information is sought from the accounts department. The Net Lease Receivables (NLR) amount is mentioned in the appraisal under the section Group Exposure. If there is any unexecuted agreement, that amount too is specified in group-exposure. (Credit Appraisal Manual)

In the group exposure, the marketing executive has to give the NLR of all other companies under the group name of the client (which includes all the agreements i.e. Hire purchase, term loan, lease) plus the proposed exposure (i.e. the acquisition cost of the project being appraised) and therefore, show the total amount of exposure. (Credit Appraisal Manual)

4.4. Specific security offered by the client:Next, the marketing executive has to state the specific security offered by the client for the current lease/hire purchase/term loan being applied for. Generally, clients offer either/both personal or/and corporate guarantee. Sometimes the total worth of assets belonging to the company/director is mentioned in the security section, especially if it is a substantial figure. (Credit Appraisal Manual)

5.5. Background and Credit Information:Next comes the background and credit information. For existing clients, the marketing executive makes little changes in this section (because it is unlikely that the background of the company will ever change!); s/he only checks to see if anything new needs to be added in terms of credit information. For new clients, the entire section has to be typed up. (Credit Appraisal Manual)

In creditors, the marketing executive must state ULC as a creditor (for existing clients) and mention the current date (e.g. ULC as on 03.03.2004). Any other creditors should be mentioned here. It is also important to state the bankers of the client, with whom they have transactions. It must be noted that at this point, the marketing executive is concerned only with the creditors and bankers of the individual company dealing with ULC and not the group as a whole. (Credit Appraisal Manual)

6.6. Business and market:In this section the marketing executive discusses the market served by the client, the product/service they offer, and their customer base. The client’s market share, production capacity are also mentioned. (Credit Appraisal Manual)

7.7. Impact of finance:This section is applicable only in the case of equipment/vehicles being leased, and not when private cars are being leased. This basically explains the use of the current finance or the impact of it on the production capacity/sales/cost of the client’s operations. (Credit Appraisal Manual)

8.8. Financial data:

The marketing executive reports a summary version of the client’s financial statement (balance sheet and Profit & loss account) for the last 3 years. Unusual trends are noted and backed by an explanation e.g. Rise in assets of a period. The marketing executive also calculates the debt equity ratio from the financial statements and explains any significance denoted by this ratio. The Marketing Executive consults the AGM/Marketing Manager, whoever was responsible for soliciting the client. For existing clients, the marketing executive can ask if the financial data given in the previous appraisal needs to be updated. The marketing executive needs to know if the client will provide the necessary information to ULC on its own or if the marketing executive needs to fetch it from them. Sometimes, where top-notch clients are concerned, the supervisor may instruct the marketing executive not to seek additional information on the client’s financial data. The marketing executive then manipulates certain data as per the supervisor’s instructions (e.g. Increase by 10-15% from last year’s data). Additional comments are given in this section if any figure appears extraordinary or there is an unusual trend. For

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example, a rise/fall in assets, significantly high/low debt to equity ratios should be backed by an explanation. (Credit Appraisal Manual)All this information is evaluated and the marketing executive assigns a risk rating to the company. ULC has its own risk assessment procedure and categories of risk, which has been discussed earlier. (Credit Appraisal Manual)

Once ULC receives and prepares all the necessary documents, the marketing services department makes sure that the appropriate people sign them. An inspection of the equipment/vehicle may take place at this time. Then the funds are disbursed. (Credit Appraisal Manual)

During working with Credit- Small Enterprise I have found some problems, which are given below:

Information gap among credit officers and Relationship Managers. Before CIR up loading, RM does not investigate the client’s documents and relevant

information. RM does not provide correct name in some cases for that credit officer does not get accurate

CIB report. Client visit is done by credit officer (Head Office), which is time consuming. Egoistic problem among Credit department and RM.

To solve the above problems ULC authority already has taken some initiative which will help them to mitigate there problems. My recommendation regarding above problems are:

Provide a workshop to RM for CIR and CIB report. Credit visit will only do when full application will come to the department. Client visit will be done by Branch Manager.

4.1 FINDINGS

4.2 RECOMMENDATIONS

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Non-Banking Financial Industry (Leasing industry) of Bangladesh is growing very rapidly. The increasing demand of leasing and loan are inviting more and more new entrants into the industry. Even banks have started offering same facilities at a lower rate than the existing leasing firms. Moreover, with the liberalization of trade, domestic firms are going to face hyper competition from foreign firms. To survive the strong competitive wave the future is going to bring, firms should collaborate with each other to increase their market share and hence tap the whole domestic market. ULC is one of the strong market players in the NBFI sector. It’s expanding its business and getting a strong position in the financial market. ULC implemented efficient credit analysis system which is helping them to boost up their business. For efficient credit analysis system ULC can manage almost 92% credit recovery.

5.0 CONCLUSION

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Reports and Manuals:

1. Annual Report- 2009.

2. Credit Appraisal Manual of ULC.

World Wide Web:

http://www.ulc.com.bdhttp://www.ulc.com.bd/product.htmhttp://www.ulc.com.bd/about.htmhttp://www.ulc.com.bd.lease_f.htmhttp://www.ulc.com.bd.fixed_ret_inv.htmhttp://www.ulc.com.bd.factoring.htmhttp://www.ulc.com.bd.performance.htmhttp://www.ulc.com.bd.milestones.htmhttp://www.ulc.com.bd.share_struc.htmhttp://www.ulc.com.bd.bod.htmhttp://www.ulc.com.bd.mngt.htm

Interview:

1. Mr. MahmudurRahman Khan, Management Trainee, Corporate Credit.2. Mr. AsifUlHaque, Officer- Credit Small Enterprise.

5.1 REFERENCE

http://www.ulc.com.bd/about.htm

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3. Credit Visit with Head of Small enterprise ( To N. Hossain Plastic Company)

Appendix 01:

Loan PortfolioYear 2005 2006 2007 2008 2009Taka(million) 5,137 6,084 7,175 7,264 7,212

Appendix 02:

Net Operating Income Year 2005 2006 2007 2008 2009Taka(million) 373 323 387 419 447

Appendix 03:

Net ProfitYear 2005 2006 2007 2008 2009Taka(million) 856 935 1,035 1,146 1,262

Appendix 04:

Earning Per Share

5.2 APPENDICES

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Year 2005 2006 2007 2008 2009Taka(million) 68 47 55 58 61