RESEARCH PAPER

(FIN 470)

RESEARCH TOPIC:
“Risk analysis & risk management procedures of UCBL”
Submitted to: M. Ahsanur Rahim
(Faculty, FIN 470)

GOLAM RABBI HEMEL 102 0269 030

MASUD IMAM 101 0828 030
FARHAN NAVEED 101 0064 030
REHANA AKTAR 103 0440 030

Sec: 01
Date of Submission: 26/12/2012

North SOUTH UNIVERSITY

(SCHOOL OF BUSINESS)

1
 Title Page

Risk analysis & risk management procedures of UCBL

2
Letter of Transmittal
December 26, 2012
M.Ahsanur Rahim
Faculty
School Of Business
North South University
Plot # 15, Bashundhara, Dhaka-1229

Sub: Submission of group project.

Dear Sir,

We are pleased to submit herewith our group report entitled “Risk analysis & risk
management procedures of UCBL” as requirements for partial fulfillment of the course
FIN 470.This report is a summary of our findings from the analysis of financial risk
management of UCBL. We hope it will enhance our future critical thinking about various
aspects of financial risk management & different financial markets & institutions. To work on
this report was approved by you on October 29, 2012. We have completed the report on
schedule and met all your proposed objectives within the allotted time.

The contents of this report concentrate on everything as per outline. We have tried our level
best to include all the relevant theoretical framework, critical analysis, application of
knowledge & practice base evidence.
If you have any questions or queries regarding the contents of the project; we would be
grateful to receive your advice. Thank you for giving us the opportunity to have an analytical
knowledge about insurance & financial risk management.

Thanking you,
Sincerely---

Name ID#

GOLAM RABBI HEMEL 102 0269 030

MASUD IMAM 101 0828 030
FARHAN NAVEED 101 0064 030
REHANA AKTAR 103 0440030

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 Acknowledgement

We are very much thankful for the guidance, assistance & co operation of many
helpful people on the preparation of this report. Our first thanks goes to the Almighty
Allah for giving us the patience and courage to finish this huge task within its
deadline. We are especially grateful to our faculty M. Ahsanur Rahim, FIN 470, for
sharing his valuable knowledge and expertise throughout the course which enable us
producing such successful assignment within a short period of time. Our groups
combined effort, the lectures, our class notes & the proper guidance & instructions
from our respected sir guided us towards the successful fulfillment of the group
research project.

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 INDEX
SL no. Topics Page Number
Letter Of Transmittal iii
Acknowledgement iv
Executive Summary ix
1. Introduction 1

2. Description Of The Project 1

3. Background 2

4. Objective Of The Report 2

4.1 Broad Objective 2

4.2 Specific Objective 2

5. Scope Of The Report 3

6. Significance Of The Study 3

7. Limitations 3
8. Methodology 3
9. Company Profile 4
4
9.1 History

10. Mission, Vision And Values Of United Commercial Bank 6

Limited 10.1 Mission Of United Commercial Bank Limited 6
10.2 Vision Of United Commercial Bank Limited 6
10.3 Core Values Of United Commercial Bank Limited 6

11. Strategies, Goals And Objectives Of United Commercial Bank 7

Limited 7
11.1 Strategies Of United Commercial Bank Limited 7
11.2 Goals Of United Commercial Bank Limited

11.3business Objectives Of United Commercial Bank

Limited

5
12. 8
Functions Of The UCBL ( In Brief)

13. 9
Management Of UCBL

14. UCBL Products & Services 10

15. 11
SWOT Analysis Of UCBL
12
15.1 Strength
12
15.2 Weakness
13
15.3 Opportunities
13
15.4 Threats
16. Overview Of Ratio Analysis 14
14
16.1 Liquidity Ratios 14
15
16.2 Current Ratio
15
16.3 Quick Ratio 15
16.4 Leverage Ratios 15
16.5 Long-Term Debt To Equity Ratio 15

16. 16.7 Total Debt To Total Asset Ratio 16

16.8 Total Equity To Total Asset Ratio 16
16.9 Profitability Ratios 17
16.10net Profit Margin 17
16.11 Return On Equity (Roe) 17
16.12 Return On Assets 17
16.13 Efficiency Ratios 18
16.14 Assets Turnover 18
16.15 Fixed Asset Turnover 18
16.16 Market Value Ratios 18
16.17 Price Earnings Ratio 18
19
16.18 Adequacy Ratio
19
19
16.19 Capital Adequacy Ratio
19
16.20 Tier I Capital 19

16.21 Tier Ii Capital 20

20

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 16.22 Core Capital Adequacy Ratio 20

16.23 Supplementary Capital Adequacy Ratio

17. Benefits Of Ratio Analysis 21
18. Drawbacks Of Ratio Analysis 22
18.1 Ratio Calculations & Analysis 23-31
19. Risk Management Policy Framework 32
20. Credit Risk 32
21. Risk Management Policy 33
21.1 Purpose 33

21.2 Scope 33
33
21.3 Superseding Power

21.4 Amendment Of The Policy 33

22. General Credit Principle & Financial Risk Management 34
Process 34

22.1 General Guidelines 34

34
22.2 Product And Services
34
22.3 Loan-Deposit Ratio
23. Risk Acceptance Criteria 35
24. Compliance As A Risk Management 35
24.1 Deviation 35

24.2 Return 35

25. Repayment Capacity & Financial Risk Management 36

25.1 Name Lending 36

25.2 Single Customer Exposure Limit 36

36
25.3 Large Loan
36
25.4 Diversification And Sector Allocation
37
25.5 Maximum Tenor
37
25.6 Security
37
25.7 Authority 38
25.8 General Covenants 39
25.9 Lending Sector 39
25. 10 Term Loan To Large & Medium Scale Industry & 39
Risk Management 39

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 25.11 Term Loans To Small & Cottage Industries & Risk 40
Management 40

25.12 Working Capital 40

40
25.13 Export Credit
40
25.14 Commercial Lending
40
26. Credit Pricing & Financial Risk Management 40
26.1 Risk Management & Basis Of Pricing Policy 40

26.2 Types Of Rate 41

41

26.3Revision Of Rates 41
27. Risk Assessments 41
27.1 Assessment Frequency 42

27.2 Assessment Documentation 42

42
27.3 KYC ( Know Your Customer) Policy
42
27.4 Accountability
42
27.5 Filling Up Credit Assessment Form
42
27.6 Credit Requirement
43
27.7 Repayment Source 43
27.8 Risk & Mitigating Factors 43
27.9 Collateral 43
27.10 Insurance Coverage 43
27.11 Adherence To Policy 43
27.12 Syndicated Loans 44

27.13 Change In Pricing 44

44
27.14 Others
44

28. Risk Analysis & Grading Policy 44

28.1 Credit Risk Grading 45

28.2 Basic Framework 45

29. UCBL’s Risk Grading Framework 46

29.1.1) Financial Risk 46

29.1.2) Business Risk 46

46
29.1.3) Management Risk

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 29.1.4) Security Risk 46
29.1.5) Relationship Risk 46

29.2 Risk Grading 47

47-48

29. 29.3 Procedural Guidelines & Risk Management Aspects 49

29.4 Subjective Grading 49

29.5 Downgrading 49
49
29.6 Asset Migration
50
29.7 External Rating
50
29.8 System Review
50
29.9 General Conditions
50
29.10 Delegation Of Approval Authority 51
29.11 Segregation Of Duties 51

30. 30.1 Major Functions & Risk Management Aspects 52

30.2 Duties And Responsibilities 52

30.3 Credit Risk Management Division 53

31. Major Functions Of Risk Management Division 54

32. Duties And Responsibilities Of Risk Management Division 54
33. Scope And Objectives 55
34. Results And Discussion 56
35. Conclusion 56

Bibliography & References 57

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 Executive Summary
Practice makes a man perfect. Any academic course of the study has a great value when it has
practical application in the real life. Only a lot of theoretical knowledge will be little
important unless it is applicable in the practical life. So, we need proper application of our
knowledge to get some benefit from our theoretical knowledge to make it more fruitful.
When we engage ourselves in such field to make proper use of our theoretical knowledge in
our practical life, only then we will be to know about the benefit of the theoretical
knowledge. As a part of this practical experience, we were assigned for preparing a report on
Risk analysis & risk management procedures of UCBL. Risk management needs to be a
robust process that enables banks to proactively manage its portfolios in order to minimize
losses and earn an acceptable level of return for shareholders. Central to this is a
comprehensive IT system, which should have the ability to capture all key customer data, risk
management and transaction information. Given the fast changing, dynamic global economy
and the increasing pressure of globalization, liberalization, consolidation and dis-
intermediation, it is essential that UCBL has a robust credit risk management policies and
procedures that are sensitive and responsive to these changes. It is pertinent to mention here
that UCBL has already in the process of implementing state of the art IT system for
integrated credit risk management performance. The purpose of this document is to provide
directional guidelines that will improve the risk management culture, establish minimum
standards for segregation of duties and responsibilities, and assist in the ongoing
improvement of our Bank’s performances. Risk management is of utmost importance, and as
such, policies and procedures should be endorsed and strictly enforced. The chapters detail
fundamental risk management policies where by the guidelines contained herein outline
general principles that are designed to govern the implementation of more detailed lending
procedures and risk management systems applicable for the United Commercial Bank Ltd.

10
Research topic: “ Risk analysis & risk management procedures of UCBL”

1. INTRODUCTION:

Risk is an inherent part of Banks business and activities. The extent to which the Bank
properly and effectively identifies, assesses, measures, monitors, manages and controls each
credit risk, is critical to its financial soundness and profitability. In order to establish an
effective and efficient management of the credit risk, each banking organization should have
robust credit risk management policies and procedures since the bank earns its major profit
from credit operation. As a successful private bank UCBL has a successful credit risk
management division. In all business dealings, officers and employees are guided by the
principles of honesty and integrity and safeguard the interest of the shareholders and the
depositors of the Bank. They also strictly adhere to the Banking Laws, Rules and Regulations
of the Govt. of Bangladesh and the instructions issued by the Bangladesh Bank from time to
time, which affect the business practices of the Bank. In formulating a credit judgment and
making quality Credit Decisions, the lending officer always equipped with all information
needed to evaluate a borrower’s character, management competence and capacity, capital,
ability to provide collaterals and external conditions which may affect his ability in meeting
financial obligations. Banking represents one of the largest and most influential activities of
any developed economy due to the strong linkages virtually existing with any part of the
economic system. Recent developments in retail banking such as the enlargement of services
supplied have often been depicted as technologically driven phenomena. The banks play an
important role in the economy of the country.

2.Description of the project:

Risk management needs to be a robust process that enables banks to proactively manage loan
portfolios in order to minimize losses and earn an acceptable level of return for Shareholders.
Central to this is a comprehensive IT system, which should have the ability to capture all key
customer data, risk management and transaction information. Given the fast changing,
dynamic global economy and the increasing pressure of globalization, liberalization,
consolidation and dis-intermediation, it is essential that UCBL has a robust credit risk
management policies and procedures that are sensitive and responsive to these changes. It is
pertinent to mention here that UCBL has already in the process of implementing state of the
art IT system for integrated credit risk management performance. The purpose of this

11
document is to provide directional guidelines that will improve the risk management culture,
establish minimum standards for segregation of duties and responsibilities, and assist in the
ongoing improvement of our Bank’s performances. Credit risk management is of utmost
importance, and as such, policies and procedures should be endorsed and strictly enforced.
The chapters detail fundamental credit risk management policies where by the guidelines
contained herein outline general principles that are designed to govern the implementation of
more detailed lending procedures and credit risk management systems applicable for the
United Commercial Bank Ltd.

3. BACKGROUND:
Banking is one of the most important activities in order to ensure the flow of money in the
market. To understand the banking activities, & to analyze it’s risk management procedures,
we have selected The United Commercial Bank to conduct research on its performance and
evaluate with several years.
4.OBJECTIVE OF THE REPORT:
The key objective of the report is to analyze the risk management process of UCBL. United
Commercial Bank Limited (UCBL) deposits has reached a vast amount of Tk. 113071
million balances and Tk. 4732 million as net profit (pre-tax) during 2010 with a 46% growth
rate in deposits and 145% growth rate in net profit (pre-tax) over the year 2009(Annual
Report, 2010). This large amount has been invested in different purpose to provide industry
loan, export-import finance, commercial lending, house-building finance and others.
Knowing about the bank’s significant performance over the years my key objective is to
prepare this report.
4.1 BROAD OBJECTIVE:
The Primary Objective of this report is to “ Risk analysis & risk management procedures
of United Commercial Bank Limited (UCBL) over Years”.

4.2 SPECIFIC OBJECTIVE:

The report has conducted
ing environment and its risk
management procedures.

years.

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5. SCOPE OF THE REPORT:
While preparing the report we had a great opportunity to have real life knowledge about the
overall banking procedure. We had to go to the finance & management department to collect
the necessary data for my report. We also talked with the employee and clients to know the
bank properly. This report helps us a lot about gaining practical knowledge about the
financial sectors epically the bank & its risk management process.
6. SIGNIFICANCE OF THE STUDY:
This report is prepared to give a concrete idea about the performance and the condition of
UCBL over last three years. We believe that our report will help a lot those who want to get
an overall idea of UCBL as well as its financial statement & risk management process. Bank
management also can be using the information of our observation for their managerial
decision if needed.

7. LIMITATIONS:
During preparing my report we have to face some problems regarding collecting proper
information which are.
s the duration of the course program is three months and the process we I didn’t get
sufficient time in each department to understand their activities.

disclosure of different important information were not possible due to bank’s safety.

have to follow more on secondary data like annual report, web sites and some of
banking documents.
dge about it which
limits my report.

8. METHODOLOGY:
For this report all data and information are collected from primary and secondary sources.
Primary sources of data are collected through
• Conducted face to face interview
• General discussion with officers

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Secondary sources of data are collected through
• Websites
• Articles
• UCBL’s Annual Report 2011, 2010 and 2009
• Many Research Report on ratio analysis

9. COMPANY PROFILE:

Sponsored by some dynamic and reputed entrepreneurs and eminent industrialists of the
country and also participated by the Government, UCBL started its operation in mid-1983
and has since been able to establish one of the largest networks of 119 branches among the
first generation banks in the private sector. With its firm commitment to the economic
development of the country, the bank has already made a distinct mark in the realm of private
sector banking through personalized service, innovative practices, dynamic approach and
efficient Management. The Bank, aiming to play a leading role in the economic activities of
the country, is firmly engaged in the development of trade, commerce and industry thorough
a creative credit policy.

9.1 HISTORY:

Some leading personalities from industry and business of the country got together in early
eighties of the last century to build up a commercial bank. The result was one of the first
generation private sector banks of the country. Thus the United commercial Bank Limited
(UCBL) came into reality and government was kind enough to participate as a shareholder of
it. UCBL started operating as a commercial bank in 1983. UCBL is committed for sustainable
development of the country. Visionary policy makers along with a dynamic Management
team are leading UCBL to its goal. It has created a clear difference from the competitors with
its fast, friendly and personalized services to its clients. Modern, world class banking is made
available here in Bangladesh by UCBL. In its journey of almost 30 years United Commercial
Bank Ltd. Has create a strong customer base of around 0.40 million clients. The customer
base of UCBL is going high rapidly. Peoples are influencing to work with UCBL due its
modern services and customer values. Within a long journey of almost 30 years UCBL can
able to setup it as an attractive brand in the Banking sector of Bangladesh. That is why the
Bank has already established its network throughout the six Divisions in Bangladesh. Not

14
only that, still the Bank is establishing its new branches allover between several locations in
Bangladesh due to its customer demands.

15
10. MISSION, VISION AND VALUES OF UNITED COMMERCIAL BANK
LIMITED:

The effort of United Commercial Bank Limited are focused on delivery of quality service in
all areas of banking activities with the aim to add increased value to shareholders’ investment
and offer highest possible benefits to the customers. There must have the mission as well as
vision what should back every efforts of the organization as it is said, a mission without any
vision is a day dream and a vision without a mission is a nightmare.

10.1 MISSION OF UNITED COMMERCIAL BANK LIMITED:

To offer financial solutions that create manage and increase our client’s wealth while
improving the quality of life on the communities they serve.

10.2 VISION OF UNITED COMMERCIAL BANK LIMITED:

To be the bank of first choice through maximizing value for their clients, shareholders and
employees and contributing to the national economy with social commitment.

10.3 CORE VALUES OF UNITED COMMERCIAL BANK LIMITED:

We put our customers first

elieve in being a responsible corporate citizen

16
11. STRATEGIES, GOALS AND OBJECTIVES OF UNITED COMMERCIAL BANK
LIMITED:

11.1 STRATEGIES OF UNITED COMMERCIAL BANK LIMITED:

11.2 GOALS OF UNITED COMMERCIAL BANK LIMITED:

ending risk assessment system

11.3 BUSINESS OBJECTIVES OF UNITED COMMERCIAL BANK LIMITED:

17
12. FUNCTIONS OF THE UCBL ( in brief):

The main task of UCBL is to accept deposits from various customers and institutions through
various accounts.

Transfer (TT) etc.

of credit.

18
13. MANAGEMENT OF UCBL:

Board of Directors
Board of Directors of UCBL includes the high professional and high-qualified business men
of Bangladesh. Well-designed directions of those bodies help the management to achieve the
ultimate goal of the bank. The members of the Board of Directors are the very renowned
business Man of Bangladesh. The board of directors of the UCBL is follows
Board of Directors of UCBL

19
14. UCBL Products & Services:
•One Stop Service
•Time Deposit Scheme
•Monthly Savings Scheme
•Deposit Insurance Scheme
•Inward & Outward Remittances
•Travelers Claques
•Import Finance
•Export Finance
•Working Capital Finance
•Loan Syndication
•Underwriting and Bridge Financing
•Trade Finance
•Industrial Finance
•Foreign Currency Deposit A/C
•NFCD (Non-Resident Foreign Currency Deposit Account)
•Consumer Credit Scheme
•Locker Service

•Credit Card

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15. SWOT ANALYSIS OF UCBL:

SWOT analysis is a strategic planning method used to evaluate the strengths, weaknesses,
opportunities, and Threats involved in a business venture. In banking sectors it is important to
identify the internal and external factors that are favorable and unfavorable to achieve its
objectives. From the SWOT analysis we can figure out ongoing scenario of the bank. So to
have a better view of the present banking practice of UCBL, the SOWT analysis of UCBL is
given below

STRENGTH Weakness

Swot analysis

Opportunities Threats

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15.1 STRENGTH:

It is an internal factor. It deals with the organizations own strength. UCBL’s strengths are

FT

-customer relationship

-furnished and air-conditioned bank

15.2 WEAKNESS:

Weakness is also an internal factor of SWOT analysis. UCBL’s weaknesses are

15.3 OPPORTUNITIES:

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Opportunities are external factors which indicate the industry’s advantages available for the
companies.

Flexible credit schemes

15.4 THREATS:

Threats are external factors of SWOT analysis. The threats for UCBL are

modern technologies by the rival banks

16. OVERVIEW OF RATIO ANALYSIS:

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Ratio Analysis is a tool which is used as a way of analyzing the performance of any company
or organization. It is one of the most important technique of financial analysis in which
quantities are converted into ratios for meaningful comparisons with past ratios and ratios of
other firms in the same or different industries. Ratio analysis determines trends and exposes
strengths or weaknesses of a firm.

TYPES OF FINANCIAL RATIOS:

Ratio analysis is done to compare or evaluate the performance over the years. This analysis
mainly deals with some fields those are liquidity ratio, leverage ratio, profitability ratio, and
efficiency ratio and so on.
16.1 LIQUIDITY RATIOS

These ratios are used to measure the short-term solvency of an organization. These ratios
show the ability of the organization to convert quickly its assets into cash to pay its different
types of short-term debts. The higher the ratios the company is more liquid and the lower the
ratios, the less liquid the company is which may experience the company financial distress to
pay its short-term debt.

16.2 CURRENT RATIO

The ratio is considered to observe the liquidity status of an organization. This ratio is
obtained by dividing the total current assets of a company by its total current liabilities. It
expresses the working capital relationship of current assets available to meet the company's
current obligations.

The formula:

Current Ratio = Total Current Assets/ Total Current Liabilities

24
16.3 QUICK RATIO

The ratio is also considered to observe the liquidity status of an organization. This ratio is
obtained by dividing the total quick assets of a company by its total current liabilities. This is
an important ratio because sometimes a company may have heavy inventory as part of its
current assets which might be obsolete or slow moving. For that reason eliminating those
inventories from current assets is doing to measure this ratio. The ratio is regarded as an acid
test ratio. It expresses the true working capital relationship which includes accounts
receivables, prepaid and notes receivables available to meet with the company's current
obligations.

The formula:

Quick Ratio = Total Quick Assets/ Total Current Liabilities

Quick Assets = Total Current Assets – Inventory

16.4 LEVERAGE RATIOS

Leverage Ratios are used to measure the extent of the company's financing with debt relative
to equity and its ability to cover interest and other fixed charges. These ratios address the
company's long-term ability to meet its financial leverage. The higher the ratios the more
indebtedness the company owes. This higher results signal the possibility the company will
be unable to earn enough to satisfy its debt obligations.

16.5 LONG-TERM DEBT TO EQUITY RATIO

In the risk analysis this ratio is a way to determine a company's leverage. The ratio is
calculated by taking the company's long-term debt and dividing it by the total value of its
preferred and common stock. The company who has higher ratio is thought to be more risky
because it has more liabilities and less equity.

The formula:

Long-term Debt to Equity Ratio = Long-term Debt / Equity

25
16.6 TOTAL DEBT TO EQUITY RATIO

This ratio is obtained by dividing the total liability or debt of a company by its total equity.
The ratio measures how the company is leveraging its debt against the capital employed by
its owners. If the liabilities exceed the net worth then in that case the creditors have more
stake than the shareholders.

The formula:

Total Debt to Equity Ratio = Total Debt / Equity

16.7 TOTAL DEBT TO TOTAL ASSET RATIO

The debt to total assets ratio is an indicator of financial leverage. It tells the percentage of
total assets that were financed by its total debt. The debt to total assets ratio is calculated by
dividing a company’s total liabilities by its total assets. The lower the result of this ratio the
better off the company is.

The formula:

Total Debt to Total Asset Ratio = Total Debt / Total Asset

16.8 TOTAL EQUITY TO TOTAL ASSET RATIO

Total Equity to Total Asset ratio used to help to determine how much shareholders would
receive in the event of companywide liquidation. The ratio is expressed as a percentage
which is calculated by dividing total equity by total assets of the company. It represents the
amount of assets on which shareholders have a residual claim.

The formula:

Total Equity to Total Asset Ratio = Total Equity / Total Asset

26
16.9 PROFITABILITY RATIOS:

Profitability Ratios measure the overall earnings performance of a company and its efficiency
in utilizing assets, liabilities and equity.

16.10NET PROFIT MARGIN

The Profit Margin of a company determines its ability to survive in competition and adverse
conditions like rising costs, falling prices or declining sales in the future. The ratio measures
the percentage of profits earned per taka of sales or net interest income. Thus this ratio is a
measure of efficiency of a company.

The formula:

Net Profit Margin = Net Profit after Taxation / Net interest Income

16.11 RETURN ON EQUITY (ROE)

Return on equity (ROE) is a measure of profitability ratio that calculates how many taka of
profit a company generates with each taka of shareholders' equity. The Return on Equity of a
company measures the ability of the management of the company to generate adequate
returns for the capital invested by the owners of a company.

The formula:

Return on Equity = Net Profit after Taxation / Equity

16.12 RETURN ON ASSETS

The Return on Assets of a company determines its ability to utilize the assets employed in
that company efficiently and effectively to earn a good return. Return on assets measures the
amount of profit that the company generates as a percentage of the value of its total assets. A
company's return on assets (ROA) is calculated as the ratio of its net income in a given period
to the total value of its assets.

The formula:

Return on Assets = Net Profit after Taxation / Total Assets

27
16.13 EFFICIENCY RATIOS:

Efficiency Ratios demonstrate how efficiently the company uses its assets and how efficiently
the company manages its operations.

16.14 ASSETS TURNOVER

Asset turnover measures a firm's efficiency at using its assets in generating revenue and the
higher the number of ratio the company is in better position. It also indicates pricing strategy
as the company with low profit margins tends to have high asset turnover and those with high
profit margins have low asset turnover.

The formula:

Assets Turnover = Net interest Income / Total Assets

16.15 FIXED ASSET TURNOVER

The fixed asset turnover ratio is the ratio of revenue to net fixed assets. A high ratio indicates
that a company is doing an effective job of generating sales with a relatively small amount of
fixed assets. On the other hand if the ratio is declining over time the company has either
overinvested in fixed assets or it needs to issue new products to revive its sales.

The formula:

Fixed Asset Turnover = Net interest Income / Fixed Assets

16.16 MARKET VALUE RATIOS

Market Value Ratios are used for value comparison. These ratios relate the market price of
the firm's common stock and the financial statement figures.

16.17 PRICE EARNINGS RATIO

The price earnings ratio is the price currently paid on the open market for a share of a
company's stock divided by its earnings per share. The price earnings ratio represents those
earnings in which the investment community is willing to pay to its own company's stock. A
very high multiple indicates that investors believe the company's earnings will improve
dramatically while a low multiple indicates the reverse.

28
The formula:

Price Earnings Ratio = Stock Price per Share / Earnings per Share (EPS)

16.18 ADEQUACY RATIO

The following ratios are used to assess the adequacy of the liquidity of the banks and ensure
the banks have adequate cash flow to meet all obligations in a timely and cost-effective
manner.

16.19 CAPITAL ADEQUACY RATIO

Capital Adequacy Ratio is a measure of a bank's capital which is expressed as a percentage of

a bank's risk weighted credit exposures. This ratio is also known as "Capital to Risk
Weighted Assets Ratio (CRAR). This ratio is used to protect depositors and promote the
stability and efficiency of financial systems around the world. Two types of capital are
measured one is tier one capital which can absorb losses without a bank being required to
conclude its trading and another is tier two capital which can absorb losses in the event of a
winding-up and it provides a lesser degree of protection to depositors.

16.20 TIER I CAPITAL

Tier I Capital is a term used to describe the capital adequacy of a bank. Tier I capital is the
core capital which includes equity capital and disclosed reserves. Equity capital includes
instruments that can't be redeemed at the option of the holder which includes common equity,
retained earnings, paid-in capital and disclosed capital reserves.

16.21 TIER II CAPITAL

Tier II Capital is a term used to describe the capital adequacy of a bank. Tier II capital is
secondary bank capital that includes items such as undisclosed reserves, general loss reserves,
subordinated term debt, and more.

The formula:

Capital Adequacy Ratio = Capital Base (Tier I + Tier II) / Risk-weighted Assets Financial
Ratio Analysis of United Commercial Bank Limited 27

29
16.22 CORE CAPITAL ADEQUACY RATIO

Core Capital Ratio is a comparison between a banking firm's core equity capital and total
risk-weighted assets. A firm's core equity capital is known as its Tier I capital which is the
measure of a bank's financial strength based on the sum of its equity capital and disclosed
reserves, and sometimes non-redeemable, non-cumulative preferred stock. A firm's risk-
weighted assets include all assets that the firm holds that are systematically weighted for
credit risk. Central banks typically develop the weighting scale for different asset classes,
such as cash and coins, which have zero risk, versus a letter or credit, which carries more
risk.

The formula:

Core Capital Adequacy Ratio = Core Capital (Tier- I) / Risk-weighted Assets

16.23 SUPPLEMENTARY CAPITAL ADEQUACY RATIO

Supplementary Capital Ratio is a comparison between a banking firm's supplementary equity

capital and total risk-weighted assets. A firm's supplementary equity capital is known as its
Tier II capital which is the measure of a bank's financial strength based on the sum of its
capital which includes loan loss reserve or undisclosed capital reserves, preferred stocks with
maturity of at least 20 years, certain revaluation reserves and general loan provisions,
subordinated debt with an original maturity of at least 7 years.

The formula:

Supplementary Capital Adequacy Ratio = Supplementary Capital (Tier- II) / Risk-weighted

Assets

30
17. BENEFITS OF RATIO ANALYSIS:

This ratio analysis gives quick financial information to a financial institution. By giving a
glance anyone will be able to take any decision regarding the financial statement. Therefore
managers, shareholders, creditors etc. all take interest in ratio analysis.

each other into an industry as well as outside of the industry.

of time and also forecast the future performance.

institution and also shows whether an institution will able to meet its obligations
or not.

and also whether that institution using the resources wisely or not.

mes easy for a company to communicate the

ratios to those who are interested in the financial performance of the company.

judge an institution by just looking at few numbers instead of reading the whole
financial statements.

31
18. DRAWBACKS OF RATIO ANALYSIS:

Despite usefulness financial ratio analysis has some disadvantages too. Some of the
drawbacks of ratio analysis are

information while users are more

concerned about current and future information.

accounting data to attract the investors or creditors.

customer service, employee morale and so on which are important for better
financial performance.

against the rivalry performance. To do those ratios enough information may not
available always.

environmental conditions such as regulation, market structure, etc. Such factors

are so significant that a comparison of two institutions from different industries
might be misleading.

32
Name of the Ratios 2009 2010 2011

33
Return on Assets (ROA) = net profit/total assets 1.03% 1.68% 1.75%

Return on Equity (ROE) = net profit/ total equity. 16.35% 27.91% 18.45%

Cost to Income Ratio (C/I) = total cost /total income. 2.215553 1.431177 0.357427

Net Loans to total asset ratio (NLTA) = Net loans/total assets 0.936945 0.939816 0.685133

Liquid assets to deposit-borrowing ratio (LADST) = liquid 1.232369 0.804028 0.8069

asset/customer deposit and short term borrowed funds.
Net loans to deposit and borrowing (NLDST) = Net loans/total 1.096719 1.105334 0.829282
deposits and short term borrowings.
Loan loss reserve to gross loans (LRGL) = Loan loss reserve/gross 0.029717 0.027359 0.976063
loans.
Rate Paid on Funds = Total Interest Expense / Total Earning 0.021157 0.007395 0.019693
Assets
GYEA (Gross Yield on Earning Assets) = Total Interest Income 0.03684 0.034086 0.03052
/ Total Average Earning assets

Net Interest Margin = Net Interest income/ Average Earning 0.03684 0.034086 0.03052
Assets
Loans to Assets = (Loans / Total Assets) 0.936945 0.939816 0.890055

Leverage Ratio = ( Stockholders Equity / Average Total Assets 0.063055 0.06017 0.123007

Equity to Loans = ( Average Common Equity / Average Total 0.003307 0.022406 0.060217
Assets )

Return on Assets (ROA)

34
 2.00%
1.80%
1.60%
1.40%
1.20%
1.00% Series1
0.80%
0.60%
0.40%
0.20%
0.00%
1 2 3

shows the ability of management to acquire deposits at a reasonable cost and invest
them in profitable investments . This ratio indicates how much net income is
generated per £ of assets. The higher the ROA, the more the profitable the bank

Return on Equity (ROE)

30.00%

25.00%

20.00%

15.00%
Series1

10.00%

5.00%

0.00%
1 2 3

Return on Equity is the most important indicator of a bank’s profitability and growth
potential. It is the rate of return to shareholders or the percentage return on each taka
of equity invested in the bank. Though UCBL’s return on equity increased in 2010
then again it declined in 2011. However, in 2011 the return was higher than 2009.
35
 Cost to Income Ratio (C/I)

2.5

1.5

Series1
1

0.5

0
1 2 3

It measures the income generated per taka cost. That is how expensive it is for the
bank to produce a unit of output. The lower the cost to income ratio, the better the
bank is performing.

From 2009 to 1011, the cost to income ratio declined significantly. So, UCBL had
done a good job in reducing their cost, and thus it can be said that the bank is doing
good in this respect

Net Loans to total asset ratio (NLTA)

0.5
Series1
0
1 2 3

NLTA measures the percentage of assets that is tied up in loans. The higher the ratio,
the less liquid the bank is.

36
Overtime, UCBL has decreased their percentage of asset used for granting loans.
Though, it was flat for 2009 and 2010, in 2011 it significantly reduced to below 7%.

Liquid assets to deposit-borrowing ratio (LADST)

1.4

1.2

0.8
Series1
0.6

0.4

0.2

0
1 2 3

This ratio indicates the percentage of short term obligations that could be met with the
bank’s liquid assets in the case of sudden withdrawals.

It is evident that the bank has reduced their ability to meet short term obligation that
can be met with bank’s liquid asset form 2009 to 2010, and remained same for 2011.

Net loans to deposit and borrowing (NLDST)

37
 1.2

0.8

0.6
Series1
0.4

0.2

0
1 2 3

This ratio indicates the percentage of the total deposits locked into non-liquid assets.
A high figure denotes lower liquidity.

In 2011, the bank has reduced their holding in non-liquid asset that of year 2009 and
2010.

Loan loss reserve to gross loans (LRGL)

1.2

0.8

0.6
Series1

0.4

0.2

0
1 2 3

This ratio indicates the proportion of the total portfolio that has been set aside butnot
charged off. It is a reserve for losses expressed as a percentage of total loans.

It is evident that bank has significantly increased their reserve for expected loan form
loans in 2011. It tells that bank is expecting higher default in the coming years.

38
 Rate Paid on Funds

0.025

0.02

0.015

Series1
0.01

0.005

0
1 2 3

This indicates what percentage or rate of interest is paid from assets.

Though UCBL reduced their payment of interest expense form interest income in
2010, then again it remained same in 2009 and 2011.

GYEA (Gross Yield on Earning Assets)

0.04
0.035
0.03
0.025
0.02
Series1
0.015
0.01
0.005
0
1 2 3

The gross yield on average earning assets measures the total average return onthe
banks earning assets.

39
 UCBL’s average return on their earning assets has declined in both year 2010 and
2011.

Net Interest Margin

0.04
0.035
0.03
0.025
0.02
Series1
0.015
0.01
0.005
0
1 2 3

The net inters margin for UCBL has declined overtime, which is not a favorable sign for
bank’s performance.
Loans to Assets

0.95

0.94

0.93

0.92

0.91

0.9 Series1

0.89

0.88

0.87

0.86
1 2 3

The proportion of loans to bank has first increased in 2010 then again it declined vary
sharply in 2011.

Leverage Ratio

40
 0.14

0.12

0.1

0.08
Series1
0.06

0.04

0.02

0
1 2 3

UCBL has become more leveraged in 2011 than that of 2009 and 2010.
Equity to Loan ratio

0.07
0.06
0.05
0.04
0.03 Series1
0.02
0.01
0
1 2 3

The proportion of equity of loans has steadily increased in 2010 and 2011.

19. Risk Management Policy Framework:

United Commercial Bank Limited (UCBL) is a first-generation private commercial bank
established in Bangladesh in the year 1983 under the Companies Act. Since inception, it has
committed to provide high quality financial services to the people of this country to
accelerate economic development of the nation. As such, it has been working for stimulating
trade and commerce, accelerating the pace of industrialization, boosting export, creating
employment opportunity, alleviating poverty, raising standard of living of the people etc and

41
thereby contributing to the sustainable development of the country. At present, the bank has a
network of 110 (one hundred ten) branches in both rural and urban areas of the country. Since
inception, the Bank has been making significant profit every year and this has been possible
due to significant credit growth of the bank. Credit portfolio of the bank has been growing
steadily every year. Credit exposure increased by 43% in 2007 than 2006. Half yearly
statistics shows that credit has been increased by 11% in first six months of 2008 and stood at
Tk. 4,129.33 crore. Since, the lion share of the Bank earnings comes from credit operation
and the existence of the Bank depends on quality of asset portfolio, efficient management of
credit risk is of paramount importance.
20. Credit Risk:
Risk is inherent part of Bank’s business and activities. Operating in liberalized and
globalised environments, banks are exposed to various kinds of risks. Credit Risk represents
the major risk faced by banks on account of the nature of business activity.
Credit risk is most simply defined as the probability that a borrower or counterparty will fail
to meet its obligations in accordance with the agreed terms and conditions. In other words, it
is the loss associated with degradation in the credit quality of borrowers or counterparties. In
a Bank’s portfolio, losses stem from outright default due to the inability or unwillingness of
the customer or counterparty to meet commitments in relation to lending, trading, settlement
and other financial transactions. Alternatively, losses result from reduction in portfolio value
arising from actual or perceived deterioration in credit quality. Credit risk emanates from a
banks on and off balance sheet dealings with an individual, firm, company, corporate entity,
bank, financial institution or a sovereign. Credit risk may take the following forms:

tters of credit: funds may not be forthcoming from the

Constituents upon crystallization of the liability;

Counter parties under the respective contracts may not be forthcoming or cease;

21. Risk Management Policy:

Credit Risk Management is more of a proactive approach for ensuring quality rather than
reaction approach to management of problem-credit exposures. It is concerned more with the
quality of credit portfolio before default rather than the post default situation when recovery
proceedings begin. Credit Risk Management is not merely credit management concerned
about probability of repayment rather focused on probability of default. It should be a robust
process that enables Banks to proactively manage loan portfolio in order to minimize losses

42
and earn an acceptable level of return for Shareholders. Given the fast changing dynamic
global economy and the increasing pressure of globalization, liberalization, consolidation and
disintermediation, it is essential that United Commercial Bank has a robust credit risk
management policy and procedures that are sensitive and responsive to these changes.
To provide a board guideline for the Credit Operation towards efficient management of its
Credit portfolio, a clearly defined, well-planned, comprehensive and appropriate Credit Risk
Management Policy is a pre-requisite.

21.1 Purpose:
The credit policy is a statement of basic principles that govern the extension and
administration of credit. The main purpose of this policy is to set out yardsticks for and spell
out standard practices regarding management of credit risk. As such, it specifically addresses
the following areas: (a) establishing an appropriate credit risk environment, (b) setting up a
sound credit approval process, (c) maintaining an appropriate credit administration,
measurement and monitoring process, (d) ensuring adequate controls over credit risk.
21.2 Scope:
This policy will be applicable for issues related to credit risk with respect to both direct and
indirect credit products of traditional banking sector.
21.3 Superseding Power:
This policy should be made which was approved by the Board of Directors. However, if any
provision of this policy contradicts with the instruction contained in Credit Operational
Manual or any existing circular, the Credit Risk Management Policy will supersede and be
held.
21.4 Amendment of the Policy:
In view of the dynamic nature of banking business, the Banks credit risk management policy
and procedures are evolutionary in nature and should be subject to ongoing review,
modification and revision. This Credit Risk Management Policy will be amended, revised as
and when warranted to accommodate the changes in the market condition, cyclic aspect of
the economy, government policy, industry demand, central bank regulation and experience of
the Bank in managing credit risk. For this purpose, the Board of Directors of the Bank will
review the Credit Risk Management Policy at least annually and make necessary amendment.
22.General Credit Principle & financial risk management process:
22.1 General Guidelines:

43
 business, the Bank will prefer trade financing in the
form of short term (up to 12 months) self liquidating cash flow supported and collateralized
trade transactions.
The bank will consider lending short-term working capital finance to well established
entities engaged in manufacturing, assembling, processing of goods and commodities for
consumption in domestic as well as international market.
-by-case basis, carefully approve term loans (loans
with original tenor exceeding one year) with proper credit risk assessment supported by
satisfactory cash flow statement.
-to-case basis, approve disclosed participations in syndications.
The bank will consider financing construction contractors. However, all such transactions
should be properly analyzed in line with the status of contract proceeds and proper cash flow
justifications.
22.2 Product and Services:
The Bank shall sell suitable credit products and services in the market. For this purpose, Bank
will design new product from time to time, reengineer the existing ones to keep the same
competitive in the market. While designing new products and/or reengineering the existing
ones Bank will always take into consideration the customers‟ demand. Product innovation
and/or reengineering shall be a continuous process.
22.3 Loan-Deposit Ratio:
Loans and advances shall normally be financed from customers deposit and sometimes from
capital fund of the Bank. However, it will be ensured that Loan-Deposit Ratio should not
exceed 90% at any particular point of time and regulatory compliance of CRR/SLR would be
maintained. Generally loans and advances shall not be extended out of temporary fund or
borrowing from money market.

23. Risk Acceptance Criteria:

The Management will review and prepare periodically Risk Acceptance Criteria (RAC) duly
approved by the Executive Committee/Board and disseminate to the concerned executives at
operational level. In preparation of RAC the following area would be covered with flexibility
for deviations by the competent authority:

44
a) Maximum amount in each type of facility line
b) Maximum limit to a single obligor and group
c) Acceptable Leverage, Current ratio, Interest coverage, Operating margin for an industry.
d) Geographical location
d) Security & Support
United Commercial Bank will extend credit only to qualified borrowers where the amount
and intended purpose are clear and legitimate. Credit facilities shall be allowed in a manner
that the expansion in credit does not compromise the asset quality of the Bank.
24. Compliance as a risk management:
All credit sanction must comply with the requirements of Bank’s Memorandum and
Articles of Association, Banking Companies Act, 1991 as amended from time to time,
Bangladesh Banks instruction circulars, guidelines and other applicable laws, rules and
regulations, Banks Credit. Risk Management Policy, Credit Operational Manual and all
relevant circulars in force. The officer originating a credit proposal shall specifically declare
that it complies with all above mentioned rules, regulations, policy etc.
24.1 Deviation:
Any deviation from the Credit Policy of the Bank must be justified in the proposal and well
documented. Specially, all credit assessment form shall invariably include the deviations
from the policy, if any. Proposal that does not comply with the Credit Risk Management
Policy should be approved by Head Office. However, no regulatory regulations shall be
compromised.
24.2 Return:
Credit operation of the Bank should contribute return at optimum level within the defined risk
limitation. In other words, credit facilities should be extended in such a manner that each deal
becomes a profitable one so that Bank can achieve its targets and has a superior return on
capital. Besides, Credit extension shall focus on the development and enhancement of
customer’s relationship and shall be measured on the basis of the total yield for each
relationship with a customer.

25. Repayment Capacity & financial risk management:

Borrowers should have a source of repayment established at the inception of credit. Credit
analyst should also endeavor a secondary source of repayment to protect the interest of the
bank. All repayments should be legitimate and consistent with the type of business.

45
Satisfactory security and collateral is required as appropriate. However, bank’s main
consideration will be Cash Flow Statement of the business rather than on collateral security.
25.1 Name Lending:
Name lending or any loan based solely on the general standing and reputation of the borrower
is not permitted. Credit facility shall be allowed absolutely on business consideration after
conducting due diligence. In all cases, viability of business, credit requirement, security
offered, cash flow and risk level should be professionally analyzed.

25.2 Single Customer Exposure Limit:

An important element of risk management is to establish exposure limits for single obligors
and group connected obligors. To spread the risk and to ensure that funds of the Banks are
not used for a limited number of clients, Bangladesh Bank has laid down guidelines. As per
prevailing regulation, Bank will take maximum exposure (outstanding at any point of time)
on a single customer (Individual, Enterprise, Company, Corporate, Organization, Group) for
the amount not exceeding 35% of Bank’s total capital. However, for single customer of the
export sector maximum exposure limit shall be 50% of the total capital subject to the
condition that total funded facility shall not exceed 15% of the total Capital of the Bank at
any point of time. United Commercial Bank Limited will follow the ceiling set by
Bangladesh Bank. However, size of any credit limit in each case shall be fixed after proper
assessment of genuine credit requirement of the customer within the maximum allowable
limit.
25.3 Large Loan:
Credit facility to a single customer (Individual, Enterprise, Company, Corporate,
Organization, and Group) shall be treated as Large Loan if total outstanding amount against
the limit at a particular point of time equals or exceeds 10% of the total capital of the Bank.
United Commercial Bank’s total Large Loan Portfolio exposure shall not exceed 56% of the
total outstanding funded loans and advances at any point of time or as per guidelines of
Bangladesh Bank.
25.4 Diversification and Sector Allocation:
The portfolio shall be well diversified to reduce the risk of dependence on a particular sector.
The management will review periodically the existing sectoral performance, economic trends
both local and global with respect to that sector, industry saturation, industry structure,
geographical advantage, Government policy, Risks specific to the industry etc. to provide
guidelines for annual industry/sector allocation in credit portfolio. At the annual budget,

46
Industry/Sector lending limits/caps will be fixed and approved by the appropriate authority to
provide directional guidelines to the Relationship Managers.
25.5 Maximum Tenor:
Maximum tenor for any continuous loan shall be 1 (one) year which is renewable at maturity
or within the validity period upon satisfactory performance of the customer. Period of any
term loan shall be fixed on case to case basis considering repayment capacity, projected cash
flow, payback period etc.
25.6 Security:
Bank will try to have as much security coverage as possible against each and every credit
facility sanctioned to the customers. Security taken against credit facilities shall be properly
valued and legally enforceable in accordance with the laws of the country. Security
requirement will be determined on case to case basis based on customer’s business strength,
level of risk bank is undertaking. However, Bank will always prefer to have security
equivalent to 1.25 times of the total funded limit. Security may be in the following forms
subject to restrictions of regulatory
25.7 authority:
i) Bank deposit
ii) Gold / gold ornaments
iii) Government Bond
iv) Guarantee given by Government or Bangladesh Bank
v) Bank Guarantee
vi) Land and Building
vii) Share
viii) Stock
ix) Machinery and Equipment
x) Charge on the fixed and floating asset
xi) Pari-passu Charge on fixed and floating assets
xii) Corporate Guarantee of another company backed by Board Resolution.
xiii) Personal Guarantee
xiv) Bill or Receivables
xv) Ownership of vehicles / assets
xvi) Life Insurance Policy.
xvii) Post Dated Cheque
xviii) Trust Receipt
xix) Others as deemed acceptable by the approving authority

47
25.8 General Covenants:
While sanctioning credit facility, Bank will set some covenants. Some of the covenants will
be general and others will be specific to a particular credit facility and/or customer. General
covenants may be as follows:
i) All expenses (including legal, professional and out of pocket expenses) incurred in the
negotiation, preparation, execution and enforcement of sanction advice and the documents
referred to the sanction advice shall be on the account of the Borrower. The bank should be
authorized to debit all sort of fees from the Borrowers account without prior permission of
the Borrower. Moreover, the bank may debit the account of the Borrower for paying the
Insurance Premium on behalf of the Borrower and the Borrower shall have the right to
proceeds of such insurance.
ii) Ownership structure of the borrower shall not be changed without prior approval of the
Bank.
iii) By accepting the offer of the Bank, the Borrower should confirm and undertake that it is
not enjoying any other available lines of credit from any lender, apart from those disclosed in
writing to the Bank.
iv)Any repayment whether in part or full, will be attributable first towards servicing interest
which has accrued on the facilities and then to the principal.
v) The Borrower should confirm that during the continuance of the facilities by the Bank to
the Borrower, it will advise the bank prior to any commitment for availing of any additional
line of credit from any other banks.
vi) The customer shall not go for expansion without consent of the Bank.
vii) The customer shall not withdraw profit without consent of the Bank.
viii) The customer shall submit financial statements within 30 days after year ending.
ix) Other covenants as set by the sanctioning authority.

25.9 Lending Sector:

As initiated by Bangladesh Bank vide BCD Circular No. 33 dated 16/11/89 different kinds of
lending were subdivided into 11 categories w.e.f. 01/01/90 which was subsequently reduced

48
to 9 vide BCD Circular No. 23 dated 09/10/93 and again to 7 prime sectors vide BCD
Circular No.8
dated 25/04/94.
Loan and advances have primarily been divided into three major groups:
a) Fixed term loan: These are the non-revolving loans made by the Bank with fixed
repayment schedules. Fixed term loans are categorized into three categories based upon its
tenure which is defined as follows:
Short term : Upto 12 months
Medium term : More than 12 and upto 36 months
Long Term : More than 36 months
b) Continuous Loans: These are the revolving loans having no fixed repayment schedule,
but have an expiry date at which it is renewable on satisfactory performance of the customer.
c) Demand Loan: These are the non-revolving loans which are neither continuous nor fixed
but
have to be repaid on demand.
Furthermore all categories of loans are accommodated under some prime sectors which are as
under:
25. 10 Term Loan to Large & Medium Scale Industry & risk management:
This category of advances accommodate the medium and long term financing for capital
asset formation of new Industries or for BMRE of the existing units who are engaged in
manufacturing of goods and services. Term loan to tea gardens may also be included in this
category depending on the nature and size. As the financing under this category have fixed
repayment schedule it may fall under the heads Term Loan/Time Loan /Hire-Purchase/Lease
Financing etc.
25.11 Term Loans to Small & Cottage Industries & risk management:
These are the medium and long term loans allowed to small & cottage manufacturing
industries
[Regulatory definition of Small Enterprise means an entity, ideally not a public limited
company, does not employ more than 50 persons (if it is manufacturing concern) and 25
persons (if it is a trading and service & trading concern with total assets at cost excluding
land
and building from Tk.50,000 to Tk. 50 lac, manufacturing concern with total assets at cost
excluding land and building from Tk.50,000 to Tk. 1.5 crore.].
Medium & Long term loans to weaver are also included in this category. Like the Large &
Medium Scale Industry it is also allowed in the form of Term Loan/Time Loan/Hire -

49
Purchase/Lease Financing etc.
25.12 Working Capital:
Loans allowed to the manufacturing units to meet their working capital requirements,
irrespective of their size - big, medium or small, fall under this category. These are usually
continuous credits and as such fall under the head "Cash Credit" or “Overdraft”.
25.13 Export Credit:
Credit facilities allowed to facilitate export of all items against Letter of Credit and/or
confirmed export orders fall under this category. It is accommodated under the heads "Export
Cash Credit (ECC)", Packing Credit (PC), Foreign Documentary Bill Purchased
(FBPD),Inland Documentary Bill Purchased (LBPD) etc.
25.14 Commercial Lending:
Short term Loans and continuous credits allowed for commercial purposes other than exports
fall under this category. It includes import financing for local trade, service establishment etc.
No medium and long term loans are accommodated here. This category of advance is allowed
in the form of (I) Loan against Imported Merchandise (LlM), (ii) Loan against Trust Receipt
(LTR), (iii) Payment Against Documents (PAD), (iv) Overdraft (OD), (v) Cash Credit etc. for
commercial purposes.

26. Credit Pricing & financial risk management:

Credit facilities to the customer are the prime source of the Bank’s income. More specifically,
interest from loans account forms the lion share of the total revenue of the Bank. On the other
hand, the market of our country is very competitive due to presence of 52 (fifty two) banks in
our small financial market. As such, it is quite apparent that pricing is very crucial for the
profitability and the continuous growth of the Bank. United Commercial Bank Limited has
been fixing/ refixing price of different type of credit facilities from time to time considering
changes in the market condition.
26.1 Risk management & Basis of Pricing policy:
Price of all credit facilities will be fixed by the Bank based on Bank’s priorities and market
conditions within the guidelines of Bangladesh Bank from time to time. Rate of interest will
be the reflection of risk inherent in a particular transaction i.e. the higher the risk, the higher
the rate of interest. Price of any credit facility depends on the level of risk and type of
security offered.
Therefore, loan pricing will be directly correlated with the risk grade of the customer.
According to the regulatory guidelines Bank can reduce 1.5% higher or lower than the mid
rates circulated. Interest rate for the prime customers (having excellent performance record,

50
resilience, minimum risk and good earning prospect from their non-funded business) may be
reduced within the range. However, any change in pricing other than the mid rate should be
approved by the Managing Director.
26.2 Types of Rate:
Usually, Bank will charge fixed interest rate which will be subject to changes by the
Management. In this respect, all loan contracts will contain a provision to the effect that rate
of interest is subject to changes by the Management. Interest rates will be revised as and
when a significant fluctuation occurs in the cost of fund of the Bank due to volatility of
interest rate in the market. The Bank will charge floating interest only in SOD. In all other
cases, fixed interest rate will be applied. For fixed interest rate, the Board of Directors will fix
a Band on recommendation of ALCO for a particular Sector/Industry/Product. Customers
will be charged a fixed rate within that band. Any deviation from the approved interest rate
should be mentioned in the Credit Assessment Form with proper justification. The Managing
Director may sanction a credit facility at a rate within the Band. However, other executives
will exercise their delegated authority to sanction credit facility at the highest rate of the
approved Band.
26.3 Revision of Rates:
The Management of the Bank will continuously monitor interest rate situation offered by
other financial institutions as well as cost of fund and discuss the same in the Asset Liability
Management Committee (ALCO) meeting at least once in a month. As per recommendation
of the Asset Liability Management Committee (ALCO), the Management of the Bank may
approach the Board of Directors to revise rate of interest, commission, charges etc and after
approval that will be communicated to all concerned.

27. RISK ASSESMENT:

The primary purpose of a bank is to borrow money from those who have surplus funds then
lend this money out to those who are in need of funds. It is essential that when it lends out
money than the bank has a certain confidence that the money will be repaid at the given time,
together with interest. Risk assessment or analysis is all about understanding the risk
associated with lending money. Until and unless risks are not assessed and measured it will
not be possible to control risks. The primary factor determining the quality of the Bank‟s
credit portfolio is the ability of each borrower to honor, on timely basis, all credit
commitments made to the Bank. This must be accurately determined by the authorized Credit
Officers/ Executives prior to approval. Therefore a thorough credit risk assessment shall be
conducted prior to the sanction of any credit facilities. While assessing a credit proposal total

51
emphasis shall be given on repayment potential of loans out of funds generated from
borrower business (cash flow) instead of realization potential of underlying securities. Credit
risk assessment process in the Bank shall be governed by the following principles:
27.1 Assessment Frequency:
A comprehensive Credit Assessment (Due Diligence) shall be conducted before sanction of
any loan. Thereafter, it will be done annually for all types of credit facilities i.e Demand
Loan, Continuous Loan and Term Loan.
27.2 Assessment Documentation:
The result of the Credit Assessment shall have to be presented in the Credit Assessment Form
enclosed in. Initially, it will be originated by the Relationship Officer of the Branch and
reassessed in Corporate Banking Division. Credit Review Department of Credit Risk
Management Division will review the risk factors and facility structure to determine that all
the risks have been properly assessed and Risk mitigation measures have been taken and all
banks policy requirements & regulatory requirements have been addressed. All evidences of
credit assessment have to be filed properly in the respective Credit File.
27.3 KYC ( Know Your Customer) Policy:
Bank‟s KYC policy applicable for depositors shall also be applicable for borrowing
customers. The prescribed credit application form will disclose the information of the client.
In addition, before sanctioning any credit facility the concerned relationship officer must
physically visit the business premises of the customer, talk with important personalities of the
locality, collect information on the borrower from his/her existing banker, if any to know
financial status, capacity, competence, experience and summarize all these information in the
Pre-sanction Inspection Report. The report serves as preliminary information about the
prospective borrower before a detailed evaluation is undertaken.
27.4 Accountability:
The Relationship Manager (presently Head of Branch) shall be the owner of the customer
relationship and be held responsible to ensure the accuracy of the entire credit
application/assessment form submitted for approval. He/she will be responsible for
conducting due diligence on the borrower, principals and guarantors.
27.5 Filling up Credit Assessment Form:
Bank requires sufficient information to enable comprehensive assessment of the true risk
profile of the borrower. Hence, Credit Assessment Form must be filled in with accurate
information in full. No field in the assessment form should be erased or left vacant. If
information is not available, concerned field should be filled in with “Information Not
Available” with proper justification.

52
27.6 Credit Requirement:
Credit requirement of the borrower must be assessed properly. The relationship officer will
apply prudence to find out actual credit requirement of the borrower and place his/her
findings in the Credit Assessment Form.
27.7 Repayment Source:
Repayment source of the borrower is to be validated in the Credit Assessment Form by cash
flow and other financial analysis. For such analysis, at least three years financials are to be
reviewed. Loan amount and tenor must commensurate with the repayment capacity of the
borrower.
27.8 Risk & Mitigating Factors:
Risks inherent in a credit proposal shall have to be identified and appropriate mitigating
factors should be applied. Critical success factors should be analyzed. These are to be
summarized in the Credit Assessment Form.
27.9 Collateral:
Collateral offered against a credit facility shall properly be valued and verified by the
concerned Relationship Officer and/or Relationship Manager and revalued and re-verified
annually in the subsequent period. In addition to the valuation of the Relationship
Officer/Manager, the same collateral must be valued and verified by an enlisted surveyor of
the Bank if the total credit facility to the concerned customer exceeds Tk 25.00 lac (Taka
Twenty Five Lac). Any valuation of collateral must be supported by the photograph and site
map, where applicable.
27.10 Insurance Coverage:
Adequacy and extent of insurance coverage must be assessed in the Credit Assessment Form.
Customer‟s preference for not taking required insurance policy must be justified properly and
it must be mentioned as deviation. The policy must be obtained from approved insurer of the
Bank.
27.11 Adherence to Policy:
It should be clarified whether the customer has agreed to comply with bank‟s internal policy
and external regulatory requirements. Any deviation from the policy or other internal or
external requirements must be justified properly and mentioned as Deviation in the Credit
Assessment Form. Furthermore, the originating officer will affix a declaration in the Credit
that the proposal does not contradict with any rules and regulations of the Bank, Banking
Companies Act, any circulars of Bangladesh Bank etc.
27.12 Syndicated Loans:

53
Proposal for syndicated loans shall be analyzed with respect to risk and return in the same
manner as directly sourced loans. In case of participation in a syndication deal, Bank will
independently assess the proposal and will not solely depend on the credit assessment of the
Lead Arranger.
27.13 Change in Pricing:
Any changes in the pricing of an existing credit facility must be highlighted and to be
justified in the Credit Assessment Form.
27.14 Others:
Finally, detailed and complete credit risk assessment for each facility and customer
relationship is of paramount importance. The steps that should be followed in carrying out
such an assessment are set out in the Credit Operational Manual and in Head Office circulars
issued from time to time. No proposal shall be put up for approval unless there has been a
complete written analysis. It is the responsibility of the originating officer to collect all
necessary documents/papers before the facility request is sent to the competent authority for
approval.
28. RISK ANALYSIS & GRADING POLICY
28.1 Credit Risk Grading:
While providing credit facility to a customer, Bank undertakes many risks among which
credit risk is considered to be the most important one. Bank needs to manage the credit risk
inherent in the entire portfolio as well as the risks in individual credit or transaction. One of
the strategies employed in managing credit risk is Credit Grading of borrower accounts.
Credit Risk Grading framework is essential to avoid the limitations associated with a
simplistic & broad classification of loans into “good” or a “bad” category. Credit Risk
Grading helps a bank to understand various dimensions of underlying risk involved in
different credit transactions. The Risk Grading framework is used for following purposes:
ors of a loan portfolio and talking credit decisions
in a consistent manner.
‟s a tool for measurement of various risks associated with lending. It provides basis for
risk pricing and fixation of rate of interest on lending to different borrowers based on their
credit rating.
reveals the weak parameters based on the points scored.
borrower
for bringing improvement.
To identify the parameters which have improved/deteriorated by comparing with earlier
rating.

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28.2 Basic Framework:
Bangladesh Bank, as suggested by Financial Sector Reform Project (FSRP), introduced in
1993 “Lending Risk Analysis (LRA)”, a systematic approach towards risk analysis. Since
then, LRA was conducted before granting of loans in excess of Tk. 10.00 million. However
there are some limitations in LRA particularly it was conducted once for a borrower accounts
and no grading for unclassified accounts. Bangladesh Bank vide BRPD Circular No 18 of
2010 intimated all commercial Banks that Credit Risk Grading Manual has replaced
“Lending Risk Analysis” and to follow the Credit Risk Grading Manual or develop stricter
manual by 15 March 2006.
29. UCB’s Risk Grading Framework:
Effective risk management requires an accurate and forward looking estimation of the
probability of default over the next 12 months. It should be noted that Credit Risk Grading is
not a replacement of comprehensive credit appraisal. Credit Risk Grading is a dynamic
process for measuring credit risk to help the sanctioning authority in taking decisions. All
credit proposals whether new or renewal must be supported by Credit Risk Grading. It will
encompass the following two things: (a) Risk Grading Scorecard and (b) Risk Grading Sheet.
No proposal will be processed until Risk Grading is completed, submitted for approval and
the result is shown in proposal. It is the responsibility of the originating officer to ensure that
analysis has been carried out with authentic and reliable information.
6Risk Grading Scorecard:
As per instruction of Bangladesh Bank, Risk Grading Score Card has been developed for all
exposures of UCBL (irrespective of amount) other than those covered under Consumer and
Small Enterprise Financing Prudential Guidelines and also under The Short-Term
Agricultural and Micro-Credit. The Score Card will be updated if required. The score of the
risk grading scorecard will be weighted one. There are 5 (five) broad head rating components
and separate parameters have been set to measure borrower’s position against each
component. Score Cards are tools to determine a borrower’s aggregate score based on
assessment of quantitative and qualitative factors. Score Cards shall records the Assigned
rating through a combination of the Aggregate Score as well as exercise of judgment.
Judgment plays an important role in the scoring of qualitative factors as well as
recommendations made to change the risk rating in case of disagreement. It should be noted
that Industry volatility is a key driver in the Risk Grading as it has been proved that the
probability of default is higher in industries with higher volatility. However, since there is no
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acceptable industry average of key financials and industry volatility factor is absent, the
matter has not been included in the present Risk Grading Score Card. A snapshot of Principal
Risk components and corresponding Parameters and weight assigned to each Component is
as follows:
29.1 Sl. No. Components Parameters Weight (%)
29.1.1) Financial Risk
a) Leverage
b) Liquidity
c) Profitability
d) Coverage

29.1.2) Business Risk

a) Turnover of Business
b) Age of Business
c) Business Outlook
d) Technology/Resource
e) Industry Growth
f) Inventory/Receivables
g) Market Competition
h) Entry/Exit Barriers

29.1.3) Management Risk

a) Business experience
b) Expertise of the Management
c) Second line /Succession
d) Team Work

29.1.4) Security Risk

a) Security Coverage(Primary)
b) Security Coverage (FSV)
c) Security Coverage(Location)
d) Support/Guarantee

29.1.5) Relationship Risk

a) Account Conduct

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b) Utilization of limit
c) Compliance of
Covenants/Conditions

The Relationship Officer of the Branch will prepare Risk Grading Scorecard in case of new
proposal, renewal and/or enhancement of existing facility, any deterioration in the
borrower’s business position, any breach of contract by the borrower or as and when he/she
feel it necessary. In addition, aggregate weighted score of the customer is to be affixed in the
relevant field of the Credit Assessment Sheet.
29.2 Risk Grading:
After preparation of Risk Grading Scorecard, concerned Relationship Officer will assign risk
grade to the customer within the following definition of Credit Risk Grading:
Risk Grade
Numeric
Grade
Definition
Superior –
Low Risk
1. Facilities are fully secured by cash deposits, government bonds or a counter guarantee
from a top tier international bank. All security documentations are in place.
Good –
Satisfactory Risk
2 .The repayment capacity of the borrower is strong. The borrower has excellent liquidity and
low leverage. The company demonstrates consistently strong earnings and cash flow.
Borrower has well established market and very good management skill. All security
documentation should be in place. Aggregate Score of 85 or greater based on the Risk Grade
Scorecard.
Acceptable
– Fair Risk
3 .These borrowers are not as strong as Grade 2 borrowers, but should still demonstrate
consistent earnings, cash flow and have a good track record. Borrowers have adequate
liquidity, cash flow & earnings. Credit is normally be secured by acceptable collateral (1st
charge over stocks / debtors / equipment / property). Acceptable management. Acceptable
parent/sister company guarantee. An

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Risk Grade
Numeric
Grade
Definition
Aggregate Score of 75-110 based on the Risk Grade
Scorecard.
Risk Grade
Numeric
Grade Definition
Marginal -
Watch list
4
Grade 4 assets warrant greater attention due to conditions affecting the borrower, the industry
or the economic environment. These borrowers have an above average risk due to strained
liquidity, higher than normal leverage, thin cash flow and/or inconsistent earnings. Borrower
incurs a loss, loan payments routinely fall past due, account conduct is poor, or other
untoward factors are present. Weaker business credit & early warning signals of emerging
business credit detected. An Aggregate Score of 65-74 based on the Risk Grade Scorecard.
Special Mention 5 Grade 5 assets have potential weaknesses due to conditions affecting
borrower, industry or economic condition and deserve management‟s close attention. If left
uncorrected, these weaknesses may result in a deterioration of the repayment prospects of the
borrower. Facilities should be downgraded to 5 if sustained deterioration in financial
condition is noted (consecutive losses, negative net worth, excessive leverage), if loan
payments remain past due for 30-60 days, or if a significant petition or claim is lodged
against the borrower. Full repayment of facilities is still expected and interest can still be
taken into profits. An Aggregate Score of 55-64 based on the Risk Grade Scorecard.
Substandard 6 Financial condition is weak and capacity or inclination to repay is in doubt.
These weaknesses may jeopardize the full settlement of loans. Loans should be downgraded
to following Bangladesh Bank criteria of classification. An Aggregate Score of 45-54 based
on the Risk Grade Scorecard. Doubtful and Bad
(nonperforming)
29.3 Procedural Guidelines & risk management aspects:
i) The credit Risk Rating system is to be used by all Credit/Relationship Officer for all
exposures except the loans under Retail Credit Division.

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The Credit Risk Rating system would be useful in analyzing credit proposal, new or renewal
for regular limits or specific transactions, if the basic information on a borrowing client to
determine the degree of each factor is:
readily available

ly and objectively
Therefore, factors are to be evaluated and weighted very carefully, on the basis of most upto
date and reliable information and complete objectivity must be ensured to assign the correct
rating.
ii) Risk rating exercise should be originated by Relationship Officer and countersigned by
Relationship Manager. The exercise should be an on-going and continuous process. It is to be
understood that the objective and effectiveness of the system will be jeopardized if total
objectivity is not ensured. Any changes in the risk rating must be promptly identified and
reported for remedial actions.
iii) If Credit Risk Grading Form is approved by Credit Risk Management Division, the rating
is to be considered final.
29.4 Subjective Grading:
The more conservative risk grade (higher) should be applied if there is a difference between
the personal judgment and Risk Grading Scorecard result. This will remain at the absolute
discretion of the concerned Relationship Officer of the Branch or Corporate Banking
Division, Head Office. Up grade or Down Grade by one level will be approved by Head of
Credit Risk Management Division. Up grade or Down Grade by two levels should be
approved by Additional Managing Director/Managing Director.
29.5 Downgrading:
The Relationship Officer of particular customer shall continuously monitor the customer and
bear the responsibility of rating/grading with surveillance. If any deterioration in risk,
whatever may be the reason, is noted or adverse information is received, the Relationship
Officer will propose change in the risk grading of the customer and prepare Early Alert
Report and forward the same to the Credit Risk Management Division for approval. Changes
in the risk grade will be in effect only if it is approved by the Credit Risk Review
Department, CRM Division. A downgrade movement in a risk rating implies that the
probability of default has increased and appropriate action must be taken. Once a credit
facility/customer is downgraded to a lower grade, it will not be postponed until the next
annual review process. In case of downgrading, credit facility to the customer may be

59
immediately changed/restructured, if possible. Head of Credit Risk Management Division
may also downgrade /classify an account in the normal course of inspection of a Branch or
during periodic portfolio review. In such a event, the
Credit Risk Grading Scorecard will then be filled up by the Credit Risk review Department
and will be referred to Corporate Banking Division, concerned Branch/Credit Administration
Department/Recovery Unit for updating their MIS/records.
29.6 Asset Migration:
Risk Grading Model will be used for assessing / measuring risk in the credit exposure taken
on a particular customer. It is the key measurement of Bank’s asset quality irrespective of
classified and unclassified accounts. Therefore, all facilities will be assigned a risk grade.
And, asset portfolio of the Bank will be reviewed quarterly. At each quarter end, Credit
Administration Department, CRMD will report summarizing the migration of the assets with
respect to risk grade and place before the management for review. The Management will
ensure no concentration of assets in lower grades.
29.7 External Rating:
At least top twenty five clients/obligors of the Bank may preferably be rated by an outside
credit rating agency.
29.8 System Review:
Credit Risk Management Division will review a certain percentage of the Risk Grading
Scorecard and Risk Grading Sheet of a Branch for effective application of risk rating in
Credit operation every year. Furthermore, consistency of the judgment in qualitative factors
by the concerned officers/executives will also be reviewed at the same time.
29.9 General Conditions:
Apart from risk rating of the credit exposure done at the time of first sanction, the Risk
Grading should be reviewed annually. Below Numeric Grade 3, i.e., Acceptable, the risk
assessment is to be undertaken at half yearly intervals and in critical cases, at quarterly basis.
In case an account is rated marginal/watch list/special mention or unacceptable risk as per
Credit 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,
strong guarantee or proper structure and covenants.

29.10 Delegation of Approval Authority:

The overall lending authority rests with the Board of Directors within the frame work of the

60
Bank‟s Memorandum and Articles of Association. It is imperative for a bank to create
different tier of approval authority for smooth, prompt and efficient services to its multitude
of clients spread far and wide as well as disciplined credit culture within the bank. It is the
responsibility of the Board of Directors to ensure proper and orderly conduct of the business
by approving the overall lending authority structure, and explicitly delegate approval
authority to Chief Executive Officer/Managing Director, Additional Managing Director,
Deputy Managing Director and Senior Credit Officers and the Executive Committee.
United Commercial Bank Limited believes in decentralization of powers and credit approval
authority has been delegated to different tiers of both the Board of Directors and the
Management. Authorities who enjoy delegation of business power i.e credit approval
authority
are as follows:
1. Board of Directors
2. Executive Committee of the Board
3. Chief Executive Officer/Managing Director
4. Deputy Managing Director
However with an objective to facilitate quick disposal and timely renewal of large number of
credit proposals and developing efficient credit officers for future the following approval
authority has been framed:
1. Board of Directors
2. Executive Committee of the Board
3. Chief Executive Officer/Managing Director
4. Additional Managing Director
5. Deputy Managing Director
6. Head of Branch

29.11 Segregation of Duties:

The purpose of the segregation is to ensure a check and balance between business & credit. It
also intends to improve the knowledge level and expertise in each department, to impose
control over the disbursement of sanctioned loan facilities to avoid conflict of interest,
compromise and to ensure quality of assets through transparent process. The single most
important line of distinction between Relationship and Credit Division is that former group
will have primary

61
of marketing, i.e., developing and sustaining the Bank‟s business; Credit officers will have
no direct responsibility for business generation but will be responsible for ensuring credit
quality of Credit portfolio.
i. Business Development /Relationship (Corporate Banking Division);
ii. Credit Risk Management Division
Department;

The functions and responsibilities of both Corporate and Credit Risk Management Division
are highlighted below to provide understanding their respective roles in Credit origination,
approval and monitoring process.
30. Corporate Banking Division
30.1 Major Functions & risk management spects:
a) To solicit customers and maintain effective relationship with them.
b) To collect sufficient credit information and process the same to conduct due diligence
(Credit Analysis).
c) To prepare comprehensive credit proposal and recommend the same for screening of
HOCC and Credit Risk Review Department of Credit Risk Management Division.
30.2 Duties and Responsibilities:
Broadly the responsibilities of the division are, but not limited to, the following:
a) To set short, medium and long term business goals and forward the same to the Credit Risk
Management (CRM) unit of Credit Division for its ratification.
b) To formulate plans and strategies to achieve specific business goals.
c) To identify target customers, initiate/establish new customer relationships and
renew/strengthen existing ones.
d) To study market and competitive position and customize business plans & strategies with
changing environment on an on-going basis.
e) To prepare Target Market Document for Corporate clients.
f) To develop new products and formulate means of mobilizing and allocating short, medium
and long term resources.
g) To carry out credit analysis with due diligence, assess credit requirement of the customer,
structure credit facilities, identify potential credit risks and mitigating factors thereto.
h) To solicit customers and prepare credit information memorandum for specific syndication
deal.

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i) To appraise and recommend proposals for participation in loan syndications arranged by
other banks.
j) Obtaining, reviewing, vetting and submitting all necessary credit information to Credit Risk
Review Department for timely and accurate processing of credit proposals.
k) To ensure appropriate implementation of the credit after approval, ongoing review,
renewal and supervising the use of facilities in the designed manner.
l) To ensure compliance of bank‟s own policies and regulatory requirements;
m) To coordinate with Credit Administration Unit at Branch level for accomplishment of
proper documentation and disbursement.
n) To coordinate with Monitoring & Recovery Unit of Credit Risk Management Division to
facilitate effective monitoring of problematic loans.
o) To maintain thorough knowledge of borrower‟s business and industry through regular
contact.
p) To proactively monitor the financial performance and account conduct of borrowers.
q) To minimize credit losses through risk assessment and timely identification of
deteriorating credit risk of the customers.
r) To ensure customer satisfaction in all respects.
The Head of Branches shall act as Relationship Manager for his Branch for doing the
function of Corporate Division. Officers of Credit Marketing Team of the Branch shall act as
Relationship Officer. They shall do marketing of Bank‟s credit products, explore new
business opportunities, negotiate terms and conditions, process credit proposals, maintain
effective relationship with customers, and submit proposals to Corporate Banking Division,
Head Office for approval of business credit facilities beyond their delegated business power.
The Relationship Managers (RM) should be the owner of the customer relationship and must
be held responsible to ensure accuracy of the entire credit application submitted for approval.
They will also follow up to ensure timely repayments of loans and inform any deterioration in
a proactive manner to the authority.
30.3 Credit Risk Management Division
The Credit Risk Management Division shall perform interalia the following duties:
a) Ensure that credit proposals to any level of authority are complete, correct and consistent
with the bank‟s established policies and procedures.
b) Assess risks inherent in the credit proposal sent by Corporate Division and also evaluate
proposed facility pricing based on risks, security, structuring and terms and conditions to
suit the business condition and to protect Bank‟s interest.

63
c) Compliance to the existing rules and regulations of the Bank and all regulatory authorities
and laws of the country and to advise the Corporate Division for rectification, if required.
d) Advise the Corporate Division about changes, if required, in the structure and terms and
conditions of the proposed facility.
e) Process credit proposal for approval of the competent authority.
f) Issuance of sanction advice for credit facilities or decline.
g) Maintain Limit Sanction Register.

31. Major Functions of Risk Management Division:

a) To update Bank‟s Credit Policy/Lending Guideline, procedures and control mechanisms
related with all credit risks arising from corporate/commercial banking etc.
b) To review credit proposal received from Corporate Banking Division and provide
observation regarding risks to the Credit Committee
c) Monitor and administer credit extensions at Branches by reviewing the periodical
statements.
d) To provide advice/assistance regarding all credit matters to Corporate Division/Branches.
e) Periodical review of different types of credits, maintain effective follow-up and
supervision
and take all possible measures in time to save from classification.
f) Ensure that approvals are promptly communicated to the originating Branch for
implementation.
32. Duties and Responsibilities of Risk Management Division:
a) Examine/review credit proposals (new/renewal) sent by Corporate Banking
Division/Branches to:
CM for approval on receipt of recommendation of HOCC.
Committee.

irector/Additional Managing
Director/Managing Director/EC/ Board for their approval

b) Review on a periodical basis in the light of:

tructuring

64
c) Revise and ratify borrower‟s risk grade developed by Corporate Division/branches.
d) Review delegated credit approval authorities on an annual basis.
e) Review a portion of approved Loan by the delegated approval authority at Branch level.
f) Review and update bank‟s credit manual and credit operating procedures on an annual
basis.
g) Conduct industry analysis and detect risk involved with each industry.
h) Formulate strategy to minimize risk of lending to specific industry.
i) Guide and educate officers of all units of Credit Division and Corporate Division/branches.
33. Credit Administration Department
33.1 Scope and Objectives:
Ongoing administration of the credit portfolio is an essential part of the credit process. The
responsibility of providing administrative support for the lending activities of the Bank, and
dayto- day monitoring of credit exposure along with Corporate Banking Division is vested in
the Credit Administration Department. Credit administration function is basically a back
office that support and control extension and maintenance of credit. The primary objectives
of establishing Credit Administration Department is to ensure the following:
a) To ensure discipline in Credit Management.
b) Sanction letter delivered to customers are exactly in line with the approved credit terms.
c) All loan documentation relating to transactions are scrutinized, verified to be legally
enforceable and lodged in the vault.
d) Effective checks and balances are maintained with regard to correct utilization of credit
facilities according to the terms and conditions of the credit approval.
e) All customer liabilities are timely and accurately recorded in the books of accounts for
monitoring and control purposes.
f) All irregularities and exceptions are recorded and reported as required.
g) Collateral securities and stocks pledged with the bank are effectively controlled and
monitored

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34. Results and Discussion:

quality.
financial institution like as UCBL.

It helps to forecast the market scientifically.

organizing, controlling etc.

Finally, the implementation of CRM reduces the risk level of individual borrowers;
improve the financial culture of the organization as well as the economy of the nation.

& the basic of CRM.

, UCBL has to relay on the secondary information
provided by the borrowers. But there is a little chance to justify the provided information.
So in most cases bank has to work with the unjustified information.
The process of preparation of financial statement of an individual firm is not upgraded.
As a result, all relevant correct information is not shown in the financial statement. So, there
is a gap in the provided information

35. Conclusion:
UCBL is today’s one of the leading private banks in our country. After the establishment it
brought lots of new product and services for its clients and the progress of UCBL is really
satisfactory in our banking environment. From a mainly feudal agrarian base, Bangladesh has
undergone a rapid economic structural transformation towards manufacturing and services.
Providing credit to clients is a core business of UCBL. It is also the pioneer in offering world
class credit/loan facilities for the people of Bangladesh. It has 110 branches in urban, suburbs
and rural areas in the country. This makes possible for the bank to reach to all type of
potential clients. Fundamentally most of the revenue comes from credit department of the
bank so it is very essential that UCBL has well structured credit risk management
department. In this report I have illustrated different aspects of UCBL credit risk management
department and try to find out the problems and the process to solve the problems. Although
the bank has a very highly structured credit risk management policy they need to be careful
about future challenges and obstacles, because eventually they have to deal with future

66
business in this changing world. So their policy should be upgraded and modified in order to
face the challenges.

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 BIBLIOGRAPHY & REFERENCES
1. www.ucbl.com
2. www.wikipedia/ucbl.com
3. www.investopedia/financial risk management.com
4. Annual report of UCBL 2009,2010,2011.
5. Dunn & Bradstreet (2007), Financial Risk Management, 3rd edn, ch:1, Understanding
risk pg.1-11, ch:2, Risk classification pg. 12-39, ch:4, Risk management pg. 62-90,
ch: 5, Tools for risk management pg.92-142, Tata McGraw-Hill Professisional.
6. Khan & Jane (2009), Fundamentals Of Financial Management, 5th edn, Ch.11,
Financial risk management, pg.172-251, Prentice Hall, New Delhi.

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