CREDIT POLICY GUIDELINES

Jamuna Bank Limited

December 07, 2005

MD. SHAWKAT HOSSAIN

 Table of Contents

Sl. No. Particulars Page No.

1. Introduction 01
2. Deviation from the Policy 02
3. Credit Principles 02
4. Discouraged Business for Bank’s Finance 03
5. Global Credit Port-folio Limits 04
6. Credit Categories 05
7. Types of Credit Activities 08
8. Sectoral Outlook During 2006 10
9. Credit Risk Assessment 14`
10. Organizational Structure for Credit Operation 16
11. Segregation of Duties 16
12. Preparation / Processing of Credit Proposals 25
13. Valuation of Securitis 27
14. Insurance Policy 28
15. Credit Monitoring 28
16. Responsibilities of Head of Branches 29
17. Role of Credit Committee 29
18. Credit facilities parameter 29
19. Credit Risk Grading System 31
20. Disbursement Process and Documentation 66
21. Early Alert System 67
22. Credit Recovery 69
23. Statement to be submitted to the Board / EC periodically 71
24. Periodic Review 72
25. Delegation of Powers 72
 1. INTRODUCTION
Risk is inherent in all aspects of commercial operation. However for Banks and Financial Institutions
Credit risk is an essential factor that needs to be managed. Credit risk is the possibility that a borrower
will fail to meet its obligation in accordance with agreed terms. Credit risk, therefore, arises from the
Bank’s dealings with or lending to corporate, individual and other Banks or financial institutions.

Credit risk management needs to be a robust process that enables Banks to proactively manage loan port-
folio in order to minimize losses and earns an acceptable level of return for Shareholders. Central to this
is a comprehensive IT system, which should have ability to capture all key customer data, risk
management and transaction information. Jamuna Bank Ltd. already has real time on-line Banking system
which enables to capture all key customer data. Given the fast changing dynamic global economy and the
increasing pressure of globalization, liberalization, consolidation and dis-intermediation, it is essential
that Banks have robust Credit risk management polices and procedures that are sensitive and responsive
to these changes.

Jamuna Bank Limited being a progressive and dynamic Private sector Bank having very successful and
proven track record should have a pragmatic Credit policy guidelines to efficiently and professionally
manage risks arising out of its Credit operation.

The purpose of this document is to improve risk management culture, establish minimum standard for
segregation of duties and responsibilities relating to Credit Operation of the Bank.

With a view to bringing about an effective risk management system in Credit operation of the Bank and in
compliance to the Directives/Guidelines of Bangladesh Bank given vide BRPD Circular No-17 dated
07.10.2003, the following policy and guidelines are framed. This policy replaces all previous ones, which
set out Credit policies of Jamuna Bank Limited.

Jamuna Bank Limited is a new generation Bank. It is committed to provide high quality financial
services/products to contribute to the growth of G.D.P. of the country through stimulating trade &
commerce, accelerating the pace of industrialization, boosting up export, creating employment
opportunity for the educated youth, poverty alleviation, raising standard of living of limited income group
and over all sustainable socio-economic development of the country.

In achieving the aforesaid objectives of the Bank, Credit Operation of the Bank is of paramount
importance. The greatest share of total revenue of the Bank is generated from it, maximum risk is
centered in it and even the very existence of Bank depends on prudent management of its Credit port-
folio. The failure of a commercial Bank is usually associated with the problems in Credit port-folio and is
less often the result of shrinkage in the value of other assets. As such, Credit port-folio not only features
dominant in the assets structure of the Bank, it is critically important to the success of the Bank also.

To provide a board guideline for the Credit Operation towards achieving the objectives of the Bank, for
efficient and profitable deployment of its mobilized resources and to administer the Credit port-folio in
the most efficient way, a clearly defined, well planned, comprehensive and appropriate Credit policy and
Control Guidelines of the Bank is a pre-requisite.

In view of the above, this Credit policy and Control Guidelines of the Bank has been prepared which is
subject to amendment, revision, re-adjustment and refinement from time to time at least once annually
duly approved by the Board of the Bank as may be warranted by the change of circumstances due to
passage of time to suit the requirement of the Bank.

This Policy guidelines is meant for business related credit operation of the Bank.
 2. DEVIATION FROM THE POLICY
Any deviation from the approved policy in case of any credit proposal in any respect shall be clearly
identified and mentioned in the credit proposal with proper justification for approval of the approving
authority.

Any Credit proposal that does not comply with the Credit policy/ Lending Guidelines in any respect
regardless of the amount should be referred to Head office for consideration.

3. CREDIT PRINCIPLES
i. The Bank shall provide suitable credit services and products for the market in which it operates.
Product innovation shall be a continuous process.

ii. Loans and advances shall normally be financed from customers deposit and not out of temporary
fund or borrowing from money market.

iii. Credit facilities shall be allowed in a manner so that credit expansion goes on ensuring quality i.e.
no compromise with the Bank’s standard of excellence. Credit is extended to customers who will
complement such standards.

iv. All credit extension must comply with the requirements of Bank’s Memorandum and Articles of
Association, Bank companies Act as amended from time to time, Bangladesh Bank’s instructions
Circulars, Guidelines and other applicable laws, rules and regulations.

v. The conduct of the loan portfolio should contribute, within defined risk limitation, to the
achievement of profitable growth and superior return on the Bank’s capital.

vi. Credit advancement 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 (on the
global basis), though individual transactions should also be profitable.

vii. Credit facilities will be extended to those companies/persons, which can make best use of the
facility thus helping maximize our profit as well as economic growth of the country. To ensure
achievement of this objective lending decision shall be based mainly on the borrower’s ability to
repay.

viii. Diversification: The portfolio shall be well diversified sector wise, Industry wise, geographical
area wise, maturity wise, size wise, mode wise, purpose wise. Concentration of credit shall be
carefully avoided to minimize risk.

ix. Remunerative: If Credit facilities are granted on a transaction/one-off basis, the yield from the
facility should be commensurate with the risk.

x. Loan pricing: Loan pricing shall depend on the level of risk and type of securities offered. Rate of
interest is the reflection of risk in the Transaction. The higher the risk, the higher is pricing. Interest
rate may be revised from time to time in view of the change in the cost of Fund and market
condition. Effective yield can be enhanced by requiring the customer to maintain deposit to support
borrowing activities. Yield may be further improved by realizing Management fee, Commitment
fee, service charge etc where possible.

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 xi. Proper staffing: Proper analysis of Credit proposal is complex and required high level of
numerical as well as analytical ability and common sense. To ensure effective understanding of the
concept and thus to make the overall credit port-folio of the Bank healthy, proper staffing shall be
made through placement of qualified officials having appropriate background, who have got the
right aptitude, formal training in Credit Risk Analysis, Bank’s credit procedures as well as required
experience.

4.0 DISCOURAGED BUSINESSES FOR BANK’S

FINANCE

In view of legal aspect, business risk and banking ethics following business are on discouraged list for
Bank’s finance:

1. Military Equipment/Weapons Finance

2. Highly Leveraged Transactions
3. Finance of Speculative Investments
4. Logging, Mineral Extraction/Mining, or other activity that is Ethically or Environmentally
Sensitive
5. Lending to companies listed on CIB black list or known defaulters
6. Counter-parties in countries subject to UN sanctions
7. Share Lending
8. Taking an Equity Stake in Borrowers
9. Lending to Holding Companies
10. Bridge Loans relying on equity/debt issuance as a source of repayment.
11. Lending to a business enterprise where the loan cannot be repaid within a reasonable period
except by borrowing elsewhere or by liquidating business.
12. Loans to parties whose integrity is questionable.
13. Loans secured by stock that has no ready market.
14. Loans to business whose equity is substantially financed by Preference Shares.
15. Any other type which Bank may identify as discouraged from time to time.

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 5.0 GLOBAL CREDIT PORTFOLIO LIMITS
The Credit portfolio shall be governed by the guidelines set down by Head Office in the light of
regulatory requirements. These guidelines will however consist of the global limits identified below for
the Bank’s credit portfolio in aggregate:

I. Total Facilities:

The aggregate of all cash facilities shall not generally exceed 80% of customer deposits of the Bank.
It is further governed by the statutory and liquidity reserve requirement of Bangladesh Bank as
revised from time to time.

II. Term Facilities:

Aggregate Long Term business loan facilities shall not exceed 20% of the total credit portfolio.
Facilities shall not be allowed for a period exceeding 5(five) years. Any exceptions will require the
approval of the Board of Directors.

III. Country /Cross border Exposure:

(a) While taking cross border exposure political and sovereign risk shall be examined and considered.

(b) Currency Risk

• Non convertibility
• Restriction against Transferring Foreign Currency abroad.
• Local Currency devaluation.

(c) Expatriation
• Restriction against transferring profit aboard.

(d) Charge in Laws

• Charge in Taxes.
• Charge in Custom duties.
• Charge in regulations and deregulations.

(e) Expropriation
• Acquisition of assets by the host Government in a discriminatory way without compensation.

(f) In this respect sanction of United Nations Organization and embargo imposed by our Government
shall be strictly complied and adhered to.
(g) Limits to be established by the Board for individual Country as well as & for aggregate Bank
Credit exposures to different countries. These limits are to be reviewed from time to time with
due regard to the political and economic environment in each country. The country exposure
limits may be utilized up to maximum amounts for different maturities as follows:
For maturities up to one year: 100% of the limit
For maturities up to two years: maximum 50% of the limit
For maturities up to three years: maximum 25% of the limit
For maturities beyond three years: maximum 10% of the limit
For exceptions, approval is required from the Board of Directors.

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IV. Exposure to Customer Groups:

Credit facilities in aggregate extended to any one customer group shall not exceed 35% of the Capital
Fund which may be up to 50% of capital fund for export oriented business or as prescribed
Bangladesh Bank from time to time. All proposals submitted to Head Office will also be required to
indicate the extent of the Bank's global exposure to that customer group. Funded facility to any
customer/ group shall not exceed 15% of capital fund.
V. Unsecured Facilities:

Aggregate Bank advances to corporate or individual customers (i.e. other than government or
parastatal organizations) which are not secured by collateral and are allowed on the strength of
customer's personal integrity and financial standing or the corporate customer's balance sheet, with or
without hypothecation of stock shall not exceed 30% of the total credit portfolio.
For the unsecured credit facilities extended to a business dominated by one or two individuals, the
Bank shall insist on taking Life Insurance Policies by the principals which is sufficient to repay the
loan in the event of death or injury of anyone key individual. The policy to be assigned to the Bank
and the premium to be paid by the customer through the Bank under suitable arrangement.

VI. Name Lending :

The Bank shall carefully avoid name Lending. Lending facility shall be allowed on business
consideration only duly and professionally analyzing viability of business, assessment of credit
requirement, security offered, cash flow and risk level.
VII. Sector-wise Allocation :

Sector-wise and Industry wise allocation of credit shall be made annually with the approval of
Executive Committee/Board of Directors. This will be reviewed from time to time if warranted to
adjust it with changed circumstances/ scenario.

VIII. Security:
Security accepted against credit facilities shall be properly valued and shall be effected and perfected
in accordance with the laws of the country. An appropriate margin of security will be taken to reflect
such factors as the disposal costs or potential price movements of the underlying assets.

6.0 CREDIT CATEGORIES

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 to 9 vide BCD
Circular No. 23 dated 09-10-93 and again to 7 sectors vide BCD Circular No.8 dated 25.04.94 for fixation
of rates of interest by the individual banks on competitive basis depending on the cost of Funds,
prevailing market condition and monetary trend of the country.
Loan and advances have primarily been divided into two major groups:

a) Fixed term loan: These are the advances made by the Bank with fixed repayment schedules. The term
of loan are defined as follows:
Short term : Up to 12 months
Medium term : More than 12 and up to 36 months
Long Term : More than 36 months

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b) Continuing credits: These are the advances having no fixed repayment schedule, but have an expiry
date at which it is renewable on satisfactory performance.
Further all categories of loans are accommodated under the 7 sectors as under:

I. Agriculture:

Credit facilities to the agricultural sector falls under this category. It is subdivided into two major heads:

a) Loans to primary producers: This sector of agricultural financing refers to the credit facilities
allowed to production units engaged in farming, fishing, forestry or livestock.
Loans to processors or traders of agricultural products are not to be categories as agricultural loans.
Loans to tea gardens for production are treated as agricultural loan, but loans to tea gardens for
export should be treated under the category "Export Credit". Similarly medium and long-term loans
to tea gardens are categorized as industrial term lending.
b) Loans to input dealers/distributors: It refers to the financing allowed to input dealers and (or)
distributors in the agricultural sectors.
Agricultural loans may include short, medium and long fixed term loans as well as continuing credits.
As such, it may fall under the head "Loan (Gen)/Hire-Purchase/Lease Financing".

II. Term Loan for Large & Medium Scale Industry (“Large Industry” is defined to include all
industrial enterprises whose total fixed cost / replacement cost excluding land and factory building is
over Tk. 100 million. Medium Industry is defined to include all industrial enterprises whose total
fixed cost/ replacement cost excluding value of land and factory building is between Tk.15 million to
Tk. 100 million.)

This category of advances accommodate the medium and long term financing for acquiring capital
machinery of new Industries or for BMRE of the existing units who are engaged in manufacturing
goods and services.
Term Financing 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 falls under the head "Loan
(Gen)/Hire-Purchase/Lease Financing".

III. Term Loans to Small & Cottage Industries: (“Small Industry” will mean enterprises whose total
fixed cost / replacement cost excluding land and factory building is not more than 15 million.)

No short term or continuing credits are to be included in this category. Medium & Long term credits
are also included under this category.

Like the Large & Medium Scale Industry it is also allowed in the form of "Loan (Gen)/Hire -
Purchase/Lease Financing".

IV. Working Capital:

Loans allowed to the manufacturing units to meet their working capital requirements, irrespective of
their size - big, medium or small, fall under the category.

These are usually continuing credits and as such fall under the head "Cash Credit"

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V. 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 Bills Purchased (FDBP), Local Export Bills
Purchased etc. However, bills discounted / purchased against supply of goods and services to
companies / industries which are located in the country and not involved in export / deemed export
shall not fall under export credit.

VI. Commercial Lending:

Short term loans and continuing credits allowed for commercial purposes other than exports fall
under this category. It includes import financing, financing for internal trade, service establishment,
etc. No medium and long term loans are accommodated here. This category of advances are allowed
in the form of (I) Loan against imported merchandise (LlM), (ii) Loan against trust receipt (LTR),
(iii) Payment against import documents (PAD), (iv) Secured Overdrafts (SOD), (v) Cash Credit (CC),
(vi) Loan (Gen), etc. for commercial purposes.

VII. Others :

Any loan that does not fall in any of the above categories is considered under the category "Others". It
includes loan to (I) transport equipments, (ii) construction works including housing
(commercial/residential), (iii) work order finance, (iv) personal loans, etc.

VIII. SME Financing:

Bangladesh Bank vide BRPD Circular No. 07 dated 03.11.2004 has given prudential regulatory
guidelines for Small Enterprise Financing.

The role of Small and Medium Enterprise is very crucial in the economic development of the county.
Jamuna Bank Limited has separate SME Financing Scheme duly approved by the Board. There are
several products, modalities and loan ceiling for SME financing. SME Cell within Corporate Division
handles SME loans.

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 7.0 TYPES OF CREDIT ACTIVITIES

Depending on the various nature of financing, all the lending activities have been brought under the
following major heads:

I. Loan (General) :
Short term, Medium term & Long term loans allowed to individual/firm/industries for a specific
purpose but for a definite period and generally repayable by installments fall under this head. This
type of lending are mainly allowed to accommodate financing under the categories (I) Large &
Medium Scale Industry and (ii) Small & Cottage Industry. Very often term financing for (I)
Agriculture & (ii) Others are also included here.

II. Loan (General) :House Building Loan (General):

Loans allowed to individual/enterprises for construction of house (residential or commercial) fall

under this type of advance. The amount is repayable by monthly installment within a specified
period. Such advances are know as Loan (HBL-GEN).

III. House Building Loan (Staff) :

Loans allowed to our Bank employees for purchase/construction of house shall be known as Staff
Loan (HBL-STAFF).

IV. Other Loans to Staff :

Loans allowed to employees other than for House Building shall be grouped under head - Staff
Loan (Gen).

V. Cash Credit (Hypo.):

Advances allowed to individual/firm for trading as well as wholesale purpose or to industries to
meet up the working capital requirements against hypothecation of goods as primary security fall
under this type of lending. It is a continuous credit. It is allowed under the categories (I)
"Commercial Lending" when the customer is other than a industry and (ii) "Working Capital"
when the customer is an industry.

VI. Cash Credit (Pledge) :

Financial accommodations to individual/firms for trading as well as for whole-sale or to

industries as working capital against pledge of goods as primary security fall under this head of
advance. It is also a continuous credit and like the above allowed under the categories (i)
"Commercial Lending" and (ii) Working Capital".
VII. Hire Purchase

Hire-Purchase is a type of installment credit under which the Hire-Purchaser agrees to take the
goods on hire at a stated rental, which is inclusive of the repayment of Principal as well as interest
for adjustment of the loan within a specified period.

VIII. Lease Financing:

Lease Financing is one of the most convenient sources of acquiring capital machinery and
equipment whereby a client is given the opportunity to have an exclusive right to use an asset
usually for an agreed period of time against payment of rent. It is a term financing repayable by
installment.

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 IX. Time Loan :
This is one time financial accommodation for short period maximum 12 months to meet some
specific purpose. The loan is adjustable within the validity and not renewable and no transaction
is allowed.
X. Consumers Credit Scheme :

It is a special credit scheme of the Bank to finance purchase of consumers' durable to the fixed
income group to raise their standard of living. The loans are allowed on soft terms against
personal guarantee and deposit of specified percentage of equity by the customers. The loan is
repayable by monthly installment within a fixed period.

XI. SOD (General) :

Advances allowed to individual/firms against financial obligation (i.e. lien on FDR/PSP/

BSP/Insurance Policy/Share etc). This may or may not be a continuous Credit.

XII. SOD (Others):

Advances allowed against assignment of work order for execution of contractual works falls
under this head. This advance is generally allowed for a definite period and specific purpose i.e. it
is not a continuous credit. It falls under the category "Others".

XIII. SOD (Export) :

Advance allowed for purchasing foreign currency for payment against L/Cs (Back to Back)
where the exports do not materialize before the date of import payment. This is also an advance
for temporary period which is known as export finance and falls under the category "Commercial
Lending".

XIV. PAD:

Payment made by the Bank against lodgment of shipping documents of goods imported through
L/C falls under this head. It is an interim advance connected with import and is generally
liquidated against payments usually made by the party for retirement of the documents for release
of imported goods from the customs authority. It falls under the category "Commercial Lending".

XV. LlM :

Advances allowed for retirement of shipping documents and release of goods imported through
L/C taking effective control over the goods by pledge in godowns under Bank's lock & key fall
under this type of advance. This is also a temporary advance connected with import which is
known as post-import finance and falls under the category "Commercial Lending".

XVI. LTR:
Advance allowed for retirement of shipping documents and release of goods imported through
LC falls under this head. The goods are handed over to the importer under trust with the
arrangement that sale proceeds should be deposited to liquidate the advances within a given
period. This is also a temporary advance connected with import and known as post-import
finance and falls under the category "Commercial Lending".

XVII. IBP:
Payment made through purchase of inland bills/cheques to meet urgent requirement of the

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 customer falls under this type of credit facility. This temporary advance is adjustable from the
proceeds of bills/cheques purchased for collection. It falls under the category "Commercial
Lending".

XVIII. Export Cash Credit (ECC) :

Financial accommodation allowed to a customer for exports of goods falls under this head and is
categorized as "Export Credit". The advances must be liquidated out of export proceeds within
180 days.

XIX. Packing Credit (P.C.) :

Advance allowed to a customer against specific L/C/firm contract for processing/packing of

goods to be exported falls under this head and is categorized as "Packing Credit". The advances
must be adjusted from proceeds of the relevant exports within 180 days. It falls under the
category "Export Credit".

XX. F D B P :

Payment made to a customer through purchase/negotiation of a Foreign documentary bills falls

under this head. This temporary advance is adjustable from the proceeds of the shipping/export
documents. It falls under the category "Export Credit".

XXI. IDBP :

Payment made against documents representing sell of goods to Local export oriented industries
which are deemed as exports and which are denominated in Local Currency / Foreign Currency
falls under this head. This temporary liability is adjustable from proceeds of the Bill.

XXII. F B P :

Payment made to a customer through Purchase or Foreign Currency Cheques/Drafts falls under
this head. This temporary advance is adjustable from the proceeds of the cheque/draft.

8.0 SECTORAL OUTLOOK DURING 2006

1. The gap between export and import of our Bank is very big i.e. import is almost double of export.
We need foreign Exchange for payment of Foreign L/C. Bangladesh Bank has given guidelines to
keep volume of import within available Forex resources of respective Bank. As such for
increasing our volume of import we need generation of Forex. Inward foreign remittance in our
Bank still very limited. Export of RMG constitutes approximately 70% of total export of the
country. RMG export finance gives multifarious income to the Bank as such we shall focus on
enhancing RMG import of selected and good performing customers during the year 2006.

2. Now, banking is very competitive. Scope of advance is also going to be narrower day by day. As
the economy is not expanding in line with the increased no. of bank branches different banks are
chasing after same corporate customer. In this circumstances corporate customer are taking the
chance of offering minimum interest on Loans and almost no security. In view of the

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 circumstances, we should diversify our credit portfolio and focus on SME financing. During 2006
we shall focus on SME finance. Accordingly, we should develop different SME products.

3. We shall focus on retail credit because scope of earning is high. Moreover, as the loan amount is
small risk of default is also small. If the loans can be properly structured and securitised the risk
of default shall be minimum.

4. We shall focus on purchase of bills against local L/Cs issued by reputed schedule banks.

5. We shall focus on Lease financing for BMRE / Equipment purchase for reputed groups /
customers.

6. During 2006 we shall also focus on trade finance (foreign and local) on selective basis
considering financial strength, past performance, reputation and marketing ability of the
customers.

7. We shall also focus on Agro based and Agro-processing sectors.

8. We shall launch factoring as a new lending product during the year 2006.

9. We shall also focus on spinning and back-ward linkage industries on a very selective basis.

10. We shall focus on health sector, education sector and iron and steel sector which seems to be
booming during the year 2006.

11. We shall also focus on telecommunication sector and real estate development sector (developers)
on a very selective basis.

12. We shall focus on contractor financing and also guarantee business against counter guarantee of
foreign banks.

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Sector-wise Portfolio Analysis and Budget 2006
Figure in Lac Taka
Sector 2004 % of 2005 % of Growth Budget Growth
Total Total over 2006 over
2005 2006
1 Ready Made Garments 3116.73 4.64% 8501.20 6.73% 172.76% 11500.00 35.28%
(Knit, Woven , Sweater)
2 Garments Accessories 1339.91 1.99% 4256.67 3.37% 217.68% 5000.00 17.46%
(Hanger, Poly bag ,
Packaging ,Zipper etc)
3 Spinning/ Textile/ Home 1214.91 1.81% 5092.67 4.03% 319.18% 6000.00 17.82%
Textile/Dyeing etc.
4 Plastic Products 569.06 0.85% 1558.19 1.23% 173.82% 1500.00 -3.73%
5 Tiles, Ceramic, Marble, 277.17 0.41% 445.51 0.35% 60.73% 1000.00 124.46%
Sanitary etc
6 Salt & Minerals 318.76 0.47% 424.33 0.34% 33.12% 600.00 41.40%
7 Cosmetics & Toiletries 531.75 0.79% 1468.44 1.16% 176.15% 1500.00 2.15%
8 Import Trade Finance 4824.95 7.18% 14480.96 11.47% 200.13% 20000.00 38.11%
9 Local Trade Finance 13384.15 19.91% 14543.64 11.52% 8.66% 20000.00 37.52%
10 Agriculture (Including 362.19 0.54% 383.03 0.30% 5.75% 500.00 30.54%
Fishing, Poultry , Dairy,
Feed,)
11 Agro Processing 1486.08 2.21% 3042.76 2.41% 104.75% 3500.00 15.03%
12 Thai Aluminum 71.94 0.11% 138.65 0.11% 92.73% - -100.00%
13 Brick Manufacturing 82.02 0.12% 580.76 0.46% 608.07% 1000.00 72.19%
14 Shipping - - 84.72 0.07% - - -100.00%
15 Ship Breaking 2298.80 3.42% 2226.07 1.76% -3.16% 2500.00 12.31%
16 Pharmaceuticals 408.30 0.61% 699.17 0.55% 71.24% 2000.00 186.05%
17 Edible Oil 2835.39 4.22% 1879.27 1.49% -33.72% 2000.00 6.42%
18 Educational Institute 201.81 0.30% 218.88 0.17% 8.46% 500.00 128.44%
19 Cement 359.79 0.54% 941.69 0.75% 161.73% 1000.00 6.19%
20 Telecommunication - - - - - 2,500.00 -
21 Glass - - - - - - -
22 Fertilizer 7.88 0.01% 12.79 0.01% 62.27% 1500.00 11630.97%
23 Tobacco - - - - - - -
24 Transport/ Vehicles 1999.18 2.97% 3157.03 2.50% 57.92% 3800.00 20.37%
25 Steel/ Iron 9023.37 13.42% 12062.45 9.56% 33.68% 15000.00 24.35%
26 Electrical/ Electronics 113.71 0.17% 270.25 0.21% 137.67% 1000.00 270.02%
27 Diagnostic / Medical/ 630.50 0.94% 2143.25 1.70% 239.93% 2500.00 16.65%
Hospital.

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28 Housing (Residential, 2336.24 3.48% 3654.15 2.89% 56.41% 4500.00 23.15%
Commercial)
29 Contractor Finance 2823.64 4.20% 5165.23 4.09% 82.93% 6000.00 16.16%
30 Leather 19.33 0.03% - - -100.00% - -
31 NBFI 1598.60 2.38% 2544.64 2.02% 59.18% 3500.00 37.54%
32 Consumer Credit 786.60 1.17% 691.96 0.55% -12.03% 1100.00 58.97%
33 Loan For women 54.37 0.08% 747.56 0.59% 1274.95% 1000.00 33.77%
34 Shop Finance 189.41 0.28% 62.81 0.05% -66.84% 2,000.00 3084.04%
35 Employees Loan 7.08 0.01% 256.37 0.20% 3521.09% 400.00 56.02%
36 SOD (Shares) 74.47 0.11% 1074.59 0.85% 1342.98% 100.00 -90.69%
37 SOD (FDR) 5419.48 8.06% 23237.91 18.41% 328.78% 25000.00 7.58%
38 SME 582.00 0.87% 661.69 0.52% 13.69% 2000.00 202.25%
39 Others 5874.43 8.74% 7515.08 5.95% 27.93% 8000.00 6.45%
Total 67,228.00 100.00% 126,229.36 100.00% 87.76% 160,000.00 26.75%

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 9.0 CREDIT RISK ASSESSMENT
A thorough credit risk assessment should be conducted prior to the sanctioning of credit facilities.
Thereafter it should be done annually for each relationship. The result of this assessment shall be
presented in the credit proposal originated from the Relationship Manager (presently branch).

The Relationship Manager (presently Head of Branch) should be the owner of the customer relationship
and must ensure the accuracy of the entire credit proposal submitted for approval. Relationship Manager
must be familiar with the Bank’s Lending Guidelines and should conduct due diligence on the borrower,
principals and guarantors. They must conduct necessary KYC (Know Your Customer) part on the
customer and Money Laundering Guidelines be adhered to.

Following risk areas in the credit proposal should be addressed and assessed before sending to Head
Office.

I. Borrower Analysis :

a. Share holding
b. Reputation
c. Education
d. Experience – success history
e. Net worth
f. Age etc.

II. Industry Analysis :

a. Industry Position/Threat/Prospect.
b. Risk factors pertaining to the industry.
c. Borrowers position / share in the industry.
d. Strength, weakness of the borrower compared to the competitors etc.

III. Supplier/Buyer Risk Analysis

Concentration on single/few buyer/supplier be addressed.

IV. Demand Supply position

V. Technical feasibilities / Infrastructural facilities
VI. Management Teams Competence
VII. Seasonality of demand
VIII. Debt-Equity Ratio
IX. Historical financial analysis

a. An analysis of 3 years historical financial statements.

b. Earning – its sustainability.
c. Cash flow
d. Leverage
e. Profitability
f. Strength and reliability of Balance Sheet etc.

XII. Projected Financials

a. Sufficiency of cash flows to service debt repayment.

b. Debt Service Coverage Ratio.
XIII. Trade Checking

XIV. Account conduct:

For existing customer the repayment history, credit turnover, study of account statement.

XV. If the customer is proposed to be migrated from other Bank, statement of account from present
Banker is required.
XVI. Allied deposit with our Bank.
XVII. Other business with our Bank.
XVIII. Pricing – Effective rate of return, Return on investment.
XIX. Loan structuring:
Amount, Tenor, relation consistency among different modes (L/C & LTR/LIM) are realistic.
Excessive amount and tenor compared to genuine business need increases the risk of fund
diversion and may adversely impact the borrower repayment ability. Low dose of Credit facility
compared to genuine requirement also creates problems and eventual failure.
XX. Security
A current valuation of collateral security by Professional Enlisted Surveyor be obtained with
photograph and site map. Collaterals within command area of the respective branch location be
preferred. Third Party property and vacant land should be discouraged.

Loans should not be considered based solely on collateral.

Adequacy and extent of Insurance coverage should be assessed. Insurance Policy should be
obtained from approved Insurance Company. Premium should be paid through Bank, duly
stamped money receipt be obtained. Insurance Policy be held by the Bank. The Policy be
renewed in time. Letter of authority be obtained from the customer to debit account to pay
premium for renewal/enhancement of the policy.

XXI. Succession issue

XXII. Margin, volatility of business, high debt (Leverage / gearing), over stocking, huge receivables
with long aging, rapid expansion, new business line, management change, lack of transparency
should be addressed.

XXIII. Adherence to credit guidelines:

It should be clarified whether the customer is agreeable to comply with guidelines in respect of
regulatory requirement and Bank’s policy requirement.

Any deviation be clearly identified and maintained.

XXIV. Mitigating Factors :

Risk factors be identified and side by side mitigating factors of those risks should also be
mentioned to justify the proposed facility.

XXV. Environmental factor.

XXVI. Employment generation and contribution to the national economy.

15
 10.0 ORGANIZATIONAL STRUCTURE FOR CREDIT
OPERATION
Head Office

Board

EC

MD

DMD

Corporate Credit Credit Internal Audit

Division Division Administration
Division

General SME Trade Leasing Syndication & CRM Recovery and

Credit Deptt. Finance Deptt. Structured Deptt. Legal Deptt.
Finance Deptt.
Deptt. Deptt.

Branch
Head of Branch

Credit Marketing Credit approval Credit administration Credit Recovery

Team Team Team Team

At the minimum, one officer shall be placed in the Credit Administration unit immediately at each branch
who shall work independently under administrative and working control of Credit Administration Deptt.,
Head Office.

16
 11.0 SEGREGATION OF DUTIES
Following credit related functions of the Bank shall be segregated/separated and to be done by separate
units/set of people:
i. Credit marketing/Relationship (Corporate Division);
ii. Credit Approval/Credit Risk Management (CRM);
iii. Credit Administration (Documentation & Disbursement & Monitoring);
iv. Credit Recovery.

The purpose of the segregation is 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.

Segregated function of different units are as under:

CORPORATE DIVISION

Major Functions:
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 well-dressed credit proposal and recommend the same to the Credit Risk Management
department of the Credit Division.

Duties and Responsibilities:

Broadly the responsibilities of the division should be, 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 carry out credit analysis with due diligence, assess credit requirement of the customer,
structure credit facilities, identify potential credit risks and mitigating factors thereto.
f) To solicit customers and prepare credit information memorandum for specific syndication deal.
g) To appraise and recommend proposals for participation in loan syndications arranged by other
banks.
h) To prepare well-dressed credit memo, addressing credit worthiness of borrower (with regard to
character, capacity, cash, collateral, condition and control aspects).
i) To structure loan terms/agreement to reasonably ensure borrower’s capacity to repay loans as
well as protection of interest of the bank and thereby interest of the depositors.
j) To ensure compliance of bank’s own policies and regulatory requirements;
k) To coordinate with Credit Administration Unit for accomplishment of proper documentation and
disbursement.
l) To coordinate with Recovery Department of Credit Division to facilitate effective monitoring of
loans.
m) To collect latest credit information and revised risk grade of the borrower and place the same
before the CRM Department for ratification.

17
 n) To minimize credit losses through risk assessment and timely identification of deteriorating credit
risk of the customers.
o) To develop new products and formulate means of mobilizing and allocating short, medium and
long term resources.
p) To ensure customer satisfaction in all respects.

Creation of a complete and centralized Corporate Division at Head Office requires preparation and time.
Until establishment of a Corporate Division at Head Office, Head of Branches shall act as Relationship
Manager for his respective Branch for doing the function of Corporate Division. Officers of Credit
Department of the Branch shall work as team members of corporate functions. 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 CRM, 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.

It is essential that RMs know their customers and conduct due diligence on new borrowers, principals,
guarantors to ensure such parties are in fact who they represent themselves to be.

They shall constantly monitor the loan accounts to provide an early indication regarding deteriorating
financial health of the customer and report to the CRM. Financial Statements are to be obtained on regular
basis, breach of any covenants to be noticed and reported to CRM.

They shall submit retail credit proposals to retail Credit Unit, Head Office which is beyond their
delegated power.

Job Title: Head of Corporate Banking

Reports to: Managing Director
Purpose of Job:
To plan, develop and manage the Bank's corporate, commercial and institutional businesses to ensure
high profitability and sustained growth in line with the Bank's strategic plan, credit policies and Business
objectives. To provide overall coordination of marketing efforts for the Bank's non-personal business,
including the formulation of strategy, establishment of performance tracking systems and joint campaigns
with other Bank departments. Serve on the Bank's Asset and Liability Management Committee.
Principal Accountabilities:
1. Oversee the marketing and business development activities of the Bank's non-personal business.
2. Maximize customer profitability through cross sales of the Bank products and appropriate loan
pricing.
3. Ensure credit quality is maintained and that reviews are current at all times.
4. Ensure prudent level of portfolio diversification.
5. Ensure compliance with Bank credit policies and central Bank regulations.
6. Contribute to the development of relationships management skills of staff in Corporate Banking.
7. Provide input/advice to the MD/Board regarding the formulation of strategic operating plans.
8. Maintain an in debt knowledge of the loan market.

Job Title: Relationship Manager

Reports to: Head of Corporate Banking

18
Purpose of Job:
The jobholder serves as the primary relationship contact with the Bank's corporate and commercial
customers. To maximize relationship profitability through cross selling. To minimize credit losses
through risk assessment and timely identification of deteriorating credit risk of customers.
Principal Accountabilities:
1. Provide good customer service while ensuring the Bank's interest is protected.
2. Grow the customer base through marketing and business development efforts, including cross
selling to existing customer base.
3. Ensure that credit quality is maintained and customer reviews are completed in timely manner.
4. Maintain an in-depth knowledge of the customer's business through regular customer visits and
industry research.
5. Ensure facility risk grades are accurate, and are changed in a timely manner as soon as adverse
information is known.
6. Seek assistance from CRM at the earliest of adverse trends in a customer's financial position is
noted.
7. Follow up with customers to ensure the timely receipt of financial statements, loan payments and
all documentary requirements of the Bank.
8. Ensure compliance with internal policies and procedures and external regulatory requirements,
and that all internal and external audit recommendations are implemented.

Function of Relationship Officer of Corporate Division:

The officers posted in the Corporate Division shall perform inter-alia the following duties:
a) Process decision on Call Reports received from branches in respect of prospective customers.
b) Coordinate with the branches in preparing credit proposal.
c) Process credit proposal received from branches doing due diligence and financial and lending
risks analysis and to place the same before the Credit Risk Management Unit for approval.
d) Maintain customer-wise credit file.
e) Follow-up and supervise end-use of credit facility and to ensure that effective relationship is
maintained with the customer by the relationship officers of the branch.
f) Review the account performance regularly.
g) Prepare “Early Alert Report” for sending to the Credit Risk Management Unit.
h) Ensure timely renewal of the existing credit facilities, if required.
i) Ensure compliance of sanction terms.
j) Ensure timely recovery of all loan installments.
k) Ensure regular transaction in the account.
l) Coordinate with Credit Risk Management Unit, Credit Administration Unit and Credit
Monitoring & Recovery Unit for execution of their decisions.
m) Coordinate in developing a team for corporate activities along with related persons of the
respective branches.

CREDIT RISK MANAGEMENT UNIT

The Credit Risk Management Unit shall perform interalia the following duties:
a) 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.
b) 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.
c) Advise the Corporate Division about changes, if required, in the structure and terms and
conditions of the proposed facility.
d) Process credit proposal for approval of the competent authority.

19
 e) Issue sanction advice for credit facilities or decline.
f) Maintain Limit Sanction Register.
g) Review the performance of the customer on Off-site Basis and prescribe appropriate remedial
measures, if required until the loan account becomes a “Special Mention” one.
h) Review/revise risk grading of the customer from time to time based on the “Early Alert Report”
and Downgrade Proposal submitted by Corporate Division.
i) Handover loan to the Credit Monitoring & Recovery Unit as and when it is degraded to Special
Mention or below.

Major Functions of CRM:

a) To update Bank’s Credit Policy/Lending Guideline, procedures and control mechanisms related
with all credit risks arising from corporate/commercial banking and retail banking etc.
b) To approve/decline credit proposal received from Corporate Division (presently from Branches)
within delegated authority and to recommend to the higher authority if it is beyond delegation.
c) To provide advice/assistance regarding all credit matters to Corporate Division/Branches.
d) Periodical review of different types of credits, maintain effective follow-up and supervision and
take all possible measures in time to save from classification.

Duties And Responsibilities of CRM:

a) Examine/review credit proposals (new/renewal) sent by corporate division/branches to:
i. Process for approval
ii. Placing credit proposals in the Head Office Credit Committee.
iii. Decline credit proposals if they do not meet criteria.
iv. Recommendation of credit proposal to the Managing Director/EC/ Board for their approval
v. Prepare facility sanction letter and send copies to:
▪ Corporate division/Branches
▪ Credit Administration Division
b) Review on a periodical basis in the light of:
❑ Structuring
❑ Adequacy of security
❑ Pricing and profitability
❑ Financial analysis
❑ Form and content
❑ Performance
❑ Turnover
❑ Repayment

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 approval procedures of Retail Credit from time to time
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.

20
Job Title: Head of Credit
Reports to: Managing Director
Purpose of Job:
To ensure sound asset quality and a conservative credit culture throughout the lending and treasury
trading/underwriting activities of the Bank while ensuring the credit approval process is responsive to
customer needs and credit losses and collection costs are minimized. To provide an independent, third
party assessment of approval of credit and business risks of the Bank, and serve on the Bank's Asset and
liability Management committee.

Principal Accountabilities:
1. Promote strong asset quality and endeavor to ensure at least 92% of total assets graded as 1 to 3.
2. Updating the Bank's lending guidelines/credit policies as and when required, but at least annually.
3. Ensure credit recommendations/approvals are taken in a timely manner.
4. Ensure a prudent level of portfolio diversification.
5. Maximize recovery of problem loans, and minimize credit losses and collection expenses.
6. Ensure compliance with internal policies and procedures and external regulatory requirements.
7. Contribute to the development of credit risk management skills of staff in Credit Administration
and Corporate Banking departments.
8. Provide input/advice to the MD/CEO/Board regarding the formulation of strategic operating plans.

Function of Credit Officers posted at Credit Risk Management Unit, Credit Division, Head Office:
The officers posted in the Credit Risk Management Unit shall perform interalia the following duties:
a) 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.
b) 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.
c) Advise the Corporate Division about changes, if required, in the structure and terms and
conditions of the proposed facility.
d) Process credit proposal for approval of the competent authority.
e) Issue sanction advice for credit facilities or decline.
f) Maintain Limit Sanction Register.
g) Review the performance of the customer on Off-site Basis and prescribe appropriate remedial
measures, if required until the loan account becomes a “Special Mention” one.
h) Review/revise risk grading of the customer from time to time based on the “Early Alert Report”
and Downgrade Proposal submitted by Corporate Division.
i) Handover loan to the Credit Monitoring & Recovery Unit as and when it is degraded to Special
Mention or below.

Work flow chart of Credit Operation at Head Office

Branch Manager shall act as Relationship Manager for the respective Branch and explore/identify new
business opportunity and submit a Call Report to the Head of Corporate Division, Head Office.

Corporate Division shall examine the call reports and communicate their initial views to the Branch
about the proposed business. If the views are positive, shall direct the concerned Relationship Manager
to send a complete business proposal to Corporate Division, Head Office. The Relationship Officer at

21
Corporate Division, Head Office for the respective Branch shall coordinate with the Branch in preparing
the Credit proposal.

Branch shall submit complete proposal to Head Office through E-mail

CRM shall examine the proposal from different angles of risk and compliance and put their views in a
separate sheet.

CRM shall place the proposal in the Credit Review Committee. Corporate Division shall present the
proposal. CRM shall put their observation, if any. Corporate Division shall defend the proposal.

This is a work shopping process with a view to maintain and ensure Check and balance between
"Business object" and "Quality of Asset Object" of the Bank, both of which are equally important.

Credit Review Committee shall give their views about the proposal which has to be approved by the
Managing Director.

Corporate Division shall make necessary change/amendment of the proposal as per comments/views of
CRM/Review Committee

The Managing Director shall approve the facility if it is within power.

If Board/EC approval is required, the Memo to be signed by the Managing Director.

After approval the CRM shall issue sanction advice enclosing documentation check list with a c opy to
credit Administration Division

The branch shall execute / obtain documents/ securities as per sanction advice and documentation check
list and fill-up the documentation checklist and send a copy to Credit Administration Division seeking
authority for disbursement by Fax.

Credit Administration Division examine the checklist, obtain approval of the Managing Director /
Deputy Managing Director for exception of documentation, if any, for issuing authority for
disbursement. They shall give disbursement authority by return Fax giving time frame to complete
incomplete documents.

The branch disburse loan and make best effort to obtain documents within the given time frame

Credit Administration Division shall follow up the branches to complete documentation within the time
frame

Credit Administration Division shall submit a statement to the Managing Director furnishing the
position of incomplete documents against disbursed loans.

22
 CREDIT ADMINISTRATION UNIT

Objectives:
a) To separate documentation and disbursement activity from credit approval process.
b) To ensure discipline in Credit Management.

Duties and Responsibilities:

▪ Documentation: To ensure that security documents are prepared in accordance with approval terms
and are legally enforceable.
▪ Disbursement: To allow disbursements of loan facilities only after completion of all documentation
formalities. The branches shall send a copy of Certificate of Documentation (Check list) to Credit
Administration Unit, Head Office seeking authority for disbursement. In respect of credit facilities
allowed by the Head of branch under the business power delegated to him, Certificate of
documentation (check list) along with a copy of sanction advice to be sent to the Credit
Administration Division for disbursement authority. They shall send it by fax followed by mail. The
Credit Administration Division shall promptly respond for advising about disbursement preferably on
the same day by fax followed by mail. If disbursement authority is given to the Branch with some
exception i.e. incomplete documentation with the undertaking of the Head of Branch to get it
completed within a given time frame having approval from the competent authority, the Credit
Administration Division shall continuously follow-up with the concerned Branch to ensure
completion of the documentation within the given time frame. In the cases of Large Loan the
representative of Credit Administration Unit may visit the Branch to verify the status of
documentation.
▪ One officer of the branch shall be placed under administrative / working control of Credit
Administration Division, Head Office for verifying documentation and control disbursement of loans.
▪ Custodial Duty: To ensure safekeeping of all security documents. Presently, the document files shall
be preserved by the branches under joint custody. Credit Administration, HO shall supervise, control
and monitor the custodial matter.
▪ Monitoring of Compliance to the conditions and covenants.
▪ Monitoring of past due, limit, expiry and documents deficiency.
▪ Internal, Bangladesh Bank Audit Compliance.
▪ Defaulters list circulation,
▪ Maintenance and circulation of Bangladesh Bank Circulars and ensure compliance
▪ CIB Related Function: To collect CIB report of the borrower as and when asked by the Corporate
Division/branches. They shall submit CIB statement to Bangladesh Bank and perform all CIB related
activities.
▪ Compliance: To prepare and submit all required Bangladesh Bank returns in the correct format in a
timely manner. To ensure that all Bangladesh Bank circulars/regulations are maintained centrally, and
advised to all relevant departments to ensure compliance.
▪ Enlistment: To enlist and manage all third party service providers (Surveyors/valuers, lawyers,
insurers, CPAs etc.) and review their performance on an annual basis.
▪ Others: To prepare all monthly statements as required by the Management.

Job Title: Head of Credit Administration

Reports to: Head of Credit
Purpose of Job:
To plan, organize, direct, control and review the operational and administrative functions of credit
administration department to ensure efficient and effective support to the related Banking Departments in
line with regulatory and Bank requirements while exercising appropriate control and independent
judgment.

Principal Accountabilities:

23
 1. Ensure loan documentation and securities are duly completed and in place prior to disbursement of
loans.
2. Ensure accurate and timely submissions of returns of both the Central Bank and the Bank's Head
Office.
3. Act on exception reports and ensure timely receipt of loans installments.
4. Ensure the adequate insurance is in place on all pledged assets, all approval conditions have been
met, and any exceptions are appropriately approved prior to disbursement of loans.
5. Ensure that department operations, including the preparation of loan documentation, recording of
charges, and reporting of exceptions is done in a timely and efficient manner.
6. Ensure compliance with internal policies and procedures and external regulatory requirements, and
that all internal and external audit documentation are implemented.

Credit Administration Flowchart

Functions of
Credit Administration Division

Disbursement Custodian Monitoring Compliance

Returns to BB, CIB

Obtaining Security Conditions &
Approval from CRM Reporting, default
Documentation as Covenant Breach
list circulation
per approval Monitoring

Completion of Safely Storing Monitoring of Past Maintain BB Circulars

Loans/Security Due, Limit, Expiry & & ensure compliance
Security
Documentation Documents (fire Documents by all Depts.
proof) Deficiency

Ensure adherence to Ensure all valuers,

approve terms & other Audit, Internal/BB lawyers, insurers are
Periodic review of Inspection
requirements before documentation* approved, enlisted &
Compliance their performance are
disbursement.
reviewed periodically

Limit Creation & Ensure Collateral is

Complying Disbursement Insured & Properly
Check List Valued.

24

Disbursement
* Periodically means:
Risk Grade Review Frequency
>6 Quarterly
4-5 Semi-Annually
1-3 Annually

CREDIT RECOVERY AND LEGAL DEPARTMENT

Objective
The core objective of establishing this unit is to separate monitoring and recovery activity from
marketing, approval, documentation and disbursement.
Major Functions:
i. Recovery of Non performing and under Performing loan from risk grade special mention
account to below. With this end in view take all necessary measures inter-alia meeting with the
customers, negotiate for restructuring, rescheduling, settlement by way of extension of time, waiver
of partial interest, serving legal notice, foreclosure and sale of mortgaged / hypothecated / pledged
property, filing suit in time, follow up suits, publishing sale notice in the News Paper, best effort to
be made to keep classified loan within the minimum possible level.
ii. To ensure that adequate provision against classified and unclassified loan is maintained as per
Bangladesh Bank’s guidelines.
iii. All work related to loan classification in line with Bangladesh Bank’s guidelines.
iv. Proper action and compliance to Artha Rin Adalat Ayin.
v. They shall prepare periodic action plan.
vi. The recovery department shall review documentation of non performing and under performing
loans, meet the customers and prepare classified loan review report within 15 days of transfer and
be approved by the Head of Credit.
vii. Classified loan review should be prepared by Recovery department on quarterly basis to update the
status of the action/recovery plan and modify Bank’s strategy.
viii. Where required proper legal action be taken in time.
ix. Court cases are regularly followed –up and necessary steps are taken for early resolution.
x. Recovery department shall determine the Forced Sale Value (FSV) for accounts grade 6 and worse.

Internal Audit:
Internal Audit shall conduct independent inspection annually to ensure compliance with credit guidelines,
operating procedures and Bangladesh Bank’s guidelines. Internal audit department shall report directly to
the Managing director.

12.0 PREPARATION/PROCESSING OF CREDIT

PROPOSALS
Credit Proposals shall be prepared in the approved format of the Bank (Annexure - 1)
enclosing/furnishing documents/papers/information:

25
1. Pre-sanction Inspection Report containing KYC (Annexure - 2)
2. Request for Credit limit of customers (Annexure - 3)
3. Project Profile/Profile of Business
4. Copy of Trade License duly attested
5. Copy of TIN Certificate
6. Certified copy of Memorandum and Articles of Association, Certificate of Incorporation,
Certificate of Commencement of Business, Resolution of Board of Director, Partnership Deed
(where applicable)
7. Personal Net worth Statement of the Owner/Director/Partner/Proprietor in Bank's format (Annexure
- 4)
8. Valuation Certificate in Bank's format along with photograph of collateral security with detail
particulars on the back duly authenticated by the Branch Manager (Annexure - 5)
9. Three (3) years Balance Sheet and Profit and Loss A/C
10. CIB Enquiry Form duly filled in
11. Credit Risk Grading for credit facilities irrespective of amount other than consumer loan and SME
loan covered under consumer and SME guidelines.
12. Stock Report duly verified (Annexure - 6)
13. Credit Report from other Banks
14. Indent/Proforma Invoice/ Quotation (where applicable)
15. Price Verification Report (where applicable)

16. Statement of A/C (CD/SB/CC) for the last twelve (12) months. In case the customer maintaining
account with other Bank. Statement of Account for the last twelve (12) months of the concerned
Bank should be furnished.
17. In case of renewed/enhancement of credit facility Statement of A/C showing Debit Turnover,
Credit Turnover, highest drawing, lowest drawing, total income earned, detailed position of existing
liabilities of the customer i.e. Date of sanction, Date of Expiry, Present outstanding, Remarks, if
any.
18. Declaration of the customer of the name of sister/allied concerns and liabilities with other Banks, if
any, and an undertaking to the effect that they have no liability beyond those declared
19. In case of L/C proposal, detailed performance of L/C during the last year i.e. No.. and date of L/C
opened, commodity, L/C value, Date of creation of PAD, date of retirement, mode of retirement
etc.
20. In case of BTB L/C proposal -
Detailed list of machinery, production capacity, working capital (BTB L/C) assessment, existing
export L/C in hand mentioning date of shipment, detailed position of outstanding BTB
L/C/Accepted Bills, progress of production and expected date of shipment, statement of outstanding
FDBP/IDBP, if any, Quota Position, Inspection Report, Copy of valid Bonded Ware House
License, Customs Clearance of dispute, if any.
21. Whether the applicant is Shareholder/Director of Jamuna Bank Limited as per definition of Banking
Companies Act.

26
22. Financial Analysis to be prepared by the Branch Manager based on the financial performance of
the company and should shows trends in sales in sales/profitability, liquidity, leverage etc. It
should also contain an assessment of the competence and quality of the business management, the
general economic and competitive environment of the borrowers industry and any other pertinent
factors which is relevant for our credit decision.
23. Justification/consideration for the facility.

13.0 VALUATION OF SECURITIES

I. Valuation of goods:

▪ LlM : LlM facility shall be allowed as post-import finance against imported goods under our
L/Cs. LlM facility should not exceed invoice value net of L/C margin unless the Bank agrees to
finance duties/VAT. However, where market price of the goods is lower than landed cost
necessary arrangement should be made with the customer to obtain additional deposit. The price
at which LlM goods to be released to customer should be approved by Head Office or it may be
at market price or landed cost whichever is higher.

▪ Cash Credit (Pledge): Valuation of the goods to be pledged to the Bank against Cash Credit
(Pledge) limit shall in no cases exceed:

a. The landed cost or market price whichever is lower in case of imported goods.

b. The ex-mill/factory price or market price whichever is lower in case of domestically

manufactured commodities as evidenced by invoice.

c. The wholesale price/competitive market price duly verified by the Branch and approved by
Head Office.

II. Valuation of Collateral Security:

In case of taking mortgage of Land and Building as collateral security to secure Bank's Advances the
following instructions should be meticulously followed by the Branches:

• In all cases where the value of collateral security is Tk 25 lac and above the valuation of the
property must be done by enlisted surveyor or the Bank. The property should be physically
inspected and jointly verified by Bank’s Officers, one of whom should be the Branch Manager or
the 2nd Officer. A valuation certificate mentioning market value and forced sale value should be
prepared in the designated form supplied to the Branches and to be jointly signed by the above
mentioned 2(two) inspecting officers of the Bank. The forced sale value of the collateral security
will have to be 1.5 times higher than the facility/facilities allowed unless specifically waived by
the approving authority giving full justification.

• "A Site Plan" and "Map" along with 3R size distinct photographs of the mortgaged property

27
 covering full exposure from 3 angles mentioning detailed particulars on the back of the
photographs duly authenticated by the authorized officer(s) to be obtained by the Branches.

• It should be ensured that the collateral security is in the physical possession of the mortgagor(s)
and the mortgagor(s)/owner(s) has/have valid title over it.

• A certificate from the Bank's Lawyer to be obtained that the mortgage formality has been
properly created.

• Vacant land and Third Party Property be discouraged as mortgage.

• Kutcha and temporary structure on the land be excluded from valuation.

• In case of Third Party Property, photograph of the Mortgagor be obtained duly attested by the
borrower and an affidavit before 1st class Magistrate be obtained.

• Registered Mortgaged along with Registered Power of Attorney in favour of the Bank to sell the
property without intervention of the court be obtained.

14.0 INSURANCE POLICIES

i) Insurance requirements are detailed in the credit proposals. Insurance policy obtained from the
approved Insurance Company against Insurance Premium paid. Money receipt duly stamped
obtained and the policies are kept in the vault.
ii) Insurance policies are current and renewed timely.
iii) Authority to be obtained from the customers to debit their account to keep the policy in force.

15.0 CREDIT MONITORING

i) Computer generated list of Exceptional Advance to be obtained from the Branches on daily basis
which shall be examined at CRM and any major exception be brought to the knowledge of Senior
Management.
ii) Credit Administration Unit, Head Office shall bring the list of documentation
shortfall/deficiencies to the knowledge of Senior Management at regular basis and corrective
measures shall be taken.

iii) Credit turnover in cash credit and overdraft accounts, past dues, collateral shortfall, covenant
Branch shall be reviewed on a regular basis.
iv) Recurring transactions are not allowed for one time transaction/limit.

v) Credit limit expiry date diary shall be maintained and followed-up.

vi) Use of Loan money shall be monitored through analysis of financial statements.

vii) Financial statements of the customers shall be obtained on a regular basis and changes in the
financial condition shall be monitored.

28
viii) Borrowers shall be communicated ahead of time as and when installments are due.

ix) Non-payment and late payment of installment shall be communicated to the Senior Management.

x) CIB Report from Bangladesh Bank is obtained and reviewed on a periodic basis.

xi) Progress against work order/contract financed by the Bank is periodically reviewed.

xii) Timely renewal of limit shall be ensured informing Branches two months ahead of expiry dates.

16.0 RESPONSIBILITIES OF HEAD OF BRANCHES

i) The Head of Branch is the Relationship Manager for corporate function of his branch. He shall also
exercise his business power with due diligence and prudence.
ii) KYC shall be done on the customer. In this respect he shall arrange for physical visit to the business
of the lending customer by any responsible bank officer, know about the nature of business, volume,
discuss with the important personality of the locality, his business colleagues and neighbors and try to
know about the genuineness, honesty and integrity of the customer and his business dealings and to
be documented in visit report. He shall take all precautionary measures in respect of Money
Laundering issue.
Iii) Comply with applicable laws, regulations of Bangladesh Bank, Credit Policies and Circulars of the
Bank.
iv) Latest CIB report on the customer has to be obtained and found clean.
v) Ensure continuous review of credit facilities, Early Alert Account be identified and reported to CRM
through Corporate Division, Head Office.
vi) Ensure that all covenants are being complied with by the customers.

17.0 ROLE OF CREDIT COMMITTEE

1. Review of Credit proposals and recommend to the Managing Director.
2. Review of Bank’s loan portfolio.

18.0 CREDIT FACILITIES PARAMETER

1. Maximum Size:
a) Directives of Bangladesh Bank shall be meticulously complied in respect of maximum size single
customer/group exposure as revised from time to time. Presently Bangladesh Bank vide BRPD
Circular No. 05 dated 09.04.2005 decided that total outstanding financing facilities to any single
person or enterprise or organization of a group shall not at any point of time exceed 35% of Bank’s
total capital subject to the condition that the maximum outstanding against fund based financing
facilities (Funded facilities) do not exceed 15% of the total capital.

Non-funded credit facilities e.g. letter of credit guarantee etc. can be provided to a single large
borrower. But under no circumstances the total amount of the funded and non-funded credit
facilities shall exceed 35% of Bank’s total capital.

29
 However, in case of export sector single borrower exposure limit shall be 50% of the Bank’s total
capital. But funded facility in case of export credit also shall not exceed 15% of total Capital Fund
of the Bank.

b) Loan sanctioned to any individual enterprise or any organization of a group amounting to 10% or
more of Bank’s total capital shall be considered as Large Loan.

c) Credit limit in each case shall be fixed after assessment of actual business need maintaining
required Debt Equity Ratio, considering Debt Service Coverage Ratio, Pay Back Period, Security
Coverage etc.

2. Maximum Tenor:

a) Short-term Loan :
Maximum period 12(twelve) months. Actual loan period shall be fixed on a case to case basis
considering cycle of business and requirement.

b) Medium Term Loan

Loan period shall be for more than 12 months and up to 36 months considering repayment capacity
and projected cash flow.
c) Long Term Loan

Loan period shall be for more then 36 months.

Actual loan period shall be fixed considering repayment capacity and projected cash flow.

3. Securities :

All attempts should be made to cover loans by tangible securities as far as possible. Security shall be
stipulated on a case to case basis.
As per BRPD Circular No. 05 dated 27.04.2005 following securities have been identified as eligible
security for determining base for provisioning for classified loans :

i) Lien on Bank deposit - 100%

ii) Market value of gold / gold ornaments pledged to the Bank – 100%.
iii) Lie on Government Bond / Sanchayapatra – 100%
iv) Guarantee given by Government of Bangladesh– 50%
v) Market value of easily marketable security/Saleable goods pledged to the Bank – 50%
vi) Market value of Registered Mortgaged Land and Building along with Registered Power of
Attorney favoring the Bank to sell the property.
vii) 50% of face value or 50% of average market value of last 6(six) months of shares / securities
traded in the stock exchange.

Besides the above following securities are also obtained on a case to case basis :

i) Hypothecation of Stock and machinery.

ii) First charge/ charge on the fixed and floating asset of limited company with the Register of
Joint Stock Company.

iii) Corporate Guarantee of another company backed by Board Resolution.

30
 iv) Personal Guarantee under cover of forwarding letter.

v) Bank Guarantee

vi) Assignment of bill/receivables duly accepted by the employer to issue cheques in favour of
Bank.

vii) Ownership of vehicles / assets in the name of the Bank.

viii) Assignment of Surrender value of Life Insurance Policy.

ix) Pari Passu Security Sharing Agreement.

x) Post Dated Cheque under cover of Forwarding Letter.

xi) Trust Receipt.

4. Covenants :

i) Ownership statement of the borrowing company shall not be changed without approval of the
Bank.

ii) Current Ratio as mentioned in the credit application /sanction term shall be maintained.

iii) The customer shall not borrow from any other source without approval of the Bank.

iv) The customer shall not go for expansion without consent of the Bank.

v) The customer shall not withdraw profit/declare dividend without consent of the Bank.

vi) The customer shall submit financial statements within 30 days from the year/half yearend.

19.0 CREDIT RISK GRADING SYSTEM

Credit risk grading is an important tool for credit risk management as it helps the Banks & financial
institutions to understand various dimensions of risk involved in different credit transactions. The
aggregation of such grading across the borrowers, activities and the lines of business can provide better
assessment of the quality of credit portfolio of a bank or a branch. The credit risk grading system is vital
to take decisions both at the pre-sanction stage as well as post-sanction stage.

At the pre-sanction stage, credit grading helps the sanctioning authority to decide whether to lend or not
to lend, what should be the loan price, what should be the extent of exposure, what should be the
appropriate credit facility, what are the various facilities, what are the various risk mitigation tools to put
a cap on the risk level.

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At the post-sanction stage, the bank can decide about the depth of the review or renewal, frequency of
review, periodicity of the grading, and other precautions to be taken.

Having considered the significance of credit risk grading, it becomes imperative for the banking system to
carefully develop a credit risk grading model which meets the objective outlined above.

The Lending Risk Analysis (LRA) manual introduced in 1993 by the Bangladesh Bank has been in
practice for mandatory use by the Banks & financial institutions for loan size of BDT 1.00 crore and
above. However, the LRA manual suffers from a lot of subjectivity, sometimes creating confusion to the
lending Bankers in terms of selection of credit proposals on the basis of risk exposure. Meanwhile, in
2003 end Bangladesh Bank provided guidelines for credit risk management of Banks wherein it
recommended, interalia, the introduction of Risk Grade Score Card for risk assessment of credit
proposals.

Since the two credit risk models are presently in vogue, the Governing Board of Bangladesh Institute of
Bank Management (BIBM) under the chairmanship of the Governor, Bangladesh Bank decided that an
integrated Credit Risk Grading Model be developed incorporating the significant features of the above
mentioned models with a view to render a need based simplified and user friendly model for application
by the Banks and financial institutions in processing credit decisions and evaluating the magnitude of risk
involved therein.

Bangladesh Bank expects all commercial banks to have a well defined credit risk management system
which delivers accurate and timely risk grading. This manual describes the elements of an effective
internal process for grading credit risk. It also provides a comprehensive, but generic discussion of the
objectives and general characteristics of effective credit risk grading system. In practice, a bank’s credit
risk grading system should reflect the complexity of its lending activities and the overall level of risk
involved.

DEFINITION OF CREDIT RISK GRADING (CRG)

• The Credit Risk Grading (CRG) is a collective definition based on the pre-specified scale and
reflects the underlying credit-risk for a given exposure.
• A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary summary indicator of
risks associated with a credit exposure.
• Credit Risk Grading is the basic module for developing a Credit Risk Management system.

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FUNCTIONS OF CREDIT RISK GRADING

Well-managed credit risk grading systems promote bank safety and soundness by facilitating informed
decision-making. Grading systems measure credit risk and differentiate individual credits and groups of
credits by the risk they pose. This allows bank management and examiners to monitor changes and trends
in risk levels. The process also allows bank management to manage risk to optimize returns.

USE OF CREDIT RISK GRADING

• The Credit Risk Grading matrix allows application of uniform standards to credits to ensure a
common standardized approach to assess the quality of individual obligor, credit portfolio of a
unit, line of business, the branch or the Bank as a whole.
• As evident, the CRG outputs would be relevant for individual credit selection, wherein either a
borrower or a particular exposure/facility is rated. The other decisions would be related to pricing
(credit-spread) and specific features of the credit facility. These would largely constitute obligor
level analysis.
• Risk grading would also be relevant for surveillance and monitoring, internal MIS and assessing
the aggregate risk profile of a Bank. It is also relevant for portfolio level analysis.

NUMBER AND SHORT NAME OF GRADES USED IN THE CRG

• The proposed CRG scale consists of 8 categories with Short names and Numbers are provided as
follows:

GRADING SHORT NAME NUMBER

Superior SUP 1
Good GD 2
Acceptable ACCPT 3
Marginal/Watchlist MG/WL 4
Special Mention SM 5
Sub standard SS 6
Doubtful DF 7
Bad & Loss BL 8

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CREDIT RISK GRADING DEFINITIONS

A clear definition of the different categories of Credit Risk Grading is given as follows:

• Superior - (SUP) - 1

 Credit facilities, which are fully secured i.e. fully cash covered.
 Credit facilities fully covered by government guarantee.
 Credit facilities fully covered by the guarantee of a top tier international Bank.

• Good - (GD) - 2

 Strong repayment capacity of the borrower

 The borrower has excellent liquidity and low leverage.
 The company demonstrates consistently strong earnings and cash flow.
 Borrower has well established, strong market share.
 Very good management skill & expertise.
 All security documentation should be in place.
 Credit facilities fully covered by the guarantee of a top tier local Bank.
 Aggregate Score of 85 or greater based on the Risk Grade Score Sheet

• Acceptable - (ACCPT) - 3

 These borrowers are not as strong as GOOD Grade borrowers, but still demonstrate
consistent earnings, cash flow and have a good track record.
 Borrowers have adequate liquidity, cash flow and earnings.
 Credit in this grade would normally be secured by acceptable collateral (1st charge over
inventory / receivables / equipment / property).
 Acceptable management
 Acceptable parent/sister company guarantee
 Aggregate Score of 75-84 based on the Risk Grade Score Sheet

• Marginal/Watchlist - (MG/WL) - 4

 This grade warrants 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.
 Weaker business credit & early warning signals of emerging business credit detected.
 The borrower incurs a loss
 Loan repayments routinely fall past due
 Account conduct is poor, or other untoward factors are present.
 Credit requires attention
 Aggregate Score of 65-74 based on the Risk Grade Score Sheet

• Special Mention - (SM) - 5

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  This grade has potential weaknesses that deserve management’s close attention. If left
uncorrected, these weaknesses may result in a deterioration of the repayment prospects of
the borrower.
 Severe management problems exist.
 Facilities should be downgraded to this grade if sustained deterioration in financial
condition is noted (consecutive losses, negative net worth, excessive leverage),
 An Aggregate Score of 55-64 based on the Risk Grade Score Sheet.

• Substandard - (SS) - 6
 Financial condition is weak and capacity or inclination to repay is in doubt.
 These weaknesses jeopardize the full settlement of loans.
 Bangladesh Bank criteria for sub-standard credit shall apply.
 An Aggregate Score of 45-54 based on the Risk Grade Score Sheet.
• Doubtful - (DF) - 7
 Full repayment of principal and interest is unlikely and the possibility of loss is extremely
high.
 However, due to specifically identifiable pending factors, such as litigation, liquidation
procedures or capital injection, the asset is not yet classified as Bad & Loss.
 Bangladesh Bank criteria for doubtful credit shall apply.
 An Aggregate Score of 35-44 based on the Risk Grade Score Sheet.
• Bad & Loss - (BL) - 8
 Credit of this grade has long outstanding with no progress in obtaining repayment or on
the verge of wind up/liquidation.
 Prospect of recovery is poor and legal options have been pursued.
 Proceeds expected from the liquidation or realization of security may be awaited. The
continuance of the loan as a bankable asset is not warranted, and the anticipated loss
should have been provided for.
 This classification reflects that it is not practical or desirable to defer writing off this
basically valueless asset even though partial recovery may be affected in the future.
Bangladesh Bank guidelines for timely write off of bad loans must be adhered to. Legal
procedures/suit initiated.
 Bangladesh Bank criteria for bad & loss credit shall apply.
 An Aggregate Score of less than 35 based on the Risk Grade Score Sheet.
REGULATORY DEFINITION ON GRADING OF CLASSIFIED ACCOUNTS
Irrespective of credit score obtained by a particular obligor, grading of the classified names should be in
line with Bangladesh Bank guidelines on classified accounts, which is extracted from “PRUDENTIAL
REGULATIONS FOR BANKS: SELECTED ISSUES” (updated till August 07, 2005) by Bangladesh
Bank are presently as follows:
Basis for Loan Classification:
(A) Objective Criteria:

□ Any Continuous Loan if not repaid/renewed within the fixed expiry date for repayment will be
treated as irregular just from the following day of the expiry date. This loan will be classified as
Sub-standard if it is kept irregular for 6 months or beyond but less than 9 months, as `Doubtful' if
for 9 months or beyond but less than 12 months and as `Bad & Loss' if for 12 months or beyond.

□ Any Demand Loan will be considered as Sub-standard if it remains unpaid for 6 months or
beyond but not less then 9 months from the date of claim by the bank or from the date of forced
creation of the loan; likewise the loan will be considered as ‘Doubtful' and ‘Bad & Loss’ if

35
 remains unpaid for 9 months or beyond but less then 12 months and for 12 months and beyond
respectively.

□ In case any instalment(s) or part of instalment(s) of a Fixed Term Loan is not repaid within the
due date, the amount of unpaid instalment(s) will be termed as `defaulted instalment'.

In case of Fixed Term Loans, which are repayable within maximum 5 (five) years of time: -

If the amount of `defaulted instalment' is equal to or more than the amount of instalment(s) due within 6
months, the entire loan will be classified as ‘Sub-standard’.
If the amount of 'defaulted instalment' is equal to or more than the amount of instalment(s) due within 12
months, the entire loan will be classified as ‘Doubtful’.
If the amount of 'defaulted instalment' is equal to or more than the amount of instalment(s) due within 18
months, the entire loan will be classified as ‘Bad & Loss’.

In case of Fixed Term Loans, which are repayable in more than 5 (five) years of time: -

□ If the amount of ‘defaulted instalment' is equal to or more than the amount of instalment(s) due
within 12 months, the entire loan will be classified as 'Sub-standard.'
□ If the amount of ‘defaulted instalment' is equal to or more than the amount of instalment(s) due
within 18 months, the entire loan will be classified as 'Doubtful'.
□ If the amount of 'defaulted instalment 'is equal to or more than the amount of instalment(s) due
within 24 months, the entire loan will be classified as 'Bad & Loss'.

Explanation: If any Fixed Term Loan is repayable at monthly instalment, the amount of instalment(s) due
within 6 months will be equal to the amount of summation of 6 monthly instalments. Similarly, if
repayable at quarterly instalment, the amount of instalment(s) due within 6 months will be equal to the
amount of summation of 2 quarterly instalments.

(B) Qualitative Judgement:

If any uncertainty or doubt arises in respect of recovery of any Continuous Loan, Demand Loan or Fixed
Term Loan, the same will have to be classified on the basis of qualitative judgement be it classifiable or
not on the basis of objective criteria.

If any situational changes occur in the stipulations in terms of which the loan was extended or if the
capital of the borrower is impaired due to adverse conditions or if the value of the securities decreases or
if the recovery of the loan becomes uncertain due to any other unfavorable situation, the loan will have to
be classified on the basis of qualitative judgement .

Besides, if any loan is illogically or repeatedly re-scheduled or the norms of re-scheduling are violated or
instances of (propensity to) frequently exceeding the loan-limit are noticed or legal action is lodged for
recovery of the loan or the loan is extended without the approval of the proper authority, it will have to be
classified on the basis of qualitative judgement .

Despite the probability of any loan's being affected due to the reasons stated above or for any other
reasons, if there exists any hope for change of the existing condition by resorting to proper steps, the loan,
on the basis of qualitative judgement, will be classified as 'Sub-standard'. But even if after resorting to
proper steps, there exists no certainty of total recovery of the loan, it will be classified as ‘Doubtful' and
even after exerting the all-out effort, there exists no chance of recovery, it will be classified as ' Bad &
Loss' on the basis of qualitative judgement.

36
The concerned bank will classify on the basis of qualitative judgement and can declassify the loans if
qualitative improvement does occur.

But if any loan is classified by the Inspection Team of Bangladesh Bank, the same can be declassified
with the approval of the Board of Directors of the bank. However, before placing such case to the Board,
the CEO and concerned branch manager shall have to certify that the conditions for declassification have
been fulfilled.

Note:
a) Any change in classification criteria provided by the Bangladesh Bank shall supersede this
grading system for classified accounts.
b) An account may also be classified based on qualitative judgment in line with Bangladesh Bank
guidelines.
c) A particular bank may have classification criteria stricter than Bangladesh Bank guidelines.

HOW TO COMPUTE CREDIT RISK GRADING

The following step-wise activities outline the detail process for arriving at credit risk grading.

Step I : Identify all the Principal Risk Components

Credit risk for counterparty arises from an aggregation of the following:

▪ Financial Risk
▪ Business/Industry Risk
▪ Management Risk
▪ Security Risk
▪ Relationship Risk

Each of the above mentioned key risk areas require to be evaluated and aggregated to arrive at an overall
risk grading measure.

a) Evaluation of Financial Risk:

Risk that counterparties will fail to meet obligation due to financial distress. This typically entails
analysis of financials i.e. analysis of leverage, liquidity, profitability & interest coverage ratios. To
conclude, this capitalizes on the risk of high leverage, poor liquidity, low profitability &
insufficient cash flow.

b) Evaluation of Business/Industry Risk:

Risk that adverse industry situation or unfavorable business condition will impact borrowers’
capacity to meet obligation. The evaluation of this category of risk looks at parameters such as
business outlook, size of business, industry growth, market competition & barriers to entry/exit. To
conclude, this capitalizes on the risk of failure due to low market share & poor industry growth.

c) Evaluation of Management Risk:

Risk that counterparties may default as a result of poor managerial ability including experience of
the management, its succession plan and team work.

37
d) Evaluation of Security Risk:
Risk that the bank might be exposed due to poor quality or strength of the security in case of
default. This may entail strength of security & collateral, location of collateral and support.

e) Evaluation of Relationship Risk:

These risk areas cover evaluation of limits utilization, account performance, conditions/covenants
compliance by the borrower and deposit relationship.

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 CREDIT RISK

Financial Risk Business/Industry Risk Management Risk Security Risk Relationship Risk

Size of Business
Leverage Experience Security Coverage Account Conduct

Age of Business
Liquidity Succession Collateral Utilization of Limit
Coverage
Business Outlook

Profitability Team Work Support Compliance of

Covenants/Condition
Industry Growth

Coverage Personal Deposits

Market Competition

Barriers to Business

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 Step II Allocate weightages to Principal Risk Components
According to the importance of risk profile, the following weightages are proposed for corresponding
principal risks.
Principal Risk Components: Weight:
▪ Financial Risk 50%
▪ Business/Industry Risk 18%
▪ Management Risk 12%
▪ Security Risk 10%
▪ Relationship Risk 10%

Step III Establish the Key Parameters

Principal Risk Components: Key Parameters:
▪ Financial Risk Leverage, Liquidity, Profitability & Coverage ratio.
▪ Business/Industry Risk Size of Business, Age of Business, Business Outlook,
Industry Growth, Competition & Barriers to Business
▪ Management Risk Experience, Succession & Team Work.
▪ Security Risk Security Coverage, Collateral Coverage and Support.
▪ Relationship Risk Account Conduct ,Utilization of Limit, Compliance of
covenants/conditions & Personal Deposit.

Step IV Assign weightages to each of the key parameters.

Principal Risk Components: Key Parameters: Weight:

▪ Financial Risk 50%
 Leverage 15%
 Liquidity 15%
 Profitability 15%
 Coverage 5%
▪ Business/Industry Risk 18%
 Size of Business 5%
 Age of Business 3%
 Business Outlook 3%
 Industry growth 3%
 Market Competition 2%
 Entry/Exit Barriers 2%
▪ Management Risk 12%
 Experience 5%
 Succession 4%
 Team Work 3%
▪ Security Risk 10%
 Security coverage 4%
 Collateral coverage 4%
 Support 2%
▪ Relationship Risk 10%
 Account conduct 5%
 Utilization of limit 2%
 Compliance of covenants
/condition 2%
 Personal deposit 1%
 Step V Input data to arrive at the score on the key parameters.

After the risk identification & weightage assignment process (as mentioned above), the next steps will be to
input actual parameter in the score sheet to arrive at the scores corresponding to the actual parameters.

This manual also provides a well programmed MS Excel based credit risk scoring sheet to arrive at a total
score on each borrower. The excel program requires inputting data accurately in particular cells for input
and will automatically calculate the risk grade for a particular borrower based on the total score obtained.
The following steps are to be followed while using the MS Excel program.

a) Open the MS XL file named, CRG_SCORE_SHEET

b) The entire XL sheet named, CRG is protected except the particular cells to input data.
c) Input data accurately in the cells which are BORDERED & are colored YELLOW.

d) Some input cells contain DROP DOWN LIST for some criteria corresponding to the Key
Parameters. Click to the input cell and select the appropriate parameters from the DROP DOWN
LIST as shown below.

e) All the cells provided for input must be filled in order to arrive at accurate risk grade.
f) We have also enclosed the MS Excel file named, CRG_Score_Sheet in CD ROM for use.

40
 Step VI Arrive at the Credit Risk Grading based on total score obtained.

The following is the proposed Credit Risk Grade matrix based on the total score obtained by an obligor.

Number Risk Grading Short Name Score

1 Superior SUP ▪ 100% cash covered
▪ Government guarantee
▪ International Bank guarantees
2 Good GD 85+
3 Acceptable ACCPT 75-84
4 Marginal/Watchlist MG/WL 65-74
5 Special Mention SM 55-64
6 Sub-standard SS 45-54
7 Doubtful DF 35-44
8 Bad & Loss BL <35

CREDIT RISK GRADING PROCESS

▪ Credit Risk Grading should be completed by a Bank for all exposures (irrespective of
amount) other than those covered under Consumer and Small Enterprises Financing
Prudential Guidelines and also under The Short-Term Agricultural and Micro - Credit.

▪ For Superior Risk Grading (SUP-1) the score sheet is not applicable. This will be guided by the
criterion mentioned for superior grade account i.e. 100% cash covered, covered by government &
bank guarantee.

▪ Credit risk grading matrix would be useful in analyzing credit proposal, new or renewal for
regular limits or specific transactions, if basic information on a borrowing client to determine the
degree of each factor is a) readily available, b) current, c) dependable, and d) parameters/risk factors
are assessed judiciously and objectively. The Relationship Manager as per Data Collection Checklist
as shown in Appendix-A should collect required information.

▪ Relationship manager should ensure to correctly fill up the Limit Utilization Form as shown in
Appendix-B in order to arrive at a realistic earning status for the borrower.

▪ Risk factors are to be evaluated and weighted very carefully, on the basis of most up-to-date
and reliable data and complete objectivity must be ensured to assign the correct grading. Actual
parameter should be inputted in the Credit Risk Grading Score Sheet as shown in Appendix–C.

41
 ▪ Credit risk grading exercise should be originated by Relationship Manager and should be an on-
going and continuous process. Relationship Manager shall complete the Credit Risk Grading Score
Sheet and shall arrive at a risk grading in consultation with a Senior Relationship Manager and
document it as per Credit Risk Grading Form as shown in Appendix-D, which shall then be
concurred by the Credit Officer in consultation with a Senior Credit Officer.

▪ All credit proposals whether new, renewal or specific facility should consist of a) Data
Collection Checklist, b) Limit Utilization Form c) Credit Risk Grading Score Sheet, and d) Credit
Risk Grading Form.

▪ The credit officers then would pass the approved Credit Risk Grading Form to Credit
Administration Department and Corporate Banking/Line of Business/Recovery Unit for updating
their MIS/record.

▪ The appropriate approving authority through the same Credit Risk Grading Form shall approve
any subsequent change/revision i.e. upgrade or downgrade in credit risk grade.

EARLY WARNING SIGNALS (EWS)

Early Warning Signals (EWS) indicate risks or potential weaknesses of an exposure requiring monitoring,
supervision, or close attention by management.

If these weaknesses are left uncorrected, they may result in deterioration of the repayment prospects in the
Bank’s assets at some future date with a likely prospect of being downgraded to classified assets.

Early identification, prompt reporting and proactive management of Early Warning Accounts are prime
credit responsibilities of all Relationship Managers and must be undertaken on a continuous basis.

Despite a prudent credit approval process, loans may still become troubled. Therefore, it is essential that
early identification and prompt reporting of deteriorating credit signs be done to ensure swift action to
protect the Bank’s interest. The symptoms of early warning signals as mentioned below are by no means
exhaustive and hence, if there are other concerns, such as a breach of loan covenants or adverse market
rumors that warrant additional caution, a Credit Risk Grading Form (Appendix-D) should be presented.

Irrespective of credit score obtained by any obligor as per the proposed risk grade score sheet, the grading
of the account highlighted as Early Warning Signals (EWS) accounts shall have the following risk
symptoms.

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 a) Marginal/Watchlist (MG/WL - 4): if -
▪ Any loan is past due/overdue for 60 days and above.
▪ Frequent drop in security value or shortfall in drawing power exists.

b) Special Mention (SM - 5): if -

▪ Any loan is past due/overdue for 90 days and above
▪ Major document deficiency prevails (such deficiencies include but not limited to; board
resolution for borrowing not obtained, sanction letter not accepted by client,
charges/hypothecation over assets favoring bank not filed with Registrar, Joint Stock
Companies, mortgage not in place, guarantees not obtained, etc.)
▪ A significant petition or claim is lodged against the borrower.

The Credit Risk Grading Form of accounts having Early Warning Signals should be completed by the
Relationship Manager and sent to the approving authority in Credit Risk Management Department. The
Credit Risk Grade should be updated as soon as possible and no delay should be there in referring Early
Warning Signal accounts or any problem accounts to the Credit Risk Management Department for their
early involvement and assistance in recovery.

EXCEPTIONS TO CREDIT RISK GRADING

▪ Head of Credit Risk Management may also downgrade/classify an account in the normal course
of inspection of a Branch or during the periodic portfolio review. In such event, the Credit Risk
Grading Form will then be filled up by Credit Risk Management Department and will be referred to
Corporate Banking/Line of Business/Credit Administration Department/Recovery Unit for updating
their MIS/records.

▪ Recommendation for upgrading of an account has to be well justified by the recommending

officers. Essentially complete removal of the reasons for downgrade should be the basis of any
upgrading.

▪ In case an account is rated marginal, special mention or unacceptable credit risk as per the risk
grading score sheet, this may be substantiated and credit risk may be accepted if the exposure is
additionally collateralized through cash collateral, good tangible collaterals and strong guarantees.
These are exceptions and should be exceptionally approved by the appropriate approving
authority.

▪ Whenever required an independent assessment of the credit risk grading of an individual account
may be conducted by the Head of Credit Risk Management or by the Internal Auditor documenting as
to why the credit deteriorated and also pointing out the lapses.

▪ If a Bank has its own well established risk grading system equivalent to the proposed credit risk
grading or stricter, then they will have the option to continue with their own risk grading system.

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CREDIT RISK GRADING REVIEW

Credit Risk Grading for each borrower should be assigned at the inception of lending and should be
periodically updated. Frequencies of the review of the credit risk grading are mentioned below;

Number Risk Grading Short Review frequency (at least)

1 Superior SUP Annually
2 Good GD Annually
3 Acceptable ACCPT Annually
4 Marginal/Watchlist MG/WL Half yearly
5 Special Mention SM Quarterly
6 Sub-standard SS Quarterly
7 Doubtful DF Quarterly
8 Bad & Loss BL Quarterly

MIS ON CREDIT RISK GRADING

▪ Bank should have comprehensive MIS reports on credit risk grading to evaluate entire credit
portfolio of the Bank. Format of such MIS reports on credit risk grading has been presented in
Appendix - E.

 Credit Risk Grading Report (Consolidated)

 Credit Risk Grading Report (Branch Wise)
 Credit Risk Grading Report (Branch & Risk Grade Wise)
 Credit Risk Grading Report (Grade Wise Borrower List)

▪ MIS reports as mentioned above should be prepared and circulated at least on a quarterly basis.

FINANCIAL SPREAD SHEET (FSS)

A Financial Spread Sheet (FSS) has been developed which may be used by the Banks while analyzing the
credit risk elements of a credit proposal from financial point of view.

The FSS is well designed and programmed software having two parts. Input and Output Sheets. The
financial numbers of borrowers need to be inputted in the Input Sheets which will then automatically
generate the Output Sheets. The Financial Spread Sheet (FSS) is attached as Appendix - F.

44
 Jamuna Bank Limited- ................ Branch
DATA COLLECTION CHECK LIST

Documents/items required for Credit Risk Grading Required? Obtained?

YES YES NO
Company accounts for at least 3 years NO
   

Bank statements for prior 12 months from previous bank (for new customer)    

Set of accounts for at least two competitors (if published)    

Industry average figures (If available)    

Financial projection required for:    

• Term loans; forecasts should be for the duration of the term loan.
• New overdraft facilities-forecast should be for 12 months
• Working capital estimation for new/renewal/enhancement of facility.
Financial Spread Sheet (FSS)    

Customer Limit Utilization Form    

Current CIB Report of the Obligor    

Organization chart    
Biodata for –    
▪ All Directors –Other key executives
▪ Head of operations/marketing

Copies of all reports on site visits made during the last 12 months.    

Valuations of securities/collateral offered    

Memorandum/articles of association/certificate of incorporation    

Business plan/Project Feasibility Report (required for start up company)    

Receivables Aging    

Client’s declaration of Stock/Inventory and Book Debts for the last 12 months    

Trade License    

TIN Certificate    

Pending Item Checklist

Item Responsibility Due Date Status

_________________________ _____________________
Relationship Officer (RO) Relationship Manager /
Branch Manager

45
 LIMIT UTILIZATION FORM

Borrower: XYZ Company Limited – Principal Branch Date:

Period: For the Period from ----------- to -------------- (12 months Actual/Projected)

Account Performance:
(Amount in ‘000’ Taka)
Nature of the Account Debit Credit Balance/Outstanding
Summation Summation Maximum Minimum

Current Deposit Account N/A N/A X X

Overdraft (OD) X X X X
Cash Credit (CC) X X X X
Term Loan N/A N/A X X
Import Loan N/A N/A X X
Local/Export Bills outstanding N/A N/A X X
Guarantee N/A N/A X X

Account Volume:
Facilities Total No. of transaction Amount in ‘000’ Taka
Letter of Credits X X
Guarantees X X
Local/Export Bills Handled X X

Account Profitability:
(Amount in ‘000’ Taka)
Nature of Account/Facility Average Rate of Interest Commission Other Total
Utilization Interest Income Revenue
Current Account X X
Overdraft/Cash Credit X X
SLC X X
Term Loan X X
Import Loan-Hypo X X
Demand Loan-Hypo X X
Guarantees X X
LBDP/Export Bills Handled X X X X
Gross Earnings XXX XXX XXX XXX
Less: Cost of Fund XX XX
Net Earnings XXX XXX XXX XXX

Comment on Relationship/Earnings:
▪ Our earnings from borrower for the last year was BDT------------- and from Group BDT-------
▪ Our projected earnings from borrower for the next year will be BDT------ and Group BDT---
▪ Account Turnover and utilization of limit during the last year was satisfactory.

_________________________ _____________________
Relationship Officer (RO) Relationship Manager /
Branch Manager

46
 LIMIT UTILIZATION FORM
Borrower: XYZ Company Limited – Principal Branch Date:

Period: For the Period from ----------- to -------------- (12 months Actual/Projected)
Account Performance:
(Amount in ‘000’ Taka)
Nature of the Account Debit Credit Balance/Outstanding
Summation Summation Maximum Minimum

Current Deposit Account N/A N/A X X

Overdraft (OD) X X X X
Cash Credit (CC) X X X X
Term Loan N/A N/A X X
Import Loan N/A N/A X X
Local/Export Bills outstanding N/A N/A X X
Guarantee N/A N/A X X

Account Volume:
Facilities Total No. of transaction Amount in ‘000’ Taka
Letter of Credits X X
Guarantees X X
Local/Export Bills Handled X X

Account Profitability:
(Amount in ‘000’ Taka)
Nature of Account/Facility Average Rate of Interest Commission Other Total
Utilization Interest Income Revenue
Current Account X X
Overdraft/Cash Credit X X
SLC X X
Term Loan X X
Import Loan-Hypo X X
Demand Loan-Hypo X X
Guarantees X X
LBDP/Export Bills Handled X X X X
Gross Earnings XXX XXX XXX XXX
Less: Cost of Fund XX XX
Net Earnings XXX XXX XXX XXX

Comment on Relationship/Earnings:

▪ Our earnings from borrower for the last year was BDT------------- and from Group BDT-------
▪ Our projected earnings from borrower for the next year will be BDT------ and Group BDT---
▪ Account Turnover and utilization of limit during the last year was satisfactory.

_________________________ _____________________
Relationship Officer (RO) Relationship Manager /
Branch Manager

47
 CREDIT RISK GRADING SCORE SHEET
Reference No: Date:
Borrower:
Group Name (if any): Aggregate Score: _________
Branch:
Industry/Sector:
Risk Grading: _________
Date of Financials:
Completed by:
Approved by:

Number Grading Short Score

1 Superior SUP Fully cash secured, secured by
Government/International Bank
Guarantee
2 Good GD 85+
3 Acceptable ACCPT 75-84
4 Marginal/Watchlist MG/WL 65-74
5 Special Mention SM 55-64
6 Substandard SS 45-54
7 Doubtful DF 35-44
8 Bad & Loss BL <35

Criteria Weight Score

Actual Score
Parameter
A. Financial Risk 50% Parameter Obtained
1. Leverage: (15%) ▪ Less than 0.25× 15
▪ 0.26× to 0.35 x 14
Debt Equity Ratio (×) - Times ▪ 0.36× to 0.50 x 13
Total Liabilities to Tangible Net ▪ 0.51× to 0.75 x 12
worth ▪ 0.76× to 1.25 x 11
▪ 1.26× to 2.00 x 10
All calculations should be based on ▪ 2.01× to 2.50 x 8
annual financial statements of the ▪ 2.51× to 2.75 x 7
borrower (audited preferred). ▪ More than 2.75× 0
2. Liquidity: (15%) ▪ Greater than 2.74× 15
▪ 2.50× to 2.74 x 14
Current Ratio (×) - Times ▪ 2.00× to 2.49 x 13
Current Assets to Current Liabilities ▪ 1.50× to 1.99 x 12
▪ 1.10× to 1.49 x 11
▪ 0.90× to 1.09 x 10
▪ 0.80× to 0.89 x 8
▪ 0.70× to 0.79 x 7
▪ Less than 0.70× 0
3. Profitability: (15%) ▪ Greater than 25% 15
Operating Profit Margin (%) ▪ 20% to 24% 14
▪ 15% to 19% 13
Operating Profit ▪ 10% to 14% 12
×100 ▪ 7% to 9% 10
Sales ▪ 4% to 6% 9
▪ 1% to 3% 7
▪ Less than 1% 0
4. Coverage: (5%) ▪ More than 2.00× 5
Interest Coverage Ratio (×)-Times ▪ More than 1.51× Less than 2.00× 4
Earning Before Interest & Tax (EBIT) ▪ More than 1.25× Less than 1.50× 3
Interest on debt ▪ More than 1.00× Less than 1.24× 2
▪ Less than 1.00× 0
Total Score–Financial Risk 50
 Criteria Weight Score
Parameter Actual Score
B. Business/Industry Risk
Parameter Obtained
18%
1. Size of Business (Sales in BDT crore) ▪ > 60.00 5
▪ 30.00 – 59.99 4
The size of the borrower’s business ▪ 10.00 – 29.99 3
measured by the most recent year’s total ▪ 5.00 - 9.99 2
sales. Preferably based on audited ▪ 2.50 - 4.99 1
financial statements ▪ < 2.50 0
2. Age of Business ▪ > 10 years 3
▪ > 5 - 10 years 2
The number of years the borrower has ▪ 2 - 5 years 1
been engaged in the primary line of ▪ < 2 years 0
business.
3. Business Outlook ▪ Favorable 3
▪ Stable 2
A critical assessment of the medium ▪ Slightly Uncertain 1
term prospects of the borrower, taking ▪ Cause for Concern 0
into account the industry, market share
and economic factors.
4. Industry Growth ▪ Strong (10%+) 3
▪ Good (>5% - 10%) 2
▪ Moderate (1% - 5%) 1
▪ No Growth (<1%) 0
5. Market Competition ▪ Dominant Player 2
▪ Moderately Competitive 1
▪ Highly Competitive 0
6. Entry/Exit Barriers ▪ Difficult 2
▪ Average 1
▪ Easy 0
Total Score-Business/Industry Risk 18

Criteria Weight Score Actual Score

C. Management Risk 12% Parameter
Parameter Obtained
1. Experience ▪ More than 10 years in the related 5
(Management & Management Team) line of business
The quality of management based on ▪ 5–10 years in the related line of 3
the aggregate number of years that the business
Senior Management Team has been in ▪ 1–5 years in the related line of 2
the industry. business
▪ No experience 0
2. Second Line/ Succession ▪ Ready Succession 4
▪ Succession within 1-2 years 3
▪ Succession within 2-3 years 2
▪ Succession in question 0
3. Team Work ▪ Very Good 3
▪ Moderate 2
▪ Poor 1
▪ Regular Conflict 0
Total Score-Management Risk 12
 Criteria Weight Score
Actual Score
D. Security Risk 10% Parameter
Parameter Obtained
1. Security Coverage (Primary) ▪ Fully pledged facilities/substantially 4
cash covered/Reg. Mortg, for HBL
▪ Registered Hypothecation 3
(1st charge/1st Pari passu charge)
▪ 2nd Charge/Inferior charge 2
▪ Simple hypothecation/negative lien 1
on assets.
▪ No security 0
2. Collateral Coverage ▪ Registered Mortgage on Municipal 4
(Property Location) Corporation/Prime area property.
▪ Registered Mortgage on 3
Pourashava/semi-urban area
property
▪ Equitable Mortgage or No property 2
but plant & machinery as collateral
▪ Negative lien on collateral 1
▪ No collateral 0
3. Support (Guarantee) ▪ Personal guarantee with high net 2
worth or Strong Corporate
Guarantee
▪ Personal Guarantees or Corporate
Guarantee with average financial 1
strength
▪ No Support/Guarantee
0
Total Score- Security Risk 10

Criteria Weight Actual Score

Parameter Score
E. Relationship Risk 10% Parameter Obtained
1. Account Conduct ▪ More than 3 (three) years accounts 5
with faultless record
▪ Less than 3 (three) years accounts 4
with faultless record
▪ Accounts having satisfactory 2
dealings with some late payments
▪ Frequent Past dues & Irregular 0
dealings in account
2. Utilization of Limit ▪ More than 60% 2
(actual/projection) ▪ 40% - 60% 1
▪ Less than 40% 0
3. Compliance of ▪ Full Compliance 2
Covenants / Conditions ▪ Some Non-Compliance 1
▪ No Compliance 0

4. Personal Deposits ▪ Personal accounts of the key 1

business Sponsors/ Principals are
The extent to which the bank maintained in the bank, with
maintains a personal banking significant deposits
relationship with the key business ▪ No depository relationship 0
sponsors/principals.
Total Score-Relationship Risk 10
Grand Total- All Risk 100
 CREDIT RISK GRADING FORM
Date:
Borrower: Branch:
Incorporated: Legal Status:
Client Since: Business:
CIB date & status: Risk Existing New
Grading
Next Grading Review Date: Grade Score Existing New
Credit Risk Grade Score Sheet Ref. No ----------------- & dated ---------------- enclosed.
Facilities Amount in ‘000 TK Expiry/ Days Past Interest Provision
Limit Outstandings Maturity due Suspense Held
SLC/PAD
LTR
ULC/Acceptance
Overdraft
Cash Credit
Demand Loan
Term Loan
Guarantee
Total
Key Financials
Period FYE December 2001 FYE December 2002 FYE December 2003
Sales
Net Profit
Current Ratio (X)
Leverage (X)
Operating Profit/Sales (%)
Interest Coverage (X)
Query:
Are we receiving Financials regularly?
Monthly sales deposit receipt and adjustment by the Bank:
(For last 6 months.)
Is client in business?
What is happening to sister company cash flow?
Do we have corporate guarantee? What is the risk grade of guarantor?
Is loan documentation 100% OK?
Are stock of client verified/When/What is the valuation?
When last client/factory visit was made by RM and comment by RM?
Is Registered Mortgage in place/ What is the value?
Are all the approval conditions/covenants complied by borrower?
Reason for change (if any) in credit risk grading:

General comment by RM or Recommended action steps for upgrade if required:

__________________ ___________________
Relationship Officer Branch Manager

GRADING APPROVAL

Credit Officer, CRM Senior Credit Officer, CRM

 JAMUNA BANK LIMITED
CREDIT RISK GRADING REPORT (CONSOLIDATED)
AS ON DECEMBER 31, 2004

RISK GRADE NUMBER OF IN % LIMIT IN % OUTSTANDIN IN %

BORROWER (TK IN ‘000) G
(TK IN ‘000)
SUPERIOR - 1
GOOD - 2
ACCEPTABLE - 3
MARGINAL/WATCHLIST- 4
SPECIAL MENTION - 5
SUB STANDARD - 6
DOUBTFUL - 7
BAD & LOSS - 8
TOTAL 100% 100% 100%
 JAMUNA BANK LIMITED
XYZ BRANCH
CREDIT RISK GRADING REPORT (BRANCH WISE)
AS ON DECEMBER 31, 2004

RISK GRADE NUMBER OF IN % LIMIT IN % OUTSTANDIN IN %

BORROWER (TK IN ‘000) G
(TK IN ‘000)
SUPERIOR - 1
GOOD - 2
ACCEPTABLE - 3
MARGINAL/WATCHLIST- 4
SPECIAL MENTION - 5
SUB STANDARD - 6
DOUBTFUL - 7
BAD & LOSS - 8
TOTAL 100% 100% 100%
 JAMUNA BANK LIMITED
CREDIT RISK GRADING REPORT (BRANCH & RISK GRADE WISE)
AS ON DECEMBER 31, 2004

BRANC RISK GRADE NUMBER OF BORROWER IN % LIMIT IN % OUTSTANDIN IN %

H (TK IN ‘000) G
(TK IN ‘000)

PRINCIPAL SUPERIOR - 1
GOOD - 2
ACCEPTABLE - 3
MARGINAL/WATCHLIS
T- 4
SPECIAL MENTION - 5
SUB STANDARD - 6
DOUBTFUL - 7
BAD & LOSS - 8
Sub Total (Principal Branch)
AGRABAD SUPERIOR - 1
GOOD - 2
ACCEPTABLE - 3
MARGINAL/WATCHLIS
T- 4
SPECIAL MENTION - 5
SUB STANDARD - 6
DOUBTFUL - 7
BAD & LOSS - 8
Sub Total (Agrabad Branch)
GRAND TOTAL 100% 100% 100%
 JAMUNA BANK LIMITED
CREDIT RISK GRADING REPORT (GRADE WISE BORROWER LIST)
AS ON DECEMBER 31, 2004

CREDIT RISK GRADE: SUP- 1

BRANCH NAME OF BORROWER LIMIT OUTSTANDING CREDIT

(TK IN ‘000) (TK IN ‘000) EXPIRY

PRINCIPAL

AGRABAD

TOTAL SUPERIOR GRADE

GD-2
CREDIT RISK GRADE:

BRANCH NAME OF BORROWER LIMIT OUTSTANDING CREDIT

(TK IN ‘000) (TK IN ‘000) EXPIRY
PRINCIPAL

AGRABAD

TOTAL GOOD GRADE

ACCPT-3
CREDIT RISK GRADE:

BRANCH NAME OF BORROWER LIMIT OUTSTANDING CREDIT

(TK IN ‘000) (TK IN ‘000) EXPIRY
PRINCIPAL

AGRABAD

TOTAL ACCEPTABLE GRADE

MG/WL-4
CREDIT RISK GRADE:

BRANCH NAME OF BORROWER LIMIT OUTSTANDING CREDIT

(TK IN ‘000) (TK IN ‘000) EXPIRY
PRINCIPAL

AGRABAD

TOTAL MARGINAL/WATCHLIST GRADE

 CREDIT RISK GRADE: SM-5

BRANCH NAME OF BORROWER LIMIT OUTSTANDING CREDIT

(TK IN ‘000) (TK IN ‘000) EXPIRY
PRINCIPAL

AGRABAD

TOTAL SPECIAL MENTION GRADE

CREDIT RISK GRADE: SS-6

BRANCH NAME OF BORROWER LIMIT OUTSTANDING CREDIT

(TK IN ‘000) (TK IN ‘000) EXPIRY
PRINCIPAL

AGRABAD

TOTAL SUB STANDARD GRADE

CREDIT RISK GRADE: DF-7

BRANCH NAME OF BORROWER LIMIT OUTSTANDING CREDIT

(TK IN ‘000) (TK IN ‘000) EXPIRY
PRINCIPAL

AGRABAD

TOTAL DOUBTFUL GRADE

CREDIT RISK GRADE: BL-8

BRANCH NAME OF BORROWER LIMIT OUTSTANDING CREDIT

(TK IN ‘000) (TK IN ‘000) EXPIRY
PRINCIPAL

AGRABAD

TOTAL BAD & LOSS GRADE

 20.0 DISBURSEMENT PROCESS AND
DOCUMENTATION
i) Authority of approval and disbursement shall be separate. Credit Risk Management Unit
approves credit facilities while Credit Administration Unit issues Disbursement Authority.
ii) CRM issues Loan Sanction Advice to the Branch enclosing therewith a checklist of
documentation to be completed before disbursement to secure the credit facility.
iii) The Branch completes documentation as per checklist and submits a checklist duly filled in to the
Credit Administration Unit, Head Office, duly signed by the Head of the Branch (RM) and
countersigned by the officer of the Credit Administration posted at the Branch seeking
Disbursement Authority. The Credit Administration Officer shall countersign the checklist after
verifying the proper execution of documents/security/collaterals. The Credit Administration
Officer posted at the Branch shall be under administrative and working control of Credit
Administration Unit, Head office.
iv) After getting the Documentation Checklist from the Branch, the Credit Administration Unit
compares the documents obtained with the sanction letter and prepares office note for approval to
issue Disbursement Authority mentioning the exception with reason and definite time schedule
for obtaining the same as committed by the Head of Branch.

v) After getting Disbursement Authority the Branches disburse the facility.

vi) For the Credit facilities sanctioned by the Head of the Branch under his delegation the following
procedures shall be followed for disbursement:
a. Loan against financial obligation, Inland Documentary Bills Purchased, L/C, Bank
Guarantee shall be disbursed after signing the documentation Checklist by the Head of the
Branch and countersigned by the Credit Administration Officer posted at the Branch duly
verified the documents.

b. Other funded credit facilities shall be disbursed after getting Disbursement Authority from
Credit Administration Unit, Head Office observing usual formalities.
vii) Lawyer's Satisfaction Certificate to be obtained regarding documentation where there are
securities/collaterals other than Personal Guarantee and Financial Obligation.
viii) For incomplete documentation temporary waiver to be obtained from the CRM, Head Office.
ix) Excess Over Limit, if any, shall not be disbursed without Pre-fact approval of Head Office.
x) Corporate Division and Branches shall maintain credit files of the customers. Credit Division
shall maintain customer-wise approval file.
xi) Search shall be conducted periodically about collaterals both with RJSC and Sub-Registrar Office
about encumbrance of the properties.
xii) Bank's Legal Counsel shall certify the legal documentation, borrower's legal standing and
enforcement of Bank's interest.
xiii) Mortgage documents shall be properly vetted by Bank's Legal Counsel.

xiv) Registered Mortgage of property shall be supported by Registered Irrevocable Power of Attorney
favoring the Bank to sell the property.

66
 21.0 EARLY ALERT SYSTEM

An Early Alert Account is one that has risks or potential weaknesses of a material nature requiring
monitoring, supervision, or close attention by management.

If these weaknesses are left uncorrected, they may result in deterioration of the repayment prospects for
the asset or in the Bank’s credit position at some future date with a likely prospect of being downgraded
to CG 5 or worse (Impaired status), within the next twelve months.

Early identification, prompt reporting and proactive management of Early Alert Accounts are prime credit
responsibilities of all Relationship Managers and must be undertaken on a continuous basis. An Early
Alert report (Appendix ) should be completed by the RM and sent to the approving authority in CRM for
any account that is showing signs of deterioration within seven days from the identification of
weaknesses. The Risk Grade should be updated as soon as possible and no delay should be taken in
referring problem accounts to the CRM department for assistance in recovery.

Despite a prudent credit approval process, loans may still become troubled. Therefore, it is essential that
early identification and prompt reporting of deteriorating credit signs be done to ensure swift action to
protect the Bank’s interest. The symptoms of early alert shown in Appendix are by no means exhaustive
and hence, if there are other concerns, such as a breach of loan covenants or adverse market rumors that
warrant additional caution, an Early Alert report should be raised.
Moreover, regular contact with customers will enhance the likelihood of developing strategies mutually
acceptable to both the customer and the Bank. Representation from the Bank in such discussions should
include the local legal adviser when appropriate.

An account may be reclassified as a Regular Account from Early Alert Account status when the
symptom, or symptoms, causing the Early Alert classification have been regularized or no longer exist.
The concurrence of the CRM approval authority is required for conversion from Early Alert Account
status to Regular Account status.

Relationship Manager shall ensure that call/ inspection are regularly made on the Clients and documented
the outcome of the visit in the form of call/visit report.

Call reports shall be analyzed to ensure that the affairs of the business of the borrower is being run on
expected line and there is no material change in the status of the borrower.

Relationship Manager regularly monitor performance of the customer’s business as well as reputation,
status and prepares a status and prepares a status report.

Relationship Manager prepares Early Alert Report within 07(Seven) days after identification of weakness
and sign of deterioration.

67
TYPICAL CHARACTERISTICS OF EARLY ALERT A/C :

Typical Characteristics

Definition of Early Alert Industry & Ownership/ Balance Sheet Cash Performance Expired
Account Competition management Flow/Repayment Limit/Incomplete
Source Documentation
EA1 EA2 EA3 EA4 EA5 EA6
Weaknesses or potential - Position within - Concerns over the - Delay in - Liquidity strained Payments default: - Facilities
weaknesses which require industry rapidly ability of management submission, stale and there is a need • Interest or expired for more
close monitoring and pro- eroding to effectively manage financial and /or for additional principal 15 days than 30 days.
active account management - industry may be existing operations, deterioration. borrowing or capital overdue
to protect the bank’s matured and in long and/ or the business - Operating results now or in the near - Security
position. If these term decline, and/ or expansions, and/ or are deteriorating future. • Temporary documentation
weaknesses are not in a cyclical the business and/or working - Cash flow is overdraft 90 days or pending after 30
corrected they may result downturn expansion plans. capital cycle unlikely to cover both more which has not days from the
in deterioration of deteriorating. mandatory debt been regularized via approved time
repayment prospects, with - Owners show lack - Highly geared service (Principal formal limit and frame.
the likelihood of of commitment to relative to peers/ plus interest) and security
downgrade to CG12 within support business industry and on other business documentation
12 months. operation. upward trend. needs(e.g. Capex).
- Rapid acquisition - Ability to reduce
of acquisition of working capital bank
assets without proper lines is limited or
financial structuring nonexistent.
- Declining asset - Evidence of misuse
cover for short-term of funds or monies
debt. diverted into non-
core activities.

68
 22.0 CREDIT RECOVERY

The Recovery Department should directly manage accounts with sustained deterioration (a Risk Rating
of Sub Standard (6) or worse). Banks may wish to transfer EXIT accounts graded 4-5 to the RU for
efficient exit based on recommendation of CRM and Corporate Banking. Whenever an account is handed
over from Relationship Management to RU, a Handover/Downgrade Checklist (Annexure - 9) should be
completed.

Down grading process should be done immediately and should not be postponed until the annual review
process.

The RU’s primary functions are:

▪ Determine Account Action Plan/Recovery Strategy

▪ Pursue all options to maximize recovery, including placing customers into receivership or
liquidation as appropriate.
▪ Ensure adequate and timely loan loss provisions are made based on actual and expected losses.
▪ Regular review of grade 6 or worse accounts.
▪ Management of classified loans and special mention.
▪ Accounts and related works writing off B/L loans with the approval off the Board.

The management of problem loans (NPLs) must be a dynamic process, and the associated strategy
together with the adequacy of provisions must be regularly reviewed. A process should be established to
share the lessons learned from the experience of credit losses in order to update the lending guidelines.

NPL Account Management

All NPLs should be assigned to an Account Manager within the RU, who is responsible for coordinating
and administering the action plan/recovery of the account, and should serve as the primary customer
contact after the account is downgraded to substandard. Whilst some assistance from Corporate
Banking/Relationship Management may be sought, it is essential that the autonomy of the RU be
maintained to ensure appropriate recovery strategies are implemented.

Account Transfer Procedures

Within 7 days of an account being downgraded to substandard (grade 6), a Request for Action, RFA
(Annexure - 10) and a handover/downgrade checklist (Annexure - 9) should be completed by the RM and
forwarded to RU for acknowledgment. The account should be assigned to an account manager within the
RU, who should review all documentation, meet the customer, and prepare a Classified Loan Review
Report, CLR (Annexure - 11) within 15 days of the transfer. The CLR should be approved by the Head
of Credit, and copied to the Head of Corporate Banking and to the Branch/office where the loan was
originally sanctioned. This initial CLR should highlight any documentation issues, loan structuring
weaknesses, proposed workout strategy, and should seek approval for any loan loss provisions that are
necessary.

69
Recovery Units should ensure that the following is carried out when an account is classified as Sub
Standard or worse:
▪ Facilities are withdrawn or repayment is demanded as appropriate. Any drawings or advances
should be restricted, and only approved after careful scrutiny and approval from appropriate
executives within CRM.

▪ CIB reporting is updated according to Bangladesh Bank guidelines and the borrower’s Risk
Grade is changed as appropriate.

▪ Loan loss provisions are taken based on Force Sale Value (FSV).

▪ Loans are only rescheduled in conjunction with the Large Loan Rescheduling guidelines of
Bangladesh Bank. Any rescheduling should be based on projected future cash flows, and should
be strictly monitored.

▪ Prompt legal action is taken if the borrower is uncooperative.

Non-Performing Loan (NPL) Monitoring

On a quarterly basis, a Classified Loan Review (CLR) (Annexure - 11) should be prepared by the RU
Account Manager to update the status of the action/recovery plan, review and assess the adequacy of
provisions, and modify the bank’s strategy as appropriate. The Head of Credit should approve the CLR
for NPLs up to 15% of the banks capital, with MD/CEO approval needed for NPLs in excess of 15%.
The CLR’s for NPLs above 25% of capital should be approved by the MD/CEO, with a copy received by
the Board.

NPL Provisioning and Write-off

The guidelines established by Bangladesh Bank for CIB reporting, provisioning and write off of bad and
doubtful debts, and suspension of interest should be followed in all cases. These requirements are the
minimum, and Banks are encouraged to adopt more stringent provisioning/write off policies. Regardless
of the length of time a loan is past due, provisions should be raised against the actual and expected losses
at the time they are estimated. The approval to take provisions, write offs, or release of
provisions/upgrade of an account should be restricted to the Head of Credit or MD/CEO based on
recommendation from the Recovery Unit. The Request for Action (RFA) (Annexure - 10) or CLR
(Annexure - 11) reporting format should be used to recommend provisions, write-offs or
release/upgrades.

The RU Account Manager should determine the Force Sale Value (FSV) for accounts grade 6 or worse.
Force Sale Value is generally the amount that is expected to be realized through the liquidation of
collateral held as security or through the available operating cash flows of the business, net of any
realization costs. Any shortfall of the Force Sale Value compared to total loan out standings should be

70
fully provided for once an account is downgraded to grade 7. Where the customer is not cooperative, no
value should be assigned to the operating cash flow in determining Force Sale Value.

Force Sale Value and provisioning levels should be updated as and when new information is obtained, but
as a minimum, on a quarterly basis in the CLR (Annexure - 11)

Following formula is to be applied in determining the required amount of provision:

1. Gross Outstanding XXX

2. Less: (i) Cash margin held or Fixed

Deposits/SP under lien. ( XXX )
(ii) Interest in Suspense Account ( XXX )

3. Loan Value
(For which provision is to be created before considering
estimated realizable value of other security/collateral held) XXX

4. Less: Estimated salvage value of security/collateral held ( XXX )

(See Note below)

Net Loan Value XXX

Note: The amount of required provision may, in some circumstances, be reduced by an estimated
realizable forced sale value of (i.e. Salvage Value) any tangible collateral held (viz: mortgage of
property, pledged goods / or hypothecated goods repossessed by the bank, pledged readily marketable
securities etc). Hence, in these situations, it will be advisable to evaluate such collateral, estimate the
most realistic sale value under duress and net-off the value against the outstanding before determining
the Net Loan value for provision purposes. Conservative approach should be taken to arrive at
provision requirement and Bangladesh Bank guideline to be properly followed.

23.0 STATEMENTS TO BE SUBMITTED TO THE

BOARD/EC PERIODICALLY
Following statements shall be submitted to the Board/EC periodically for their perusal:

Sl.
Name Frequency Remarks
No.
List of credit facilities
1. Monthly
sanctioned/renewed/enhanced and declined
Status of large loans of Tk. 10.00 crore and
2. Monthly
above
3. Early Alert Loans Monthly

71
 4. Classified Loans Quarterly
5. Special Mention Loans Quarterly
6. Statement of Suit filed by and against the Bank Quarterly
7. Documentation Status against Loans Quarterly
8. List of Exceptional Advances Monthly
9. Statement of past dues Quarterly
10. Sectoral exposure and Large loan Exposure Quarterly

24.0 PERIODIC REVIEW

1. Changed Market Scenario, Demand for Credit, Appetite of the Bank and Credit Budget be
reviewed annually.

2. Judiciousness in the use of Business Power Delegation to the Executives be reviewed annually.

3. Performance of Third Party Service Providers be reviewed annually.

4. Monthly review of 10% of the loans approved to ensure that lending guidelines are followed.

5. Monthly review of all credit relationship by Relationship Officers.

DELEGATION OF POWERS

72
 NORMS FOR EXERCISING DELEGATION

OF BUSINESS POWERS
1) The Board of Directors is the source of all powers. It can delegate power to any committee, The Managing
Director and different tiers of the Management from time to time for smooth operation of the Bank.

2) The Managing Director can exercise all the powers vested in other officers of the Bank. The Managing
Director can suspend delegated power of any Executive /officer through specific or general order for
reasons to be recorded in writing.

3) The delegated power should be exercised judicious and conforming to the credit policy of JBL, relevant
regulations and laws.

4) The Board shall approve grade wise general delegation of Power to the different tiers of the Management.
But one executive / officer can exercise delegation of power upto the extent specifically vested to the
concerned executive /officer by the Managing Director through letter by name. The Managing Director
shall delegate power considering knowledge, experience, judicious judgment ability, reliabilities and
trustworthiness of the executive /officer. The proper use of the power by the individual executive/officer
shall be reviewed annually and the power be recasted.

5) If an executive/officer is temporarily posted in a position to substitute an executive of higher grade, he can

exercise delegated power relevant to his own grade, not higher grade.

6) Credit limits sanctioned by board/EC can be renewed by the Managing Director on the same terms and
conditions without any change / amendment of any condition subject to satisfactory transactions/
performance.

7) The Management cannot allow any credit facility to the customer / group to whom credit limit has been
approved by the board/EC .The Management cannot change/alter/amend any terms and conditions of the
credit facilities sanctioned by the board/EC.

8) Before opening L/Cs mode of retirement of documents be settled to avoid any forced post import loan.

9) Following tiers of management can exercise delegation of business power subject to the extent of specific
delegation by the Managing Director:

a) At Head Office the Managing Director and in his absence by the Deputy Managing Director.
b) Branch Managers

10) One customer/ group should not be accommodated credit facilities from more than one branch without
approval of Head office.

11) The sanctioning officer/ executive cannot sanction any credit facility in his name or his relatives without
approval of Head office. BCD circular no. 5 dt. 10.04.1979, and subsequent circulars of the Bangladesh
Bank shall be followed to define relatives.
Relatives means:

73
 a. Husband / Wife
b. Father
c. Mother (including step-mother)
d. Son (including step- son)
e. Son’s wife
f. Daughter (including step-daughter)
g. Father’s father
h. Father’s mother
i. Mother’s mother
j. Mother’s father
k. Wife’s father
l. Wife’s mother (including step-mother)
m. Wife’s brother (including step- brother)
n. Wife’s sister (including step- sister)
o. Son’s son
p. Son’s daughter
q. Brother (including step- brother)
r. Brother’s wife
s. Sister (including step- sister)
t. Sister’s husband and his father and mother
u. Sister’s husband’s brother and sister
v. Uncles (own paternal and maternal)
w. Aunts (own paternal and maternal)
x. First cousins (from both father’s and mother’s side)

12) The first and foremost criteria of allowing credit will be the proper and correct selection
of borrower.

The borrower should be selected on the following basis:

a. The borrower must be a man of integrity and must enjoy good reputation in the market.
b. The borrower must have the capacity and capability for utilizing credit properly and profitably.
c. The enterprise of the borrower must be viable and profitable. That is to say, the proposal of the
borrower must be evaluated properly and carefully so as to ascertain its viability and profitability.
The enterprise must be able to generate sufficient fund for debt servicing.

13) A customer to whom credit to be allowed should be as far as possible within the
command area i.e. area of operation of the branch. For example, Moulvi Bazar Branch,
Dhaka should not normally accommodate a party of Motijheel, Dhaka area. Deviations,
if any, are not to be explicitly explained in the proposal.

14) The schedule of business powers lays down the maximum power per party and not
per deal. A party will mean any one Person, firm , company, concern and will include
his, its sister concerns/ allied concerns.

74
 15) A customer should not be accommodated with different types of credit / investment
facilities, nor the same customer should be allowed credit facilities, in different names
without the authority of Head Office.
16) No discretionary power will be applied by the branches to accommodate customers to
whom Head Office has already sanctioned limits.

17) The powers will be exercised by the authorized Executives/ Officers only when such
Executives / Officers are specifically allowed by the Managing Director in writing
addressed to him.

18) The credit disbursing officer will also remain responsible for completing the
documentation formalities before disbursing the credits.
19) Powers will be exercised in all cases subject to credit restrictions imposed by
Bangladesh Bank from tome to time.

The Executive of different level can exercise their delegation of power mode wise up to the limit. They can sanction
credit facilities under different mode both funded and non- funded as per delegation. But their total sanctioning limit
per customer/ group under different modes shall not exceed the following cap:

Cap of Delegated Powers:

Designation Maximum Funded Total Facilities

Facilities (Funded and Non- Funded)

Managing Director : 100 lac. 300 lac

AMD/DMD : 50 lac. 200 lac.

SEVP : 25 lac. 150 lac.
EVP : 20 lac. 100 lac.
SVP : 15 lac. 75 lac.
VP : 10 lac. 60 lac.
SAVP : 07 lac. 50 lac.
AVP : 05 lac. 40 lac.

Remarks: The lending caps do not include loan against financial obligation, documentary
bills purchased and issuance of Bank Guarantee against counter guarantee of First Class Foreign
Bank.

75
 Summary of Delegated Business Powers
FUNDED

Facility Type MD DMD/ Branch manager

AMD SEVP EVP SVP VP SAVP AVP

SOD(FO) UL 200 100 75 60 50 40 25

CC(H)/ 75 40 20 15 10 8 6 5
Bai-muajjal
CC(P)/ 100 60 - - - - - -
Murabaha
SOD(WO) 75 40 20 15 10 - - -
LDBP 500 100 70 50 40 30 10 5
CCS 10 3 - - - - - -
Lease Finance 50 20 - - - - - -
Hire Purchase 75 40 20 15 10 5 - -
EOL 30 - - - - - - -
Loan(G): Advance against Cash 50 - - - - - - -
Incentive
LIM 100 40 - - - - - -
LTR 75 30 - - - - - -
PC 50 20 - - - - - -
FDBP(Sight) 500 300 200 100 50 40 - -
FDBP(Usance) 300 150 50 40 30 20 - -
ECC(P) 50 25 - - - - - -
ECC(H) 25 20 - - - - - -
FBP For Purchase TC And FDD 20 10 7 5 3 2 1 -
FBP For Purchase of Foreign 10 5 4 2 2 1 - -
Currency Cheque
HBL for Apartment Purchase/ 30 - - - - - - -
Residential Building
Debt : Equity = 50:50
Loan(G) for Real Estate 100 - - - - - - -
Builders

76
 NON-FUNDED

Facility Type MD AMD/DMD Branch Managers

SEVP EVP SVP VP SAVP AVP

NON-FUNDED:
Bid Bond(Local) 30- 20-50 - - - - - -
100
Foreign Guarantee(Bid UL 100 - - - - - -
Bond)
Foreign 500 - - - - - - -
Guarantee(Inward)
Against Counter
Guarantee of 1st Class
International Bank
Foreign 500 - - - - - - -
Guarantee(Outward)
PG/APG 20-75 10-30 - - - - - -
BG/PG/APG With Tenor 500 - - - - - - -
2 Year Against Counter
Guarantee of 1st Class
Foreign Banks/Local
Banks
LC: Import for 50- 50-150 30-50 20-30 10 8 5
Trading/Commercial 600
Purpose
LC : Import for 25- 20 - - - - - -
Capital Machinery 100
LC(Sight/180 Days 600 - - - - - - -
DP) Against Letter of
Undertaking/Counter
Guarantee of
Foreign Banks/Other
Financial Institutions
BTB LC 50 25 - - - - - -
Inland Letter of Credit 50- 30-100 - - - - - -
200

77
 REGULATIONS VIS. A VIS DELEGATION OF POWERS

1.0 FUNDED CREDIT FACILITY

SOD(FO)
• Loans and Advances(SOD) against lien of FDR issued by JBL and other Banks
• Loans and Advances(SOD) against lien of TBDS/DBDS/MSS/MPPS issued by JBL
and other Banks
• Wage Earners’ Development Bond
• Unit Certificate

Existing Delegation

Margin HO BRANCH MANAGER(BM)

MD AMD/ SEVP EVP SVP VP SAVP AVP
DMD
Nil Unlimited - - - - - - -

10% Unlimited 300 200 - - - - -

15% Unlimited - - - 150 - - -
20% Unlimited - - - - 100 75 50

Remark:
1. Other conditions related to compliance of credit shall remain unchanged, which is shown in Anexxure-1 of
existing Delegated Business Powers.
2. Approval will be required for above instruments issued by NBFI/other Financial Institutions.

Proposed Delegation

HO BRANCH MANAGER(BM) Remarks

MD AMD/ SEVP EVP SVP VP SAVP AVP Incase MD and DMD margin
DMD shall be decided on case to
case basis and in case of
Branch Manager margin
should be minimum 10%.
Unlimited 200 100 75 60 50 40 25

Remark:
1) Other conditions related to compliance of credit shall remain unchanged, which is shown in Annexure-
1 of existing Delegated Business Powers.
2) Approval of Head Office shall be required for above instruments issued by other Banks/NBFI/other
Financial Institutions.
3) Minimum 10% Margin will be required against above instruments issued by other Banks/NBFI/other
Financial Institutions.
4) Approval will be required from Head Office for above instruments issued by JBL favoring NBFI/other
Financial Institutions.
5) Interest accrued against above instruments shall not be released.
6) Interest on loan shall be realized as and when charged.

78
 Cash Credit(Hypothecation)/ Baimuajjal

Existing Delegation
With Collateral
Margin on Landed Cost/ HO BRANCH MANAGER(BM)
Chalan Value of Stocks MD AMD/ SEVP EVP SVP VP SAVP AVP
DMD
30% and Above 75 25 - 5 5 2 1 1
Nil 10 - - - - - - -

Remark:
1. For Branch Managers Minimum Margin is 30%
2. No dispute on Collateral and Forced Sale Value of Collateral will be 2 X of Facility Value.
3. CC(H) against NIL Margin is applicable in case of Urgent need

Without Collateral
Margin on Landed Cost/ HO BRANCH MANAGER(BM)
Chalan Value of Stocks MD AMD/ SEVP EVP SVP VP SAVP AVP
DMD
40% and Above 10 - - - - - - -

Proposed Delegation
With Collateral
HO BRANCH MANAGER(BM)
MD AMD/ SEVP EVP SVP VP SAVP AVP
DMD
75 40 20 15 10 8 6 5

Remark:
FSV of collateral security 2 times of loan amount. MD may relax collateral value in deserving and exceptionally
good performing cases recording justification.

Cash Credit(Pledge)/Murabaha

Existing Delegation

With Collateral
Margin on Landed Cost/ HO BRANCH MANAGER(BM)
Chalan Value of Stocks MD DMD SEVP EVP SVP VP SAVP AVP
25% and Above 100 50 - 20 10 5 3 3
Nil 15 10 - - - - - -

Remark:
1. For Branch Managers Minimum Margin is 50%
2. No dispute on Collateral and Forced Sale Value of Collateral will be 2 X of Facility Value.
3. CC(P) against NIL Margin is applicable in case of Urgent need

79
 Without Collateral
Margin on Landed Cost/ HO BRANCH MANAGER(BM)
Chalan Value of Stocks MD AMD/ SEVP EVP SVP VP SAVP AVP
DMD
30% and Above 50 20 - 10 5 3 2 2

Proposed Delegation
With/Without Collateral
Margin on Landed Cost/ HO BRANCH MANAGER(BM)
Chalan Value of Stocks MD AMD/ SEVP EVP SVP VP SAVP AVP
DMD
Min. Margin 30% 100 60 - - - - - -
Remark:
1) Goods must be of latest production and non-perishable, inflammable, easily marketable.
2) Drawing shall be allowed only after entering the goods in the godown duly counted by Bank’s authorized
representative. The godown shall be vacant first.
3) The godown shall be under lock & key duly gala sealed and to be guarded by Bank’s guard round the
clock.

SOD(WO)
Existing Delegation
With Collateral
Margin on Value of Work HO BRANCH MANAGER(BM)
Order MD AMD/DMD SEVP EVP SVP VP SAVP AVP
25% 100 50 - 10 5 3 - -

Remark:
1. Other conditions related to compliance of credit shall remain unchanged, which is shown in Annexure-1 of
existing Delegated Business Powers.
2. No dispute on Collateral and Forced Sale Value of Collateral will be 2 X of Facility Value. However, this
condition can be relaxed in case of Government/Semi-Government having good business relationship with
JBL.

Without Collateral
Margin on Value of Work HO BRANCH MANAGER(BM)
Order MD AMD/ SEVP EVP SVP VP SAVP AVP
DMD
50% 50 25 - - - - - -
30% 30 20 - - - - - -

Proposed Delegation

HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
75 40 20 15 10 -

80
Remark:
1 Advance shall not exceed 30% of Work Order including Mobilization Fund provided by the work giving
authority against APG.
2 Advance shall be allowed against assignment of valid work order issued by Govt., Semi Govt.,
Autonomous bodies and other acceptable agencies.
3 Forced Sale value of collateral security shall be minimum 2 times of loan amount. Managing Director may
relax value of collateral security in exceptionally good cases recording justification.

Local Document Bill Purchase against valid Confirmed and Irrevocable L/C
issued by Reputed Bank

Existing Delegation

Without Collateral
HO BRANCH MANAGER(BM)
MD DMD SEVP EVP SVP VP SAVP AVP
500 100 - 50 40 30 10 5

Proposed Delegation

Without Collateral
HO BRANCH MANAGER(BM)
MD DMD SEVP EVP SVP VP SAVP AVP
Unlimited 100 70 50 40 30 10 5

CCS / Retail Credit

Existing Delegation

Without Collateral
HO BRANCH MANAGER(BM)
MD DMD SEVP EVP SVP VP SAVP AVP
5 3 - 1 1 1 1 1

Proposed Delegation

Without Collateral
HO BRANCH MANAGER(BM)
MD DMD SEVP EVP SVP VP SAVP AVP
10 3 - - - - - -

Remarks: Terms and Conditions as per Retail Credit Policy.

81
 Lease Finance

Existing Delegation Subject to Lease Policy

With/Without Collateral
HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
50 20 - 10 - - - -

Proposed Delegation

With/Without Collateral
HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
50 20 - - - - - -

Remarks: Terms and Conditions as per Lease Finance Policy.

Hire Purchase

Existing Delegation Subject to Lease Policy

With/ Without Collateral

HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
50 20 - - - - - -

Proposed Delegation

With/ Without Collateral

HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
75 40 20 15 10 5 - -

Remarks: Minimum Down Payment 30% and Minimum Collateral Security 2 times of loan amount. However, the
MD can relax value of collateral Security in deserving cases recording justification.

82
 EOL

Existing Delegation

With Collateral Coverage ratio 1:1

% of Existing Limit HO BRANCH MANAGER(BM)
MD DMD SEVP EVP SVP VP SAVP AVP
15% 100 - - - - - - -

Proposed Delegation

With Collateral Coverage ratio 1:1

% of Existing Limit HO BRANCH MANAGER(BM)
MD DMD SEVP EVP SVP VP SAVP AVP
10% Max 30 - - - - - - -

Remarks:

1) For best performing customer.

2) Justifiable reason
3) Obtaining of Post-Dated Cheque for the EOL

Loan(G): Advance against Cash Incentive claim duly audited

Existing Delegation

Without Collateral
Margin HO BRANCH MANAGER(BM)
MD DMD SEVP EVP SVP VP SAVP AVP
50% 50 - - - - - - -

Proposed Delegation

Without Collateral
Margin HO BRANCH MANAGER(BM)
MD DMD SEVP EVP SVP VP SAVP AVP
50% 50 - - - - - - -

83
 Short Term Overdraft/Cash Credit(Single Instance)

Existing Delegation
Without Collateral
Margin on Stock HO BRANCH MANAGER (BM)
MD DMD SEVP EVP SVP VP SAVP AVP
50% 25 - - - - - - -

Proposed Delegation : Cancelled

LIM

Existing Delegation
With Collateral

Margin ON landed HO BRANCH MANAGER(BM)

Cost/Chalan value MD AMD/DMD SEVP EVP SVP VP SAVP AVP
Nil, In case of Urgency 15 - - - - - - -
10% 25 10 - - - - - -
25% 50 20 - - - - - -

Condition: . Minimum Collateral Coverage Ratio is 1.

Without Collateral

Margin HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
Nil 10 - - - - - - -
10% 15 10 - - - - - -
25% 25 15 - - - - - -

Proposed Delegation

With/Without Collateral

Margin HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
30% Min. on Landed Cost 100 40 - - - - - -

LTR

84
 Existing Delegation

Margin on Invoice Value HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
15% 50 35 - - - - - -
20% 75 60 - - - - - -
30% 100 75 - - - - - -

Remarks: Collateral value (FSV) will be minimum 2X of facility. However, it can be relaxed for the good clients
having business relationship with the bank.

Proposed Delegation

HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
75 30 - - - - - -

Remarks:
1) Margin minimum 30%
2) Collateral Coverage minimum 2 timesof the loan amount. MD can relax value of collateral security in deserving
cases recording justification.

PC

Existing Delegation

% of PC of Master HO BRANCH MANAGER(BM)

LC(FOB) MD AMD/DMD SEVP EVP SVP VP SAVP AVP
10% 50 30 - - - - - -

Condition
• Single Instance maximum up to Taka 100.00 lac
• Single party exposure shall not exceed Taka 500.00 lac

Proposed Delegation

Margin HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
10% of ABP 50 20 - - - - - -

85
 FDBP/Negotiation against Sight Bill

Existing Delegation

% of FDBP Export Value HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
10% 500 200 - 50 40 30 - -

Proposed Delegation

% of FDBP Export Value HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
10% 500 300 200 100 50 40 - -

FDBP/Negotiation against Usance Bill(30-120 days DP)

Existing Delegation

% of FDBP Export Value HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
10% 300 150 - 40 30 20 - -

Proposed Delegation

% of FDBP Export Value HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
10% 300 150 50 40 30 20 - -

Export Cash Credit(ECC) Pledge

Existing Delegation

With collateral

MARGIN HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
50 25 - - - - - -

Without collateral

86
 HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
20% of Stock 25 20 - - - - - -

Proposed Delegation

With/Without collateral

MARGIN HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
Min. 30% 50 25 - - - - - -

Export Cash Credit(ECC) Hypothecation

Existing Delegation
With collateral

HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
25 20 - - - - - -

Without collateral

HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
25% of Stock 15 10 - - - - - -

Proposed Delegation

Margin HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
Min. 30% 25 20 - - - - - -

Remarks:
1) Collateral Coverage minimum 1.5X of the loan amount. MD can relax value of collateral security in deserving
cases recording justification.

87
 Foreign Bill Purchase(FBP) For Purchase TC And FDD

Existing Delegation

Without collateral

HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
20 10 - 5 3 2 1 -

Proposed Delegation

Without collateral

HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
20 10 7 5 3 2 1 -

Foreign Bill Purchase(FBP) For Purchase of Foreign Currency Cheque

Without collateral

Existing Delegation

MIN. MARGIN HO BRANCH MANAGERS

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
20% 10 5 - 2 2 1 - -

Proposed Delegation

MIN. MARGIN HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
20% 10 5
4 2 2 1 - -

House Building Loan for Apartment Purchase / Residential House Building

Existing Delegation : Nil

Proposed Delegation

HO BRANCH MANAGER(BM)

88
 MD AMD/DMD SEVP EVP SVP VP SAVP AVP
30 - - - - - - -

Remarks:

1) Minimum Equity: 50%

2) Registered Mortgage with RIPA

Loan(G) for Real Estate Builders

Existing Delegation : Nil

Proposed Delegation

HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
100 - - - - - - -

Remarks:

1) Loan amount shall not exceed 30% of civil construction cost

2) Terms and Conditions as per Builders Finance Policy

2.0 NON-FUNDED CREDIT FACILITY

Bid Bond(Local)

Existing Delegation

Without Collateral
Margin on Value of Bid HO BRANCH MANAGER(BM)
MD AMD/ SEVP EVP SVP VP SAVP AVP
DMD
100% Unlimited 200 - 75 50 30 20 15
or Against
FDR/TBDS/DBDS/MSS/MPPS
50% 100 50 - - - - - -
25% 75 30 - - - - - -
20% 20 15 - - - - - -
10% 15 - - - - - - -

89
 With Collateral
Margin on Value of Bid HO BRANCH MANAGER(BM)
MD AMD/ SEVP EVP SVP VP SAVP AVP
DMD
50% 200 75 - 25 - - - -
25% 100 50 - 15 - - - -
20% 50 30 - - - - - -
10% 30 15 - - - - - -

Proposed Delegation

With/Without Collateral Security

Margin on Value of Bid HO BRANCH MANAGER(BM)
MD AMD/ SEVP EVP SVP VP SAVP AVP
DMD
100% UL UL UL UL UL UL UL UL
or Against
FDR/TBDS/DBDS/MSS/MPPS
50% 100 50
25% 75 30
20% 60 25
10% 50 20
5% 30 -

Foreign Guarantee(Bid Bond)

Without collateral

Existing Delegation

Margin HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
100% Unlimited 100 - 50 25 20 15 10

Below 100% Under Delegation of EC

Proposed Delegation

Margin HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
100% Unlimited 100 - - - - - -

Remark: Necessary NOC of Bangladesh Bank shall be obtained.

90
 Guarantee(Inward) Against Counter Guarantee of 1st Class International Bank

Existing Delegation

Without collateral

Margin HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
Nil Unlimited 50 25 - - - -

Proposed Delegation

Without collateral

Margin HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
Nil 500 - - - - - - -

Remarks

• Guarantee period up to 24 months.

Foreign Guarantee(Outward)

Without collateral

Existing Delegation

Margin HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
100% Unlimited 100 50 25 20 15 10

Below 100% Under Delegation of EC

Proposed Delegation

Margin HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
100% 500 - - - - - - -

Remark: Necessary NOC of Bangladesh Bank shall be obtained.

91
 Performance Guarantee/Advance Payment Guarantee

Existing Delegation

With Collateral
50% 50 30 - 15 10 - - - -
25% 40 25 - 15 10 - - - -
20% 30 15 - - - - - - -
10% 20 10 - - - - - -

Note:
1 No dispute on Collateral and Forced Sale Value of Collateral will be minimum equal to the facility value.

Without Collateral

Margin on Value of Bid HO BRANCH MANAGER(BM)

MD AMD/ SEVP EVP SVP VP SAVP AVP
DMD
100% Unlimited 80 - 50 40 20 15 10
or Against
FDR/TBDS/DBDS/MSS/MPPS

Proposed Delegation

With/Without Collateral
Margin on Value of Bid HO BRANCH MANAGER(BM)
MD AMD/ SEVP EVP SVP VP SAVP AVP
DMD
60% 75 30 - - - - - -
25% 50 25 - - - - - -
20% 40 20 - - - - - -
10% 30 15 - - - - - -
5% 20 10 - - - - - -

Bank Guarantee(BG/PG/APG) With Tenor 1 Year Against Counter Guarantee of 1st

Class Foreign Banks/Local Banks

Existing Delegation

HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
500 - - - - - - -

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Proposed Delegation

HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
500 - - - - - - -

Remark : Tenor of Guarantee up to 24 months.

LC: Import for Trading/Commercial Purpose

Existing Delegation

Without Collateral and No Post Import finance will be allowed

Margin HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
Nil 600* - - - - - - -
5% 25 - - - - - - -
10% 100 50 - - - - - -
15% 125 75 - - - - - -
20% 150 100 - - - - - -
25% 250 125 10 - - - -
50% and above 300 150 - 20 10 8 5 -
100% Cash/FDR UL 300 200 150 100 75 50

* Against Letter of Comfort/Undertaking/Counter Guarantee of Foreign Banks/Local Banks/Other financial

institutions.

Proposed Delegation

Without Collateral and No Post Import finance will be allowed

Margin HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
Nil 600* - - - - - - -
5% 50 - - - - - - -
10% 150 50 - - - - - -
20% 200 100 - - - - - -
25% 250 125 30 20 - - - -
50% and above 300 150 50 30 10 8 5 -
100% Cash/FDR UL 300 250 200 150 100 75 50

*Against Letter of Undertaking/Counter Guarantee of Foreign Banks/Local Banks/Other financial institutions.

Remarks:
• No post import finance shall be allowed.

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 LC : Import for Capital Machinery

Existing Delegation
Without Collateral and No Post Import finance will be allowed
Margin HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
25% 15 - - - - - - -
50% and above 100 20 - - - - - -
100% Cash/FDR Unlimited 300 200 150 100 75 50

With Collateral and No Post Import finance will be allowed

Margin HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
25% 100 75 - - - - - -
50% and above 300 150 - - - - - -

Proposed Delegation
With/Without Collateral
Margin HO BRANCH MANAGER(BM)
MD AMD/DMD SEVP EVP SVP VP SAVP AVP
25% 25 - - - - - - -
50% and above 100 20 - - - - - -
100% Cash/FDR Unlimited 300 - - - - - -

Remark: No Post Import finance will be allowed

LC: Import for Industrial raw Materials

Without Collateral and No Post Import finance will be allowed undr delegation of the
Management.

Existing Delegation

Margin HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
5% 10 - - - - - - -
10% 50 25 - - - - - -
15% 75 50 - - - - - -
20% 100 50 - - - - - -
25% 150 75 - 10 - - - -
50% and above 200 100 - 25 15 10 5 -
100% Cash/FDR Unlimited 300 200 150 100 75 50

94
 Proposed Delegation : Cancelled

LC(Sight/180 Days DP) Against Letter of Comfort/Undertaking/Counter

Guarantee of Foreign Banks/Other Financial Institutions

Existing Delegation

Margin HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
Nil 600 - - - - - - -

Proposed Delegation

Margin HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
Nil 600 - - - - - - -

Remark: LC(Sight/180 Days DP) Against Letter of Undertaking/Counter

Guarantee of Foreign Banks/Other Financial Institutions excepting Letter of
Comfort approved earlier.

BTB LC
Existing Delegation

% of BTB of Master LC HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
75% 100 75 - - - - - -
Condition
• Single Instance maximum up to Taka 100.00 lac
• Single party exposure shall not exceed Taka 500.00 lac
Proposed Delegation

% of BTB of Master LC HO BRANCH MANAGER(BM)

MD AMD/DMD SEVP EVP SVP VP SAVP AVP
75% 50 25 - - - - - -

Condition
• Single party exposure shall not exceed Taka 200.00 lac

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 Inland Letter of Credit

Existing Delegation

With Collateral
Margin HO BRANCH MANAGER(BM)
MD DMD SEVP EVP SVP VP SAVP AVP
>=50% 200 100 - - - - - -
>=25% 150 75 - - - - - -
>=10% 50 30 - - - - - -

Without Collateral
Margin HO BRANCH MANAGER(BM)
MD DMD SEVP EVP SVP VP SAVP AVP
= 100% UL UL UL UL UL UL UL UL
>=50% 100 75 - - - - - -
>=25% 50 30 - - - - - -
>=10% 20 - - - - - - -

Proposed Delegation
With/Without Collateral
Margin HO BRANCH MANAGER(BM)
MD DMD SEVP EVP SVP VP SAVP AVP
= 100% UL UL UL UL UL UL UL UL
>=50% 200 100 - - - - - -
>=25% 150 75 - - - - - -
>=10% 50 30 - - - - - -

End

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