Credit Operations and Risk Management A Case Study of BASIC Bank Limited

Prepared for R. Tareque Moudud Director Office of placement and alumni American International University-Bangladesh Prepared By: Shirmin Marzukina ID # 04-05013-2 BBA, Major in Marketing Semester: Spring 2008 Supervisor Mr. Ehsan Uddin Director of Student Affairs Asst Professor Faculty of Business American International University-Bangladesh Date of Submission: April 27, 2008

AMERICAN INTERNATIONAL UNIVERSITY BANGLADESH

Latter of Transmitter
April 27, 2008 R. Tareque Moudud Director Office of placement and alumni American International University-Bangladesh

Subject: Submission of Internship Report.

Dear Sir, It is my pleasure to submit before you the Internship Report on Credit Operations and Risk Management A Case Study of BASIC Bank Limited prepared following obtaining approval from you earlier. I have put in my best efforts for hands in study in the concerned area & to prepare this report. Hope it would be acceptable to you. Thanking you. Yours sincerely, Shirmin Marzukina ID #04-05013-2 BBA, Major in Marketing. American International university-Bangladesh

Table of Contents:
Executive Summary ORGANIZATION PART(part A) 1.A.0. Introduction (1) 1.A.0.1. Corporate Strategy (1) 1.A.0.2.Organizational Goals (1) 1.A.0.3. Organizational Structure (2) 1.A.1.Organization Overview- (3) 1.A.1.1. Historical Background (3) 1.A.1.2. A Bird's Eye View (3) 1.A.1.3 functions. (4) 1.A.1.4. Human Resources (5) 1.A.1.4.1. Training (5) 1.A.1.5. organogram (6) 1.A.1.6. Board of directors (7) 1.A.1.7. BASIC offers loans and advances to projects in the following mode (8) 1.A.1.8 upcoming branch( 8) 1.A.1.9. Branch network in Bangladesh.(8) 1.A.1.10. Monetary /Financial Resources (9) 1.A.1.11. Accounts (11) 1.A.1.12. Functional division of BASIC Bank (12) 1.A.1.13 General Banking (14) PROJECT PART (part B) 1.B.0. Overall introduction of the project (17) 1.B.0.1-Background of the report (17) 1.B.0.2.Introduction (17) 1.B.0.3. Credit Policy (17)

1.B.0.3.1. Credit Operation System of BASIC Bank (18) 1.B.0.3.2. Credit Risk Management Practices of BASIC Bank Limited (19) 1.B.0.4.The two types of Cash Credit (20) 1.B.0.5. Statement of the problem (20) 1.B.0.6. Rational of the study (21) 1.B.0.7. Objective of the report (21) 1.B.1. Scope and Limitation of the study (23) 1.B.2. Methodology (24) 1.B.2 (a) Variables covered (24) 1.B.2 (b) Methods of collecting data (24) 1.B.2 (c) Activity schedule (25) 1.B.2 (d) Analytical Tools and Software Used (26) 1.B.3. Topic analysis and discussion (27) 1.B.3.1. Know the Credit Policy of BASIC Bank Limited & corresponding principals. (27) 1.B.3.2. credit evaluation considerations & lending criteria of the Bank. (28) 1.B.3.3. Distinguish different Type of Credit Facilities of the Bank. (28) 1.B.3.3.1. BASIC Bank offers following credit facilities (29) 1.B.3.3.2. Different Types of Credit facilities in BASIC Bank Limited. (30) 1.B.3.3.3. Different Type of credit facilities of BASIC Bank Ltd: Funded Credit. (31) 1.B.3.4. To know the various steps in Credit Operation System of BASIC Bank. (37) 1.B.3.4.1. Loan Facility Parameters (37) 1.B.3.4.2. Function of some important division. (37) 1.B.3.4.3. Law division performs overall supervision of following (40) 1.B.3.4.4. Loan system managing system (41) 1.B.3.4.5. Flow-chart of Credit Management system of BASIC Bank Ltd. (42) 1.B.3.5 .To know the Credit Policy considerations of BASIC Bank Limited (42)

1.B.3.5.1. System Requirements (43) 1.B.3.5.2. Proposed Operational Features (43) 1.B.3.6. Supervision and Recovery System of Loans and Advances of the Bank (44) 1.B.3.6.1. Supervision & follow up of loans and advances (45) 1.B.3.6.2. At Branch level (46) 1.B.3.6.3. At Head Office level (47) 1.B.3.6.4. Recovery of loans and advances (48) 1.B.3.6.5. Procedure for recovery (49) 1.B.3.7. Credit Risk Management Practices of BASIC Bank Limited (49) 1.B.3.7.1. Principles for the Management of Credit Risk (50) 1.B.3.7.2. BASIC Banks position in Management of Credit Risk (52) 1.B.3.7.3. Loan Facility Parameters (52) 1.B.3.7.4. Credit Assessment & Risk Grading (53) 1.B.3.7.4.1 Credit Assessment (53) 1.B.3.7.4.2. Risk Grading (54) 1.B.3.7.4.3. BASIC Banks position in Credit Assessment & Risk Grading (54) 1.B.3.8. To know the various steps of Risk Management system of BASIC Bank Limited. (55) 1.B.3.8.1.Step 1: Identify all the Principal Risk Components (55) 1.B.3.8.2. Step 2.Establish the Key Parameters (56) 1.B.3.8.3. Step 4.Input data to arrive at the score on the key parameters. (57) 1.B.3.8.4. Step 5.Arrive at the Credit Risk Grading based on total score obtained (57) 1.B.3.8.5. Number and short name of grades in the CRG (58) 1.B.3.8.6. Credit risk grading defoliations (58) 1.B.3.9. To analyze Credit Portfolio & Performance of the Bank.(60) 1.B.3.9.1. Loans and Advances (61) 1.B.3.9.2. Loan Portfolio (61)

1.B.3.9.3. Deposit Status (62) 1.B.3.9.4. Trend Analysis of Net Profit (64) 1.B.3.9.5. Key Responsibilities (65) 1.B.3.9.5.1. Credit Risk Management (CRM)(65) 1.B.3.9.5.2. Credit Administration (65) 1.B.3.9.5. 3. Credit Monitoring (65) 1.B.3.10.To know the features & weak sides of the Credit Operations & Risk Management System of the Bank. (66) 1.B.3.10.1. Features of the Bank (66) 1.B.3.10.2. Weak sides of the Credit Operations & Risk-Management System of the Bank- (67) 1.B.3.10.3. Threats of basic bank (68) 1.B.3.11. To know the better measures to overcome the weak sides of the system. To place recommendations ~ suggestions to improve the overall credit management system of the bank.(69) 1.B.3.11.1. Some Weaknesses identified (69) 1.B.3.11.2. Some points which can help to develop credit policy of BASIC Bank (70) 1.B.3.11.3. Suggestions to improve the overall credit management system of the bank (71) 1.B.3.12. NPL performance (71) 1.B.3.12.1. Selection of Borrower (72) 1.B.4. Major Findings (73) 1.B.4.1. General Observations (73) 1.B.4.2. SWOT Analysis (74) 1.B.5. Recommendations (76) 1.B.6. Conclusion (78) Appendix Bibliography

TABLE OF ILLUSTRATIONS Chart 1: Number of Employees(5) Chart 2: Chart 4: Chart 5: Chart 6: Chart 7: Chart 8: Chart 9: Chart 10: Chart 11: Chart 12: Chart 13: Chart 14: Chart 15: Chart 16: Chart 17: Chart 18: Chart 19: Chart 20: Chart 21: Chart 22: Chart 23: Table 1. Table2. Table3. Table4. Table5. Table 6: Table 7: Deposit mix in 2003.(10) Utilized Fund(11) Loan & Advance(13) Classified Loan to Total Loan(13) Productivity Per employee(14) Tax Paid(14) Annual Credit(34) Total income. Interest income, Non interest income(33) Capital & Reserve(34) Loan & Advance(35) After tax return on Average Assets(35) After tax return on Equity(34) Classified Loan to Total Loan(36) Classified Loans(35) Export and Import(35) Loans and Advances growth scenario(61) Loan Portfolio Trend of BASIC Bank(61) Loan Portfolio scenario of BASIC Bank in 2006(62) Classified loan trend of BASIC Bank(61) Deposit Growth Pattern of BASIC Bank(63) Profit Growth Pattern of BASIC Bank(64) Number & Education level Of Employees (5) Following rate of interest on FDR is prevailing in BASIC Bank Limited.(15) Credit Risk Grade matrix based on the total score obtained by obligor.(57) NUMBER AND SHORT NAME OF GRADES USED IN THE CRG (58) Consolidated Loans and Advances (Amount in Million Taka)(60) Trend Analysis of Deposits (Amount in Million Taka)(62) Profit statistics (Amount in Million Taka)(64)