CREDIT RISK GRADING OF Shahjalal Islamic Bank Ltd.

Internship Report ON

CREDIT RISK GRADING OF Shahjalal Islami Bank Ltd.

Prepared To:
Ms. Rima Pervin Faculty Member Department of Business Administration Stamford University Bangladesh

Prepared By:
Nayan Chandra das Batch BBA 23rd (A) ID: 02305761 Department of Business Administration Stamford University Bangladesh

Stamford University Bangladesh

Letter of Transmittal To Ms. Rima Pervin Faculty Member Dept. of Business Administration Stamford University Bangladesh Subject: Submission of the Internship Report. Dear Madam, Its my great pleasure to submit you the Internship Report, which was done on Shahjajal Islami Bank Ltd. The Internship Program had given me the opportunity to combine my theoretical knowledge with practical experiences. The report contains a Case study on the Credit risk Grading, On Shahjalal Islami Bank Ltd I have provided the findings, I have derived from my exploration in this filed. Your valuable advice, suggestion and guidance have helped me to prepare the report with ease. I will be very glad, if you kindly accept this report & excuses the mistake may have in this report.

Sincerely Yours

Nayan Chandra Das

CERTIFICATE

This is to certify that Nayan Chadra Das ID NO-BBA-02305761, student of Stamford University Bangladesh of BBA program has completed the internship report titled Credit risk Grading Of Shahjalal Islami Bank Ltd successfully under my supervision. The Student showed keen interest in application of credit management, Risk Assessment & Investment opportunities. The Student is found to be intelligent, Sincere and Hardworking. I wish him every success in life.

Supervisor ________________________________________ Ms.Rima Pervin Faculty Member Department of Business Administration Stamford University Bangladesh

Declaration
This is to notify that this report titled Credit risk Grading on Shahjalal Islami

Bank Ltd has been prepared as a part of my internship formalities. It is an obligatory

part of our BBA program to submit an internship report. Moreover, I was inspired and instructed by Supervisor Md Safiullah SAVP & Manager Narayangonj Branch & other Bank employees for submitting a report of this kind. In the Is regard, I like to mention that this report has not been prepared of any other purpose like presentation, reproduce or investigation for any other authority? It has not been submitted by me before, for any other degree.

..

Nayan Chandra Das

ACKNOWLEDGEMENT
Successful completion of any course requires support from various persons. I am very much fortunate to get the guidance & supervision of my honorable teachers & SJIBL officials. First Of all I would like to express my deep sense of gratitude & sincere appreciation to my internship supervisor Ms.Rima Pervin, Faculty Member, Department of Business Administration, Stamford University Bangladesh, for her continuous support & guidance during the practical orientation period. Her suggestions and comments were really a great source of spirit to make the report a good one. I owe to Mr .Md. Shawkat Hossian, Deputy Director & Mr.Shafiqul Imdad, Assistant Director (FEIVD) Bangladesh Bank. Without their assistance my internship may not placed. My special thanks goes to Mr.Md. Shaffiullah Senior Assistant Vice President (SAVP) & Manager, & Mr. Md.Mizanur Rahman AVP & operation Manager Narayanganj Branch Shahjalal Bank Ltd who gave special attention to me from the very beginning and whenever I went there. I would also like to thank all of employees of Narayanganj. Last but not the least; I would like to thank all of the honorable customers, depositors and Loan holders and other persons who are related with the banking services who helped me by answering my questionnaires & providing the information on which I conducted my survey. Finally at the end I would like to add some words that this report is prepared from the experience that I had working in the Bank If any errors & mistakes are found in the Report, I hope all of you will take it as unwilling mistake.

Executive Summary
The Report Shahjalal Islami Bank Limited is incorporated as a public limited

company on October 2000 under the company acts 1994. Shahjalal Islami Bank Ltd. a full service commercial bank with local shareholding. Shahjalal Islami bank Ltd has been striving to provide best-in-the-class services to its diverse range of customers spread across the country under an on-line banking platform.
Credit is one of the element that product maximum revenue of a bank

Credit risk management needs to be a robust process that enables banks to proactively manage loan portfolios in order to minimize losses and earn an acceptable level of return for shareholders.

Table of Contents
SLNo. Page No

Title Page & Fly Letter of Transmittal Certificate Declaration Preface Acknowledgement Executive Summary Chapter One INTRODUCTION PART 1.1 Introduction 1.2 Rational Of study 1.3Objective of Study 1.4 Scope of the study 1.5 Methodology of the Study 1.6 Limitations of the study Chapter Two ORGANIZATIONAL OVERVIEW 2.1 History of Islamic Banking System.

2.2 Broad of Directors. 2.3 Products & Investments 2.4 Foreign Services 2.4.1 Western Union 2.4.2 khushiara 2.5 Computer services 2.6.1 Online Services 2.6.2 SWIFT 2.6.3 SMS Services

Chapter Three
GENARAL BANKING PART

3.1 Cash department. 3.2 Accounts Opening Section 3.3 Cheque Clearing Section 3.4 Remittance Section 3.5 Investment section 3.6 Genaral banking

Chapter Four
INTRODUCTION OF CREDIT 4.1 Types Of credit 4 .1.1 Industrial Credit 4.1.2Commercial Credit 4.1.3 Consumer Credit. 4.2 Credit rating of SJIBL Chapter Five INTRODUCTION OF CEG 5.1 Origin of CRG 5.2 Brief of LRA

5.3Limitations and Drawbacks in Implementing LRA Techniques:

Chapter Six
6.Lending Guideline & Procedure of risk Grading Using CRG

Chapter Seven FINDINGS &RECOMMENDATION 7.1Findings 7.2 Recommendation 7.3 Conclusion APPENDIX BIBOLOGRAPHY

Chapter One INTRODUCTION

1.1 Introduction 1.2 Rational Of study 1.3 Objective of Study 1.4 Scope of the study 1.5 Methodology of the Study 1.6 Limitations of the study

1.1 Introduction :
Theoretical knowledge does not high light the reality as clearly as practical knowledge. Theoretical knowledge is guideline but practical knowledge is experience oriented. Practical knowledge is must for the completeness of theoretical of theoretical knowledge both are equally enough theoretical and technique. Now it is needed to compliance this knowledge with in practical orientation. Stamford University Bangladesh has developed a latest curriculum for Bachelor of Science in Business administration. The curriculum contains 126 credit hours courses, 41 courses are theoretical and the left another course is practical orientation entitled internship. As per the requirement fore completing bachelor degree I need to work in a business organization to give effect to my theoretical knowledge. Banking Sector is the most effective industry impact over GDP. Other side is the most prestigious, secured, potential job sector in the world. Its offer the most lucrative career also.

Keeping this reality ahead I was assigned to Shahjalal Islami Bank Ltd (SJIBL) at Narayanganj Branch Of my internship Program for Three month.

Rationale of the Study:

To know the CRG loan activities in SJIBL. To find out basic appraisal of CRG loan. To know the enterprise selection criteria to provide CRG loan. To know the terms and conditions of CRG loans. To analyze micro and macro environment of the economy.

To Analyze the Investment sector in Bangladesh. To Analyze the Marketing Procedure of CRG loans of SJIBL To conduct a survey through administering a questioner. To know the expectations of customers of SJIBL To know the internal strength of CRG of SJIBL. To know the disbursement and recovery procedures of CRG loans. To make some recommendations and conclusion of further CRG loan products of SJIBL the development of

Objective of the study To fulfill the partial requirement of the BBA program. To be acquainted with the background of the bank. To provide knowledge about concept and implementation process of CRG, its limitations and remedial measures. To inform the current scenario of CRG practices in taking lending decisions in banks. To furnish the possibilities that the commercial banks can extend their expertise consultation services to control risk exposures of a loan.

Scope of the Study: During my three month Internship period I have found that the
growth of the SJIBL is impressive. The organization has place a very good image over locality & nearer Community. SJIBL is the second highest depositor bank in the Narayanganj Disict. Investment opportunities become worthwhile. The Scope of the study is mainly concentrated on what Clint think about the bank Services, Credit facilities,

Foreign remittance, clearing section. Etc. and very important investment policies, investment area, size, condition etc. Basically the measurement of the credit risk grading.

Methodology: The study uses both primary data and secondary data. The report is divided into two parts, one is the Organization Part and the other is the Project Part. The parts are virtually separate from one another. The information for the Organization part of the report was collected from secondary sources like books, published reports and web site of the Shahjalal Islami Bank Limited. For general concept development about the bank short interviews and discussion session were taken as primary source. The finding part of the report has made by a conduction of a survey on 50 clients. The information for the Project Credit Risk Grading Of Shahjalal Islami Bank limited both were collected from primary and secondary sources. For gathering concept of various loan, the Product Program Guideline (PPG) thoroughly analyzed. Beside this observation discussion with the employee of the Investment Department the said bank was also conducted. To identify the implementation, supervision, monitoring and repayment practice-interview with the employee and extensive study of the existing file was and practical case observation was done. Limitation of the study: No report should not be prepared without limitation. Sometimes the limitation may become more hassle, sometime not so. Availability of data. Lack of knowledge Time Management Some data are confidential. Employees are too busy. Secondary are not availability still now. It a vital issue so without proper information hypothesis may not place.

Chapter Two
ORGANIZATION OVERVIEW

2.1 History of Islamic Banking System 2.2Background of SJIBL 2.3Products & Investments 2.4 Foreign Services 2.4.1 Western Union 2.4.2 khushiara 2.5 Computer services 2.5.1 Online Services 2.5.2 SWIFT 2.5.3 SMS Services 2.6 SWOT Analysis

2.1 History & Background of SJIBL

Emergence of Islamic banking System: One important development in the field of banking since the seventies has been the emergence of Islamic banking. It made an auspicious beginning in Egypt & quickly spread to other Muslim Countries, Many conventional banks in the western world have also opened separated windows to conduct banking on the Islamic mode to attract business from the oil rich Arabs & other Muslims countries. Bangladesh joined the caravan of Islamic banks in 1983 when a Sharia based Bank Islamic Bank Bangladesh Limited was established as 30Al Arafah, Shahjalal Islamic, Social Investment etc. One Commercial Bank EXIM Bank Ltd Previously charted ad conventional interest based bank has switched to Islamic system of banking. Some banks have also opened separated Islamic windows to seek patronage of the people of Bangladesh who by & large attach a Stigma to conventional interest based banks. In the Islamic philosophy Banking is not an isolated activity as is seen the west: it forms a part of a whole cultural ethics that reflects Islamic values in the society it serves. This ideal warrants a reappraisal of the role western society has assigned to money an artificial status as a commodity and its accumulations seen as almost an inalienable goal of mankind. In the Islamic Philosophy, Banking is not an isolated activity as is seen in the west; it forms a part of a whole cultural ethos that reflects Islamic value in the society it serves. This ideal warrant are appraisal of the role western society has assigned to money with a blatantly materialistic overtones .In the western it is given an artificial status as a commodity and its accumulation is seen as almost an inalienable goal of mankind. However Islam discourages horning and enjoins spending in the way of Allah. Islam Encourage sharing of wealth with the less fortunate members of the society and enjoins every one promote Islamic value in the all spheres of human endeavors including banking.

2.2 Background of SJIBL

From time immemorial Banks principally did the functions of moneylenders or "Mohajans" but the functions and scope of modern banking are now-a-days very wide and different. They accept deposits and lend money like their ancestors, nevertheless, their role as catalytic agent of economic development encompassing wide range of services is very important. Business commerce and industries in modern times cannot go without banks. There are people interested to abide by the injunctions of religions in all sphere of life including economic activities. Human being is value oriented and social science is not value-neutral. Shahjalal Islami Bank believes in moral and material development simultaneously. "Interest" or "Usury" has not been appreciated and accepted by "the

Tawrat" of prophet Moses, "the Bible" of prophet Jesus and "the Quran" of Hazrat Muhammad (sm). Efforts are there to do banking without interest Shahjalal Islami Bank Limited avoids "interest" in all its transactions and provides all available modern banking services to its clients and want to contribute in both moral and material development of human being. No sustainable material well-being is possible without spiritual development of mankind. Only material well being should not be the objective of development. Socioeconomic justice and brotherhood can be implemented well in a God-fearing society. Other objectives of Shahjalal Islami Bank include: To To establish help in interest-free poverty and welfare and oriented banking system.

alleviation

employment

generations.

To contribute in sustainable economic growth. 2.3 Products & Investments: Shahjalal Islami Bank Limited accepts deposits on the basis of Mudaraba in the following types of accounts, and pays profit, like that of dividend in these accounts, except Alwadia Current Account. The relationship between banker and customer is not debtor-creditor relationship of conventional banks. The depositor is a partner in business with SHAHJALAL ISLAMI BANK LIMITED. Customers' deposit their fund in the following types of Accounts: Mudaraba Short Notice Deposit Account Mudaraba Savings Account Mudaraba Term Deposit Account Other Scheme Deposit Accounts

Average 70% of profit earned by the bank is distributed proportionately among depositors annually Other forms of Products

SJIBL VISA Card

Card is considered as a new dimension of product resulting from technological development in the banking arena. In line with our affiliation with VISA International for VISA ATMs and POS, the following two products are launched broadening service products of the Bank

to the clients: VISA Electron (SJIBL VISA Debit Card - local) VISA Prepaid (SJIBL VISA Prepaid Card) SJIBL VISA Debit Card: To a customer, My card, my money concept is used for Debit Card. Any accountholder of SJIBL can apply for a SJIBL VISA Debit Card against his/her Al-Wadiah Current Deposit (AWCD), Mudaraba Savings Deposit (MSD) or Mudaraba Short Notice Deposit (MSND) Account. He/she is fully authorized to enjoy the benefits of cash withdrawal from ATMs, liberty of shopping, dining, paying utility bills and having access account information through SMS, etc. round the clock. SJIBL VISA Prepaid Card (Local): SJIBL VISA Prepaid Local Cards are open to the customers even having no account with Shahjalal Islami Bank Limited. Cardholders can have the card against prepayment and have access from anywhere in Bangladesh. SJIBL VISA Prepaid Local Cards are accepted locally at all VISA labeled merchant outlets, ATMs, etc. SJIBL VISA Prepaid Card (International): SJIBL VISA Prepaid International Cards are also open to the customers even having no account with Shahjalal Islami Bank Limited. Cardholders can have the card endorsing US Dollar paying against Travel Quota, Exporters Retention Quota or marking Lien of his/her FC Account. SJIBL VISA Prepaid International Cards are accepted world wide at all the VISA labeled merchant outlets, ATMs, etc. SJIBL VISA Prepaid Card (Dual): The Dual Card is a hassle free product, no need to carry two separate plastic cards for local and international card. Now, with one plastic card the Cardholders can enjoy all the benefits and make transactions locally & globally from their Prepaid card account at all the VISA labeled merchant outlets, ATMs, etc. SJIBL VISA Souvenir Card (Gift Card Local): SJIBL Souvenir Card is a very attractive and stylish product. Like a Gift Card, SJIBL Souvenir Card can be used by anyone wishes to. The intending customer may have the card instantly or may customize the card as required. The SJIBL Souvenir Cards are accepted locally at all the VISA labeled merchant outlets,

ATMs, etc.

Investments modes : To provide interest-free Banking Shahjalal Islami Bank has adopted the following modes of investment Musharaka (equity participation on the basis of sharing profit and loss) Mudaraba (sharing of profit and loss in business where one of the partners provides expertise and management and other partner provides capital remaining inactive) Murabaha (buying and selling of commodities goods etc. with profit) Bai-Muajjal (credit sale with profit) Ijara (leasing for rent) Hire purchase or Shirkatul Melk Bi-Salam (purchasing of agricultural products while in production and providing advance oney to the producers) Istisna (purchasing of industrial products while in production and providing advance money to the producers). Quard.

2.4. Foreign Services 2.4.1 Western Union Western Union a fast, reliable and convenient way to send a money transfer Western Union Financial Services Inc. U.S.A. is the number one and reliable money transfer company in the world. This modern Electronic Technology based money transfer company has earned world wide reputation in transferring money from one country to another country within the shortest possible time.

Shahjalal Islami Bank Limited has set up a Representation Agreement with Western Union Financial Services Inc. U.S.A. Millions of people have confidence on Western Union for sending money to their friends and family. Through Western Union Money Transfer Service, Bangladeshi Wage Earners can send money quickly from over 280,000 Western Union Agent Locations in over 200 countries and territories world wide- the worlds largest network of its kind, only by visiting any branches of Shahjalal Islami Bank Limited in Bangladesh. The money sent by your loved ones is very special to you indeed. So, at Western Union, we offer the following benefits: Reliability: Our customers have benefited from our electronic money transfer for over 150 years. Each transfer can be tracked electronically to make sure that you receive the money your loved one has sent. Speed: When your loved one sends you money, within minutes you can receive it in Bangladesh. Convenience: Bank account is not required! Just go to a Shahjalal Islami Bank Limited branch anywhere in Bangladesh offering Western Union Money Transfer. Then simply fill a form and collect your money. Shahjalal Islami Bank Limited has 26 such branches all over Bangladesh and Western Union has over 280,000 agent locations across 200 countries and territories.
3 easy steps to receive your money:

Step: 1

your loved ones deposit the money at any Western Union Agent location and

get a receipt with MTCN. Step: 2 He/she then informs you about the amount sent (sender name, amount, sending

country, receiver name and MTCN).

Step:3.

You go to the nearest Shahjalal Islami Bank Branch with a valid identity card.

You fill a simple form and receive the money.

2.4.2 Khushiara Kushiara Money Transfers a definition of safety and reliability and a popular Money Transfer Company in United Kingdom (U.K.). Kushiara offers Instant Cash next day collection from Bank counter at most cities in Bangladesh and Quick Credit to beneficiarys account in all over the Bangladesh. Payment may be made by bank deposit (Kushiaras account at Barclys Bank) or cheque or bank draft. Please do not send cash through post. We shall process the remittance request and post the customer copy of the remittance form to customers given address after the fund are cleared. The usual times for clearing of cheques require 3-5 working days. The Remittance Form can be downloaded from the website: www.kushiara.net 1. Contact with us, ask for exchange rate and know how much you need to pay. Deposit the money to Barclays Bank-Kushiara Finacial Services Ltd, A/C No: 20651079 Sort Code: 202178. 2. Post your Remittance Form along with bank receipt or cheque or draft ot Kushiara Financial Serviece Ltd. 313-317 Commercial Road, London E1 2PS. (for prompt processing initially you may send Remittance Form & Payment Slip to Fax No: 02077903063) ID Requirements:
Please note that the Government anti money laundering regulations requires us to obtain proof of name & address of remitter in case of transaction over equivalent Euro1000. Further information regarding ID please contact with us. The following type of ID we require: - Certificate copy of Passport or certified copy of Full UK or another EU Driving License - Certificate copy of Bank or Building Society Statement or Utility bill (gas, water, electricity) within three month. 3. All transaction are authorized under the money laundering regulation. Kushiara has all necessary licenses to carry out the financial service business it offers.

4. We have 200 Agent locations all over UK.

2.4 Computer services

Computer services : Shahjalal Islami Bank is computerized and provides the following services some of these services will be introduced soon. Shahjalal Islami Bank Limited introduced a few schemes, which are very popular : Online services Automated Accounting Integrated System Signature Verification Any Branch Banking ATM Services POS Services SMS Push Pull Services Other Delivery Channel Services (to be implemented)

SMS Service
Shahjalal Islami Bank again fulfill the demand of time in the era of modern banking technology by introducing the Mobile banking i.e. SMS / Push Pull Service. We offer a range of ways for you to access and manage your money so that you are always in control of your financial transactions; it is fast, secured and economical. Get real-time banking information on your handset. This automated SMS / Push Pull can be reached 24 hours a day, 7 days a week. This service performs Balance query, Mini statement, Cheque Book Request, Cheque Leaf Status, FC Rate Information, Cheque Stop Payment Instruction, Statement Request by Courier/Post, Statement request by E-mail, Help inquiry, PIN Change through SMS via a fixed mobile number given by you. This service will soon include utility bill and fund transfer facilities.

SWIFT Service
Shahjalal Islami Bank Limited is a member of the society for Worldwide Inter Bank Financial Telecommunication (in abbreviation S.W.I.F.T). SWIFT is the industry-owned co-operative supplying secure, standardised messaging services and interface software to nearly 8,100 financial institutions in 207 countries and territories. SWIFT members include banks, broker-dealers and investment managers. The broader SWIFT community also encompasses corporate as well as market infrastructures in payments, securities, treasury and trade.

2.5 SWOT ANALYSIS STRENGTHS: a. Innovative Officers; b. Professional unity among the employees; c. Strong morale of the employees. d. Computerized banking.

WEAKNESSES: a. Lack of harmony in policy implementation in different branches; b. Centralized authority.

OPPORTUNITIES: a.Increasing demand for advanced and customized banking services; b.Going for other domestic and international market.

THREATS: a. Opening of new Banks with technological advantages and innovativeness; b. Increasing number of defaulters in the economy.

Chapter Three
General Banking Part
3.1 Cash Section

3.2 Account opening section. 3.3 Cheque Clearing Section 3.4 Remittance Section 3.5 Investment section 3.6 Genaral banking

Chapter Three
General Banking Introduction: General banking is the starting point of all the banking operations. It is the department, which provides day-to-day services to the customers. Everyday it receives deposits from the customers and meets their demand for cash by honoring Cheque. It opens new accounts, remit funds, issues bank drafts and pay orders etc. Since bank is committed to provide the services everyday, general banking is also known as retail banking. 3.1. Functions of GB G E N e B a n k 1 2 3 Cash Section ACCOUNTS OPENING SECTION CHEQUE CLEARING SECTION

4 r a l i n g 5 6

REMITTANCE SECTION INVESTMENT SECTION GENARAL BANKING

3.1.1 Cash Section Cash department is the most vital and sensitive organ of the branch as it deals with all kinds of cash transactions. This department starts the day with cash in vault. Vault: All cash, instruments (PO, DD, cheque) and other valuables are kept in the vault. If cash stock goes beyond its limit, the excess money is transferred to Bangladesh Bank. If there is shortage of cash during transaction period money is drawn from the central bank. There are three keys of the vault which are given to three senior most officers. Daily, an estimated amount of cash is brought out from the vault, for transaction purpose. Functions of Cash Department: Cash payment is made only against cheque Cash This is the unique function of the banking system which is known as Payment payment on demand It makes payment only against its printed valid Cheque It receives deposits from the depositors in form of cash Cash So it is the mobilization unit of the banking system Receipt It collects money only its receipts forms 3.1.2 Account Opening Section. This section opens accounts. Selection of customer is very important for the bank because banks success and failure depends on their customers. If customer is bad, they may create fraud and forgery by their account with bank and thus destroy goodwill of banks. So, this section takes extreme caution in selecting its customer base. 3.2 1 Accounts Opening Process Receiving filled up application in banks prescribed form mentioning what Step 1 type of account is desired to be opened The form is filled up by the applicant himself / herself Two copies of passport size photographs from individual are taken, in case of firms photographs of all partners are taken Step 2 Applicants must submit required documents Applicants must sign specimen signature sheet and give mandate Introducers signature and accounts number verified by legal officer Step 3 Authorized Officer accepts the application Step 4 Minimum balance is deposited only cash is accepted Step 5 Account is opened and a Cheque book and pay-in-slip book is given

3.2.2

Special Caution must be taken for the following customers: The client has to fill up a light green account opening form. In individual Terms and conditions are printed on the back of the form. The name form contains the declaration clause, special instructions etc. In this type, the formality is same as individual account, but in In joint name the special instruction clause, either or survivor or former or survivor clause is marked In addition, the customer has to submit the valid Trade License Proprietorship: and Tax Paying Identification Number (TIN) along with the application.Seal A copy of the partnership agreement (partnership deed) Resolution of the partners regarding account opening. Partnership Firm Photographs attested of those who will operate. Trade license. Mandate as to operation of the account. Certified copy of Certificate of Incorporation Public Limited Copy of Memorandum and Articles of Association Company Certified copy of Commencement of Business Copy of Resolution of the Board of Directors Certified copy of Certificate of Incorporation Private Limited Certified copy of Commencement is not necessary Company Copy of Memorandum and Articles of Association Copy of Resolution of the Board of Directors .3.3Collection and Clearing Section Customers do pay and receives bill from their counter party as a result of transaction. Shahjalal Bank Ltdcollects the bills on behalf of their customers. Collection mechanisms in Shahjalal Bank Ltdare clearing, Outward Bill for Collection, Inward Bills for Collection. 3.3.1Clearing When the bill is within the range of the clearinghouse it is sent for collection through clearing section. As far as safety is concerned customers get crossed cheque for the transaction Crossed check cant be en-cashed from the counter; rather it has to be collected through banking channel i.e., clearing. If a client of Shahjalal Bank Ltd received a check of another bank which is located within the clearing range and deposit the instrument in his account at Premier Bank, then Shahjalal Bank Ltd will collect the money through clearing house. After received the check Shahjalal Bank Ltd will credit client account. However, the amount is credited in the customer a/c but he will not get the money until the check is honored. Procedures for collection: Received seal is stamped on the cheque
Crossing of the cheques are done Payees A/C Credited endorsement is given Entries are given in the Outward Clearing Register

Clearing seal is given Cheques are sorted bank wise and entries are given to the computer Entries are given in the Clearing House Register before dispatching to the clearing house.

3.3.3Outward Bills For Collection (OBC) If the bill is beyond the clearing range then it is collected by OBC mechanism Customer deposit cheque, drafts etc. for collection, attaching with their deposit slip, Instrument within the range of clearing are collected through local clearing house, but the other which are outside the clearing range are collected through OBC mechanism. Collecting bank can collect it either by its branch or by the drawers bank. They will forward the bill then to that particular branch. OBC number will be given on the forwarding letter. Now following procedures will take place in case of the following two cases. Bills collected through Branch: If the bill is forwarded to branch, they will collect it through IBC procedure. Collecting branch will receive an I.B.C.A. from that particular agent branch. Accounting treatment from the angle of collecting branch will be; In this case commission will be charged by the collecting branch, not the agent branch and the drawers bank will send a DD to the collecting branch. Here both the banks will charge for collection from the customer. It should be scrutinized that D.D. is containing the OBC number.

3.3.4Inward Bills For Collection (IBC) When the bank collects bills, as an agent of the collecting branch the system is known as IBC. In this case the bank will work as an agent of the collection bank. The branch receives a forwarding letter and the bill. Next steps are: Entry in the IBC register, a IBC number given Endorsement given- Our branch endorsement confirmed The instrument is sent to clearing for collection. General Banking Pay Order Pay order is an instrument which is used to remit money within a city through banking channel the instruments are generally safe as most of them are crossed. Issuing of a pay Order (PO): A customer can purchase pay order in different ways. The procedure for selling P.O. is as follows: Purchaser must be an A/C holder of SJIBL Branch. Deposit money with P.O. application form. Give necessary entry in the Bills Payable (P.O.) register; Payees name, date, P.O. No. etc.

Prepare the instrument. After it has been scrutinized & approved by higher authority, the instrument is delivered to customer. Signature of customer is taken in the counterpart. Practice and operation of pay order: Account payee only : Only can encash it by depositing it in his account. Blank Crossed : Any one can encash it by depositing in their account. Cash payment : P.O. can be paid in cash if buyer gives a letter of Identification regarding payee. Settlement of a P.O.: When P.O. submitted by collecting bank through clearinghouse, the issuing bank gives payment. Thus banks liability is settled by debiting bills payable. But before giving payment it should be examined whether endorsement was given by the collecting bank or not. If not then the instrument is dishonored marking Endorsement required. Unutilized P.O. / Cancellation of a P.O.: If buyer wants to cancel the P.O. he has to give a letter of instruction in this regard. He will also have to return the instrument. When PO is lost: Incase the instrument is lost, the holder whether payee or buyer will inform it to the issuing bank immediately. Bank will mark stop payment on the Bills Payable (P.O.) register. Buyer will then ask for a new instrument by submitting a G.D. Copy and indemnity bond of Tk.50.00 (issued by court). A new Instrument will be delivered marked In lieu of. Collection of PO: A customer of SJIBL who is the payee of a P.O. will deposit it for collection. The instrument is given to the clearing that will place it to the issuing bank in the clearing house. Before placement, SJIBL as a collecting bank gives necessary endorsement.

Demand Draft Demand Draft is a very much popular instrument for remitting money from one corner of a country to another. The instrument is basically used for transfer and payment. Difference between pay order and demand draft is in terms of place only. P.O. is used for remitting money within the city whereas DD is used for within the country. DD too, constitutes current liability on the part of a bank. At SJIBL DD is not sold to people other than its customer. Procedures for issuing a DD: DD application from filled in and money deposited by the customer. Necessary entries are given to a register name DD OUT concern (drawn on) branch. A number, which is taken from this register, is known as Controlling number.

An Account payee only crossed instrument given. Role of a drawn on bank: Lodgment is given after receiving an I.B.C.A. Necessary entry is given in a register called DD-In-Issuing branch, Controlling number of the I.B.C.A should match the serial number of this DD-in register. When finally the instrument arrives through clearing, the cancellation mark is given on the register. Cancellation of a DD: If the holder of the instrument wants to cancel it, he should submit a request letter in this regard. Issuing branch then sends an I.B.D.A. to the drawn on branch against the I.B.C.A. which was sent previously. Duplicate DD: When DD is lost a duplicate instrument is given subject to fulfillment of the following requirements: GD copy Tk. 50.00 indemnity bond issued from the court. After losing the instrument, holder should immediately inform it to the bank that puts stop payment mark on the register. Telegraphic Transfer (TT): Telegraphic transfer is one of the fastest means of transferring money from one branch to another or from one place to another. The TT issuing bank instrument is given for T.T. Both parties should have account, as money is transferred. Outgoing T.T. Its Procedure: Application by customer along with money given. In receipt of money a cost memo is given to the customer containing TT serial number. This number is informed to the awaiting party in the other branch, by the customer. Tested fax message is prepared, where TT serial no and the name of the concern party to whom the money will be credited is mentioned. Activity report is received from the telex department confirming transmission of message. Incoming TT Practice: After receiving the fax message it is sent for test agree. TT serial number is scrutinized in the TT IN concern branch register Test Arrangement For all these techniques of remittance except telephone transfers, Test is deployed. Test is security number by decoding which the paying bank can be sure that the DD/TT/MT is not forged one. Only authorized officers know the test number. Bank maintains secret code for each of its officers, date, week, year, and amount to be transferred.

Chapter Four
Introduction of Credit. 4.1 Types of credit 4 .1.1 Industrial Credit 4.1.2Commercial Credit 4.2 Credit Rating of SJIBL

4.1 Introduction Credit is one of the element that product maximum revenue of a bank.SJIBL is not far fromthis concept. But as its Islamic Bank so that shouldntProduce much interest rate. Although there is ashariah Council whichMaintain a strong Credit worthiness of SJIBL. 4.1 Types of Credit SJIBL open its gate of credit in various project. Depending on the various nature of Financing, all the credit activities have been brought under the following major heads. 4.1.1 Industrial Credit: SJIBL Banks services are directed towards the entrepreneurs in the small industries sector .a Small industry, as per industry policy 1999 approved by the cabinet has been defined as an industrial undertaking whose total fixed investment is less than TK:100 Million. The industrial loan refelected a significant growthof 22.59 % over the previousyear. Total outstanding industrial loans including term and working capital stood at taka 4.1.2 Commercial Credit: The Bank also supports develop of trade, Business 7 other commercial activities in the country. It covers the full range of services to

the exporters & importers extending various facilities such as cash credit, packing, short term loans local & foreign bills purchase facilities

Forms of the Commercial Credit: The SJIBL disburse loan its different forms. It has variety in purpose wise, Mode wise, Sector wise. The varieties are briefly below with the common term, condition & performance in each mode Cash Credit (CC): By the agreement a Banker allows his customer to borrow money upto certain limit. CC is favorable mode of borrowing by traders, industries etc. for meeting their working capital requirements. It is operated like a overdraft account. Depending on the need of business, the borrower can draw on the cash credit account at different time and when he gets money can adjust the liability. SJIBLbank charges interest on the daily CC(hypo) CC(pledge)

The stocks of goods are under the The stocks of goods are under the control of lending bank. control of borrower.

For this letter of hypothecation is For this letter of pledge is a obtained from the borrower.

obtained from the borrower.

Borrowers have to submit stock report Bank on monthly basis to the lending bank. Increase of CC (hypo) bank obtained sufficient collateral security for Covering loan risk.

maintains

pledge

register,

stock reports not requirement to submit. Increase of CC (pledge) Bank takes other collateral security if available in the hand borrower.

outstanding balance of the account ,based on the charging security there are two forms of credit .They are

Over Draft (OD): It is a continuous advance facility. By the agreement the bankers allows his customer to over draft his account up to his credit limits sanctions by the Bank. OD is two types in the SJIBL. They are discussing in below in short forms.

TOD

SOD

TOD Means Temporary Overdraft. SOD means Secured overdraft.

TOD Is allowed only for short time such SOD sanctioned for a stipulated as one or two days.

securities as one year.

It has no sanction limit

It is allowed against en cashable securities such as FDR, PSP etc.

Borrower cannot withdraw any amount Brower can withdraw any amount as as required by him

required up to the sanction limit.

Loan general: it is given against personal guarantee, hypothecation of goods, land 7 buildings. There are some loans that can be taken on the imported material. They are two types. The difference between them is given below.

LTR LTR means Loan against trust Receipt.

LIM LIM means Loan aginist imported Merchandise.

It is an Import Connection loan facility.

It is also an import connection loan facility.

LTR liability is adjusted within 30days

LIM liability is adjusted within 4560 days.

Stocks of goods kept under borrower Stock goods control.

kept under Banks

control.

Credit Rating Report

Long Term Entity Rating A+ Date of Rating

Short Term

April 03, 2008

Credit Rating Information and Services Limited (CRISL) upgrades the rating of Shahjalal Islami Bank Limited(SJIBL) to A+ (pronounced as single A plus) from A (pronounced as single A) in the Long Term and reaffirms short term rating to ST-2. The above up gradation in long term has been done in considering its satisfactory capital adequacy, good asset quality, good financial performance, satisfactory operating efficiency and sound liquidity position. The above rating is based on, interlaid, its financials as on 31 December 2007 along with other operating performances. However, the above rating is still constrained to some extent by its high dependence on mudaraba term deposit, high cost of fund and comparative decreases of ROAE & EPS in view of substantial increase in equity. Financial institutions rated in this category are adjudged to offer adequate safety for timely repayment of financial obligations. This level of rating indicates a banking entity with an adequate credit profile. However, risk factors are more variable and greater in periods of economic stress than those rated in higher categories. The short term rating indicates high certainty of timely payment. Liquidity factors are strong and supported by good fundamental protection factors. Risk factors are very small.

Chapter Five Introduction of CRG

5.1 Background of CRG 5.2Origin of CRG 5.3 Brief of LRA 5.4 Limitations and Drawbacks in Implementing LRA Techniques.

Chapter Five Introduction of CRG 5.1 Background of CRG

Risk is inherent in all aspects of a 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 or counter party will fail to meet its obligations in accordance with agreed terms. Credit risk, therefore, arises from the banks dealings with or lending to corporate, individuals, and other banks or financial institutions. Credit risk management needs to be a robust process that enables banks to proactively manage loan portfolios in order to minimize losses and earn an acceptable level of return for shareholders. Central to this is a comprehensive IT system, which should have the ability to capture all key customer data, risk management and transaction information including trade & Force. Given the fast changing, dynamic global economy and the increasing pressure of globalization, liberalization, consolidation and disc-intermediation, it is essential that banks have robust credit risk management policies and procedures that are sensitive and responsive to these changes. The purpose of this document is to provide directional guidelines to the banking sector that will improve the risk management culture, establish minimum standards for segregation of duties and responsibilities, and assist t in the ongoing improvement of the banking sector in Bangladesh. Credit risk management is of utmost importance to Banks, and as such, policies and procedures should be endorsed and strictly enforced by the MD/CEO and the board of the Bank. 5.2 Origin of CRG Lending risk analysis is basic to risk management and controlling, as it is the major risk factor in most bank business. Therefore, a bank should assess the degree of risk associated with each loan and its profitability. In this connection prior assessment of and follow up on a loan transaction constitute essential ingredients of the credit risk control process. An indepth analysis of the borrower financial conditions, expected usage of funds, ability to repay, willingness to repay and sources of repayment all together constitute step one in the risk control processes. 5.3 Brief of LRA Lending Risk Analysis (LRA) is one of the new management and operational tools for improving the operational efficiency of all banks excepting the foreign banks initiated by Financial Sector Reform Project (FSRP) in 1993. It focuses on internal changes to the lending process to improve the loan portfolio banks. According to FSRP international consultant, in a successful country (in terms of lending), all applications for credit are thoroughly analyzed to assess the risk that the bank will not fully recover the loan. Through the Lending Risk Analysis (LRA) the banking system will channel the scarce financial resources into those opportunities that will have maximum return. That is profitable

enterprises will get fund and grow but loss making enterprises will be refused funding and will go out of business. Through the better practices of LRA all the banks will be benefited as well as the economy will grow and the people will be benefited

5.4 Limitations and Drawbacks in Implementing LRA Techniques:

i.

Absence of profitability related ratios: Trends of profitability is a dominant indicator for appraising prospective project. But in ratios. Financial Spread Sheet Statement (FSS), among prescribed ratios, there is no profitability related

ii.

Fund flow statement under the name of cash flow statement: Fund flow statement and cash flow statement are the two basic techniques with different objects. However, in FSS, only fund flow statement (under the name of cash flow statement) has been incorporated.

iii.

Absence of discounting technique: Term loan is sanctioned for longer period of time for meeting the cost of assets of a capital nature for the establishment, renovation, expansion and modernization of industrial units and also for financing permanent current assets. In this method, each years cash inflow is discounted at the required rate of return and these present values are cumulated until they equal or exceed the amount invested. In its simplest terms, this is value today of the money received in future, is not present in this technique, but is very much required for medium and long term loan.

iv.

Lack of uniform grading of risk levels: In the 16-page LRA form, grading of different risk levels are not uniform. It some times create confusion about the level, e.g. good risk refers to low risk, instead of high risk and poor risk refers to high risk instead of low risk.

v.

Qualitative judgment: Measures of risk factors are to some extent qualitative, which may lead to a variation in decision- making. As a result decision makers may become biased while taking decisions.

vi.

Limited applicability: Other than cash credit /working capital its applicability is limited. As for example, loan for a real estate company and a trading concern and their risk factors are not same. A fair comparative result cannot be expected if the same format is used for the above two diverse loans.

Chapter Six

Lending Guideline & Procedure of risk Grading Using CRG

6.1 Lending Guidelines This section details fundamental credit risk management policies that are recommended for adoption by all banks in Bangladesh. The guidelines contained herein outline general principles that are designed to govern the implementation of more detailed lending procedures and risk grading systems within individual banks.

All banks should have established Credit Policies (Lending Guidelines) that clearly outline the senior managements view of business development priorities and the terms and conditions that should be adhered to in order for loans to be approved. The Lending Guidelines should be updated at least annually to reflect changes in the economic out look and the evolution of the banks loan portfolio, and be distributed to all lending/marketing officers. The Lending Guidelines should be approved by the Managing Director/CEO & Board of Directors of the bank based on the endorsement of the banks Head of Credit Risk Management and the Head of Corporate/Commercial Banking. Any departure or deviation from the Lending Guidelines should be explicitly identified in credit applications and a justification for approval provided. Approval of loans that do not comply with Lending Guidelines should be restricted to the banks Head of Credit or Managing Director/CEO & Board of Directors. The Lending Guidelines should provide the key foundations for account officers/relationship managers (RM) to formulate their recommendations for approval, and should include the following: Industry and Business Segment Focus The Lending Guidelines should clearly identify the business/industry sectors that should constitute the majority of the banks loan portfolio. For each sector, a clear indication of the banks appetite for growth should be indicated (as an example, Textiles: Grow, Cement: Maintain, Construction: Shrink). This will provide necessary direction to the banks marketing staff. Types of Loan Facilities The type of loans that are permitted should be clearly indicated, such as Working Capital, Trade Finance, Term Loan, etc. Single Borrower/Group Limits/Syndication Details of the banks Single Borrower/Group limits should be included as per Bangladesh Bank guidelines. Banks may wish to establish more conservative criteria in this regard. Appendix-3.4.3 provides brief description of financing under syndicated arrangement. Lending Caps Banks should establish a specific industry sector exposure cap to avoid over concentration in any one industry sector. Discouraged Business Types Banks should outline industries or lending activities that are discouraged. As a minimum, the following should be discouraged: -Military Equipment/Weapons Finance Highly Leveraged Transactions -Finance of Speculative Investments

-Logging, Mineral Extraction/Mining, or other activity that is ethically or environmentally sensitive Lending to companies listed on CIB black list or known defaulters -Counterparties in countries subject to UN sanctions -Share Lending -Taking an Equity Stake in Borrowers -Lending to Holding Companies -Bridge Loans relying on equity/debt issuance as a source of repayment. Loan Facility Parameters Facility parameters (e.g., maximum size, maximum tenor, and covenant and security requirements) should be clearly stated. As a minimum, the following parameters should be adopted: -Banks should not grant facilities where the banks security position is inferior to that of any other financial institution. -Assets pledged as security should be properly insured. -Valuations of property taken as security should be performed prior to loans being granted. A recognized 3rd party professional valuation firm should be appointed to conduct valuations.

Cross Border Risk Risk associated with cross border lending. Borrowers of a particular country may be unable or unwilling to fulfill principle and/or interest obligations. Distinguished from ordinary credit risk because the difficulty arises from a political event, such as suspension of external payments -Synonymous with political & sovereign risk -Third world debt crisis For example, export documents negotiated for countries like Nigeria. Credit Assessment Credit Assessment a thorough credit and risk assessment should be conducted prior to the granting of loans, and at least annually thereafter for all facilities. The results of this assessment should be presented in a Credit Application that originates from the relationship manager/account officer (RM), and is approved by Credit Risk Management (CRM). The RM should be the owner of the customer relationship, and must be held responsible to ensure the accuracy of the entire credit application submitted for approval. RMs must be familiar with the banks Lending Guidelines and should conduct due diligence on new borrowers, principals, and guarantors.

It is essential that RMs know their customers and conduct due diligence on new borrowers, principals, and guarantors to ensure such parties are in fact who they represent themselves to be. All banks should have established Know Your Customer (KYC) and Money Laundering guidelines which should be adhered to at all times. Credit Applications should summaries the results of the RMs risk assessment and include, as a minimum, the following details: -Amount and type of loan(s) proposed. -Purpose of loans. -Loan Structure (Tenor, Covenants, Repayment Schedule, Interest) -Security Arrangements

Procedure for Analyze Credit Appraisal:

In addition, the following risk areas should be addressed: Borrower Analysis: The majority shareholders, management team and group or affiliate companies should be assessed. Any issues regarding lack of management depth, complicated ownership structures or intercrop transactions should be addressed, and risks mitigated. Industry Analysis: The key risk factors of the borrowers industry should be assessed. Any issues regarding the borrowers position in the industry, overall industry concerns or competitive forces should be addressed and the strengths and weaknesses of the borrower relative to its competition should be identified. Supplier/Buyer Analysis: Any customer or supplier concentration should be addressed, as these could have a significant impact on the future viability of the borrower. Historical Financial Analysis: An analysis of a minimum of 3 years historical financial statements of the borrower should be presented. Where reliance is placed on a corporate guarantor, guarantor financial statements should also be analyzed. The analysis should address the quality and sustainability of earnings, cash flow and the strength of the borrowers balance sheet. Specifically, cash flow, leverage and profitability must be analyzed. Projected Financial Performance: Where term facilities (tenor > 1 year) are being proposed, a projection of the borrowers future financial performance should be provided, indicating an analysis of the sufficiency of cash flow to service debt repayments. Loans should not be granted if projected cash flow is insufficient to repay debts.

Account Conduct: For existing borrowers, the historic performance in meeting repayment obligations (trade payments, cheques, interest and principal payments, etc) should be assessed. Adherence to Lending Guidelines: Credit Applications should clearly state whether or not the proposed application is in compliance with the banks Lending Guidelines. The Banks Head of Credit or Managing Director/CEO should approve Credit Applications that do not adhere to the banks Lending Guidelines. Mitigating Factors: Mitigating factors for risks identified in the credit assessment should be identified. Possible risks include, but are not limited to: margin sustainability and/or volatility, high debt load (leverage/gearing), overstocking or debtor issues; rapid growth, acquisition or expansion; new business line/product expansion; management changes or succession issues; customer or supplier concentrations; and lack of transparency or industry issues. Loan Structure: The amounts and tenors of financing proposed should be justified based on the projected repayment ability and loan purpose. Excessive tenor or amount relative to business needs increases the risk of fund diversion and may adversely impact the borrowers repayment ability. Security: A current valuation of collateral should be obtained and the quality and priority of security being proposed should be assessed. Loans should not be granted based solely on security. Adequacy and the extent of the insurance coverage should be assessed. Name Lending: Credit proposals should not be unduly influenced by an over reliance on the sponsoring principals reputation, reported independent means, or their perceived willingness to inject funds into various business enterprises in case of need. These situations should be discouraged and treated with great caution. Rather, credit proposals and the granting of loans should be based on sound fundamentals, supported by a thorough financial and risk analysis

Module should consider of assessment Credit risk ness:

Industry Risk Analysis Managers should be addressing:

 Cost structure Maturity Cyclicality Profitability Dependence Vulnerability to substitute products Regulatory environment (like Bangladesh Bank guidelines, Judiciary, Tax authority guidelines e.g. work hazard, child labor etc.) Business Risk Analysis Determine whether the businesss strategy increase or decrease the risks faced by all businesses in its industry State what additional risks are inherent in the companys strategy and practices on its financial statements- state how you would expect those statements to look Identifying Borrowing Causes Use financial statements to diagnose probable borrowing needs Determine, based on the probable borrowing causes, whether loans should be short or long-term, and identify the probable repayment source. Financial Reporting and Full Disclosure Describe the influence of accounting organizations and government agencies on the presentation of financial information Describe the scope of an accountants role in compiling, reviewing, and auditing financial statements Recognize the different assurances of accuracy and fairness given in auditors reports, and the extent of the accountants legal liability Recognize the importance of full disclosure Use notes to accounts to find valuable information on a companys financial position Financial Statement Analysis Recognize typical asset and liability structures of different types of business Determine the degree of accounting risk present in a profit and loss account Understand the effects of differing accounting methods on the profit and loss account and balance sheet Understand the benefits of rearranging the elements of the statement for analysis Perform a common-size analysis and interpret the results Compare the company to similar companies in the industry and determine whether its performance is better or worse than the industry average

Calculate liquidity, capital structure, and operating efficiency ratios Determine historical trends in the ratios

Interpret these trends by examining changes in ratio components The Asset Conversion Cycle Define the terms operating cycle and capital investment cycle Identify business activities as part of one of the cycles Explain the terms holding period, payment period, and collection period, and explain how changes in these periods can affect cash flow

Accounting for the Operating Cycle Recognize appropriate and inappropriate application of basic principles that affect the quality of financial statement information Recognize ways in which the principles may affect your perception of information presented in financial statements Identify basic sources and uses of cash to analyze the total cash flow of the business Accounting for the Investment Cycle Recognize situations in which cash outflows are capitalized inappropriately or fixed assets are depreciated inappropriately Predict the effects of various depreciation methods on reported net income Asses the effects of differences between Inland Revenue rules and accountants rules on reported net income and internally generated cash Differentiate between the market value of an asset and its stated book value Interpret notes to the accounts on fixed assets and depreciation Determine whether a company has properly classified an investment Calculate the amount of the source or use of funds represented by the intangible assets and other assets balance sheet. Cash Flow Analysis Prepare and analyze a cash flow summary Calculate quick cash flow to identify major cash inflows, outflows, and repayment capacity Analyze a companys cash flow statement prepared in accordance with GAAP Projections Develop logical hypotheses based on your assessment of possible future

scenarios Calculate the cash flow effect of your hypotheses Perform a sensitivity analysis of key variables affecting cash flow and cash flow projections Project a profit and loss account, cash flow summary, and balance sheet for a future period. Loan Structure and Documentation Identify the most appropriate credit facility Determine the timing for disbursing funds and establish a repayment schedule Determine whether support is needed, such as security or guarantees, and if so, the appropriate type Recognize how the risk characteristics of a loan should be reflected Loan Management Manage loans effectively by focusing on risks and opportunities identified in the underwriting process and supported by loan documentation. Preserve credit quality by recognizing and responding to early warning signals. Recognize how to evaluate and choose the best options of resolving a weak credit and exploiting a good credit.

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) 0 (ii) Interest in Suspense Account ( XXX ) 1 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 * Net Loan Value (XXX) 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) of' 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. Risk Rating & Grade All Banks should adopt a credit risk grading system. The system should define the risk profile of borrowers to ensure that account management, structure and pricing are commensurate with the risk involved. Risk grading is a key measurement of a Banks asset quality, and as such, it is essential that grading is a robust process. All facilities should be assigned a risk grade. Where deterioration in risk is noted, the Risk Grade assigned to a borrower and its facilities should be immediately changed. Borrower Risk Grades should be clearly stated on Credit Applications. The following Risk Grade Matrix is provided as an example. The more conservative risk grade (higher) should be applied if there is a difference between the personal judgment and the Risk Grade Scorecard results. It is recognized that the banks may have more or less Risk Grades; however, monitoring standards and account management must be appropriate given the assigned Risk Grade:

Risk Rating Superior Low Risk

Grade 1

Good Satisfactory Risk

Acceptable Fair Risk

Marginal - Watch list

Special Mention

Substandard

Definition Facilities are fully secured by cash deposits, government bonds or a counter guarantee from a top tier international bank. All security documentation should be in place. The repayment capacity of the borrower is strong. The borrower should have excellent liquidity and low leverage. The company should demonstrate consistently strong earnings and cash flow and have an unblemished track record. All security documentation should be in place. Aggregate Score of 95 or greater based on the Risk Grade Scorecard. Adequate financial condition though may not be able to sustain any major or continued setbacks. These borrowers are not as strong as Grade 2 borrowers, but should still demonstrate consistent earnings, cash flow and have a good track record. A borrower should not be graded better than 3 if realistic audited financial statements are not received. These assets would normally be secured by acceptable collateral (1st charge over stocks / debtors / equipment / property). Borrowers should have adequate liquidity, cash flow and earnings. An Aggregate Score of 75-94 based on the Risk Grade Scorecard. Grade 4 assets warrant greater attention due to conditions affecting the borrower, the industry or the economic environment. These borrowers have an above average risk due to strained liquidity, higher than normal leverage, thin cash flow and/or inconsistent earnings. Facilities should be downgraded to 4 if the borrower incurs a loss, loan payments routinely fall past due, account conduct is poor, or other untoward factors are present. An Aggregate Score of 6574 based on the Risk Grade Scorecard. Grade 5 assets have potential weaknesses that deserve managements close attention. If left uncorrected, these weaknesses may result in a deterioration of the repayment prospects of the borrower. Facilities should be downgraded to 5 if sustained deterioration in financial condition is noted (consecutive losses, negative net worth, excessive leverage), if loan payments remain past due for 30-60 days, or if a significant petition or claim is lodged against the borrower. Full repayment of facilities is still expected and interest can still be taken into profits. An Aggregate Score of 55-64 based on the Risk Grade Scorecard. Financial condition is weak and capacity or

Risk Rating Substandard

Grade 6

Definition Inclination to repay is in doubt. These weaknesses jeopardize the full settlement of loans. Loans should be downgraded to 6 if loan payments remain past due for 60-90 days, if the customer intends to create a lender group for debt restructuring purposes, the operation has ceased trading or any indication suggesting the winding up or closure of the borrower is discovered. Not yet considered non-performing as the correction of the deficiencies may result in an improved condition, and interest can still be taken into profits. An Aggregate Score of 45-54 based on the Risk Grade Scorecard. 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 Loss. Assets should be downgraded to 7 if loan payments remain past due in excess of 90 days, and interest income should be taken into suspense (nonaccrual). Loan loss provisions must be raised against the estimated unrealizable amount of all facilities. The adequacy of provisions must be reviewed at least quarterly on all non-performing loans, and the bank should pursue legal options to enforce security to obtain repayment or negotiate an appropriate loan rescheduling. In all cases, the requirements of Bangladesh Bank in CIB reporting, loan rescheduling and provisioning must be followed. An Aggregate Score of 35-44 based on the Risk Grade Scorecard

Doubtful and Bad (nonperforming)

Loss (non-performing)

Assets graded 8 are long outstanding with no progress in obtaining repayment (in excess of 180 days past due) or in the late stages of wind up/liquidation. The prospect of recovery is poor and legal options have been pursued. The proceeds expected from the liquidation or realization of security may be awaited. The continuance of the loan as a bankable asset is not warranted, and the anticipated loss should have been provided for. This classification reflects that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. Bangladesh Bank guidelines for timely write off of bad loans must be adhered to. An Aggregate Score of 35 or less based on the Risk Grade Scorecard

Chapter Eight

Findings & Recommendations 8.1 Findings 8.2 Recommendations 8.3 Conclusion

8.1 Findings: Its very difficult to analyze the credit risk grading. There are eight factors considering while prepare a CRG score sheet. Financial risk evaluate on the basis of annual report. Its not possible to find out the authentic of annual repot. Security regarding credit may crucial factor. Valuation of security should be performed by expertise sometimes collateral are arrange with other sanction. Firms growth can be hampered by many factors. CRM Might is the cause of appraisal of good & bad credit. Each &every employee of the ranch has a target credit appraisal. So there is chance to biasness of decision making. Security or collateral are valued depending on market Default risk cannot minimize. Investment opportunities can be hampered due to Islamic Sariah council. Banking revenues a good portion comes from foreign exchange. Foreign exchange should be furnished in new mood. Marketing in one of the effective tools on creating brand image. Due to Islamic consideration bank might not use media properly. Second highest depositor account holder in banking industry of Narayanganj. Excellent working environment. Employee cooperating was tremendous.

Recommend:
Introduction to Accrual Accounting Describe the information provided by the balance sheet and profit and loss account Identify the connecting links between the two statements Prepare and manipulate simple financial statements that reflect the business activities of a small company.

Apply the correct criteria to determine the point at which sales and expenses should be recognized on the profit and loss account using financial statement information; calculate purchases of stock and fixed assets.

8.3 Conclusion:
Credit is the heart of banking business. Without having any credit operation revenue of a banking business should not maximize .But there is chance to difficult to overcome this difficulties or knows the parameter of risk by any credit appraisal credit risk grading introduce. CRG is prepared by Bangladesh Bank for the all financial institutions. A strong appraisal authority, dedicated credit relation officer, optimistic valuation of security can ensure a good credit sanction; although default risk is never diminish properly. There are numerous risks attached to every transactions/relationship but there is a need for certain fundamental risk aspects to be considered for every relationship. Certain of these risks have been identified which will be required to be commented upon on a mandatory basis.