Loan Portfolio Analysis of Eatern Bank Limited (a Comparative Study of Corporate Banking and Sme)D
1. 1 Origin of the Report As a student of Department of Finance, every student has to conduct a practical orientation i. e. , Internship on any organization for fulfilling the requirements of the BBA program. The main purpose of the program is to know the real world situation and to get a glimpse of the corporate culture. In this regard, I have the opportunity to submit the report from my experience while working as an Intern in Corporate Banking Division of Eastern Bank Ltd. Only theoretical knowledge without any practical experience makes a person sterile.
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On the other hand a person having practical experience but no theoretical exposure keeps him blind. The internship program is designed to overcome such sterile position. This program gives the chance to fulfill the theoretical knowledge that is acquired from class lectures, books, journals etc. in the practical settings. Here, I got an opportunity to realize the relevance and usefulness of the classroom learning and day to day operational experience in EBL Corporate Banking. 1. 2 Objectives of the Study: There are several objectives for conducting this study.
These are as follows: ? To analyze the loan portfolio with industry exposure, both in Corporate & SME Banking. ? To find out the performance of different products & in different sectors. ? To investigate Credit Transaction and Loan Approval & Disbursement process. ? To briefly compare the Corporate Banking loan portfolio with that of Small & Medium Enterprise. ? To identify some of the shortcomings of both SME Banking & Corporate Banking loan portfolio performance. ? To come up with suggestion in order to improve performance of SME banking & Corporate Banking. 1. 3 Methodology:
Several analytical tools (Comparative Study, industry analysis, pivot table etc. ) have been used to analyze the major findings as well as to recommend suggestions for improving the performance of SME Banking & Corporate Banking in Eastern Bank Ltd. The data has been collected from different departments of EBL i. e. , Finance department, Credit Risk Management department, SME Banking Division & Corporate Banking Division. 1. 3. 1 Research Design: This is an analytical research where in Corporate Banking the industry exposure for all performance of loan portfolio is analyzed.
I have performed also a comparative analysis between SME Banking & Corporate Banking of Eastern Bank Ltd & I have used the Pivot table to analyze this. 1. 3. 1 Procedure of Analysis: I have analyzed the loan portfolio of Corporate & SME Banking with the sector-wise & product-wise dimensions. My area of analysis is the funded outstanding, non-funded outstanding, past dues, classified, rescheduled loans and have found the effectiveness & lacking of particular sectors & products. 1. 3. 2 Sources of Data: To conduct the research study, I collected data mainly from secondary sources.
The secondary data has been collected from Business Objective report ( a central MIS database software of EBL), Monthly Financial Deck from Finance department, Internal Publications of EBL SME Banking & Corporate Banking, EBL Annual Report 2009 and website of Eastern Bank Ltd. This secondary information was used in comparative analysis between SME Banking & Corporate Banking of Eastern Bank Ltd. 1. 4 Scope of the Study: This study has significant scope to contribute to consumer banking of Eastern Bank Ltd. These are as follows: ? Better understanding of the behavior and patterns of credits in SME Banking & Corporate Banking. Better knowledge about the loan approval, disbursement & monitoring. ? Evaluating the procedure of borrower selection. ? Identifying the deficiency areas of both SME Banking Division & Corporate Banking Division. ? Finding out the solutions for improvement to make the bank of choice. 1. 5 Limitations of the Study: The study has a few limitations which are as follows: ? Structured questionnaire could not be used for this analysis. ? In depth analysis could not be possible due lack of access to the information. ? There might be changes in the structure of the departments in course of time. There was a time constraint for this study. Eastern Bank Limited (EBL) is one of the modern, fully online and technologically superior private commercial Banks in Bangladesh. Eastern Bank markets a wide range of depository, loan & card products. These products include different types of Savings & Current Accounts, Personal Loans, Auto Loan, Debit Card, Pre-paid Cards, Internet Banking, Treasury, Syndication, Corporate Banking and SME Banking services through a network of branches & centers countrywide. Eastern Bank has its presence in major cities/towns of the country including Dhaka, Chittagong, Sylhet, Khulna and Rajshahi.
Tracing its origin back to 1992, EBL is serving the individual and corporate clientele alike with remarkable success offering innovative banking services since then. 2. 1. Vision: The vision of Eastern Bank Limited is to become the bank of choice by transforming the way they do business and developing a truly unique financial institution that delivers superior growth and financial performance and be the most recognizable brand in the financial services in Bangladesh. 2. 2. Mission: ? EBL will deliver service excellence to customers, both internal and external. ? EBL will ensure to maximize shareholder’s value. EBL will constantly challenge their systems, procedures and training to maintain a cohesive and professional team in order to achieve service excellence. ? EBL will create an enabling environment and embrace a team based culture where people will excel. 2. 3 Values: ? Openness ? Trust ? Commitment ? Integrity ? Service excellence ? Responsible Corporate Citizen. 2. 4. Objectives: Maximization of profit along with the benefits of employees is the main objective of the bank. In addition, the other objectives are: ? To be one of the leading banks of Bangladesh in terms of ROE and ROE ?
To be the market leader in high quality banking products and services ? Achieve excellence in customer service through providing the most modern and advanced state-art technological in the different spheres of banking ? To reduce the burden of non performing assets ? Cater to a broader and differentiated segment of retail and wholesale customers ? To grow its credit extension service to the commercials as well industrial sector ? To increase its diversification of loan portfolio and geographical coverage ? To reduce present operating expense further so as to increase earning before tax . 5. Strategic priority of EBL: ? Focus on asset quality ? Reduce cost of deposit by changing the mix ? Strengthen cost control measures to reduce cost ? Improve service quality by realigning or changing structures and processes ? Diversify products to suit customers’ requirements ? Exert all out effort to recover assets that are classified and written off ? Emphasize on businesses that offer better risk adjusted return ? Diversify corporate loan portfolio ? Put more emphasis on Corporate Social Responsibility (CSR) ? Maximize shareholders’ value 2. Current Profile & Market Position of EBL: At present, the bank has 34 branches throughout the country with about 830 employees. The bank has been restructured into five main businesses which is responsible for earning the revenues of the bank. These are: Corporate Banking Consumer Banking SME Banking Treasury Cards Highlights on the overall activities of EBL: |Sl No |Particulars | |2009 |2008 | |1 |Paid up capital |Taka |3,300 |1,386. 0 | |2 |Total capital (Tier-I & II) |Taka |8,316. 00 |5,251. 57 | |4 |Total assets |Taka |69,871 |54,598. 268 | |5 |Total deposits |Taka |49,190 |41,572. 76 | |6 |Total loans and advances |Taka |47,668 |39,662,. 2 | |8 |Loans to deposits ratio (total loans/total deposits) |% |. 96. 90% |95. 40% | |9 |% of classified loans against total loans and |% |2. 45% |3. 30% | | |advances | | | | |10 |Profit after tax and provisions |Taka |1,455 |797. 7 | |11 |Loans classified during the year |Taka |1,171. 68 |447. 84 | |12 |Provision held against classified loans |Taka |1,333. 07 |692. 37 | |13 |Return on assets (PAT/average assets) |% |2. 34% |1. 68% | |14 |Return on Equity |% |22. 10% |18. 4% | |15 |Earning per share (PAT/weighted average number of |Taka |58. 53 |34. 53 | | |shares) | | | | |16 |Net Assets per share |Taka |337. 65 |341. 25 | |17 |Price earning ratio |Times |11. 01 |10. 4 | Loan Portfolio: 2009 2008 |Categories of |Amount in | |Loan |million | |Corporate Banking|31305. 22 | |SME |3644. 94 | |Consumer |4711. 85 | |Categories of Loan |Amount in | | |million | |Corporate Banking |36914. 09 | |SME |5043. 27 | |Consumer |5710. 62 | 3. 1 Product Portfolio & Disbursement Process: . 1. 1 Loan products: Corporate Banking Division came into existence because of the restructuring of EBL’s business processes. Previously all the loan disbursement and monitoring activities were carried out by the officers of individual branches, which resulted in poor management and control of the process. To improve the poor management and control of the process, Eastern Bank decided to centralize its loan disbursement and monitoring activities. A separate Corporate Division was created which started operation on 10th January 2002.
This division is responsible for bringing in profitable new corporate clients and retaining present clients by meeting their various needs. Corporate Banking provides various banking service such as products, credit facilities and financial solutions which addresses the diverse financial needs of corporate customers, public and private limited companies, NGOs and sole proprietorship concerns. It is also responsible for resolving credit issue problems and developing relationship between the customer and the bank. The whole corporate division is divided into two areas.
Area one comprises of Dhaka and Outstation Branches whereas Area two comprises Chittagong branches. Area one consists of six relationship units. Five units in Area one are responsible for looking after the bank’s assets and one unit is responsible for liabilities, while Area two has three asset units and one liabilities unit. Every asset unit has a unit head, which is in charge of that unit. Generally one/two Relationship Manager (RM) and one/two support officer work under the Unit Head. All Units head work under the Area Head – Corporate Banking and he reports directly to DMD & Head of Corporate.
The management hierarchy of the Corporate Banking Division is given below: Source: Human Resources Department. Services of EBL Corporate Banking ? Facility Structuring ? Financial Solutions. ? Advisory Services. ? Arrange Loan Syndications. ? Developing Relationship between the Clients and the Bank. ? Processing credit and other approvals for credit and other facilities. ? Provides one stop service for Credit facilities. ? Handles pricing issues and Wallet Sizing Exercises to maximizes the earnings of the Bank as well as of the Client. Coordinating service delivery of all EBL distribution channels (Sales and Service centers, Trade Services, Treasury, Credit issues as required for the customer. ? Ensures corporate customer’s complaints are addressed. ? Relationship Teams of EBL are available to serve you. ? Main Functions of EBL Corporate Banking ? Targeting corporate clients and building business relationships with them ? Designing customized service for the clients ? Evaluating financial strength of the client ? Making possible recommendations for further expansion. DEFINITION OF CORPORATE BANKING: Name of the Enterprise |Value of Assets (Excluding Land &|Maximum |Yearly Sales Turn Over |Maximum Loan Amount | | |Building) |Manpower | | | |Manufacturing |Above |Above |Above | | | |BDT 200,000,000 |150 |BDT 500,000,000 |Up to 15% of Total | | | | | |Capital | |Trading/Service |Above |Above | | | | |BDT 100,000,000 |50 | | | DEFINITION OF SME BANKING: SMALL SEGMENT | |Name of the Enterprise |Value of Assets (Excluding Land &|Maximum Manpower |Yearly Sales Turn Over |Maximum Loan Amount | | |Building | | | | |Manufacturing |BDT 50,000 – |50 |BDT 500,000 – |BDT 75,00,000 | | |BDT 15,000,000 | |BDT 200,000,000 | | |Trading/Service |BDT 50,000 – |25 | | | | |BDT 5,000,000 | | | | |MEDIUM SEGMENT | |Name of the Enterprise |Value of Assets (Excluding Land &|Maximum |Yearly Sales Turn Over |Maximum Loan Amount | | |Building) |Manpower | | | |Manufacturing |BDT 15,000,000 – |150 |BDT 1,000,000 – | | | |BDT 200,000,000 | |BDT 500,000,000 |BDT 100,000,000 | |Trading/Service |BDT 5,000,000 – BDT 100,000,000 |50 | | | EBL is in the business of providing banking service and is changing its approaches to become more and more customer focused. At present EBL offers a variety of products/services for the retail customers as well as corporate customers. They are the follow CORPORATE BANKING PRODUCTS: NAME |DESCRIPTION |PURPOSE |RISK / REPAYMENT |TENOR / VALIDITY | |PAD |Payment Against Document |- Advance against Sight L/C |- Recourse on title to |21 days per Bangladesh | | | |- Forced Loan |Import document |Bank | |LTR |Loan Against Trust Receipt |- To finance import L/Cs |- Recourse on Sales |180 days | | | | |- Clean finance | | |CC (HYPO) |Cash Credit Against |-To finance Inventory |- Recourse on pledged |12 months | | |Hypothecation of inventory |- Other business operations |Inventory | | | |Debts |- General purpose |- Ever green | | |CC (PLEDGE) |Cash Credit Against Pledge |To finance pledged Inventory |- Recourse on pledged |12 months | | |of Inventory and | |Inventory | | | |Hypothecation of Book Debts | |- High monitoring risk | | | | | |- Ever green | | |ACCEPTANCE |Acceptance against ULC |-To finance assets thru Banker’s|- Recourse on sales |12 months | | | |Acceptance | | | |OAP |-Own Acceptance Purchase |-To refinance Bank’s Acceptance |- No recourse |12 months | | | |- Forced Loan |- Clean finance | | | | | |- Ever green | | |LBPD |-Local Bill Purchased |-To purchase/ discount against |- Recourse on Banks thru |180 days | | |Documentary |Local usance L/C |acceptance | | | | |-Upfront interest to be realized|- Residual on client | | |FBPD |- Foreign Bill Purchased |-To purchase/ discount/ |- Recourse on Banks |45/180 days | | |Documentary |negotiate export doc. gainst |- Residual on client | | | | |Sight/Usance Export L/C | | | | | |-Upfront interest to be realized| | | | | |(diff. in FX rate) | | | |LAFB (CLEAN) |- Loan Against Foreign Bill |- To finance Export Contract |- Clean finance |- 120 days | | |Clean | |-Performance risk | | |LAFBD |- Loan Against Foreign Bill |- To finance export doc. gainst|- Recourse on export doc |- 45/180 days | | |Documentary |Export Contract Sight/ Usance |- Payment risk | | |SLC |- Sight Letter of Credit |- For importation |- Recourse on title to |- 12 months | | | | |import document | | |ULC |- Usance Letter of Credit |- For importation |- Recourse on sales |- 12 months | |LG |- Letter of Guarantee |- For Contractual Obligations |- Performance risk |- Specific Period | | |-BB/PG/APG/RB/Pay.
Gtee | |-Ever green |- Open ended | |SOD |- Secured Overdraft |- General Purpose |- 100% cash covered |- 12 months | | | | |- No Credit Risk | | | | | |- Ever Green | | |OD |- Overdraft Against Other |- General Purpose |- High Credit Risk |- 12 months | | |Collateral | |-Recourse on
Sales | | | | | |- Ever Green | | |Import Loan (Hypo) |- Import Loan Against |- To finance Import L/C or |- Recourse on Sales |- 180 days | | |Hypothecation of Inventory |against contract | | | | |and Book-Debts | | | | |Import Loan (Pledge) |- Import Loan Against |- To finance imported |- Recourse on pledged |- 180 days | | |Imported Merchandise pledged|merchandise under pledge |inventory | | | |and Hypothecation of Book | |- High monitoring risk | | | |Debts | | | | |Demand Loan (Hypo) |- Demand Loan Against |- To finance Inventory procured |- Recourse on Sales |- 180 days | | |Hypothecation of Inventory |locally | | | | |and Book Debts |- To finance duty/tax | | | |Demand Loan (Pledge) |- Demand Loan Against |- To finance Inventory procured |- Recourse on pledge |- 180 days | | |Pledged Inventory procured |locally under pledge |Inventory | | | |locally and Hypothecation of| |- High monitoring risk | | | |Book Debts | | | | |Time Loan |-Time Loan against Other |-To finance fixed/other asset |- Recourse on Sales |-12 months | | |Security/Collateral/Support | |-Collateralize by | | | | | |fixed/other assets | | |Term Loan |- Term Loan against fixed |- To finance fixed asset |- Recourse on fixed sset|- Over 12 months | | |assets | |-High risk |- Max 7 years | |PC |- Packing Credit against |- To finance Export L/C |- Performance risk |- 180 days | | |Export L/C & Export Order |- Pre-shipment Finance |- Lien on Export L/C | | |BCP (Foreign) |- Bankers Cheque Purchase |- To purchase/ discount foreign |- Recourse on Banks |- 30 days | | |(Foreign) |currency Drafts/ Payment Order |- Residual on client | | | | |- Upfront interest to be | | | | | |realized (diff. n FX rate) | | | |BCP (Local) |- Bankers Cheque Purchase |- To purchase/ discount Bank |- Recourse on Banks |- 30 days | | |(Local) |Draft and Pay Order |- Residual on client | | | | |- Upfront interest to be | | | | | |realized | | | |Fwd FX |- Forward Contract |- Cover exchange risk against |- Performance risk | | | | |Letters of Credit | | | Source: Product & Process Guideline (PPG) SME BANKING PRODUCTS:
The products offered by the Small segment and their features are described in the table below – |Products |Client Eligibility |Loan Amount |Tenor |Secured/Non-secured | |Puji |Any sole proprietorship, partnership or private limited |BDT 5 Lac to BDT 50 Lac |36 months |Secured. | | |companies having three years successful business | | | | | |operation. | | | | |Asha |Any sole proprietorship, partnership or private limited |BDT 2 Lac to BDT 9. 5 Lac |24 months |Non-secured. | | |companies having two years successful business | | | | | |operation. | | | |Uddog |Any successful enterprise having minimum one and half |BDT 6 Lac to BDT 70 Lac |60 months |Partially secured (50% | | |years experience in same or relevant business. | | |fixed deposit against | | | | | |the loan) | |Agrim |Any successful enterprise having minimum two years |BDT 2 Lac to BDT 9. 5 Lac |1-6 months |Non-secured | | |experience in same or relevant business. | | | |Banijyo |Any legitimate business with three years of operation |BDT 20 Lac to any |More than 60 months |30-40% of total limit in| | |and at least one year experience in import business |legitimate business with | |the form of FD | | | |Nil margin LC Facility | | | |Mukti |Any legitimate business with at least two years of |Credit facility up to BDT|36 installments |Non-secured | | |operation & Facility is only for Women Entrepreneurs |3 Lac in any legitimate | | | | | |business | | | Source: Product & Process Guideline (PPG) The products offered by the mid segment can be categorized as funded and non-funded. Funded |Non-funded | |CC (Hypo) |LC | |Demand Loan |LG | |Post import financing (LTR, LIM) |Bid Bond | |Term Loan |Performance Guarantee | | |Payment Guarantee | Source: Product & Process Guideline (PPG) 3. 1. 2 Sector-wise Portfolio: Portfolio diversification The EBL has diversified the use of its funds. This diversification are most effective in reducing the risk of loss because cash flows from different groups of customers do not always move in same direction over time and thus declines in cash flow from one customer segment may be at least partially offset by increase in cash flow from other segments. Sector wise Portfolio Diversification of Eastern Bank Limited (Corporate Banking) Sector wise Summary |Outstanding as on |Outstanding as on | | |BDT (in Million) |(Percentage) | |Nature of Business |31. 12. 2007 |31. 12. 2009 |2007 |2009 | |Commerce & Trading |2,576. 76 |1,409. 00 |6. 93% |2. 702% | |Commodity Import |938. 88 |1,753. 08 |2. 52% |3. 362% | |Construction |460. 36 |780. 94 |1. 24% |1. 498% | |Edible Oil Refinery |1,963. 93 |2,902. 38 |5. 28% |5. 66% | |Electronic Goods |1,034. 70 |459. 03 |2. 78% |0. 880% | |Shrimp Export |36. 12 |26. 43 |0. 10% |0. 051% | |Pharmaceuticals Industries |1,148. 14 |2,528. 19 |3. 09% |4. 848% | |Readymade Garments (RMG) |9,154. 84 |11,041. 23 |24. 62% |21. 173% | |Ship Breaking Industry |1,451. 24 |5,026. 13 |3. 90% |9. 38% | |Steel Products |2,592. 92 |69. 54 |6. 97% |6. 306% | |Telecommunication |3,243. 33 |3,288. 37 |8. 72% |7. 934% | |Textile Mills |4,993. 12 |5,341. 90 |13. 43% |10. 244% | |Others |7,632. 65 |17,521. 30 |20. 00% |26. 00 | |Total |37,190. 84 |52,147. 53 |100. 00% |100. 00% |
Observing the above table, we can say that Eastern Bank has diversified their portfolio into thirteen different segments to reduce itself from business risk. The largest 3 sectors of loan outstanding in 2007 are: -Readymade Garments:24. 62% -Textile Mills: 13. 43% -Telecommunication:8. 73% The other major sectors where loan are outstanding in 2007 includes: -Steel Products :6. 97% -Commerce & Trading:6. 93% -Edible Oil Refinery:5. 28% -Ship Breaking Inds. :3. 90% -Pharmaceuticals Inds. :3. 09% -Commodity Import:2. 52% -Electronic Goods:2. 78% -Construction :1. 24% The largest 3 sectors of loan outstanding in 2009 are: -Readymade Garments:21. 17% Textile Mills: 10. 24% -Ship Breaking Inds:9. 64% The other major sectors where loan are outstanding in 2007 includes: – Telecommunication : 7. 93% -Commerce & Trading:6. 93% – Steel Products :6. 31% -Edible Oil Refinery:5. 36% -Pharmaceuticals Inds. :4. 84% -Commodity Import:3. 36% -Construction :1. 49% -Electronic Goods:0. 88% Here we see that in 2007 the largest sectors are Readymade Garments (24. 62%), Textiles (13. 43%) and Telecommunication (8. 73%). But in 2009 the Telecommunication (7. 93%) is replaced by Ship Breaking (9. 64%), whereas in 2007 it was far below than that (3. 90%).
EBL increased investment on ship breaking in 2009 as the market has been profitable at that time. The investment on Telecommunication was far more in 2007 because of the increased subscription and high profitability. Here we see that in 2007 the lowest invested sector was Construction (1. 24%), increased somewhat in 2009 (1. 49%) and in 2009 the lowest invested sector was electronic goods (. 88%) where as in 2007 it was (2. 78) second last smallest sector. For the increased of import duty the investment in electronic goods has been reduced in 2009. Sector wise Portfolio Diversification of Eastern Bank Limited (SME) The loan portfolio in SME is more concentrated than in Corporate Banking.
The largest sector in 2009 is Commerce & Trading that is 48% of total SME loan portfolio and remaining 52% is of different sectors. The largest sectors are: – Commerce & Trading 47. 78% – Rod& Cement 4. 67% – Cloth & fashion 4. 44% The two other sectors are far less in percentage than that of Commerce & Trading of total SME loan as it is more concentrated. 3. 1. 3 Loan Sanction and Disbursement Process: ? Relationship Managers have the overall responsibility for borrowing relationships under their control including any security required under the terms of credit approvals. For reasons of operational efficiency, aspects of obtaining and maintaining security has been delegated to the Credit Administration Department and responsibility for the completeness and validity of security documentation rest jointly with the Credit Administration Department and Relationship Manager. In practice this means, in the case of the Bank’s standard security documentation, Relationship Managers and Credit Administration Department must perform a check to ensure that all necessary security documentation is received from the borrower are in order, and in accordance with the terms and conditions of the credit approval and as expressed in Approval Letter(s). In the case of non-standard documentation, security is taken under the guidance of the Bank’s panel lawyers, or Legal & Compliance Department who will provide their confirmation that security has been executed. Under no circumstances facilities to be drawn prior to completion of all documentation and security arrangements unless approval for deferral has first been obtained from the authority, which approved the facility. This rule must be strictly enforced. However such deferral is discouraged. ? Where security is taken, the following aspects must be ascertained and followed: ? The legal procedures and documentation for perfecting the security arrangement to be in strict compliance with laws of the land. Credit Administration Department must ascertain, and retain Security Satisfaction Certificate on file, that security has been perfected. ? The security providers, whether the borrower or third party, are acting within their capacity to provide the security. The value of the security, which must be appraised and updated on a regular basis, or when circumstances warrant. Professional advice must be sought when appropriate. ? Where security is subject to insurance, the security must be insured for appropriate value against appropriate risks; and that Bank’s interests noted and acknowledged by the insure Process of Loan Evaluation & Sanctioning: (Medium Enterprise & Corporate Banking) Figure 1 shows that disbursement process as explained below: First Step: A customer applies for loan with all the necessary legal documents, annual reports, company profile, project feasibility study, net worth statement etc. Sometimes he relationship managers also bring in attractive corporate clients by negotiating credit facilities with them and arranges for necessary documents to be submitted. Corporate Banking Department then evaluates the borrower by inspecting the customer’s factory and office premises (EBL terms it Marketing Call by the Relationship Manager) and the collaterals offered. Credit Administration department collects a Credit Report of the customer from the Credit Investigation Bureau (CIB) of Bangladesh Bank. This CIB report tells about a customer’s and its sister concerns’ previous loan taking and payments record and ranks the customer according to it. This rank is any one of the following: ? Unclassified (UC) ? Sub Standard (SS) ? Doubtful (DF) ? Bad & Loss (BL)
Credit Administration department gives this credit report, RJSC search report, land valuation and search report and other related documents to the Corporate Relationship Manager (RM). The RM, who also went for marketing call to the company, prepares a Credit Memorandum (CM) after evaluating the documents, client’s financial condition, market image and many other qualitative and quantitative factors. This CM package contains – ? Credit Memorandum ? Application for Limit (AFL) ? Account Profitability ? Call Report ? Financials (Balance Sheet, Income Statement & Cash Flow) ? CIB Report Schematic Diagram of Loan Sanction and Disbursement Process (Corporate Banking) [Figure 1] [pic] [pic]
The CM package is then sent to the Head Office Credit Committee (HOCC). If the Credit limit is Below 1. 5 crore then HOCC evaluates it. But if it goes beyond this amount, then the HOCC sends it to the Board of Directors (BOD). Second Step: The HOCC/ Board of Directors evaluate the CM package. After evaluating, they either approve or reject the proposal or send the CM back to the RM for further clarification. Third Step: If the credit is approved then the Credit Administration Department, sends a sanction letter to the customer detailing the terms and conditions of the credit. If the customer accepts the sanction letter, the loan is sanctioned.
Fourth Step: After that the loan is disbursed by the Credit Administration Department with the proposed interest, tenor & repayment terms. Process of Loan Evaluation & Sanctioning: (Small Enterprise) Small enterprise has no that types of complex steps in loan sanctioning & unlike ME & Corporate banking here in SME less people works for the loan proposal. Figure 2 shows that disbursement process as explained below: First step: The applicant has to fill up a Loan Application Package (LAP), given by the Bank. The LAP contains: ? Application form ? Letter of guaranty ? Letter of sanction ? Net worth Statement ? Memorandum of deposit of cheques ? Letter of Hypothetication.
Unlike ME & Corporate Banking the RM handles the whole case of client; there is no need of financial analyst. Second step: The LAP goes to Head of SME for approval and then goes to CRM. After the analysis is positively done there is negotiation happens between the RM & client. If rejected then the case goes back to the RM for further betterment. Third step: After negotiation the Credit Administration Department, sends a sanction letter to the customer detailing the terms and conditions of the credit. If the customer accepts the sanction letter, the loan is sanctioned and then disbursed. Schematic Diagram of Loan Sanction and Disbursement Process (SE Banking) [Figure 2] Procedure for appeal against declined deals: Any credit proposal can only be declined by the respective approval authority, risk managers may recommend decline with proper justifications, but approver can override or agree with such recommendation. ? If approval of any credit application falls under the delegation of the Board of Directors, MD & CEO can decline the application, or he/she can override the decline recommendations made by Credit Risk Management. ? Respective business unit may appeal against any declined deal within 15 working days from the date of receipt of decline decision. Such appeal must be resubmitted to the authority one level above the original approver. Resubmission to the same authority may be allowed if the proposal would have been declined /returned asking new and/or additional information.
This also the responsibility declining authority to advise such decision to the respective business unit within 3 working days from the date of decline. ? If any credit proposal declined by the MD & CEO, resubmission will only be permitted with new information to the same authority. ? When resubmitted, the appeal application must indicate that the case was previously declined and also state the reasons for such decision. ? CRM shall retain MIS on declined credit applications. 3. 2. Product Quality: 3. 2. 1 Asset funded details: 3. 2. 1. 1 Assets funded details: Trend of funded assets: Asset funded means the fund based loan such as demand loan, time loan, LDBP etc. These types of products are described in the Loan products section.
As I see that with the types of the products the purpose, tenor, repayment also differ from each other. Now I am going to draw a trend of the outstanding of the fund based loan of four significant sectors from 2007 to 2010. Here the outstanding balance (in Million taka) means the utilized amount from the limit of the loan products. Here we see that in 2007 the largest sector in EBL is Readymade Garment and it retains its position in 2010 (till March) too. In 2008 the largest position was of Ship Breaking, in that time the smallest invested sector was Telecommunication. There is a giant drop in Textile Industry in 2009, but recently it gets back its position. In 2009 the investment in ship breaking sector has been reduced in funded assets.
The huge drop in Textile sector has been occurred for the withdrawal of many companies, I have found that in 2008 there were 19 companies in this sector while in 2009 there were only 6 companies but again in 2010 since march there are 21 companies in this sector, that means Textile sector has been improved in a very short time. There is an upward trend from 2007 to 2010 (till January) of Readymade Garment Industry but that of others are in fluctuating position. Of the three largest sectors the invested amount is very low in Telecommunication compared to others. Now we can find out the types of different funded assets that are sold in 2007 and in 2010. Here the balance will be shown in particular year so that we can identify the progress of the outstanding amount in funded assets. The amount of funded assets will be shown according to sectors. That means further we can find out that which sector use what types of funded assets most. 3. 2. 1. Asset funded details: (Comparison of Corporate Banking to SME- 2010-till March) Corporate Banking |Industrial Sector |Funded Balance | | |(In Million) | |AGRICULTURE & AGRO BASED PRODUCTS |397. 80 | |AUTOMOBILES |310. 24 | |CEMENT |507. 64 | |COMMERCE & TRADING |2,032. 3 | |COMMODITY IMPORT |2,193. 92 | |CONSTRUCTION |393. 52 | |EDIBLE OIL REFINERY |2,131. 42 | |FOODS & BEVERAGE |1,050. 07 | |PHARMACEUTICALS & ALLIED PRODUCTS |1,723. 13 | |POWER, GAS & OIL |1,260. 4 | |READYMADE GARMENT INDUSTRY (RMG) |4,988. 90 | |SHIP BREAKING |4,768. 80 | |STEEL PRODUCTS |2,339. 03 | |TELECOMMUNICATION |1,555. 75 | |TEXTILES |3,590. 44 | |OTHERS*** |36,028. 5 | |GRAND TOTAL |35,840. 46 | (Table 1: Source: Business Objective info) SME Banking |Industrial Sector |Funded Balance | | |(In Million) | |AGRICULTURE & AGRO BASED PRODUCTS |12. 69 | |AUTOMOBILES |5. 43 | |CEMENT |10. 86 | CERAMICS, BRICKS & GLASS |11. 53 | |CHEMICAL & PETROCHEMICAL |38. 30 | |COMMERCE & TRADING |2337. 93 | |COMMODITY IMPORT |70. 79 | |EDIBLE OIL REFINERY |8. 46 | |ELECTRONIC GOODS |46. 9 | |FOODS & BEVERAGE |97. 60 | |JUTE & JUTE PRODUCTS |21. 04 | |POWER, GAS & OIL |27. 28 | |PAPER & PAPER PRODUCTS |8. 23 | |PRINTING & PACKAGING |22. 88 | |READYMADE GARMENT INDUSTRY (RMG) |38. 4 | |RMG & VALUE ADDED PRODUCTS |23. 93 | |SHIP BREAKING |90. 96 | |STEEL PRODUCTS |55. 70 | |TELECOMMUNICATION |49. 53 | |OTHERS*** |1,472. 53 | |GRAND TOTAL |4,833. 1 | (Table 2: Source: Business Objective info) Here we see that the amount of total funded outstanding is around 35000 million taka in Corporate Banking and around 4000 taka in SME which is smaller than 10 times of the corporate banking. There are some similarities in the diversification of industry exposure in these two dimensions but huge difference in the amount of loan. In agriculture the funded amount of corporate banking is 397 million taka and in SME it is 12 million taka. In automobile it is 310 million taka in corporate banking and only 5 million taka in SME. In cement it is 500 million taka and in SME it is 10 million taka.
In commerce and trading it is 200 million taka in corporate banking and only 7 million taka in SME. In edible oil refinery it is 2,100 million in corporate banking and only 8 million in SME. In corporate banking the largest sector is ready made garment and in SME that is cloth and fashion wears. The corporate banking sector is more diversified and the SME is more concentrated, we see that in SME around 2,333 million of total 4,800 million taka funded amount is included in commerce & trading sector and that is only 2032 of 35,840 million taka in corporate banking in commerce & trading. 3. 2. 1. 3 Asset funded details: Product-wise funded assets: (Only Corporate) 2007 Industrial Sector |Term Loan (in |Working Capital(in |OD | | |Million) |Million) |(in Million) | |READYMADE GARMENT INDUSTRY (RMG) |2,043. 53 |1,725. 67 |580. 27 | |TEXTILES |1,841. 36 |1,222. 86 |337. 28 | |STEEL PRODUCTS |428. 48 |1,484. 86 |92. 28 | |TELECOMMUNICATION |436. 25 |936. 0 |61. 81 | |SHIP BREAKING |- |1,595. 92 |71. 97 | |COMMERCE & TRADING |481. 98 |1,222. 86 |166. 09 | |EDIBLE OIL REFINERY |27. 35 |1,381. 39 |10. 62 | |FOODS & BEVERAGE |180. 47 |755. 10 |68. 51 | |CEMENT |- |295. 02 |48. 5 | |PHARMACEUTICALS & ALLIED PRODUCTS |205. 91 |305. 77 |114. 82 | |ELECTRONIC GOODS |7. 00 |712. 48 |169. 65 | |OTHERS*** |1,515. 46 |2,768. 56 |471. 46 | |TOTAL |7,167. 79 |14,407. 19 |2,193. 21 | (Table 3: Source: Business Objective info) Here we see that RMG sector needs the investment of Term Loan, Working Capital and overdraft the most.
It follows by then Textile, Steel Products and Telecommunication. The Ship breaking also is a large sector but it doesn’t take any term loan in 2007 perhaps for the types of business it doesn’t need the term loan. RMG sector needs the term loan the most. But in Commerce and trading, Edible oil refinery, Food & Beverage, Pharmaceuticals, Electronic goods, Printing & Package- the working capital is the most needed as the requirement of daily operation. In Cement, Poultry and Transport Sector there was no term loan in 2007. In Toiletries sector there was only overdraft. There is very low amount of only Term Loan in financial institution at EBL. (Only Corporate) 010 |Industrial Sector |Term Loan (in |Working Capital(in Million) |OD | | |Million) | |(in Million) | |READYMADE GARMENT INDUSTRY |1,689. 52 |2,741. 58 |806. 88 | |TEXTILES |1,938. 07 |1,437. 49 |354. 93 | |STEEL PRODUCTS |602. 74 |1,351. 18 |385. 1 | |TELECOMMUNICATION |246. 42 |1,066. 43 |243. 14 | |SHIP BREAKING |- |4,526. 81 |27. 08 | |COMMERCE & TRADING |357. 04 |1,780. 16 |167. 67 | |EDIBLE OIL REFINERY |335. 19 |1,797. 01 |9. 66 | |FOODS & BEVERAGE |97. 02 |1,110. 84 |42. 1 | |CEMENT |- |507. 64 |- | |PHARMACEUTICALS & ALLIED PRODUCTS |172. 54 |1329. 54 |221. 05 | |ELECTRONIC GOODS |91. 13 |626. 65 |78. 93 | |OTHERS*** |3,382. 42 |4,982. 51 |522. 28 | |TOTAL |8,912. 09 |23,258. 51 |2,788. 16 | (Table 4: Source: Business Objective info)
Here like in 2007 the large sectors are RMG Sector, Textile, Steel Products and Telecommunication, Ship Breaking and here in 2010 there is no term loan in Ship Breaking like as before. Here in 2010 the Textile sector needs the term loan the most. But in Commerce and trading, Edible oil refinery, Food & Beverage, Pharmaceuticals, Electronic goods, Printing & Package- the working capital is the most needed as the requirement of daily operation. Here we see that in NGOs the investment increased to a large scale, in 2007 it was around 219 million but in 2010 it is 1253 million taka. In Cement, Poultry and Transport Sector there was no term loan in 2007 but in 2010 there is some term loan in Poultry and Transport Sector. In Toiletries sector there was only overdraft in 2007, but in 2010 it is nil.
There is no investment in ICT Sector in 2007 but in 2010 very little investment here in ICT Sector. Overall we have seen that in 2010 investment in every product have been increased Change in this time (2007-2010) ‘from’ or ‘to’ completely Nil Investment |Sector |2007 |2010 | | |Term Loan |Working Capital |OD |Term Loan |Working Capital |OD | | |(in Million) |(in Million) |(in Million) |(in Million) |(in Million) |(in Million) | |FINANCIAL INSTITUTIONS |25. 1 |- |- |- |- | | |OTHER MANUFACTURING |44. 79 |0. 62 |- |- |- |- | |HOTEL, RESTAURANTS, PARKS |22. 31 |- |- |- |- |- | |TOILETRIES |- |- |12. 84 |- |- |- | |AGRICULTURE & AGRO BASED |- |- |- |209. 89 |186. 04 |1. 8 | |PRODUCTS | | | | | | | |INFORMATION COMMUNICATION & |- |- |- |- |- |0. 0005 | |TECHNOLOGY (ICT) | | | | | | | Here we see that in 2007 the investment in Financial Institution was 25. 61 million in term loan, but in 2010 there is no balance of this investment and no new investment also. In 2007 other manufacturing sector had short term and long term investment but in 2010 it is nil. In 2010 there is no investment in Hotel, Restaurants, and Parks too.
In 2007 there is no investment in Agriculture but in 2010 there is somewhat huge investment in term loan, short term loan and Overdraft also. In 2007 there was no investment in ICT sector, but 2010. 3. 2. 2 Asset Non-funded details: 3. 2. 2. 1. Asset Non-funded details: Trend of non-funded assets: Asset funded means the fund based loan such as Letter of Credit, Acceptance, Letter of Guaranty etc. These types of products are described in the Loan products section. As I see that with the types of the products the purpose, tenor, repayment also differ from each other. Now I am going to draw a trend of the outstanding of the non-fund based loan of four significant sectors from 2007 to 2010.
Here the outstanding balance (in Million taka) means the utilized amount from the limit of the loan products. The outstanding amount in readymade sector is the highest since 2007 to 2010, but from 2008 to 2009 initially it was in decreasing position perhaps from the problems of export or import in that time. Ship breaking is the smallest sector out of the four sectors and it is quite constant position in that time. From 2008 to 2010 the telecommunication and textile sector have gone through contradictory stage. Here the textile sector is far beyond the RMG sector. Now we can find out the types of different non-funded assets that are sold in 2007 and in 2010.
Here the balance will be shown in particular year so that we can identify the progress of the outstanding amount in non-funded assets. The amount of funded assets will be shown according to sectors. That means further we can find out that which sector use what types of non-funded assets most. 3. 2. 2. 2 Asset non-funded details: (Comparison of Corporate Banking to SME- 2010-till March) Corporate Banking |Industrial Sector |Non-Funded Balance | | |(In Million) | |AGRICULTURE & AGRO BASED PRODUCTS |77. 54 | CEMENT |284. 30 | |COMMERCE & TRADING |654. 13 | |COMMODITY IMPORT |67. 53 | |EDIBLE OIL REFINERY |290. 41 | |FOODS & BEVERAGE |451. 88 | |MEDIA |135. 90 | |POULTRY, HATCHERY, FEED, DAIRY & FISHERIES |177. 1 | |PHARMACEUTICALS & ALLIED PRODUCTS |617. 41 | |POWER, GAS & OIL |157. 41 | |READYMADE GARMENT INDUSTRY (RMG) |6,362. 81 | |SHIP BREAKING |448. 35 | |STEEL PRODUCTS |1,078. 26 | |TELECOMMUNICATION |3,453. 692 | |TEXTILES |1,376. 2 | |TRANSPORT |411. 11 | |OTHERS*** |4110. 74 | |GRAND TOTAL |19,151. 20 | (Table 5: Source: Business Objective info) SME Banking |Industrial Sector |Non-Funded Balance | | |(In Million) | |CEMENT |8. 2 | |CERAMICS, BRICKS & GLASS |5. 00 | |CHEMICAL & PETROCHEMICAL |0. 10 | |COMPUTER & ELECTRONICS |3. 56 | |PAPER & STATIONERIES |0. 44 | |SHRIMP, FISH & FRY |2. 95 | |AUTOMOBILE SPARE PARTS |3. 91 | |RMG ACCESSORIES |1. 6 | |AGRO PRODUCTS (MACHINERY, PESTICIDES & FERTILIZER) |0. 49 | |CARRYING , C&F & TRAVEL AGENCY |27. 67 | |ELECTRONIC GOODS |3. 94 | |READYMADE GARMENT INDUSTRY (RMG) |94. 56 | |TRANSPORT |11. 031 | |OTHERS*** |709. 4 | |GRAND TOTAL |627. 50 | (Table 6: Source: Business Objective info) Here we see that the amount of total non-funded outstanding is around 19151 million taka in Corporate Banking and around 628 million taka in SME which is smaller than 3 times of the corporate banking. There are some similarities in the diversification of industry exposure in these two dimensions but huge difference in the amount of loan. In agriculture and automobile the non-funded amount of corporate banking is respectively 77 million taka and 25 million taka, but in SME it is nil.
In commerce and trading it is 654 million taka in corporate but in SME there was no non funded investment in SME. In corporate there is no non-funded investment in Shrimp export but in SME there is 6. 8 million taka investment in shrimp export. In corporate banking the largest sector is ready made garment and in SME that is also ready made garments, but the amount of investment fa