Introduction:

Lending is the most important function of a commercial Bank. It is necessary to have an prudent Credit Policy in a Bank. Our Credit Policy generally aims at

• creating healthy loan assets to ensure good interest earnings for the Bank.
• ensuring safety of invested fund through judicious selection of borrowers and
• improving discipline and skill on use of resources.

In designing a credit policy, considerations have been given to following :

• Total deposit resources of the Bank and rate of fluctuation of resources.
• Tendril Deposit structure of the Bank.
• Trend of growth in deposit and economic growth rate of the national economy.

Credit Principles Our Credit Policy shall be based on the following principles :

• Safety
• Security
• Expansion and segregation
• Earning and profitability
• Quick return
• Avoidance of high risk
• Control and monitoring
• Welfare
• Integrity and expertise
• Value creation
• Social commitment
• National interest

Our strategies are :

                        a)   General:

• The Bank shall provide suitable credit services and products for the markets it operates.
• Loans and advances shall normally be financed from customers’ deposits and not out of short term temporary funds or borrowing from other Bank’s.
• Credit will be allowed in a manner which will in no way compromise the Bank’s standards of excellence and to customers who will complement such standards.
• All credit extension must comply with the requirement of Bank Companies Act-1991 and Bangladesh Bank’s instructions as may be amended from time to time.

1. Administration

• The administration of the loan shall ensure compliance of all laws and regulations at both local and global levels.
• Proper analysis of credit proposals is complex and requires a high level of analytical ability. To make the overall credit portfolio of the Bank healthy, proper staffing of the credit departments shall be done through placement of qualified officials who have got the right aptitude, formal training in finance, credit risk analysis etc.
• Lending in areas from where repayment and interest servicing performance deteriorates shall be identified at the early stage and closely monitored in order to avoid loan losses. Customers who show sign of weakness in loan repayment shall be put on a watch-list.
• Related security against loans’ shall be monitored and reviewed by a separate unit not connected with the credit approval process on a regular basis in order to assess the collectability of the loans and effectiveness of the security.
• At all levels of processing of loans/advances (To be approved by Management/Board), Cases have to be evaluated and recommended through credit committees.

Total Facilities

The aggregate of all funded facilities shall not exceed 80% of customers’ deposits. It will also be governed by the Statutory and Liquidity Reserve Requirement of Bangladesh Bank.   

Term Facilities

• Aggregate term credits extended for a period exceeding one year shall not exceed 70% of the respective credit portfolio.
• Facilities shall not be allowed for a period exceeding five years. Any exceptions will require the approval of the Board of Directors.

Industry Concentration:

Limits are to be established and reviewed from time to time for aggregate Bank credit exposure to any Industrial Sector.  

Security Security accepted as collateral for credit facilities shall be properly valued and effected in accordance with the laws of the country in which the security is held. An appropriate margin of security will be taken to reflect such factors as the disposal costs or potential price fluctuations of the Assets.  

Credit Categories:

• Bangladesh Bank’s latest guidelines have subdivided different kinds of lending into 7 sectors for fixation of interest by the Individual Banks on competitive basis reviewing the prevailing market condition and monetary policy of the country.
• Loans and advances have primarily been divided into two major groups :
• Fixed Term Loan : These are the advances made by the Bank with fixed repayment schedules.
• Continuing Credits : These are the advances having no fixed repayment schedule but have an expiry date at which it is renewable on satisfactory performance.

Further all categories of loans have been accommodated under the 7 prime sectors   as under.

• Agriculture (Loan – Gen / Cash Credit)
• Term Loan for Large & Medium Scale Industry (Loan – Gen)
• Working Capital to the manufacturing units (Cash Credit)
• Export Credit (ECC/ PC/FDBP/ LDBP)
• Commercial Lending

Short Term loans and continuing credits allowed for commercial purposes other than exports fall under this category (LIM/ LTR/ PAD/CC/Loan –Gen, etc.)

• Term Loans to Small and Cottage Industries (Loan –Gen)
• Others

Any loan that does not fall in any of the above categories is considered under the category “OTHERS” which include SOD/ Loan for (i) Transport equipments (ii) Construction works including housing (iii) Work order finance (iv) Personal Loans/ Hire Purchase etc.

Sectoral Allocation Of Loans

Besides limiting loans in different economic sectors, Bank shall very carefully control loan portfolios by types based on risk exposures as under. It may vary according to need for accommodating prospective customers. These are for extending funded facilities only.

The Executive Committee or the Board of Directors shall, however, have the Power to exercise option to allow 5% tolerance on any aforesaid count of financing.  

Loan Approving Authority   A Credit Policy will not be complete without guideline on procedures for loan approvals and delegation of powers for approval of loans to different levels. Such delegations shall be given in due course. Till such time, the authority shall  vest on the Executive Committee of the Board and the Board of Directors.  

The investment policy of the Bank in different sectors is as under :

SECTORS FOR INVESTMENT  

 (a) Trade Finance Import Trade business covers the major trade activities of our country. We should concentrate on processing as much as possible import business of commercial importers as well as industrial consumers. Bank derives much benefit and income from L/C related matters such as cost-free margin as well as L/C commission and exchange earning etc.  

(b) Export Credit Export sector in the country experiences fluctuating situation upon the developments in international scenario as well as internal conditions. RMG, which makes the major contribution in the export earning of the country is currently having a sluggish time due to multifarious international conditions. The present a bit gloomy picture of the Readymade Garments Sector is mostly due to the American Policy of favouring the Caribbean and Sub-sahran countries as well as WTC incident on 11^th September, 2001. The export of woven items has been affected more than the knit & sweater items.  However, in the RMG sector, still there is scope to invest in selective cases. In the context of the prevailing situation, our bank’s policy is to finance the RMG in a cautious way. We shall finance only the viable units of knitting and sweater industry and selective units of renowned performers of woven units so that risk can be avoided/minimized.                          

(c) Working Capital As a commercial bank we prefer financing working capital in project and trading houses/merchandising concerns. Working capital finance fetches maximum income for the bank. The maturity of working capital credit is maximum 1 (one) year. The facility is self liquidating from sales proceeds deposited by the customer. JBL will be selective in financing working capital.                        

(d) Work order finance favouring Contractors With the growth of the economy, more and more stress is given on the development of infra-structure and other welfare oriented works which are financed mostly either from internal resources of the Government or from foreign aids received from donor countries and international agencies like World Bank, IMF, ADB etc. Our Bank shall finance reputed contractors for implementation of such projects preferably financed by International Agencies.                          

(e) Lease Finance Leasing is a popular mode of financing. Lease Finance is usually made for individual and business houses to finance office equipments, industrial machinery and accessories, medical and diagnostic equipment, generators, elevators/lifts, heavy construction equipment and other commercial equipment.   In recent times, profitable operations of the existing leasing companies have attracted more Non Bank Financial Institutions (NBFI) to become active in the leasing business. Besides, some commercial banks have also recently started providing lease finance to their such customers.   Considering the increasing popularity of lease financing among the business community, the leasing industry is expected to be growing at a healthy rate as overall industrial growth accelerates and the leasing companies strengthen their position financially and technically.   We may also establish a Lease Finance Wing at Head Office to avail the opportunities the market offers. The wing shall be sufficiently manned and equiped to provide the service to such customers.                       

(f) Real Estate & Construction

Short term real estate loans to reputed companies against sufficient collateral securities will be considered.                         

(g) Power Sector (Electricity) At present the power sector is enjoying significant finance from different banks. Since it is a growing sector in the context of infra-structure necessity of the country, we may invest in this sector through syndication in prospective cases.                       

(h) Light Engineering Industries With the growth of the economy, light engineering industry is gradually flourishing  in our country. There is a good prospect of investment in this sector. Our bank will, therefore, finance light engineering industry after selecting prospective cases.                          

(i) Electronics Currently this sector is running well. Since huge investment is required for a simple project, we may join syndication to finance this sector.                          

(j) Agro-based industries Agro-based industries are coming up in an encouraging way in the country. Big industries like AMCL Pran have, in the meantime, emerged in the country with successful records. We may invest in this sector through syndication or entirely from our own resources depending upon requirement of the entrepreneurs vis-à-vis our fund position.                          

(k) Agriculture In view of the existing net-work of our bank, it may not be possible for us to finance marginal farmers of agriculture sector for crops, poultry, fishery etc. in the form of micro credit.                 

(l) Computer Software development, data entry and data processing

Although there has been significant expansion of business in this sector over the years, it is based on technicalities and complexities and it needs utmost care on the part of the bankers to handle. We may go for investment in this sector at later stage.                       

(m) Jute and Jute goods This is a sensitive and risky sector. We shall, therefore, consider investment in Jute Sector on a most selective basis.  

(n) Leather Goods This is also a sensitive and risky sector and we shall consider investment in the sector on a most selective basis.  

(o) Frozen Foods Frozen Foods is occupying a significant position in respect of export earnings of the country. But the mechanism and control of financing this sector are complex. Moreover, of late the export of frozen foods has drastically fallen. Therefore, at this infant stage of our bank, we shall not go for investment in this sector.  

(p) Natural Resources

Private sector banks of our country have not yet gone for direct investment for harnessing natural resources of our country. We also shall not invest in this sector at the initial stage.  

(q) Telecommunication With the rise of investment in this sector, we may also finance in suitable cases through syndication.  

(r) Air Transportation We have no plan and policy to invest in this sector.  

(s) Tourism This sector is entirely nurtured and developed under Government patronization. We may not venture to finance this sector.  

(t) Others Beyond the sectors as stated above, there might be prospective avenues such as Consumer Credit, Transport, House Building, Retailers and other cases where our bank shall invest depending upon the merits of individual cases.   The Board of Directors of the Bank shall review the Credit Policy of the Bank from time to time to accommodate new ideas, change and innovations.