PROCESSING OF CREDIT:

The client shall submit loan application form with necessary papers/ documents as per Bank’s checklist.   On receipt of the loan application form, with necessary papers/ documents as per Bank’s checklist.   On receipt of the loan application form, branch shall scrutinize the papers to ensure the following :

• All the columns of the application form have been filled in with appropriate information and the application is signed.
• All the papers/ documents containing requisite information as per checklist have been submitted.
• There is no apparent discrepancy in the application papers/ documents submitted by the client. On scrutiny of the papers, client should be interviewed to know details about the business and find out any inconsistency in the papers.

Credit proposals must be prepared for all credit facilities. Facilities will be renewed at the discretion of JBL every year.   The processing of a credit proposal falls into mainly two stages as under :

• Obtaining due approval of the competent authority of JBL
• Steps for allowing the client to avail the credit facility.

Management approval levels splits into following authority :

• Head Office Credit Committee
• Delegated authority to the Managing Director
• Executive Committee of the Board.

The Credit Committee is responsible to review and approve or reject any credit proposals on the basis of lending policy, lending criteria, sectoral exposure and / or on other genuine grounds. Credit Committee usually sits on every week or more frequently as the need may arise. The proposals after thorough discussion/ deliberation if found suitable is recommended for approval to the Executive Committee of the Board through the Managing Director.   Under delegated lending authority to the Managing Director, credit proposals, one time or specific gets approval after scrutiny is done by Head Office Credit Division. From time to time the Managing Director may delegate the branch managers discretionary lending powers with due approval from the competent authority.   Head office deals with analyzing, reviewing of proposals emanating from branches and have the following responsibilities.

• Reviewing and analyzing the proposal on the basis of merits and complying with usual norms and procedures and within the policy guidelines of JBL.
• Processing of credit limit proposal for review by Credit Committee for approval and renewal.
• Processing of full-dressed memo for sanction/ renewal / re-structure of limits for approval of the Executive Committee of the Board.
• Monitoring of loan port-folio of branches including non-performing and classified accounts.
• Periodic review of various advances related statements.
• Identification and pursuing potential irregular advances.
• Monitoring and implementation of JBL’s credit policy.

Credit proposal originates in the branch. Proposal after due checking, and analysis is sent with recommendation signed by the manager and the credit officer in-charge.   After the credit proposal has been finally approved by the competent authority as the case may be the resolution / decision thereof are sent to the branch for further action as follows :

• Conveying offers to the borrower and obtain acceptance there against.
• Branch credit / loan administration perfect the security and charge documents considering the nature and the terms of the facility.
• Setting-off client file account record.
  •  
  • Credit Report :

The branch manager should ensure preparation of credit report on the client to determine its past record, business performances, market reputation etc. The credit report should contain the following :

• The nature of client’s business.
• The names of owners and details of their associated business concerns Net worth of the individual person owning the firm/ company (obtain through declaration at the time of submission of loan application).
• The financial health of the business concern.
• Assessment of managerial capability through analyzing the upto date financial statements and market report, previous bank’s transaction record.

• CIB Report:

In the recent past, to stream line credit discipline in banking sector and for meticulous adherence to the treatment of delinquent borrower by the commercial banks and DFIs as per stipulation of Bank Companies Act 1991, Bangladesh Bank has introduced a credit port folio data base naming Credit Information Bureau (CIB). For processing credit proposals (both funded & non-funded) banks and DFIs need to obtain mandatory satisfactory CIB report from Bangladesh Bank. Present criteria for obtaining mandatory CIB report may be changed from time to time at the discretion of Bangladesh Bank. Any change in this regard shall be notified to the banks vide Bangladesh Bank CIB Circulars. Branch manager must obtain satisfactory CIB report prior to processing of credit proposals and mention the status of the client and its allied concerns / persons of the borrower in the credit line proposal as it is revealed in the latest CIB report.

•  

• Visiting Client :

A visit to the client’s business premises, factory can be a very useful avenue to gather information for preparation of credit proposal. This visit and meeting the client at their door-step may help to confirm the business decision reach by the manager with regard to the clients financial status, management efficiency and technical details about the goods and services in which the client deals.   During the visit particularly to the factory, godown, the manager can get an idea about the client’s investment, condition of the machinery and client’s stock movement. This will also help to judge its quality and acceptability as a reliable security. A set of question, which may be asked, should be prepared.

•  

• Credit Line Application Form :

A credit proposal be its funds or non-funds based at the stage of primary scrutiny, credit officers prime consideration is to ascertain with reasonable accuracy, due date liquidation of loan/ credit exposure. The main feature of any credit proposition are :

• Amount and type of credit line
• Purpose of the facility
• Source of repayment plan
• Security support available to the bank.

In evaluating credit line proposals, credit officers must examine in depth liquidation of outstanding in the normal course of business. This means understanding of clients business, management capability and integrity of the owners. It is equally important to see that adequate security are available to the bank, if the client fails to repay owing to fall in business or any other adverse factors.   Similarly, in examining a credit proposal it is also equally important to see the profitability of the proposition and credit officers should structure the credit line in such a manner that the bank’s earning is maximized.   The branch manager/ credit officer should therefore, start processing of regular credit limit for  approval of the competent authority of JBL. Provided, the following conditions/ steps are taken :

• Preparation of the credit report on the client
• Obtaining third party / market investigation. Also obtaining CIB report from Bangladesh Bank.
• Interviewing the client
• Analysis of financial statements.

The branch manager / credit officer must see that credit line proposals are prepared in with standard credit proposal format in this regard which may be referred to the Annexure to this manual.   There are different sections covered in the credit proposal format which are explained below :

•  

• Supporting Documents for processing credit proposal :

The branch manager while processing a credit proposal for Head Office approval, must see that the proposal recommended is based on following supporting documentation :

• Credit report on the client
• Financial statements
• Spreadsheet analysis
• Net worth analysis
• Acceptable security details
• LRA

Credit report on client is a prime requisite for assessing hi/s their creditability, managerial ability and past historical records. This report should be updated when renewal of credit facilities are considered. Third party credit report/ CIB report alongwith credit report on the client should be kept in the file at the branch. Business / financial performance analysis to be based on audited accounts if they are available. Otherwise, management certified financials could be used. The spreadsheet analysis should include last three years financial accounts. Spreadsheet is the easy method of analyzing the financial results of the client’s business on a going concern basis. The balance sheet analysis involve re-arranging the figures in the annual accounts into a from which will reveal the working capital of the business, its net worth, and its dependence on the borrowed fund. The second part of the spreadsheet is ratio analysis. Interpretation of the ratios requires analytical skill on the part of the branch manager/ credit officer. Net worth statement may be produced straight away from audited balance sheets. Branch manager may also construct the net worth statement from declared statement or from information regarding assets and debts obtained through intervene of the client.

Analysis of Client’s account:

The objective of analyzing financial statements from the point of view of the bank is to understand the manner in which client’s own resources are employed, its liquidity position, the ratios of net worth to borrowing and of current assets to current liabilities.

The analysis should provide answers to following areas :