LENDING GUIDELINE
GUIDELINE:
Credit Quality: Credit facilities shall be allowed tracking industry best practices pursuant to this policy stipulations so that credit expansion does not deteriorate quality i.e there will be no compromise with the Bank’s standard of excellence. Credit shall be extended to the customers who will harmonize such standards.
Product & Services: The Bank shall provide suitable credit services and products for the market in which it operates. Product innovation shall be a continuous process. While designing new products and/or reengineering the existing ones Bank will always emphasize on customers’ need. Facility feature will be described using standard language.
Diversification: Concentration of credit shall be cautiously avoided to minimize risk. The portfolio shall always be well diversified in respect to economic purpose, national interest, sector, industry, geographical region, maturity, size etc.
Compliance: All credit expansion must comply with the requirements of Bank’s own Credit policy, Bangladesh bank Credit Risk Management Policy, Foreign Exchange Policy, Bank Companies Act as amended from time to time, Bangladesh Bank’s instruction Circulars and guidelines, Bank’s Memorandum and Articles of Association, Government policy and other applicable laws, rules and regulations and Bank’s internal policy stipulations.
Return: The activities of the loan portfolio should be performing in nature and contribute, within defined risk limitation, to the achievement of profitable growth and higher return on the Bank’s capital. Credit advancement shall focus on the development and enhancement of customer’s relationship and shall be measured on the basis of the total yield for each relationship with a customer (on the global basis), though individual transactions should also be profitable.
Repayment Capacity of Borrower: Those companies/persons, who can make best use of the facility thus contribute to maximize our profit as well as promote faster economic growth of the country, shall be selected to avail credit facilities. To ensure achievement of this objective lending decision shall be based mainly on the borrower’s ability to repay.
Remunerative: If Credit facilities are granted on a transaction/one-off basis, the yield from the facility should be proportionate with the risk.
Loan pricing: Loan pricing depends on the level of risk and type of securities offered. Rate of interest is the reflection of risk in the transaction. The higher the risk, the higher is it’s pricing. Risk premium is added based on perceived risk on the Base/Prime rate calculated using standard approach, taking into consideration the component of cost of fund, expected loss, cost of allocated capital, term cost of liquidity, cost of liquid asset buffer, loan administration cost and competitive margin to determine a base rate. Interest rate may be revised from time to time keeping in view the change in the above noted components and market condition. Effective yield can be enhanced by requiring the customer to maintain deposit to support borrowing activities. Yield may be further improved by emphasizing fee-based income where possible.
Proper staffing: Proper analysis of credit proposal is complex and requires high level of analytical ability and experience. To ensure effective understanding of the concept and thus to make the overall credit port-folio healthy, proper staffing shall be made through placement of qualified officials having appropriate background, who have got the right aptitude, formal training in credit risk analysis, knowledge of bank’s credit procedures and possesses required experience.
Security: Security accepted against credit facilities shall be properly valued and bank’s claim shall be established and documentation perfected in accordance with the laws of the country. An appropriate margin of security will be taken to reflect such factors as the disposal costs or potential price movements of the underlying assets. The requirement of collateralizing may also be decided depending on credit rating of clients and/or specific product designed in use.
Name Lending: The Bank shall carefully avoid name lending. Credit facility shall be allowed absolutely on business consideration after conducting due diligence. No credit facility shall be allowed simply considering the name and fame of the key person or corporate image of the borrowing company. In all cases, viability of business, credit requirement, security offered, cash flow and risk level will be professionally analyzed.
Single Borrower Exposure Limit: Jamuna Bank Ltd. shall be in strict compliance of provisions of the prevailing Banking Companies Act and Bangladesh Bank regulations regarding single borrower exposure Limit. As per latest BRPD Circular no. 02 dated Jan 16, 2014 issued pursuant to the provisions of Banking Companies Act 1991:
The outstanding amount of exposure, both funded and non-funded, to a single
person /counterparty or a group shall not exceed 35% of the capital at any point of time.
The aggregate outstanding principal amount of funded exposures shall not exceed 15% of the capital at any point of time.
In case of export financing, the outstanding amount of exposure, both funded and non funded, at any point of time to a single person/counterparty or a group shall not exceed 50% of the capital. No cap for power sector.
Large Loan:
As per latest BRPD Circular no. 02 dated Jan 16, 2014,
Large loan refers to any exposure to a single person/counterparty or a group
which is equal to or greater than 10% of the capital.
The banks may sanction large loans as per the following limits set against their
respective classified loans:
| Rate of Net Classified Loans | Large Loan Portfolio Ceiling against Bank’s Total Loans & Advances |
| Upto 5% | 56% |
| More than 5% but upto 10% | 52% |
| More than 10% but upto 15% | 48% |
| More than 15% but upto 20% | 44% |
| More than 20% | 40% |
In order to determine the above Large Loan Portfolio Ceiling of any bank, 50% credit equivalent of all non-funded credit facilities shall be included in the Total Loans and Advances (i.e., 100% funded exposures plus 50% non-funded exposures). However, the entire amount of non-funded credit facilities shall be included in the Large Loan. As of Dec 31, 2016, Jamuna Bank’s total Large Loan Portfolio exposure shall not exceed 56% of the total outstanding loans and advances at any point of time, as per Bangladesh Bank guidelines but Jamuna Bank may opt for lower percentage of large loan concentration.
Advance-Deposit Ratio: Loans and advances shall normally be financed from customers deposit and sometimes capital of the Bank. Usually loans and advances shall not be extended out of temporary fund or borrowing from money market. It will be ensured that Advance -Deposit Ratio should not exceed the limit at any particular point of time as governed by the statutory and liquidity reserve requirement of Bangladesh Bank revised from time to time.
Term Facilities: Aggregate Long Term business loan facilities shall not exceed 20% of the total credit portfolio. Facilities shall not be allowed for a period upto 08 (Eight) years. Any exceptions will require the approval of the Board of Directors.
Loan structuring: Amount, Tenor, relation consistency among different modes (L/C & LTR/LIM) are needed to be structured realistically. Excessive amount and tenor compared to genuine business need increases the risk of fund diversion and may adversely impact the borrower repayment ability. At the same time, underfinancing compared to genuine requirement also creates problems and eventual failure.
Country /Cross border Exposure: In case of Import/Export Finance, cross-border risk should be assessed with due diligence.
(a) While taking cross border exposure political and sovereign risk shall be examined and considered.
(b) Currency Risk.
- Non convertibility
- Restriction against Transferring Foreign Currency abroad.
- Local Currency devaluation.
(c) Expatriation
- Restriction against transferring profit aboard.
(d) Change in Laws
- Change in Taxes.
- Change in Custom duties.
- Change in regulations and deregulations.
(e) Expropriation
- Acquisition of assets by the host Government in a discriminatory way without compensation.
(f) In this respect sanction of United Nations Organization and embargo imposed by our Government shall be strictly complied and adhered to. (g) Limits to be established by the Board for individual Country as well as & for aggregate Bank Credit exposures to different countries. These limits are to be reviewed from time to time with due regard to the political and economic environment in each country. The country exposure limits may be utilized up to maximum amounts for different maturities as follows: For maturities up to one year: 100% of the limit For maturities up to two years: maximum 50% of the limit For maturities up to three years: maximum 25% of the limit For maturities beyond three years: maximum 10% of the limit For exceptions, approval is required from the Board of Directors.
Exposure to Customer Groups: Credit facilities in aggregate extended to any one customer group shall not exceed 35% of the Capital Fund which may be up to 50% of capital fund for export oriented business or as prescribed Bangladesh Bank from time to time. All proposals submitted to Head Office will also be required to indicate the extent of the Bank’s global exposure to that customer group. Funded facility to any customer/ group shall not exceed 15% of capital fund.
Unsecured Facilities: Aggregate Bank advances to corporate or individual customers (i.e. other than government or parastatal organizations) which are not secured by collateral and are allowed on the strength of customer’s personal integrity and financial standing or the corporate customer’s balance sheet, with or without hypothecation of stock shall not exceed 30% of the total credit portfolio. For the unsecured credit facilities extended to a business dominated by one or two individuals, the Bank shall insist on taking Life Insurance Policies by the principals which is sufficient to repay the loan in the event of death or injury of anyone key individual. The policy to be assigned to the Bank and the premium to be paid by the customer through the Bank under suitable arrangement.
Lending Caps: Specific industry sector exposure cap has been established to avoid over concentration in any one industry sector.Sector-wise and Industry wise allocation of credit shall be made annually with the approval of Executive Committee/Board of Directors. This will be reviewed from time to time if warranted to be adjusted adjust with the changed circumstances/scenario. A report on outstanding loan portfolio of each sector will be submitted to Executive Committee of Board of Directors/Board of Directors on quarterly basis for their information/perusal/ guidance. Credit concentration (on the basis of Borrower/ Group/Sector/Industry) will be monitored regularly.
Credit Rating: Borrowers of the Bank may preferably be rated by an external credit rating agency. However regulatory requirement in this regard shall be fully complied with.
Syndication: Syndication is a joint financing by more than one banks/financial institutions to the same clients against a common security. Usually the originator is known as the Lead Bank. This is done basically to spread the risk across lenders. It also provides a scope for an independent evaluation of risk and focused monitoring by the agent/lead bank. In Syndication financing bank may enter into an agreement and may act as lead arranger/ Security agent with the approval of the Board.
Sustainable Financing: As per BRPD Circular No.2 dated September 24, 2009 and No.02 dated February 27, 2011 and GBCSRD Circular No.08 dated December 24, 2013 and SFD circular no.03 dated March 16, 2017 Bangladesh Bank Introduced a refinancing program for different environment friendly schemes under green finance, at present termed as Sustainable Finance. Bank has established Sustainable Finance Unit to finance under the schemes to comply with the regulatory guideline as revised time to time.
Environmental and Social Risk Grading: Bank has integrated Environmental and Social Risk Management into their credit risk management processes as per SFD Circular no.02 dated Feb 08, 2017 of Bangladesh Bank. Environmental and Social Risk Grading should necessarily be used for all individual customers of agriculture, retail, trade, microfinance, SME, corporate finance and project finance. All loan proposals (new/renewal/ rescheduling/restructuring) for the above appilicable sectors will have to be first screened against the exclusion list as under. Rest proposals will be entertained by calculating Environmental and Social Risk Grading score with Environmental and Socilal Due Diligence (ESDD) Check list (Annexure-5).
Exclusion List
| Sl. No. | Sector / Activities |
| 1 | Production or trade in any product or activity deemed illegal under host country laws or regulations or international conventions and agreements, or subject to international bans, such as pharmaceuticals, pesticides/herbicides, ozone depleting substances, PCB’s, wildlife or products regulated under the Convention on International Trade inEndangered Species (CITES). |
| 2 | Ship breaking/ trading activities which include: 1. Ships with prevalent asbestos use (for e.g. passenger cruise); 2. Ships listed on the Greenpeace blacklist*; 3. Ships not certified “gas free” for hot work |
| 3 | Drift net fishing, deep sea bottom trawling, or fishing with the use of explosives or cyanide |
| 4 | Operations impacting UNESCO World Heritage Site and/or Ramsar site |
| 5 | Illegal logging, and logging operations or conversion of land for plantation use in primary tropical moist forests |
| 6 | Production or activities involving forced labour/ child labour |
| 7 | Production or trade in: 1. Weapons and munitions 2. Tobacco 3. Gambling, casinos 4. Pornography (goods/stores/web-based) |
| 8 | Production or activities that impinge on the lands owned, or claimed under adjudication, by Indigenous Peoples, without full documented consent of such peoples |
All the low risk transactions can be approved by the credit officer. All the medium risk transactions will be escalated to the Head of Corporate/SME/Retail for approval. All the highrisk transactions will be escalated to the Board, after review by the MD, for approval. In absense of the Board, the high risk transactions can be approved by the Executive Committee of Board.
Minimum Capital Requirement for Bank:
As per Guideline of BASEL-II, scheduled banks in Bangladesh are required to maintain Tk.4.00 billion or 10% of Total Risk Weighted Assets as capital, whichever is higher. It will be followed strictly. Pursuant to regulatory requirement bank shall transit to BASEL-III and maintain minimum total capital ratio (10%) and minimum total Capital plus Capital conservation buffer ratio (2.5%).
- Deviation from the Policy: Any deviation from the approved policy in case of any credit proposal in any respect shall be clearly identified and mentioned in the credit proposal with proper justification for approval of the approving authority. Any Credit proposal that does not comply with the Credit policy/ Lending Guidelines in any respect regardless of the amount should be referred to Board for consideration.
- Discouraged Businesses for Bank’s Finance: In view of legal aspect, business risk and banking ethics, following business are on discouraged list for Bank’s finance:
- Military Equipment/Weapons Finance
- Highly Leveraged Transactions
- Finance of Speculative Investments
- Logging, Mineral Extraction/Mining, or other activity that is Ethically or
Environmentally Sensitive.
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- Lending to companies listed on CIB black list or known defaulters
- Counter-parties in countries subject to UN sanctions
- Loans to business whose equity is substantially financed by Preference Shares.
- Land purchasing
- Gold trading
- Harmful drugs/narcotics manufacturing or other items against national interest.
- Any other type which Bank may identify as discouraged from time to time.