CHAPTER ONE Institutional Overview

1.1 HISTORICAL BACKGROUND OF IFIC BANK LTD.

International Finance Investment and Commerce Bank Limited (IFIC Bank) is banking company incorporated in the Peoples Republic of Bangladesh with limited liability. It was set up at the instance of the Government in 1976 as a joint venture between the Government of Bangladesh and sponsors in the private sector with the objective of working as a finance c company within the country and setting up joint venture banks/financial institutions aboard. In 1983 when the Government allowed banks in the private sector, IFIC was converted into a full fledged commercial bank. The Government of the Peoples Republic of Bangladesh now holds 32.75% of the share capital of the Bank. The Government of the Peoples Republic of Bangladesh now holds 32.75% of the share capital of the Bank. Directors and Sponsors having vast experience in the field of trade and commerce own 11.42% of the share capital and the rest is held by the general public.

1.2 MISSION OF IFIC BANK LTD.

The mission of IFIC Bank LTD. is to provide service to our clients with the help of a skilled and dedicated workforce whose creative talents, innovative actions and competitive edge make our position unique in giving quality service to all institutions and individuals that we care for. We are committed to the welfare and economic prosperity of the people and the community, for we drive from them our inspiration and drive for onward progress to prosperity. We want to be the leader among banks in Bangladesh and make our indelible mark as an active partner in regional banking operating beyond the national boundary. In an intensely competitive and complex financial and business environment, we particularly focus on growth and profitability of all concerned.

1.3 IFIC BANK ATA A GLANCE

Key Points Name of the Bank Head offices Date of incorporation Branch Board of Directors Total Manpower Earning Per Share Total Assets Capital Paid up capital Customers Particulars International Finance Investment & Commerce Bank Ltd. Dhaka June 24,1983 69 Domestics & 4 Affiliates 13 executing members including chairman & managing director. 1997 43.32-(TK) 110,437 Authorized capital Tk. 500 million, paid up capital Tk.406.44 million 200,000

1.4 JOINT VENTURES ABROAD

Bank of Maldives Limited IFIC is the first among the banks in the private sector to have operations abroad. In 1983, the Bank set up a joint venture bank in Maldives known as 'Bank of Maldives Limited' (BML) at the request of the Government of the Republic of Maldives. This is the only national bank in 3

that country having branches throughout that country. IFIC Bank managed the affairs of BML from 1983 to 1992. IFIC Bank sold its shares in 1992 to the Government of the Republic of Maldives and handed over the Management of BML to Maldives Government. NIB Bank Ltd., Pakistan: IFIC Bank had two branches in Pakistan, one in Karachi and the other in Lahore. Karachi Branch was opened on 26th April 1987, while Lahore Branch was opened on 23rd December 1993. To meet the Minimum Capital Requirement (MCR) of the State Bank of Pakistan, the Overseas Branches in Pakistan have been amalgamated with a reputed leasing company in Pakistan named National Development Leasing Corporation Ltd. Therefore, the existence of our above Overseas Branches has ceased w.e.f. 2nd October 2003 and a new joint venture bank entitled NDLC - IFIC Bank Ltd. emerged in Pakistan w.e.f. 3rd October 2003. The Bank was subsequently renamed as NIB Bank Ltd. IFIC Bank presently holds 7.31% equity in the Bank. Nepal Bangladesh Bank Ltd. (NB Bank) Nepal Bangladesh Bank Ltd. (NB Bank), a joint venture commercial bank between IFIC Bank Ltd. and Nepal nationals, started operation with effect from June 06, 1994 in Nepal with 50% equity from IFIC Bank Ltd. The Bank has so far opened 17 (seventeen) branches at different important locations in Nepal. IFIC Bank presently holds 25% shares in NB Bank. Nepal Bangladesh Finance & Leasing Limited (NB Finance): Nepal Bangladesh Finance & Leasing Co. Ltd. (subsequently renamed as Nepal Bangladesh Finance & Leasing Ltd.), another joint venture leasing company between IFIC Bank Ltd. and Nepali Nationals, started its operation on April 18, 1999 in Nepal. IFIC Bank presently holds 15% share in the company. Oman International Exchange LLC (OIE) Oman International Exchange LLC (OIE), a joint venture between IFIC Bank Limited and Oman nationals, was established in 1985 to facilitate remittance by Bangladeshi wage earners in Oman. IFIC Bank holds 25% shares, and the balance 75% is held by the Omani sponsors. The exchange company has a network of 10 branches covering all the major

cities/towns of Oman. The operations of the branches are fully computerized having online system. The affairs and business of the company is run and managed by the Bank under a Management Contract.

1.5 BOARD OF DIRECTORS

Unlike other banks in the private sector, Board of Directors of the Bank is a unique combination of both private and Government sector experience. Currently it consists of 13 directories. Of them Eight represent the sponsors and general public and four senior officials in the rank and status of Joint Secretary/Additional Secretary reprent the Government Managing Director s the ex-office Director of the board 01 Mr. Mohammad Lutfar Rahman 02 Mr. Abu Tahir Mohammad Golam Maruf 03 Mr. Aminur Rahman 04 Mr. Syed Anisul Huq 05 Mr. Mohammed Nayem Syed 06 Mr. S.M. Faruqi Hasan 07 Mr. Tanim Noman Sattar 08 Mr. Mahmudul Huq Bhuiyan 09 Mr. Arastoo Khan 10 Mr. Syed Monjurul Islam 11 Mr. Mohammad Ali Khan, ndc. 12 Mr. Mosharraf Hossain Chairman Director Director Director Director Director Director Director Director Director Director Managing Director

1.6 PROGRESS REPORT OF IFIC BANK LTD.

Progress report of IFIC Bank Ltd. For the five years is given below. PARTICULARS Authorized capital 2003 500.00 2004 500.00 5 2005 500.00 2006 500.00 2007 500.00

Paid up capital Total capital Deposit Credit Total loans & advances Total income Total expenditure Total assets Number Shareholders Number of employees No of Branches

406.39 1536.89

406.39 1608.8

406.44 1754.41 22505.1 7 19502.7 0 2169.49 2672.20 2122.66 30201.0 5 5669 1883 65

406.39 2028.89 28620.91 25490.66 2549.07 3687.80 2825.10 36080.48 5724 2003 65

670.72 3045.09 29900.05 28361.46 2836.15 5196.50 3693.60 39914.15 9286 1997 69

19799.33 20774.49 17312.79 18189.70 1491.70 2543.83 1921.75 1623.45 2687.02 1986.77

27101.27 28575.83 of 6162 1780 56 6210 1860 62

1.7 CAPITAL AND RESERVES

IFIC Bank has been consistently maintaining the Capital Adequacy Ratio, as prescribed by Bangladesh Bank. This has been made possible by a policy of building up both capital and reserves. It started with an Authorized and Paid-up Capital of Tk. 100 million and Tk. 63.20 million respectively in 1983. Authorized and Paid-up Capital increased to Tk. 500 million and Tk.406.44 million respectively in 2002.

1.8 AUTHORIZED & PAID UP CAPITAL

The authorized and paid-up capital of the Bank remained unchanged at Tk. 500 million and Tk. 406.39 million respectively as on December 31,2006. this excludes proposed bonus shares worth tk. 40.64 million for 2003, tj 44.70 million for 2004, tk 49.17 million for 2005 and tk 129.82 million for the year 2006 respectively.

1.9 MANAGEMENT STRUCTURE OF IFIC BANK LTD.

The thirteen members of the Board of Directors are responsible for the strategic planning and overall policy guidelines of the Bank. Further, there is an Executive Committee of the Board to dispose of urgent business proposals. Besides, there is an Audit Committee in the Board to oversee compliance of major regulatory and operational issues. The CEO and Managing Director, Deputy Managing Director and Head of Divisions are responsible for achieving business goals and overseeing the day to day operation. The CEO and Managing Director is assisted by a Senior Management Group consisting of Deputy Managing Director and Head of Divisions who supervise operation of various Divisions centrally and co-ordinates operation of branches. Key issues are managed by a Management Committee headed by the CEO and Managing Director. This facilitates rapid decisions. There is an Asset Liability Committee comprising member of the Senior Executives headed by CEO and Managing Director to look into all operational functions and Risk Management of the Bank.

1.10 INFORMATION ABOUT THE EMPOLYEE OF IFIC BANK LTD. [ELEPHANT ROAD BRANCH]:
7

IFIC Bank Limited of Banani Road Branch is one of the Profitable Branch of IFIC Bank Ltd. IS located at 73/1 (1st floor), Banani Road, Dhaka. It started its journey at the year 1989, 31 st October. Manpower Position of IFIC Bank, Banani, Road, Branch S.L No. 1 2 3 4 5 6 7 8 9 10 Category employee Vice President & Manager First Assistant Vice President Senior Staff Officer Staff Officer Office grade 1 Office grade 2 Cash Officer Computer Officer Security Guard Office attendant TOTAL Number 1 1 2 4 5 4 4 3 2 3 29

CHAPTER TWO

2.1 Introduction of the study

Deregulation of interest rates, rising competition from bank and non bank competitors and continuing development of innovative ways to provide financial services are all contributing to a growing interest in evaluating bank performance; various groups of individuals are particularly interested in evaluating bank performance. First, bank shareholders are directly affected by bank performance. Investors take advantages of bank information to develop 9

exceptions concerning future performance that can be used to price common shares appraise. Second, bank management traditionally is evaluated on the basis of how well the bank performs relative to previous years and compared with similar banks. Hence, employees salaries and promotions are frequently tied to the performance of the bank. Bankers also need to be informed the condition of other banks with which they have dealing. Third, regulators concerned about the safety and soundness of the banking system and the preservation of public confidence, monitor banks using onsite examinations and computer oriented early alarming system to keep track on bank performance. Forth, and last, the business community and public should be concerned about their banks performance to the extent that their economic prosperity is linked to the success or failure of their bank.

2.2 Background of the study

International Finance Investment and Commerce Bank Limited (IFIC Bank) is a banking company incorporated in the People's Republic of Bangladesh with limited liability. It was set up at the instance of the Government in 1976 as a joint venture between the Government of Bangladesh and sponsors in the private sector with the objective of working as a finance company within the country and setting up joint venture banks/financial institutions abroad. The Government held 49 per cent shares and the rest 51 per cent were held by the sponsors and general public. In 1983 when the Government allowed banks in the private sector, IFIC was converted into a full-fledged commercial bank. The Government of the Peoples Republic of Bangladesh now holds 35% of the share capital of the Bank. Leading industrialists of the country having vast experience in the field of trade and commerce own 34% of the share capital and the rest is held by the general public.

2.3 Objective of the study

A bank operates its activities not only to earn profit, but also to serve its clients in accordance with their needs and demands. General Objectives: The general objective of the study is to have a General Evaluation of the performance of IFIC Bank Ltd. 10

Specific Objectives: In line of the general objective of the specific objectives of the study are as follows: To present an overview of IFIC Bank Limited. To review the management system of the bank. To gather comprehensive knowledge of the loan and advance. To identify the factor contributing to the attractive and operative performance of the local branches of the bank. To identify the sectors the bank is giving loan and advance. To find out strength and weakness of the organization.

2.4 Scope of the study

A bank has different products, different services and different customers. Different departments of a bank perform different activities. However, this study is done on the basis of performing three-month internship program by the researcher in the IFIC Bank Ltd. So, this study says only abut the loan and advance of IFIC Bank Ltd. Besides this as IFIC Bank Ltd. Is a large Bank and it facilities various products and services, this study covers loans and advances of IFIC Bank Ltd. As I was an Intern my scope was very limited and restricted. I had maintained some official formality for the collection of the data of my report. I had the opportunity to work only at the IFIC Bank Ltd., Banani Branch. The report is based on my observation and studies during my internship period in Elephant Road Branch of the IFIC Bank. I have to engage in various sectors & to understand how they work.

2.5 Methodology of the study

Methodology refer to process by which reports data are collected, data interpreted and recommendation are made. In other word, it is a process by which total report are planned, organized and illustrated. The methodology of the report is stated below, which was

11

appropriately exercised in achieving the above stated objective. The sources of data are as below: I. Primary Data II. Secondary Data

2.5.1 Primary Data:

The primary sources of data are as follows: Informal conversation with the bankers. Practical work exposure from the different desks of the three departments of the branch. Face-to-face conversation with the respective officers and staffs of the banks.

2.5.2 Secondary Data:

The secondary sources of data and information are: Various books, articles, compilations etc. regarding general banking functions, foreign exchange operations and credit policies. Annual reports of IFIC Bank Ltd. Annual reports of other banks. Banks papers Hand note Prospectus

2.6 Limitations
Through internship program is a practical oriented program, it faces some difficulties. The major difficulties I have faced during my period in IFIC Bank Ltd. Are as follows: Initially, adjustment with the new environment. A sudden change of studentship to a job-like situation is a problem. 12

Usually company is not willing to provide their actual data of financial statement for maintaining confidentiality. Short time is another major problem for a sound internship report. To prepare a report on some issues takes much time but in practice we are given a short time. Finally, the lack of the depth of my knowledge and the analytical capacity for writing such report is also a shortcoming of this study.

13

CHAPTER THREE
Credit services of IFIC Bank Ltd.

3.1 Introduction:
This is the survival unit of a bank because unite and unless the success of this section is a question to every bank. If this section is not properly working, the bank it self may become bankrupt. This is important because this is the earning unite of the bank. Banks are accepting deposit from the depositors in condition of providing interest to them as well as safe keeping 14

their deposits. Now the question may gradually arise how the bank will provide interest to the clients and the simple answer is advance. We often use loans and advances as an alternative to one another. But academically this concept is incorrect. Advance is the combination of such items where loan is a part only for this credit section of the bank. To run operations and to earn profit thereby every bank advances and invests its deposited money and reserves equity and other available funds in various profitable sector. The effectives and profitable policies concerning advancing and investment is needed increasingly without proper mobilization of deposits under the shadow of advances and investments, no bank can exists. In the area of investment and advancing IFIC Bank Ltd. stand among leaders of private commercial bank of the country. Advances are the main revenue generating area for any bank. But a commercial bank cannot advances all of its deposits and Bangladesh Bank governs the rules that a maximum of 80 percent of total deposit can be advance to the clients. The rest 20 percent of the total deposits gas to be kept in the Bangladesh Bank as government policy. IFIC bank ltd. has extended its advance facilities for the past year with the policy guidelines of Bangladesh Bank. In 2000 total advances was 1731.28 crores whereas the amount reached 2836.15 in the year 2007. Advances of IFIC Bank (2003-2007) YEAR ADVANCE 2003 2045.09 2004 2128.09 (figures in corers) 2005 2169.49 2006 2549.06 2007 2836.15

3.2 Types of Advance:

All loan and advance that are provided by this bank can be categorized into there heads according to the nature and characteristics of each product:

15

ADVACE

Continuous

Term Loan

Loan General

Figure shows the different types of advances Nature of Different Types of Advance:

3.3 CONTINUOUS LOAN:

IFIC Bank gives in the following Continuous Loan: Cash Credit HYPOTHECATION (CC HYPO) Cash Credit pledge (CC PLEDGE) Secured Overdraft (SOD)

3.3.1 Cash Credit HYPOTHECATION (CC HYPO):

16

 Cash credit id given through the cash credit account. Cash credit is an active and running account where deposit and withdrawals may be made frequently. The debit balance of the account on any day can not exceed the agreed limit. Instrument HYPOTHECATION DEED. 50% margin requires opening a CC account. (varies) Operation of cash credit is same as that of overdraft the purpose of cash credit is to meet working capital needs of traders, farmers, and industrialist. It is granted only the first class parties. It is charged against a property where neither the ownership nor the possession is passed to the bank.

3.3.2 Cash Credit Pledge (CC PLEADGE):

The nature, operational work, and characteristics of CC- PLEDGE in as same as CC HYPO. CC.PLEDGE in different from CC-HYPO only from the securities or business goods against the loan amount. It is charged against properties where the ownership may remain to the borrower but the possession is passed to the bank. Instrument Pledge Deed. Cash Credit HYPOTHECATION (CC HYPO & PLEDGE) IFIC Bank Ltd.,Banani Road Branch Month of Distribution February-2007 March-2007 April-2007 May-2007 Amount (taka) 54593854.25 52858711.82 50014025.11 50178910.00

3.3.3 Secured Overdraft (SOD):

17

 Overdraft are those drawing, which are allowed by the bank in excess of the balance in the current account up to a specified amount for definite period as arranged for. Generally it is given to the business to increase their business activities. Usually provide against FDR, PSS, i.e. financial obligation or any primary securities. The interest charge from the date of first withdraw. Interest is calculated and charged only on the actual debit balance on daily product basis. Balance of OD account are fluctuates The interest rate of SOD is 3% above of FDR interest rate if the FDR is in our Bank. If the FDR is in other bank then the interest rate is 14.50%

3.4 TERM LOAN:

IFIC Bank gives in the following Term Loan: Industries Loan Others loan Staff House Building Loan (SHBL) Stuff loan against Provident Fund(SLPF) Loan against PSS House Building Loan Consumers Credit Scheme

3.4.1 Industries Loan:

It is a term loan. It is given for three (3) years at equal installment. Grass period is allowed of this types of loan. Grass period is the period that require to earn visible returns.

18

3.4.2 Others loan:

Loan provider for other purpose which is productive and less risk rather industrial sector are treated as others loan. The terms and condition of these types of loan are as industry loan.

3.4.3 Staff House Building Loan (SHBL):

120 times of BASIC salary is provided as SHBL. Bank rate +1% interest is charged to the loan amount. Repayment adjusted from their monthly salary. Repayment is made at equal monthly installment.

3.4.4 Stuff Loan against Provident Fund (SLPF):

10% of basic in contributed by employee Repayment is adjusted from their on they salary. Maximum sanction from PF.

3.4.5 Loan against PSS:

This loan is provides against PSS fund. 80% are given of the PSS fund. This is 100% secured for the bank.

3.4.6 House Building Loan:

This loan is give for the construction of building house. It is gives for three (3) years at equal monthly installment. This loan is not provides frequently.

3.4.7 Consumers Credit Scheme:

Under this scheme credit is given to the customer to purchase necessary and luxury commodities like computer, motor vehicle, television, refrigerator, music system sewing machine, furniture etc. Other then the employee it is given to the valuable client. It is a 24, 36, 48 installment system @ 15.50% interest.

19

3.5 SMALL ENTERPRISE FINANCING:

IFIC Bank gives in the following important sectors of Small Enterprise: Easy Commercial loan Retailers loan Transport loan Commercial house building loan Possession right loan Contractors loan Letter of guarantee Loan against imported merchandise (LIM) Loan against trust receipt (LTR) Bidders loan Project loan

3.5.1 Easy Commercial loan:

Individual, business enterprises (other than public limited company) engaged in any business to meet business requirement. Any Bangladeshi individual or business house having valid trade license and must have an account with IFIC Bank Ltd. can apply for this loan. Minimum age 21 (twenty one) years. Security needed- Pledge of instrument duly discharge by the other (where applicable), FDR/other deposits with IFIC Bank Ltd/FDR/other financial instrument issued from other Banks/ ICB unit certificate/ PSS account/MIS/Demand share of A & B group Traded in SDE & CSE/ Any other Government security eligible for credit facility (ies). Maximum 90% of the face value of FDR/NCD/WEDB. Face value would mean the original amount for the loan is maximum 12(twelve) months. 2% is to be charged as a penal interest on overdue amount (if any). Taka 500/- to be realized before disbursement as processing fee.

20

3.5.2 Retailers loan:

Individual/ Proprietorship firm engaged in retail business. They need this type of loan to meet working capital/ capital finance requirement. Any Bangladeshi individual pr small and retail business house having valid trade license and must have an account with IFIC Bank Ltd can apply for this loan. The tenor for the loan is maximum 24(twenty four) months. 2% is to be charged as a penal interest on overdue amount (if any). 1% on the loan amount to be realized before disbursement as its service charge and Taka. 500/- to be realized before disbursement as processing fee.

3.5.3 Transport Loan:

Individual, business Enterprises (Other than Public Limited Company) engaged in transport business. They need fund to Purchase of Road/ Water Transport for commercial use. Any Bangladeshi Customer of the respective branch having business house/ office in the command area with at least 2(two) years experience in their line of business. Additional 2% charged on the overdue amount as its penal interest. The tenor for the loan maximum 48(forty eight) months.0.50% is charged as service charge on loan amount to be realized at the time of disbursement of loan. 1% on loan amount (Maximum Tk. 10,000/-) to be realized at the time of disbursement of loan for process the loan.

3.5.4 Commercial house building loan:

Individual, business Enterprise (Other than Public Limited Company) having commercial plot can apply for this loan to construct of commercial building. Any individual or business house in the command area having account with the branch have the eligibility to apply for this loan. Additional 2% on the overdue amount charged as penal interest, if any. The maximum term of loan is maximum 5(five) years including grace period. 0.25% is treated as service charge on loan amount to be realized at the time of disbursement of loan. Loan processing fee is 1% on loan amount (Maximum Tk. 10,000/-) to be realized at the of disbursement of loan. 21

3.5.5 Possession right loan:

Proprietorship concern having no collateral security to offer other than possession right of shop can apply for this loan to meet up the need of Fixed Working capital customer of the respective branch having shop/ business place in the command area having at least 2(two) years experience in their line of business have the eligibility for applying this loan. Additional 2% per month on the overdue charged as penal interest (amount if any). The tenor of the loan is maximum 36(thirty six) months. Tk. 2000/- to be realized at the time of disbursement of loan as a loan processing fee. Service charge is 0.50% charged on loan amount to be realized at the time of disbursement of loan.

3.5.6 Contractors loan:

Individual, business Enterprises (Other than Public Limited Company) engaged in construction and supply business can apply for this loan to execute work order awarded by Govt. / Semi Govt. & Autonomous Bodies. Any business house in the command area having at least 2(two) years experience in their line of business has the eligibility for this loan. Additional 2% is charged per annum on the overdue amount as its service charge (if any).The tenor for this loan is maximum 12(twelve) months. Taka. 2000/- to be realized at the time of allowing of drawings as the processing fee of the loan. Service charge is 0.25% on loan amount to be realized at the time of disbursement of loan maximum Taka.5000/-.

3.5.7 Letter of guarantee:

Business Enterprises (Other than Public Limited Company) engaged in construction, supply and other business can apply for this loan to participate in tender(s) invited by Govt. / Semi Govt.& Autonomous Bodies and execute job against work order awarded from different agencies and for any other obligation.

22

Customer of the respective branch having business place in the command area with at least 2(two) years experience on their line of business have the eligibility for application. The margin is depending upon Banker-Customer relationship.

3.5.8 Working capital loan:

Business Enterprise (other than Public Limited Company) engaged in manufacturing/ trading business can apply for this to meet working capital requirement. Firms or companies incorporated in Bangladesh, customer of respective branch having shop or business place is in the command area with at least 2(two) years experience on their line of business. Additional 2% is Charged on the overdue or excess over limit as the penal interest (if any). The tenor for the loan is maximum 12(twelve) months. Tk. 2000/- to be realized before disbursement of loan as its processing fee. Service charge is 0.25% charged on loan amount or maximum Tk. 5000/-.

3.5.9 Project loan:

Business enterprises (other than Public Limited Company) engaged in manufacturing/service industry can apply for this loan to set up new manufacturing/ service unit. To BMRE existing manufacturing/ services unit. Firms/ companies incorporated in Bangladesh. The firm/company should have business account with the branch. The firm/ company should generate sufficient cash flow from operation from which firms can make the repayment of the loan. Penal interest is additional 2% per annum charged on the overdue amount. The tenor of the loan is maximum 5 years including grace period. The length of grace period is to be determining on the fund generation of the project. 0.10% on loan amount (Minimum Tk.2000/-) to be realize disbursement of loan. 0.25 on loan amount subject to minimum of Tk.5000.00 to be realize before disbursement of loan. 23

3.6 CONSUMER FINANCING

IFIC Bank Ltd. Introduced Consumer Credit Scheme for its customer during 1999 duly approved by the Board of Directors of the bank in their 251 st meeting held on April 4, 1999 with the following loan product: 1. Vehicle loan 2. Domestic appliances loan 3. Office equipment loan 4. Entertainment purpose loan 5. Loan for intangible loan 6. Others. The purpose of this section is to provide direct loan guidelines to the branches for providing consumer financing under consumer Finance Scheme. Guidelines under the prudential Regulation and Direction of Bangladesh bank have been formulated. These guidelines will assist the branches as to how the CCs loan port-folio should be managed. The committee studied existing products available in the market. Considering the market demand and investment opportunities in Consumer Financing Sector, the committee has formulated the following 7 products for our bank to be launched under Consumer Financing Scheme:

Easy loan ( Secured personal loan) Consumer durable loan Parua ( Education loan) Thikana ( House building loan) Any Purpose Loan Peshajeebi loan ( Loan for professional) Auto loan Festival loan 24

3.6.1 Easy loan (Secured Personal loan):

Any individual can apply for this loan to meet personal financial requirement. This potential borrower with minimum age 18 years must have an account with IFIC Bank Ltd. Repayment will be made in lump sum within expiry or as per acceptable terms and interest to be serviced as and when due.

3.6.2 Consumer Durable loan:

This applicant for this loan are employee of Govt./semi Govt./Corporation/autonomous bodies, employee of reputed multinational corporation and large local corporate, employees of reputed university/ college/school, employees of reputed NGOs/Aid Agencies, other salaried persons acceptable to the bank, tax paying businessmen having adequate cash flow tax paying self employed person and individual having reliable source of income. The purpose of this loan is to purchase of consumer durables like - computer, television, refrigerator, washing machine, air conditioner, music systems, motor cycle and a lot of other things by Consumer Durable Loan. IFIC Bank is providing maximum 1.00 lac taka to be repayable in by 12 to 36 monthly installments. Consumer Durable Loan Repayment Schedule Monthly installment Loan Amount Interest Rate 36 months Maximum 100,000/Tk. @16.50% Tk. 3,542/24 months Tk. 4,922/12 months Tk. 9,099/-

25

3.6.3. Parua (Education loan)

IFIC Bank offers Education Loan that can make a student's dream comes true. IFIC Bank firmly believes that expense for education is an investment for future. Only education can fulfill the dreams of an individual as well as a nation. IFIC Bank is providing maximum Tk. 8.00 lac to be repayable in 12 to 48 monthly Installments. Parua (Education Loan) Repayment Schedule Loan Amount Tk. 100,000/@16.50% or multiple Interest Rate Monthly installment 48 months Tk. 2,861/36 months Tk. 3,542/24 months Tk. 4,922/12 months

Tk. 9,099/-

3.6.4. Thikana (House Building loan)

Home is an address, a shelter for entire life, and this is what one leaves behind for the family. A house is the single biggest investment that you will make in your lifetime. To own a home from savings takes a long time and full payment at a time is difficult too. Don't wait your entire life saving. Trust us, take a Home loan from IFIC and realize your dreams now. IFIC Bank is providing maximum Tk.75.00 lac to be repayable in 12 to 180 monthly installments. Thikana (Home Loan) Repayment Schedule Loan Amount Interest Rate Monthly installment (Tk.) 15 years 14 years 13 years 12 yearss 1,429/1,462/1,503/-

Tk.1,00,000/- @ 15.00% p.a. 1,401/or Multiple

11 years 10 years 09 years 08 yearss 1,553/1,615/1,694/1,796/-

07 years 06 years 05 years 04 yearss 26

1,932/-

2,117/-

2,381/-

2,785/-

03 years 02 years 01 years 3,469/4,851/9,029/-

3.6.5. Any Purpose Loan

This applicant for this loan are employee of Govt./semi Govt./Corporation/autonomous bodies, employee of reputed multinational corporation and large local corporate, employees of reputed university/ college/school, employees of reputed NGOs/Aid Agencies, other salaried persons acceptable to the bank, tax paying businessmen having adequate cash flow tax paying self employed person and individual having reliable source of income. IFIC Any Purpose Loan caters to various needs of salaried people. With minimum formalities you can get a loan for an amount upto Tk.3.00 lac to be repayable at 12 to 36 monthly installment. The loans are easy & absolutely hassle free. Any Purpose Loan Repayment Schedule Loan Amount Interest Rate Monthly installment 36 months Tk. 3,542/24 months Tk. 4,922/12 months Tk. 9,099/-

Tk. 100,000/- @16.50%

3.6.6. Peshajeebi Loan (Loan for Professional):

This type of loan is only for the people who are Doctor/ Engineer/ IT professional/ Management Consultant or any other professional, sometimes you just need that little bit extra money for whatever reason? Don't make yourself worry about it. Come to us at IFIC Bank and trust that we'll help you to realize your dreams. IFIC Bank is providing Maximum Tk. 10.00 lac to repayable in 12 to 48 monthly instalment. Quick Processing & Least Formalities. IFIC Peshajee Loan Repayment Schedule

27

Loan Amount Tk. 100,000/-

Interest Rate

Monthly installment 48 months Tk. 2,861/36 months Tk. 3,542/24 months Tk. 4,922/12 months

@16.50% or multiple

Tk. 9,099/-

3.6.7. Auto Loan

Owning a car means freedom of convenience for moving out, affords punctuality, shelter from rain and heat during traveling and above all guarantees the much needed safety. Owning a car is a dream of many people. To materialize your dream, now we have Auto Loan with more flexible, affordable and convenient package option. IFIC Bank is providing maximum Tk. 20 lac to be repayable in 12 to 60 monthly installments.

Auto Loan Repayment Schedule Loan Amount Tk.1,00,000/or Multiple Tk.20,00,000/maximum Interest Rate 15.50% p.a. 15.50% p.a. Monthly installment (TK.) 60 48 36 24 12

months months months months months 2,407/2,810/3,493/4,874/9,051/-

48,140/- 56,200/- 69,860/- 97,480/- 1,81,020/-

28

3.6.8. Festival loan:

Extended to meet expenses of major religious festival like Eid, Puja, Chiristmas and Budda Purnima. Consumer Financing of IFIC Bank (2007-2009) YEAR Consumer Financing 2007 418,600,000 2008 314,400,000 2009 188,431,000

3.7 Credit:
Credit portfolio of the Bank consists of Trade Financing, Project loans for new projects and BMRE of the existing projects, Working Capital financing and Small Scale Industrial financing. Besides, the Bank financing the need of individual borrowers under Consumer Credit Scheme. The Bank is also involved in financing Agriculture sector. Credit portfolio recorded a growth of 11.26 percent in2009. The total outstanding loans and advances stood at Tk. 2836.15 million at the end of December 2009 as against Tk. 2549.06 million in December 2006. Credit portfolio of the bank was under as on 31.12.2009 Particular 1. Agriculture 2. large & Amount 23.29 Medium 548.89 303.13 150.84 488.87 59.81 616.55 484.87 111.29 48.96 2836.15 29 Percent 0.82 19.35 10.68 5.32 17.24 2.11 21.74 17.08 3.92 1.73 100.00

Industry(TL) 3. Working Capital 4.Export Finance 5.Import Finance 6. Transport 7. Commercial lending 8.House building loan 9.Consumer Credit Scheme 10. Others Total

3.8 Lending operations:

Growth has been seen in all types of lending facilities with more emphasis nationwide being made on entrepreneurial ventures and the re-emergence of micro, small and medium sectors which pawing potential contributors to the overall profitability of the bank and to the economy of the countr

30

CHAPTER FOUR

4.1 GUIDELINES FOR BANK FOR GIVING LOAN:

This guideline includes objective/ quantitative parameters for the eligibility of the borrowers and determining the maximum permission limit per borrower. Fundamentally, credit policies and procedures can never sufficient capture all the complexities of the product. Therefore, the following credit principles are the ultimate references points for making SE financing decisions: Assess the entrepreneurs character for integrity and willingness to repay. Only lend when the entrepreneurs has capacity and ability to repay Use extends credit if bank can sufficiently understand and manage risk. Use common sense and past experience in conjunction with through evaluation and credit analysis. Do not base decision solely on customers reputation, accepted practice, others Lenders risk assessment or the recommendation of other officers. Be proactive in identifying, managing and communication credit risk. Be diligent in ensuring that credit exposures and activities comply with me requirement setout in product program

4.2 Process of Loan Section:

Step-1 : Sanctioning by the competent authority A secured advance may be grant to a party only after getting a limit sectioned from the competent authority. Step-2 : Loan/Advance Proposal For obtaining a loan/advance the party must make an application in standard form in writing to the branch where he maintains his operative account. After receiving the applications from the party, the party based on the following sources of information: 31

Personal investigation Confidential supports from Other banks, Chamber of commerce CIB from Bangladesh bank as the earnable Treading account P/C, B/S,M/A if any and other documents submitted by the party. The average balance and the present maintained in the account. The nature of operation during the last six months and the date of opening account.

Step-3

: Preparation of limit proposal The branch, may prepare limit proposal after being fully satisfied with the following points: The financial position of the party. Purpose for which advance is required. Nature of securities offered. The payment arrangement.

Step-4 Step-5

: Renewal proposal. : Approval by Head Office and Branch responsible. Limit proposal sent to HO. Sanction/reject. Receive the limit section advice.

Step-6 Step-7

: Disbursement of loan. : loan monitoring and administration.

32

Rules and Documents:

4.3 PRUDENTIAL REGULATION:

REGULATION: 1 Source and capacity of repayment and cash flow backed lending A. Bank shall specially identify the sources of repayment and asses the repayment capacity of the borrow on the basis of assets conversion cycle and expected future cash flows. In order to add value, the bank must asses the conditions in the particular sector/ industry they are lending to and its future prospects. The banks must be able to identify the key drivers of their borrowers, business, the key risks to their business and their risk mitigate. B. The rationale and parameters used to project the future cash flows shall be documented and annexed with the cash flow analysis undertaken by the bank. REGULATION: 2 Personal guarantees All facilities to SEs shall be backed by the personal guarantees of the owners of SEs. In case of limited companies, guarantees of all directors other than nominee directors shall be obtained. In case of proprietorship concern, spouses guarantee other than the personal guarantee of the owners may be taken. REGULATION: 3 Per party exposure limit The minimum and maximum exposure of the bank on a single SE shall remain within the range of Tk.50 lac respectively subject to the following: a) In case of working capital finance-maximum up to 100% of the net required working capital or 75% of the sum of total inventory and receivables whichever is lower. 33

b) In case of fixed assets purchase-maximum up to 90% of the purchase price.

REGULATION: 4 Aggregate exposure of bank on small enterprise sector The aggregate exposure of the bank on SE sector shall not exceed the limits as specified below: % of the classified SE advances to total Maximum limit portfolio of SE advances a. below 5% b. below 10% c. below 15% d. up to and above 15% 10 times of equity 6 times of the equity 4 times of the equity Up to the equity

REGULATION: 5 Limit on clean facilities In order to facilitate growth of smaller loans, banks are free to determine security requirements for loans up to TK.5 lac. Guidelines for security requirements for loans of amounts more than TK. 5 lac are given in Regulation-6. REGULATION: 6 Securities Consequent to the regulation stated in Regulation-5, facilities provided to SEs shall be secured by banks as follows: As a minimum banks must take charge over assets being financec. For loan amounting Tk. 10 lac above. a) Legal mortgage over immovable properties with registered Power of Attorney. 34

b) Personal Hypothecation on the inventory, receivable, advance payments, plant & machineries. c) Guarantees of spouse/parents/other family members. d) One third party personal guarantee. e) Post dated cheque for each installment and undated cheque for full loan value including full interest. REGULATION: 7 Loan documentation For all facilities, banks must obtain (as applicable) and not limiting to following documents before disbursement of loan can be made: 1. loan Application Form duly signed by the customer 2. Acceptance of the terms and conditions of Sanction Advice. 4. in case of partnership firm: a) Copy of registered partnership deed certified as true copy or partnership deed on nonjudicial stamp of Tk. 150 denominated duly notarized.

5. in case of limited company: a) Copy of memorandum & Articles of Association of the company including Certificate of incorporation duly certified by Register joint stock Companies (RJSC) and attested by the managing director accompanied by an up-to-date list of Directories. b) Copy of Boarder solution of the company for availing credit facilities and authorizing managing director/chairman/director for execution of documents and operation of the accounts.

35

c) An undertaking not to change the management of the company without prior permission of the bank. d) Copy of last audited financial statement up to last 3 years (as applicable and subject to regulation-10). e) Personal guarantee of all directors including the chairman and managing directors. f) Certificate of registration of charges over the fixed and floating assets of the company duly issued by RJSC. g) certificate of registration of amendment of charges over the fixed and floating assets of the company duly issued by RJSC in case of repeat loan or change in terms and condition of sanction Advice regarding loan amount. 6) Demand promissory Note. 7) Letter of hypothecation of stocks and goods. 8) Letter of hypothecation of book debts and receivable. 9) Letter of hypothecation of plant & machinery 10) Charge on fixed assets 11) Personal letter of guarantee 12) Whenever practical, insurance policy for 110% of the stock value covering all risks with banks mortgage clause in joint name of the bank and client. In the case of individual person: 2 copy passport size photograph of intending borrower & gurantor. Letter of introduced from employer(where require) Bank statement( for last 6 months) Personal Net worth Statement. Copy of passport/voter ID/Driving license(if any) Utility bill copy (telephone/Gas/Electricity)-anyone Salary certificate/Trade License. T.I.N. Number. Copy of offer letter recognized college/university for studying abroad. 36

For local private university/Medical college submission of evidence related to admission and cost. CIB report on the borrows as required.

In the case of sole proprietorship firm: One copy passport size photograph Copy of trade license. Personal net worth statement Hypothecation of stock. Personal guarantee of a business having at the same area or any person acceptable to the bank. REGULATION: 8 Margin Requirements Banks shall adhere to the minimum margin requirement as prescribed by Bangladesh Bank (if any). REGULATION: 9 Credit information Bureau (CTB) clearance While considering proposals for any exposure, banks should give due weights to the credit report relating to the borrower and his group obtained from Credit information Bureau (CTB) of Bangladesh bank. The economic of obtaining CIB report will be government by rules and regulations as prescribed by Bangladesh Bank from time to time. REGULATION: 10 Minimum conditions for taking exposure 1. Banks shall, as a matter, obtain a copy of financial statements duly edited by a practicing Chartered Accountant, relating to the business of every borrower who is a limited company or where exposure of a bank exceeds TK.40 lac, for analysis and re-

37

record. However, financial statements singed by the borrower will suffice where the exposure is fully secured by liquid assets. 2. It is recognize that a large number of enterprises other than limited companies may not have proper books of accounts including balance sheet, profit & loss account and they may not be able to prepare current and future cash flows due to lack of sophistication and expertise. It is REGULATION: 11 Proper utilization of loan The bank should ensure that the loans have been properly utilized by the SEs and for the same purpose for which they were acquired/obtained. Banks should develop and implement an appropriate system for monitoring the utilization of the loans. REGULATIONS: 12 Registration on facilities to related parties 1. Banks shall not take any exposure on SE in which any of its director, shareholder, employer or their immediate family members is holding 5% or more of the share capital of the SE. 2. THROUGH THE INSTRUCTION OF Regulation-12 of Prudential Guideline for Small enterprise financing banks are barred to take any exposure on a small enterprise in which any of its director, shareholder, employer or their immediate family members are holding hare capital of 5% or more. However, this restriction for the shareholder has been withdrawn and henceforth, the word shareholder should be considered as omitted. REGULATION: 13 Classification and provisioning for assets LOANS/ADVANCES 1. Banks shall observe the prudential guidelines given at Appendix-X in the matter of classification of their SE asset portfolio and provisioning there-against.

38

2. Apart from specific provisioning requirement as prescribed above, banks will create adequate general provision over the entire credit portfolio of Small Enterprise business. Therefore, allo banks shall maintain at all times a general provisions of 20% of unclassified SE assets outstanding in its books. REVERSAL OF PROVISION: 4. The provision held against classified assets will only be released when cash realization stats exceeding: i. ii. iii. In case of loss category the net book value of the assets. In case of doubtful category 520% of the net book value of these assets. In case of sub-standard category 25% of the net book value of the assets.

Further, the provision made on the advice of Bangladesh Bank will not be reversed without prior approval of Bangladesh Bank. SUBMISSION OF RETURNS: 5. Banks shall submit the borrower-wise annual statements regarding classified loans/advances to the Banking inspection department. TIMING OF CREATING PROVISION; 6. Banks shall review, at least on a quarterly basis, the collectibles of their loans/advances portfolio and shall properly document the evaluation so made. Shortfall in provisioning, if any, determined, as a result of quarterly assessment shall be provided for immediately in their books of accounts by the banks on quarterly basis. VERIFIVCATION BY THE AUDITORS: 7. The external auditors as a part of their audits of banks shall verify that all requirements of Regulation-12 for assets have been compiled with. Bangladesh bank shall also check adequacy of provisioning during their on-site inspection. 39

4.4 Required Securities:

The bank requires some securities that are compulsory for getting loan and the securities are: Personal guarantee of a businessman having business at the same area or any person acceptable to the bank. Personal guarantee of spouse/parents. Hypothecation of vehicles. The vehicles to be registered with BRTA/BIWTA/Mercantile & Marine dept with Bank mortgage clause. Comprehensive insurance in the joint name of the Bank & borrower. Legal mortgage of land & building within City Corporation and/or Municipal area preferably 1st party. Registered Power of Attorney to sell the mortgage property without intervention of court. Personal guarantee of partners/directors. Registration of charges with Joint Stock Companies under relavant section where required. Pledge of Financial Instrument if any. Tripartite agreement among the Bank, Lessor & Borrrower to the effect that the Lessee and Lessor can not transfer profession right of the property without prior consent of the Bank. Notarized Power of attorney to sell the profession Right as per possession right deed of agreement executed between Lessor and lessee. One cheque covering residual amount of loan duly signed by the borrower. 40

 Memorandum deposit of cheques. Assignment to work order. Confirmation from Work awarding Authority that all cheques will be issued in favour of the borrower A/c. IFIC Bank Ltd.-------------branch. Counter Guarantee. Lien on financial obligation. Hypothecation of machinery, where required. Pledge of stocks duly insured with bank mortgage clause. Documents of title to goods when received. In case of L/C, borrower acceptance on Bill of Exchange drawn by L/C opening branch. Lien on export L/C contract. As per Banker-customer relationship. Trust receipt. Legal mortgage of the fixed assets of the company comprising land and building and machinery already installed or to installed thereon. Personal guarantee of the mortgage. Creation of charge with the RJSC under relevant section.

4.5 legal Documents:

The legal documents that are needed for getting above mentioned loan are following D.P Note. Letter of arrangement. Letter of installment. Letter of disbursement. Personal guarantee of guarantor. Personal guarantee of Spouses/parents. 24 post dated cheque in favor of Bank for payment of monthly installments each duly signed by the borrower. 41

 One post dated blank cheque duly signed by the individual or proprietor. Memorandum of Deposit of Cheque. Letter of hypothecation of vehicles. Letter of authority to deposit debit the account. Memorandum of deposit of title deed. Deed of mortgage registered with Sub-Register. Letter of guarantee. Registration of vehicle with bank mortgage clause. Comprehensive Insurance coverage with bank mortgage clause. Registration of charges with RJSC under relevant section. Pledge of Financial obligation where applicable. One cheque covering residual amount of loan duly signed by the borrower. Personal guarantee of the Directors in case of Private Limited Company. Personal guarantee of all the partners. Letter of lien where applicable. Letter of hypothecation of stock. Insurance policy. One bank cheque dated maturity date of loan signed by the borrower. Notarized Power of attorney to sell the possession Right as per possession right deed of agreement executed between lessor and lessee. Apropiate form of letter of lien on security. Letter of pledge. Letter of hypothecation of machinery, if applicable. Letter of continuity. Letter of disclaimer. Letter of understanding. Trust receipt. Lien Confirmation from issuing branch in case of FDR issued by our bank.

42

 Lien confirmation from issuing authority duly authenticated by the Head office of the issuing bank in case of FDR issued by other bank. List of the latest Directors of the company. NOC from component authority for creation of legal mortgage in favor of the bank (if required). Letter of partnership in prescribed form of Bank. Authority to debit account.

4.6 Credit approval authority:

The authority to sanction or approval loans shall be delegated to Senior Executives by the managing board based on the Executives knowledge and experience. Approval authority shall be delegated to individual Executive and not to commit to ensure accountability in the approval process. The following should apply in the approval or sanctioning of loan: 1. Credit approval authority shall be delegated in writing from the MD & Board, acknowledged by recipients and records of all delegation retained in CRM. 2. Delegated approval authority shall be reviewed by Board or MD from time to time. management function. 4. The role of credit shall be restricted to only review of proposal. 5. Approval shall be evidenced in writing or by electronic signature. Approval file shall be kept on file with credit application. 6. All credit risk shall be authorized by the executives within the authority limit delegated to them by the MD. 3. The approval function shall be separate from the marketing or relationship

43

7.

The aggregate exposure to any borrower or borrowing group shall be used to determine the approval authority required.

8. MD/DMD/Head of Credit Risk Management must approve and monitor any Cross border exposure risk. 9. Any Branches of lending authority should report to MD, DMD, Head of Internal Control and Head of CRM. 10. Authority will be delegated to each individual in writing by the managing director. Authority delegated to the individual will not automatically be transferred to a replacement lending authority. 11. The Managing Director will have the right to exercise lending authority delegated to other executive having authority lower than him. 12. The Managing Director is authorized to sub-delegate his business discretionary, if deemed necessary for quick of business proposals either wholly or partially to Deputy Managing Director, head of Credit Risk Management, credit executives, Credit Managers or any other officer within CRM. 13. Any credit proposals that do not comply with guidelines regardless of amount may be referred to managing director for decision. 14. A monthly summary of all new facilities approval, renewed, enhanced and a list of proposals declined stating reasons there of should be reported by CRM to MD.

4.7 Credit Investigation:

Lending is one of the most important functions of a bank and with the modern concept of social order and participation of commercial banks in various phase of commercial industry. FIC Bank is providing a wide range of financial services, offering specialist advice and products to corporate clients to meet diverse demands of changing market scenario. We have expertise to customize products & services to meet specific requirements of our clients. We are committed to serve our customer with extensive branch net work all over the country to expedite our client's business growth. We facilitate your business to face the challenges and realize opportunities, now and in the future. Our main focus is relationship based banking and understanding corporate & institutional business environments. 44

Our experienced Relationship Managers & their team can respond to and anticipate your needs and give you competitive business advantages. Products and services for commercial and business customers include: Working Capital Finance, Project Finance, Term Finance, Trade Finance, Lease Finance, Syndication Loan etc.

4.8 The integrity and reliability of the borrower:

It will be clear from the above study that advance, to be safe, should be granted to a reliable and honest borrower, who has the capacity ton conduct, his business. The study of a borrower involves the study of three Cs of the party.

4.8.1 Character
Character denotes integrity of the borrower; he should willingness to repay the money borrowed. This is the greatest single asset any individual can have and is the first factor to be evaluated. A person who is really honest will rarely change whatever be the testing factors. To know about the borrower, the banker should proceed on the following lines: 1. Who the borrower is and, what is his family background? 2. Is his dealing with other businessmen honest? 3. Are there instances where he was not sincere in honoring his commitments? 4. Does he indulge in speculative activities? 5. What is the reputation of the borrower among his employees?

4.8.2 Capacity:
Capacity means the ability to employ the funds profitably and repay the advance according to the terms and conditions of the sanction. The capacity of the borrower has to be determined and, for these purpose, enquires will be necessary to find out his qualifications and experience in the line which he is working. 45

1. What is his business and when did he start it? 2. Has he recently shifted to a new line of business? 3. Has the required knowledge to carry on the business? 4. Is he well established in the business; what is the working result or is he still making experiments to make his business steady. All these study will enable the banker to arrive at a conclusion, whether the borrower has the capacity to run the business on sound lines.

4.8.3 Capital:
Capital denotes financial soundness. In finance and accounting, capital generally refers to saved-up financial wealth especially that used to start or maintain a business. A financial concept of capital is adopted by most entities in preparing their financial reports. Under a financial concept of capital, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity. Under a physical concept of capital, such as operating capability, capital is regarded as the productive capacity of the entity based on, for example, units of output per day. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power. There are thus three concepts of capital maintenance in terms of International Financial Reporting Standards (IFRS): (1) Physical capital maintenance (2) Financial capital maintenance in nominal monetary units (3) Financial capital maintenance in units of constant purchasing power.

4.9 Credit Information Bureau:

The CIB has been in operation for several years. The need for such an Organization had been discussed for several years and the Government included this in the 46

Financial Sector Reform Project. The central bank established a separate unit headed by a General Manager tasked to develop the CIB. The FSRP worked with the CIB to develop the reporting formats, computer programs, and hardware to support CIBs operations. The CIB is operated by the central bank, as a regular part of the bank. No separate organization was established and so the CIB does not have separate corporate identify. It is staffed with regular employees of the central bank who work in the CIB on rotation of their assignments. There are currently over 40 persons working of the CIB. These are drawn from the statistics, computer and general cadres. All financial institutions submit reports to the CIB on every borrower with a Total exposure of more than one million Taka. This report provides the balance on each facility as of the reporting data and information on the classification of the loaner facility if any. Originally these forms were completed in paper versions by the Banks and forwarded to the CIB. This required a major data entry effort. Recently has required the banks to provide the data on diskettes, which greatly eases the Time that it takes to enter information in the database. [See Annex 3 for the forms Used; these indicate the type of information available to the CIB. There is currently no on-line connection between banks and the central bank. Moreover the classification condition of a loan changes only when the administrative process of classification is executed within the commercial bank. Otherwise, while total exposures may change, the criteria for bad debt only changes with the administrative process of classification. Two databases are maintained by CIB: First the borrower database that lists all companies that have credit facilities. This enables the CIB to review the total exposure of the company with all banks. The second data base is called the owners database; it links the owners i.e. listed owners or directors as reported by the lending bank, to the businesses which they own. Consequently the credit exposures associated with a particular individual can be determined. Building up the database for the businesses was straightforward, as identification of a company is generally simple. The owner's database is more difficult as there are differences in spelling and some room for mistakes in the matching process of Mr. X with Mr. Y. CIB has now successfully built up this database and generally it works well. There is also difficulty from submitted lists of directors and owners, as there is not always an exact correspondence with CIBs records. However, there is great experience built up in resolving these problems although sometimes it takes time to do so. The data collection process is now well organized and the banks are experienced in the collection and 47

submission of data on borrowers.

4.10 Landing Rate:

Name of the Bank: IFIC Bank Limited Statement of Revised rates of interest (Per annum percentage) Effective date: 01.04.2008

Lending Rate (Mid-rate)

1. 2. 3. 4.KA

Agriculture Large & Medium Industry Small Scale Industry Large & Medium Industrial loan

12.00 13.25 14.75 13 1475 7.00 14.75 48

4.Kha Small Scale Industrial loan 5 6. Exports Commercial Lending

7. 8. 9. 10. 11.

Housing Loan Consumer credit Scheme Credit card Lending to non-Banking Financial Institutions(NBFs) Others

14.75 & 16.50 15,15.50 &16.50 2 14.75 14.75

49

CHAPTER FIVE

5.1 RISK MANAGEMENT:

Risk management is the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. Risks can come from uncertainty in financial markets, project failures, legal liabilities, credit risk, accidents, natural causes and disasters as well as deliberate attacks from an adversary. Several risk management standards have been developed including the Project Management Institute, the National Institute of Science and Technology, actuarial societies, and ISO standards. Methods, definitions and goals vary widely according to whether the risk management method is in the context of project management, security, engineering, industrial processes, financial portfolios, actuarial assessments, or public health and safety. The strategies to manage risk include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk. 50

Certain aspects of many of the risk management standards have come under criticism for having no measurable improvement on risk even though the confidence in estimates and decisions increase.

5.2 Main principles:

The assessment of risk is one of the major tasks of banks and other financial institutions. Main risk factors can affect IFIC. The policy of the Board of Directors is to constantly monitor and manage the various risks that IFIC faces in its business. For these purposes the Bank operates a centralized Risk Management Division.

5.3 Structure of Risk Management:

The banks operates Risk Management departments that responsible for processing risk management data for reporting to the Boar, management, analysts and other stakeholders, as well as annual reports and financial statements. The Risk Management departments increased their cooperation substantially for ensuring unification in processes, risk measurements and methodology. Uniform processes enhance the scalability and increase transparency and manageability and thereby aid senior management in their decision making.

5.4 Credit Risk Management:

While financial institutions have faced difficulties over the years for a multitude of reasons, the major cause of serious banking problems continues to be directly related to lax credit standards for borrowers and counterparties, poor portfolio risk management, or a lack of attention to changes in economic or other circumstances that can lead to a deterioration in the credit standing of a bank's counterparties. This experience is common in both G-10 and nonG-10 countries. Credit risk is most simply defined as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms. The goal of credit risk management is to maximise a bank's risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. Banks need to manage the credit risk 51

inherent in the entire portfolio as well as the risk in individual credits or transactions. Banks should also consider the relationships between credit risk and other risks. The effective management of credit risk is a critical component of a comprehensive approach to risk management and essential to the long-term success of any banking organization. For most banks, loans are the largest and most obvious source of credit risk; however, other sources of credit risk exist throughout the activities of a bank, including in the banking book and in the trading book, and both on and off the balance sheet. Banks are increasingly facing credit risk (or counterparty risk) in various financial instruments other than loans, including acceptances, interbank transactions, trade financing, foreign exchange transactions, financial futures, swaps, bonds, equities, options, and in the extension of commitments and guarantees, and the settlement of transactions. Since exposure to credit risk continues to be the leading source of problems in banks world-wide, banks and their supervisors should be able to draw useful lessons from past experiences. Banks should now have a keen awareness of the need to identify, measure, monitor and control credit risk as well as to determine that they hold adequate capital against these risks and that they are adequately compensated for risks incurred. The Basel Committee is issuing this document in order to encourage banking supervisors globally to promote sound practices for managing credit risk. Although specific credit risk management practices may differ among banks depending upon the nature and complexity of their credit activities, a comprehensive credit risk management program will address these four areas. These practices should also be applied in conjunction with sound practices related to the assessment of asset quality, the adequacy of provisions and reserves, and the disclosure of credit risk, all of which have been addressed in other recent Basel Committee documents. While the exact approach chosen by individual supervisors will depend on a host of factors, including their on-site and off-site supervisory techniques and the degree to which external auditors are also used in the supervisory function, all members of the Basel Committee agree that the principles set out in this paper should be used in evaluating a bank's credit risk management system. Supervisory expectations for the credit risk management approach used by individual banks should be commensurate with the scope and sophistication of the bank's activities. For smaller or less sophisticated banks, supervisors need to determine that the credit risk management approach 52

used is sufficient for their activities and that they have instilled sufficient risk-return discipline in their credit risk management processes.

5.5 Lending Risk Analysis (LRA)

LRA is the combination of analysis of various types of risks that may occur while a loan have sanctioned. This is an analysis of the measurement of performance of a company or individuals. When a loan has been provided by the bank then all types of risks have to calculate. This is not easy to express all the pros and corns of LRA are not possible in this report. Before sanctioning a loan it is necessary to analyze the LRA. IFIC Bank has formatted this analysis which several sheets of analysis to identify the strength and weakness and the repayment probability of the lending. LENDING RISK ANALYSIS Business risk Industry risk- Supply Risk & Sales Risk Company risk1) Company Performance Risk & Reliance Risk 2) Management Risk- Mgt. Competence Risk & Mgt. integrity Mgt. Competence Risk 3) Security Risk- security Control Risk & Security Cover Risk

53

CHAPTER SIX

54

6.1 Strength of the organization:

A wide range of business, industries & sector constitute the banks advance portfolio. Major sectors they have extended credit included textile and ready made garments, edible oil, telecom, media & technology shipping, steel & engineering, energy chemical etc. IFIC Bank developed smooth relationship with their clients and corporate business holders. In case of services offered by all private banks in our country, IFIC Bank Ltd, has maintained high quality. Since the govt. has imposed some new rules regarding private banking operation, IFIC Bank Ltd. easily cope up the given rules. Adopting Islamic banking concept gives a new dimension in their services. Regarding contribution towards countrys GDP they have contributed a handsome amount per year. Experience and competing workforce who have expertise knowledge about the bank. Some loyal customer who always bring in new customers. Management consists of knowledge and authoritative personnel. Reputation of the management. Interaction of the employees with the top management.

55

6.2 Weakness of the IFIC Bank:

Problems with General Banking 1. To open an account some times people have given incomplete information which will become a very acute when any dispute arises. 2. Because of good relationship sometime branch manager authenticated the account with introducer. 3. Sometimes title of the account holder differs. Problems with Cash 1. Because of unavailability of notes and coins they cant give the proper services to the potential customers. 2. Big parties or for big amount parties wouldnt tk. 100 notes but the Bangladesh Bank issues mix notes. Problems with Advances 1. In case of advances in different project, the interest rate is too high. 2. Maximum parties have no financial strength. 3. To liquidated the collateral when the party is unable to pay the debit. Sometimes the process of information transferring to the management is lengthy. Only a few number of 4 branches online banking facilities. On the counter services is sometimes unsatisfactory because of not having Enough employees for the counter sector.

56

6.3 Opportunity of the IFIC Bank:

Favorable in this climate by the commercial banking sector in our countries to comparison other business, high funding cost for lending is great opportunity for the bank. Another mentionable opportunity of the PCBs is high grades services in regards of customer service. Besides the NCBs services is very poor and so much traditional. IFIC is going to credit card and ATM facility. It is a sign of product innovation which IFIC can do further and successfully. It has branches abroad which many commercial bank of the country don not have.

6.4 Threat of the IFIC bank:

Recovery Loan: This is a vital thereat for IFIC Bank Limited because the financial market strength of our country is not so strong. As far to recover the lending money and great thereat, because in our country; business chain is so difficult like other countries and depend to other. So if the monetary flow faces any obstacle it hampers the functioning of full chains. As a result recovery face a great thereat for commercial banks as well as IFIC Bank Limited is not out of this thereat. Competitive Deposit collection of Fin Inst. Another mentionable thereat for IFIC Bank limited is competitive deposit collection from the market. We know total fund of our country is limited and foreign earnings ate also not substantial. So as a old but new generation commercial bank of our country the bank is facing a very touch competition for collection of its deposits from the market. It has created new rule for taking deposit from government source. Classification of loan

57

Another major obstacle for banks is its classified loan. Through this picture is not new for this particular bank it is exits to all commercial banks throughout the world. But our country this bad culture created by the NCBs and its impacts conies to the PCBs also. Many new have started operating in Bangladesh causing competition with IFIC. Some other banks are about to start operations as commercial banks shortly.

CHAPTER SEVEN

58

7.1 Findings:
Project loan requires testing of feasibility of project and judging the marketability of the product. It requires infusion of knowledge of both the fields-marketing and banking. But the bank has hardly any person with this kind of ability. A vigorous and comprehensive orientation and training program should be launched to enhance the employees skill because sometime they fail to inform the customer about loan requirements without viewing companys book. Hopefully the management decided to provide fully computerized services that will booster services of the bank. Few offers of the bank are competent. Even through many of them simply know the working procedure of what they are doing but dont know the philosophy behind doing those and some are inefficient to serve the customer.

59

7.2 Recommendation:
The study was limited to some specific variables assuming other variables are insignificant to selection the borrowers. Moreover, in the organization part the area of activities of IFIC Bank Ltd. specifically loans and advance division is highlighted. For the viewpoint of above the following can be recommended: The rules and regulation that a borrower must follow is very difficult and sometimes impossible. So, the bank should procedure easy and understandable to attract the potential customer. In the selection procedure, the new entrepreneur should be encouraged in getting loans and those who have the records of regular repayment may be given preference. Review the borrowers financial position periodically to measure the risk implication from the beginning to full repayment of loan. Not to emphasize on experience of the borrowers as the key factor in providing loan facilities. IFIC Bank Ltd. Can follow the modern banking approach called Unit Banking. Units banking make the rules and regulation for their banking area and applicants are easily fulfilling banks requirement.

7.3 FEW SUGGETATIONS:

IFIC Bank should reduce interest rate for given customer and small enterprise loan. IFIC Bank should reduce interest on overdue amount, which depends on the category of loan. 60

Loan processing of 1%, which is very high, should be reduced. Maximum loan limit size of the bank should increase. At the time disbursement of loan Bank charges 0.50%-0.25 % as service charge that should be reduced. The Bank takes Ltd. Needs to advertise through various media about types of loan offers and other products.

7.4 Conclusion:
Form the learning and experience point of view I can say that I really enjoyed my internship period in IFIC Bank Ltd. At the Banani Br. From the very first day. I am confident that this 3 months internship program will definitely help me to realize my further carrier in the job market. Loans & Advances a bank is not so sufficient to measure and express perfectly within this short time of my internship period. But it is a great opportunity for me to get used to with the loan & Advance Procedure of Commercial banking of IFIC Bank. I have tried by soul to incorporate the necessary relevant information in my report. During the course of my practical orientation I have tried to learn the practical banking to relate it with theoretical knowledge, what I have gathered and going to acquire from various course.

61

CHAPTER EIGHT

62

8.1. BIBLIOGRAPHY
1. Published Article: i. ii. iii. iv. v. Prospectus of IFIC Bank Ltd. Leaflet, booklet and department published documents. Annual report of IFIC Bank ltd.(2008) My daily- daily note book, written during the orientation program. Special project Report- Published by IFIC Bank.

8.2. Web site:

http://www.ificbankbd.com./ http://www.answer.com

63

Appendix - 2 ACRONYMS
@:at the rate of. Acc: acceptance/accepted. ACH: automated clearing house. ADJ: adjustment. AD: authorized dealer/after date. A/O: account of. A/R:all risk. ASST: assistant. A.T.M: automated teller machine. BAL: balance. B.C: bill of collection. BG: bank guarantee. B/E: bill of exchange. B/B L/C: back to back L/C. B/P: bills payable. B/R: bills receivable. BR: branch. C.A.: current account. CAP: capital/capitalization. CLG: clearing. 64

CSH: cash. COM: commission. C.C.: cash credit. C/B: cash book. C&F: clearing and forwarding (agent). CGS: cost of goods sold. CO: company. CO: cash out flow. CR.: credit. CY: currency. DEPT.: department. DIST.: district. DIV.: dividend. DPS: deposit pension scheme. D.D: demand draft. D/W: dock warrant. EXCH: exchange. EXP: expense. FDR: fixed deposit receipt. EXP FROM: export from. F/C A/C: foreign currency account. FCC: foreign correspondent charges. FE: foreign exchange. FIN.: finance. GB: gross benefit/general banking. GC: gross cost. GOVT: government. GP: general profit. HO: head office. HYP: hypothecation. I.E.: that is. 65

IFIC: international finance investment and commerce. IMP: import from. IMP: imports/importers. INT: interest. INV: invoice. IOU: I own you. J/a: joint account. KYC: know your customer.

66