A Study on

Eastern Bank Limited

Prepared for

Mr. Neaz Ahmed

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Associate Professor

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Prepared by
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Nafis Raihan
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BBA 9th Batch

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Roll # 37
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Institute of Business Administration

University of Dhaka

18 June 2005

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 Letter of Transmittal

June 18, 2005

Chairperson
Internship & Placement Program
Institute of Business Administration
University of Dhaka

Subject: Submission of Internship Report

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Dear Sir

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As per requirement of the degree completion, I here by submit my internship report titled A Study
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on Corporate Banking Division of Eastern Bank Limited after completing my internship
successfully in Eastern Bank Limited, Dhaka.
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As instructed I am submitting five copies of the report along with a soft version. Please wish me
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luck in my endeavor to success after four years course in Institute of Business Administration.
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Thank you,
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Nafis Raihan
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BBA 9 batch
Roll # 37
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ACKNOWLEDGEMENT

THE SUCCESSFUL COMPLETION OF THIS REPORT MIGHT NEVER BE POSSIBLE

IN TIME WITHOUT THE HELP SOME PERSON WHOSE INSPIRATION AND

SUGGESTION MADE IT HAPPEN. FIRST OF ALL I WANT TO THANK MY FACULTY

ADVISOR MR. NEAZ AHMED FOR HELPING ME OUT WITH DIRECTIONS TIME TO

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TIME WHEN I NEEDED IT MOST. I ALSO WANT TO THANK THE INTERNSHIP

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AND PLACEMENT OFFICE FOR GIVING ME THE CHANCE TO DO MY INTERNSHIP
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IN EBL WHERE I LEARNED; EVEN WORKING UNDER PRESSURE CAN BE FUN.
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I ALSO WANT TO THANK MR. MD. ABDUL WADUD, SAVP & HEAD OF
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CORPORATE RELATIONSHIP MANAGEMENT UNIT 3, UNDER WHOM I DID MY

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INTERNSHIP. I ALSO WANT TO THANK MR. SYED FAKHRE FAISAL (SRM & AVP
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UNIT - 3), MR. WAHID-BIN AHMED (RM & SPO, UNIT-3), MR. ANISUR ROUF
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(ARM & PO, UNIT3), MR. SHOEB (MTO, UNIT-3), MR. TARIQ (RM, UNIT-4), MR.

SADIQ (MTO, UNIT-4), MR. HUMAYUN (RM, UNIT-5), MR. RIYADH (RM, UNIT-5),

MR. IRFAN (MTO, UNIT-5) AND ALL OTHERS WHO TIME TO TIME HELPED ME

TO DO MY WORK.

WITHOUT THE HELP AND SUPPORT OF THESE PEOPLE THIS REPORT MIGHT

NEVER SEE THIS COMPLETION.

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EXECUTIVE SUMMERY

THIS REPORT WAS ORIGINATED IN RESULT OF MY INTERNSHIP, WHICH I DID, AS

MUST REQUIREMENT OF BBA PROGRAM. THIS REPORT WAS DONE BASED ON MY
LEARNING OF 10 WEEKS INTERNSHIP IN CORPORATE BANKING DIVISION IN EASTERN
BANK LIMITED. THE OBJECTIVE OF THIS REPORT WAS TO GAIN KNOWLEDGE ABOUT
EBL AND ITS CORPORATE BANKING DIVISION AND THUS ANALYZING THE DIVISION,
FINDING POSSIBLE PROBLEMS IN THE DIVISION AND SUGGESTING POSSIBLE
SOLUTION BASED ON THE KNOWLEDGE I GATHERED IN THE BBA COURSES. TO DO

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THIS I WORKED IN CORPORATE BANKING RELATIONSHIP MANAGEMENT UNIT3 IN

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DHAKA AREA AND USED OBSERVATION TECHNIQUE WITH INFORMAL UNSTRUCTURED

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INTERVIEWS FROM TIME TO TIME. BIGGEST PROBLEM I FACED TO DO THIS REPORT
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WAS THE EMPLOYEES WERE RELUCTANT TO GIVE INFORMATION IN FEAR OF LEAKING
CLIENT DATA.
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EASTERN BANK LIMITED (EBL) IS THE SUCCESSOR OF BANK OF CREDIT AND

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COMMERCE INTERNATIONAL (OVERSEAS) LIMITED. IN 191 WHEN THE BANK

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COLLAPSED INTERNATIONALLY THE OPERATION OF THIS BANK WAS TAKEN OVER BY

EBL WITH ALL ITS ASSETS AND LIABILITIES. SINCE THEN IT IS SUCCESSFULLY
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OPERATING ITS OPERATION. NOW IT HAS 22 BRANCHES ALL OVER BANGLADESH AND
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CONCENTRATING ON CORPORATE, CONSUMER AND TREASURY BANKING.

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THE CORPORATE BANKING DIVISION IS MAINLY DIVIDED INTO TWO AREA DHAKA
AND CHITTANGONG. DHAKA HAS FOUR UNITS WHERE CHITTAGONG HAS ONLY ONE
UNIT. THEIR JOB IS TO DO BUSINESS WITH THE BIGGER CORPORATE HOUSES WITH
WHOM THEIR BUSINESS CREDIT AMOUNT EXCEEDS BDT 5 (FIVE) CRORE. THE
TREASURY DIVISION DEALS WITH FUND MANAGEMENT I.E. MONEY MARKET DEALING
AND LC PAYMENTS. THEY ARE ALSO RESPONSIBLE FOR MAINTAINING THE
STATUTORY REQUIREMENTS WITH BANGLADESH BANK. CONSUMER BANKING
DIVISION DEALS WITH THE FINANCIAL NEEDS OF INDIVIDUAL CUSTOMERS. THE

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TWENTY-TWO BRANCHES OF EBL, WHICH ARE NOW TERMED AS THE SALES &
SERVICE CENTERS PRINCIPALLY FOCUS ON RETAIL BANKING BASED ON
RELATIONSHIP WITH INDIVIDUAL CUSTOMERS.

AMONG THE OTHER DIVISIONS THEM MAJOR DIVISIONS ARE CREDIT RISK
MANAGEMENT WHO ANALYZE THE RISK INVOLVED IN CREDIT BUSINESS. CREDIT
ADMINISTRATION DIVISION WHICH LOOKS AFTER THE PROPER DISBURSEMENT OF
CREDITS. BRAND MANAGEMENT DIVISION LOOKS AFTER THE IMAGE OF EBL. FINANCE
DIVISION LOOKS AT THE CORE FINANCIAL ACTIVITIES OF EBL. HUMAN RESOURCE
DIVISION IS ENGAGE TO ENRICH THEIR HUMAN RESOURCES FOR WHICH THEY

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DEVELOPED THEIR OWN SLOGAN EMPLOYEE OF CHOICE. SPECIAL ASSET

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MANAGEMENT DEALS WITH THE CLASSIFIED ACCOUNTS. THE OPERATIONS DIVISION
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CONSISTS OF SERVICE DELIVERY, TRADE SERVICE, TREASURY SUPPORT DIVISION
AND IT DIVISION. THESE SUBDIVISIONS PROVIDE SUPPORT TO THE FRONT OFFICE
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FUNCTIONALITIES. THE INFORMATION TECHNOLOGY DIVISION DEALS WITH

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IDENTIFYING THE NEED AND DEVELOPING SOFTWARE FOR THE BANKS OPERATION,
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ITS MAINTENANCE AND PURCHASE OF NEW SOFTWARE RIGHTS, MAINTAINING THE

COMPUTERS AND UPGRADE THEM WHENEVER REQUIRED AND TRAINING THE STAFF
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FOR OPERATION OF COMPUTERS AND PREPARING TRAINING MATERIALS. THE

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INTERNATIONAL DIVISION IS RESPONSIBLE FOR HELPING IN IMPORT AND EXPORT

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BUSINESSES ON ACCOUNT OF THE CUSTOMERS OF THE BANK.

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THE CORPORATE CULTURE OF EBL IS A EASY GOING ONE. HUMAN RELATIONSHIP AND
SIMPLICITY IS OF GREAT VALUE TO THEM. THAT IS WHY THEY DEVELOPED A SLOGAN
SIMPLE MATH, THE PHILOSOPHY OF EASY BANKING. WHILE CELEBRATING THE 10TH
ANNIVERSARY IN 2002, EBLS LOGO WAS CHANGED TO REFLECT THE
RESTRUCTURING AND THE TRANSFORMATIONS IT IS GOING THROUGH; THE COLORS
OF THE NEW LOGO SIGNIFY THE VIBRANT GREEN OF MOTHER EARTH, A BLUE SKY
FULL OF POSSIBILITIES AND A YELLOW RISING SUN OF HOPE.

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EBL is in the business of providing banking service and is changing its approaches to
become more and more customer focused. At present EBL offers a variety of
services/products for the retail customers as well as for corporate clients. Currently they
are providing four types of services: Savings and Current Accounts, Fund Transfer,
Securities and Commercial Lending.

Although EBL is a banking business they do not promote them aggressively like the other
banks. They rather believe in focused customer group and target them as their
employees. But as now they are planning to go for large-scale consumer banking, they
will need to build strong brand image through promotions in near future.

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The strengths of EBL are its functional operation focused business matrix structure,

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centralized decision-making process and superior IT platform. But the unimpressive
branch layout and inadequate marketing approach is their weakness. Still EBL can exploit
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their opportunity of being the early mover of Internet banking which they introduced for
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the first time in Bangladesh. They can implement some innovative products too and
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draw clients. The greatest threat that EBL posses are from the failure of identifying
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opportunities that they have proven to be not so keep of. Again another threat might be
the technological obsolesce of the high cost IT platform that they implemented.
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The corporate division of EBL generates about 70% of the Banks revenue and the main
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focus of EBLs business. Corporate divisions main functions are targeting corporate
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clients and building business relationship with them, evaluating financial strength of the
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clients, designing customized service for the clients and making possible
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recommendations for further financial expansion. The relationship units are the main
units in corporate banking, which consist one RM, one or two ARM and a unit head who
reports directly to Head of Corporate Banking. The two other subdivision of Structured
Finance and Project Finance Division who deals with Syndication process and Project
Appraisals mainly. The other non-corporate division and subdivision on which corporate
activity are dependent are Cridit Risk Management, Credit Administration, IT Division,
International Division, Marketing Division, R&D Division and Consumer Banking Division.

EBL always follow participative leadership. So the corporate division employees are
always welcome to take initiative and do things if it aligns with the betterment of the

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organization. Corporate Division employees enjoy a good deal of autonomy about
decision-making. Their job is supported with state of the art banking software Flexcube
through this they can track their clients transactions online. As all 22 of the branches are
connected with this software it makes monitoring and controlling job easier. EBL believes
in their clients satisfaction. They are ready to lengths in order to maintain their clients
satisfaction provided it is not risky and not unlawful. They are not that much in
advertising them selves, as they believe in peoples network. But their plan to go
aggressive consumer banking might need for aggressive public advertising.

EBLs Corporate Banking has a unique culture. They believe in peoples network and
respect leadership and fellowship at the same time. The employees are very closely

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bonded and possess a we feeling. Most of the employee has high satisfaction in their

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job and are high performer.
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In EBL both upward and downward communication is in use. The targets, policies and
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procedures are communicated downward. The feedbacks and suggestion or proposals of

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some thing new are communicated upward. The percentile of data loses in upward
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communication is very low and this kind of communication is very much appreciated.
When the bank communicates to external sources they rely on lateral communication
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mainly. Letters and Faxes are the most common media in these cases. Use of Phones
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and E-mails are not uncommon. The internal communication in EBL is of Grapevine
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structure. Most of the communications are done on point-to-point basis via e-mail and
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phones. In EBL e-mail gets the same importance as of a written document and printout
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of e-mails are documented. In case of RM and ARM wheel structure of communication is

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very common. As they have the sole responsibility for their clients, they move from
divisions to division to get their work done faster and surely, so that they can provide
services to their clients in no times.

In EBL both formal and informal groups can be seen. As the organogram generates
formal group, the informal group are generated from work dependency and personal
relationship. The employees feel motivated as their effort are properly recognized and
rewarded. The working environment is very friendly and comfortable. Peoples are very
helpful. The employees also get to exercise decision-making. In EBL both short-term and
long-term goals are well communicated to the employees this helps the employees to

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visualize their roles contribution to the big picture. It is also a big motivational drive for
them.

The employees of EBL are ready to perform, as they are happy with the reward and
remuneration they get. But since the salary structure is not changed for the last few
years, it is loosing its competitiveness and should be upgraded soon specially the
insurances. Most of the employees know each other and feels home like in EBL as many
have them have very close interpersonal term with each other. The job security is high
in EBL. Thus the employees of EBL are extremely happy about their organization and
corporate banking division is no exception.

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The Corporate Banking Division of EBL has its own strengths and weakness. EBL

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corporate divisions strength is its structures within which they can set strategies for
growth, asset quality, arrange low cost funding; maximize customer earnings and flatter
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structure. Centralization of decision-making is another strength as it ensures faster
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decision making and service deliver.

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IN THE NEW STRUCTURE EACH FUNCTIONAL DIVISION IS FLAT WITHIN THE DIVISION
AND DELEGATION OF AUTHORITY IS ALSO CENTRALIZED. IT HAS A SIGNIFICANT
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EFFECT OVER THE CORPORATE DIVISION EMPLOYEES BECAUSE MID AND LOW-LEVEL
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PERSONNEL ARE BECOMING FRUSTRATED AS THEY ARE LOOSING THEIR DECISION

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MAKING POWER. IN THIS SITUATION IF EBL FAILS TO KEEP THE EMPLOYEES

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MOTIVATED THEN THEIR SERVICE MIGHT SERIOUSLY BE HAMPERED AND THERE WILL
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BE A RISK OF HIGH TURNOVER AMONG EMPLOYEES.

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The economy of Bangladesh is booming. The recent increase in GDP is an indication of

that. Thus more and more corporates are emerging in the scene that can very well be
prospective corporate clients for EBL. If EBL can identify prospective future corporate
clients and can focus on doing business with them, it my proof profitable for them in
future. Recent growth in Small and Medium Enterprise financing indicates that there are
going to be some strong but new corporate houses emerging in the markets.

With the changes in business environment, the ways of doing business is changing. The
competing banks are aggressively developing new products, which will facilitate the

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purposes of the corporate houses. But EBLs R&D division is weak and not producing
much to attract corporate clients. If EBL dont develop new products to provide more
facilities to corporate houses or if they dont offer custom made products to their clients,
they may well be bitten by competitor banks and may loose clients to other banks. This
may seriously hamper the profitability of EBL.

Though EBLs corporate banking division is doing well in the market, it is not free from
problems. The main problems of corporate banking are too many corporate clients per
unit, multidimensional corporate clients per unit, slow paced output of the other
divisions, in appropriately trained employees of IT division, no definite process of
executing jobs and lack of internal growth. Despite these problems EBLs corporate

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divisions are still the strongest division in EBL and an asset for the bank.

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 TABLE OF CONTENTS

PART A: INTRODUCTION
1.1 PROLEGOMENON 1
1.2 ORIGIN OF THE REPORT 2
1.3 OBJECTIVES OF THE STUDY 3
1.4 METHODOLOGY 3
1.5 SOURCES OF DATA 3
1.6 SCOPE 3
1.7 LIMITATION
1.8 ORGANIZATION OF THE REPORT 4

PART B: ORGANIZATION

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2.1 HISTORICAL PROFILE OF EBL 5

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2.2 CURRENT PROFILE OF EBL 5
2.2.1. CORPORATE BANKING DIVISION 6

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2.2.2. TREASURY DIVISION 6
2.2.3. CONSUMER BANKING DIVISION SU 6
2.2.4. CREDIT RISK MANAGEMENT DIVISION 7
2.2.5 BRAND MANAGEMENT DIVISION 7
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2.2.6 FINANCE DIVISION 7

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2.2.7. HUMAN RESOURCES DEPARTMENT 8

2.2.8 SPECIAL ASSET MANAGEMENT DIVISION 9
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2.2.9 OPERATIONS 10
2.2.10 AUDIT AND COMPLIANCE DIVISION 10
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2.2.11 CREDIT ADMINISTRATION DIVISION 10

2.2.12 INFORMATION TECHNOLOGY DIVISION 10
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2.2.13 INTERNATIONAL DIVISION 11

2.3. CORPORATE CULTURE OF EBL 11
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2.3.1. VISION OF EBL 11

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2.3.2. MISSION STATEMENT OF EBL 11

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2.3.3. EASTERN BANKS VALUES 11

2.3.4 MANAGEMENT AND ORGANIZATIONAL STRUCTURE OF EBL 12
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2.4 MARKETING PROGRAM OF EBL 12

2.4.1 PRODUCT PROFILE OF EBL 12
2.4.1.1 SAVINGS & CURRENT ACCOUNTS 12
2.4.1.2 FUND TRANSFER 13
2.4.1.3. SECURITIES 13
2.4.1.4. COMMERCIAL LENDING 13
2.4.2 PROMOTION 14
2.4.3. DISTRIBUTION 14
2.5. FINANCIAL PROFILE OF EBL 15
2.5.1. INVESTMENTS 15
2.5.2 EQUITY PROFILE 15
2.5.3. ASSETS OF EBL 15
2.6 GROWTH AND DEVELOPMENT PROFILE OF EBL 16
2.6.1. GROWTH IN SALES VOLUME 16
2.6.2. GROWTH IN ASSETS 18

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2.7. SWOT OF EASTERN BANK LTD 19
2.7.1. STRENGTHS OF THE ORGANIZATION 19
2.7.2. WEAKNESSES OF THE ORGANIZATION 19
2.7.3 OPPORTUNITIES FOR EBL 20
2.7.4 THREATS 21

PART C: PROJECT
3.1 INTRODUCTION 22
3.1.2 PRINCIPLES OF LENDING 22
3.2 CORPORATE DIVISION 24
3.2.1 GENERAL INFORMATION 24
3.2.2 THE PAPERS CORPORATE PREPARES 24
3.2.3 CREDIT PRODUCTS 27
3.2.4 MODES OF CHARGING SECURITY 29

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3.2.5 LOAN PROCESSING COST 31

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3.2.6 LOAN PROCESSING TIME 31

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3.2.7 BOOKS MAINTAINED 32

3.3 CREDIT RISK MANAGEMENT DIVISION SU 33

3.3.1 GENERAL INFORMATION 33
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3.3.2 CONSIDERATIONS OF CRMD 33
3.3.3 OBLIGOR RISK RATING IN EBL 35
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3.3.4 CLASS OF RISK 39

3.3.5 POLICY EXCEPTION 40
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3.3.6 RATIO ANALYSIS 41

3.3.7 BOOKS MAINTAINED 43
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3.4 CREDIT ADMINISTRATION DEPARTMENT 44

3.4.1 GENERAL INFORMATION 44
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3.4.2 LOAN DISBURSEMENT 44

3.4.3 LOAN SUPERVISION 45
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3.4.4 MONITORING 45
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3.4.5 LOAN ADJUSTMENT 45

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3.4.6 RECOVERY 45
3.4.7 SOME OTHER CASES 46
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3.4.8 CHARGE DOCUMENTS 46

PART: D CONCLUSION & RECOMMENDATIONS 52

APPENDIX 54

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 PART A: INTRODUCTION

1.1 PROLEGOMENON
Linguistics and etymology showed that both French word banque and Italian word banca
were used 2,000 years ago to mean a bench or money changing table. Those first
bankers were moneychangers situated at a table aiding travelers who came to town by
exchanging foreign coins for local money or discounting commercial notes for a fee in
order to supply merchants with working capital. Afterwards came the idea of attracting
deposits and securing temporary loans for earning interest. And by offering these
services banks has survived two thousand years! In the mean time other competitors

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have arrived in the arena of lending business--- governmental agencies, credit unions,

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cooperatives, insurance agencies, financing companies etc. But banks are still in the

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scenario. Theorists ask that what essential services banks provide that other businesses
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and individuals cannot provide themselves. Financial economists explain this by pointing
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to imperfections in the financial system. For example, all loans and securities are not
perfectly divisible into small denominations that everyone can afford, while perfect
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market requires equal power of the participants. Banks provide a valuable service in
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dividing up such instruments into smaller securities in the form of deposits that are
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readily affordable for small savers. Another contribution banks make is their willingness
to accept risky loans from borrowers, while issuing low-risk securities to their depositors.
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Banks also satisfy the strong need of many customers for liquidity. Financial instruments
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are liquid if they can be sold quickly in a ready market with little risk of loss to the seller.
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Banks play this unique role by offering high liquidity in the deposits they sell and in the
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loans they provide. Still another reason banks have existed in their superior ability to
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evaluate information. Some borrowers and lenders know more than others, so they can
choose exceptionally profitable investments and avoid poorest ones. These informational
asymmetries reduce the efficiency of markets, but provide an important role for banks
that have the expertise and experience to evaluate financial instruments and to choose
those with the most desirable risk-return features.
Modern banks play an important part in promoting economic development of a country.
They collect savings of mass people scattered through out the country and provide
necessary funds for executing various programs underway in the process of economic
development. Economic history shows that development has started everywhere with the
banking system and its contribution towards financial development of a country is highest
in the initial stage. Schumpeter (1933) regarded the banking system as one of the two

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main agents (other being entrepreneurship) in the whole process of development.
Alexander Gerschenkron (1962) in his popularly known Gerschenkrons Hypothesis
explained the banking system as the key role player at certain stage of the
industrialization process.
Leaving aside the generalizations made above, the case studies of some particular
developed countries also show the useful roles played by the banks in economic
development process of those countries. Prior and after World War II, Japan
experienced very high rates of both industrial production and per capita income.
Takeuchi (1970) credited Japanese banking system with making vital contributions to
that growth.

So banks are still there and they are worth serious study.

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1.2 ORIGIN OF THE REPORT SU
After completion of 8 semesters in IBA to complete BBA Program, 10 weeks
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organizational attachment is a must and I was placed in the Head Office at Corporate
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Banking Division of Eastern Bank Limited (EBL). Only theoretical knowledge without any
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practical experience makes a person sterile. On the other hand a person having practical
experience but no theoretical exposure keeps him blind. The internship program is
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designed to overcome such sterile position. This program gives the chance to fulfill the
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theoretical knowledge that is acquired from class lectures, books, journals etc. in the
practical settings. Here, I got an opportunity to realize the relevance and usefulness of
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the classroom learning as I was placed in the Easten Bank Limited for 10 weeks starting
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from March 01, 2005 to May 07, 2005.

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1.3 OBJECTIVES OF THE STUDY

Objectives of the study are summarized in the following manner

a. To analyze the performance of the Eastern Bank as a whole.
b. To examine the Corporate Banking procedures practically.
c. To acquire in-depth knowledge, over EBLs Corporate divisions work flow and
their inter division dependencies.
d. To provide possible solutions of problems that exists in the current organizational
setup.

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1.4 METHODOLOGY

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This report has been prepared on the basis of experience gathered during the period of

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internship form March 01 to May 07 in the Head Office of Eastern Bank Limited at Corporate
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Banking Division. The observational technique will be used widely and primarily to conduct
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the research. The work procedure of the corporate sub-divisions will be observed closely to
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gain an idea over their work procedure.

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1.5 SOURCES OF DATA

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Sources of information for writing this report are:

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a. Personal experience gained by visiting different desks & departments.

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b. Study of the old files.

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c. Different Instructions Manuals published by Eastern Bank.

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d. Personal investigation with bankers.

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e. The documents I have assisted to prepare e.g. Proposals, Sanction Letters,

Application for Limits etc.
f. Annual Reports published by EBL

1.6 SCOPE
This report is done only on the corporate banking division of EBL. Again among EBL only
the area -1 (Dhaka region) is considered. Area -1 has 5 (five) units, four of which is
situated in Dilkusha C/A and one in Gulshan. This report focuses only on the four units of
Dilkusha C/A due to access in data, convenience and time constraints.

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1.7 Limitation
The major limitation of this report is that no previous study is done beforehand on EBLs
corporate division. So no secondary study material was available. The study is heavily
relied on observational method, which has its own disadvantages, and not a very
effective method. The corporate division is not very well structured and has anomalies in
practices among the sub-units. Employees of corporate divisions were reluctant to give
information, as they are afraid that their clients information might get licked outside. The
non-corporate division employees were even more reluctant to disburse information.
More over the time span to do the research was very short.

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1.8 ORGANIZATION OF THE REPORT SU
This report is broadly organized into three broad parts. The first part is on the
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introductory part. The second part is on the overview of the organization itself. The third
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part concentrates on the research project. Finally fourth and final part contains the
recommendations and the conclusion
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 PART B: ORGANIZATION

2.1 HISTORICAL PROFILE OF EBL

Eastern Bank Limited was incorporated as a public limited company and a scheduled
bank on 16 August 1992 to commence business. EBL is the successor of BCCI. In 1991
when BCCI collapsed internationally, the operation of this bank closed down in
Bangladesh. After discussions with BCCI employees and taking into consideration the
depositors and customers interests, Bangladesh Bank gave permission to form a bank
named Eastern Bank Limited by taking all assets and liabilities of erstwhile BCCI
(Overseas). It was established under the Bank of Credit and Commerce

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International (Overseas) Limited (Reconstruction) Scheme formulated by

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Bangladesh Bank. EBL started business with four branches-Principal Branch, Motijheel
Branch, Agrabad Branch and Khulna Branch and had authorized capital of TK.1000
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million with 10 million shares of TK. 100 each and of paid up capital of TK.310 million.
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The paid up capital increased to TK. 600 million in 1994. The first Board of Directors
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constituted of 7 directors of Bangladesh Government. Mr. Nurul Hossain Khan was the
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chairman and Mr. Ghiyasuddin Ahmed was Managing Director.

In 1993, EBL started its expansion of branches. The bank got its Authorized Dealership
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License from Bangladesh Bank on 7th July 1993. Six new branches opened in 1994 and
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three in 1995. the very next year they inaugurated two more branches. Their number of
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branches reached to twenty-one (21) as they open five more branches in 1997. Since
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then they only opened one more branch that was in 2001. Still now they are operating
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with 22 branches.
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2.2 CURRENT PROFILE OF EBL

At present, the bank has 22 branches throughout the country with 500 employees. The
existing Board of Directors has 12 members. Mr. M. Ghaziul Haque is the Chairman of
Board and Mr. K Mahmood Sattar is the Managing Director.
EBL is currently going through a restructuring stage where the traditional Branch
Banking System is gradually discarded and being replaced by a Centralized System. Till
2000, EBL operated in a Geographical Matrix where the business of the bank was
concentrated in the twenty- two branches. In 2001, the management of EBL changed it

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business philosophy into Business Matrix. The main three businesses that the bank is
now concentrating on are:
Corporate
Consumer
Treasury

2.2.1. CORPORATE BANKING DIVISION

Corporate Banking Division of EBL caters to the needs of corporate clients. The entire
corporate division is divided into three broad areas: Area-1 that comprises of Dhaka,
Area-2 that comprises Chittagong and Area-3 that comprises of Outstation Branches i.e.

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the branches in areas other than Dhaka and Chittagong. There are five units in Area-1,

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while Area-2 has three units. Also there are Small Business Unit (SBU) in Dhaka and
Agrabad (Chittagong). All the units are operated from the Corporate Banking Division at
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Head Office. In general this divisions functions are:
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Targeting corporate clients and building business relationship with them

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Evaluating financial strength of the clients

Designing customized service for the clients
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Making possible recommendations for further financial expansion

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2.2.2. TREASURY DIVISION

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The Treasury Division of EBL deals with fund management i.e. money market dealing
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and LC Payments. They are also responsible for maintaining the statutory requirements
with Bangladesh Bank.

2.2.3. CONSUMER BANKING DIVISION

Consumer Banking Division deals with the financial needs of individual customers. The
twenty-two branches of EBL, which are now termed as the Sales & Service Centers
principally focus on retail banking based on relationship with individual customers. This
divisions principal functions are:

- 17 -
 New Product Development
Brand Management
Maintenance of CASA and HP Accounts
Providing Consumer Loan
Providing Locker Services

Beside these 3 business units several ancillary units are present which support the
business units in day-to-day activities. They are:

2.2.4. CREDIT RISK MANAGEMENT DIVISION

This division is responsible for evaluating the credit worthiness and debt payment
capability of present loan customers and loan applicants. The department also monitors

M
the risk worthiness regularly. The branches send all proposals from the prospective

O
borrowers to the corporate division, which in turn analyze the financial statements and

.C
prepare credit memorandum, application for limit, account profitability and other
SU
necessary papers and send them to the Credit Risk Management division for approval.
-N
The department keeps track of credit portfolio by obtaining regular information from the
branches. It sets price for credits and ensures its implementation at the branches. This
:E

department also monitors the various loan accounts of the branches and prepares
om

various statements for Bangladesh Bank.

Fr
ed

2.2.5 BRAND MANAGEMENT DIVISION

ct
le

The Brand Management division is a secondary unit of consumer division and is

ol

responsible for all activities related to managing the organizations brand and building
C

brand equity. It designs the logo, greeting cards and official stationary and prepares
promotional plan and budget.

2.2.6 FINANCE DIVISION

Finance division of the bank is responsible for:

Budgeting and Cost Monitoring

Planning and monitoring the banks liquidity
Corporate Tax management
Monthly-accrued interest calculation of all interest bearing accounts

- 18 -
 Amortization of all fixed and other assets,
Central bank & other statutory reporting,
Management reporting (MIS),
Preparation of various financial statements
Weekly deposit and advance analysis of the bank,
Cost of fund analysis,
Maintenance of accounts,
Preparation of annual report of the bank,
Maintenance of provident fund accounts,
Maintenance of income and expenditure posting,

2.2.7. HUMAN RESOURCES DEPARTMENT

At present around 500 people are employed in EBL. All aspects of the employees are

M
looked after by the Human Resources Department. HR Department is responsible for

O
.C
recruitment and development of staff members.
SU
The Mission Statement of HR Division is:
-N
:E

Employee of Choice
om

We will inculcate a high performance culture where we will

Fr

work with fun and pride.

ed
ct
le

HR Department carries out the following functions:

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C

To identify the need and recruiting new human resources.

To take care of all formalities regarding appointment and joining of the
successful candidates.
Training, Remuneration, Compensation, Promotion, Demotion,
Termination, Retirement and Transfer of human resources. In 2004 16
in-house training programs were designed and executed. Also EBL
employees participate in different external courses offered by BIBM,
Bangladesh Bank Training Academy, Chambers, Export Promotion
Bureau etc. HR department introduced a voluntary separation scheme
to address the overstaffed scenario in 2001. The intended employees
were offered severance packages and end service benefits.
To maintain personal files of all employees of the bank.

- 19 -
 CHAIRMAN (1)

BOARD OF DIRECTORS (11)

MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER (1)

EXECUTIVE VICE PRESIDENT (3)

SENIOR VICE PRESIDENT (16)

VICE PRESIDENT (15)

M
SENIOR ASSISTANT VICE (11)

O
FIRST ASSISTANT VICE (23)

.C
PRESIDENT
SU
ASSISTANT VICE PRESIDENT (57)
-N
SENIOR PRINCIPAL OFFICER (63)
:E

PRINCIPAL OFFICER (74)

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SENIOR OFFICER (72)

Fr

OFFICER (35)
ed

SUPERVISORY OFFICER (38)

ct

JUNIOR OFFICER (35)

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ol
C

FIGURE1: EBL ORGANOGRAM

2.2.8 SPECIAL ASSET MANAGEMENT DIVISION

Special Asset Management Division (SAMD) is responsible for management of all

accounts, which are classified in the banks loan portfolio. The classifications are Sub-
standard, Doubtful and Bad & Loss. SAMDs responsibility covers the areas of monitoring
and controlling the classified accounts, actively following up with the borrowers for
recovery, negotiating and restructuring/ rescheduling debts wherever feasible.

- 20 -
2.2.9 OPERATIONS

The Operations division consists of Service Delivery, Trade Service, Treasury Support
division and IT division. These subdivisions provide support to the front office
functionalities.

2.2.10 AUDIT AND COMPLIANCE DIVISION

This division provides legal assistance to the branches and formulates strategy for
classified loans and ensures observance of rules and policies by all stakeholders of the
bank through routine and surprise inspection and audit.

M
O
.C
2.2.11 CREDIT ADMINISTRATION DIVISION
SU
Credit Administration Division deals with Credit Administration, Loan Monitoring and
-N
Documentation. Credit Administration entails post-approval functions of the division,
:E

which are monitoring credit expiry, dues, excess over limit, document deficiency and
reporting the deficiencies. Loan monitoring part entails follow-up on approval terms,
om

proper disbursement, monitor interest payments, monitor principal repayment and

Fr

maintaining balance with general ledger. Documentation function entails ensuring that
ed

proper loan documents are present, filing with the Registered Joint Stock Corporation
(RJSC) and executing registered mortgage deed.
ct
le
ol

2.2.12 INFORMATION TECHNOLOGY DIVISION

C

The Information Technology Division deals with identifying the need and developing
software for the banks operation, its maintenance and purchase of new software rights,
maintaining the computers and upgrade them whenever required and training the staff
for operation of computers and preparing training materials. Presently the IT Division is
carrying out batches of training program to introduce the integrated banking software
called Flex Cube. A team from iflex Solutions India is assisting EBL with this software.

- 21 -
2.2.13 INTERNATIONAL DIVISION

The International Division is responsible for helping in import and export businesses on
account of the customers of the bank. It also deals with all the correspondents of foreign
banks, which have account with the bank.

2.3. CORPORATE CULTURE OF EBL

2.3.1. VISION OF EBL

The management of EBL as a part of the restructuring program rephrased the banks
vision in 2001. Before that the bank did not have any structured vision and mission
statement. Now EBLs vision is:

M
O
To become the bank of choice by transforming the way

.C
we do business and developing a truly unique financial
SU
institution that delivers superior growth and financial
-N
:E

performance and be the most recognizable brand in the

om

financial services in Bangladesh.

Fr
ed

2.3.2. MISSION STATEMENT OF EBL

ct

The Mission of EBL states:

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ol

We will deliver service excellence to all our customers, both internal and
C

external.
We will constantly challenge our systems, procedures and training to maintain
a cohesive and professional team to order to achieve service excellence.
We will create an enabling environment and embrace a team-based culture
where people will excel.
We will ensure to maximize shareholders value.

2.3.3. EASTERN BANKS VALUES

EBLs Value Statement does not claim to be No. 1 in banking or The most Superior in
banking. Rather it simply maintains Simple Math, the Philosophy of Easy Banking.
While celebrating the 10th anniversary in 2002, EBLs logo was changed to reflect the
restructuring and the transformations it is going through; the colors of the new logo

- 22 -
signify the vibrant green of mother earth, a blue sky full of possibilities and a yellow
rising sun of hope.

2.3.4 MANAGEMENT AND ORGANIZATIONAL STRUCTURE OF EBL

The Board of Directors establishes the objectives and policies of the bank. It has the
authority to declare dividend, to approve the balance sheet, etc. The Chairman informs
the board of directors on the progress of the bank and implements the policies
established. The board is not directly concerned with the day-to-day operation of bank
rather it has delegated authority to its management committee. There are three
committees of the board for different purposes, which are:

M
O
1. Executive Committee comprising of seven members of the board

.C
2. Committee of the board for Administrative Matters
3. Committee to examine Bad Loan Cases
SU
-N

2.4 MARKETING PROGRAM OF EBL

:E
om

2.4.1 PRODUCT PROFILE OF EBL

Fr

EBL is in the business of providing banking service and is changing its approaches to
ed

become more and more customer focused. At present EBL offers a variety of
ct

services/products for the retail customers as well as for corporate clients. There are four
le

categories of services in EBL:

ol
C

Savings and Current Accounts

Fund Transfer
Securities
Commercial Lending.

2.4.1.1 SAVINGS & CURRENT ACCOUNTS

Savings Accounts
High Performance Account (HPA)
Short Term Deposits (STD)
Fixed Deposits (FDR)
Current Deposits for Individual
Current Deposits for Partnership

- 23 -
 Current Deposits for Joint Account
Current Deposits for Limited Companies

2.4.1.2. FUND TRANSFER

Fund transfer includes the following services:

Demand Draft (not available under new system)

Mail Transfer (not available under the new system)
Telegraphic Transfer (not available under the new system)
Payment Order
Sale of Travelers Cheque

M
O
2.4.1.3. SECURITIES

.C
It includes the following services:
SU
Sale of Bangladesh Sanchaya Patra, Pratirakkhya Sanchaya patra, ICB
certificates, etc
-N

Encashment of different Sanchaya Patra, ICB certificates, etc.

:E
om

2.4.1.4. COMMERCIAL LENDING

Fr

Fast Loan
Fast Cash
ed

Payment against Documents (PAD)

ct

Cash Credit (CC/HYPO)

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Acceptance against (ULC)

ol

Own Acceptance Purchase (OAP)

C

Local Bill Purchased-Documentary (LBPD)

Foreign Bill Purchased-Documentary (FBPD)
Loans against Foreign Bill-Documentary (LAFBD)
Sight Letter of Credit (SLC)
Usance Letter of Credit (ULC)
Letter of Guarantee (LG)
Packing Credit against Export L/C & Export Order (PC), etc

The Product Development team of consumer banking division is currently working on

designing credit products like EBL Monthly Income Plan (MIP), Savings Insurance
Schemes, Monthly Deposit plan, Retail loans, Unsecured Consumer loans, Loans for
Professionals, Car Loans. Several of these will be introduced during the 11th anniversary

- 24 -
of EBL in August. Also new services like Automated Teller Machine (ATM), Telephone
Banking, Online Banking, Credit Card Facility, Sweep in-out Facility etc will be introduced
by the end of July 2003.

2.4.2 PROMOTION

Although EBL is in the banking business for quite sometime its brand image has not
grown strong and in order to succeed in the competitive bank environment it needs
enrich its brand equity. So far EBL has shunned any sort of promotional tools except for
a few inconspicuous billboard advertisements, signboards and newspaper recruitment
ads. However a new department called Brand Management has been set up in 2001 to

M
give a new and enhanced brand identity to EBL. This department supervises the

O
planning of advertisement campaigns for EBLs products and analyzing customer

.C
feedbacks. With the aid of a advertising agency the logo and stationary of EBL has been
SU
changed and eye-catching brochures, calendars and posters have been prepared which
-N
are displayed at the sales & service centers.
:E
om

2.4.3. DISTRIBUTION
Fr

EBLs 22 branches are now termed as Sales & Centers, which will all be connected
ed

through the network by mid July 2003. After that the customer can make transactions
ct

from any branch they desire.

le
ol
C

Chart1: Growth of Distribution Outlets

25

20

15 21 21
21 21 22 22 22
10 14 16

0
1995 1996 1997 1998 1999 2000 2001 2002 2003

Chart 1: Distribution Outlets

- 25 -
2.5. FINANCIAL PROFILE OF EBL

2.5.1. INVESTMENTS

The quantum of investment of bank stood at taka 3611 million in 2003 from taka 2268
million of 2002, thus registering an increase of 60%.

2.5.2 EQUITY PROFILE

At the end of the year 2003, the total shareholders equity of the bank was TK 2,321
million where as in 2000 it was only 1,700 million. In four years time the equity

M
increased by 621 million. Changes in shareholders equity are given below:

O
.C
2000 2001
SU 2002 2003

Paid up Capital 600 720 720 828

-N

Reserve fund & 2,260 2,322 2,448 2,560

:E

other reserves
Retained earnings 297 223 252 49
om

Less: Pre takeover (1,457) (1,348) (1,309) (1,298)

losses
Fr

Total Equity 1,700 1,917 2,111 2,321

Table 1: Change in Shareholders Equity (Tk in Millions)
ed
ct

2.5.3 ASSETS OF EBL

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ol

The Banks total asset was Tk. 18284 million on December 31,2001 as against Tk. 16880
C

million on December 31, 2000. The composition of its assets in 2001 is given below:

2003 2002
Cash 1,070 1,082
Placement with Other banks 1,546 3,244
Investments 3,611 2,268
Loans & Advances 11,288 10,891
Fixed & Other Assets 945 475
Total 18,460 17,960
Table 2: Composition of EBLs Assets in 2001

- 26 -
2.6 GROWTH AND DEVELOPMENT PROFILE OF EBL

2.6.1. GROWTH IN SALES VOLUME

Growth in sales volume comprises of growth in deposits, growth in loans and

advances and growth in export and import business.

GROWTH IN DEPOSITS:

Deposits increased by 7.29% from Tk 12375 million in 2000 to Tk 13277 million in 2001
and in 2002 only by 3.8% to Tk. 13662 million. But in 2003 the deposit decreased to Tk.
11952 million mainly because of reduction of some high interest deposit. The bank has
focused on reducing cost of funds by increasing transactional deposits and other low-

M
cost deposit. Rates of interest were revised periodically as par market condition.

O
.C
Yearwise Growth in Deposits
SU
-N
:E

14000
om

12000
13277
12375

10000
13662
11231
Fr

11952
8879

8000
9568

ed

6000
ct

4000
le

2000
ol

0
1997 1998 1999 2000 2001 2002 2003
C

Chart 2: Growth in Deposits

LOANS & ADVANCES:

The total loans and advances of the bank were Tk. 10891 million showing an increase of
9.5% only over the year 2002 as against in the year 2001 when the increase was of
22%. The total classified loans of the bank stood at Tk. 1466 million in December 2002
as against Tk. 1146 million at the end of December 2001. Then it increased even further
in 2003 and became Tk. 11288 million at the end of year. Loans increased due to

- 27 -
procedural streamlining and establishing transparencies to the credit management
system.

Yearwise Growth in Loans & Advances

12000
10000
Tk in Million

8000

11288
10891
6000

9946
4000

7902

8141
5258

5744

2000
0

M
1997 1998 1999 2000 2001 2002 2003

O
Year

.C
Chart 3: Growth in Loans
SU
IMPORT & EXPORT BUSINESS:
-N
:E

The banks total foreign exchange business was of Tk. 17272 million, which included
Import, Export, and Remittance of Tk. 11415 million, Tk. 5432 million and Tk. 425
om

million respectively in 2001. which increased to Tk. 20143 million including import,
Fr

export and remittance amount of Tk. 18256 million, Tk. 3533 million and Tk. 354 million
respectively. Major items of export were readymade garments, shrimps, tea, jute goods,
ed

leather goods and non-traditional items. Major import items were consumer goods and
ct
le

old vessels for scrapping, industrial raw materials, fabrics and accessories of garment
ol

industries etc.
C

- 28 -
 Chart 4: Yearwise Growth in Import, Export & Remittance

20000

16256
12642
12533
11818

11415
9965
15000
Tk in Million

7015

7281
5729
10000

5402
4822

4358

3533
3426

5000

425
237

275

354
113
156
0
1997 1998 1999 2000 2001 2002 2003
Year
Export Import Remittances

M
O
.C
2.6.2. GROWTH IN ASSETS SU
-N
EBLs assets have grown steadily over the years. In the year 2003 it stood at Tk. 18715
million as against Tk. 18445, showing a minor increase of 1.46%.
:E
om

Chart 5: Growth of Assets

Fr

18,284 18,445 18,716

ed

20,000 16,880
14,394
ct

15,000
10,186 10,973
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ol

10,000
C

5,000

-
1997 1998 1999 2000 2001 2002 2003

- 29 -
2.7. SWOT OF EASTERN BANK LTD.

Studying the internal and external environment of EBL the following strengths,
weaknesses, opportunities and threats could be identified:

2.7.1. STRENGTHS OF THE ORGANIZATION

Changed Organizational Structure: Up until 2000 EBL carried out its operation like
every other local bank. All of its braches acted as single banks and did everything from
marketing to loan processing to relationship maintaining. In 2001 EBL changed its
traditional way of doing business. Rather than operating as a geographical matrix, EBL
started operating as a business matrix. The functional areas were separated and

M
O
redefined as Business Units. This has allowed management to operate more efficiently.

.C
Centralized Processes: The new organizational structure has resulted in centralized
SU
operations. Before all the branches were empowered to do almost everything within
-N

limits. They were responsible for marketing, loan processing, account activity monitoring
:E

and other transactions. Their accountability did not go much beyond sending statements
om

to the head office annually. Under the current system management has more control on
the overall bank and its day-to-day operations. For example, loan default at branches
Fr

would be lower if the Corporate Division and the Risk Management Division, at Head
ed

Office, scrutinize the loan proposals along with the branch managers.
ct
le

Superior IT Platform: From 15 March 2003 EBL has started using Flex cube - a
ol

banking software, which caters to all the needs of retail, corporate, treasury and
C

investment banking. Flex cube enables EBL to remain associated between all its
branches and business units.

2.7.2. WEAKNESSES OF THE ORGANIZATION

Inadequate Marketing Approach: Currently EBLs marketing programs include point-of-

sale advertisements consisting of brochures and placards. Few inconspicuous billboards
are placed at different locations. Occasionally press releases are given to highlight
various features and changes. Lack of proper advertising campaign has resulted to poor
brand familiarity.

- 30 -
 Unimpressive Physical Layout: The physical layouts of several of the EBL branches are
quite unappealing. Some are located at inconspicuous locations with dull premises. The
interiors of Principal and Head Office are drab and not cleaned properly or regularly.
Sometimes the air conditioning does not work. These features of the Bank may create a
wrong impression in the customers minds, specially the ones who come in for the first
time.

2.7.3 OPPORTUNITIES FOR EBL

Online Banking: On March 15, 2003 EBL went Online. All its Dhaka and Chittagong

M
branches are already connected through the web and transactions in accounts can be

O
made from any one of the branches online. By the middle of July all the 22 branches

.C
would go online and thus customers all over Bangladesh will get access to all EBL
SU
products anytime from any branches. Also each and every customer will be given an ID
-N
and a password, so that they can login to the website of EBL and carry out transactions
on their own. EBL is the first local bank, which has gone online and gives its customers
:E

the satisfaction of anytime and any branch banking. In the fast paced life of today,
om

people will appreciate this unique convenience and bank with EBL.
Fr

New Products and Services: By the end of July 2003, EBL launched new consumer
ed

products like EBL Monthly Income Plan (MIP) and Savings Insurance Schemes. Also
ct

Automated Teller Machine (ATM), Telephone Banking, Credit Card Facility, Sweep in-out
le
ol

Facility etc was introduced. Although most of these are already available in other banks
C

and EBL is quite late in introducing them, its current customer base will welcome the
new features. In order to promote the new facilities EBL has decided to take up an
extensive promotional program, which will include direct marketing and advertising.
Already the first phase of selection and recruiting marketing executives and sales people
has finished. If these services are properly communicated to their potential customers, it
can be a good business growth opportunity for EBL.

- 31 -
2.7.4 THREATS

Lost Opportunities: Till date EBL offers very few consumer products e.g. car loans,
house building loans, festival loans and other facilities like credit card, ATM, telephone
banking etc. All the multinational and several of the local banks of Bangladesh already
provide these and thus already have created a huge loyal customer base. When EBL
starts offering these features it would be difficult to attract new customers and lure away
the ones who do business with other banks as they have well established brand equity.
Most of the established banks have extensive marketing practices and emphasize on
aggressive direct marketing, which EBL has not started yet. Other opportunities have
also been lost e.g. several of the banks both multinational and local participated in the

M
Automobile Shows to offer Car Loan schemes. EBL do not take part in these shows,

O
though it has such offering. Although the bank has given out a press release about

.C
Internet banking, not much promotion was done as the management is waiting for all of
SU
the branches to go online. After that an extensive promotional program will be launched.
However while waiting for the right moment, few other banks, which do not provide
-N

proper online banking, have already started massive promotion. This publicity may dilute
:E

the uniqueness of EBLs features.

om
Fr

Technological Obsolescence: EBL has recently started using a very modern and
sophisticated IT Platform. The bank plans to change its entire business philosophy based
ed

on the uniqueness of this platform and ancillary infrastructure. However like every other
ct

novelty this system has the risk of being obsolete as technological changes are coming
le

very quickly and continuously.

ol
C

- 32 -
 PART C: PROJECT

3.1 INTRODUCTION

The principle reason banks are chartered is to make LOANS to their customers. Banks
are expected to support their local communities with an adequate supply of credit for all
legitimate business and consumer activities and to price that credit reasonably in line
with competitively determined interest rates. Indeed making loans is the principal
economic function of bankshow well a bank performs its lending function has a great
deal to do with the economic health of its region, because bank loans support the

M
growth of new businesses and jobs within the banks trade territory. Moreover, bank

O
loans often seem to convey positive information to the marketplace about a borrowers

.C
credit quality, enabling a borrower to obtain more and cheaper funds from other
sources.
SU
-N

EBL extends its Credit facilities only to the qualified borrowers whose use of proceeds is
:E

clearly and legitimately established. The Credit must have a clearly defined source of
om

repayment. All borrowers must meet credit standards of EBL and Bangladesh Bank.
Creditworthiness is established by review of financials, track record, ownership and
Fr

industry condition.
ed

3.1.2 PRINCIPLES OF LENDING

ct
le
ol

Principles EBL Considers

C

EBL considers it in two ways 1) the Security offered

Safety
2) Repaying Capacity and willingness of the debtor.
1) Easiness in evaluation 2) Ready Market 3) Marketability
Security
4) Value free from fluctuation 5) Free from encumbrances.
1) What the client will do with the money
Purpose
2) How much money he really needs to do it
Sources of Repayment 1) Sales 2) Profit 3) Other financial information (Discussed Later)
EBL has to keep sufficient liquid to meet the demand of depositors
Liquidity any time. So it tries to give credit against highly marketable security.
The main source of profit comes from the difference between the
interest received on loans and advances and the interest paid on
Profitability deposit. EBL gives due importance to the profitability of Credit given

- 33 -
EBL also makes it sure that the Obligor is a man of Character, he has adequate Capital, and he is
Competent enough to carry on his business.

To deal with credit EBL has four departments:

a) Consumer Banking Division: This division gives loan to the individuals. In Principal
branch there is three desks to deal with the job.

b) Corporate Division: Every branch has one department dealing with the credit given
to corporate bodies. It is the recommender of loan. In principal branch there are 5 unit
each headed by Relationship Managers. They guide the Assistant Relationship Managers to

M
deal with the corporate bodies.

O
.C
c) Credit Risk Management: it is situated in head office. All credit proposals come here
SU
and it decides whether the credit line will be given. It also considers whether additional
terms and conditions are needed, whether the credit line should be changed. It plays the
-N

role of Decider. It has a Credit Committee which sits for meeting everyday and decides
:E

which proposals are creditworthy. This committee consists of Managing Director and
om

Executive Vice President. Head of corporate and officers of Credit Risk Management Dept.
Fr

presents scrutinized proposals before them. After detail discussion, decision is taken. If
any proposal goes beyond 1.50 crore cumulatively or 1.00 crore in cash only, it goes to
ed

Board of Directors.
ct
le

d) Credit Administration Department: It monitors the credit disbursed already, or

ol
C

gives direction to accounts dept. to disburse new credit line. It also keeps the charge
documents. For all the branches of Dhaka, there is one Credit Administration department
situated in Head office. For all the branches of Chittagong, there is one Credit
Administration department situated in Agrabad branch. Other branches of the country
have their own Credit Administration Departments.

- 34 -
3.2 CORPORATE DIVISION

3.2.1 GENERAL INFORMATION

Corporate Division is responsible for giving loans to corporate bodies --- traders,
companies, business establishments. Borrower comes to the department and asks the
officers for loans. He is then provided with loan application format. The borrower fills in
the application and process of approval starts. Papers circulate in the following manner

Corporate Credit Risk Credit

Banking

M
Management. Administration

O
.C
Sanction Letter prepared by Credit Risk Management Dept. is sent to Credit Administration
SU
Department, Credit Administration department provides a copy of the letter to Corporate
Banking Division.
-N
:E

Corporate
om

Credit
Administration Banking
Fr

Borrower first comes to Corporate Division of any branch and fills a loan application
ed

specific for corporate borrowers. The client provides own information (Trade license,
ct

Balance sheet, etc.) and Corporate Division starts preparing documents.

le
ol
C

3.2.2 THE PAPERS CORPORATE PREPARES

Documents Contents

1. 1. Name of the account, Branch, Account first opened

2. Proposal, amount and purpose
1. Credit
3. Credit structure
Memorandum
(CM) 4.Repayment source, Financial discussion

5.Relationship with the customer

6. Financial analysis

- 35 -
 7.Threats and mitigation factors,etc

1. Name of the Account, Name of the Proprietors or Directors

of Company, Branch

2. Purpose of the Proposal

2. Application 3. Existing Facilities, Outstanding amount, Expiry Date, Proposed

Facilities, Proposed Tenor, Interest Rate, Total, Class Exposure
For Limit (AFL)
4. Particulars of Every Facility: For Example, a SODs Existing limit,
Outstanding Amount, Purpose of the SOD, Security offered for that
Particular SOD, Interest Rate, Repayment Source (e.g. Daily Sales
Proceeds)

M
5. Declaration: That All Procedures in respect of opening account

O
have been complied with, Existing Securities with their valuation

.C
have been checked, etc.

1. Obligors Name, Branch SU

-N
2. Account Performance (Usually of 12 Months), Nature of Account,
3. Account
Sum of Total amount drawn Called Debit Summation, Sum of total
:E

Profitability
amount deposited called Credit summation, Average utilization of
the credit limit, Interest Income, Commission Income, Other
om

revenue, Total earning of the bank from the account

Fr

3. Comment by Corporate Division, if any

ed

1. Sales in a Specific Period

ct

2. Net Profit
le

4. Portfolio Review
3. Net profit/ Sales (%)
ol
C

4. Receivables

5. Other Financial Information, if needed

Officers personally visit to the business establishment and prepare

this call report. Usually SRM discusses with the proprietor to gather
5. Call Report
information about business condition, future plans, new needs etc.
On this basis an action plan is taken and mentioned in the report
that whether the credit line should be renewed or expanded, what
should be done to attract the new client etc.

6. Stock Report Here the proprietor or the company management itself fills in the
Bank-supplied format to declare the stock they are holding on a
specific date. Important things are

- 36 -
 1. Description of the stock: Quantity, Value per unit, Total Value

2. Details of Raw Materials, Finished Goods, Work in Progress ,Book

Debts

3. Pari-Passue (Charge of other Banks on the same Stock)

4. Sales of current and provious month

5. Declarations: Stocks for which payments received but not yet

delivered are not included, book entries are correct and authentic,
etc.

7. Stock An officer of the bank usually a SRM goes to the establishment and
inspects the stock that whether it really conforms to Stock Report.
Inspection Report

M
O
.C
Personal net-worth of the Proprietor, partners or the Directors
8. Net Worth SU
1. Liabilities (Payable to banks, other creditors, unpaid taxes etc.)
Statement Report
-N
2. Assets (Cash in hands, Real Estates, Investments, etc.)
:E
om

Obtained from Credit Information Bureau of Bangladesh Bank

Fr

9. CIB Report 1. Name of the Banks client has taken loan from
ed

2. Date of sanction of those loans

ct

3. Whether the borrower has any classified loan

le
ol

10. Appraisers For example, a report from Jorip O Paridarshan Company assesses
C

Report the value of the land client offered for mortgage, on behalf of EBL.

- 37 -
 3.2.3 CREDIT PRODUCTS

TENOR/
Product ELABORATION NATURE RISK FACTOR
VALIDITY
*Interest is charge only on the Recourse on
Cash Credit Against
amount drawn for a period. Pledge Inventory.
CC Pledge of Inventory 12
*To Finance Inventory. High Monitory
(PLEDGE and Hypothecation of Months.
*Working Capital Risk.
Inventor.
*General Purposes. Ever Green
*Interest is charge only on the
Cash Credit Against
amount drawn for a period. Recourse on
CC Hypothecation 12
*To Finance Inventory. Sales Proceeds
(HYPO) Inventory and Book Month.
*Working Capital
Debts.
*General Purposes.
*Say, a supplier sells some goods to
a buyer. Buyer has not paid yet but
a bank has given guarantee that he

M
would. The seller then can come to Recourses on

O
EBL with sales documents and Banks thru
Local Bill Purchase 45/180

.C
LBPD seeks loan against them. Buyers Acceptance.
Documentary. Days.
bank must accept the bill. EBL Residual on
SU
discounts the bill, gives the seller
cash and after the tenor is over will
Client.

claim the money from the buyers

-N

bank.
:E

*The transaction is between a

foreign and a local party
om

*To Purchase/Discount Export Doc, Recourse on

Against Export Contract Sight/ Export Doc.
Loan Against Foreign 45/180
LAFBD Usance. Payment risk
Fr

Bill Documentary. Days.

*Here EBL does not discount the Residual on
bill, instead it pays at a lower Client.
ed

foreign exchange rate than markets

on clients consent.
ct

Clean Fiannce
LAFB Loan against Foreign *Only provided to highly valued *120
le

Performance
(Clean) Bill customer days
Risk
ol
C

ACCEP
Acceptance Against *Bank Accepts clients liability to Recourses on 12
TAN
ULC. another party, usually an exporter Sales . Months.
CE

*When client fails to make a

payment and the liability comes to No Recourse
Own Acceptance 12
OAP bank, bank is forced to make a Clean Finance.
Purchase. Months.
loan. It is a forces loan. Ever Green.
*To Refinance Banks Acceptance.
21Days
*Advance Against Sight L/C Recourse on
Payment Against per
PAD *Bank has to pay even the importer Title to Import
Document. Banglades
doesnt. So it is forced loan Document.
h Bank.
*For Importation. Recourse on
12
SLC Sight Letter of Credit. *Instant Payment on received Title to Import
Months.
goods Document.
ULC Usance Letter of *For importation. Recourse on 12

- 38 -
 Credit. *Deferred payment Sales. Months
Specifi
Performance
Period.
Letter of Guarantee. *For Contractual Obligation. Risk.
LG Open
Ever Green.
Ended.
Performance
Packing Credit *is given rarely.
Risk. 180
PC Against Export L/C& *To Finance Export L/C.
Lien on Export Days.
Export Order. *Preshipment Finance.
L/C.
*100% Cash Covered. 12
SOD Secured Overdraft.
*General Purposes. No Credit Risk. Months.
High Credit
Risk
Overdraft Against 12
OD *General purposes Recourse on
Other Collateral months
Sales
Ever green
Import Loan Against

M
Import *To Finance Import L/C or Against
Hypothecation Recourse on 180
Loan Contract.

O
Inventory and Book Sales. Day.
(Hypo)
Debts

.C
Import
Import Ioan Against
Imported
SU Recourse on
* To Finance Import L/C Pledge Inventory. 180
Loan Merchandise Pledged
-N
Merchandise under Pledged. High Monitory Days.
(Pledge) and Hypothecation of
Risk.
Book Debts.
:E

*Bank can demand it any time but

om

Demand Loan Against

Demand usually not practiced.
Hypothecation of Recourse on 180
Loan *To Finance Inventory Procedure
Inventory and Book Sales. Days.
Fr

(Hypo) Locally.
Debts.
*To Finance Duty/Tax.
ed

Demand Loan Against

Recourse on
ct

Demand Pledge Inventory *To Finance Inventory Procedure

Pledge Inventory. 180
Loan Procedure Locally and locally under Pledge.
le

High Monitory Days.

(Pledge) Hypothecation of
Risk.
ol

Book Debts.
C

Recourse on
Sales
Time Time Loan Against 12
*To Finance Fixed / other Asset. Collateralize by
Loan Other Security Months.
Fixed /other
Assets.

Clean Finance
Time Time Loan Against 120
*To Finance Export Contract Performance
Loan Foreign Bill-Clean Days
Risk.

Over 12
Months.
Recourse on
Term Term Loan Against Max
*To Finance Fixed Assets. Fixed Assets
Loan Fixed assets. 7 Years.
High Risk.

- 39 -
 BCP Bankers Cheque *To Purchase /Discount Foreign Recourse on 30
(Foreign Purchase (Foreign) Currency. Drafts/Payment Order. Banks. Days.
*Upfront Interest to be Realized. Residual on
Client.

Recourse on
*To Purchase /Discount Bank Draft
BCP Bankers Cheque Banks. 30
/Pay Order.
(Local) Purchase (Local). Residual on Days.
*Upfront Interest to be Realized.
Client.

*Say, an importer will import goods

and he has prepared documents.
Forward Purchase of But suddenly Foreign exchange rate Performance 180
Fwd FX
Foreign Exchange goes high. To avoid such risk bank Risk. Days.
purchases foreign currency on

M
behalf of client in advance.

O
Say, a valued customer is availing

.C
some credit facility. He has
SU
outstanding almost touching the
limit. He needs to draw an amount
Whether there
Negoti-
EOL Excess Over Limit is Sufficient
which exceeds the limit, but he ation
-N
collateral.
does not have enough time to have
a new credit facility. In this case
:E

EOL is given.
om
Fr

3.2.4 MODES OF CHARGING SECURITY

ed

LIEN PLEDGE HYPOTHECATION MORTGAGE

ct
le

1. Right to retain 1. Bailment of goods as 1. Mortgage of 1. Transfer of interest in

ol

possession but not security for payment of movables by an immovable property to

C

ownership. a debt or performance agreement. Neither secure the repayment of

of a promise. Title & possession nor money advanced.
ownership are retained. ownership is Ownership remains with
transferred. the mortgagor.
2. Lien is used in case 2. Pledge is used in 2. Hypothecation is 2.Mortgage is used in
of advances against case of advance against used in case of advance case of advance against
FDR. Bank deposits & movable goods kept in against movable goods security of immovable
other financial Banks possession as by an agreement only. property.
obligations as security. security.
3. Delivery of 3. Delivery of 3. Delivery of 3. Delivery of title deeds
possession of financial possession of goods or possession of goods not necessary.

- 40 -
obligations in the title deeds are necessary.
ordinary course is necessary, even if
necessary. symbolic.
4. Letter of lien is used 4. Letter of pledge is 4. Letter of 4. Memorandum of
for creation of charge necessary. hypothecation is deposit of title deeds or
but even in the absence necessary. Registration of
of letter of lien, Bank mortgage deed is
has general lien on its necessary.
own financial obligations
to the Bank.
5. Lien is two types- 5. Pledge is one type 5.Hypothecation is only 5.Mortgage is various
General lien and i.e. pledge in closed one type types, but in case of

M
particular lien. Banks godown with Banks mortgage to Bank only

O
.C
lien is general lien over possession.. two types are used-
its own financial SU Equitable & registered
obligation to clients. mortgage
-N
:E

6. Property under lien 6. Pledge goods may be 6. Hypothecated goods 6. In case of Equitable
om

cannot be realized/sold sold out and proceeds cannot be sold out mortgage, Court Order
Fr

and proceeds thereof thereof may be /disposed off without is necessary & in case
cannot be appropriated appropriated towards notice & courts order. of registered mortgage
ed

without notice to the adjustment of liability in However, if a special courts order is not
ct

owner & sometimes case of failure of the power of attorney is necessary for
le

without courts order. borrower to repay or taken in that case can sale/disposal of the
ol

fulfill the terms and be disposed off without mortgaged property for
C

conditions. going to the court. adjustment of advance.

- 41 -
 Guarantee Indemnity

Guarantee has three parties. Say, A will give
guarantee to C that if B does not repay the
loan taken from C or does not perform any
act promised; A will repay the loan or
compensate for B failure.
Indemnity has two parties. A will
indemnify that if B faces any loss or
damage from the act of A or any third
party, A will save B from the
consequences.

Different type of Charge: Negative Lien

M
Also named as Non-Possessory Lien. In the case of a negative lien, the securities are not

O
in the possession of the creditor. But, the debtor gives an undertaking that he will

.C
SU
not create any charge on those securities in question without the prior written permission
of the creditor. Such a letter of undertaking must be duly stamped. Thus in case of a
-N
negative lien, the possession of the security is with the debtor himself. Who promises not
to create any charge over them until the loan is repaid. EBL usually charge this mode
:E

when borrower is reluctant to give mortgage or hypothecation. EBL charges it as that the
borrower can not give the property to anyone else for security purpose without prior
om

permission of EBL.
Fr
ed

3.2.5 LOAN PROCESSING COST

ct

Application fees: No fee.

le
ol

Documentation fee: Actual basis. Appraisal fee: 0.5% - 1% of the total loan
C

sanctioned.

Legal fee: Examination and technical assistance fee (in case of project).

Interest Rate: It depends on bank-customer relationship. It ranges from 10% to 15%.

3.2.6 LOAN PROCESSING TIME

It varies with the nature of loan. Trade finance needs 1-2 weeks. Loan Proposals
required BOD approval takes 3 weeks.- IF a third party issue the financial instrument
than it may take more time. In case of a big amount of short term finance, if requires
BOD approval and so, it may take even a month to sanction.

- 42 -
3.2.7 BOOKS MAINTAINED:
Corporate keeps a unique file for every client and puts all the documents in it. This file
has five parts and each contains different contents:

Part Name Contents

CM/BM, Date wise record of Head Office

1 Approvals Approval, Minutes of Executive Committee,
AFL, EOL/Rush Transaction

Letters among Branches, Head office, other

2 Correspondence
institutions

M
Call reports, Stock Inspection Reports,

O
Valuation Report, Credit/CIB Report, Irregular
3 Reports

.C
Transaction/Overdue Report, Loan
SU
Documentation Report

Spread Sheet, Balance Sheet, Cash Flow,

-N

Income Statement, Annual Report, Account

4 Financial
:E

profitability, Net worth Statement, Portfolio

Review
om

RJSC searches, Accepted Sanction letters by

Fr

Borrowers, Photo copies of Legal security,

5 Legal charge documents, Copy of Legal Opinion Copy
ed

of License, Copy of Import Registration

ct

Certificate.
le
ol
C

Officers of Corporate Division receive the application of loan; other documents supplied
by client and check them closely. They consider whether the applicant is loan-worthy; if
yes, how much credit he should be sanctioned. Corporate then prepares all documents
stated earlier, forwards them to Credit Risk Management Division. If that division
approves the proposal, sanction letter is sent to Credit Administration Department.
Corporate then prepares Charge Documents (Discussed later) gets them signed form the
borrower. If any existing facility needs to be renewed, proposal comes to Corporate
Division again.

- 43 -
3.3 CREDIT RISK MANAGEMENT DIVISION
3.3.1 GENERAL INFORMATION

This department is the most sensitive one in the banking operation. In EBL

CRMD is the final authority to decide whether a borrower should be given loan. If

it gives loans and advances without discretion, it is likely that a large portion

would become unrealizable and bank would face serious consequences. On the

other hand if this section is unnecessarily fuzzy about loan sanction, bank would

M
not be able to cover its own expenditure, since interest income is the main source

O
.C
of income. So CRMD has to look after every side of an issuesecurity,
SU
profitability, image.
-N
:E

Credit Risk Management properly assesses credit product risk and structure the
om

credit facility based on customers business needs with effective control on cash
Fr

flow and collateral. This division scrutinizes all the documents sent by Corporate
ed
ct

Division and look for flaw in them. They are the gatekeeper here. CRMD can call
le
ol

in the corporate officers for any discrepancy in the document and can ask for the
C

correction. If the concerned officers of this department are satisfied, only then the

proposal goes to Head Office Credit Committee for final approval. Credit

Committee has total power to reject any proposal. Facilities cannot be activated

until they are properly approved by the Committee. Corporate recommends,

Credit Risk Management Division scrutinizes and Credit committee approves. So

CRMD is playing the Check and Balance role.

- 44 -
3.3.2 CONSIDERATIONS OF CRMD

A) OBLIGOR OF THE APPLICATION

Obligor has to be creditworthy and competent enough to run the proposed
industry.
Preference given for educated / knowledgeable sponsors, who know about
their business concern, have technical know-how and expertise in the line of
proposed industry.
Who have own land and building for running the project
Have experience in working abroad

M
Having innovative ideas

O
Who have good dealings with the bankers /outside parties and has social

.C
contacts and standings.
Have an A/C with EBL
SU
-N

B) VIABILITY OF BUSINESS OR PROJECT (NEW MANUFACTURING)

:E
om

The project should be viable from organizational, technical, commercial, financial and
economic points of view.
Fr

a. Technical viability
ed

It implies the assessment of various requirement of actual production process. It

ct

involves a critical study of following factors:

le

Location and site of the project:

ol

Selection of the optimum location, therefore, revolves around the joint

C

consideration and evaluation of the following factors-

Raw materials supplies
Transportation facilities
Power and fuel supply
Water manpower
Natural and climate factor
Size of the plant / project
Technology, plant & equipment- the study should consider some important
technological factors with regard to plant and equipment, viz.:
Adequacy and suitability of the plant & equipment s and their specification

- 45 -
 Plant layout
Balancing of different sections of the plant
Reputation of the machinery supplies, etc.
Building and layout- the operative efficiency of industrial project also depends
on the layout.

b. Commercial viability
This study indicates evaluation of a projects feasibility in terms of market. The market
analysis contains:
Analysis of past and present demand
Analysis of past and present supply

M
Estimate future demand of the project

.C
Estimates projects share in the market, etc.
Marketing channel for the product should be accessible to the entrepreneur.
SU
-N
C. Financial viability
:E

Analysis of financial viability is an essential part of project appraisal. The financial

analysis focuses the following for judging this viability:
om
Fr

D. Economic viability
ed

The project should ensure benefit to the national economy and create sufficient
opportunity.
ct
le

Generation of employment
ol

Improvement of quality of life and well-being

C

Environmental issues
Opportunity cost

E. Management and organizational viability:

It is very important for the success of a project. Because, if the management is
incompetent a good project fail. So it is necessary to evaluate the following things
overall background of the promoter, their academic qualification, Business and industrial
experience, their past performance.

C) SECURITY OFFERED

- 46 -
D) REPAYMENT SOURCES

After these considerations, CRMD decides whether the proposal will go to Credit
Committee.

3.3.3 OBLIGOR RISK RATING IN EBL

To assess the risk quickly and objectively, EBL has divided the customers in 7 groups. As
a result whenever they come for new or renewal facility, CRMD easily identifies who is
risky and who is not.

M
O
.C
Rating Short No CRITERIA STRATEGY
SU
GOOD GD 1 Growing Industry (Growth Retain and grow with
-N
15%+) client
:E

Among top 20 in the Sell multi products

Industry
om

Strong management with

Fr

succession
Steady growth in financial
ed

performance
ct

Satisfactory payment
le

record/account turnover
ol

Liquidity 3X and above

C

Leverage 0.5X and below

Timely submission of
financial information
Strong Parent/Sister Office
Guarantee
Good collateral
OR
100% cash covered
ACCEPTABL ACCEP 2 Growing Industry (Growth Retain and grow with
E 10%+) client
Acceptable player in the Sell multi products

- 47 -
 market
Good management with
succession
Acceptable growth in
financial performance
Satisfactory payment
record/account turnover
Liquidity 1.5X and above
Leverage 1.5X and below
Timely submission of
financial information
Acceptable Parent/Sister

M
Office Guarantee

O
Acceptable collateral

.C
MARGI- MG/WL 3 Past due over 60 days No increase in credit limit
NAL/
SU
Loosing market share Close monitoring thru clear
-N
WATCHLIS Thin management with no action plan
T succession Ensure 100% completion
:E

Unreliable sales/operating of loan doc.
om

profit. Semi-annual review

Unsatisfactory payment Follow up for settlement of
Fr

record/account turnover past dues
ed

Liquidity below 1X
ct

High Leverage
le

Perpetual delay in
ol

submission of financial
C

information
Incomplete Loan
Documentation
Drop in collateral value or
collateral shortfall
Problem in Industry
SPECIAL SM 4 Past due over 90 days Possible exit/reduction of
MENTION Loosing market share credit limit
Severe management Close monitoring thru clear
problem action plan
Company operating at Ensure 100% completion

- 48 -
 losses with sales going of loan doc.
down. Quarterly review
Unsatisfactory payment Follow up for settlement of
record/account turnover past dues
Liquidity below 1X /
insufficient cash flow
High Leverage
Financial Information not
available
Incomplete Loan
Documentation
Drop in collateral value or

M
collateral shortfall

O
Diversion of fund

.C
SUB SS 5 All criteria of Special Credit limit for adjustment
STANDARD Mention
SU purpose
-N
Past due over 180 days Clear exit plan to be in
place
:E

Quarterly review
om

Follow up for settlement of

past dues
Fr
ed

DOUBTFUL DF 6 All criteria of Substandard Credit limit for adjustment

ct

Client out of business purpose

le

Past due over 270 days Quarterly review

ol

Follow up for settlement of

C

past dues
Legal action

BAD & BL 7 All criteria of Doubtful Credit limit for adjustment

LOSS Past due over 360 days purpose
Quarterly review
Follow up for settlement of
past dues,Legal action

- 49 -
 M
3.3.4 CLASS OF RISK

O
All credit risks are properly defined in different classes as per EBLs policy guidelines on

.C
classes of risk. A clear definition of Class of Risk is provided in
SU
1. 100% Cash Covered by having the funds available in EBLs cash
-N
margin account
2. 100%EBL FDR fully liened & pledged in favor of the bank.
:E

3. 100% in the form of Govt. Sanchya Patra fully liened & pledged in
favor of bank
om

Class A
4. 110% cash covered if credit facilities are in different currency than
that of collateral.
Fr
ed
ct
le

Credit facilities extended to clients which are secured by

ol

1. Hypothecation of business assets like inventory, book debts &

C

assets. Plant & Machineries.

2. Mortgage of fixed assets like Factory Land & Builiding and other
Class B real assets
3. Partial cash covered or other collateral.
4. Guarantee from acceptable Financial Institution or Lien on fixed
deposits issued by them
5. Personal or corporate Guarantee.
6. Government Guarantee through Ministry of Finance.
Credits facilities extended to cover or to hadge foreign currency risk
against Letters of Credit are called exchange fluctuation risk. The
Class C product which EBL sells to its customers is called Contract (FWD FX)
and can be further explained as follows:

1. Exchange Fluctuation Risk

- 50 -
 2. Forward Contract against Letters of Credit
3. Hedge FX risk of EBL/Other Bank Letters of Credit
4. Risk for Maximum 180/360 days.

This class risk is concerned only with risk taken on a banking financial
institution and can be further explained as follows:

1. Risk on banking financial institutions (FI) including Bangladesh

Bank
2. Call/STD/Time placement with banking financial institutios
3. Term Exposure on banking Financial institutions
Class D 4. Financing against banking Financial institutions acceptance
5. Negotiation of Export documents against valid export L/Cs
6. Purchase of Pay Order/Demand Draft drawn by a banking financial

M
institutions

O
7. Nostro Account with other banking Financial Institutions

.C
8. Purchase of Treasury Bills from Bangladesh Bank.
SU
-N
:E
om

3.3.5 POLICY EXCEPTION

Fr

The cases mentioned under need Board of Directors approval

ed

Sl. Policy Exception Required Board Approval

No.
ct
le

1 Name Lending, Inadequate Financial Information

ol
C

2 NO primary source of repayment identified

3 Term loan tenor over 7 years, real estate financing

4 Grace period principal amortization exceeds 24 months

5 Term loan larger or exceeding loanable fund than Boards policy limits

6 EBL not pari-passu with other lenders (Inferior Security)

7 Loan proceeds for military purposes

8 Lending for fire arms, explosives or alcoholic plant

- 51 -
9 Start up/Venture capital loan, no applicable collateral

10 Equity finance, underwriting of shares or debentures

11 Primary repayment, proceeds from insurance

12 Exposure to non-profit obligor (which declares itself non-profit org.)

13 Exposure to political org.

14 Exposure to clubs, societies or charitable org.

15 Specialized industry knowledge required.

16 Evergreen credit/open ended exposure (Exposure having no fixed expiry)

M
O
17 Loan to directors or auditors

.C
18 Insufficient KYC/credit history on borrower
SU
19 NO clearly defined use of loan proceeds
-N

20 Bangladesh bank circular or guidelines requiring Board approval

:E
om

21 Violate spirit and law of country

22 Bail out loan

Fr
ed

23 Integrity of client in question

ct

24 New relationship with watch list rating

le
ol
C

3.3.6 RATIO ANALYSIS:

It is actually done in Corporate Division, CRMD recalculate them.

Name All Expressed in %

Growth Ratio Sales Growth

Net Sales Growth, Composite

Net income Growth

- 52 -
 Total Asset Growth

Total Liabilities Growth

Net worth Growth

Profitability Gross Margin, composite

Ratios
Deprecation, Amortization

Operating Profit Margin

Return on Assets

Interest Expense

M
Return on Equity

O
.C
Coverage Ratios Interest coverage

Debt Ser. Coverage

SU
-N

Activity Ratios Receivables in days

:E

Payable in days
om

Inventory in days
Fr

Liquidity Ratios Working capital

ed

Quick Ratio
ct

Current Ratio
le
ol

Leverage Ratio Total Liability/Net Worth

C

Affiliate Exposure/Ner Worth

Total liabilities/Net Worth-Affiliates

Formulas For Calculation

Current Ratio Current Assets/Current Liabilities

Quick Ratio (Current Assets-Inventory)/Current Liabilities

Leverage Total Liability/Equity

Debt to Assets Total liability/Total Assets

- 53 -
Inventory in days (365*inventory)/cost of good sold

Total Assets Net Sales/Total Assets

Turnover

Gross Profit Sales Gross Profit*100 /Net Sales

Net profit to Net profit *100/Net sales

sales

Return on Equity Net profit*100/Equity

Dev service (Net profit + Depreciation + Interest Paid)/(Interest paid + 12

months principle payments)
Coverage ratio

M
O
.C
3.3.7 BOOKS MAINTAINED:
SU
Books Contents
-N

Client wise File Mentioned in Previous chapter. Here is kept

:E

the files of that client who has continuous

om

relationship with EBL.

One-time Transaction File The documents of those clients who do not

Fr

have a regular credit line with EBL. They are

ed

having single transaction.

ct

Sanction Register (for every Sanction Reference number, Date of Sanction,

le

branch) Name of client, facility availed, Expiry date

ol
C

- 54 -
 M
O
.C
3.4 CREDIT ADMINISTRATION DEPARTMENT
SU
-N

3.4.1 GENERAL INFORMATION

:E
om

Credit Administration Department is established only a year ago. Loan monitoring and
keeping charge documents are its primary responsibility. Credit Administration keeps a
Fr

historical record of all disbursements by reference number for each loan, l/c guarantee
ed

etc. Operating records are agreed periodically to accounting records.

ct

Credit Admin prints out the credit position of each borrower every day and sends them
le
ol

to respective officers. This print out carries names of the borrower, date of sanction,
C

type of loan, accrued interest till date and amount repaid. Risk concentration by industry
or borrower is monitored on 6 month-basis. Credit approvals take account of a credits
impact on risk concentrations which is pointed out in individual credit presentations.
Credit Admin reports to Head Office Credit Division the largest sector by limits and
outstanding representing on a quarterly basis.

Facilities in process, renewal or amended CMs are tracked by way of a unique control
number issued by Credit Admin. It enters all credit facility amounts into MIS database,
which are able to detect computation errors. Accounting and system controls ensure that
outstandings are posted to the correct account and properly summarized for
management decision making.

- 55 -
3.4.2 LOAN DISBURSEMENT
Loan disbursement is not allowed until Credit Admin gives green signal. This department
receives sanction letter from CRMD, keep the original with them and sends a copy to the
Corporate Division. Then Corporate Division stars preparing Sanction Letter. When
sanction letter provided to the borrower and all terms and conditions agreed by the
borrower, necessary charge documents are taken from the borrower. Later on a
particular account is created for the borrower as SOD, CC, LAOS, LIM etc as the case
may be. These are all new accounts in the name of the borrower, given cheque books to
them for drawing money. Charge documents are kept in Credit Admins safety box.

M
O
.C
3.4.3 LOAN SUPERVISION SU
-N

Credit officer of EBL supervises their borrower activities in two methods

:E

1. On site supervision: Credit officer visits the site that is factory building, office etc.
om

(whether production procedure is going on as per agreement) It is done by the

officers of Corporate Division.
Fr

2. Off site supervision: Supervising activities of the borrower from the office desk. It
ed

is done by Credit Admin.

ct
le

3.4.4 MONITORING
ol
C

Monitoring loan basically means that whether the loan is used exactly to that purpose for
which it was sought. If borrower uses it for other purpose he may be called in by the
officer of Corporate Division and asked to show cause. Also credit officer monitors the
accounts of the borrowerday-to-day transaction pattern, daily balance of the account
etc.

3.4.5 LOAN ADJUSTMENT

Borrower has to adjust his account as per terms and conditions of sanction letters. He
must pay the required amount with interest within schedule on or before the expiry date
of the loan. Reminder is given to the borrower, Credit Admin supplies necessary

- 56 -
information and help Corporate Division to issue a reminder letter. Getting the letter the
borrower may adjust the loan with interest. Or he may ask for renewal of the loan or
negotiate for rescheduling the portfolio. So he has to request the Corporate Division.
Corporate Division prepares a renewal CM and the circular flow stars again through
CRMD and credit Admin. In this case adjustment is deferred for the time being.

3.4.6 RECOVERY
Sometimes borrower can not repay the loan, for failure in business, for personal
dishonesty or for other reasons. Credit Admin transfer these cases to Special Assets
Department. After making all sorts of efforts and while the borrower is poised to become

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a defaulter, the file of the borrower is forwarded to legal action. Question arises that

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when the file is forwarded for recovery. However the timing comes after all the following

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procedures are made.
1.
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Request or persuasion by letter, phone or orally
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2. Final notice is given to the borrower
3. File forwarded to attorney for serving legal notice.
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4. Legal Suit
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The borrower can be sued for three purposes

1. Money suit- Claim for money
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2. Title Suit- Claim for the title of the property kept as security
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3. Petition for winding up of an active company.

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Approve of EVP and MD is essential for legal action against Borrowers and the
foreclosure and sale of collateral. This is then reported to EBLs Board of directors on
post-fact basis.

3.4.7 SOME OTHER CASES

Defaults are cured by repayment or when extended through proper approvals including
credit review and fresh legal documentation.

Rollovers require the same transaction approvals as initial drawdowns. Rollovers are
exceptional and clearly identified as part of a clients banking needs for specific approval
by the Competent Authorities.

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Rescheduled debt without established satisfactory repayment history is a classified asset.

Credit Admin reports all past dues to Head Office Credit Committe. Potentially
uncollectible or delinquent credit facilities are clearly identified and not suppressed
through rollovers, renewals or extensions.

3.4.8 CHARGE DOCUMENTS

When Credit Admin receives CRMDs approval to disburse a loan, Credit Admin sends a
copy of the letter to Corporate Division and demands Sanction letter signed by the
borrower and necessary charge documents. What documents are needed for which loan
are given in the chart in the next page.

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Cases Documents Required & Kept

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Letter of Borrower requesting for new facility/renewal
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Letter of authority in case of partnership
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Resolution of Board in case of company

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Certificate from RJSC regarding legal entity(whether group

etc.)
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Facility Advice letter: Accepted unconditionally by borrower

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General Demand Promissory note

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Documents
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Letter of continuity
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Deed of Partnership, if partnership

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Memorandum and Articles of Association, if company

Letter of Arrangement

Letter of Disbursement

Revival Letter

Resolution to lien account proceeds

Lien on Account
Letter of lien and set-off

Pledges of Resolution to deposit

deposits/Savings

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certificates FDR/SC/Bonds endorsed by holder

Letter of Guarantee by depositor(if deposit stands in the

name

of 3rd party)

Letter of lien and Set off

Letter of Authority for encashment of SC/FDR.

Resolution to deposit

Share certificates

Memorandum of Deposit of shares

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Pledge of Shares

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Irrevocable letter of authority for collection of dividends,

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bonus etc
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Notice of pledge by shareholder to the relative companies.
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Letter of pledge
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Letter of disclaimer
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Pledge of
RJSC Search Certificate
inventory
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RJSC form 18 & 19 properly filled in by client & receipt

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Insurance policy with EBL as joinetly insured

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Resolution of Hypothecation inventory

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Letter of Hyothecation
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RJSC Search certificate

Hypothecation of
Inventory RJSC form 18 & 19 properly filled in by client & receipt

Certificate of registration from RJSC

Insured policy with EBL jointly insured

Resolution to Hypothecate Book Debts

Hypothecation of
receivables/Book Hypothecation Agreement
Debts RJSC search certificate

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 RJSC form 18 & 19 properly filled in by client & receipt

Certificate of registration from RJSC

Modification of Letter of Hypothecation of Receivables

Resolution to Hypothecate Machinery and equipment.

Hypothecation Agreement

RJSC search certificate

RJSC form 18 & 19 properly filled in by client & receipt

Hypothecation of
Machinery and Certificate of registration from RJSC
equipment

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Modification of Letter of Hypothecation

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Resolution to assign receivables

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Deed of Assignment of receivables

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Notification and acknowledgement of assignment of

receivables from the debtor
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Assignment on
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receivables RJSC search certificate

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RJSC form 18 & 19 properly filled in by client & receipt

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Certificate of registration from RJSC

Letter of nomination of third party mortgagor from borrower

with attested specimen signature of mortgagor

Resolution to mortgagor and guarantee

Mortgage
Copy of valid ID

Personal guarantee from third party mortgagor.

Original title deeds of mortgagors

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 C.S., S.A. and R.S. Parchas

Mutation Parchas in mortgagors name, certified by

Assistant Commissioner of Land

Duplicate carbon copy for mutation case

Letter of No Objection of mortgagor to mortgage

Land Development Tax Receipt of the immediately

preceding Bengali year

Municipal holding tax receipt

Building plan with letter of approval

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Valuation Report

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RJSC search report
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Memorandum of deposit of title deed with approval of legal
counsel
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Power of Attorney
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Income Tax Clearance Certificate

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Non Encumbrance Certificate from Land Registrar

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List of Directors with specimen signature

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Resolution of Guarantee
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Guarantee Net worth Statement

Letter of guarantee

Letter of counter indemnity

Term loan agreement between EBL & Borrower

Draft Term Loan Agreement approved by CRMD and legal

Term Loan counsel
Agreement

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 Accepted Mandate Letter

Accepted Term Letter

Information Memorandum

Participation Letters
Syndication (more
than one bank are Facilities Agreement
giving loan)
Power of Attorney of participants

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Accepted Fee Letter

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Legal counsels opinion

Consent of the Head of CRMD

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Legal counsel periodically reviews documentation in standard form or a signed letter.

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Banks legal counsel ensures that the Banks security interests are perfected. The
account manager and credit Admin check documents for completeness and execution by
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authorized client signatory.

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Instances for incomplete documentation can receive a temporary waiver if EVP & Head
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office credit division & MD permit.

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Credit Admin keeps all these documents and on adjustment of loan returns to the
borrower.

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 PART D: CONCLUSION & RECOMMENDATIONS

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Eastern Bank Limited is a very established in the market. But compare to the other

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players in the industry, it has very high classification rate which is quite unacceptable
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and the efficiency of corporate division is related with this issue. EBL can come out
from the present position if they follow the following recommendations properly
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The Bank should send the Relationship Managers and CRM employees to various
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training programs on Loan Application Evaluation Techniques on a regular basis

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so that the RMs can properly evaluate all the loan applications in a structured
and scientific way and select only those applications which has a sound credit
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worthiness and repayment capability.

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The RMs should be encouraged to build up their knowledge base about various
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industries, the opportunities and risks in the sectors, the well performers and the
upcoming companies, industry standards etc. For example, RMs can be given
incentives to attend various seminars, workshops, or training programs in these
areas.

CRM must be strict to see that all the procedures Loan Evaluation and Monitoring
are followed before giving any new loans. It was observed that not all the steps
of the present guideline are followed strictly by the RMs. For example, the RMs
did not go on regular quarterly calls to the clients and also sometimes did not
verify all the information provided by the clients. This gives rise to chances that
the clients actual position may not be understood on time and increases the risk

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 of classification. So steps must be taken to ensure strict adherence to the loan
evaluation and monitoring policy.

The RMs should keep their eyes open about the position of the industries of their
respective clients. As soon as any new risk occurs in the industry or the industry
shows signs of deterioration, they should analyze its impact on their respective
clients and act accordingly.

As soon as the client fails to make timely repayment, pressure should be created
on him to make the payment urgently and no further credit should be allowed to
him unless he pays back the previous dues (except for cases where new loans

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are needed to ensure past loans recovery). Also no unnecessary restructuring of

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repayment schedule should be allowed.
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Credit Rating must be given proper emphasis. Whenever a credit rating is
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lowered, the RMs must look into the account to see whether there is any chance
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of the client being classified eventually. .

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Special Asset Management Department should immediately launch legal

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procedures against those accounts where negotiation has failed and there is no
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chance of repayment. They should try to recover as much of the loan as possible
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by disposing of the securities held against these loans.

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 Bibliography:

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Commercial Bank Management, Peter S. Rose, Third Edition, Irwin.

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Money And Capital Market, Peter S. Rose, Eighth Edition,

McGrawhill-Irwin.
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Business Communications, Eighth Edition, William C. Baty, PWS-

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KENT Publishing Company.

Fr

Annual Report 2000-2001 Bangladesh Bank.

ed
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Annual Report 1999-2000, 2000-2001, 2001-2002, 2002-2003

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Eastern Bank Limited.

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APPENDIX
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 CURRENT ORGANOGRAM BASED ON FUNCTIONALITY
CHAIRMAN
BOARD OF DIRECTORS

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MANAGING

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DIRECTOR

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BRAND HRD FIN CREDIT AUDIT CORPORATE SPECIAL OPERN CONSUMER CENTRAL
MGMT &ACC RISK & BANKING ASSET BANKING SUPPORT
MGMT COMPL . MGMT DEPT
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CREDIT AREA AREA TRADE INTL TREASURY INFORM.TE

ADMIN HEAD HEAD SERVICE DIVISION CH.
(DHAKA) (CHTG)

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Table 1: Broad Performance Indicators of EBL from 2000-2003.

(FIGURES IN MILLION TAKA)

Particulars 2000 2001 2002 2003

Reserve 2260 2322 2448 2,560
Deposit 12375 13277 13662 11,952
Loans And Advances 8141 9946 10891 11,288
Export 7281 5402 4,358 3,533
Import 12533 11415 12,642 16,256

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Guarantee Business 1789 1054 1,183 354

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Operating Income 1916 2022 1,986 1,985

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Operating Expense 1242 1319 1,255 1,226
Operating Profit(Loss) 674 703
SU 731 759
Net Profit(Loss) before tax 475 553 631 638
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Total Assets 16880 18284 18,445 18,716

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(Excluding Contingent)
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Return On Equity % 15.38 16.93 17.44 15.33

Return On Asset % 1.57 1.84 2.04 1.95
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Book value per share (TK) 266.07 265.02 295.29 281.87

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Earning per share(TK) 40.91 44.86 51.48 43.21

Dividend per share 30.00 30.00 35.00 20.00
ct

Classified loans as a % of 8.21 11.52 13.46 13.61

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total loans
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Capital Adequacy ratio % 24.17 22.49 22.32 18.27

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Net interest margin % 3.44 3.46 3.44 2.43

Source: Annual Report, 2003

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 Table 2: Comparison of lending rates of different banks

EBL SCB HSBC PRIME SOUTH EAST

LOANS & ADVANCES

AGRICULTURE 11-16% 9-11.5% 12.5-14% 11% 9-13%

LARGE & MED INDUS. 12.5-16.65% 10-15.5% 9.5-16.5% 15% 13-15%

WORKING CAPITAL 10-15.5% 8-15% 8-16.5% 15% 12-15%

EXPORT 7% 7-9% 7-10% 7% 7%

OTHER COMMERCIAL LENDING 13-16% 9-17.5% 8-15.5% 16% 13-15%

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SMALL INDUSTRIES 14-16% 9-14% 10-13% 15% 11.5-13%

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OTHERS 12-14% 7-20% 9-19% 13-16% 13-15%

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*Source: Bangladesh Bank Annual Report 2001-2002 SU
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Table 3: Sector wise % distribution of EBL's total loans

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Sector Name % Share of Total Loans

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and Advances
Textile 11.47%
Steel Products 4.57%
Cement 1.09%
Ship Breaking 7.65%
Pharmaceutical 1.48%
Chemical, Plastic & Plastic Products 2.45%
Foods & Beverage 6.33%
Edible Oil 6.11%
Power, Gas & Oil 4.63%
Leather 0.69%

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 Jute 0.31%
Poultry & Hatchery 1.53%
Electronic Goods 3.16%
Brick & Ceramics 0.08%
Soap & Detergents 0.11%
Paper, Printing & Packaging 2.43%
RMG 9.13%
Shrimp Export 0.12%
Media 0.29%
Information Technology 0.02%
Telecommunication 5.27%
Shipping, Airline & Transport 0.66%

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Commodity Import 9.38%

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Construction 6.51%

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Trading 5.83%
Service SU 1.13%
Clinic, Hospital & NGOs 0.05%
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Educational Institution 0.14%

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Financial Institution 4.44%

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Individual 0.17%
Others 2.77%
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Total 100.00%
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Source: Statement of Loan as on December 1st, 2004

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A NEW APPROACH IN CREDIT RISK MANAGEMENT IN

EASTERN BANK LTD.

1.0 INTRODUCTION

Risk is inherent in all aspects of a commercial operation; however for Banks and
financial institutions, credit risk is an essential factor that needs to be managed.
Credit risk is the possibility that a borrower or counter party will fail to meet its
obligations in accordance with agreed terms. Credit risk, therefore, arises from the

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banks dealings with or lending to corporate, individuals, and other banks or financial
institutions.

Credit risk management is of utmost importance to Banks, and as such, policies and
procedures should be endorsed and strictly enforced by the top level management and
the board of any Bank. According to the guideline prescribed by Bangladesh Bank,
Eastern Bank Ltd. (EBL) restructured its credit approval and monitoring procedures in
the year 2002. This improved the risk management culture and established minimum
standards for segregation of duties and responsibilities resulting better control on the
overall loan approval and monitoring process.

This study was conducted to find out the real effects on classified loans of the new

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approach in credit risk management.

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1.1 Origin of the Report
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After completion of two years (4 semesters) MBA Program of Institute of Business

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Administration, University of Dhaka; 3 months organizational attachment is a must. I

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completed this internship period in Eastern Bank Limited (EBL), one of the largest and
reputed Private Commercial Banks in Bangladesh. I worked in the credit administration
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department in the Head Office. The primary activities carried out by this department
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include collecting necessary documents for the loans approval, monitoring the loan
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after disbursement and ensuring its repayment, and finally initiating classification, in
C

case of non-recovery. While working in this department, I found that EBL was doing
well in reducing their classified loan. By the end of the year 2002 and 2003 they had a
staggering classification rate of 13.46% and 13.61% in the total portfolio of loans and
advances. But at the end of September 2004 the classification percentage came down
to 8.22% with classified loans and advances totaling Taka 109 crore, which is almost
half of the previous two years. So, I felt an urge to explore the reasons behind such
magical improvement. I thought, the new approach in credit risk management might
be one of many reasons that had made this possible. My Internship advisor and
respected teacher Associate Professor Dr. Jawadur Rahim Zahid and supervisor in the
organization Mr. Monzur-Ul-Mowla, First Assistant Vice President and Assistant

- 72 -
Manager, Credit Administration of Eastern Bank Limited kindly approved my proposal
and the project originated.

1.2 Objectives

To find out the effects of new approach in credit risk management on credit
related processes.
To highlight the impact of the new approach in credit risk management on
classified loans and advances.

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1.3 Methodology
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The first step of this report work was concerned with problem identification and
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deciding on the topic. This was achieved through consultation with the faculty advisor
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and the supervisor in EBL. Next the particular objectives of the project were set.
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Based on these objectives, the necessary data for completion of the project were
identified. Next, those internal sources were identified who would be able to provide
Fr

the necessary information.

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After this, the data collection process began. Both primary and secondary sources of
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information were used for the purpose of this report. The primary sources of
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information were the concerned officials of EBL. Data were collected from them
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through face-to-face interview. The sources of secondary information were different

publications, board memos and other reports of EBL. To compare EBLs position with
other banks, data from Bangladesh Banks publications were used.

After data collection was complete, the data was analyzed in a descriptive way to find
out their implications. Based on these findings, the final report was completed.

1.4 Scope

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The report only covers the impact of the new approach in credit risk management on
classified loans and advances and also the overall effect on credit approval and
monitoring process. The new approach is based on the guideline provided by
Bangladesh Bank. This is a descriptive study only. No attempt was made to find out a
direct relationship between these two variables (new approach and effect on classified
loans and advances). No recommendation has been provided in this report.

1.5 Limitations

Because of organizational restriction, no name and details of the status of a classified

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account could be revealed. As a result, specific reasons behind a particular clients

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classification could not be revealed. This hampered the fulfillment of the objectives of

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the report.
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The financial statements of EBL for 2005 have not been published yet. As a result,
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some of the data necessary for financial analysis in the organizational part could not
be availed.
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1.6 Organization of the report

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This report is organized into two broad parts. The first part is an overview of the
organization itself. The second part concentrates on the research project. The
organization part includes History of Eastern Bank Ltd., its profile, structure,
operations, management bodies, products, financial status etc. The next part focuses
on the project topic. Guideline of Bangladesh Bank for managing credit risk properly is
presented first. Then in the following chapters restructuring process, reason for
restructuring and effects of restructuring is described. Finally, a conclusion based on
the project findings is drawn.

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2.0 PROFILE OF EASTERN BANK LTD.

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This part takes a glimpse at Eastern Bank Ltd. from different perspectives. History of
the bank, current status of the bank, its products, organizational structure and many
other things are discussed for the better understanding of the organization.

2.1 History

Eastern Bank Limited was incorporated as a public limited company and a scheduled
bank on 16 August 1992 to commence business. EBL is the successor of BCCI. In 1991
when BCCI collapsed internationally, the operation of this bank closed down in

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Bangladesh. After discussions with BCCI employees and taking into consideration the
depositors and customers interests, Bangladesh Bank gave permission to form a bank
named Eastern Bank Limited by taking all assets and liabilities of erstwhile BCCI
(Overseas). It was established under the Bank Of Credit And Commerce International
(Overseas) Limited (Reconstruction) Scheme formulated by Bangladesh Bank. EBL
started business with four branches-Principal Branch, Motijheel Branch, Agrabad
Branch and Khulna Branch and had authorized capital of TK.1000 million with 10
million shares of TK. 100 each and of paid up capital of TK.310 million. The paid up
capital increased to TK. 600 million in 1994. The first Board of Directors constituted of
7 directors of Bangladesh Government. Mr. Nurul Hossain Khan was the chairman and
Mr. Ghiyasuddin Ahmed was Managing Director.

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In 1993, EBL started its expansion of branches. The bank got its Authorized Dealership

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License from Bangladesh Bank on 7th July 1993. Six new branches opened in 1994 and
three in 1995.
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2.2 Current profile of EBL

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At present, the bank has 22 branches throughout the country with 500 employees. The
existing Board of Directors has 12 members. Mr. M. Ghaziul Haque is the Chairman of
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Board and Mr. K Mahmood Sattar is the Managing Director.

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EBL has gone through a restructuring stage where the traditional Branch Banking
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System is gradually discarded and being replaced by a Centralized System. Till 2000,
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EBL operated in a Geographical Matrix where the business of the bank was
concentrated in the twenty- two branches. In 2001, the management of EBL changed it
business philosophy into Business Matrix. The main three businesses that the bank is
now concentrating on are:
Corporate
Consumer
Treasury

2.2.1. Corporate Banking Division

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Corporate Banking Division of EBL caters to the needs of corporate clients. The entire
corporate division is divided into three broad areas: Area-1 that comprises of Dhaka,
Area-2 that comprises Chittagong and Area-3 that comprises of Outstation Branches
i.e. the branches in areas other than Dhaka and Chittagong. There are five units in
Area-1, while Area-2 has three units. Also there are Small Business Unit (SBU) in Dhaka
and Agrabad (Chittagong). All the units are operated from the Corporate Banking
Division at Head Office. In general this divisions functions are:
Targeting corporate clients and building business relationship with them
Evaluating financial strength of the clients
Designing customized service for the clients
Making possible recommendations for further financial expansion

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2.2.2 Treasury Division

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The Treasury Division of EBL deals with fund management i.e. money market dealing
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and LC Payments. They are also responsible for maintaining the statutory requirements
with Bangladesh Bank.
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2.2.3 Consumer Banking Division

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Consumer Banking Division deals with the financial needs of individual customers. The
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twenty-two branches of EBL, which are now termed as the Sales & Service Centers
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principally focus on retail banking based on relationship with individual customers.

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This divisions principal functions are:

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New Product Development

Brand Management
Maintenance of CASA and HP Accounts
Providing Consumer Loan
Providing Locker Services

2.3 Other divisions

Beside these 3 business units several ancillary units are present which support the
business units in day-to-day activities. These are Credit Risk Management Division,

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Brand Management Division, Finance Division, Human Resources Department, Special
Asset Management Division, Operations, Audit and Compliance Division, Credit
Administration Division, Information Technology Division and International Division.

2.3.1 Credit Risk Management

This division is responsible for evaluating the credit worthiness and debt payment
capability of present loan customers and loan applicants. The department also
monitors the risk worthiness regularly. The branches send all proposals from the
prospective borrowers to the corporate division, which in turn analyze the financial
statements and prepare credit memorandum, application for limit, account

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profitability and other necessary papers and send them to the Credit Risk Management

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division for approval. The department keeps track of credit portfolio by obtaining

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regular information from the branches. It sets price for credits and ensures its
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implementation at the branches. This department also monitors the various loan
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accounts of the branches and prepares various statements for Bangladesh Bank.
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2.3.2 Brand Management

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The Brand Management division is a secondary unit of consumer division and is

responsible for all activities related to managing the organizations brand and building
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brand equity. It designs the logo, greeting cards and official stationary and prepares
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promotional plan and budget.

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2.3.3 Finance
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Finance division of the bank is responsible for:

Budgeting and Cost Monitoring
Planning and Monitoring the banks liquidity
Corporate Tax management
Monthly accrued interest calculation of all interest bearing accounts
Amortization of all fixed and other assets,
Central bank & other statutory reporting,
Management reporting (MIS),
Preparation of various financial statements
Weekly deposit and advance analysis of the bank,

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 Cost of fund analysis,
Maintenance of accounts,
Preparation of annual report of the bank,
Maintenance of provident fund accounts,
Maintenance of income and expenditure posting.

2.3.4 Human Resources

At present around 500 people are employed in EBL. All aspects of the employees are
looked after by the Human Resources Department. HR Department is responsible for
recruitment and development of staff members.

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HR Department carries out the following functions:

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Identifying the need and recruiting new human resources.

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Taking care of all formalities regarding appointment and joining of the
successful candidates.
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Training, Remuneration, Compensation, Promotion, Demotion, Termination,
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Retirement and Transfer of human resources.

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Maintain personal files of all employees of the bank.

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In 2001 16 in-house training programs were designed and executed. Also EBL
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employees participate in different external courses offered by BIBM, Bangladesh Bank

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Training Academy, Chambers, Export Promotion Bureau etc. HR department introduced

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a voluntary separation scheme to address the overstaffed scenario in 2001. The

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intended employees were offered severance packages and end service benefits.
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2.3.5 Special Asset Management

Special Asset Management Division (SAMD) is responsible for management of all

accounts, which are classified in the banks loan portfolio. The classifications are Sub-
standard, Doubtful and Bad & Loss. SAMDs responsibility covers the areas of
monitoring and controlling the classified accounts, actively following up with the
borrowers for recovery, negotiating and restructuring/ rescheduling debts wherever
feasible.

2.3.6 Operations

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The Operations division consists of Service Delivery, Trade Service, Treasury Support
division and IT division. These subdivisions provide support to the front office
functionalities.

2.3.7 Audit and Compliance

This division provides legal assistance to the branches and formulates strategy for
classified loans and ensures observance of rules and policies by all stakeholders of the
bank through routine and surprise inspection and audit.

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2.3.8 Credit Administration

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Credit Administration Division deals with Credit Administration, Loan Monitoring and
Documentation.
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Credit Administration entails post-approval functions of the division, which are

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monitoring credit expiry, dues, excess over limit, document deficiency and reporting
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the deficiencies. Loan monitoring part entails follow-up on approval terms, proper
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disbursement, monitor interest payments, monitor principal repayment and

maintaining balance with general ledger. Documentation function entails ensuring that
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proper loan documents are present, filing with the Registered Joint Stock Corporation
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(RJSC) and executing registered mortgage deed.

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2.3.9 Information Technology

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The Information Technology Division deals with identifying the need and developing
software for the banks operation, its maintenance and purchase of new software
rights, maintaining the computers and upgrade them whenever required and training
the staff for operation of computers and preparing training materials. Presently the IT
Division is carrying out batches of training program to introduce the integrated banking
software called Flex Cube. A team from iflex Solutions India is assisting EBL with this
software.

2.3.10 International Division

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The International Division is responsible for helping in import and export businesses on
account of the customers of the bank. It also deals with all the correspondents of
foreign banks, which have account with the bank.

2.4 Vision and Mission statements of EBL

The management of EBL as a part of the restructuring program rephrased the banks
vision in 2001. Before that the bank did not have any structured vision and mission
statement. Now EBLs vision is:

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TO BECOME THE BANK OF CHOICE BY TRANSFORMING THE WAY WE DO BUSINESS AND

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DEVELOPING A TRULY UNIQUE FINANCIAL INSTITUTION THAT DELIVERS SUPERIOR

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GROWTH AND FINANCIAL PERFORMANCE AND BE THE MOST RECOGNIZABLE BRAND IN

THE FINANCIAL SERVICES IN BANGLADESH.

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The mission of EBL states

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We will deliver service excellence to all our customers, both internal and
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external.
We will constantly challenge our systems, procedures and training to maintain a
Fr

cohesive and professional team to order to achieve service excellence.

ed

We will create an enabling environment and embrace a team based culture

ct

where people will excel.

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We will ensure to maximize shareholders value.

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EBLs Value Statement does not claim to be No. 1 in banking or The most Superior in
banking. Rather it simply maintains Simple Math, the Philosophy of Easy Banking.
While celebrating the 10th anniversary in 2002, EBLs logo was changed to reflect the
restructuring and the transformations it is going through; the colors of the new logo
signify the vibrant green of mother earth, a blue sky full of possibilities and a yellow
rising sun of hope.

2.5 Management and Organizational Structure

- 81 -
The Board of Directors establishes the objectives and policies of the bank. It has the
authority to declare dividend, to approve the balance sheet, etc. The Chairman
informs the board of directors on the progress of the bank and implements the policies
established. The board is not directly concerned with the day-to-day operation of bank
rather it has delegated authority to its management committee. There are three
committees of the board for different purposes, which are:
Executive Committee comprising of seven members of the board
Committee of the board for Administrative Matters
Committee to examine Bad Loan Cases

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2.6 Organization chart

O
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Following is the present organization chart of EBL:
SU
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:E
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Fr
ed
ct
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ol
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CHAIRMAN

BOARD OF DIRECTORS

MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER

EXECUTIVE VICE PRESIDENT

SENIOR VICE PRESIDENT

SENIOR ASSISTANT VICE PRESIDENT

PRESIDENT
FIRST ASSISTANT VICE PRESIDENT

- 82 -
 VICE PRESIDENT

ASSISTANT VICE PRESIDENT

SENIOR PRINCIPAL OFFICER

PRINCIPAL OFFICER

SENIOR OFFICER

OFFICER

SUPERVISORY OFFICER

JUNIOR OFFICER

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Figure1: EBL Organogram

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2.7 Marketing aspects
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EBL has a highly skilled marketing team which contributes to the growth of the
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organization continuously by developing new, innovative products, properly

campaigning for the products and maintaining a healthy customer relationship.
Fr
ed

2.7.1 Product Profile of EBL

ct
le

EBL is in the business of providing banking service and is changing its approaches to
ol

become more and more customer focused. At present EBL offers a variety of
C

services/products1 for the retail customers as well as for corporate clients. There are
four categories of services in EBL:

Savings and Current Accounts

Fund Transfer
Securities
Commercial Lending

2.7.1.1 Savings & Current Accounts

- 83 -
Different savings accounts are: High Performance Account (HPA), Short Term Deposits
(STD), Fixed Deposits (FDR), Current Deposits for Individual, Current Deposits for
Partnership, Current Deposits for Joint Account, Current Deposits for Limited
Companies

2.7.1.2 Fund Transfer

Fund transfer includes the following services:
Demand Draft (not available under new system)
Mail Transfer (not available under the new system)
Telegraphic Transfer (not available under the new system)
Payment Order

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Sale of Travelers Cheque

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2.7.1.3 Securities
It includes the following services:
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Sale of Bangladesh Sanchaya Patra, Pratirakkhya Sanchaya patra, ICB
certificates, etc.
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Encashment of different Sanchaya Patra, ICB certificates, etc.

om
Fr

2.7.1.4 Commercial Lending

Commercial lending comes in various forms and names. These are Fast Loan, Fast
ed

Cash, Payment against Documents (PAD), Cash Credit (CC/HYPO), Acceptance against
ct

(ULC), Own Acceptance Purchase (OAP), Local Bill Purchased-Documentary (LBPD),

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Foreign Bill Purchased-Documentary (FBPD), Loans against Foreign Bill-Documentary

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(LAFBD), Sight Letter of Credit (SLC), Usance Letter of Credit (ULC), Letter of
Guarantee (LG), Packing Credit against Export L/C & Export Order (PC), etc.

The Product Development team of consumer banking division is currently working on

designing credit products like EBL Monthly Income Plan (MIP), Savings Insurance
Schemes, Monthly Deposit plan, Retail loans, Unsecured Consumer loans, Loans for
Professionals. New services like Automated Teller Machine (ATM), Telephone Banking,
Online Banking, Credit Card Facility, Sweep in-out Facility etc was introduced in July
2003.

2.7.2 Promotion

- 84 -
Although EBL is in the banking business for quite sometime its brand image has not
grown strong and in order to succeed in the competitive bank environment it needs
enrich its brand equity. So far EBL has shunned any sort of promotional tools except for
a few inconspicuous billboard advertisements, signboards and newspaper recruitment
ads. However a new department called Brand Management has been set up in 2001
to give a new and enhanced brand identity to EBL. This department supervises the
planning of advertisement campaigns for EBLs products and analyzing customer
feedbacks. With the aid of a advertising agency the logo and stationary of EBL has
been changed and eye-catching brochures, calendars and posters have been prepared
which are displayed at the sales & service centers.

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2.7.3 Distribution

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EBLs 22 branches are now termed as Sales & Centers, which are all connected through
the network from mid July 2003. After that the customer can make transactions from
-N

any branch they desire.

:E
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Chart1: Growth of Distribution Outlets

Fr

25

20
ed

15 21
ct

21 21 21 22
16
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10 14
ol

5
2.8
C

0
1995 1996 1997 1998 1999 2000 2001

Financial Profile of EBL

2.8.1 Investment Function

The investment portfolio of EBL was as follows in 2002 and 2003. (Note: 2004 data
could not be availed from the respective dept.)

Table 1: Instrument wise breakup of EBLs Investments

- 85 -
 2002 % of total 2003 % of total
investment in investmen
2000 t in 2003
28 Days T-Bills 400,000,000 17.63% - 0.00%
364 Days T-Bills 100,000,000 4.40% 1,550,000,000 42.92%
2 Years T-Bills 590,000,000 26.01% 720,000,000 19.93%
5 Years T-Bills 880,000,000 38.79% 1,060,000,000 29.35%
Prize Bond 1,259,00 0.005% 1,354,100 .03%
Preference Shares of United 50,000,000 2.2% 50,000,000 1.38%
Cement Ind. Ltd.
Shares of Central 1,200,000 0.052% 4,000,000 0.11%

M
depository Bangladesh Ltd

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15 Years ICB Debentures 110,000,000 4.84% 100,000,000 2.76%

.C
20 Years HBFC Debentures 135,000,000 5.95% 125,000,000 3.46%
8,566 ICB Shares (TK 100 856,600
SU
.037% 856,600 0.02%
-N
Each)
:E

Total 2,268,315,6 100.00% 3,611,210,7 100.00%

00 00
om

Source: Annual Report, 2003

Fr

From the above data it is seen that EBL prefers to invest in medium-term treasury bills
ed

(1 year and 2 year maturity). 0 In both 2002 and 2003, 75-80% of its investment was
ct

made in 1 year and 2 year T-bills. They adopt this policy primarily as a source of
le
ol

liquidity rather than a source of income.

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The rest 20-25% of investments were made in long-term debentures and shares of some
company. It means that EBL is getting higher returns from these high yielding long-
term investments but the trade off is that a large quantity of EBL's money is stuck in
those investments for a pretty long time and EBL can't use that money in case of
sudden high returning investments.

2.8.2 Broad performance indicators (EBL at a glance)

- 86 -
Eastern Bank has performed well in last few years where there has been significant
growth in different segments of the Bank. Here growth for some of the different
business of EBL is shown.

Table 2: Broad Performance Indicators of EBL from 2000-2003 (FIGURES IN

MILLION TAKA).

Particulars 2000 2001 2002 2003

Reserve 2260 2322 2448 2,560
Deposit 12375 13277 13662 11,952
Loans And Advances 8141 9946 10891 11,288
Export 7281 5402 4,358 3,533

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Import 12533 11415 12,642 16,256

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Guarantee Business 1789 1054 1,183 354
Operating Income 1916 2022 SU 1,986 1,985
Operating Expense 1242 1319 1,255 1,226
-N

Operating Profit(Loss) 674 703 731 759

:E

Net Profit(Loss) before tax 475 553 631 638

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Total Assets 16880 18284 18,445 18,716

(Excluding Contingent)
Fr

Return On Equity % 15.38 16.93 17.44 15.33

ed

Return On Asset % 1.57 1.84 2.04 1.95

ct

Book value per share (TK) 266.07 265.02 295.29 281.87

le

Earning per share(TK) 40.91 44.86 51.48 43.21

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Dividend per share 30.00 30.00 35.00 20.00

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Classified loans as a % of 8.21 11.52 13.46 13.61

total loans
Capital Adequacy ratio % 24.17 22.49 22.32 18.27
Net interest margin % 3.44 3.46 3.44 2.43

Source: Annual Report, 2003

2.9 Growth and Development Profile of EBL

2.9.1 Growth in Sales Volume

- 87 -
Growth in sales volume comprises of growth in deposits, growth in loans and advances
and growth in export and import business.

Growth in Deposits:
Deposits increased by 7.29% from Tk 12375 million in 2000 to Tk 13277 million in 2001
and in 2002 only by 3.8% to Tk. 13662 million. The bank has focused on reducing cost
of funds by increasing transactional deposits and other low-cost deposit. Rates of
interest were revised periodically as par market condition.

Chart 2: Year wise growth in Deposits

Yearwise Growth in Deposits

M
O
14000

.C
12000

13277
SU
12375

10000

13662
11231
8879

8000
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9568

6000
:E

4000
om

2000
0
Fr

1997 1998 1999 2000 2001 2002

ed

Loans & Advances:

ct

The total loans and advances of the bank were Tk. 10891 million showing an increase
le

of 9.5% only over the year 2002 as against in the year 2001 when the increase was of
ol
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22%. The total classified loans of the bank stood at Tk. 1466 million in December 2002
as against Tk. 1146 million at the end of December 2001. Loans increased due to
procedural streamlining and establishing transparencies to the credit management
system.

- 88 -
 Yearwise
Chart 3: Year Growth in Loans
wise growth in Loans&and
Advances
Advances

12000
10000
Tk in Million
8000

10891
6000

9946
7902

8141
4000
5258

5744
2000
0
1997 1998 1999 2000 2001 2002

Year

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Import & Export Business: SU
The banks total foreign exchange business was of Tk. 17272 million, which included
-N

Import, Export, and Remittance of Tk. 11415 million, Tk. 5432 million and Tk. 425
:E

million respectively in 2001. Major items of export were readymade garments,

om

shrimps, tea, jute goods, leather goods and non-traditional items. Major import items
were consumer goods and old vessels for scrapping, industrial raw materials, fabrics
Fr

and accessories of garment industries etc.

ed
ct

Chart 4: Yearwise Growth in Import, Export & Remittance

le
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14000
C

12000
12533

10000
11818
Tk in Million

11415

8000
9965

6000
7015

5402
7281

4000
3426

4822

5729

425
2000 156 237 275

0
1997 1998 1999 2000 2001
Year

Export Import Remittances

- 89 -
2.9.2 Growth in Assets

EBLs assets have grown steadily over the years. In the year 2002 it stood at Tk. 17648
million as against Tk. 18284, showing a decrease of 6.4%.

Growth
Chart of Assetsof Assets
5: Growth
18,284
20,000 16,880 17,648
14,394
15,000
10,186 10,973

10,000

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5,000

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-
1997 1998 1999 SU
2000 2001 2002
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:E

2.10 Portfolio
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Fr

Table 3: Sector wise investment summary

ed

Sector-wise summary
ct

Nature of Business Limit (Taka.In lac) % of total limit

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ol
C

Tea 373 0.16

Agro-based Machinery 2517 1.1
Automobiles 13 0.01
Automobiles & Spare Parts 5371 2.35
Brick manufacturing & Ceramic 211 0.019
Carrying 1056 0.46
Cement 5000 2.18
Chemical, Plastic& Plastic Products 9019 3.94
Civil 11626 5.08
Clearing and Forwarding 109 0.05

- 90 -
Clinic, Hospital & NGO's 77 0.03
Cloth 456 0.2
Commodity Import 22395 9.78
Computer & Electronics 1144 0.5
Consultancy 122 0.05
Cotton, yarn & Dyes 278 0.12
Crockeries 22 0.01
Edible Oil 5651 2.47
Educational Institution 200 0.09
Electronic Goods 6834 2.99

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Fertilizer & Medicine 610 0.27

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Financial Institution 10400 4.54

.C
Foods & Beverage 8632 3.77
Garment/ Accessories 2168
SU 0.95
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Individual 630 0.28
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Information Technology 365 0.16

Jute 1059 0.46
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Leather 1153 0.5

Fr

Media 1020 0.45

ed

Others 11932 5.21

Paper & Stationary 1184 0.52
ct
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Pharmaceutical 1306 0.57

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Poultry & Hatchery 4024 1.76

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Power, Gas & Oil 12064 5.27

Printing & Packaging 2850 1.25
Real State 1071 0.47
RMG 17095 7.47
Road & Bridge 4471 1.95
Rod, Cement & Sheet 1716 0.75
Sanitary & Hardware 583 0.25
Ship Breaking 24138 10.55
Shipping, Airline & Transport 1500 0.66
Shrimp- Export 536 0.23

- 91 -
Shrimp, Fish & Fishfry 593 0.26
Soap & Detergent 275 0.12
Steel Products 14630 6.39
Tea 135 0.06
Telecommunication 2816 1.23
Textile 27101 11.84
Travel Agency 345 0.15
Grand Total 228876 100
Table 3: Business Portfolio of Eastern Bank Limited.
Source: Head Office, Credit Risk Management.

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By analyzing the above table it is clear that EBL has a much diversified investment in

.C
its portfolio. The largest three sectors are Textile, Ship breaking and Commodity
SU
import. In the Textile sector EBL has invested 11.84% of its total portfolio. In the Ship
breaking sector the proportion is 10.55% and in the Commodity import the proportion
-N

is 9.78%. The other major sectors are RMG, Steel products, Power, Gas and Oil and
:E

lastly Civil. The percentages of the investments are 7.47%, 6.39%, 5.27%, and 5.08%
om

respectively. By analyzing the overall scenario we can say that EBL is giving preference
the RMG and Textile sectors, which is combined 19.31% of the total investment. And it
Fr

includes the commodity import section, because EBL is providing a lot of facilities for
ed

importing raw material and machinery to the textile sector and also the RMG sector.
ct

And another good thing is EBL invested above 5% in both the Civil and Power, gas and
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oil sector, which shows that EBL has the intention of investing for public welfare.
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C

- 92 -
 3.0 GUIDELINES OF BANGLADESH BANK

Credit risk management needs to be a robust process that enables banks to proactively
manage loan portfolios in order to minimize losses and earn an acceptable level of
return for shareholders. Central to this is a comprehensive IT system, which should
have the ability to capture all key customer data, risk management and transaction
information including trade & Forex. Given the fast changing, dynamic global economy
and the increasing pressure of globalization, liberalization, consolidation and dis-

M
intermediation, it is essential that banks have robust credit risk management policies

O
and procedures that are sensitive and responsive to these changes.

.C
SU
The guidelines have been organized into the following sections:
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Policy Guidelines
:E

Lending Guidelines
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Credit Assessment & Risk Grading

Approval Authority
Fr

Segregation of Duties
ed

Internal Audit
ct

Preferred Organizational Structure & Responsibilities

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Procedural Guidelines
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Approval Process
C

Credit Administration
Credit Monitoring
Credit Recovery

These guidelines were prepared and endorsed by senior credit executives from private
sector, foreign and nationalized commercial banks operating in Bangladesh. They are
intended for use in the corporate/commercial banking businesses.

- 93 -
3.1 Policy Guidelines

This section details fundamental credit risk management policies that are
recommended for adoption by all banks in Bangladesh. The guidelines contained
herein outline general principles that are designed to govern the implementation of
more detailed lending procedures and risk grading systems within individual banks.

3.2 Lending Guidelines

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All banks should have established Credit Policies (Lending Guidelines) that clearly

.C
outline the senior managements view of business development priorities and the
SU
terms and conditions that should be adhered to in order for loans to be approved. The
Lending Guidelines should be updated at least annually to reflect changes in the
-N

economic outlook and the evolution of the banks loan portfolio, and be distributed to
:E

all lending/marketing officers. The Lending Guidelines should be approved by the

om

Managing Director/CEO & Board of Directors of the bank based on the endorsement of
the banks Head of Credit Risk Management and the Head of Corporate/Commercial
Fr

Banking.
ed
ct

Any departure or deviation from the Lending Guidelines should be explicitly identified
le

in credit applications and a justification for approval provided. Approval of loans that
ol

do not comply with Lending Guidelines should be restricted to the banks Head of
C

Credit or Managing Director/CEO & Board of Directors.

The Lending Guidelines should provide the key foundations for account
officers/relationship managers (RM) to formulate their recommendations for approval,
and should include the following:

Industry and Business Segment Focus, Types of Loan Facilities, Single Borrower/Group
Limits/Syndication, Lending Caps, Discouraged Business Types, Loan Facility
Parameters, Cross Border Risk, Third world debt crisis.

- 94 -
3.3 Credit Assessment & Risk Grading

3.3.1 Credit Assessment

A thorough credit and risk assessment should be conducted prior to the granting of
loans, and at least annually thereafter for all facilities. The results of this assessment
should be presented in a Credit Application that originates from the relationship
manager/account officer (RM), and is approved by Credit Risk Management (CRM).
The RM should be the owner of the customer relationship, and must be held
responsible to ensure the accuracy of the entire credit application submitted for

M
approval. RMs must be familiar with the banks Lending Guidelines and should conduct

O
.C
due diligence on new borrowers, principals, and guarantors.
SU
It is essential that RMs know their customers and conduct due diligence on new
-N
borrowers, principals, and guarantors to ensure such parties are in fact who they
:E

represent themselves to be. All banks should have established Know Your Customer
om

(KYC) and Money Laundering guidelines which should be adhered to at all times.
Fr

Credit Applications should summaries the results of the RMs risk assessment and
ed

include, as a minimum, the following details:

Amount and type of loan(s) proposed.
ct
le

Purpose of loans.
ol

Loan Structure (Tenor, Covenants, Repayment Schedule, Interest).

C

Security Arrangements.

In addition, the following risk areas should be addressed:

Borrower Analysis: The majority shareholders, management team and group or

affiliate companies should be assessed. Any issues regarding lack of management
depth, complicated ownership structures or inter-group transactions should be
addressed, and risks mitigated.

Industry Analysis: The key risk factors of the borrowers industry should be assessed.
Any issues regarding the borrowers position in the industry, overall industry concerns

- 95 -
or competitive forces should be addressed and the strengths and weaknesses of the
borrower relative to its competition should be identified.

Supplier/Buyer Analysis: Any customer or supplier concentration should be addressed,

as these could have a significant impact on the future viability of the borrower.

Historical Financial Analysis: An analysis of a minimum of 3 years historical financial

statements of the borrower should be presented. Where reliance is placed on a
corporate guarantor, guarantor financial statements should also be analyzed. The
analysis should address the quality and sustainability of earnings, cash flow and the
strength of the borrowers balance sheet. Specifically, cash flow, leverage and

M
profitability must be analyzed.

O
.C
Projected Financial Performance: Where term facilities (tenor > 1 year) are being
SU
proposed, a projection of the borrowers future financial performance should be
provided, indicating an analysis of the sufficiency of cash flow to service debt
-N

repayments. Loans should not be granted if projected cash flow is insufficient to

:E

repay debts.
om

Account Conduct: For existing borrowers, the historic performance in meeting

Fr

repayment obligations (trade payments, cheques, interest and principal payments,

ed

etc) should be assessed.

ct
le

Adherence to Lending Guidelines: Credit Applications should clearly state whether or

ol

not the proposed application is in compliance with the banks Lending Guidelines. The
C

Banks Head of Credit or Managing Director/CEO should approve Credit Applications

that do not adhere to the banks Lending Guidelines.

Mitigating Factors: Mitigating factors for risks identified in the credit assessment
should be identified. Possible risks include, but are not limited to: margin
sustainability and/or volatility, high debt load (leverage/gearing), overstocking or
debtor issues; rapid growth, acquisition or expansion; new business line/product
expansion; management changes or succession issues; customer or supplier
concentrations; and lack of transparency or industry issues.

- 96 -
Loan Structure: The amounts and tenors of financing proposed should be justified
based on the projected repayment ability and loan purpose. Excessive tenor or
amount relative to business needs increases the risk of fund diversion and may
adversely impact the borrowers repayment ability.

Security: A current valuation of collateral should be obtained and the quality and
priority of security being proposed should be assessed. Loans should not be granted
based solely on security. Adequacy and the extent of the insurance coverage should be
assessed.

Name Lending: Credit proposals should not be unduly influenced by an over reliance

M
on the sponsoring principals reputation, reported independent means, or their

O
perceived willingness to inject funds into various business enterprises in case of need.

.C
These situations should be discouraged and treated with great caution. Rather, credit
SU
proposals and the granting of loans should be based on sound fundamentals, supported
by a thorough financial and risk analysis.
-N
:E

3.3.2 Risk Grading

om

According to this guideline, all Banks should adopt a credit risk grading system. The
Fr

system should define the risk profile of borrowers to ensure that account
ed

management, structure and pricing are commensurate with the risk involved. Risk
ct

grading is a key measurement of a Banks asset quality, and as such, it is essential that
le

grading is a robust process. All facilities should be assigned a risk grade. Where
ol

deterioration in risk is noted, the Risk Grade assigned to a borrower and its facilities
C

should be immediately changed. Borrower Risk Grades should be clearly stated on

Credit Applications.

The following Risk Grade Matrix is provided as an example. The more conservative risk
grade (higher) should be applied if there is a difference between the personal
judgment and the Risk Grade Scorecard results. It is recognized that the banks may
have more or less Risk Grades; however, monitoring standards and account
management must be appropriate given the assigned Risk Grade [Appendix I].

- 97 -
At least top twenty five clients/obligors of the Bank may preferably be rated by an
outside credit rating agency.
The Early Alert Report should be completed in a timely manner by the RM and
forwarded to CRM for approval to affect any downgrade. After approval, the report
should be forwarded to Credit Administration, who is responsible to ensure the correct
facility/borrower Risk Grades are updated on the system. The downgrading of an
account should be done immediately when adverse information is noted, and should
not be postponed until the annual review process.

3.4 Approval Authority

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The authority to sanction/approve loans must be clearly delegated to senior credit

.C
executives by the Managing Director/CEO & Board based on the executives knowledge
SU
and experience. Approval authority should be delegated to individual executives and
-N
not to committees to ensure accountability in the approval process. The following
:E

guidelines should apply in the approval/sanctioning of loans:

om

Credit approval authority must be delegated in writing from the MD/CEO & Board (as
Fr

appropriate), acknowledged by recipients, and records of all delegation retained in

CRM.
ed
ct

Delegated approval authorities must be reviewed annually by MD/CEO/Board.

le
ol
C

The credit approval function should be separate from the marketing/relationship

management (RM) function.

The role of Credit Committee may be restricted to only review of proposals i.e.
recommendations or review of banks loan portfolios.

Approvals must be evidenced in writing, or by electronic signature. Approval records

must be kept on file with the Credit Applications.

- 98 -
All credit risks must be authorized by executives within the authority limit delegated
to them by the MD/CEO. The pooling or combining of authority limits should not be
permitted.

Credit approval should be centralized within the CRM function. Regional credit centers
may be established, however, all large loans must be approved by the Head of Credit
and Risk Management or Managing Director/CEO/Board or delegated Head Office credit
executive.

The aggregate exposure to any borrower or borrowing group must be used to

determine the approval authority required.

M
O
Any credit proposal that does not comply with Lending Guidelines, regardless of

.C
amount, should be referred to Head Office for Approval.
SU
MD/Head of Credit Risk Management must approve and monitor any cross-border
-N

exposure risk.
:E
om

Any breaches of lending authority should be reported to MD/CEO, Head of Internal

Control, and Head of CRM.
Fr
ed

It is essential that executives charged with approving loans have relevant training and
ct

experience to carry out their responsibilities effectively.

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ol

A monthly summary of all new facilities approved, renewed, enhanced, and a list of
C

proposals declined stating reasons thereof should be reported by CRM to the CEO/MD.

3.5 Segregation of Duties

Banks should aim to segregate the following lending functions:

Credit Approval/Risk Management

Relationship Management/Marketing
Credit Administration

- 99 -
The purpose of the segregation is to improve the knowledge levels and expertise in
each department, to impose controls over the disbursement of authorized loan
facilities and obtain an objective and independent judgment of credit proposals.

3.6 Internal Audit

Banks should have a segregated internal audit/control department charged with

conducting audits of all departments. Audits should be carried out annually, and
should ensure compliance with regulatory guidelines, internal procedures, and Lending
Guidelines and Bangladesh Bank requirements.

M
3.7 Preferred Organizational Structure & Responsibilities

O
.C
SU
The appropriate organizational structure must be in place to support the adoption of
the policies detailed in Section 1 of these guidelines. The key feature is the
-N

segregation of the Marketing/Relationship Management function from Approval/Risk

:E

Management/Administration functions.
om

Credit approval should be centralized within the CRM function. Regional credit centers
Fr

may be established, however, all applications must be approved by the Head of Credit
ed

and Risk Management or Managing Director/CEO/Board or delegated Head Office credit

ct

executive.
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3.7.1 Preferred Organizational Structure

C

The following chart represents the preferred management structure:

- 100 -
 Managing Director / CEO

Head of Credit Risk Management Head of Corporate / Other Direct Reports

(CRM) Commercial Banking (Internal Audit, etc.)

Credit Administration Relationship Management /

(May report separately Marketing (RM)
to MD/CEO)

Credit Approval Business Development

(includes regional credit
centres if applicable)

Monitoring / Recovery

M
(includes regional recovery
centres if applicable)

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Figure 2: Preferred management structure
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3.7.2 Key Responsibilities
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The key responsibilities of the above functions are as follows.

Fr

3.7.2.1 Credit Risk Management (CRM)

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Oversight of the banks credit policies, procedures and controls relating to all credit
ct

risks arising from corporate/commercial/institutional banking, personal banking, &

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treasury operations.
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Oversight of the banks asset quality.

Directly manage all Substandard, Doubtful & Bad and Loss accounts to maximize
recovery and ensure that appropriate and timely loan loss provisions have been made.

To approve (or decline), within delegated authority, Credit Applications recommended

by RM. Where aggregate borrower exposure is in excess of approval limits, to provide
recommendation to MD/CEO for approval.

To provide advice/assistance regarding all credit matters to line management/RMs.

- 101 -
To ensure that lending executives have adequate experience and/or training in order
to carry out job duties effectively.

3.7.2.2 Credit Administration

To ensure that all security documentation complies with the terms of approval and is
enforceable.

To monitor insurance coverage to ensure appropriate coverage is in place over assets

pledged as collateral, and is properly assigned to the bank.

To control loan disbursements only after all terms and conditions of approval have

M
been met, and all security documentation is in place.

O
.C
To maintain control over all security documentation.
SU
-N
To monitor borrowers compliance with covenants and agreed terms and conditions,
and general monitoring of account conduct/performance.
:E
om

3.7.2.3 Relationship Management/Marketing (RM)

Fr

To act as the primary bank contact with borrowers.

ed

To maintain thorough knowledge of borrowers business and industry through regular

ct

contact, factory/warehouse inspections, etc. RMs should proactively monitor the

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financial performance and account conduct of borrowers.

ol
C

To be responsible for the timely and accurate submission of Credit Applications for
new proposals and annual reviews, taking into account the credit assessment
requirements outlined in Section 1.2.1 of these guidelines.

To highlight any deterioration in borrowers financial standing and amend the

borrowers Risk Grade in a timely manner. Changes in Risk Grades should be advised
to and approved by CRM.

To seek assistance/advice at the earliest from CRM regarding the structuring of

facilities, potential deterioration in accounts or for any credit related issues.

- 102 -
3.7.2.4 Internal Audit/Control
Conducts independent inspections annually to ensure compliance with Lending
Guidelines, operating procedures, bank policies and Bangladesh Bank directives.
Reports directly to MD/CEO or Audit committee of the Board.

3.8 Procedural Guidelines

3.8.1 Approval Process

M
The approval process must reinforce the segregation of Relationship

O
Management/Marketing from the approving authority. The responsibility for preparing

.C
the Credit Application should rest with the RM within the corporate/commercial
SU
banking department. Credit Applications should be recommended for approval by the
-N
RM team and forwarded to the approval team within CRM and approved by individual
:E

executives. Banks may wish to establish various thresholds, above which, the
recommendation of the Head of Corporate/Commercial Banking is required prior to
om

onward recommendation to CRM for approval. In addition, banks may wish to establish
Fr

regional credit centers within the approval team to handle routine approvals.
Executives in head office CRM should approve all large loans.
ed
ct

The recommending or approving executives should take responsibility for and be held
le
ol

accountable for their recommendations or approval. Delegation of approval limits

C

should be such that all proposals where the facilities are up to 15% of the banks
capital should be approved at the CRM level, facilities up to 25% of capital should be
approved by CEO/MD, with proposals in excess of 25% of capital to be approved by the
EC/Board only after recommendation of CRM, Corporate Banking and MD/CEO.

The following diagram illustrates the preferred approval process:

- 103 -
 Credit Application
Recommended By RM / Marketing

1 2

Zonal Credit Officer

(ZCO)

3 4

Head of Credit (HOC) &

Head of Corporate Banking (HOCB)

M
5 6

O
.C
7
SU
Managing Director
-N

7
:E
om

Executive Committee/Board
Fr

Figure 3: Credit approval process

ed
ct
le

3.8.2 Credit Administration

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C

The Credit Administration function is critical in ensuring that proper documentation

and approvals are in place prior to the disbursement of loan facilities. For this reason,
it is essential that the functions of Credit Administration be strictly segregated from
Relationship Management/Marketing in order to avoid the possibility of controls being
compromised or issues not being highlighted at the appropriate level.

3.8.3 Disbursement

Security documents are prepared in accordance with approval terms and are legally
enforceable. Standard loan facility documentation that has been reviewed by legal

- 104 -
counsel should be used in all cases. Exceptions should be referred to legal counsel for
advice based on authorization from an appropriate executive in CRM.

Disbursements under loan facilities are only be made when all security documentation
is in place. CIB report should reflect/include the name of all the lenders with facility,
limit & outstanding. All formalities regarding large loans & loans to Directors should be
guided by Bangladesh Bank circulars & related section of Banking Companies Act. All
Credit Approval terms have been met. A sample documentation and disbursement
checklist is attached as Appendix 3.2.1, which banks may wish to use to control
disbursements.

M
3.8.4 Custodial Duties

O
.C
Loan disbursements and the preparation and storage of security documents should be
centralized in the regional credit centers.
SU
-N

Appropriate insurance coverage is maintained (and renewed on a timely basis) on

:E

assets pledged as collateral.

om

Security documentation is held under strict control, preferably in locked fireproof

Fr

storage.
ed
ct

3.8.5 Compliance Requirements

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ol
C

All required Bangladesh Bank returns are submitted in the correct format in a timely
manner.

Bangladesh Bank circulars/regulations are maintained centrally, and advised to all

relevant departments to ensure compliance.

All third party service providers (valuers, lawyers, insurers, CPAs etc.) are approved
and performance reviewed on an annual basis. Banks are referred to Bangladesh Bank
circular outlining approved external audit firms that are acceptable.

- 105 -
3.8.6 Credit Monitoring

To minimize credit losses, monitoring procedures and systems should be in place that
provides an early indication of the deteriorating financial health of a borrower. At a
minimum, systems should be in place to report the following exceptions to relevant
executives in CRM and RM team:

Past due principal or interest payments, past due trade bills, account excesses, and
breach of loan covenants;

Loan terms and conditions are monitored, financial statements are received on a

M
regular basis, and any covenant breaches or exceptions are referred to CRM and the RM

O
team for timely follow-up.

.C
SU
Timely corrective action is taken to address findings of any internal, external or
regulator inspection/audit.
-N
:E

All borrower relationships/loan facilities are reviewed and approved through the
om

submission of a Credit Application at least annually.

Fr

Computer systems must be able to produce the above information for central/head
ed

office as well as local review. Where automated systems are not available, a manual
ct

process should have the capability to produce accurate exception reports. Exceptions
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should be followed up on and corrective action taken in a timely manner before the
ol

account deteriorates further.

C

Despite a prudent credit approval process, loans may still become troubled.
Therefore, it is essential that early identification and prompt reporting of
deteriorating credit signs be done to ensure swift action to protect the Banks interest.

Moreover, regular contact with customers will enhance the likelihood of developing
strategies mutually acceptable to both the customer and the Bank. Representation
from the Bank in such discussions should include the local legal adviser when
appropriate.

- 106 -
An account may be reclassified as a Regular Account from Early Alert Account status
when the symptom, or symptoms, causing the Early Alert classification have been
regularized or no longer exist. The concurrence of the CRM approval authority is
required for conversion from Early Alert Account status to Regular Account status.

3.8.7 Credit Recovery

The Recovery Unit (RU) of CRM should directly manage accounts with sustained
deterioration (a Risk Rating of Sub Standard (6) or worse). Banks may wish to transfer
EXIT accounts graded 4-5 to the RU for efficient exit based on recommendation of CRM
and Corporate Banking. Whenever an account is handed over from Relationship

M
Management to RU, a Handover/Downgrade Checklist should be completed.

O
.C
The RUs primary functions are:
SU
Determine Account Action Plan/Recovery Strategy
-N

Pursue all options to maximize recovery, including placing customers into
:E

receivership or liquidation as appropriate.

om

Ensure adequate and timely loan loss provisions are made based on actual and
expected losses.
Fr

Regular review of grade 6 or worse accounts.

ed
ct

Recovery Units should ensure that the following is carried out when an account is
le

classified as Sub Standard or worse:

ol
C

Facilities are withdrawn or repayment is demanded as appropriate. Any drawings or

advances should be restricted, and only approved after careful scrutiny and approval
from appropriate executives within CRM.

CIB reporting is updated according to Bangladesh Bank guidelines and the borrowers
Risk Grade is changed as appropriate.

Loan loss provisions are taken based on Force Sale Value (FSV).

- 107 -
Loans are only rescheduled in conjunction with the Large Loan Rescheduling guidelines
of Bangladesh Bank. Any rescheduling should be based on projected future cash flows,
and should be strictly monitored.

Prompt legal action is taken if the borrower is uncooperative.

The guidelines established by Bangladesh Bank for CIB reporting, provisioning and write
off of bad and doubtful debts, and suspension of interest should be followed in all
cases.

M
O
.C
SU
-N
:E
om
Fr
ed
ct
le
ol
C

- 108 -
 4.0 RESTRUCTURING ACCORDING TO THE GUIDELINES

Eastern Bank Limited has been restructured in the year 2002. It has changed the way it
used to do its operation. Some new divisions have been introduced. The major
restructuring part is the centralization of the overall operation. Now the branches will
act as the sales and service center and all the decisions are made by the Head office.
The reason behind this centralization and restructuring is to optimize EBL profit and
also reduce the amount of bad or classified loans.

M
O
Two new divisions named Corporate Banking and Credit administration have been

.C
introduced. Both the divisions are responsible for providing the facilities to the
SU
corporate clients and also monitor their daily transactions. And all the decisions about
providing facilities to the clients are made by the Credit Risk Management Division.
-N

Operation of Trade services also changed, now all the import/export businesses are
:E

operated from the head office.

om

Corporate Banking was introduced for maintaining good relationship with the
Corporate Clients through the Relationship Managers and also for better marketing of
Fr

the Banks Products in the Market.

ed
ct

Credit Administration was introduced to look after all the transaction made by the
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corporate clients and their current outstanding.

ol
C

4.1 Reasons behind the Restructuring and Centralization

Before the restructuring, all credit related matters were handled in branch level,
which led to lower transparency and possibility of misjudging the clients capacity to
repay. Main objective of this new approach is to increase the centralized control over
credit approval and monitoring procedures. Other objectives are:
Reducing the amount of Bad-Assets and increasing the amount of Good-Assets.
Minimizing the mistakes and wrong decisions taken at the branch level.
Increasing amount of deposits.

- 109 -
 Reducing the amount of bad loan through proper selection of the corporate
clients.
Reviewing and scrutinizing the loan repayment process more accurately.
Optimizing the Profit of the Bank.

4.2 Major changes occurred after restructuring

4.2.1 Structural Change

Previously Eastern Bank followed a relatively tall structure. With only 698 employees,

M
EBL had 12 hierarchical levels. This tall structure caused too much bureaucratic cost

O
for EBL. The sources of this bureaucratic cost were too many middle level managers,

.C
information distortion, motivational and coordination problems among the employees.
SU
-N
Previously the operation of the banks were quite decentralized, the managers of each
:E

branch had been given wide discretion to make decisions regarding the branch
operations. But now the new management decided to centralize all operations. The
om

branches of the bank are now termed as the Sales & Services Center which is solely
Fr

concentrated on building consumer-banking relationship with its customers. Each

branch will take the related papers and documents from the clients and send that to
ed

the head office for processing. The head office will made the decisions and the branch
ct

will let the clients know about the advisements.

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According to the new organogram, the organization has become flat across the
ol
C

department but it still remains tall within the department. As some different
hierarchies have been created, the organization has avoided becoming too tall.

The board of directors being at the highest level of organizational structure plays an
important role on the policy formulation. The board of directors is not directly
concerned with the day-to-day operation of bank, at least in written. It has delegated
to its authority to its management committee. The board establishes the objectives
and policies of the bank. The board has the authority to declare dividend, to approve
the Balance Sheet, etc. Chairman keeps board of directors informed, on the progress
of the bank and implements the policies established. Among the 15 members of the

- 110 -
board, 7 are internal to the organizations and 8 are external to organization appointed
by different regulatory bodies.

There are three (3) committee of the board for different purposes:
Executive committee comprises 7 members of the board
Committee of the board for Administrative matter
Committee to examine Bad Loan Cases

The Managing Director is the head of the operational area of the bank and its chief
executive. The Managing Director was appointed by the board of directors with prior
permission of Bangladesh Bank. All policy formulation and subsequent executions are

M
done in the Head Office

O
.C
An Executive Vice President heads the Asset Management Division, Corporate Banking
SU
Division, Credit Risk and Credit Administration Division and a Senior Vice President
heads the IT Division, Consumer Banking Division and also the Brand Management
-N

Division. The whole corporate division is divided into two broad areas, Area1 (headed
:E

by a SVP) that comprises Dhaka and Outstation Branches and Area2 (headed by a SVP)
om

comprising Chittagong branches. A Senior Vice President heads each area. There are
six units in these two areas headed by a VP or AVP. Some senior relationship managers
Fr

helped them to carry out the job. A Senior Vice Presidents heads the Human Resource
ed

Department.
ct
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4.2.2 Strategic Change

ol
C

Strategic change is the movement of a company away from its present state toward
some desired future state to increase its competitive advantage.

4.2.2.1 Determining the Need for Change

As the ROE of EBL was falling, the Board of Directors recognizes that there is a gap
between desired company performance and actual performance. The competition in
the banking industry has increased over the period and EBL was way behind to
introduce new products for the customers. Moreover the loan recovery performance of
the banks was not satisfactory and the management had to write off a significant
portion of the bad debts. So the Board of directors realizes that EBL needs for a

- 111 -
strategic change. In order to initiate the change process, the Board of Directors
replaced the Managing Director Mr. M. Khairul Alam with K. Mahmood Sattar who was
the Head of corporate of the ANZ Gridlays Bank (Bangladesh).

In Eastern Bank Limited, two major strategic changes occurred reengineering and
restructuring.

4.2.2.2 Reengineering
EBL has changed some of its business processes. Previously each branch manager used
to take all the decisions regarding their branch operation by him or her. There are 22
branches of Eastern Bank Limited operating countrywide. But now all these branches

M
are termed as the Sales & Services Centers and they are now totally focusing on

O
retail banking based on individual customers. Respective branches took all the

.C
necessary papers from clients and send all advance proposals to the Head office for
SU
approval. The head office will process the documents and let the customer know the
-N
decisions through the respective branch. Each branch is now involved with general
banking (deposit, withdrawal). EBL concentrates on Corporate Banking that deals with
:E

business houses including sole proprietorship concerns, Consumer Banking that deals
om

with all individuals, professionals, housewives, doctors, engineers, etc. and high net
worth individual, treasury Department dealing in call/placement. Money market (local
Fr

and foreign) operations, sell treasury products, maintain liquidity including CRR & SLR
ed

and responsible for presenting credit line proposals for Banking Financial Institution.
ct
le

EBLs information Technology (IT) Department have been providing uninterrupted high
ol

quality computerized banking services to meet the needs of its clientele which aims at
C

building, operating and maintaining the technology base of the bank to enable error-
free production of information that ensures ongoing efficiency and profitability of
operations. The management of the bank is on the threshold of shifting on the new IT
paradigm as a world class banking software has been selected which will provide
Online banking, Internet banking. Automated Teller Machine (ATM's), Point of Sale
(POS), Credit Card facility etc to its customer to meet the challenge of the 21st
Century. Steps have been taken to select the compatible Computer hardware,
Environmental software, Communication link, Local Area Network (LAN) and Wide Area
Network (WAN) equipments to implement the banking software successfully.

- 112 -
Moreover, Eastern Bank Limited has changed its vision and mission to face the
challenges of the external situation.

4.2.2.3 Restructuring
The top management realized a need for rightsizing the number of employees of the
Bank. After rightsizing the management decided to change the structure of the Bank,
and they changed the structure from the geographical matrix to the business matrix.
The next step was to place right people in the right place and define their job
description. Before the change the responsibility of the employees were not specific,
all of them were used o do everything. With this job description the responsibility was
also delegated towards the employees. They have also got job title, so there are two

M
hierarchies there in the Bank now: corporate hierarchy and the job hierarchy. The

O
main structural change that needs to be noticed is that the structure among the

.C
departments is decentralized whereas the structure within the departments is
SU
centralized. As a result, the organogram of the Bank has become more flat than
-N
before.
:E

4.2.3 Operational Changes

om
Fr

An operation is all about processes, which are considered to be activities performed by

several people to accomplish transactions. Operation is important for bank because it
ed

is the nerve center of the business without which nothing can materialize. It is like the
ct

production unit of the manufacturing concern ad it touches every other function:

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Consumer
ol
C

Corporate
Treasury
Support

Operations deal with every transaction and are involved in every affair, which
includes:
Starting an account relationship
Settlement of account,
Foreign trade dealing,
Resolving disputes and claims,
Shortened of lead-time in every transaction,

- 113 -
 Reconciliation of suspense accounts.
Reforms recommended by the new management are,
Capacity planning
Change in organization structure
Renationalize human resources
Centralize processes

4.2.3.1 Why Centralization of Operations

To allow front offices to become more customers focused and sales oriented.
To contain cost of transactions at branch level.
To optimize the utilization of their resources and premises.

M
To bring in control in their activities.

O
To eliminate lapses on account of security documentations of risk assets.

.C
To provide efficient customer services.
SU
-N
4.2.3.2 Benefits of Centralization
:E

Consolidate skill sets

Effective internal control
om

Containment of costs
Fr

Enhances business flexibility at branch level

Data consolidation
ed

Economies of scale.
ct
le

4.2.4 Introduction of Corporate Banking

ol
C

Eastern Bank has launched Corporate-banking division on the 10th January of 2002.
Corporate is responsible for providing all the facilities to the corporate clients.
Previously the procedure was different. Branches were responsible for providing all the
cash and non-cash facilities to the clients. But now the scenario is changed. The whole
corporate division is divided into two broad areas, Area1 that comprises Dhaka and
Outstation Branches and Area2 comprising Chittagong branches. Area 1 consists of six
units. Four of them are located in the principal branch and one is in the Gulshan
branch. Six units in area1 are looking after assets and one unit is responsible for
liabilities, while area2 has three asset units and one liabilities unit. Every unit has a
unit head, who is in charge of that unit and responsible for all the business activities of

- 114 -
that unit. Generally one RM and one ARM work under the unit head. All Unit heads
work under the head of Corporate, and they report directly to him. The management
hierarchy of the Corporate Banking is given below:
Head of Corporate

Unit Heads

Relationship Managers Asst.

Relationship Managers

Figure 4: Management Hierarchy of Corporate Banking

M
O
.C
The broad functions of this division are as follows:
SU
Targeting corporate clients and building business relationship with them.
Designing customized service for the clients.
-N

Evaluating financial strength of the clients.

:E

Making possible recommendations for further financial expansion

om
Fr

4.2.5 Call programs for prospective clients

ed

Target Clients: Established with Three years track records or diversification/expansion

ct

of business houses with five years success track record, strong financials, good net
le

worth and established market reputation.

ol
C

Call Objectives: Obtain project details, financials, year to date results, current
banking arrangements, independent market opinion of sponsors & company, group
business information future requirements, CIB position, opinion on credit worthiness of
sponsors, security/rates/facility levels of existing bankers, ascertain how EBL value
offer fits in with customer requirement, try to understand customer need in terms of
value offer.

4.3 Credit Approval and Monitoring Process

- 115 -
4.3.1 Selection of the Borrower

In lending, the most important step is the selection of the borrower. Due to the
asymmetric information and moral hazard, banks have to suffer a lot due to the
classified loans and advances, which weakens the financial soundness of the bank. If
the selection of borrower is correct, that is, the borrower is of good character, capital
and capacity or of reliability, resourceful and responsible; the bank can easily get the
return from the lending. Consequently, monitoring is made much easier for the banker.
From this point of view, EBL follows the following procedures,

4.3.2 Studying Past Track Record

M
O
After getting an application for a loan, an EBL Official studies the past track record of

.C
the applicant. Generally the study includes,
Account balances and the past transactions.
SU
-N
Credit report from other banks.
Information of the Industry by studying market feasibility.
:E

Financial statements (balance sheet, cash flow statement, and income

om

statement). If the borrower is a sole- proprietor, then the single entry

Fr

accounting treatment is converted to double entry system.

Report from Credit Information Bureau of Bangladesh Bank if the amount is
ed

more than TK.10 lac.

ct
le

4.3.3 Borrower analysis

ol
C

Borrower analysis is done from the angle of 3-C (character, capital, capacity) or 3-R
(reliability, resourcefulness, responsibility). It follows that the bank forms a rational
judgment about the integrity of the borrower, which should be undoubted. The human
skill, conceptual skill, operational skill is qualitatively analyzed.

4.3.4 Business analysis

Business analysis is done from two angles-terms and conditions and collateral
securities.

- 116 -
4.3.5 Credit Approval Procedure

After receiving the application from the client, EBL official prepares a Credit Line
Proposal (CLP) and forwards the same to the Head Office to place before Head Office
Credit Committee (HOCC) for approval. It includes,
Request for credit limit of customer.
Project profile/ profile of business.

M
Copy of trade license duly attested.

O
Copy of TIN certificate.

.C
Certificate copy of Memorandum & Articles of Association, certificate of
SU
incorporation, certificate of commencement of business, Resolution of the
-N
Board, Partnership Deed. (Where applicable)
:E

3 years Balance sheet and profit & loss account.

Personal net worth statement of the owner/ directors/ partners etc.
om

Valuation certificate of the collateral security in Banks form with photograph

Fr

of the security.
CIB Inquiry form duly filled in(for proposal of above 10lac)
ed

Credit report from another banks.

ct

Stock report duly verified (where applicable)

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ol

Indent/ Proforma invoice/ Quotation.

C

Price verification report.

Statement of accounts
Declaration of the name of the sister concern and their liability.
In case of L/C detailed performance of L/C during last year.

Therefore, the steps in lending can be sum up as follows, -

Entertainment of application for loan proposal.
Preliminary screening of credit proposal.
Feasibility study & Appraisal of loan proposal or Credit investigation.
Sanction of loans or advances.
Documentation.

- 117 -
 Disbursement of loans or advances.
Supervision and follow up of loans and advances.

4.3.6 Risk Analysis of Corporate and Consumer Banking

It is observed that the bank is not evaluating the credit risk of its clients Central Bank
requires a lending risk to be analyzed with proper rating. Risk rating helps the bank to
properly identify the credit strength of its clients and this also helps in focusing on
appropriate action plan to be taken for both the good and classified borrowers. This

M
also strengthens of credit discipline in EB. In order to achieve the objectives; risk-

O
rating guideline has been introduced which is term as Obligor Risk Rating (ORR)

.C
[Appendix II].
SU
-N
Risk rating of client is a continuous process. Therefore, Branch should rates its clients
while presenting CLP [New or Renewal] and on a half-yearly basis i,e. 6 months from
:E

the date of payment of a credit proposal. During half yearly review this exercise should
om

be done in portfolio review format. Any upgrade or downgrade of risk rating should
Fr

also be presented through credit portfolio Review format.

ed

4.3.7 Monitoring Process of Corporate Banking

ct
le
ol

Corporate banking is an integrated specialized area of the bank, which addresses

C

customers' business requirement. Business houses including sole proprietorship concern

are considered to be the corporate customers.
Corporate Department means a separate line of business. The roles of relationship
managers or account managers are to retain and grow share of existing customer base
and booking new customer (quality credit) to sustain and increase corporate banking
and Eastern Bank Limited profitability through superior customer service. Developing
and executing customer strategies that identify and maximize the banks earning
opportunities, effectively assessing and managing credit risk and costs, managing
career development of staff, developing referrals and liaising with Head Office and
credit to develop new customers, identify potential process/ service enhancements
and escalate to the appropriate person.

- 118 -
Account Manager is basically dealing officer, responsible for managing clientele
relationship. Alternate Account Manager will take care of client relationship during
account manager absence.

4.3.8 Monitoring Process in Consumer Banking

Consumers are all individuals, professionals, housewives, doctors, and engineers, etc
and high net worth individuals.

M
Consumer banking is considered to the front officers of the bank, which interfaces with

O
the customers.

.C
SU
Monitoring of consumer banking is one by "Sales and Service center." They keep record
-N
of all the documents. If there is any exception, they monitor it and send it to the
clients and request it to adjust it. Head Office credit risk management finally monitors
:E

all branches consumer banking by using Management Information System (MIS). Eastern
om

Bank Limited give maximum emphasis on Consumer Banking.

Fr

4.3.9 Monitoring Process in Credit Administration Department

ed
ct

Credit Administration Department will be responsible for monitoring of limits and

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outstanding as per credit approvals. Ensure proper loan documentation before

ol
C

disbursement. Also ensure that all credit approval conditions are adhered to and to
highlight exceptions and obtain approvals for any exceptions.

Steps of Credit Payment and Monitoring Process:

There are some steps in credit payment and monitoring process. For proper credit
payments and monitoring these steps are very much important. If these are not
properly maintained then very clients face much problem. So, these steps are very
much important.

These steps are given below:

- 119 -
Step-1: The credit payments and monitoring process starting from review of credit
payment.
Step-2: Then obligor risk rating.
Step-3: Payment of credit limits.
Step-4: Disbursement of facilities.
Step-5: Portfolio review and monitoring of credit risk with proper documentation and
reporting.

The processes clearly reflect a strong check and balance ensuring superior credit
discipline. These processes will eventually be incorporated and highlighted in the EBL's
credit policy manual (under process).

M
O
The Credit Payments and Monitoring Process will also have the following merits:

.C
Expedite credit payment process better credit analysis of customer business.
Banks vision to provide service excellence.
SU
-N
Ensure superior asset quality with growth in sustainable profit.
Maintain appropriate check and balance in business transition with strong MIS
:E

database.
om

Good opportunity for employee development thru clear guideline.

Fr

This will expedite in developing credit policy manual for the bank.
ed

4.3.10 Follow-up and Supervision of Credit

ct
le
ol

Credit monitoring implies that the checking of the pattern of use of the disbursed fund
C

to ensure whether it is used for the right purpose or not. It includes a reporting system
and communication arrangement between the borrower and the lending institution and
within department, appraisal, disbursement, recoveries, follow-up etc.

EBL Officer checks on the following points,

1. The borrowers behavior of turnover
2. The information regarding the profitability, liquidity, cash flow situation and trend
in sales in maintaining various ratios.

The review and classification of credit facilities starts at Credit Department of the
Branch with the Branch Manager and finally ends with Head office credit division.

- 120 -
4.4 Comparative Scenario

Previously (before 2001) there was no standard loan evaluation, approval and
disbursement process and no strict loan monitoring policy. As a result, there were lots
of irregularities in loan disbursement and recovery of EBL. This is one of the main
reasons why EBL incurred so much classified loans and advances.

Previously, there was no centralized Corporate Banking Department and

therefore the branch manager and the branch credit officer maintained the
relationship with the client at the branch level. In this decentralized structure, head

M
office management had poor control over the loan disbursement and monitoring

O
process. They only got involved during the time of loan approval and yearly renewal.

.C
On the other hand, the branch employees had significant control over the operations
SU
of the credits. Sometimes they used their discretions over head office approval in
-N
disbursing loans and collecting repayment. For example, once a client in Chittagong
:E

was allowed to draw loans up to TK 28 crore against an approved limit of only TK 5

crore as the branch manager was sure that the client would be able to pay back the
om

extra amount very quickly. However, the client could not pay back the loan completely
Fr

which resulted in a large classified amount.

ed

Also, previously the loan applicants background was not checked on a strict
basis. Sometimes the credit officers failed to corroborate the information and
ct

documents provided by the client through face-to-face contact, factory/office visit,

le
ol

financial data checking etc. As a result, there have been instances where client took
C

loans through fake documents and never paid back the money.
In some instances, the credit officials also failed to monitor the loans properly.
Since there was no requirement of reports like Account Profitability, Portfolio Review
statements etc., there was no strict monitoring of the clients stocks, earnings, etc. on
a regular and timely basis. As a result, the concerned credit officials failed to detect
deterioration in the clients financial position on time.
Some Credit Administration Department officials also failed to perform their
duties properly. It is their responsibility to ensure that all loan documents are
authentic, in proper order, and up-to-date. However, there have been instances where
credit administration failed to ensure that valid insurance is held, charges are created
on the borrowers asset properly, land assets have been mortgaged properly etc.

- 121 -
Because of these deficiencies in loan documentation, EBL failed to recover some
classified loans by taking over and selling off the securities held against them.
Also there was a general tendency among the bank officials not to recognize
classified loans on time. It was considered that if an account became classified, it
represented a failure on the part of the concerned bank officials. As a result, when the
performances of an account began to deteriorate, in stead of putting in an exit plan,
the officials went for restructuring the repayment schedule. This resulted in more
accrued interest on the account and a higher amount of classification than the one
which would have occurred if the account had been classified in the initial phase.

After the new management took over, they have put in place lots of standard policies

M
and procedures for the purpose of proper evaluation and monitoring of a loan. This is

O
how the loan approval and monitoring process is structured now.

.C
SU
-N
:E
om
Fr
ed
ct
le
ol
C

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 5.0 BENEFITS OF RESTRUCTURING

5.1 Loan Classification

M
O
Loan classification is a process by which the risk or loss potential associated with the

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loan accounts of a bank on a particular date is identified and quantified to measure
SU
accurately the level of reserves to be maintained by the bank to provide for the
-N
probable loss on account those risky loan.
:E

All types of loans of a bank are fall into following four scales:
om

Unclassified: Repayment is regular.

Fr

Substandard: Repayment is stopped or irregular but has reasonable prospect of

improvement.
ed

Doubtful debt: Unlikely to be repaid but special collection efforts may result in partial
ct

recovery.
le

Bad/ Loss: Very little chance of recovery.

ol
C

5.1.1 Classification procedure

The classification procedure is done as per the Central Banks instructions in B C D

circular No.34 of 1989, B C D circular NO. 20 of 1994. The loans are classified on the
basis of following criteria.
Classification criteria:
Overdue (OV)
Required payment (RP)
Limit Overdrawn (LD)
Legal action (LA)

- 123 -
Qualitative judgment (QJ)

5.1.2 Legal Framework for Loan Recovery

After being classified, if the borrower is disable to adjust the loan then the bank can
take the following legal actions by filing suit, -
Filing certificate cases under Public Demand Recovery Act-1913.
Filing money suit cases under Artha Rin Adalat-1990.
Filing Bankruptcy cases under Bankruptcy Act-1997.
Filing cases under Negotiable Instrument Act-1881 section 138 to 141 for insufficient
fund. (In case of term loan).

M
O
5.1.3 Reducing the Amount of Bad Asset and also Increase the amount of

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Good Asset
SU
-N
EBL had a huge loss in the year 2001, Top Management decided to centralize the whole
operation. And they also decided to introduce two new divisions named Corporate
:E

Banking and Credit Risk Management. The task of the relationship managers of the
om

corporate banking is to do the marketing for the Bank. They also facilitate the existing
Fr

clients in their daily transaction. Previously corporate clients can apply and take the
loan from their respective Branches and the loan is granted by the Branch manager.
ed

But now RMs does the marketing for the bank and deal with the clients. After the loan
ct

is granted, credit risk management look after the clients documents and also the
le

repayments.
ol
C

The major problem behind the decrease in the profitability was the amount of bad
assets (Loans and Advances). So, Corporate Relationship Managers have got specific
instruction about the selection of the clients and to make them repay the interest and
also the principal amount.

When EBL is giving loans to a new, small or not very well reputed organization, it
usually charges high interest rate to the clients. But when it is giving loan to a well-
reputed or financially strong organization, charges lower interest rate. So, when it is
providing loans to the less reputed organization its income is going down. But ht e
problem is financially weak organizations usually fails to repay the loans in the due

- 124 -
time. And there is also a probability of default. When any organization fails to pay the
quarterly or annual repayment EBL is conceding a loss.

But the fact is EBL had to face loss in two different ways if any organization fails to
repay its loan.
Bank is not receiving the money given to the client as loan and also the interest.
And the Bank has to make provision for this loss from its annual profit.
So, in both ways it is hampering the Banks profitability. EBLs main concern is to
reduce the amount of the bad loans and increase the amount of the good asset. So,
EBL is targeting the big and financially strong organizations for doing business with
them. By introducing the Corporate Banking and Credit Administration EBL is trying to

M
look for the new clients and monitor its existing clients regularly.

O
.C
By the end of the year 2002 and 2003 they had a staggering classification rate of
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13.46% and 13.61% in the total portfolio of loans and advances. But at the end of
September 2004 the classification percentage came down to 8.22% with classified loans
-N

and advances totaling Taka 109 crore, which is almost half of the previous two years.
:E

So, benefits of restructuring were recognized within a short period of its

om

implementation.
Fr
ed

% of Classified Loan
ct
le

16.00%
ol

14.00%
C

12.00%
10.00%
% 8.00%
6.00%
4.00%
2.00%
0.00%
1997 1998 1999 2000 2001 2002 2003 2004
Years

Figure 5: Growth trend of % of Classified Loans

5.2 Portfolio analysis of EBLs classified loans and advances

- 125 -
Sector wise Portfolio Analysis:

EBLs total loans and advances and classified loans and advances are scattered over 31
different sectors. If we calculate the amount of outstanding corporate loans and
classified loans in these sectors, we get the following portfolios of Total Loans and
Advances and Classified Loans and Advances.

Table 4: Sector wise % distribution of total loans & classified loans (March 03)
% Share of Total % Share of Classified
Sector Name
Loans and Advances Loans and Advances

M
Textile 11.47% 3.25%

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Steel Products 4.57% 5.83%
Cement SU
1.09% 0.00%
Ship Breaking 7.65% 13.25%
-N

Pharmaceutical 1.48% 0.00%

:E

Chemical, Plastic & Plastic Products 2.45% 2.64%

om

Foods & Beverage 6.33% 0.43%

Edible Oil 6.11% 13.89%
Fr

Power, Gas & Oil 4.63% 0.00%

ed

Leather 0.69% 6.39%

ct

Jute 0.31% 0.67%

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Poultry & Hatchery 1.53% 0.10%

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Electronic Goods 3.16% 0.43%

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Brick & Ceramics 0.08% 0.17%

Soap & Detergents 0.11% 0.00%
Paper, Printing & Packaging 2.43% 0.84%
RMG 9.13% 8.98%
Shrimp Export 0.12% 0.00%
Media 0.29% 0.00%
Information Technology 0.02% 0.00%
Telecommunication 5.27% 0.00%
Shipping, Airline & Transport 0.66% 1.85%
Commodity Import 9.38% 9.31%

- 126 -
 % Share of Total % Share of Classified
Sector Name
Loans and Advances Loans and Advances
Construction 6.51% 6.07%
Trading 5.83% 12.46%
Service 1.13% 1.74%
Clinic, Hospital & NGOs 0.05% 0.38%
Educational Institution 0.14% 0.00%
Financial Institution 4.44% 0.00%
Individual 0.17% 0.24%
Others 2.77% 11.09%
Total 100.00% 100.00%

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O
In the table, the bold-faced sectors represent the sectors which constitutes relatively

.C
higher % of classified loans and advances than of total loans and advances. These
SU
sectors include steel products, ship breaking, chemical & plastic products, edible oil,
leather, jute, brick & ceramics, shipping & transport, trading, service, hospitals &
-N

NGOs and others. The relatively higher exposure of these sectors to Classified Loans
:E

and Advances implies that these sectors are inherently more risky for investment. The
om

following graphs show the portfolio distributions of total loans and advances and
classified loans and advances.
Fr
ed

Sectorwise % share of classified loans and advances

ct
le
ol

Trading, 12.46%
C

Service, 1.74%
Construction, 6.07%
Clinic, Hospital & NGOs,
Commodity Import, 0.38%
9.31%
Individual, 0.24%
Shipping & Transport,
1.85%
Others, 11.09%

RMG, 8.98%

Printing & Packaging, Textile, 3.25%

0.84%
Brick & Ceramics, 0.17% Steel Products, 5.83%
Electronic Goods, 0.43%
Poultry & Hatchery,
0.10%
Ship Breaking, 13.25%
Jute, 0.67%
Chemical & Plastic,
Leather, 6.39%
2.64%
Edible Oil, 13.89%
Foods & Beverage,
0.43%

- 127 -
 Figure 6: Sector wise % share of classified loans and advances (March 03)

Sector wise % share of total loans and advances

Commodity Import, 9.38% Construction, 6.51%

Telecommunication, Trading, 5.83%
5.27%
Service, 1.13%
RMG, 9.13% Financial Institution, 4.44%

Printing & Packaging, Others, 5.41%

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2.43%
Electronic Goods, 3.16%

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Poultry & Hatchery, 1.53% Textile, 11.47%

.C
Power, Gas & Oil, 4.63%

Edible Oil, 6.11% Steel Products, 4.57%

Foods & Beverage, 6.33%
Chemical & Plastic, 2.45%
SU Cement, 1.09%
Ship Breaking, 7.65%
Pharmaceutical, 1.48%
-N
:E
om
Fr

Figure 7: Sector wise % share of total loans and advances (March 03)
ed
ct

If we calculate the respective amount of classified loans and advances in each of these
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sectors as % of loans and advances in that sector, we get the following table:
ol
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Table 5: Sector wise % of classified loans and advances to total loans and
advances (March 03)
Total loans Classified
% of loans
loans and
Sector Name and advances and advances
advances (in
Classified
(in 000 TK) 000 TK)

Textile 1,224,842 53,564 4.37%

Steel Products 488,015 96,047 19.68%
Cement 116,397 0 0.00%
Ship Breaking 816,917 218,382 26.73%

- 128 -
 Total loans Classified
% of loans
loans and
Sector Name and advances and advances
advances (in
Classified
(in 000 TK) 000 TK)

Pharmaceutical 158,044 0 0.00%

Chemical & Plastic 261,627 43,479 16.62%
Foods & Beverage 675,959 7,089 1.05%
Edible Oil 652,466 228,931 35.09%
Power, Gas & Oil 494,422 0 0.00%
Leather 73,683 105,283 142.89%
Jute 33,104 11,070 33.44%

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Poultry & Hatchery 163,383 1,683 1.03%

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Electronic Goods 337,445 7,035 2.08%
Brick & Ceramics SU
8,543 2,859 33.47%
Soap & Detergents 11,747 0 0.00%
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Printing & Packaging 259,491 13,913 5.36%

:E

RMG 974,961 148,095 15.19%

om

Shrimp Export 12,814 0 0.00%

Media 30,968 0 0.00%
Fr

Information Technology 2,136 0 0.00%

ed

Telecommunication 562,765 0 0.00%

ct

Shipping & Transport 70,479 30,477 43.24%

le

Commodity Import 1,001,658 153,480 15.32%

ol

Construction 695,180 100,096 14.40%

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Trading 622,566 205,370 32.99%

Service 120,669 28,629 23.73%
Clinic, Hospital & NGOs 5,339 6,224 116.57%
Educational Institution 14,950 0 0.00%
Financial Institution 474,132 0 0.00%
Individual 18,154 3,983 21.94%
Others 295,799 182,751 61.78%
Total 10,678,655 1,648,440 15.44%

Here we see that the mean classification rate was 15.44% for the total portfolio. The
sectors which had higher classification rate than the mean rate are steel products, ship

- 129 -
breaking, chemical & plastic products, edible oil, leather, jute, brick & ceramics,
shipping & transport, trading, service, hospitals & NGOs, individual and others, again
implying higher risk in these sectors for the bank. The risky sectors identified through
this calculation matches very well with those identified in the previous analysis. The
sector that are found to have very high classification rate (above 30%) are edible oil,
leather, jute, brick & ceramic, shipping, trading, hospitals, and others. The 142.89%
and 116.57% classification rate in leather and hospital sector is due to the fact that
almost all the disbursed loans and advances in these two sectors became classified.
Classified loans in these two sectors became higher than the disbursed amount because
of the interest accrued on the disbursed loans before classification.

M
Sector wise analysis of number of accounts:

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In terms of number of classified accounts, if we calculate the respective number of
classified clients in each of these sectors as % of total clients in that sector, we get the
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following table:
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Table 6: Sector wise % of classified clients to total clients in the sector (March
:E

2003)
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Sector Name Number Number of % of Client

Fr

of Clients Classified Classified

Clients
ed

Textile 23 4 17.39%
ct

Steel Products 15 4 26.67%

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Cement 3 0 0.00%
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Ship Breaking 11 3 27.27%

Pharmaceutical 7 0 0.00%
Chemical & Plastic 13 6 46.15%
Foods & Beverage 23 5 21.74%
Edible Oil 5 2 40.00%
Power, Gas & Oil 13 0 0.00%
Leather 4 1 25.00%
Jute 14 5 35.71%
Poultry & Hatchery 11 1 9.09%
Electronic Goods 12 2 16.67%

- 130 -
 Sector Name Number Number of % of Client
of Clients Classified Classified
Clients
Brick & Ceramics 7 2 28.57%
Soap & Detergents 1 0 0.00%
Printing & Packaging 16 2 12.50%
RMG 42 14 33.33%
Shrimp - Export 1 0 0.00%
Media 3 0 0.00%
Information Technology 2 0 0.00%
Telecommunication 2 0 0.00%

M
Shipping & Transport 18 7 38.89%

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Commodity Import 22 5 22.73%

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Construction 76 7 9.21%
Trading 156
SU 54 34.62%
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Service 24 4 16.67%
:E

Clinic, Hospital & NGOs 1 1 100.00%

Educational Institution 3 0 0.00%
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Financial Institution 6 0 0.00%

Fr

Individual 42 9 21.43%
ed

Others 146 42 28.77%

Total 722 180 24.93%
ct
le

Here, we see that out of total clients of 722, 180 were classified as on March 31, 2003.
ol
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This means that 24.93% of all loans and advances clients of EBL were classified. The
sectors, which had higher classification rate than this among its clients, are again
found to be steel products, ship breaking, chemical & plastic products, edible oil,
leather, jute, brick & ceramics, RMG, shipping & transport, trading, service, hospitals
& NGOs, and others.

So we see that in all the 3 types of analysis, we continuously find the following 12
sectors to have higher than usual classification level:

Steel products
Ship breaking
Chemical & plastic products

- 131 -
 Edible oil
Leather
Jute
Brick & ceramics
Shipping & transport
Trading
Service
Clinics & NGOs
Other

We can therefore assume the above 12 sectors to be risky for investment for EBL.

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O
Table 18: Table of Comparison Shifted Emphasis of Loan Exposure (as on

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September 2004)
Sector Name
SU
September 2004 March 2003
Textile 13% 11.47%
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Steel Products 6 4.57

:E

Cement - 1.09
om

Ship Breaking 15 7.65

Pharmaceutical 2 1.48
Fr

Chemical, Plastic & Plastic Products - 2.45

ed

Foods & Beverage 4 6.33

ct

Edible Oil 8 6.11

le

Power, Gas & Oil 3 4.63

ol

Leather - 0.69
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Jute - 0.31
Poultry & Hatchery - 1.53
Electronic Goods 3 3.16
Brick & Ceramics - 0.08
Soap & Detergents - 0.11
Paper, Printing & Packaging - 2.43
RMG 10 9.13
Shrimp Export - 0.12
Media - 0.29
Information Technology - 0.02

- 132 -
 Sector Name September 2004 March 2003
Telecommunication 10 5.27
Shipping, Airline & Transport 0.66
Commodity Import 8 9.38
Construction - 6.51
Trading 2 5.83
Service - 1.13
Clinic, Hospital & NGOs - 0.05
Educational Institution - 0.14
Financial Institution 5 4.44
Individual - 0.17

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Others 11 2.77

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Total 100% 100

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SU
Here we see, Eastern Bank Limited management could understand their flaws. We saw
this in the previous three tables. But, in this above table of comparison we find out the
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fact that EBL has become very much choosy about borrowers. This is made possible
:E

because of
om

1. An efficient management policy

Fr

2. Highly Professional bunch of credit analysts

ed

3. Appropriate market and segment analysis

4. Efficient Relationship Mangers and above all
ct

5. Cooperation of the clients of the Bank

le
ol
C

Another noticeable matter is that, there are two important external factors have
helped in achieving such position. The two reasons are as follows:

1. Bangladesh Banks active supervision through CIB report (Credit

Information Bureau)
2. Cooperation of the other Banks and Financial Institutions in disclosing
client information.

All the above factors have made the EBL existing and potential clients to comply with
the rules and regulations as desired by the Bank. Such compliance and disclosure of
information meticulously; help a Bank Official to go through a detailed analysis of the
credit risk. In this way,

- 133 -
 1. With good choice of Clients and

2. External cooperation Eastern Bank Limited has achieved such an

enviable position.

Branch wise Portfolio Analysis:

If we divide the total outstanding and classified outstanding figures according to their
respective branches, we get the following table:

Table 8: Branch wise distribution of classified loans and total loans (March 2003)
Classified outstanding CL O/S as
Total

M
Classified of Branch as % of % of
Branch Branch

O
Outstanding Total Classified Branch

.C
Advances
Outstanding Advances
Agrabad 262,295
SU
15.91% 3,428,961 7.65%
Bogra 10,738 0.65% 98,184 10.94%
-N

Chawkmughultuly 49,845 3.02% 76,525 65.14%

:E

Chouhatta 0 0.00% 20,587 0.00%

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Dhanmondi 2,873 0.17% 48,547 5.92%

English Road 92,187 5.59% 111,122 82.96%
Fr

Gulshan 161,560 9.80% 601,868 26.84%

ed

Jessore 10,742 0.65% 75,673 14.20%

ct

Jubilee Road 492,253 29.86% 642,246 76.65%

le

Khatunganj 64 0.00% 225,011 0.03%

ol

Khulna 17,145 1.04% 162,948 10.52%

C

Laldighirpaar 17,465 1.06% 47,085 37.09%

Mirpur 0 0.00% 28,147 0.00%
Motijheel 39,688 2.41% 213,047 18.63%
Moulvibazar 29,538 1.79% 84,306 35.04%
O R Nizam Road 1,723 0.10% 144,347 1.19%
Principal 420,120 25.49% 4,124,086 10.19%
Rajshahi 7,247 0.44% 29,645 24.45%
Shantinagar 0 0.00% 11,211 0.00%
Sonargaon Road 18,883 1.15% 361,040 5.23%
Station Road 11,136 0.68% 132,059 8.43%

- 134 -
Uttara 2,938 0.18% 12,010 24.46%
Total 1,648,440 100.00% 10,678,655 15.44%

Here, we see that most of the classified loans and advances are concentrated in 4
branches Agrabad (15.91%), Jubilee Road (29.86%), Gulshan (9.80%) and Principal
Branch (25.49%). Therefore, we may tend to assume that the performances of these
branches in loan evaluation, monitoring and recovery are not very effective. But that
is not necessarily true. The high share of classified loans in these branches is mainly
due to the fact that these 4 branches carry out most of the lending activities of EBL.

A better indicator of the performance of these branches will be the amount of branch
classified outstanding as % of branch loans and advances. The last column gives us that

M
figure. Here we see that the performances of Chawkmughultuly, English Road,

O
.C
Gulshan, Jubilee Road, laldighirpar, Moulvibazar, Rajshahi, and Uttara branches are
quite unsatisfactory as they have at least 25% of their total outstandings as classified,
SU
which is way above the average classification rate of 15.44%. Especially, the
-N
performance of Chawkmughultuly, English Road and Jubilee Road branches are
:E

completely unacceptable as they have 65 85% classification rate. There were serious
deficiencies in the performances of these branches employees in terms of loan
om

approval, monitoring and recovery.

Fr

Table 9: Branch wise Classification Rate as on September 2004

ed

Classified outstanding
ct

of Branch as % of CL O/S as % of
le

Classified Total Classified Total Branch Branch

ol
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Branch Outstanding Outstanding Advances Advances

Agrabad 169,618,638 18.30% 1,263,138,012 13.43%
Bogra 27,470,431 2.96% 76,832,285 35.75%
Chawkmughultuly 39,008,260 4.21% 60,578,497 64.39%
Chouhatta 808222 0.09% 24,110,850 3.35%
Dhanmondi 6,207,402 0.67% 42,761,976 14.52%
English Road 73,450,270 7.92% 80,492,888 91.25%
Gulshan 129,393,003 13.96% 806,912,068 16.04%
Jessore 14,224,101 1.53% 37,332,374 38.10%
Jubilee Road 75,622,460 8.16% 231,414,367 32.68%

- 135 -
Khatunganj 1836222 0.20% 297,509,630 0.62%
Khulna 14,322,297 1.55% 152,446,850 9.39%
Laldighirpaar 0 0.00% 41,438,679 0.00%
Mirpur 0 0.00% 38,866,301 0.00%
Motijheel 0 0.00% 107,880,307 0.00%
Moulvibazar 28,058,270 3.03% 69,694,470 40.26%
O R Nizam Road 13,322,652 1.44% 213,894,635 6.23%
Principal 312,985,664 33.76% 2,517,954,456 12.43%
Rajshahi 1,592,576 0.17% 19,524,085 8.16%
Shantinagar 0 0.00% 24,523,452 0.00%
Sonargaon Road 13,322,652 1.44% 260,368,475 5.12%

M
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Station Road 5,759,227 0.62% 92,675,962 6.21%

.C
Uttara 0 0.00% 54,122,333 0.00%
Total 927,002,347 100.00% SU 6,514,472,952 14.23%
-N
In this above table of September 2004, which is procured from the Credit
:E

Administration Department, I found that several in branches classification rate has

grown up a bit. But in most cases in most of the branches, classification rate is lower.
om

Notable that, from the previous year, Eastern Bank Limited has followed a strict
Fr

strategy to classify any account. EBL Credit Department has set various rigorous
ed

programs and guidelines because of which a seemingly good-shaped client is also

downgraded to classification.
ct
le

Even after all such restriction and strict policies the Branch wise classification is here
ol
C

found to be lowered in an average, significantly.

5.3 Manpower

After the restructuring of the bank and its processes, manpower requirement in various
areas has been decreased significantly. Before change, there were one credit officer in
each branch (total of 22) to handle the credit risk. But after the restructuring,
necessity of these officers ends. Now, only 12 persons are handling all the portfolios
sitting in the head office. The whole process is thus centralized. According to the last

- 136 -
snapshot taken from the bank, it was found that only 12 person are managing the
credit risk of Tk. 1500 crore loans and advances.

6.0 CONCLUSION

M
EBL is the first local Private Bank in Bangladesh, which has implanted the strategy of

O
Centralization. The ultimate goal of following this strategy is to maximizing the profit

.C
and also reduces the amount of bad debts. All the major decisions about providing the
SU
facilities to the clients will be taken by the head office. Only head office has the
authority of providing the funded and non-funded facilities to the corporate clients.
-N

Corporate Banking division is liable to do the marketing of the corporate clients and
:E

Credit Administration division is responsible for the monitoring and scrutinizing of the
om

daily transactions of the corporate clients. Head Office credit will decide whether any
facility will be provided to the existing clients and also to the new clients. Trade
Fr

Services division will control all the import/export business of Eastern Bank Limited.
ed

Now EBL is concentrating on increasing the portion of good assets so that it can reduce
ct

its losses. This decision had an immediate impact on the Banks profitability, because
le

as the portion of good asset is rising EBL is earning less interest income. To solve this
ol

problem EBL is trying to increase the volume of good assets and also increase the
C

volume of the business by providing funded and non-funded facilities to the strong
companies and group of companies in the market. Very soon EBL is going to introduce
credit card and debit card facilities to its clients, which will be a major feature of the
year 2003. EBL already signed a contract with the Banking software giant IFLEX which
is a sister concern of the CITI Group. IFLEX will provide all the necessary banking
software to the EBL and all the branches will be connected by the networking facility.
So, it can be said that with its new and improved features and unique Banking system
EBL is going to increase its competitiveness in the industry and satisfy its customers
more than before.

- 137 -
 APPENDIX I Risk Grading by Bangladesh Bank

Risk Rating Grade Definition

Superior Low Risk 1 Facilities are fully secured by cash deposits,

M
government bonds or a counter guarantee from a top

O
.C
tier international bank. All security documentation
SU
should be in place.
Good Satisfactory Risk 2 The repayment capacity of the borrower is strong. The
-N

borrower should have excellent liquidity and low

:E

leverage. The company should demonstrate

om

consistently strong earnings and cash flow and have an

unblemished track record. All security documentation
Fr

should be in place. Aggregate Score of 95 or greater

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based on the Risk Grade Scorecard.

Acceptable Fair Risk 3 Adequate financial condition though may not be able to
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sustain any major or continued setbacks. These

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borrowers are not as strong as Grade 2 borrowers, but

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should still demonstrate consistent earnings, cash flow

and have a good track record. A borrower should not
be graded better than 3 if realistic audited financial
statements are not received. These assets would
normally be secured by acceptable collateral (1st
charge over stocks / debtors / equipment / property).
Borrowers should have adequate liquidity, cash flow
and earnings. An Aggregate Score of 75-94 based on
the Risk Grade Scorecard.
Marginal - Watch list 4 Grade 4 assets warrant greater attention due to

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 conditions affecting the borrower, the industry or the
economic environment. These borrowers have an
above average risk due to strained liquidity, higher than
normal leverage, thin cash flow and/or inconsistent
earnings. Facilities should be downgraded to 4 if the
borrower incurs a loss, loan payments routinely fall past
due, account conduct is poor, or other untoward
factors are present. An Aggregate Score of 65-74 based
on the Risk Grade Scorecard.
Special Mention 5 Grade 5 assets have potential weaknesses that deserve
managements close attention. If left uncorrected,

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these weaknesses may result in a deterioration of the

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repayment prospects of the borrower. Facilities should

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be downgraded to 5 if sustained deterioration in
financial
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condition is noted (consecutive losses,
negative net worth, excessive leverage), if loan
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payments remain past due for 30-60 days, or if a

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significant petition or claim is lodged against the

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borrower. Full repayment of facilities is still expected

and interest can still be taken into profits. An
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Aggregate Score of 55-64 based on the Risk Grade

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Scorecard.
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Substandard 6 Financial condition is weak and capacity or inclination

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to repay is in doubt. These weaknesses jeopardize the

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full settlement of loans. Loans should be downgraded

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to 6 if loan payments remain past due for 60-90 days, if

the customer intends to create a lender group for debt
restructuring purposes, the operation has ceased
trading or any indication suggesting the winding up or
closure of the borrower is discovered. Not yet
considered non-performing as the correction of the
deficiencies may result in an improved condition, and
interest can still be taken into profits. An Aggregate
Score of 45-54 based on the Risk Grade Scorecard.

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Doubtful and Bad 7 Full repayment of principal and interest is unlikely and
(non-performing) the possibility of loss is extremely high. However, due
to specifically identifiable pending factors, such as
litigation, liquidation procedures or capital injection,
the asset is not yet classified as Loss. Assets should be
downgraded to 7 if loan payments remain past due in
excess of 90 days, and interest income should be taken
into suspense (non-accrual). Loan loss provisions must
be raised against the estimated unrealizable amount of
all facilities. The adequacy of provisions must be
reviewed at least quarterly on all non-performing loans,

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and the bank should pursue legal options to enforce

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security to obtain repayment or negotiate an

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appropriate loan rescheduling. In all cases, the
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requirements of Bangladesh Bank in CIB reporting, loan
rescheduling and provisioning must be followed. An
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Aggregate Score of 35-44 based on the Risk Grade

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Scorecard
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Loss 8 Assets graded 8 are long outstanding with no progress in

(non-performing) obtaining repayment (in excess of 180 days past due) or
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in the late stages of wind up/liquidation. The prospect

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of recovery is poor and legal options have been

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pursued. The proceeds expected from the liquidation

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or realization of security may be awaited. The

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continuance of the loan as a bankable asset is not

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warranted, and the anticipated loss should have been

provided for. This classification reflects that it is not
practical or desirable to defer writing off this basically
worthless asset even though partial recovery may be
effected in the future. Bangladesh Bank guidelines for
timely write off of bad loans must be adhered to. An
Aggregate Score of 35 or less based on the Risk Grade
Scorecard

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APPENDIX II Obligor Risk Rating (ORR)

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RATING Short No CRITERIA SU STRATEGY
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GOOD GD 1 Growing Industry (Growth 15%+) Retain and grow with
Among top 20 in the Industry client
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Strong management with succession Sell multi products

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Steady growth in financial performance

Satisfactory payment record/account
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turnover
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Liquidity 3X and above

Leverage 0.5X and below
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Timely submission of financial

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information
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Strong Parent/Sister Office Guarantee

Good collateral
OR
100% cash covered
ACCEPTABLE ACCEP 2 Growing Industry (Growth 10%+) Retain and grow with
Acceptable player in the market client
Good management with succession Sell multi products
Acceptable growth in financial
performance
Satisfactory payment record/account
turnover
Liquidity 1.5X and above

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 Leverage 1.5X and below
Timely submission of financial
information
Acceptable Parent/Sister Office
Guarantee
Acceptable collateral
MARGI-NAL/ MG/WL 3 Problem in Industry No increase in credit
WATCHLIST Loosing market share limit
Thin management with no succession Close monitoring thru
Unreliable sales/operating profit. clear action plan
Unsatisfactory payment Ensure 100%
record/account turnover completion of loan

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Liquidity below 1X doc.

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High Leverage Semi-annual review

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Perpetual delay in submission of Follow up for
financial information SU settlement of past
Incomplete Loan Documentation dues
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Drop in collateral value or collateral
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shortfall
Past due over 60 days
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SPECIAL SM 4 Problem in Industry Possible

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MENTION Loosing market share exit/reduction of

Severe management problem credit limit
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Company operating at losses with sales Close monitoring thru

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going down. clear action plan

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Unsatisfactory payment Ensure 100%

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record/account turnover completion of loan

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Liquidity below 1X / insufficient cash doc.

flow Quarterly review
High Leverage Follow up for
Financial Information not available settlement of past
Incomplete Loan Documentation dues
Drop in collateral value or collateral
shortfall
Diversion of fund
Past due over 90 days

SUB SS 5 All criteria of Special Mention Credit limit for

STANDARD Past due over 180 days adjustment purpose

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 Clear exit plan to be in
place
Quarterly review
Follow up for
settlement of past
dues

DOUBTFUL DF 6 All criteria of Substandard Credit limit for

Client out of business adjustment purpose
Past due over 270 days Quarterly review
Follow up for
settlement of past

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dues

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Legal action

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BAD & LOSS BL 7 All criteria of Doubtful SU Credit limit for
Past due over 360 days adjustment purpose
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Quarterly review
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Follow up for
settlement of past
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dues
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Legal action
NOTE: No 1 to 4 usually noted by Bank itself.
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No 5 to 7 under the guideline given by Bangladesh Bank.

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