MBL Credit Policy

Chapter – I (Credit Policy Framework)
CHAPTER-I
CREDIT POLICY FRAMEWORK
1.1 Introduction
Mercantile Bank PLC is committed to provide high quality services to its constituents through different
financial products and profitable utilization of fund and contribute to the growth of GDP of the country by
financing trade and commerce, helping industrialization, boosting export, creating employment
opportunities for the educated youth and encouraging agriculture and micro-credit leading to poverty
alleviation and improving the quality of life of the people and thereby contributing to the overall socio-
economic development of the country.
The Credit Policy of any banking institution is a combination of certain accepted, time-tested standards and
other dynamic factors dictated by the reality of changing situations in different marketplaces.
The accepted standards relate to safety, liquidity and profitability of the advances whereas the dynamic
factors relate to aspects such as the nature and extent of risk, interest or margin, credit spread and credit
disposal. In all business dealings, officers and executives must be guided by the principles of honesty,
integrity and safeguard the interest of the depositors & shareholders of the bank. They should strictly
adhere to the Banking Laws, Rules and Regulations of the Govt. of Bangladesh / the instructions and
guidelines issued by the Bangladesh Bank / Head Office from time to time which affect the business
practices of the Bank. However, the key to safe, liquid, healthy and profitable credit operations lie in the
quality of judgment used by the Executives / Officers making lending decisions and their knowledge on the
borrower and the marketplace.
In formulating a credit judgment and making quality Credit Decision, the lending officer and executive must
be equipped with all information needed to evaluate a borrower’s character, management competence,
financial soundness, capacity, ability to provide collaterals and external conditions which may affect his
ability in meeting financial obligations.
At present, the bank has wide branch network coverage in both rural and urban areas of the country and
every new branch is added with the fleet. The credit portfolio of the bank has been growing at a constant
pace every year.
The asset quality of the Bank will never be compromised under any circumstances. As the lion’s share of
the total revenue comes from credit operations and the existence of the Bank depends on quality of asset
portfolio, efficient management of credit risk is of paramount importance.
1.2 Credit Risk
Risk is inherent in all types of business. However, for Banks and financial institutions credit risk is the
toughest one. Though Banks and Financial Institutions have been facing difficulties over the years for a
multitude of reasons, the major cause of serious banking problems continues to be directly related to
negligent credit standards for borrowers and counterparties, poor portfolio management or lack of
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attention to changes in economic or other circumstances that can lead to a deterioration in the credit
standing of a bank’s counterparty.
Credit risk is most simply defined as the potential that a borrower or counterparty will fail to meet its
obligations in accordance with the agreed terms and conditions. In other words, it is the loss associated
with degradation in the credit quality of the borrowers or counterparties. In a Bank’s portfolio, losses stem
from outright default due to the inability or unwillingness of the customer or counterparty to meet
commitments in relation to lending, trading, settlement, and other financial transactions. Alternatively,
losses result from reduction in portfolio value arising from actual or perceived deterioration in credit
quality. Credit risk emanates from a bank’s on and off-balance sheet dealings with an individual, corporate,
bank, financial institution or a sovereign. Credit risk may take the following forms:
 In the case of direct lending: principal and/or interest may not be repaid;
 In the case of guarantees or letters of credit: funds may not be forthcoming from the constituents
upon crystallization of the liability;
 In the case of treasury operations: the payment or series of payments due from the counter parties
under the respective contracts may not be forthcoming or ceases;
 In the case of security trading business: funds/securities settlement may not be effected;
 In the case of cross-border exposure: the availability and free transfer of foreign currency funds
may either cease or restrictions may be imposed by the sovereign.
1.3 Purpose
The main purpose of this policy document is to set out yardsticks for and spell out standard practices for
management of credit risk in the Bank. As such, it specifically addresses the following areas: (a) establishing
an appropriate credit risk environment, (b) setting up a sound credit approval process, (c) maintaining an
appropriate credit administration and monitoring process and (d) ensuring adequate controls over credit
risk.
1.4 Scope
This policy document will be applicable for issues related to credit risk with respect to both direct and
indirect credit products of banking.
This Credit Policy is also applicable for extending all types of Islamic Shari’ah compliant modes of
Investment unless otherwise any Shari’ah contradiction to be arisen. In that case, Shariah Supervisory
Committee (SSC) decision based on Shari’ah law/Principles, Bangladesh Bank Islamic Banking Guidelines,
Islamic Banking Law (if any) etc. shall be deem fit.
This policy will also be applicable for Islamic Investment products and the Term “Loan” as
mentioned in this policy will be interpreted as “Loan/Investment” & the Term “Interest” will be
interpreted as “Interest/Profit/Rent”
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1.5 Superseding Power
This policy document will replace the existing “Credit Policy”. However, if any provision of this policy
document contradicts with the instruction(s) contained in different credit schemes, product manual or any
existing circular, this policy will supersede them and be held. However, if any changes made by Bangladesh
Bank and Government authorities contradict with the policy will supersede this policy.
1.6 Amendment of the Policy
This Credit Policy will be amended, revised, refined, readjusted as and when warranted to accommodate the
changes in the market condition, cyclic aspect of the economy, government policy, industry demand, central
bank regulation and experience of the Bank in managing credit risk. For this purpose, the Board of Directors
of the Bank will review the Credit Policy annually and make necessary amendments.
1.7 Access to the Policy
This policy document is categorized as a confidential one and will be officially distributed to all the
Branches of the Bank, to Corporate Banking Division, Credit Risk Management Division, Special Assets
Management Division, Central Law Division, Credit Administration Division, Treasury Division, SME
Financing Division, Consumer & Retail Banking Division, Agriculture Credit Division, International Division,
Internal Control & Compliance Division, Risk Management Division, Human Resources Division and MIS
Division. Anybody other than the above will have to apply to collect this document from Credit Risk
Management Division, Head Office, through proper channel.
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CHAPTER-II
OVERVIEW ON CREDIT RISK MANAGEMENT
2.1 Credit Risk as Range of Possible Outcomes

 Credit risk arises from the potential that a borrower will fail to meet its obligations in accordance with
agreed terms, resulting in a negative effect on the profitability and capital of the bank.
 Generally, credits are the largest and most obvious source of credit risk. However, credit risk could stem
from both on-balance sheet and off-balance sheet activities. It may arise from either an inability or an
unwillingness to perform in the pre-committed contracted manner as laid down in the sanction letter
accepted by the borrower. Credit risk comes from bank’s dealing with retails, small or medium-sized
enterprises (SMEs), corporate clients, other banks and financial institutions, or a sovereign.
 In more technical terms, credit risk can be viewed as the existence of multiple possible outcomes when
bank allows a loan or other extension of credit. The possible outcomes range from full and timely
payments according to the terms of sanction letter or the contract, all the way to a complete absence of
any repayment (a total loss on the loan). Payments could be made either in full but not in a timely manner
or in a timely manner but not in full. Every possible outcome, and there are many possible outcomes, can
be said to have a probability of occurrence, and the probabilities, as in any distribution, sum to 100
percent.
 In this and all the subsequent sections on credit risk management, “loan” is used as shorthand for all
possible types of exposure to a single client or group of related clients. It is to be understood that many
different types of transactions, including off-balance sheet transactions, pose credit risk to the bank, and
all such transactions are subject to these Guidelines as appropriate.
2.2 Risk Management Process
Because of the vast diversity in risk that banking institutions take, there is no single prescribed risk management
system that works for all. Mercantile Bank PLC tailors risk management program on the basis of needs and
circumstances covering at least the followings:
2.2.1 Risk identification
To properly manage risks, recognition and understanding of risks is mandatory that may arise from both existing
and new business initiatives; for example, risks inherent in lending activity include credit, liquidity, interest rate
and operational risks. Risk identification is a continuing process and is being understood at both the transaction
and portfolio levels.
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Chapter – II (Overview on Credit Risk
Management)
2.2.2 Risk Measurement

Once risks have been identified, it is measured to determine their impact on the bank’s profitability and capital.
Accurate and timely measurement of risk is essential to effective risk management systems. Absent of a risk
measurement system has limited ability to control or monitor risk levels. Bank tests their risk measurement tools
periodically to make sure that the tools are accurate. Good risk measurement systems assess the risks of both
individual transactions and portfolios.
2.2.3 Risk Monitoring

MBPLC has an effective management information system (MIS) in place to monitor risk levels and facilitate timely
review of risk positions and exceptions. Monitoring the reports are frequent, timely, accurate, and informative
and should be distributed to appropriate individuals to ensure action, when needed.
2.2.4 Risk Control/ Management

After measuring risk, bank establishes and communicates risk limits through policies, standards, and procedures
that define responsibility and authority. These limits serve as a means to control exposure to various risks
associated with the bank’s activities. Bank also applies various mitigating tools in minimizing exposure to various
risks. Bank also has a process to authorize and document exceptions to risk limits when needed.
2.3 Exceptions and It’s Approval

Loan Policies are developed to provide banking objectives and manage risk within bank’s loan portfolio. MBPLC
has a system in place to analyze and control exceptions. Exceptions to bank policies are considered violations of
these rules and represent additional risk within the portfolio. Exception Management is a key component of the
lending policy and tracking of loan policy exceptions is necessary on an on-going basis to maintain a comfortable
level of risk management exposure. Approved exceptions need to be well mitigated in the approval process.
Exceptions are typically broken down into two areas: loan policy exceptions and loan underwriting exceptions.
Loan policy exceptions are typically the bank’s internal rules and are procedures such as obtaining the
appropriate approval signatures as designated within the bank loan policy. Underwriting exceptions are rules in
the bank’s loan policy similar to guidelines and are based on risk such as credit score and financial statement
ratio requirements.
Risks associated with the exceptions and steps taken/ to be taken to mitigate the risk will have to be properly
assessed. Proposals having exception(s) must be submitted with justification to the Executive Committee of the
Board of Directors/ Board of Directors for approval and should not necessarily be criticized because of the
particular exceptions.
Aggregate exceptions must be analyzed regularly and reported to senior management by the respective
sanctioning authority as per Annexure-1.
Annexure-1 If volume levels are high, management may consider the overall risk
and perhaps consider revising the bank’s loan policy to bring it in line to the credit culture and current market
conditions. Effective exception tracking systems with a thorough and timely manner of corrective action
generally leads to better risk management. Increased levels of exceptions may indicate increased risk, and a low
level of exceptions may indicate that the loan policy is too general.
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2.4 Establishment of Control Mechanism
All branches of the Bank are connected with online system. Therefore, it will be possible to monitor any
function/any transaction of the branches by the controlling authority. Authority is given to the Managing Director
& CEO, Additional Managing Directors, Deputy Managing Directors, Head of CRM, Head of CAD, Head of SAM,
Head of ICCD, Head of SME, Head of CRBD and Head of ACD to go through any transaction of the branches as and
when required.
2.5 Indicators of Credit Risk Management
Measuring credit risk of an entire institution is a complicated assessment, involving many quantitative and
qualitative factors, the most important of which are summarized below. While these assessment factors are
mostly qualitative in nature, they cannot be ignored, and will consider these lapses as evidence of
mismanagement requiring corrective action.
Indicators of high credit risk (not an exhaustive list)
 The level of loans is high relative to total assets and equity capital.
 Loan growth rates significantly exceed national trends and the trends of similar banks. Growth was not
planned or exceeds planned levels, and stretches management and staff expertise.
 The bank is highly dependent on interest and fees from loans and advances.
 Loan yields are high and reflect an imbalance between risk and return.
 The bank has one or more large concentrations. Concentrations have exceeded internal limits.
 Existing and/or new extensions of credit reflect liberal judgment and risk-selection standards.
 Practices have resulted in a large number of exceptions to the credit policy.
 The bank has a large volume and/or number of classified loans.
 Even among standard and special mention account loans, the portfolios are skewed toward lower
internal ratings.
 Classified loans are skewed toward the less favorable categories (doubtful and bad/loss).
 Collateral requirements are liberal, or if conservative, there are substantial deviations from
requirements. Collateral Valuations are not always obtained, frequently unsupported, and/or reflect
inadequate protection.
 Loan documentation exceptions are frequent, and exceptions are outstanding for long periods of time.
 The bank liberally reschedules and/or restructures loans in a manner that raises substantial concern
about the accuracy or transparency of reported problem loan numbers.
 Quarterly loan losses, as a percentage of the total loan portfolio, are high and/or routinely exceed
established provisions.
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Indicators of poor credit risk management (not an exhaustive list)

 Credit culture is absent or materially flawed.
 Strategic and/or business plans encourage taking on liberal levels of risk.
 Anxiety for income dominates planning activities.
 The bank engages in new loan products or initiatives without conducting sufficient due diligence testing.
 Loan management and personnel may not possess sufficient expertise and/or experience.
 Responsibilities and accountabilities in the origination, administration, or problem loan management
processes are unclear.
 The bank may not identify concentrated exposures, and/or identifies them but takes little or no actions
to limit, reduce, or mitigate risk.
 Concentration limits, if any, are exceeded or raised frequently.
 Compensation structure is skewed toward volume of loans originated, rather than quality.
 There is little evidence of accountability for loan quality in the origination and/or administration
function.
 Staffing levels throughout the origination and/or administration function are low.
 Skills throughout the origination and/or administration function are low.
 Credit policies are deficient in one or more ways and require significant improvement in one or more
areas. They may not be sufficiently clear or are too general to adequately communicate portfolio
objectives, risk tolerance, and loan judgment and risk selection standards.
 The bank approves significant policy exceptions, but does not report them individually or in the
aggregate and/or does not analyze their effect on portfolio quality. Policy exceptions do not receive
appropriate approval.
 Credit analysis is deficient. Analysis is superficial and key risks are overlooked.
 Risk rating and problem loan review are deficient and require improvement. Problem loans and
advances are not identified accurately or in a timely manner; as a result, portfolio risk is likely misstated.
 The bank’s risk ratings (including the classification system) frequently deviate from BB’s risk ratings or
classifications.
 The graduating of internal risk ratings in the standard and special mention categories is insufficient to
stratify risk for early warning or other purposes, such as loan pricing or capital allocation.
 Management information systems (MIS) have deficiencies requiring attention. The accuracy and/or
timeliness of information are affected in a material way, and portfolio risk information is incomplete. As
a result, the Board and senior management may not be receiving appropriate or sufficient information to
analyze and understand the bank’s credit risk profile.
2.6 Credit Concentration risk

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Even if the origination and administration policies and procedures for individual loans are sound, bank may have
high credit risk and/or poor credit risk management if the loan book is concentrated. Credit concentration risk
arises when any bank invests its most or all of the assets to single or few individuals or entities or sectors or
instruments. Downturn in concentrated activities and/or areas may cause huge losses to the bank relative to its
capital and can threaten the bank’s health or ability to maintain its core operations. Bank need to pay attention to
the following credit concentration risk areas:
 Sector wise exposure,
 Division wise exposure (Geographic Concentration),
 Group wise exposure (Outstanding amount more than),
 Single borrower wise exposure (Outstanding amount more than),
 Top borrower wise exposure (Top 10-50 borrowers will be counted)
Establish internal limits to concentration across all the possible dimensions of concentration risk must be
established. It follows that if any part of bank’s loan portfolio is concentrated in anyway, the bank must endeavor
to reduce the volume of loans in that category, raise capital, or take combination of both actions.
2.7 Robust Credit Risk Management Policy
Mercantile Bank PLC has a “credit policy,” what will work as high-quality “credit risk management policy”
(CRMP). The CRMP in its expanded form contains all of the elements that a “credit policy” would contain, and
goes beyond these. It must be updated annually with approval for Board of Directors for these annual updates.
2.7.1 Risk Appetite Statement
Risk appetite is the level and type of risk a bank is able and willing to assume in its exposures and business
activities, given its business objectives and obligations to stakeholders (depositors, creditors, shareholders,
borrowers, regulators).
Risk appetite Statement (RAS) is generally expressed through both quantitative and qualitative means and should
consider extreme conditions, events, and outcomes. It is stated in terms of the potential impact on profitability,
capital, and liquidity, and is consistent with the bank’s strategic and business plans. The credit RAS is an example
of a bank’s overall RAS being concretely expressed at the business line level.
For credit risk specifically, the RAS quantified the maximum expected loss the bank is willing to endure across all
credit products, including off-balance-sheet items such as letters of credit and guarantees. The maximum
expected losses are specified so that the business lines that take on credit risk know where the bank wishes to be
along the risk-return tradeoff. Bank also specifies the minimum expected losses, since it is possible for the bank
to take on too little credit risk and face the consequence of weak earnings.
The RAS also addresses the maximum and minimum allowable concentrations for all major types of credit
products, borrowers, and sectors. Contents of the Risk Appetite Statement are includes, but are not limited to, the
following statements:
 Industry-wise sectoral concentration
 Product-wise funded loan concentration (composition of term loan, mid-term loan, demand loan, continuous
loan etc)
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Management)
 Product-wise non-funded loan (OBS) concentration (composition of bank guarantee, acceptance, etc.)
 Area wise/geographical, currency wise and maturity wise credit concentration
 Business segment-wise concentrations (corporate, SMEs, Retail, Card etc)
 Client concentration based on external/internal credit rating.
 Classification boundaries in terms of portfolio percentage, beyond which further growth may be halted.
 Maximum level of ‘high’ rated clients in terms of environmental and social due diligence.
The Risk Appetite Statement (RAS) will be prepared by Risk Management Division and will be approved by Board
of the Directors of the Bank and embodied in risk policy and delegated authorities. The approved Risk appetite
statement (RAS) for the year 2023 is shown in Annexure-2.
2.7.2 Limits on Loan Type, Borrower Type, Rating Grade, Industry or Economic Sector
It is an essential component of credit risk management to establish limits on concentrations across all possible
dimensions of the credit portfolio. The first task in that effort is to establish a sensible disaggregation of the
portfolio along with the lines shown in Annexure3.1, Annexure 3.2 & Annexure 3.3
The combination of the type of borrower/type of loan breakdown and the sectoral breakdown of industrial loans
provides all the necessary data and allow the bank to monitor the all-important category of real estate lending
and loans secured by real estate, the emphasis on which by the bank in recent years is a source of concern for
financial stability.
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CHAPTER-III
LENDING GUIDELINE
The basic principles of lending are described in this section. It must be clearly understood at the outset that these
principles are not inflexible and are given as guidelines for protecting the Loans and Advances. The Credit Policy
guidelines of the Bank describes details fundamental credit risk management policies, outlines general principles
that are designed to govern the implementation of more detailed lending procedures and credit risk analysis/risk
grading system.
3.1 Lending Guidelines
The following are the general principles to be considered for lending funds to customers on a basis consistent
with the global operational objectives and business strategies of the bank:
i) Lending shall always be guided and governed by the rules, norms and instructions as circulated by the
bank and by the Bangladesh Bank from time to time.
ii) The bank shall provide suitable credit services and products for the markets in which it operates. For this
purpose, Bank will design new products from time to time, reengineer the existing one to keep the same
competitive in the market and to avoid unhealthy competition in the market. While designing new
products and/or reengineering the existing ones, Bank will always emphasize customers’ demand.
iii) Loans and advances shall mainly be financed from customers’ deposit and borrowings. However,
Advance-Deposit (AD) Ratio to be maintained as per instructions of Bangladesh Bank.
iv) Credit facility will be allowed in a manner which will in no way compromise with the Bank’s standards of
excellence and quality of credit.
v) All Credit extension must comply with the requirements of Bank’s Memorandum and Articles of
Association/Bank Companies Act 1991 as amended from time to time / Bangladesh Bank’s instructions/
guidelines and other applicable rules and regulations.
vi) A prudent banker should always adhere to the following principles of lending funds to his customer: e.g.
(1) Background, character and capability of the borrowers, (2) Purpose and nature of the facility, (3)
Term of facility, (4) Credit Need, (5) Safety, (6) Security, (7) Profitability, (8) Source of repayment, (9)
Diversity, (10) National Interest (11) Environmental & Social Risk etc.
vii) Bank’s credit operation shall comply with all the core risks guided by BASEL recommendation as such
Credit Risk, Liquidity Risk, Foreign Exchange risk, Internal Control & Compliance Risk, Money laundering
risk and ICT Risk.
viii) Finance to new entrepreneur, ICT business, Special Economic Zone etc. shall be evaluated on the basis of
their capacity, profitability, character and fulfillment of other credit norms by the specific customer.
ix) Credit operation of the Bank should contribute at an optimum level within the defined risk limitation. In
other words, credit facilities should be extended in such a manner that each deal becomes a profitable
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Chapter – III (Lending Guideline)
one so that Bank can achieve growth target and superior return on capital. Besides, Credit extension shall
focus on the development and enhancement of customer’s relationship and shall be measured on the
basis of the total yield for each relationship with a customer.
x) Bank’s credit operation should be conducted through proper addressing of environmental and social
issues so that Sustainable Development Goals (SDGs) can be achieved within 2030 and Bangladesh Delta
Plan can be achieved within 2100.
xi) Sustainable and Green Finance shall be emphasized.
xii) Credit facilities will be extended to those customers who can make best use of them thus helping
maximize our profit as well as economic growth of the country through financing to the sectors, those are
positive for the economy & society of the country. To ensure achievement of this objective, the lending
decision will mainly be based on the borrower’s ability to repay.
xiii) Proper credit assessment is complex and requires a high level of numerical as well as analytical ability of
the concerned officer. To ensure effective understanding of the concept and thus to make the overall
credit portfolio of the Bank healthy& to bring changes in default culture of credit system, proper staffing
shall be made through placement of qualified officials having appropriate background, right aptitude,
formal training in credit risk management, familiarization with Bank’s credit culture and required
experience as well.
xiv) At the time of deciding a loan, a credit officer shall check matching of purpose of loan with the type of
loan prayed for and repayment schedule. No revolving credit facility shall be accommodated for a single
event fund requirement.
xv) At the time of deciding a loan, revenue, profitability and net cash flow & debt burden shall be checked
properly.
xvi) For financing Real Estate Developer Company, it must have to be ensured that the company is a member
of REHAB (Real Estate & Housing Association of Bangladesh).
xvii) A business entity or its sister concern(s) must have 02 years business establishment and at least 12
months account relationship with any Bank/FI to avail themselves of credit facilities. However, this
condition will not be applicable for SOD (EMFS), SOD/Loan (FO), other retail loan products and PPG loan
products.
xviii) Every renewal shall be treated as a fresh sanction.
xix) In case of approval of Bank Guarantee (Single Deal), the content of the guarantee must be analyzed
properly, and a specimen copy of the guarantee to be enclosed with the proposal (as applicable).
xx) In case of financing to a limited company, creation of Charge/ Modification of existing charge on assets
(fixed & floating) of the borrowing company to be executed with RJSC&F covering the debt. Charge to be
created with RJSC&F within 21 days of execution of deed.
xxi) At the time of sanction/renewal/ enhancement of credit facility to a Limited Company, latest Form- XII
and Schedule-X duly certified by RJSC & Firms shall be obtained and the list of directors/ shareholders
are to be checked with the record kept with the Bank.
xxii) In the case of financing a joint venture company, the joint venture agreement must be examined properly
to ensure that no adverse clause is being incorporated against the interest of the lending concern. If
responsibilities and authorities are transferred to a party/parties, then the creditworthiness of the
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transferee party(ies) shall be assessed properly. Otherwise, the creditworthiness of all participating
concerns must be assessed independently. Bank will finance to that Joint venture concern, in which our
existing customer is the Lead partner.
xxiii) Stocks/ machineries/ vehicles etc. that are hypothecated against credit facility(ies) shall be properly
insured with bank’s mortgage clause covering all possible risk. Customer’s preference for not taking
required insurance must be justified and it must be mentioned as deviation and the said deviation shall
be approved by the respective sanctioning authority but not less than the Managing Director & CEO with
the condition that the customer will provide a separate undertaking (on non-judicial stamp of Tk.300.00)
to indemnify the bank in case of any risk which may arise for not taking insurance coverage in different
areas.
xxiv) Branch will ensure installation of the machinery before taking draw-down permission against Term
Loan/ Lease Finance/ Hire Purchase for procurement of machinery(ies) from local sources.
xxv) RMG Monitoring Cell, Head Office will assess the need of the RMG customer before processing of
proposal for sanction/renewal/ enhancement of RMG customer.
xxvi) Security taken against credit facilities shall be properly valued and affected in accordance with the laws
of the country.
xxvii) The customer to whom credit to be allowed should be as far as possible within the command area i. e.
area of operation of the branch.
xxviii) A borrower may be financed from more than 01(one) branch. But it is preferable to finance from 01
branch to establish better control over the customer.
xxix) Customer of RMG business shall not be entitled usually from Non- AD Branch. In case of finance from
Non-AD Branch, approval from the Board of Directors shall be obtained.
xxx) Trade Finance operation shall be routed through AD Branch/ CTPC, Head Office of the Bank. However,
the AD Branch / CTPC, Head Office may open L/C on behalf of the customer of non-AD Branch at the
request of the non-AD Branch. Post import finance in Taka currency may be extended by non-AD branch.
Post export finance like IDBP/FDBP/FBP/IBP facility for the customer of non-AD Branch will be
processed through AD Branch/CTPC, Head Office.
xxxi) For financing new RMG unit / existing RMG unit (new to us) it must be ensured that the unit is the
compliant one.
xxxii) In the case of project finance, it must be ascertained that Project land and building (if any) are in the
name of the project. Debt-equity ratio will be determined based on Banker–Customer relationship,
creditworthiness of the customer, potentiality and nature of the business of the customer etc. and/or
subject to minimum requirement of Bangladesh Bank.
xxxiii) In the case of syndication finance, Lead Arranger’s participation must be confirmed.
xxxiv) The Sanctioning officer shall not be involved in the sanctioning process of any credit to any of his/her
near relations and to any firm/company where his/her relations have financial interest. Such cases
should be sent to Head Office/EC/Board for consideration.
xxxv) No loan or advances shall be sanctioned to any Director of our Bank or any firm or company where they
have interest as Proprietor/Partner/Director or to their family members as defined in section 26 (Ga) of
Bank Company Act as well as BRPD Circular No. 4 of 23 February 2014 and any amendment thereafter.
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xxxvi) SOD (FDR)/ SOD (SS)/ Loan (FO) and other consumer loan favouring an individual and a
proprietor/partner/director of a firm/ company will be processed through Consumer & Retail Banking
Division irrespective of exposure of the customer/Group. However, SOD (FDR)/ SOD (SS)/ Loan (FO)
favouring a business entity will be processed through Corporate Banking Division/ SME Financing
Division as per exposure of the customer.
xxxvii) Head of Branch may also allow SOD (FDR)/ SOD (SS)/ Loan (FO) favouring a customer as per his
business delegation (maximum 80% of encashment value of FO) irrespective of exposure of the
customer/Group.
xxxviii) In the case of calculation of net exposure of a customer, the value of lien Financial Obligation (if any) will
have to be deducted from the total exposure of the customer.
xxxix) There shall be no power to sanction any clean advance i.e., without any security (primary/ collateral/
guarantee).
xl) Credit exposures will have to be calculated on the basis of the “one obligor principle” i.e., exposure of the
customer, it’s sister/ allied concern(s), director(s), partner(s), proprietor and guarantor’s are to be
considered together.
xli) The approved credit facility(ies) shall have to be availed within 45 (Forty Five) days of issuance of
sanction letter. Otherwise, the sanction letter shall be treated as cancel automatically. However, the
Managing Director & CEO can revive the approved facility(ies) for further 15 days under genuine ground
for not availing the facility within the stipulated time.
xlii) In the case of financing to a proprietorship/ partnership concern, age of proprietor/ partners shall be
minimum 21 years but maximum 70 years at the time of loan maturity CMSME, Corporate & Agri
Loans. In the case of renewal/enhancement of revolving credit, the age limit may be relaxed with the
approval from the respective sanctioning authority but not less than the Managing Director & CEO of the
Bank on acceptable grounds. In that case, Personal guarantee from the legal heir(s) (if any) to be
obtained.
However, the age limit for the retail loan will be governed by the PPG of the respective loan products.
xliii) It is permissible to use credit facilities (LC, LTR, BG, BTB L/C, PC, EDF Loan, EFPF loan Time Loan etc) of
one concern by other concern(s) of the same group/ allied concern(s) provided that nature of business of
the concerns are same. Creditworthiness of the concerns are to be assessed independently considering
their production capacity and they will separately and jointly be liable for the credit
facility(ies).However, utilization of the limit by/of other concern(s) must be supported by the
Memorandum of Association & Article of Association of the companies (In case of limited company). In
case of bond license/ bonded ware house, with the availability of bond entitlement& with the condition
that imported goods cannot be transferred to another bonded warehouse.
xliv) The interchangeable use of limit must be supported by the Memorandum of Association & Article of
Association of the companies (In case of limited company). But in that case, each concern will be
separately and jointly liable for the credit facility (ies).
xlv) No loan shall be sanctioned in favour of any “Unit” of a concern unless it is a separate entity supported
by relevant documents i.e Trade License, IRC, ERC, TIN, BIN, MOA, AOA, Financial Statements etc.
xlvi) Operation of loan account by through mandate is not permissible.
xlvii) In case of Syndication finance, our participation shall not exceed the amount sanctioned by lead bank(s)/ FI(s).
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xlviii) Branch will maintain control over all security documents (including cash collateral instruments which
are lien to the bank) and will check collateral as and when required but minimum at yearly basis.
xlix) Any deviation from the internal policy of the Bank must be justified and well documented. Specially, all
credit assessment form shall invariably include the deviations from the policy, if any. In case of deviation
from the policy (including insufficient or no collateral) , credit proposal shall have to be submitted with
justification to the Executive Committee of the Board of Directors/ Board of Directors for approval.
3.2 Operation of Loan of a Deceased Person

Type of Borrower Operation
Individual Borrower (a)Bank will charge interest in the loan account till liquidation of the outstanding
bank dues unless otherwise approved from the competent authority of the Bank.
(b)Further withdrawal from the account and renewal/ validity extension of the
limit/ facility will not be allowed. Other loan facility parameter(s) will have to be
kept unchanged. Exceptions may be made in case of instructions/approval from
the regulatory authority(ies).
(c) Branch shall pursue the successor(s) and guarantor(s) to adjust the loan account
at the earliest to avoid accumulation of interest-burden.
Proprietorship concern (a)Bank will charge interest in the loan account till liquidation of the outstanding
bank dues unless otherwise approved from the competent authority of the Bank.
(b)Further withdrawal from the account and renewal/ validity extension of the
limit/ facility will not be allowed. Other loan facility parameter(s) will have to be
kept unchanged. Exceptions may be made in case of instructions/approval from
the regulatory authority(ies).
(c) Branch shall pursue the successors and guarantor to adjust the loan account at
the earliest to avoid accumulation of interest-burden.
(d)If the successors want to continue the business, then they may have to form a
new firm/company (in the same name) following the due procedure of law. In
that case, fresh loan for the new concern may be considered as per credit norms
after being fully satisfied on the independent assessment on it. The existing
liabilities must be adjusted in full by the successors of the proprietor and the
mortgaged property (If any) to be redeemed.
Partnership Firm (a) If there is a provision in the partnership deed that in case of death of a partner,
the legal heir(s) of the deceased partner will be the partner(s) of the concern,
then the loan facility may be continue after transfer of shares of the deceased
partner following the due procedure of law.
(b) In case of absence of such provision as mentioned in (a), or the deceased
partner’s successor(s) are minor then-
- Bank will charge interest in the loan account till liquidation of the
outstanding bank dues unless otherwise approved from the competent
authority of the Bank.
- Further withdrawal from the account and renewal/ validity extension of the
limit/ facility will not be allowed. Other loan facility parameter(s) will have
to be kept unchanged. Exceptions may be made in case of
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instructions/approval from the regulatory authority(ies).

- Branch shall pursue the remaining partner(s)and guarantor(s) to adjust the
loan account at the earliest to avoid accumulation of interest-burden.
- If the successors (major) and the remaining partner(s) want to continue the
business, they must form a new firm/company following the due procedure
of law. In that case, fresh loan for the new concern may be considered as per
credit norms after being fully satisfied on the independent assessment on it.
But existing liability on account of the deceased’s business concern shall
have to be fully adjusted first and the mortgaged property (If any) to be
redeemed.
However, in both cases a legal opinion shall be obtained from the panel
lawyer of the Bank to ensure safeguard the interest of the Bank.
Limited (Private/ Public) (a) If quorum for the Board meeting of the company is fulfilled, then the death of
the director(s) will not affect the loan account anyhow. Branch will persuade
Company
the customer to transfer the shares of the deceased director(s) to legal heir(s)
as per the Court’s Order.
(b) If the death of the director of the company results in shortfall of quorum for
the Board meeting, then-
- Bank will charge interest in the loan account till liquidation of the
outstanding bank dues unless otherwise approved from the competent
authority of the Bank.
- Further withdrawal from the account and renewal/ validity extension of the
limit/ facility will not be allowed. Other loan facility parameter(s) will have
to be kept unchanged. Exceptions may be made in case of
instructions/approval from the regulatory authority(ies).
- Branch shall pursue the remaining director(s), shareholder(s) and
guarantor(s) to adjust the loan account at the earliest to avoid accumulation
of interest-burden.
- Credit facilities may be continued after transferring the shares of the
deceased director(s) to legal heir(s) as per the Court’s Order following the
due procedure of law.
3.3 Operation of Loan of where mortgagor is deceased

If as mortgagor deceased , the rights of the Bank as a mortgagee will remain valid for further enforcement and the
said mortgage has binding effects upon his successors even after the death of the mortgagor till the concerned
credit facilities are adjusted in full provided that the mortgage formalities has been completed following the due
procedure of law. The borrower may be allowed to continue with credit facilities against the existing mortgage.
Nevertheless, as an additional safety, the Bank may ask the successors of the mortgagor to provide the Bank with
an undertaking to the effect that they have no objection against continuation of the existing mortgage for the
credit facilities in favour of the Customer. Since, the said undertaking is an additional protective measure, it
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appears that it would suffice the purpose if the certain successor of the deceased mortgagor, who is currently in
abroad, provides his consent to continue with the mortgage by writing in ordinary document and send that to the
Bank through registered post from his current address overseas.
However, it is to be mentioned that if the current credit facilities are required to be renewed, enhanced,
rescheduled, restructured or so on against a fresh sanction letter, then it appears that the existing mortgage will
not be in effect further for the purpose. In that circumstance, all the successors of the demised owner of the
mortgaged property will have to re-mortgage the same in favour of the Bank following the due process of law.
3.4 Single Borrower / Group Limits:

With a view to strengthening credit risk management of banks by limiting concentrated exposures and thereby
further improving the stability of banking sector, Bangladesh Bank has issued a circular consolidating all
instructions issued so far on “Single Borrower and Large Loan Exposure” vide BRPD Circular no. 01 dated
16.01.2022.
3.4.1 Definition and Interpretation –

A) “Capital” – means the capital held by banks as per Clause (1) of Section-13 of the Bank Company Act,
1991, as amended.
B) “Exposure” – means credit exposure (funded and non-funded) and refers to all claims, commitments and
contingent liabilities arising from on and off-balance sheet transactions, which include, but not limited to,
outstanding loans/financing facilities, advances and receivables. These amounts comprise outstanding
balance (i.e. principal amount and accrued interest/profit) which has not yet been repaid as on reporting
date. In case of loans that are backed by cash and/or readily encashable securities maintained with the
same bank (e.g. FDR of the same bank) under lien, exposure can be calculated after deducting the
secured/covered amount from the outstanding balance of the associated loans.
i) “Funded Exposure” – means the exposure for which the bank has provided or shall provide funds to
the borrower or to a third party on behalf of the borrower;
ii) “Non-funded Exposure” – means the off-balance sheet exposure which has not yet been funded by
the bank and may or may not be converted into funded facilities in future. Examples, letter of credit,
guarantee, acceptance, commitment etc;
iii) “Large Loan” – refers to any exposure to a single person/counterparty or a group which is equal to
or greater than 10% of the capital as mentioned in Paragraph 3.4.1(A).
C) “Non-conforming Exposure” – if an exposure is within the limit [limit set forth in Paragraph 3.4.2]
when made but subsequently exceeds the limit, the exposure will be treated as “non-conforming ‟ which
may arise from any of the following circumstances:
i) The bank’s capital declines;
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ii) Capital rules or the lending limits undergo changes;
iii) Non-funded exposure (under approved limit) turns into funded exposure;
iv) The borrower’s exposure increases due to applied interest;
v) The borrower merges or forms a common enterprise with another borrower;
vi) The bank merges with another bank which also holds exposures to the borrower;
vii) Percentage of classified loan increases;
viii)The bank’s total exposure decreases.
D) “Person” – means a natural person or a legal person i.e., company, corporation, associate, trust, joint
venture, partnership or other business enterprise etc.
E) “Group” – includes any borrower and any other person, organization, or company involved directly or
indirectly with that person whose financial well-being affects the financial condition of others or whose
liabilities or advantages fall on others because of the existing relationships between them. Nevertheless,
a public limited company, which has 50% or more public shareholdings, shall not be considered as an
enterprise/organization of any group; thus shall be treated as a single person/counterparty.
Furthermore, if more than one enterprise/organization is connected with such public limited company
through meeting any of the criteria mentioned below, those connected enterprise/organizations shall fall
under a group due to their connectedness with the public limited company even if there is no connection
among those individual enterprise/organizations.
Group exists if at least one of the following criteria is satisfied:
i) Connectedness on the basis of Control: Two or more persons shall be deemed to be a group if one
person has the ability, directly or indirectly, to control the other person(s) or to exercise significant
influence over the financial and operating decisions of the other person(s), or if both persons are
subject to common control or common significant influence. When at least one of the following
criterion is satisfied, connectedness is established:
(a) The criterion for control is met automatically if one person holds more than 50% of ownership
or voting rights of another person. Moreover, the criterion is met based on control through
significant influence when the percentage of ownership or voting rights falls between 20% to
50%; or
(b) The percentage of ownership and voting rights is less than 20%, but at least one of the criterion
specified below is satisfied:
- Ability to appoint or dismiss an entity‟s administrative, management or supervisory body,

such as the ability to appoint or remove a majority of members in those bodies, or the
capacity to appoint a majority of members solely as a result of the exercise of an individual
entity’s voting rights;
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- Ability to exert a dominant influence on management, e.g. one person has the power,
pursuant to a contract or otherwise, to exercise a controlling influence over the
management of another person (e.g. through consent rights over key decisions);
- (3) Participation in policy-making processes that enables to direct the activities of the other
so as to obtain benefits from its activities, e.g. including participation in decisions about
dividends or other distributions as well as to decide on crucial transactions such as the
transfer of profit or loss of the other;
- (4) Commonality of management or interchange of managerial personnel, e.g. single

MD/CEO serving different entities collectively or interchangeably;
- (5) Commonality of ownership or interchange of ownership status, e.g. same person

representing as Chairman or Director of Board (other than independent director) of
different companies.
Bank is also expected to refer to criteria specified in appropriate internationally recognized accounting
standards for further qualitatively based guidance when determining control.
ii) Connectedness on the basis of Economic Interdependence: Economic dependence of one party
on another or other parties results in all of them being considered connected. That is, if one of them
were to experience financial problems, in particular funding or repayment difficulties, the other or
all of the others would, as a result, also be likely to encounter funding or repayment difficulties.
Connectedness based on economic interdependence will be established when at least one of the
criterion specified below is satisfied:
(a) At least 50 percent of one counterparty's gross receipts or gross expenditures (on an annual
basis) is derived from transactions with one single counterparty or 50% of one counterparty ‟s
production/output is sold to one single counterparty;
(b) One counterparty has fully or partly guaranteed the exposure of the other counterparty, or is
liable by other means, and the exposure is so significant for the guarantor that it is likely to
default if a claim occurs;
(c) The expected source of repayment for each loan is the same and neither counterparty has
another source of income from which the loan may be fully repaid;
(d) It is likely that the financial problems of one counterparty would cause difficulties for the other
counterparties in terms of full and timely repayment of liabilities;
(e) The insolvency or default of one of them is likely to be associated with the insolvency or default
of the other(s);
(f) Significant association or relationship exists among counterparties, e.g. sharing of common
facilities and/or branding platform;
(g) One counterparty enjoys inner credit limit/combined credit limit along with other
counterparty(s);
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(h) Counterparties which are enlisted in the website of a group.
Furthermore, bank shall consider other relevant aggregation criteria based on experience and
judgment which may be indicative of connectedness between single counterparty and their
connected persons. In case of a split in the group, having doubts about the bona fides of the split, a
reference may be made to Bangladesh Bank for its final view on the matter to preclude the
possibility of a split being engineered in order to prevent coverage under the Group.
3.4.2 Exposure Limits – The following limits shall apply:

A) Single Person/Counterparty or Group:
i) Aggregate Principal Exposure:
(a) The aggregate principal amount of funded and non-funded exposure to a single person/counterparty
or a group shall not exceed 25% of the capital at any point of time.
(b) The aggregate principal amount of funded exposure to a single person/counterparty or a group shall
not exceed 15% of the capital at any point of time.
ii) Applicable Conversion Factor:
(a) In order to calculate aggregate principal amount [as specified in Paragraph 3.4.2 (A)(i)(a)], a
conversion factor of 0.50 shall be used against non-funded exposure; i.e. 100% of funded exposure
and 50% of non-funded exposure shall be considered.
(b) While calculating aggregate principal amount [as specified in Paragraph 3.4.2 (A)(i)(a)] for credit
facilities sanctioned in order to produce, transmit and distribute electricity against any award
provided by the Power Division of the Ministry of Power, Energy and Mineral Resources or the
institutions controlled by the said division, a conversion factor of 0.25 shall be used against non-
funded exposure; i.e. 100% of funded exposure and 25% of non-funded exposure shall be taken into
account.
B) Large Loan:
i) Aggregate Exposure: The bank shall sanction large loans as per the following limits set against their
respective classified loans:
Percentage of Classified Loan to Total Large Loan Portfolio Ceiling against Bank's
Outstanding Total Loans & Advances
Less than or equal to 3% 50%
Greater than 3% but less than or equal to 5% 46%
Greater than 20% 30%
However, the aggregate amount of large loan exposure shall not exceed 400% of bank’s capital at any
point of time.
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ii) Applicable Conversion Factor: In order to determine Large Loan Portfolio Ceiling of any bank,
100% of funded exposure, 50% of non-funded exposure except for power sector and 25% of non-
funded exposure in power sector shall be included in total Loans & Advances as well as in large loan
exposure
For example, if a bank’s Classified Loan is 3%, according to this policy, the bank may have large loan
exposure up to 50% of its total Loans & Advances provided that such exposure does not exceed 400%
of the bank’s capital. Thus the large loan portfolio ceiling formula for the bank will be as below:
(Total Funded Large Loan Exposure + Total Non-funded Large Loan Exposure except for power
sector*50% + Total Non-funded Large Loan Exposure in power sector*25%)
≤ 50%
(Bank’s Total Funded Exposure+ Bank’s Total Non-funded Exposure except for power sector
*50% + Bank’s Total Non-funded Exposure in power sector*25%)
3.4.3 Exceptions: In order to allow bank to accommodate prudently the genuine credit needs of
creditworthy borrowers, notwithstanding anything contained in this circular, the following exceptions shall
be applicable to the limits set forth:
A. In case of credit facilities (a) provided to the government or against government guarantees and (b)
against guarantees provided by Multilateral Development Bank (MDB) of Export Credit Agency (ECA)
having AAA rating, the aforementioned restrictions set forth in Paragraph 3.4.2 shall not be applicable.
[Note: Multilateral Development Banks (MDBs) include: the World Bank Group comprising the
International Bank for Reconstruction and Development (IBRD) and the International Finance
Corporation (IFC), the Asian Development Bank (ADB), the African Development Bank (AfDB), the
European Bank for Reconstruction and Development (EBRD), the Inter-American Development Bank
(IADB), the European Investment Bank (EIB), the European Investment Fund (EIF), the Nordic
Investment Bank (NIB), the Caribbean Development Bank (CDB), the Islamic Development Bank (IDB)
and the Council of Europe Development Bank (CEDB).]
B. In case of interbank money market transactions with a contractual maturity of less than one year, the
aforementioned restrictions set forth in Paragraph 3.4.2 shall not be applicable.
3.4.4 Prudential Norms:
A. Bank shall collect pertinent loan information on their borrowers from Credit Information Bureau (CIB)
of Bangladesh Bank before sanctioning, renewing or rescheduling loans in order to ensure that credit
facilities are not being provided to defaulters.
B. Bank shall adopt Internal Credit Risk Rating System (ICRRS) as an integral part of credit risk
management and follow accordingly while sanctioning, renewing or enhancing large loans.
C. While sanctioning or renewing large loans, bank shall assess their borrower's overall debt repayment
capacity by taking into consideration the borrower's liabilities with other banks and financial
institutions.
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D. Bank shall examine their borrower's Audited Financial Statements, i.e. Balance Sheet, Income
Statement, Cash Flow Statement and other financial statements, with a view to assessing borrower’s
loan repayment capacity properly.
E. Sanctioning, renewing or rescheduling of large loans shall be approved by the Board of Directors of the
Bank. However, while approving proposals of large loans, among other things, compliance with this
circular shall be ensured.
F. When two or more banks collectively provide credit facility to a borrower under common arrangement
(e.g. a syndicated loan), the loan limits in Paragraph 3.4.2 shall apply to the funded and non-funded
facilities provided by each bank and shall represent that bank’s pro rata share of the total loan.
G. The group of connected counterparties poses a “single risk”, akin to that of a single counterparty.
Banks shall evaluate the relationship amongst clients, with reference to Paragraph 3.4.1(E), in order to
assess the existence and the extent of a single risk. Moreover, bank shall exercise a reasonable degree
of due diligence; i.e. Customer Due Diligence (CDD) including the „Know Your Customer (KYC)‟
principle in obtaining sufficient information on their customers to determine interconnectedness.
H. If an exposure becomes „non-conforming‟ for any reason as mentioned in Paragraph 3.4.1(C) bank is
required to act promptly to bring the exposure into compliance unless doing so would be inconsistent
with prudent banking practices and adversely affect the ultimate recovery of the exposure. Such non-
conforming exposures may be renewed, have their maturity extended or be restructured provided
that–
i) there is no increase in the amount of the exposure, either direct or indirect;
ii) security collateral, if any, is not released;
iii) there is no change in the borrower with the exception of changes resulting from a merger of the
borrower with another person;
iv) the renewal, extension or reschedule is not otherwise designed to avoid the requirements of
existing policies, rules & regulations as determined by Bangladesh Bank;
v) Bank report such exposure, if any, to the Department of Off-site Supervision of Bangladesh Bank.
3.4.5 Risk Management Expectations:
A. Bank shall follow the instructions regarding Credit Risk Management, other Risk Management
Guidelines, ICRRS for Banks and all other related policies/Guidelines issued by Bangladesh Bank from
time to time.
B. Although certain types of exposures and counterparties are excluded from the single borrower limit
[as specified in Paragraph 3.4.3] or given preferential treatment in terms of definition [as specified in
Paragraph 3.4.1] or exposure limits [as specified in Paragraph 3.4.2], these exposures are not risk-free.
Bank should have adequate procedures and controls in place to monitor these exposures as well. In
addition, bank shall also ensure that its portfolios are not overly concentrated in large loans.
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3.4.6 Record Keeping:
A. Each bank shall submit periodic statement of large loan, in specified format, to the Department of Off-
site Supervision of Bangladesh Bank as per instructions given by that department.
B. Each bank shall establish and maintain a central database containing detailed information pertaining
to large loans provided to single person/counterparty and group as defined by this circular. The
database shall include, at a minimum, the information required as per the reporting format provided
by the Department of Off-site Supervision.
C. This database shall be maintained on an ongoing basis and must be updated at least quarterly.
3.4.7 If exposure of a customer/group is in breach of the limits as on 01.04.2022 specified in Paragraph 3.4.2
shall be due to facility provided to Power Sector, then it can be brought in compliance by 31 December 2023.
During this rationalization period, bank shall not increase its exposures to the counterparty (including its
connected counterparties) that are in breach.
3.5 Risk Acceptance Criteria

The results of risk analysis must be compared with the criteria for acceptable risk. Risk acceptance criteria are
used as a basis for decisions about acceptable risk. Some key factors that influence to be an acceptable risk are:
 Benefits gained from taking the risk
 Degree of control over the risk
 Risk aversion – one catastrophe is worse than many small accidents
 Time until effects are experienced.
 All avoidable risks should be avoided, and Risks should be reduced wherever practicable.
Some basic risk acceptance criteria are given below:
Inferior Security Position
Bank should not grant facilities where the bank's security position is inferior charge to that of any other Bank/FI.
However, on exceptional case, Bank may approve credit facility with inferior security for reputed customer(s)
with excellent track record where Bank wants to establish credit relationship, but where it would be
impracticable to create 1st charge on assets or to create charges on pari-passu basis due to existing banking
group's resistance. However, there should be a continuous effort to resolve the inferior security position over
time.
For inferior security, approval authority of credit facility shall be at least the Executive Committee of the Bank.
Financing to new concern
Sometimes, financing a new concern (newly established concern/already established but new to us) carries
additional risk and hence should be evaluated meticulously. For financing to new concern (new to us) following
criteria to be met:
 The owners must have substantial experience in the related field.
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 The business entity or its sister concern(s) must have 02 years business establishment and at least 12 months
account relationship with any Bank/FI. However, this condition will not be applicable for SOD(EMFS),
SOD/Loan (FO), other retail loan products and PPG loan products.
 Financial indicators as well as other quantitative and qualitative criteria of the business are positive.
 Credit Grade (ICRR) for new project shall be minimum "Marginal”.
Loan Tenor& Repayment
 Term Loan Tenor: The Bank will extend long Term Loan for maximum period of 10 years including grace
period [except Home Loan, HBL (Com), Syndication Loan, LTFF & any other BB refinancing scheme]. In the
case of Home Loan, the repayment period will be maximum of 25 years and for HBL(Com), the repayment
period will be maximum of 5 years for Developers and maximum 12 years for owners of the land. However,
in the case of syndication or club financing, the Bank may extend the period as per consensus of the
syndicated members. The tenor for LTFF & any other BB refinancing scheme will be determined as per
related circulars.
 Moratorium period: Moratorium period to be fixed based on the nature of project/construction. The
maximum moratorium period against Term Loan [except Home Loan, Syndication Loan, LTFF & any other
BB refinancing scheme] may be permitted up to 24 months. However, in the case of syndication or club
financing, moratorium period will be allowed as per consensus of the syndicated members. In the case of
Home Loan, maximum allowable moratorium period will be 12 months. The moratorium period for LTFF &
any other BB refinancing scheme will be determined as per related circulars. Moratorium may also be
allowed for both principal and interest on a case-to-case basis depending on cash flow.
 Tenor for Working capital loan: Working capital loan facility & Trade finance loan tenor should be in line
with Cash Conversion Cycle/Operating Cycle but not more than 365 days.
 Open-ended Guarantee: Open ended guarantee may be allowed only against 100% margin. However, in
exceptional case, Open ended Bank Guarantee may be issued without fulfilling the margin requirement
with the approval from the Executive Committee of the Board of Directors/ the Board of Directors
considering the merit of the proposal.
 Repayment Capacity: Minimum Debt service coverage ratio will be 1.25 times in case of allowing Term
loan. If any applicant's DSCR is lower than 1.25 then it will require proper justification.
Personal Guarantee
 Personal guarantees are required for all credit exposures from the key directors and shareholders who hold
more than 20% shares of the company. Exceptions can be made with the approval from the Executive
Committee of the Board of Directors/ the Board of Directors considering the merit of the proposal.
 Personal Guarantee may be relaxed for public limited company on case-to-case basis and for facility fully
covered by cash collateral.
 For proprietorship/ partnership concern/ individual borrower, personal guarantee to be obtained from the
spouse (if any) of the proprietor/partner/borrower. In case of breach of age limit (21 years to 70 years) by
the proprietor or partners, Personal guarantee from the legal heir(s) (if any) to be obtained to renew the
existing credit limits.
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 The terms and conditions of the sanction letter must be read to the guarantor(s) and to be accepted
unconditionally by them duly singing and putting thumb impression of their both hands on the duplicate
copy of the sanction advice. The signature (as applicable) and thumb impression on the sanction advice
and other charge documents must be verified with the database reserved of National Identity Card.
 Personal guarantee / corporate guarantee may be taken to mitigate the credit risk. The Corporate Guarantee
must supported by a Memorandum of Association (MoA) and Articles of Association (AoA) of the company
giving the Corporate Guarantee. Additionally, the Corporate Guarantee to be approved in the board
meeting of the Corporate Guarantor.
 Branch will determine acceptability of net worth statement declared by Personal Guarantors and upon
reasonable satisfaction, may consider the information for inclusion in the credit proposal.
 For foreign guarantors, legal opinion is to be obtained to ensure safeguard the interest of the bank.
 Personal Guarantee may be relaxed for Independent director/ Nominated from Government/ Semi-
Government/State-owned companies.
Lending to Foreign Companies and Foreign-Owned Companies
Lending to foreign companies and foreign-owned companies is permitted, subject to meticulous regulatory
compliance and obtaining necessary approval from the competent authority(ies).
Loan to Value (LTV) ratio
To mitigate the risks associated with the loan & advances, bank will take collateral security.
 The Loan to Value ratio shall be determined based on banker-customer relationship, creditworthiness of the
customer, potentiality of the business of the customer etc. But Head of Branch (HoB) and Head Office
Management shall exercise their business delegation for loan amount up to 75% of collateral value (FSV)
[With some exceptions detailed as mentioned in Annexure 16- Delegation of Business Power. Credit
facilities with insufficient or no collateral security will be approved from the Executive Committee of the
Board of Directors or the Board of Directors of the Bank irrespective of amount]. Head of Branch may also
allow SOD (FDR)/ SOD (SS)/ Loan (FO) favouring a customer as per his business delegation (maximum
80% of encashment value of FO) irrespective of exposure of the customer/Group.
However, approval of credit facility under specific PPG/ loan product (with or without collateral) to be
done as per PPG and/or Head Office Management/ Competent authority of the Bank.
 Mortgage formalities including execution of registered irrevocable power of attorney must be completed as
per legal vetting of the Bank’s approved/enlisted Lawyer. However, in case of partial release of security-
- Partial release of property from a mortgage deed is not permitted.

- If bank allow partial release, all properties under the same mortgage deed need to be redeemed and
subsequently fresh mortgage along with registered irrevocable general power of attorney to be created
on the remaining properties on the same day.
 In case of advance against mortgage of property, original Title Deed and all chain of documents i'e' C.S
Parcha, R.S. Khatian, Mutation Certificate, Non-encumbrance Certificate, Municipal Tax Receipt, Approved
plan, Rent Receipt (up to date) etc. should be checked by a paneled lawyer or by the 'Bank's Law Officer
who must certify about 'correctness of ownership and suitability as security against the advance'. The
lawyer’s legal opinion must contain at least the followings:
- Name of the borrower:

Page 24
- Land Owner’s name & address:

- Property schedule with butted and bounded:
- Title deed (s):
- Bia deed (s):
- Partition/Distribution deed:
- Inheritance certificate (warish certificate):
- CS/SA/RS/MRR/BS/Diara/City Jorip etc. Khatians:
- Mutation Khatian:
- Duplicate Carbon Receipt (DCR):
- Ground rent payment receipt:
- Holding tax certificate:
- Approved plan:
- Up-to-date NEC:
- Other necessary documents:
- Wanting documents:
- Chain of ownership:
- Under Enemy/Arpita/Khas/Schedule-“Ka” and “Kha”:
- Homestead property:
- Unconditional Opinion to accept the property to mortgage:
[Central Law Division, Head Office will send it to all enlisted lawyers of the
Bank.]
 The terms and conditions of the sanction letter must be read out to the mortgagor(s) and to be accepted
unconditionally by them duly singing and putting thumb impression of their both hands on the duplicate
copy of the sanction advice. The signature (as applicable) and thumb impression on the sanction advice
and other charge documents must be verified with the database of National Identity Card.
 Stocks/machinery/ vehicles etc. that are hypothecated against credit facility(ies) shall be properly insured
with bank’s mortgage clause covering all possible risk. Customer’s preference for not taking required
insurance may be considered after fulfillment of the followings-
- It must be well justified.

- Approval for waiver of insurance coverage to be obtained from the respective approving authority but
not less than Managing Director & CEO.
- A separate undertaking on non-judicial stamp of appropriate value currently Tk. 300.00 to be obtained
from the customer to the effect that the customer will indemnify the bank in case of any risk which may
arise for not taking insurance coverage in different areas.
 In case of financing to a limited company, creation of Charge/ Modification of existing charge on assets (fixed
& floating) of the borrowing company to be executed with RJSC&F covering the debt. However, in
exceptional case, creation of charge with RJSC& F may be waived subject to obtaining approval from the
respective approving authority but not less than Managing Director & CEO.
Lending to Companies having adverse impact on Environment.
Bank will discourage for financing to a company which adversely impact to the environment. However,
 All the low risk transactions in terms of ESRM, will be approved by usual approval tier.
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 All the medium risk transaction in terms of ESRM, will be escalated for approval to respective delegated
authority but not less than Managing Director after reviewed by Sustainable Finance Unit and Credit Risk
Management Committee.
 All high risk transaction in terms of ESRM, are to be escalated to the Board of Directors for approval (in
urgent cases, EC may approve the facility but post facto approval to be obtained from the Board of
Directors) after reviewed by Sustainable Finance Unit and Credit Risk Management Committee.
Prohibited Business Types
Following activities should be considered as prohibited business types for lending:
 Production or activities involving harmful or exploitative forms of forced labor/ child labour
 Finance of Speculative Investments
 Business activities listed under Exclusion List of ESRM Guideline
 Business activities involving Forced Labour/ Child Labour
 Loan for purchasing of land.
 Any other business restricted by Bangladesh Bank or competent authority from time to time.
Discouraged Business Types
The Bank will discourage lending to following areas of business:
 Highly Leveraged Transactions.
 Finance of Speculative Investments
 Taking an Equity Stake in Borrowers
 Bridge Loans relying on equity/debt issuance as a source of repayment.
 Lending to Holding Companies.
 Companies having adverse impact on Environment.
Other Loan facility parameters for the Bank have been set as under:
a) House Building Loan and Car Loan to the Bank’s employee shall be governed as per policy guidelines of
“Employees House Building Loan” scheme and “Car Loan Policy for the Executives” respectively.
b) Besides above, the Bank will extend credit facilities under special program like Consumer Credit Scheme,
Small Loan Scheme, SME Financing, Agricultural/ Rural Credit, Doctor’s Credit Scheme, Women
Entrepreneurship Development Project, Personal Loan, Any Purpose Loan, Car Loan, Home Loan, Overseas
Employment Loan, Education Loan, Cottage Loan, Refinance Scheme for Solar energy, Bio Gas and ETP,
Green Finance, Agriculture Credit etc. as per policy set / to be set by the Bank under the policy guidelines of
the specific scheme.
c) The rate of Interest / Commission / Charges / Fees etc. would be as per the approved circular/ schedule of
charges as per Bangladesh Bank guidelines and with the approval of competent authority.
d) The interest rate to be charged on quarterly basis.
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e) Repayment of term loan would be fixed preferably on monthly/quarterly basis.
f) Margin against L/C will be determined based on Banker–Customer relationship, creditworthiness of the
customer, potentiality of the business of the customer nature if imported items, actual cost of invoice etc.
and/or subject to minimum requirement of Bangladesh Bank.
g) Security accepted against credit facilities shall properly be valued and shall be effective in accordance with
Laws of the country.
Accepted Securities are: Cash/Cash equivalent like FDR, Scheme Deposits, balance on CD, SB & STD accounts
etc, Land and Building (in the form of registered mortgage with registered IGPA), hypothecation / ownership
of Plant and Machinery, stock of goods, assignment of bills / receivables, book debts, pledge of shares,
guarantee / Corporate Guarantee, etc.
h) Valuation of the landed property / Building / Machinery / Stock of Raw materials / Finished products shall
be done by the Bank’s enlisted professional surveyors. Branch also shall make valuation on the offered
securities duly endorsed by the Head of Branch. Re-valuation of collateral security shall have to be done in
the following cases-
- In every 03 (three) years of valuation
- While enhancing the credit facilities
- In case of security release/replacement, the security (to be released/ replaced) shall have to be revalued.
But revaluation of security is not required for release of security against full and final adjustment of
liabilities.
Any other exception to the loan facility parameters mentioned above, are subject to be approved by the Executive
Committee of the Board of Directors / Board of Directors.
3.6 Training on Credit
In order to discharge the duties efficiently & effectively and conduct the application properly, it is necessary to
arrange sufficient training for executives / officers of different areas particularly the credit officers. Considering
the requirements, the Bank has established its Training Institute in 2002 where different types of banking related
courses are offered to Officers of different level. All Credit Officers and Relationship Managers are trained in
specific fields of Credit Risk Management at home and abroad.
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CHAPTER-IV
(Organizing Credit Risk Management)
4.1 Role of the Board of Directors
The Board of the Directors of the Bank has a vital role in granting credit as well as managing the credit risk of the
bank. It is the overall responsibility of the Board of Directors to approve credit risk strategies and significant
policies relating to credit risk and its management which should be based on the overall business strategy.
Overall strategies as well as significant policies are to be reviewed by the Board of Directors on regular basis.
The responsibilities of the Board of Directors with regard to credit risk management include, but are not limited
to, the following:
 Ensure that appropriate policies, plans and procedures for credit risk management are in place. Ensure
that bank implements sound fundamental policies;
 Define the bank’s overall risk appetite in relation to credit risk;
 Ensure that top management as well as staff responsible for credit risk management possess sound
expertise and knowledge to accomplish the risk management function;
 Ensure that bank’s significant credit risk exposure is being maintained at prudent level and consistent with
the available capital.
 Review trends in portfolio quality and the adequacy of bank’s provision for credit losses;
 Ensure that internal audit reviews the credit operations to assess whether or not the bank’s policies and
procedures are adequate and properly implemented;
 Review exposures to customers and other related parties, including policies related thereto;
 Limit involvement in individual credit decisions powers specifically reserved to the Board by the bank’s
articles of association, by-laws, and credit risk management policy.
 Ratify exposure exceeding the level of the management authority delegated to management and be aware
of exposure; and
 Outline the content of management report on credit risk management.
 Monitor credit concentration on regular frequency.
4.2 Role of Senior Management

The responsibility of senior management is to transform strategic directions set by the Board of Directors in the
shape of policies and procedures. Senior management has to ensure that the policies are embedded in the culture
of the bank. Senior management is responsible for implementing the bank’s credit risk management strategies
and policies and ensuring that procedures are put in place to manage and control credit risk and the quality of
credit portfolio in accordance with these policies. The responsibilities of senior management with regard to
credit risk management shall include:
 Developing credit policies and credit administration procedures for approval from the Board of Directors;
 Implementing credit risk management policies to ensure an effective credit risk management process;
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Chapter – IV (Organizing Credit Risk Management)
 Ensuring the development and implementation of appropriate reporting system;

 Monitoring and controlling the nature and composition of the bank’s credit portfolio;
 Monitoring the quality of credit portfolio and ensuring that the portfolio is thoroughly and conservatively
valued and probable losses are adequately provided for;
 Establishing internal controls and setting clear lines of accountability and authority; and
 Building lines of communication for the timely dissemination of credit risk management policies,
procedures and other credit risk management information to all the credit staffs.
 Ensuring regular trainings on CRM are being arranged by the bank for the officials.
4.3 Role of the Credit Risk Management Committee

The Credit Risk management Committee (CRMC) of the Bank comprises with:
Position
Chief Risk Officer (CRO) Chairman
Deputy Chief Risk Officer (DCRO) Member
Chief Small Business Officer Member
CAMLCO Member
COO & Head of ICCD Member
Head of Treasury Member
Head of Risk Management Division Member
Head of Agriculture Credit Division Member
Head of Credit Risk Management Division Member Secretary
Head of RMG Monitoring Cell Member
Head of SME Financing Division Member
Head of Special Assets Management Division Member
Quorum: Two-Third of total members of the committee present in person shall constitute a quorum for a meeting.
This committee shall report to the Board of Directors and Risk management Committee of the Board of Directors.
The Committee is empowered to oversee credit risk taking activities and overall credit risk management function.
The CRMC should be mainly responsible for:
 Implementation of the credit risk policy/strategy approved by the Board of Directors.
 Monitoring credit risk on a wide basis and ensure compliance with limits approved by the Board of
Directors.
 Making recommendation to the Board, for its approval, clear policies on standards for presentation of
credit proposals, financial covenants, rating standards and benchmarks.
 Deciding delegation of credit approving power, prudential limit on large credit exposure, standard for loan
collateral, portfolio management, loan review mechanism, risk concentration, risk monitoring and
evaluation, pricing of loan, provisioning, regulatory/legal compliance, etc.
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CHAPTER-V
PRODUCT AND PRICING

Mercantile Bank PLC always provides suitable products (loans and advances) for its customers. The bank also
designs new products and reengineering the existing products to keep the same competitive in the market. While
designing new products and/or reengineering existing once, the bank always emphasize on costumers’ demand,
national interest socio-environmental aspect etc.
Loans and advances have primarily been divided into four major groups:
a) Term Loan: These are the loans having fixed repayment schedules. The term loans may be as follows:
Short term : Up to and including 12 months

Medium term : More than 12 months up to and including 60 months
Long Term : More than 60 months
b) Continuous Loan: These are the credit facilities having no fixed repayment schedule, but have a limit and an
expiry date at which it is renewable. Preferable annual recycle of the limit is 03 times.
c) Demand Loan: These are the loans that become repayable on demand by the bank and no fixed installment
or repayment schedule are laid down. If any contingent or other liabilities are turned to loans under forced
circumstances (i.e. without any prior approval as regular loan) those are treated as Demand Loan.
d) Short-term Agricultural & Micro-Credit:
Short-term Agricultural Credit will include the short-term credits as listed under the Annual Credit Program
issued by the Agricultural Credit and Financial Inclusion Department (ACFID) of Bangladesh Bank. Credits in
the agricultural sector repayable within 12 (twelve) months will also be included herein.
Short-term Micro-Credit will include any micro-credits not exceeding an amount determined by the ACFID of
Bangladesh Bank from time to time and repayable within 12 (twelve) months, be those termed in any names
such as Non-agricultural credit, Self-reliant Credit, Weaver's Credit or Bank's individual project credit.
5.1 Lending Sectors

Loans are accommodated under the 4(four) prime sectors which are as under:
5.1.1 Agriculture Sector
Credit facilities to the customers of doing agro business falls under this category. It is divided into two major sub-
sectors:
a) Loans to primary producers: This sub-sector of agricultural financing refers to the credit facilities
allowed to production units engaged in farming, fishing, forestry or livestock. Loans to processors or
traders of agricultural products are not to be categorized as agricultural loans. Loans to tea gardens for
production are treated as agricultural loan, but loans to tea gardens for export will not fall under the
purview of this category.
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Chapter – V (Product and Pricing)
b) Loans to input dealers/distributors: It refers to the financing allowed to input dealers and/
distributors in the agricultural sectors.
Loan to Agriculture sector includes working capital finance in the form of short, medium and long term loans as
well as continuous credits.
5.1.2 SME Sector
Small and Medium Enterprise are being financed under the purview of this sector. Small and Medium
Enterprises are financed for long term financing for establishment of project and/or BMRE of the existing units,
working capital finance as per range applicable for the sector..
The definition of Small and Medium Enterprise are as under:
Industry/ Nature Definition Maximu
Enterprise of Value of Fixed Assets (OR) (OR) m
Busine (excluding land and Number of Annual credit
ss factory building, but employee Turnov exposur
including replacement er e (per
value) client)
Cottage Manufacturing Less than Tk. 10.00 lac Up to 15 workers - Tk. 15.00
Enterprise including household lac
members.
Micro Trading Less than Tk. 10.00 lac Maximum 15 persons Maximum Tk. 50.00 lac
Enterprise Tk. 200.00 lac
Service Less than Tk. 10.00 lac Maximum 15 persons - Tk. 25.00 lac
Manufacturing Tk. 10.00 lac to less than 16 to 30 persons or - Tk. 100.00 lac
Tk.75.00 lac less
Small Trading Tk. 10.00 lac to Tk. 200.00 lac 16 to 50 persons Tk. 200.00 lac Tk. 500.00 lac
Enterprise to Tk. 2000.00 lac
Service Tk. 10.00 lac to less than 16 to 50 persons - Tk. 500.00 lac
Tk.200.00 lac
Manufacturing Tk. 75.00 lac to less than 31 to 120 persons - Tk. 2000.00 lac
Tk.1500.00 lac
Medium Trading - - - -
Enterprise Service Tk. 200.00 lac to Tk. 3000.00 51 to 120 persons - Tk. 5000.00 lac
lac
Manufacturing Tk. 1500.00 lac to Tk. 5000.00 121 to 300 persons (In - Tk. 7500.00 lac
lac case of RMG/ labour
incentive enterprise
maximum no. of
worker will be 1000)
* If any firm is classified as lower grade by one criteria but higher grade by another criteria, then it will be
considered as higher grade. But this rule will not be applicable for RMG/ labour intensive firm.
*Trading Enterprise other than Micro and Small Enterprise will not be considered for SME Financing as per
above criteria.
* Sales of commission based business (distributor) will not be considered. In that case, other criteria will be
considered.
5.1.3 Corporate Sector:
Business entity exceeding the definition of the SME, are being finance under Corporate Sector. Long term
financing for establishment of project and/or BMRE of the existing units, working capital finance, demand loan
are allowed to the large scale business entity under this sector.
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5.1.4 Consumer & Retail Sector

Loans and advances favouring an individual are falls under the purview of this sector. Generally, individuals are
financed through different Credit Cards/ Debit Cards, Personal Loan, Car Loan, Home Loan etc.
5.2 Types of Credit Facilities:

Depending on the various nature of financing, all the credit facilities have been brought under two major groups;
Funded Credit facility and Non-funded Credit facility.
5.2.1 Funded Credit Facilities:
Any type of credit facility which involves direct outflow of bank’s fund on account of borrower refers to funded
credit facility. The followings are the funded credit facilities/limits practiced in the Mercantile Bank PLC.
5.2.1.1 CC (Hypo):
CC(Hypo) stands for Cash Credit (Hypothecation). This is a continuous credit limit allowed to trading as
well as manufacturing/ assembling/ other value adding units to procure and maintain the stock in trade for
trading units and to procure and maintain stock of raw material (RM), work in process (WIP) and finished goods
(FG) for manufacturing/ assembling/ other value adding units as well as to meet up other working capital
requirement in the business.
Features/Norms:
i. This is a continuous loan.
ii. Continuous drawing and adjustment is possible.
iii. Validity of the limit may be one year or less. It may be renewed for further period at the request of the
customer but at bank’s own discretion.
iv. It is adjusted through crediting the sale proceeds in the account on regular basis. Preferable annual
recycle of the limit is 03 times.
v. Stock in trade remains under customer’s lock and key.
vi. Pricing mode: Interest.
vii. Primary security: Hypothecation of stock in trade or stock of RM, WIP, & FG.
5.2.1.2 OD:
OD stands for Overdraft. This continuous credit limit is allowed to meet working capital requirement in the
business to those concerns who does not maintain stock i.e. service oriented business enterprise. The facility also
allowed for payment of duty, tax, VAT against import business. Borrowers may also enjoy the facility against
other Bank’s/ FI’s deposit, ICB Unit Certificate, FC Bond, Wage Earners Development Bond, share, and debenture.
Features/Norms:
Page 32
iii. The validity of the limit may be one year or less. It may be renewed for a further period at the request of
the customer but at bank’s own discretion.
iv. In case of OD against other bank’s/FI’s deposit, the genuineness of the deposit instrument as well as
lien confirmation will be obtained through their respective Branch as well as Head Office.
v. Preferable annual recycle of the limit is 03 times.
vii. Primary security: Primary security may not be available. But in case of OD against other Bank’s/ FI’s
deposit, ICB Unit Certificate, FC Bond, Wage Earners Development Bond, share, and debenture, the lien
on underlying deposit is mandatory.
5.2.1.3 OD(WO)/ (SO):
OD (WO)/(SO) stands for Overdraft (Work Order)/ (Supply order). This facility is allowed favouring a
contractual firm for execution of work/supply order awarded from the Govt., Semi-Govt. and autonomous bodies.
Progress against work order/supply order financed by the bank and bills received there against are periodically
reviewed and documented. It is a non-cheque bearing account.
Features/Norms:
i. Usually, disbursement is made with the progress of work execution.

ii. Usually, this facility is allowed up to a certain percentage (up to 20% against work order and 70%
against supply order including APG) of the work/ supply order value.
iii. Validity of the facility justifies the validity of work/supply order.
iv. It is adjusted (gradually) through making proportionate deduction from the assigned bills received
from the work/supply order awarding authority.
v. Pricing mode: Interest.
vi. Primary security: Assignment of the bills against the work/supply order.
5.2.1.4 Secured Overdraft (OD- Earnest Money Financing Scheme (EMFS) under e- tendering):
Secured Overdraft (OD- EMFS under e- tendering) is a mode of finance for participating in tender under e-
tendering. Under this financing mode, bank issues SDR/ Pay order in favour of the Tenderee and the tenderer/
contractor submits it with the tender. Secured Overdraft (OD- EMFS under e- tendering) is allowed for procuring
Single Work or Multiple Works. In the case of Single Works, a contractor participates in the tender for procuring
the work through providing earnest money in various names of business concerns of the customer/ group which
have business establishment and contractorship licenses. In the case of Multiple Works, the tender is floated
for a number of works. Contractors participate in the tenders against all or some works in single name. A
contractor is not allowed more than 01(one) or 02 (two) works even if he wins all works.
Features/Norms:
i. Secured Overdraft (OD- EMFS under e- tendering) is allowed to participate in tender(s) under e-
tendering only.
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ii. Normally, Earnest Money is required @ 2.50% value of the work orders or to be determined by the
work awarding authorities which do not usually exceed 5% of the work order value.
iii. The SDRs/POs remains with the Bank. It needs not to be deposited physically to the tendering
authority.
iv. The overdraft liability must be adjusted within maximum period of 60 days for Limited Tender Method
(LTM) and 120 days for Open Tender Method (OTM). If the refund of the earnest money is delayed for
any reason, the customer will arrange for adjustment of the Overdrafts liability from his own source.
v. In case of Open Tender Method (OTM), margin & equity depends on size& nature of work and
experience & net-worth of the customer. It may be higher to some extent as per merit of the cases.
Selection of work and awarding authorities are very important. In case of Limited Tender Method
(LTM), no previous work experience is required to participate in tender. Huge number of contractors
can participate the Bid
i. Pricing mode: Interest.
ii. Primary security: 5% to15% cash margin for Open Tender Method (OTM) based on banker-customer
relationship and 5% cash for Limited Tender Method (LTM) on Earnest Money to be procure under
Bank’s finance and usual Charge documents.
5.2.1.5 SOD(FO):
SOD (FO) stands for Secured Over Draft (Financial Obligation). This continuous credit limit is allowed
favouring business entity and individual against financial obligations (FDR, and different Scheme Deposits of our
Bank). The loan may be allowed in the name of SOD (FDR) which is against FDR and SOD (SS), against other
financial obligation.SOD (FDR)/ (SS) on account of individual will be processed through Consumer & Retail
Banking Division and on account of business entity will be processed through SME division/Corporate Banking
Division.
Features/Norms:

iii. Validity of the limit may be one year or less. It may be renewed for further period at the request of the
customer but at bank’s own discretion but the validity of the loan shall not exceed the maturity date of
the underlying deposit instrument/ scheme.
iv. The loan must immediately be adjusted in case the liability equates the encashment value of the
financial instrument(s).
v. Pricing mode: Interest, usually based on the interest rate allowed to the underlying financial obligation.
vi. Primary security: Lien & pledgement of on underlying FO.
5.2.1.6 Loan (FO):
Loan (FO) stands for Loan against Financial Obligation. This short loan is allowed favouring a business entity
against financial obligations (FDR, and different Scheme Deposits of our Bank). It is a non-renewable facility.
Loan (FO) on account of individual will be processed through Consumer & Retail Banking Division and on
Page 34
account of business entity will be processed through SME division/Corporate Banking Division.
Features/Norms:
i. This is a short term loan.

ii. One time drawing is allowed.
iii. Validity of the limit may be one year or less. It is non-renewable. The validity of the loan should be fixed
considering the validity of the underlying deposit instrument/ scheme
iv. Loan will be adjusted by depositing lump sum payment on or before the validity.
v. Pricing mode: Interest, usually based on the interest rate allowed to the underlying financial obligation.
vi. Primary security: Lien & pledgement of underlying FO.
5.2.1.7 Time Loan:
This is specific purpose oriented loan of specific tenor. This facility is allowed favouring a customer usually for
the following reasons:
 To meet emergency/seasonal fund requirement in the business.
 As a post import facility against deferred/ UPASLC(foreign).
 Against cash incentive claim of export oriented company as per prevailing norms of Bangladesh Bank.
 For payment of duty, tax, vat against import business.
Features/Norms:
i. All specific Time Loan and each Time Loan under a revolving limit are demand loan by nature.
ii. Time Loan is a single time disbursement loan with specific purpose and validity.
iii. Generally, the loan is allowed for short period. But maximum validity can be 360 days depending on the
purpose of the loan.
iv. It is adjusted though crediting sales proceeds of the respective goods/ cash incentive received from
Bangladesh Bank/ from own source of the customer.
vi. Primary security: Hypothecation of stock in trade, work in process, finished goods.
5.2.1.8 Short Term Loan(STL):
A loan that is set to be paid back in a short period of time typically within 180 days to meet up urgent fund
requirement in the business of reputed and/or trusted borrowers.
Features/Norms:
i. Short Term Loan is a single time disbursement loan with specific purpose and validity.
ii. Generally, the loan is allowed for short period. But maximum validity can be 180 days depending on the
purpose of the loan.
iii. Usually, STL is allowed to meet short term obligations of reputed and/or trusted borrowers.
Page 35
iv. It is adjusted though crediting sales proceeds of the respective goods and /or from own source of the
customer.
vi. Primary security: Hypothecation of stock in trade, work in process, finished goods.
5.2.1.9 LTR:
LTR stands for ‘Loan against Trust Receipt’. This facility allowed for retirement against shipping documents
(so that the importer can release the goods (industrial raw materials/ trading items) imported through sight
L/C) by adjusting PAD liability. LTR is allowed as a post- import finance against import of trading items/
industrial raw materials/ spare parts. LTR will not be allowed against import of capital machinery & other fixed
assets for non-trading purpose. The facility is allowed on trust with the arrangement that sale proceeds (of the
goods) will be deposited to liquidate the liability within the stipulated time.
Features/Norms:
i. This is a demand loan and is a post-import finance.

ii. LTR is allowed to retire shipping documents of Foreign LC(Sight) to import industrial raw materials,
trading items and spare parts. LTR facility cannot be allowed against import of capital machinery for
setting up factory or against UPAS LC/ Deferred LC/ Local LC.
iii. Usually LTR amount is less than or equals of PAD liability.
iv. Usually has the maximum tenure of 90 days essential consumable goods, 120 days for trading items
other than daily essential consumable goods, 180 days for agricultural products, equipment &
machineries, livestock & fisheries and 210 days for Industrial raw materials.
v. No LTR shall be allowed (even within the approved limit) without having approval from the Board of
Directors, keeping overdue PIF(post Import Finance) liabilities. BRPD circular no. 12 dated 13.06.2021,
BRPD circular letter no. 12 dated 26.04.2022 and BRPD circular letter no. 41 dated 26.10.2022
circulated vide our Instruction Circular no. 2570/2021 dated 16.06.2021, 2804/2022 dated
28.04.20222 and 2940/2022 dated 01.11.2022 respectively and any amendment thereafter to be
meticulously followed.
vii. Primary security: Hypothecation of imported goods.
5.2.1.10 PC:
PC stands for (Export) Packing Credit. It is a short term facility allowed to the customers against export LC
and/or sales contract for processing/packing/shipping of goods to be exported. It is adjusted from proceeds of
the relevant exports. It case of delay receipt/ non-receipt of export proceeds, PC liability will have to be adjusted
from own sources of the customer.
Features/Norms:
i. This is a mode in export finance.
Page 36
ii. All specific PCs and each PC created under a revolving limit are demand loan by nature.
iii. PC amount should not exceed 10% of net FOB value at any point of time or proportionate of raw
materials received considering import entitlement/ BTB opened. Total finance (including ABP) against
an export L/C should not exceed 90% of the FOB value.
iv. Borrower/exporter will be entitled to avail PC upon receipt of accessories under BTB L/C.
v. It is adjusted from the relevant export proceeds.
vi. PC has the tenure of maximum upto 120 days in accordance with Bangladesh Bank Guidelines.
vii. Pricing mode: Interest at a special rate prescribed by Bangladesh Bank (Presently: SMART+2.00% p.a.).
viii. Primary security: Export L/C/sales contract.
5.2.1.11 ECC
ECC stands for Export Cash Credit. ECC is essentially a short term credit and allowed to supplement
requirement of finance of an exporter to meet genuine costs and expenses related to the exportable commodity.
It is adjusted from proceeds of the relevant exports. It case of delay receipt/ non-receipt of export proceeds, ECC
liability will have to be adjusted from own sources of the customer.
Features/Norms:
i. This is a mode of export finance.
ii. All specific ECC and each ECC created under a revolving limit are demand loan by nature.
iii. ECC amount should be determined on the basis of export L/C value. Total finance against an export L/C
should not exceed 90% of the FOB value.
iv. The advances must be liquidated out of export proceeds within 120 days.
vi. Primary security: Export LC/Contract.
5.2.1.12 IDBP:
IDBP stands for ‘Inland Documentary Bill Purchase’. This facility is provided to purchase/negotiate
documents/ bills (duly accepted by issuing Bank) submitted by the exporter/supplier on (deemed)
export/supply made to local export oriented industries against inland L/C (supported by export LC or export
sales contract) usually denominated in Foreign Currency.
Features/Norms:
i. This is a demand loan.
ii. This is usually a mode of (deemed) export finance.
iii. The acceptance must be communicated by the accepting Bank through authenticated SWIFT message
(under valid SWIFT Code) upon request of the purchasing Bank.
iv. A customer may be allowed IDBP maximum up to 90% of accepted value of confirmed acceptance.
v. The tenure of loan is as per the maturity date of the confirmed acceptance.
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vi. Liability is adjusted from the proceeds of the Bill. However, usually a General Letter of indemnity is
obtained from the beneficiary (exporter/supplier) to the effect that if the proceeds against any bill is
not received in due time, the bill/bills will be adjusted from the beneficiary’s own source.
vii. Pricing mode: Interest.
viii. Primary security: Confirmed acceptance and confirmed inland documentary bills.
ix. Case to case permission from Head office is required before facilitating IDBP loan to any customer.
x. For facilitating IDBP loan favoring customers smoothly, branches may obtain IDBP Drawdown Limit
from Head Office, International Division.
5.2.1.13 FDBP(F):
FDBP stands for ‘Foreign Documentary Bills Purchase’. This facility is provided to negotiate (purchase) in
order Foreign Documentary bills/documents as per terms and conditions of documentary export L/C which
must be kept under lien.
Features/Norms:
i. This is a demand loan.

ii. This is a mode of export finance.
iii. All specific FDBP and each FDBP created under a revolving limit are demand loan by nature.
iv. The documents/bills have to be in order as per export L/C terms.
v. Cash drawing allowed under FDBP after adjustment/ arrangement of BTB L/C, PC, and other liabilities
associated to the particular export.
vi. Usually has no fixed tenure but maximum tenure may be allowed is 21 days for sight L/C and as per
stipulated usance period for usance (DP) L/C.
vii. The FDBP shall be adjusted from the realization of concerned export proceeds and/or from own
sources.
viii. Pricing mode: In case of Sight L/C, interest not applicable for 21 days and in case of usance (DP) L/C,
interest not applicable for the usance/deferral period. Usually bank earns from exchange rate
difference. But in case of overdue, interest will be charged at commercial rate.
ix. Primary security: In order L/C documents/bills.
5.2.1.14 FBP:
FBP stands for ‘Foreign Bills Purchase’. Payment made to a customer through purchase of Foreign Currency
Drafts, subject to obtaining clearance from the corresponding/ correspondent bank.
Features/Norms:
i. It is demand loan by nature.

ii. The Drafts to be purchased must be in order.
iii. FBP is allowed to meet short term obligations of Bank’s existing tested and trusted customers.
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iv. Usually FBP is allowed up to 90% of the Drafts value.

v. Tenure depends on the collection period of the Drafts.
vi. Liability is adjusted from the proceeds of the Drafts.
viii. Primary security: Foreign Currency Drafts. However, a General Letter of indemnity on Tk. 300 non-
judicial stamp has to be obtained from the drawer to the effect that if the proceeds against any Drafts is
not received in due time, the liability will be adjusted from the drawer’s own source and the customer
will compensate the bank if any claim raised in future against the bank.
5.2.1.15 IBP:
IBP stands for ‘Inland Bills Purchase’. Payment made to a customer through purchase of pay orders, DDs
issued by scheduled banks and cheque issued by Govt. & autonomous bodies.
Features/Norms:
i. It is a demand loan by nature.

ii. The Cheques/PO/Drafts shall have to be in order in all respects.
iii. IBP is allowed to meet short term obligations of Bank’s existing tested and trusted customers.
iv. Usual amount of IBP is upto 80% of the Cheques/PO/Drafts value.
v. Tenure depends on the collection period of the Cheques/PO/Drafts.
vi. Liability is adjusted from the proceeds of the Cheques/PO/Drafts.
viii. Primary security: Local Currency Cheques/PO/Drafts. However, a General Letter of indemnity on Tk.
300 non-judicial stamp has to be obtained from the drawer to the effect that if the proceeds against any
Cheques/PO/Drafts is not received in due time, the liability will be adjusted from the drawer’s own
source.
5.2.1.16 Loan Against EDF:
To boost up the export sector, Bangladesh Bank has formed Export Development Fund (EDF).It is facilitated
for input procurements by manufacturer-exporters in foreign currency. The eligible customer may allow getting
the fund from Bangladesh Bank through Commercial Bank. In case of meeting Sight L/C or Sight BTB L/C (for
importing/ procuring export input) payment at the premature stage of export, EDF provides the fund in foreign
currency.
Features/Norms:
i. Generally EDF liability has to be repaid within 180 days from the date of disbursement. It may be
extended upto 270 days upon application to Bangladesh Bank explaining the necessity of longer period
for repatriation of export proceeds.
ii. This facility is allowed to meet Sight L/C or Sight BTB L/C payment for importing export inputs where
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export proceeds will be received later. The loan will be adjusted from the related export proceeds or
from own sources of the customer. However, in case of failure, the loan has to be adjusted by creating
Time Loan (Export) facility.
iii. All specific loans against EDF and each loan against EDF created under a revolving limit are demand
loan by nature.
iv. EDF loan will not be allowed in case of having overdue EXP as well as having overdue EDF loan.
v. Pricing mode: Interest (ADs will be charged by Bangladesh Bank at 3.00% p.a, while ADs will charge
interest to Manufacturer-Exporters at 4.50% p.a which may be changed from time to time as per
instruction of Bangladesh Bank.)
vi. Primary security: Deemed export LC, Export LC documents/bills.
5.2.1.17 Loan Against EFPF:
To boost up the export sector, Bangladesh Bank has formed a fund which is known as Export Facilitation Pre-
Finance Fund (EFF). It facilitates manufacturer-exporters (direct & deemed exporters) for input procurements
in the form of local currency loan. The eligible customer may allow getting the fund through Commercial Bank as
per prevailing norms of Bangladesh Bank. EFPF provides the fund in case of meeting Sight L/C or Sight BTB L/C
(for importing/ procuring export input) payment at the premature stage of export.
Features/Norms:
i. To procure raw materials through import or local procurement favoring any direct Exporter/Deem
Exporter i.e. to make payment of Back to Back L/C against import as well as procurement of raw
materials from local manufacturer/supplier.
ii. All specific loans against EFPF created under a revolving limit are demand loan by nature.
iii. EFPF loan will not further be allowed keeping Overdue Export bill with EFPF Loan. However, EFPF loan
can be allowed for further 01(one) time if the Overdue Exp Bill exists due to any uncontrolled situation
which is acceptable to Bangladesh Bank subject to adjustment of minimum 50.00% of the outstanding
EFPF liability by cash and approval from Bangladesh Bank.
iv. Generally, EFPF liability has to be repaid within 180 days from the date of disbursement and if needed,
extended for further 90 days through Bangladesh Bank or as per directives of Bangladesh Bank from
time to time. However, in case of failure, the loan has to be adjusted by creating Force Loan (Export)
facility.
v. Branch will have to meticulously comply with the term and conditions of BRPD Circular #01 dated
01.01.2023 and any amendment thereafter.
vi. Pricing mode: Interest (ADs will be charged by Bangladesh Bank at 2.50% p.a, while ADs will charge
interest to Manufacturer-Exporters at 4.00% p.a which may be changed from time to time as per
instruction of Bangladesh Bank.)
vii. Primary security: Deemed export L/C, Export L/C documents/bills.
5.2.1.18 Force Loan[Force Loan (Export)/ Force Loan (Import)/ Force Loan (Bank Guarantee)]:
Force Loan (Export) to be allowed for honoring the claims against BTB L/C in forced circumstances, Force Loan
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(Import) to be allowed for payment of import obligation in force circumstances and Force Loan (Bank
Guarantee) to be allowed for settlement of claim against Bank Guarantee. Branch will send the proposal as per
prescribed format (Annexur-5.10)for Force Loan [Force Loan (Export)/ Force Loan (Import)/ Force Loan (Bank
Guarantee)] to the respective division of Head Office well ahead of the maturity date/ due date/ after receiving
encashment claim of Bank Guarantee for ensuring timely payment against contingent liabilities. After having
approval from the respective sanctioning authority, Branch will seek draw-down permission from Credit
Administration Division.
Features/Norms:
i. It is a demand loan by nature.

ii. The validity of the loan is 01 (One ) day.
iii. If a customer is allowed Force Loan[Force Loan (Export)/ Force Loan (Import)/ Force Loan (Bank
Guarantee)], other approved credit limit of the customer will be suspended and case to case approval
from Head Office to be obtained for allowing any other facility till adjustment/ regularization of force
loan liability. After adjustment/ regularization of force loan liability, the approved limit will be revived
on due notification to Head Office.
iv. Any Force Loan created for payment/settlement of LC/ bills liability, will be treated as PIF facility. In
that case, BRPD circular no. 12 dated 13.06.2021, BRPD circular letter no. 12 dated 26.04.2022 and
BRPD circular letter no. 41 dated 26.10.2022 circulated vide our Instruction Circular no. 2570/2021
dated 16.06.2021, 2804/2022 dated 28.04.20222 and 2940/2022 dated 01.11.2022 respectively and
any amendment thereafter to be meticulously followed.
v. After creation of Forced Loan (Export), the matter must be duly informed to the concerned department
of Bangladesh Bank, CCI & E and NBR.
vi. Board/ E.C. shall be apprised quarterly about the position of Forced Loan.

viii. Primary security: Export LC documents/bills for Force Loan (Export), Underlying assets/ goods for
Force Loan (Import) and Underlying assets/ goods (if any) for Force Loan (Bank Guarantee).
5.2.1.19 Time Loan (Export):
Time Loan (Export) is allowed for adjusting overdue accepted bills and/or EDF loan as well as for settling the un-
responded IBDA arising from short shipment/delay proceed realization/discounting of price/cancellation of
export orders. The amount of loan is to be fixed after having certification from our RMG Monitoring Cell
regarding goods shipped and having FDBP/export documents under collection against the overdue liability(ies).
Branch will send proposal as per Instruction Circular no. 2882/2022 on case to case basis.
Features/Norms:
i. It is a demand loan by nature and considered as inner of BTB L/C or L/C limit of the customer.
ii. Maximum validity of the loan is 45 days from the date of disbursement.
iii. No fresh EDF LC/loan will be allowed to the customer till adjustment of the Time Loan (Export).
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iv. It will be adjusted through crediting sale proceeds of respective goods and/or from own sources of the
customer.
vi. Primary security: Underlying assets.
5.2.1.20 Export Bills Discounting in Foreign Currency
This facility is provided in Foreign Currency by discounting the usance export (direct and deemed) bills through
our Offshore Banking Division with the condition that the usance bills presented for discounting are out of
bonafide direct/deemed export transactions. Beneficiaries of usance export bills are eligible to get this facility.
Features/Norms:
i. It is Demand Loan by nature.

ii. Tenor will be up to the validity of Export bill repatriation. But not exceeding 120 days from the date of
issuance of EXP.
iii. Pricing Mode: Interest. Pricing (including all types of commissions/charges/fees/interests etc) will be
as per related Bangladesh Bank circulars.
iv. It is adjusted from related export proceeds on or before the validity of the loan. In case of non
repatriation of the export bills, the liability will be adjusted from own source of the customer or by
creating Forced Loan (Export) in local currency at prevailing BC selling rate.
v. Export bill discounting will be equivalent to value addition portion considering the import obligation&
other obligations.
vi. Primary Security: Export L/C documents, Bills and Acceptance of L/C.
5.2.1.21 Import Bills Discounting:
Through Import Bills discounting accepted usance/deferred bills against import from abroad are discounted by
our OBD as per approved terms of L/C. OBD issue a separate office note to obtain permission from the managing
Director & CEO of the Bank; specifying applicable interest rate, tenure of the loan etc. and regulatory guidelines.
After obtaining approval, OBD will place the required fund to the designated Nostro Account as per branch
approach letter. ADs/CTPC have to submit acceptance and repayment confirmation from branch along with the
copy(s) of related shipping documents (duly attested by HoB or authorized signatory having PA number) and
forwarding schedule of the beneficiary’s bank
Features/Norms:
i. It is Demand Loan by nature.

ii. Validity of the loan is determined based on the imported items as well as complying the regulatory
guidelines.
iii. Pricing Mode: Interest. By adding margin with LIBOR/SOFR as per related Bangladesh Bank circulars.
iv. On maturity date, related branch will make arrangement for settlement of the discounted bill liabilities
on behalf of the customer as per its acceptance letter/approach letter. In case of Overdue, OBU may
debit the related Branch GL account for the required amount.
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v. The borrower will have to built up fund as per related circular to settle the bills on or before the
maturity. In some cases (specially against import of machinery), Term Finance may be allowed to settle
the bills sharp on due date.
vi. Primary Security: Hypothecation of underlying assets and Acceptance of L/C.
5.2.1.22 Lease Finance (LF):
This is a mode of term financing for acquisition of capital machinery and equipments or other assets such as
consumer durables, vehicles, etc. whereby the Bank retains ownership and the customer is given the exclusive
right to use the asset for an agreed period of time in return of rental payment.
Features/Norms:
i. It is a term loan in the form of financial lease.

ii. Lease is a contract between the Lessor (Bank) and the Lessee (Customer). The contract is called ‘Lease
Agreement’, which guides the facility throughout the term.
iii. Lease deposit equivalent to 01 (one) or more rental are taken in advance from the lessee.
iv. Ownership of the asset remains with the Lessor throughout the Lease term. However, the Lessee is
responsible for maintenance, insurance and other obligations related to the asset.
v. Usually, ownership is transferred to the customer (Lessee) at the end of Lease term (and after
repayment of all dues) on payment of agreed amount of disposal value i.e. 1% on acquisition cost.
vi. The lessee pays some special kind of fees for the Bank, these are: Supervision Cost, Risk Mitigation and
Transfer Fee, where applicable.
vii. Liability is adjusted through deposit of Lease ‘Rentals’ periodically.
viii. The validity of the loan will be less than or equal of the economic life of the lease item.
ix. Pricing mode: Interest.
x. Primary security: Ownership of the asset.
5.2.1.23 Hire Purchase (HP):
This is another mode of term financing for acquisition of capital machinery and equipments (or other assets such
as consumer durables, vehicles etc.). This is participatory finance where customer provides equity at the agreed
ratio for procurement of the assets. The customer is entitled to use the asset at his own risk & responsibility
throughout the loan tenure.
Features/Norms:
i. It is a term loan.
ii. A contract called ‘Hire Purchase Agreement’ guides the facility throughout the term.
iii. A down payment or margin/ equity from the customer is required. Debt-equity ratio will be determined
based on Banker–Customer relationship, creditworthiness of the customer, potentiality and nature of
the business of the customer etc. and/or subject to minimum requirement of Bangladesh Bank.
iv. The customer is responsible for maintenance, insurance and other obligations related to the asset at his
own cost.
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v. The validity of the loan will be less than or equal of the economic life of the item to be procured.
vi. Liability is adjusted through deposit of Hire Purchase ‘Installments’ periodically.
viii. Primary security: Hypothecation of the underlying asset.
5.2.1.24 Term Loan:
This is a mode of term financing for acquisition of capital machinery and equipments or other assets such as
consumer durables and vehicles or for specified define purpose. This is participatory finance where customer
provides equity at the agreed ratio for procurement of the assets. The customer is entitled to use the asset at his
own risk & responsibility throughout the loan tenure.
Features/Norms:
ii. Customer’s equity or margin to be required. Debt-equity ratio will be determined based on Banker–
Customer relationship, creditworthiness of the customer, potentiality and nature of the business of the
customer etc. and/or subject to minimum requirement of Bangladesh Bank.
iii. If Term Loan is allowed for procurement of capital machinery and equipments , then the validity of the
loan will be less than or equal of the economic life of the underlying asset.
iv. Liability is adjusted through deposit of Installments periodically.
vi. Primary security: Hypothecation of the underlying asset.
5.2.1.25 HBL(Com):
HBL(Com) stands for House Building Loan (Commercial). Term Loans allowed for purchasing of commercial
space or construction of house for commercial purpose fall under this type.
Features/Norms:
ii. HBL (Com) facility may be allowed for the following purposes:
a) Purchase of space for commercial purpose.
b) Construction of commercial building.
c) Construction of residential building for selling out to the public.
d) Purchase or renovation of commercial building.
iii. Customer’s equity or margin to be required. Debt-equity ratio will be determined based on Banker–
iv. In the case of construction, the loan is disbursed at multiple phases considering the utilization of
previous disbursement including equity, progress through physical verification by Branch official(s)
and upon receipt of written request of the customer(s)
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v. It is usually medium/long term financing.

vi. It is adjusted through deposit of periodical installments.
viii. Primary security: Registered Mortgage with RIGPA of the underlying land & building.
5.2.1.26 Loan(General) or Loan (G):
This is mainly allowed to accommodate term financing, when the other term financing modes are not applicable.
Loan (G) facility may be allowed as Medium & Long term facility.
Features/Norms:
ii. Loan (G) facility is available for miscellaneous purpose of the customer and the purpose of taking the
loan and the source of repayment should be clearly identified before allowing this facility.
iii. Customer’s equity or margin to be required. Debt-equity ratio will be determined based on Banker–
iv. It is adjusted through deposit of installments (single or multiple and equal or unequal) within the
validity period.
vi. Primary security: Charge on the underlying asset.
5.2.1.27 Buyer’s Credit/Suppliers Credit:
If an importer fail to arrange fund for making payment of accepted bill on maturity (For L/C at
Usance/deferred/UPAS basis), he may take refinance in Foreign Currency from an internationally reputed
Bank/Financial institution /OBU after obtaining permission from Bangladesh Bank and competent authority of
the Bank for a certain period with interest rate not more than 6% including LIBOR as per Bangladesh Bank
Guideline . International Division of Head Office may give support to the customer in this regard.
5.2.1.28 Syndication Loan& Structured Finance:

Syndication is a joint financing by more than one banks/financial institutions to the same clients against a
common security. This is done basically to spread the risk. It also provides a scope for an independent evaluation
of risk and focused monitoring by the agent / lead bank. This Loans should be analyzed the risk and return in the
same manner as sourced loan.
In Syndication financing, banks also enter into an agreement that one of the lenders may act as Lead Bank. In such
case, lead bank has to co-ordinate the activities at various stages of handling the proposal i.e. appraisal, sanction,
documentation, sharing of security, disbursement, inspection, follow-up, recovery, distribution of installments. /
interest etc. Lead Banks status on security/collateral arrangement should be properly detailed in the proposal.
Syndication members may call meeting anytime to finalize any decision.
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Generally, Mercantile Bank PLC may act as Lead Arranger, Participant, Agent, Book runner and Security Trustee
to finance/ to assist finance under Syndication favouring a single person/counterparty. The Bank participates in
Finance under Syndication for the following situations:
 Risk Diversification
 Capital shortfall etc.
Parties to a Syndicated Loan:
The syndication process is initiated by the borrower, who appoints a lender through the grant of a mandate to act
as the Arranger (also often called a Mandated Lead Arranger)
Arranger on the deal. There may be more than one Arranger
in Syndication Process.
The Arranger is responsible for advising the borrower regarding the type of facilities it requires and then
negotiating the broad terms of those facilities. By the very nature of this appointment, it is likely that the Arranger
will be a lender with which the borrower already has an established relationship, although it does not have to be.
At the same time the Arranger negotiates the terms of the proposed facility, one of the Arrangers appointed by the
Borrower to act as Book runner also starts to put together a syndicate of banks to provide that facility.
Syndication is often done in stages, with an initial group of lenders agreeing to provide a share of the facility. This
group of lenders is known as Co-Arranger,
Co-Arranger although other titles may be used. The Co-Arrangers arrange other
lenders to participate in the facility, who agree to take a share of the Co-Arrangers' commitment.
To facilitate the process of administering the loan on a daily basis, one bank from the syndicate is appointed as
Agent.
Agent The Agent acts as the agent of the lenders not of the borrower and has a number of important functions:
- Point of Contact: (maintaining contact with the borrower and representing the views of the syndicate)
- Monitor: (monitoring the compliance of the borrower with certain terms of the facility)
- Postman and Record-keeper: (it is the agent to whom the borrower is usually required to give notices)
- Paying Agent: (the borrower makes all payments of interest and repayments of principal and any other
payments required under the Loan Agreement to the Agent. The Agent passes these monies back to the banks
to whom they are due. Similarly the banks advance funds to the borrower through the Agent).
The terms of a syndicate loan agreement empower the Agent to undertake the roles described above in return for
a fee. Any decisions of a material nature (for example, the granting of a waiver) must usually be taken by a
majority, if not by the whole syndicate. Whilst the Agent carries the standard duties and responsibilities of any
agent under the Law, the facility agreement will contain a number of exculpatory provisions to limit the scope of
the Agent's relationship with the syndicate lenders and with the borrower.
If the syndicated loan is to be secured, a lender from the syndicate is usually appointed to act as Security Trustee
to hold the security on trust for the benefit of all the lenders. The duties imposed upon the Security Trustee are
typically more extensive than those of an agent.
In large syndicates, it is sometimes decided that some decision making power should be delegated to the majority
from time to time (often referred to as the 'majority lenders' or 'instructing group').
group' This group usually consists
of members of the syndicate at the relevant time that holds a specified percentage of the total commitments under
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the facility. By delegating some of the decision-making, the mechanics of the loan are able to work more effectively
than if each and every member of the syndicate had to be consulted and subsequently reach unanimous
agreement on every request from the borrower.
Features/Norms:
i. More than one bank/financial institution provide this loan under syndication agreement to a same
business entity against common security
ii. Syndication loan may be non-funded, revolving funded limit and long term loan in nature.
iii. Primary security: Pari passu security sharing agreement on the fixed and floating assets (present and
future) among the lenders.
5.2.1.29 Employee’s House Building Loan
Bank provides the loan facility to its employees for construction of building, purchase of land & construction of
building, purchase of flat (Readymade/ under construction), completion of incomplete house/ flat/ apartment,
reconstruction of the existing house/ apartment and also to take over the existing loan liability from other
bank/FIs. The loan is operated as per Employee’s House Building Loan scheme of the bank.
5.2.1.30 Car Loan Policy for the Executives:
Bank provides the loan facility to its executives for purchasing of reconditioned/brand new cars & to take over the
existing loan liability from other bank/FIs. The loan is operated as per Car Loan Policy for the Executives of the
bank.
5.2.1.31 Respective division shall process the credit proposals irrespective of the amount of exposure
under one obligor concept through respective product scheme as per policy approved by the
Board of Directors of the Bank:
a) SME Loan: These loans are processed through our SME Division. SME products are:
i. Chaka (Term Loan)
ii. Samriddhi (Continuous Loan)
iii. Mousumi (Short Term Seasonal Loan)
iv. Ananya (Women Entrepreneur Loan)
v. Sanchalak(Mix of Term. Time and Continuous Credit)
vi. Unmesh(Trade Finance)
vii. Factoring(Financing against receivables)
b) Consumer & Retail Loan: These loans are processed through our Consumers and Retails Banking
Division. Consumers and Retails products are:
i. Home Loan
ii. Car Loan
iii. Education Loan
iv. Doctors Credit Scheme
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v. Any Purpose Loan/ Personal Loan

vi. Cottage Loan
vii. Overseas Employment Loan
viii. House Furnishing Loan
c) Credit Card: Credit cards are processed through our Card Division.
d) Agri Loan: These loans are processed through our Agricultural Department. Agri products are:
1. Nabanna:
i. OD (Gen)or OD [Agri]
ii. Hire Purchase (Agri)
iii. CC (Hypo) [Agri]
iv. Crop Loan
v. Revolving Crop Loan
vi. Term Loan (Agri)
2. Shakti (Bio gas& Solar power)
Besides above, other loan/ investment products (as per guideline of Bangladesh Bank or under refinancing
Scheme of Bangladesh Bank) shall be governed as per related circular of Bangladesh Bank and subsequently
circulated by our Bank.
5.2.2 NON – FUNDED CREDIT FACILITY:
Any type of credit facility which involves commitment of bank on behalf of customer for payment to third party
in case of need under some agreed conditions refers to non-funded credit facility. The followings are the non-
funded credit facilities/limits practiced in the Mercantile Bank PLC:
5.2.2.1 Letter of Credit (L/C):
This is an obligation to the exporter’s bank on behalf of the importer to import of any permissible item from both
local & foreign sources. The AD branches are allowed to operate the L/C business.
Features/Norms:
i. L/C is governed by UCPDC-600.

ii. An L/C transaction is guided by Foreign Exchange Guidelines of Central Bank, Foreign Exchange
Regulation Act(FERA) and Import Policy.
iii. Bank is obliged to pay the beneficiary on complied presentation of documents or upon presentation of
stipulated documents.
iv. L/Cs are of different types as under:
a. Sight L/C: When payment against the L/C is made on sight basis upon presentation of the shipping
documents/bill.
Pricing mode: Commission usually on quarterly basis.
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Primary Security: L/C Margin, L/C related shipping documents

b. Usance or Deferred Payment (DP) L/C: When Bank gives acceptance for payment at a pre-agreed
later time upon sight of the shipping documents/bill.
Pricing mode: Commission usually on quarterly basis.
Primary Security: L/C Margin, L/C related shipping documents and acceptance.
c. UPAS L/C (Usance Payable at Sight): It is actually the combination between Sight L/C and Usance
L/C. Simply saying, UPAS is an Usance L/C that is payable at sight basis to the seller (beneficiary) by
negotiating/confirming/discounting bank and L/C issuing bank would make payment to the
negotiating/discounting/confirming bank on maturity including interest as per agreement and
payment by the applicant (buyer) to the issuing bank will be made at the end of usance term i.e at
maturity date.
Pricing mode: Commission usually on quarterly basis. Interest shall be realized for the deferred
period as per regulation of Bangladesh Bank
Primary Security: L/C Margin, L/C related shipping documents and acceptance.
d. Stand By Letter of Credit: A stand by letter of credit (SBLC) is a guarantee of payment issued by a
bank on behalf of a client that is used as "payment of last resort" when the client fail to fulfill a
contractual commitment with a third party. Standby letters of credit are created as a sign of good
faith in business transactions and as proof of a buyer's credit quality and repayment abilities. The
bank issuing the SBLC performs brief underwriting duties to ensure the credit quality of the party
seeking the letter of credit, as per notification to the bank of the party requesting the letter of credit
(typically a seller or creditor)
e. Back to Back (BTB) L/C: The BTB L/C is opened under the umbrella of a Master L/C or sales
contract in favor of raw materials supplier (beneficiary) for preparation of the finished product under
the export L/C /contract for ultimate export. EDF L/C may also be allowed to the eligible customer to
import/ procure raw materials of export.
Features/Norms:
i. Back-to Back L/C is opened against Export L/C or Sales contract.

ii. Back-to-Back L/C value is determined on FOB value of Export L/C or sales contract complying the
prescribed percentage of Import Policy Order.
iii. Pre-shipment finance (such as PC) is allowed only on receipt of raw materials at the factory
premises of the customer. Pre-shipment finance and Back-to-Back L/C liability altogether will not
exceed 90% FOB value of the export L/C. PC liability shall be adjusted upon negotiation/
repatriation of the corresponding export bill.
iv. No accepted bill drawn under Back-to-Back L/C shall be kept overdue beyond its due date of
payment as per acceptance communicated by the Bank.
v. Pricing mode: Commission usually on quarterly basis.
vi. Primary security: Lien on Export L/C.
While allowing Back to Back L/Cs and pre-shipment finance on account of export oriented industries operating
under Bonded Warehouse system, the following norms to be followed:
i. Branches will ensure the compliance issues of the 100% export oriented RMG customers.
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ii. Export L/C must be examined carefully to ascertain its genuineness and important points i.e.
shipment validity, credit validity, payment/availability clause, reimbursement clause etc. to be
noted-down to ensure that nothing is adverse to execute the export order and to receive the
payment.
iii. Present outstanding of Back-to-Back L/Cs and Bills will be taken together to determine the
exposure of the customer against the sanctioned limit approved for import/procurement of raw
materials.
iv. Back to Back L/C may also be opened against sales contract of regular buyers having satisfactory
credit report with the approval of Head Office on case to case basis. In that case, satisfactory
performance of the customer with us shall have to be taken into consideration. However, Branch
may open BTB L/C(s) against contracts(s) of a buyer within the approved limit after having
approval from the competent authority of the Bank.
v. Further BTB LC and PC facility shall not be allowed by the Branch against contract(s) of a specific
buyer if there is export failure against their existing contract(s). In that case, case to case approval
from Head Office to be obtained.
vi. Credit Report of the buyer/Seller to be obtained before opening of BTB L/C at least once in a year.
vii. Branch will send the proposal as per prescribed format (Annexure-5.10) for Force Loan (Export)
to the respective division of Head Office well ahead of the maturity date/ due date for ensuring
timely payment against contingent liabilities,
viii. If forced loan (Export) is created in favour of a customer, approved BTB L/C and PC limit will be
suspended and case to case approval from Head Office to be obtained for opening of any further
BTB L/C or allowing PC or any other new facility favouring that customer till full adjustment/
regularization of the forced loan liability. After adjustment/ regularization of the Forced Loan
liability sanctioned BTB L/C and PC limit will be revived on due notification to Head Office..
ix. After creation of Forced Loan(Export), the matter must be duly informed to the concerned
department of Bangladesh Bank, CCI & E and NBR.
x. From Lien to realization of export proceeds of any export LC/Contract, from opening of BTB L/Cs
to settlement of BTB liability by making payment and matching of Bill of entry thereof as well as
submission of monthly return to Bangladesh Bank must be reported in the Online Monitoring
System (import & export) of Bangladesh Bank.
xi. L/C must not be opened favoring the customers having overdue Bill of Entry.
xii. Board/ E.C. shall be apprised quarterly about the position of Forced Loan.
5.2.2.2 ABP:
ABP stands for ‘Accepted Bills for Payment’. This is acceptance made by the Bank for payment after a certain
period against shipping documents (bill) to import through Usance (DP) L/C. It is an interim arrangement that
allows time for the importer to make payment.
Features/Norms:
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i. This is a consequential facility and does not require pre-facto or post-facto approval.
ii. All specific ABP and each ABP created under a revolving limit are demand loan by nature.
iii. ABP is created against import of Usance (DP) L/C.
iv. It will have the tenure as per the L/C term such as 30, 90, 120, 180, or 360 days but subject to
Bangladesh Bank guidelines/directives.
v. The amount of ABP is dependent on L/C. More than one ABP may be created against a single L/C, where
part shipment is allowed. However, aggregate amount of ABP created must not exceed the value of L/C
 Tolerance.
vi. Importer receives shipping documents after creation of ABP.
vii. At the end of the ABP tenure, payment to the beneficiary would be made by the Bank. Simultaneously,
importer would pay equal amount to the Bank.
viii. Usually no post-import finance is allowed.

ix. Pricing mode: Commission usually on quarterly basis.
x. Primary security: Bill of Exchange signed on the back by the importer and L/C Application and
Agreement Form.
5.2.2.3 Bank Guarantee (BG):

A bank guarantee is an unconditional undertaking of the bank on account of its customer in favour of the beneficiary
to pay a specified amount of money if the customer (on account of which guarantee is issued) fails to fulfill the
contractual obligations.
Features/Norms:
i. The guarantee is unconditional and irrevocable.
ii. Bank is obliged to pay the beneficiary upon lodgment of claim by the beneficiary.
iii. Guarantee are of different types:
a. Bid Bond (BB): This guarantee is issued on behalf of a bidder/contractor (customer) to participate
in a tender favouring tender inviting authority. If the customer is the successful bidder, the
work/supply awarding authority asks to submit the Performance Guarantee and return the original
Bid Bond. If the customer becomes the unsuccessful bidder, the work/supply awarding authority
returns the bid bond immediately after tender.
b. Performance Guarantee (PG): This guarantee is issued on account of the contractor (after being
successful bidder) favouring the work/supply order awarding authority for getting formal
work/supply order. Usually its validity covers the work order validity plus warranty period.
c. Advance Payment Guarantee (APG): This guarantee is issued on behalf of contractor (Customer)
favouring the work/supply order awarding authority against advance made by them. Bank’s
liability under APG is liquidated gradually as per adjustment of the advance with the Work
Awarding Authority.
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d. Retention Money Guarantee/Retention Bond/ Warrantee Guarantee: This guarantee is issued

on behalf of contractor (Customer) favouring the work/supply order awarding authority after
completion of work/supply order for withdrawing the money retained by them from the bills
Usually its validity ends with the warranty/defect liability period.
e. Payment Guarantee/ Suppliers Credit Guarantee: This guarantee is provided in favor of the
suppliers/service providers and on behalf of the Customers to avail certain amount of
supplies/services on credit.
f. Guarantee against Counter Guarantee of other Bank: This Guarantee is given by Banks normally
on behalf of their customers to another bank. It happens when, by law, a foreign bank even of good
or best standing, is not authorized to issue guarantee in favor of resident in a specific country but
only allowed to instruct a local bank to issue a bank guarantee on its behalf.
g. Customs Guarantee: This guarantee is issued on account of the customer favouring the Customs
Authority of Bangladesh to clear imported goods postponing payment of customs duty. Usually
importers avail this kind of guarantee.
h. Other Bank Guarantees: Besides these, time to time Bank provides different other guarantees in
the name of ‘Bank Guarantee’ to meet customer requirements.
iv. Pricing mode: Commission usually on quarterly basis.

v. Primary security: Counter Guarantee of the customer.
5.3 General Covenants:
General Terms and conditions

(i) The approved facilities will be extended after completion of the security documentation and all other
necessary formalities by the customer as per the terms and conditions of this Sanction Advice.
(ii) Customer must have all required permissions from the authorities concerned (If applicable).
(iii) The customer will not be allowed to use the credit facility(ies) for any purpose other than those for which it
is granted.
(iv) A letter of disclaimer to be obtained from the landlord of the factory building, office/showroom and godown
(if rented).
(v) The customer must avail the facility(ies) within the approved limit/amount;
(vi) All incidental charges/fees/costs/expenses for conducting/monitoring of the credit facilities will have to be
borne by the customer unconditionally.
(vii) Sale proceeds to be deposited by the customer regularly in the account maintained with the Branch and
satisfactory transaction to be made in the account.
(viii) Bank will have the authority to debit customer’s account to keep insurance policy with other charges,
commission, interest including stamps cost etc. in force.
(ix) The Bank has the right to set-off any outstanding on one account against any other account(s) held in the
customer’s name at the Bank whether in debit or credit.
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(x) Any repayment whether in part or full will be attributable first to interest which has accrued on the
facility(ies) and then to principal.
(xi) You will maintain effective and constant supervision and close monitoring to ensure timely retirement of
shipping documents/ adjustment of the loans to avoid overdue.
(xii) All other instructions and guidelines issued by the competent authorities shall be strictly followed.
(xiii) All other charges/fees and commission to be realized as per Bank’s schedule of charges currently in force.
(xiv) Balance Confirmation Certificate customer and group wise (where applicable) to be obtained on quarterly
basis from the customer(s) while advising the credit.
(xv) Renewal proposal shall have to be forwarded to Head Office at least 2 months earlier of the expiry of the limit
subject to satisfactory performance of the customer(s).[For Revolving Loan only]
(xvi) The Bank however reserves the right to review the facility(ies) and/or revise the terms and conditions of the
facility(ies) and/or terminate the facility(ies) and/or call back money due there under at any time during its
currency without assigning any reason whatsoever.
(xvii) The customer has to use Jute Bag for packing of paddy, rice etc. under “Compulsory use of Jute pack for
packing goods Act-2010” circulated by Bangladesh Bank under BRPD circular letter No-12 dated 12.10.2015,
failing of which they will not be sanctioned/renewed any credit facility from the Bank.
(xviii) BRPD circular No # 03 dated 14.02.2011 and all other related circulars regarding storing of Rice should be
followed meticulously.
(xix) You are requested to communicate the above terms and conditions to the customer in a separate Sanction
Advice. The terms and conditions of the sanction advice must be read out to the borrower, mortgagor,
guarantor and other relevant parties (if any) and it must be accepted unconditionally by them duly singing
and putting thumb impression of their both hands on the duplicate copy of the sanction advice. The
signatures and thumb impression on the sanction advice and other charge documents must be verified with
the database of National Identity Card.
General Conditions for Limited Company only:

(i) Board Resolution to be obtained from the company(ies) for availing credit facility(ies) from Mercantile Bank
PLC, …………… Branch authorizing the person(s) to sign the loan & security documents on behalf of the
company.
(ii) Branch will also obtain an undertaking from the customer(s) stating that, the customer(s) will not
change/amend any clause mentioned in the Memorandum and/or Articles of Association; the Capital structure;
Nature of business; and/or the Board of Directors of the company without prior written permission from the
Bank.
(iii) Board Resolution regarding Mortgage of collateral security (owned by the company) as well as authorizing the
person(s) to execute the same on behalf of the company must be obtained duly supported by the MOA & AOA
of the company. [If the property is owned by the company]
General Conditions for Partnership Firm

(i) Partnership Resolution to be obtained from the firm for availing credit facilities from Mercantile Bank PLC,
…………… Branch authorizing the person(s) to sign the loan & security documents on behalf of the firm.
(ii) The Firm must be registered with the RJSC& F and a copy of certificate must be retained with the Branch.
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(iii) Partnership deed (preferably registered with Sub Registry Office) must be retained with the Branch.
Terms & conditions for Hypothecation

(i) Insurance policy to be obtained covering 110.00% of full value of machinery and stocks under Bank’s mortgage
clause covering all possible risks.
(ii) Customer will have to furnish stock report within the first week of every following month and Branch
official(s) shall verify the report.
(iii) There must be no other loan liability and charge against the stock and collateral those are hypothecated and
mortgaged with the bank against this approved limit.
Terms & conditions for Registered Mortgage

(i) Mortgage formalities will be accomplished as per instruction circular # 1204/2013 dated August 27, 2013 and
1319/2014 dated June 08, 2014 through Bank’s nominated lawyer. Legal opinion should also be obtained from
the lawyer regarding genuineness and acceptability of the property as security and all wanting documents as
per legal opinion to be obtained before disbursement of the loan.
(ii) Registered Irrevocable General Power of Attorney to be obtained from the owners of the property (ies) to sell
the mortgaged property without any intervention of the court in case of default of the loan.
(iii) An affidavit to be sworn by the owners of the property (ies) stating that they have valid title in the property
and the property is not encumbered with any person/ agency/financial institution/Bank.
(iv) Original title deed(s) of the property(ies) to be mortgaged must be obtained along with the related documents
in original such as Bia-Deeds, DCR, CS/RS/SA Parcha/Khatian, Mutation Khatian/Parcha, up to date rent
receipt, holding tax receipt/union parishad tax receipt (as applicable), Non-Encumbrance Certificates etc. and
shall be retained with the branch.
(v) A Signboard should be displayed at a conspicuous place of every mortgaged property with the wordings, “This
property is Mortgaged with Mercantile Bank PLC, …………….. Branch” with detailed schedule and Branch will
preserve photograph of the property with such Signboard.
Terms &conditions for L/C[Common] including BTB L/C

(i) At the time of issuing L/C, current Import Policy Order, Guidelines for Foreign Exchange Transactions, ID
Circulars issued by the Bank from time-to-time as well as current applicable rules/publications of ICC specially
UCPDC-600 and applicable directives circulated by Bangladesh Bank/competent authorities to be strictly
followed.
(ii) LC to be issued against valid/permissible documents of the Importer like Trade License, IRC, Tax Certificate,
eTIN, eBIN. Membership Certificate of renowned association, Bond License (if any) and any other required
certificate related to the imported goods.
(iii) LC to be issued against valid Proforma Invoice / Indent/ contract. LCAF to be issued as per GFET. Estimated
freight amount to be mentioned separately in the Proforma Invoice / Indent/ contract.
(iv) Competitiveness of price of the imported items should be checked and verified.
(v) H.S. Code of the imported merchandise must be checked with the current First schedule of Customs and with
Bangladesh Bank Online Import Monitoring System.
(vi) L/C shall be issued after obtaining Credit Report of the supplier and of the buyer (where applicable) as per
Bangladesh Bank directives.
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(vii) Availability of the approved LC limit must be checked before issuance of any LC. Each application to be
approved by the Head of Branch (HoB) concerned.
(viii) Additional costing, if any, arises at the time of lodgement /making payment against import bill/shipping
documents under the LC due to fluctuation of Exchange Rate, to be borne by the customer.
(ix) In case of force loan, branch will follow the instructions of Credit Policy-2023. If a customer is allowed forced
Loan, other approved credit limit of the customer will be suspended and case to case approval from Head
Office to be obtained for allowing any other facility till adjustment/regularization of forced loan liability.
(x) Bill of Entry must be collected immediately after clearance of consignment and must be reported to Bangladesh
Bank as per norms. Bill of Entry must be kept in respective LC file.
(xi) Issuance of LC is strictly prohibited in case of any overdue bill of entry remained with our bank or with any
other bank. A declaration to be obtained from the customer in this regard.
(xii) Permission/Consent of International Division, Head Office must be obtained before issuance of any
confirmed/UPAS LC (Where applicable)
(xiii) The customer will submit Insurance cover note, Insurance policy/Certificate on the merchandises to be
imported covering 110.00% of LC value and covering all possible risks in the bank’s name at the cost of the
customer along with Form-GA [may not applicable for local LC and local BTB LC], as per Bangladesh bank
directives. Copy of such cover note, Insurance policy/Certificate must retained in the respective LC file.
(xiv) In case of import through land ports under this arrangement you will extend your utmost care in opening of
L/C and handling of import documents (both commercial and financial).
Terms & conditions for Only BTB L/C

(i) No BTB L/C shall be opened against export L/C under Barter/STA or containing unfavorable clause.
(ii) BTB L/C shall not be opened beyond 4 (Four) months production capacity of the factory at a particular time.
(iii) BTB L/C shall be opened subject to obtaining valid bonded warehouse licenses and observing your Branch as
Lien Bank.
(iv) Transferable clause shall not be incorporated in BTB L/C.
(v) FDBP should not remain overdue, for this purpose proper follow-up should be taken.
(vi) BTB L/C will be opened after observing all necessary formalities as per Guidelines for Foreign Exchange
Transactions, current Import Policy Order and related Circulars and SROs issued by competent authorities
from time to time.
(vii) Back-to-Back L/C to be opened keeping eye on the shipment validity of the export L/C, so that timely shipment
of export orders can be executed.
(viii) Tenor of Back-to-Back L/Cs to be ascertained in such a manner, so that Back-to-Back accepted bills can be paid
from repatriated export proceeds of the customer.
(ix) An unconditional undertaking to be obtained from the customer to the effect that in case of non export /late
shipment/ non realization/ late realization of export proceeds or whatever the situation arises the liability
stands in respect of BTB Bills A/C must be settled on due date by them on demand from their own sources.
(x) BTB L/C and BTB Bills A/C statement should be sent to Head Office within the 1st week of every following
month.
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(xi) The credit facilities are to be considered as supervisory credit. The branch should have complete supervision
on the project, ensure proper end use of credit facilities as per designated purpose, observe production
position, shipment schedule & stock position (raw material & finished goods) of the customer to avoid any
non-export/late shipment/non-repatriation of export proceeds and ultimate recovery of the facilities. In this
regard, the branch should maintain a detailed report on its production activities, export/import/ business/
cash generation, stock position etc. on the basis of factory inspection.
(xii) Branch shall inspect customer’s factory through RMG Monitoring Cell Officials of the Branch on regular basis
and observe production position, shipment schedule & stock position (raw material & finished goods) of the
customer to avoid any non-export/late shipment/non-repatriation of export proceeds.
(xiii) Branch official should be ensured that the goods imported against Local BTB L/Cs has been delivered before
conveying acceptance to the drawee bank and making payment of related bills. (As per Bangladesh Bank BRPD
Circular no. 10 dated 11.07.2012, MBPLC Instruction Circular no.1081/2012 dated 22.07.2012 and other
related circular issued by Bangladesh Bank time to time).
(xiv) In case of force loan, branch will follow the instructions of this Credit Policy. If a customer is allowed forced
(xv) Each Back-to-Back L/C shall be opened against specific Export L.Cs received from internationally reputed
Banks or contracts received from internationally reputed buyers with clear payment clause. Before opening of
Back-to-Back L/C Branch shall:
 Verify the genuineness of export L/C & contract.
 Examine the reputation and financial standing of the buyer and also check sanction list of UN, EU, USA or
any other international organization/body regarding the buyer.
 Evaluate the position of existing Back-to-Back L/C liability, shipment schedule and production status of
export orders under execution.
Terms &conditions for BTB L/C & PC against Contract
(i) Branch shall check financial standings including repayment behavior of the buyers, examine the genuineness of
Contract as well as exercise Enhanced Due Diligence (EDD) before allowing BTB L/Cs against Contract to safe
guard the bank’s interest.
(ii) Branch will maintain close monitoring with intimation/ consultation with RMG Monitoring Cell, Head Office
regarding opening of BTB L/C as per shipment schedule, replacement of contract by export L/C (if any),
execution of export orders, realization of export proceeds as well as adjustment of liabilities.
Terms &conditions for PSC (Pre-shipment Credit):

(i) Pre-shipment Credit under refinance scheme of Bangladesh Bank to be disbursed at least 50% of the approved
PC/Pre-Shipment Credit limit as per BRPD Circular no 08 dated 18.05.2022 or as per Bangladesh Bank
Guidelines.
(ii) Before allowing Pre-Shipment Credit facilities, you are requested to comply all the terms & conditions of
Bangladesh Bank circular(s), our Head Office Instruction Circular(s) and other related circulars issued by
Competent Authority time to time.
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(iii) After disbursing under Pre-Shipment Credit Refinance Scheme, Branches must need to apply through Credit
Risk Management Division with proper documents to Bangladesh Bank within following week of the
disbursement to get refinance from Bangladesh Bank.
(iv) Meticulous Compliance of Bangladesh Bank circular(s), our Head Office Instruction Circular(s) and other
related circulars issued by Competent Authority time to time.
Terms & conditions for EDF

(v) Branch may open L/Cs under EDF facilities if necessitates, within Back-to-back L/C limit. Before opening EDF
L/C(s), prior approval from our International Division/Treasury Division is to be obtained. But the amount
shall be maintained as per Bangladesh Bank FE Circular no. 45 dated 31.12.17, MBPLC ID circular 01/2018
dated 03.01.2018 and other related circular issued by Bangladesh Bank/Competent Authority time to time.
(vi) EDF L/C cannot be opened having overdue EXP as well as having overdue EDF loan.
(vii) Branch may open L/C (s) under EDF facility but total sum of L/C, accepted bills & EDF loan, Forced loan and
converted Term Loan from Forced loan must not exceed the BTB L/C limit. (Where applicable)
Terms &conditions for Bill discounting in Foreign Currency

(i) The liability stands in respect of bill discounting/purchase in FC must be settled on or before maturity date by
the customer by export proceeds or from their own source. In case of overdue of the loan against a discounted
bill, the loan amount in FC will be converted to local currency credit at prevailing BC selling rate & interest will
be as per prevailing commercial rate or as per decision of Off-shore Banking Unit.
(ii) Direct and deemed export bills to be in foreign currency ensuring that the usance bills presented for
discounting are out of bonafide direct/deemed export transactions and complying the terms and conditions
issued by Bangladesh Bank & Other competent authorities from time to time.
(iii) Export bill discounting will be equivalent to value addition portion considering import obligation.
(iv) Considering the special support through FC, Branch should ensure no overdue accepted bill(s) of the customer
complying Bangladesh Bank Instruction vide BRPD Circular No. 06 dated 12.03.2014 & MBPLC ID Circular
18/2014 and other related circulars issued by competent authority(ies) from time to time.
Terms &conditions for Bank Guarantee

(i) Branch will realize commission against the Bank Guarantee for the full period before issuing the Bank
Guarantee as per prevailing circular.
(ii) Margin on BG shall be refunded only after duly return of the same.
(iii) Branch will calculate and prepare balancing of the outstanding Bank Guarantees and the margin kept there
against on account of the customer on monthly basis invariably.
(iv) Applicant will arrange to return the original BG from the beneficiary on or before expiry.
(v) Reversal entry must be made after the date of expiry; or receipt of the original Guarantee duly released by the
beneficiary within validity.
(vi) In case of encashment claim of Bank Guarantee, customer’s account either to be debited or Forced Loan (Bank
Guarantee) to be created toward settlement of encashment claim against Bank Guarantee.
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(vii) In case of force loan, branch will follow the instructions of Credit Policy-2023. If a customer is allowed forced
Terms &conditions for OD (WO)

(i) In all cases Branch will preserve the original copy of the work order without fail.
(ii) The customer will have to execute a Power of Attorney (drafted by Bank’s panel Lawyer) authorizing the Bank
to collect all the bills receivable against the Work Orders financed by us; and Branch will obtain written
confirmation from the work-awarding authority(ies) stating that, all the bills against the Work Orders will be
issued in favour of the account(s) maintained by the customer with our Bank.
(iii) The work awarding authority will have to confirm in writing that all the cheques payable to the customer will
be issued directly favoring the Bank mentioning the current/SND/OD (WO) Account number of the customer.
(iv) The current account /SND account/OD (WO) account/any other account wherein the bill of the work will be
deposited, will remain under lien till full and final adjustment of the loan liability.
(v) Customer will furnish progress report against their OD (WO) limit within the first week of every following
month.
(vi) Branch will have to keep close monitoring on the bills receipt and bills receivable against the work orders
finance by the Bank.
(vii) Branch will ensure proportionate adjustment of OD (WO) liability(ies) from each bills received from the work
awarding authority(ies) and also ensure that total liability(ies) must be adjusted within 80% of received bills.
(viii) The customer must submit copy of each Interim Payments and the Final Payment Certificate, in case the final
payment to be received by the customer from the work-awarding authority.
Terms &conditions for Lien of Financial Obligation

(i) The lien clause “Under Lien with Mercantile Bank PLC, ………… Branch” must be marked on the security
instrument(s) as well as in the computer and books of records of the Branch and the instrument(s) must be
retained with the Branch till full and final adjustment of the liability(ies) of the customer to safeguard the
interest of the Bank.
(ii) Withdrawal of MSS/DBDS/SSS or interest will not be allowed before the adjustment of the loan amount. [ As
applicable]
(iii) The loan must immediately be adjusted in case the liability equates the encashment value of the financial
instrument(s).
(iv) Branch will obtain ‘Memorandum of Deposit of Securities’ and ‘Letter of Authority’ duly signed by the
Beneficiary(ies) of the security instrument(s) for encashment of the same, in case of failure of the borrower in
making full and final adjustment of their liability(ies) with us.
(v) (In case of Financial Obligation in the name of the Company) You will obtain‘ Memorandum of Deposit of
Securities’, ‘Letter of Authorization’ and ‘No Objection Certificate (NOC)’ from the concerned company duly
backed by Board Resolution to accommodate credit facility(ies) against the Financial Obligation(s), to mark
“Under Lien with Mercantile Bank PLC, …………………………… Branch,” on the Financial Obligation and
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encashment of the same, in case of failure of the borrower in making full and final adjustment of their
liability(ies) with us.
(vi) On maturity, the encashment proceeds of the FO(s)must be deposited to the OD (SS/FO) and Loan (FO)
account(s) and the limit will be reduced proportionately keeping ….% margin on remaining instrument(s). (In
case of instruments with different maturity).
(vii) Before allowing drawing under the limit, you will verify the genuineness of the deposit instruments as well as
lien mark from the respective issuing branch and Head Office of ………………………….[Other Bank’s Instrument]
Terms &conditions for Loan against Lien of Share

(i) The owner(s) of the shares will make individual request to the concern company that they offered the
aforesaid shares for lien and pledgement with Mercantile Bank PLC to secure the credit facilities on account
of……………….
(ii) The owner(s) of the shares will also place a Pledge request Form (PRF) and a Confiscate Request form (CRF) at
your end with a request letter wherein it must be stated that they are submitting the forms to secure the credit
facilities with Mercantile Bank PLC on account of …………………. They will also have to state that the documents
will remain valid till full and final adjustment of the loan liabilities.
(iii) Pledge setup acknowledgement certificate to be obtained from Depository Participant of the shareholder(s)
and confirmation/acceptance of your Depository Participant (MBPLC) before allowing the Credit facility(ies).
(iv) Branch shall obtain Annexure-7 of Schedule-B’ duly signed by shareholder(s) (Seller/Transferor/Pledgor) and
the signature of the shareholder(s) must be verified by authorized officer (with name, date & seal with
designation) of the issuer/ depository participant/ assets manager.
(v) Pledge Request Form (PRF), Pay-in-Transfer Form and Transfer Form must be signed by the shareholder and
will retain with the Branch.
(vi) Branch are requested to please keep eye in the stock market and to reduce the limit at your discretion to
protect the Bank’s interest if the market price of above mentioned companies falls down substantially.
(vii) Any shortfall in margin will have to be covered by deposit of additional dematerialized shares, failing which the
dematerialized shares will be encashed for the adjustment of the entire liability.
Terms &conditions for HBL (Com)

(i) Before disbursement you will ensure the genuineness of layout plan along with approval letter (if any)& other
relevant permission of concerned authority (s).
(ii) Branch will retain photocopy of the approved plan of the building(s) along with approval letter (if any).
(iii) Branch will monitor that existing Building Code & relevant laws & regulations are being followed for
construction of the building.
(iv) Instruction Circular # 1182 dated 25.05.2013 and 2010 dated 15.10.2018 of our Bank to be followed
meticulously.
(v) Disbursement to be made phase by phase considering the utilization of previous disbursement with equity
and progress of the work through visit by Branch official(s) and upon receipt of written request of the
customer(s).
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(vi) Any overdue/unpaid installment(s) amount to be realized with overdue interest so that the outstanding
amount after recovery will be same as it is shown in the amortization table at the end of the period.
Terms &conditions for Hire Purchase

(i) Hire Purchase Agreement to be concluded as per Bank’s format and the customer will undertake to bind itself
stating that the borrower will be solely responsible for any legal consequence due to improper use of the
machinery/ equipment/ vehicle.
(ii) Branch are advised for cross verification of the quoted price of the vehicles
(iii) Machinery/ equipment/ vehicle must be insured covered by 1st party Comprehensive Insurance Policy with
Bank’s clause covering all possible risk at customer’s own cost.
(iv) The customer will have to keep the Machinery/ equipment/ vehicle in good condition till full and final
adjustment of the liability.
(v) Any kind of cost required to be incurred for repair and maintenance of the machinery/ equipment/ vehicle
under Hire Purchase facility(ies) will be borne by the customer unconditionally. In case of any damage caused,
the customer will be solely liable and responsible for compensation/replacement of the same.
(vi) Registration of the vehicle to be made in the name of the Borrower under Hire Purchase clause with Mercantile
Bank PLC, ……..Branch, Dhaka. [ For purchasing of vehicle only]
(vii) Photocopy of Blue Book/Certificate of registration of the vehicles evidencing endorsement of the Bank’s name
to be retained with the Branch. [ For purchasing of vehicle only]
(viii) Evidence of payment of annual charges by the customer i.e. fitness, tax, insurance premium etc. to be retained
with the Branch. [ For purchasing of vehicle only]
(ix) Any overdue amount/unpaid installment(s) to be realized with overdue interest so that the outstanding
Terms &conditions for Lease Finance

(i) The Lease Agreement has to be executed between the Bank (Lessor) and the customer (Lessee).
(ii) The Lease Agreement to be signed by the customer shall not be terminated unilaterally by the customer under
any circumstances.
(iii) The customer will have to keep the Lease Item in good condition till full and final adjustment of the lease
amount.
(iv) Any kind of cost required to be incurred for repair and maintenance of the Lease Item under Lease Finance
facility(ies) will be borne by the customer unconditionally. In case of any damage caused, the customer will be
solely liable and responsible for compensation/replacement of the same.
(v) Photocopy of Blue Book/Certificate of registration of the vehicles evidencing endorsement of the Bank’s name
as Lessor to be retained with the Branch. [ For purchasing of vehicle only]
(vi) Evidence of payment of annual charges by the customer i.e. fitness, tax, insurance premium etc. to be retained
with the Branch. [ For purchasing of vehicle only]
(vii) 1st party comprehensive Insurance Policy to be obtained covering all possible risks under Lease finance clause
at the cost of the customer. [ For purchasing of vehicle only]
(viii) All other stipulations of the Modus Operandi of Lease Finance Scheme of the Bank must be adhered.
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(ix) Any overdue amount to be realized with overdue interest so that the outstanding amount after recovery will be
same as it is shown in the amortization table at the end of the period.
Terms &conditions for Term Loan

(i) Any overdue/unpaid installment(s) amount to be realized with overdue interest so that the outstanding
Terms &conditions for Time Loan against Cash incentive

(i) Eligibility and amount of Cash Incentive Claims must be verified as per related circulars issued by competent
authorities from time to time.
(ii) Branch shall maintain close monitoring towards adjustment of the liabilities by the cash incentive claim(s)
received from Bangladesh Bank.
Terms &conditions for Corporate Guarantee

(i) Corporate Guarantee of …………………. on Non Judicial Stamp (as drafted by the enlisted lawyer of the Bank)
duly backed by Board Resolution and supported by MoA and AoA of the company.
(ii) Charges on the assets of the guarantor company must be created with RJSC&F.
Terms &conditions for Interchangeable Use

(i) In case of interchangeable use of limit, it must be ensured that the Memorandum of Association & Article of
Association of the companies support to provide or stand as a guarantee for the Company or its sister concern
for borrowings and securing money or properties.
(ii) In case of interchangeable use of the limit, each company will separately and jointly liable for the credit facility
(ies).
Terms &conditions for Change in interest rate against term facilities

(i) Installment size to be re-fixed by the Branch in accordance with the approved rate of interest.
Terms &conditions for Taking over loan from other Bank / FI

(i) Bank will approach to the concerned Bank (Disposing Bank) in writing to inform the up-to-date detailed
liability position and list of original security/property documents on different accounts of the customer with
them.
(ii) First legal opinion will be obtained by the Branch as to the genuineness and acceptability of the properties
based on the photocopies of the property documents as per list furnished by the ……… Bank.
(iii) Branch will obtain confirmation letter from ……. Bank to the effect that after adjustment of the reported
liabilities as per arrangement with them, they will directly hand over the original security/property documents
and other related papers to the authorized Executive(s)/Officer(s) of our Bank after being duly redeemed by
them.
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(iv) An undertaking to be obtained from the owners of the securities/properties and the borrower stating that,
they will create Registered Mortgage with RIGPA of the securities/properties favoring “Mercantile Bank PLC,
……… Branch, Dhaka”, after being redeemed by the ………..bank.
(v) After having confirmation from….. Bank and being informed regarding up-to-date detailed liability position on
different accounts of the customer with them, first draw down will be made for taking-over liabilities with that
Bank as per the sanction terms and conditions through issuance of Payment Order/RTGS/EFT favoring
……….Bank. For Non-Funded liabilities Branch will issue Bank Guarantee. Excess amount if any to be borne by
the customer.
(vi) Account closure certificates to be obtained from ……..Bank. Customers will provide an undertaking to the effect
that they will not take any loan from any other Bank/financial institutions without obtaining permission from
our Bank.
(vii) After paying-off the liabilities of the customer with ……….Bank, branch will take over all the original
security/property documents duly redeemed by them. Final Legal opinion as to the genuineness of the
properties and lawyer’s satisfaction certificate regarding completion of registered mortgage/documents
formality to be obtained before allowing availing the new credit facilities/ further drawing to the customers.
Mortgage formalities shall be completed at the time of redemption of mortgage by ………. Bank.
Terms and conditions of other loan schemes of the Bank will be applicable as per the Product Procedure
Guidelines of the respective schemes.
Islamic Shari’ah compliant modes of Investment will be operated as per Shariah Guidelines approved by
Shariah Supervisory Committee (SSC) & Board of Directors of the Bank and Investment proposal will be
processed through Islamic Banking Division (IBD) or through Corporate Banking Division/ Credit Risk
Management Division / SME Financing Division / Retail Banking Division / Agriculture Credit
Division/Special Asset Management Division with the recommendation of Islamic Banking Division (IBD).
Besides the above, any other terms and conditions also to be incorporated based on the merit of the
customer/ facility/ proposal to safeguard the Bank’s interest.
5.4 Pricing Policy:

Banks are the major financial institutions, which intermediate between actual lenders and actual borrowers. Loan
Pricing is the process of determining the interest rate for granting a loan, typically as an interest spread (margin)
over the base rate. For the intermediation, banks are to pay to the fund providers as ultimate lenders and charge
actual borrowers. A bank acquires funds through deposits, borrowings, and equity recognizing the costs of each
source and the resulting, average cost of funds to the bank. The funds are allocated to assets, creating an asset mix
of earning assets such as loans and non-earning assets such as bank's premises. The price that customers are
charged for the use of an earning asset represents the sum of the costs of the bank's funds the administrative
costs e.g., salaries, compensation for non-earning assets and other costs. Pricing adequately compensates for
these costs and customer to be fair based on the funds and service received.
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The price of the loan is the interest rate the borrowers must pay to the bank, in addition to the amount borrowed
(principal). The price/interest rate of a loan is determined by the true cost of the loan to the bank (base rate) plus
profit/risk premium for the bank's services and acceptance of risk.
Credit Pricing
Rate of interest, commission and charges etc. are the price of the credit. As a general approach, pricing is
determined covering the cost of fund (CoF). The other major parameter that are taken into account for pricing are
level of risk, borrowers credit rating, performance of the customer, period of loan and type of security offered,
national priority etc. The good borrower are usually offered preferential price against credit.
Revision of rates
The Management of the Bank will continuously monitor interest rates based on market situation and discuss the
same in the Asset Liability Management Committee (ALCO) meeting at least once in a month. As per decision of
the Asset Liability Management Committee (ALCO), the Management of the Bank shall obtain approval of the
Board of Directors to revise rate of interest, commission, charges etc. Existing rate of interest/ profit/ rent are
shown in Annexure-4.1 and schedule of commission are shown in Annexure-4.2
Risk-based loan pricing

i) Building blocks of loan pricing
Loan price are to be fixed in such a manner so that it cover all costs, including a certain number of basis points
over the life of the loan to account for each of the following:
 Cost of funds- The rate at which the bank is able to attract funds of equivalent tenor to the loan in question.
In banks that apply funds transfer pricing, this rate is a wholesale rate, usually the swap rate (fixed or
floating, depending on whether the loan is fixed or floating) of an equivalent tenor.
 Expected loss- The number of basis points that corresponds to the expected loss on the loan, which will be
higher on loans with more credit risk and lower on loans with less credit risk. Although banks do not make
loans with the expectation of suffering any loss, this amount is not zero for any loan, no matter how well
collateralized or guaranteed.
 Cost of allocated capital- The cost of allocated capital is the amount of capital the bank has allocated to the
loan as coverage for unexpected loss, multiplied by the target return on equity for the bank as a whole, and
expressed in terms of basis points. As a simplification, banks often use the risk-based capital requirement
as a proxy for the amount of capital that should be allocated to the loan.
 Term cost of liquidity- The number of basis points that captures the cost arising from the fact that loans of
longer and longer tenor require stable funding of longer and longer tenor, which will be costly for the bank
above and beyond any interest-rate risk considerations (which will be captured in the swap rate).
 Cost of liquid asset buffer- Banks rarely “maturity-match” a loan with a specific source of funding of
equivalent tenor. A mix of current accounts, savings accounts, and fixed deposits will render a stable source
of funds under most circumstances. However, in extremely adverse and rare circumstances, a run on
deposits may occur and the bank may be forced to sell assets quickly at low prices or seek additional
deposits or other funds at high rates. For this reason, a liquid asset buffer must be held for these
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unexpected situations. Since these assets either earn no interest at all, or very low interest for the bank,
there is an opportunity cost for holding the assets that must be expressed in terms of basis points and
included in the determination of the loan rate.
 Loan administration costs- For any loan, big or small, there are staff costs involved in origination and
monitoring. Some of these costs are up-front and some are ongoing, but they all must be expressed in terms
of basis points over the life of the loan.
 Competitive margin- Finally, after all other costs have been included in the rate, bank will add on a certain
number of basis points to earn a margin. This component is the only one that is fully at the discretion of the
bank, given its funding and expense structure. This margin may even be negative, if the bank desires to gain
a temporary competitive advantage. However, it should not be negative on any kind of loan product for an
extended period of time.
Determination of selected components of risk-based loan pricing
Some of the various components like swap rate, wholesale rate, liquidity premium, senior debts issued by bank
may be difficult to estimate in practice. Bank will exert every effort in estimating these necessary components and
documenting assumptions and results.
ii) True Cost Base Approach
The basic feature of true cost base loan pricing is that it covers all the associated cost of lending fund. The true
cost based loan pricing is a combination of average cost of loanable funds, administrative cost plus a premium
charged for risk associated with fund. The rate will be calculated by combining these basic costs. The prime or
base rate will be determined by considering two costs (Interest expense + administrative cost). An appropriate
premium will be added on to the base rate for fixing the loan price.
Calculation of premium will be based on the following aspects:

The Bank will follow the True Cost Base Approach for fixing rate of interest for its loans & advances products.
Calculation of Interest Rate
There are two primary components of Interest Rate:
A.Base Rate
B.Risk Premium
Loan Price (Interest Rate) = Base Rate + Risk Premium
A. Base Rate has Three Components:
a. Interest Expenses (For Deposit and Borrowing)
b. Administrative Expenses
c. Cost of Capital
Base Rate or Prime Rate = Interest Expense + Administrative Expenses + Cost of Capital
a. Components of Interest Expense:
i . Interest on Deposit
i i . Interest on Borrowing
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Interest Expense = Interest on Deposit + Interest on Borrowing

= [(% of Deposit in Total liabilities x Avg. rate of Interest)+ (% of Borrowing in Total
liabilities x Avg. rate of Interest)]
b. Administrative Expenses:
% of Administrative Expense to Loan = (Total Admin Expense / Total Loans) x 100
c. Cost of Capital:
Cost of Capital = (Opportunity Cost of Capital x Proportion of Bank Capital in Total Liabilities)/
Proportion of Loans in Total Assets
Where, Opportunity Cost of Capital = Expected Return on Equity (ROE)
B. Risk Premium
Risk Premium = Historical Loss Rate for a particular category or type of loan Where, Loss Rate
= (Losses / Total Category Loan) x 100
Flexibility in fixing loan pricing at product/customer level will be allowed on the following situation:
a. Liquidity situation in the interbank money market
b. Volume of business routed by the borrower and other income
c. Deposit base of the borrower
The above calculation method may be changed depending on the market
However, the rate of interest/ profit/rent and schedule of commission of the Bank banks different products
are determined complying the guidelines issued by Bangladesh Bank from time to time.
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CHAPTER-VI
(Managing Credit Risk in the Origination Process)
A thorough Credit and Risk assessment shall be conducted for all types of credit proposals. The results of the
assessment to be presented in the approved Credit Appraisal Form originated from the Branches/ Islamic
Banking Window and forwarded to Corporate Banking Division/ SME Financing Division/Agriculture Credit
Division/ Islamic Banking Division/ Special Asset Management Division through Regional Office (As applicable)
along with their recommendation. Standard format of proposals are shown in Annexure-5(11 different
formats). The Credit Officer/Relationship Managers (RM) of the related Division will conduct assessment with
due diligence on new borrowers, existing borrower for renewal/enhancement of existing credit line/ sanction
of new credit facility, principals, guarantors etc. After proper analysis, the Corporate Banking Division will
forward it to Credit Risk Management (CRM) Division with their recommendation, in case of Corporate
proposal. After that, Credit Risk Management Division and related divisions shall place their proposal to the
Credit Risk Management Committee for decision. According to the decision of the credit risk management
committee, Credit Risk Management Division and other related divisions shall place the credit proposal as per
standard format as shown in Annexure-6(11 different formats)with their necessary recommendation/
decision before the management for consideration to approve and/or to place the same before the EC/ Board
for approval. The Credit Officer / RMs must be familiar with Bank’s Lending Guidelines and should conduct due
diligence on new borrowers, principals and guarantors in line with policy guidelines.
Credit Appraisal should summarize the results of risks assessment by Credit Officers/RMs and includes, as a
minimum, the followings:
 Amount and type of loan(s) proposed
 Purpose of Loan(s)
 Score of Internal Credit Risk Rating (ICRR)/CRG
 Up to date & clean CIB Report of the borrower as per Bangladesh Bank’s guideline.
 Borrower’s Credit Report
 Loan structure (Tenor, Covenants, Repayment schedule, rate of interest)
 Security Arrangements
 Justification for allowing the Credit facility.
A comprehensive and accurate appraisal of the risk in every credit proposal of the Bank is mandatory. No
proposal including Syndication and Club Finance can be placed before approving authority unless there has
been a proper and complete analysis. In order to safeguard Bank’s interest over the entire period of the
advance, a comprehensive view of the capital, capacity, integrity of the borrower, nature of security, compliance
with all regulatory /legal formalities, condition of all documentation and finally a continuous and constant
supervision on the account are called for. It is absolute responsibility of the Credit Officer / RM to ensure that
all the necessary documents are collected before the proposal is placed for approval. Pre-sanction inspection
report should be in place. Where Loans & Advances are granted against the guarantee of the third party, the
level of coverage being provided in relation to the credit-quality and legal capacity of the guarantor must be
evaluated and that guarantor must be subject to the same credit assessment as made for the principal borrower.
While making lending decisions including Syndication Loan, particular attention shall be given to the analysis of
credit proposals received from heavily leveraged companies and those dealing in non-essential consumer
goods, taking special care about their debt servicing abilities.
Decision flow chart for borrower selection is furnished below:
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Chapter – VI (Managing Credit Risk in the Originating Process)
No
Reject
No
Loan Application Reject
Exceed
Expected Business Segment/Sector
Reject
Expected Types of Loan Facilities

Exceed
Reject
Lending Target and Available Room in the Sector

Negative
Reject
Single Borrower/Group Limit
Adverse
Managerial Organization, Marketing and Technical Aspects Reject
Unsatisfactory
CIB, Bank Statements and Contact Point Verification Reject
Financial Analysis Based on Historical Data

Unsatisfactory
Reject
Financial Analysis on Projected Data

Unexpected
Reject
Loan Structure: Price, Tenure, Nature, etc.
Unsatisfactory
Reject
Security Arrangement: Nature, Amount, Quality, etc.
Non-Compliance
Socio-Economic and Environmental Aspects Reject
Sanction and Documentation

Non-Compliance
Reject
Disbursement of Loan
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Emphasis shall be given on the following credit principles:
a) Present and future business potentiality for optimum deployment of Bank’s fund to increase return on
assets.
b) Preference for self-liquidating quality business.
c) Avoiding marginal performers.
d) To be careful about large and undue concentration of credit to one obligor, common product line or
industry etc.
e) Managing the amount, size, nature and soundness of one-obligor exposures relative to the size of the
borrower and Bank’s position among his other lenders.
f) Personal guarantee of the principal partners or the Directors of the Company shall be obtained.
g) Personal guarantee should be supported by Personal Net-worth Statement / Form 10IT of the guarantor.
Legal capacity of the guarantor must be evaluated and same credit assessment to be made to the guarantor
as made for the principal borrower.
h) Calls/inspection shall be made regularly on clients and shall be documented.
 In case of financing to a new business (new to us), the business premise(s) as well as collateral security
to be visited by the Head of Branch (HoB). However, Credit In charge of corporate branches shall visit
business premise(s) as well as collateral security to assess the borrower capacity.
Photograph/pantograph should be enclosed with proposal as a proof of visit.
 In case of renewal/ enhancement/ reduction of existing credit facilities, the Head of Branch (HoB) or
Credit In charge shall visit the business premise(s) of the customer and photograph/pantograph should
be enclosed with proposal as a proof of visit.
 Hypothecated stocks are to be verified by the Head of Branch / Credit In charge.
i) Value of collateral, inventory and machinery supplied by client shall be cross checked by the Branch officials
and shall be counter signed by HoB.
Many avoidable mistakes are made in the origination process, leading to higher credit risk. To avoid this,
following analysis shall be made:
6.1 Borrower Evaluation
6.2 Industry Analysis
6.3 Environmental Risk Analysis
6.4 Special case of Related Person Lending
6.1 Borrower Evaluation

The first step in the management of credit risks happens when the borrower walks through the door and
goes through the application process. The basic question that has to ask is: does the credit history (if any)
and repayment capacity of the borrower provide sufficient probability of repayment, so that that the bank
will earn an adequate risk-adjusted rate of return on the loan, without charging an excessive interest rate
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that may be unacceptable to the borrower or requiring credit enhancements that may be impossible for the
borrower to provide?
The majority shareholders, management teams and group or affiliate companies shall be assessed. Any
issues regarding lack of management depth, complicated ownership structures or inter-group transactions
shall be addressed, and risks to be mitigated. The following questions may be asked to assess the
Management Risk:
 Who is the borrower? Does any particular/special characteristic of borrower need particular
attention? Example: PEPs, Director of any Bank etc.
 Is there adequate abilities and experience in management and promoters?
 Is there adequate depth and succession planning? Succession plan should be identified/ mentioned
in the proposal.
 Is there any conflict amongst owners/senior managers that could have serious implications?
 Is the Manager/Credit Officer satisfied about the character, ability, integrity and experience of the
borrower?
 Educational qualification (Formal/ Informal) and Personal Net-worth.
 Number and quality of staff.
 Marketing team efficiency.
The Credit Officers / RM must know their customers and conduct due diligence on new borrowers,
principals and guarantors to ensure such parties are in fact who they represent themselves to be i.e., Know
Your Customer (KYC).
6.1.1 KYC Concept

The Banker – Customer relationship would be established first through opening of CD/ SND / SB accounts.
Proper introduction, photographs of the account holders / signatories, passport/ National ID, Trade
License, Memorandum and Articles of the Company, certificate of incorporation, certificate of
commencement of business, List of Directors, Board resolution, etc. i.e. all the required papers as per Bank’s
policy and regulatory requirements are to be obtained at the time of opening of the account. A declaration
regarding approximate transaction to the account is to be obtained at the time of opening of account.
Information regarding business pattern, nature of business, volume of business, etc. to be ascertained. Any
suspicious transaction must be timely addressed and brought down to the notice of Head Office /
Bangladesh Bank as required and also appropriate corrective measures to be taken as per the direction of
Bank Management / Bangladesh Bank from time to time. All contact points of the company must be verified
physically and such visit report shall be kept in the related file for future scrutiny.
6.1.2 Internal Credit Risk Rating System

The aim of credit risk management is to maximize a bank’s risk-adjusted rate of return by maintaining
credit risk exposure within acceptable levels. Bank needs to manage the credit risk inherent in the entire
portfolio as well as the risk in individual borrower transaction. The effective management of credit risk is a
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critical component of a comprehensive approach to risk management and essential to the long-term
success.
Since exposure to credit risk continues to be the leading source of problems in bank, bank have a keen
awareness of the need to identify, measure, monitor and control credit risk as well as to determine that they
hold adequate capital against these risks and they are adequately compensated for risks incurred. The
Internal Credit Risk Rating System describes the creditworthiness of the borrower of a particular sector
based on the assessment criteria set for that sector. Since the leverage, liquidity, profitability, as well as
other quantitative and qualitative indicators, vary significantly from sector to sector, the ICRRS is developed
to calibrate such diversities into the rating system. Moreover, relevant and appropriate numbers of financial
ratios are used in Internal Credit Risk Rating System for assessing the financial and credit strengths of the
borrowers. The set of the qualitative questioners used in the process are also more robust. This will
effectively ensure that the borrowers from different sectors and industries are assessed based on the
unique characteristics of those sectors.
6.1.2.1 Definition of Internal Credit Risk Rating System
Internal Credit Risk Rating System refers to the system to analyze a borrower's repayment ability based on
information about a customer's financial condition including their liquidity, cash flow, profitability, debt
profile, market indicators, industry and operational background, management capabilities, and other
indicators.
The summary indicator derived from the system will be called Internal Credit Risk Rating (ICRR)- a key
reference for credit risk assessment and decision making.
6.1.2.2 Use of Internal Credit Risk Rating (ICRR)

Internal Credit Risk Rating System will be an integral part of credit risk management for the bank. The key
uses of these guidelines are as follows:
a) To provide a granular, objective, transparent, consistent framework for the measurement and
assessment of borrowers’ credit risk.
b) To facilitate the portfolio management activities
c) To assess the quality of individual borrower to help the bank to determine the quality of the credit
portfolio, line of business, the branch or the Bank as a whole.
d) To be used for individual credit selection, credit pricing, and setting credit limit and terms and
conditions.
6.1.2.3 Functions of Internal Credit Risk Rating System:

a) Internal Credit Risk Rating System is a fully automated credit risk scoring system that calibrates the
characteristics of different sectors and industries in one single model;
b) To get the appropriate rating and score, the analyst shall select the appropriate sector or industry from
the dropdown list given in the top page of the template; If the right sector or industry is not selected;
the rating will not reflect the unique characteristics of the particular sector or industry.
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c) If the borrower is in multiple lines of business, the sector should be used assessing the line of business
generating the highest portion of the revenue &/or profit. If there is no particular line of businesses can
be singled out- the ICRRS should be conducted using "other industry- if manufacturing" or "other
service-if service".
6.1.2.4 General Instructions
a) Bank must strictly follow this guidelines and rating system issued by Bangladesh Bank without making
any change, extension, modification or deletion.
b) The ICRRS shall be applicable for all exposure (irrespective of amount) except consumer loans, small
enterprises having total loan exposure less than 50 lac and small Enterprise in manufacturing having
total loan exposure less than 1 (one) crore, Short Term Agri loans, Micro- credit and lending to Bank,
Financial Institution, Insurance Company, Micro Finance Institution, Merchant Bank, Stock Brokerage
House and Non Government Organization. For this type of entities Bank shall use their own credit risk
management tools and risk mitigation strategies.
The quantitative part of the ICRR exercise shall be conducted by a credit officer/ an analyst. The
Relationship Manager/ Branch Manager shall complete the qualitative assessment part to generate the
total scores.
c) ICCR shall be an integral part of the credit approval process.
d) The credit risk function of the bank is responsible for the accuracy and integrity of the rating as the
second line of defense.
e) The executive summary report of the ICRR score of the borrower shall be approved and signed by the
Chief Risk Officer (CRO) and for those loans that are approved below the CRO level e.g zonal office or
branch office, the executive summary report of the ICRR score shall be approved and signed by the final
approval authority at that level.
f) Bank must use the latest audited financial statements of the borrower for generating the quantitative
rating under ICRR.
g) All credit proposals whether new, renewal or enhancement shall be gone through the ICRR process and
a set of the ICRR report shall be retained in the loan file.
h) Relationship Manager shall pass the approved ICRR report to the related department for updating their
MIS/record.
i) Banks shall conduct the routine internal audit to check whether the Internal Credit Risk Rating System
is functioning as per the instructions laid down in the guidelines.
6.1.2.5 Frequency of Credit Risk Scoring:
 ICRR shall be conducted for all credit proposals including new, renewal and enhancement of the
existing proposal;
 For existing credit relationship, the ICRR shall be reviewed at least annually at the time of
annual/regular credit review.
6.1.2.6 Selected Sectors

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To ensure the current system useful, the following sectors are selected considering the size of exposures of
banks in these industries.
A. Industry
1. Ready Made Garments (RMG)
2. Textile (including spinning, knitting, weaving)
3. Food and Allied Industries
4. Pharmaceutical
5. Chemical
6. Fertilizer
7. Cement
8. Ceramic
9. Ship building
10. Ship breaking
11. Jute Mills
12. Steel Engineering
13. Power and Gas
14. Other industry (only to be selected if the borrower falls under industry but does not fit with
other 13 specific sub-categories)
B. Trade and Commerce
C. Agro Base and Agro Processing
D. Service
1. Housing and Construction
2. Hospitals and Clinics
3. Telecommunication
4. Other service
6.1.2.7 Credit Risk Ratings Scores

The ICRR consists of 4-notched rating system covering the Quantitative and Qualitative parameters. The
ratings and scores are mentioned below:
Rating Scores Aggregate
Up to 31.12.2023 From 01.01.2024
Excellent ≥75% ≥75%
Good ≥65% to <75% ≥65% to <75%
Marginal ≥50% to <65% ≥55% to <65%
Unacceptable <50% <55%
Whatever score a borrower gets in the Whatever score a borrower gets in the
qualitative part, if the in the quantitative part is qualitative part, if the in the quantitative
less than 40%, the borrower’s ICRR shall be “ part is less than 45%, the borrower’s
Unacceptable” ICRR shall be “ Unacceptable”
6.1.2.8 Definitions of Credit Risk Rating

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The features of the different categories of Credit Risk Ratings are given below:
a) Excellent
• Aggregate score of 75 or greater in ICRR.
• Strong repayment capacity of the borrower evident by the high liquidity, low leverage, strong earnings,
and cash flow
• Borrower has well established strong market share.
• Very good management skill & expertise.
b) Good
• Aggregate score of 65 or greater but less than 75.
• These borrowers are not as strong as "Excellent "borrowers, but still demonstrate consistent earnings,
cash flow and have a good track record.
• Borrower is well established and has strong market share.
• Very good management skill & expertise.
c) Marginal
• Aggregate score of 55 or greater but less than 65 and the quantitative score of at least 30.
• This grade has potential weaknesses that deserve management’s close attention. If left uncorrected,
these weaknesses may result in a deterioration of the repayment prospects of the borrower.
d) Unacceptable
• Aggregate score of less than 55
• Financial condition is weak and no capacity or inclination to repay.
• Severe management problems exist.
• Facilities should be downgraded to this grade if sustained deterioration in financial condition is noted
(consecutive losses, negative net worth, excessive leverage).
6.1.2.9 Management Action Triggers:
a) Banks are allowed lending to a borrower if the borrower's ICRR is "Excellent" or "Good". However,
for the "Marginal "cases, the bank shall take cautionary measures in renewing the facilities or lending
new money to the customers. While assessing credit proposals, banks must satisfy themselves on the
future prospect of the business, additional collateral coverage etc. Banks shall take heightened
measures for monitoring these accounts including but not limited to regular client visits, monitoring
of the improvement plans, close monitoring of the repayment performances, timely review of the
facilities, oversight on the improvement areas etc.
b) No loan shall be sanctioned to borrowers whose ICRR is "Unacceptable" unless the loan is 100% cash
covered or fully guaranteed by the Government or Multilateral Development Banks (MDBs) or the
loan is for any state-owned organization or state-owned project. If the credit facility of the borrower
is 100% cash covered or covered by government guarantee or bank guarantee, whatever rating the
borrower gets, the rating will be “Excellent”.
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c) For the quantitative and qualitative risk analysis, if the ICRR falls under "Marginal" or "Unacceptable"
for any risk criteria (among 16 quantitative and 18 qualitative); whatever the aggregate score is, the
relationship manager shall evaluate what would be the impacts of such risk on loan repayment and
justify how those risks are mitigated; and in loan proposal the approval authority should review that
justifications thoroughly and make necessary evaluations on it and should be documented in the loan
file.
d) In deriving ICRR, whatever score a borrower gets in the qualitative analysis if the score in the
quantitative part is less than 45% (40% for the period up to 31.12.2023), the borrower’s ICRR shall
be "Unacceptable".
e) Bank can make renewal and enhancement of existing loans for maximum 2 (two) times if the
borrower's ICRR is "Unacceptable". But up to the period 31.12.2023, bank can make renewal and
enhancement of existing loans for maximum 3 (three) times if the borrower's ICRR is "Unacceptable"
for consecutive 03 (three) times complying the credit risk policy and after assessing borrower’s
repayment capacity security, etc.
f) In conducting qualitative analysis, justifications for all criteria are required to be documented.
g) Bank must maintain portfolio level data base for the asset base with "Excellent", "Good" “Marginal”
and “Unacceptable” category and maintains risk appetite/tolerance level for portfolio.
6.1.2.10Exceptions to Credit Risk Rating
a) For a newly established company with no meaningful financial statements, the bank can apply a
rating based on the projected financial statements and the rating of the borrower shall not be better
than Marginal. However, the bank must run the rating module once the full year audited financial
statements became available reflecting customer's full-fledged business operation.
b) For the companies under large business conglomerate, rating substitution is allowed based on the
rating of Corporate Guarantor of the performing concern of the same group or holding company. In
case of rating substitution based on the corporate guarantor, the guarantee must be legally
enforceable, irrevocable and unconditional. In this regard, a full-fledged ICRR shall be conducted on
the guarantor to determine whether the guarantor has the ability to the support the borrower at the
time of need. However, the rating substitution will no longer be required if borrowing entity’s rating
become eligible for acceptable grading. If corporate guarantee is required to continue then the ICRRS
of both corporate guarantor of performing concern and the borrowing entity will be done.
c) Rating generation is discouraged using outdated financial statements (i.e available audited financial
statements are more than 18 months old). In exceptional cases where there is valid reason for delay
in audited financial publication, out dated financial statements can be accepted only if up to date
unaudited financial statement is submitted, but the rating shall not be better than “Marginal”. In this
case, the conditioned mentioned in para 6.1.2.9(a) is to be followed.
d) Rating shall be downgraded if there is any internal/external factors or information that have not been
captured in the rating/financial statements (because they are post balance sheet events) having the
material impact on the customer's business operation and loan repayment. A conservative and
consistent approach should be used in employing judgments in the case of events like the death of
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key sponsor, prolonged factory shut down, deteriorating financial profile reported in interim financial
statements, change in tax structure/duty, large expansions funded by debt, excessive leverage ratio,
merger-acquisition etc.
e) For the proprietorship & partnership concern where preparation of the audited financial statements
are not mandatory, un audited financial statement can be used for rating generation but due diligence
should be conducted on the accuracy of the financial statements with high-level checking of the bank
statements recording the sales collection, stock/receivable position, peer analysis, bank liabilities etc.
f) If the customer is in multiple lines of business, the most appropriate sector/industry shall be the line
of business generating the highest portion of total revenue.
g) This guideline and enclosed model will be the minimum standard of risk rating; and banks may adopt
more sophisticated risk rating model in line with the size and complexity of their business.
6.1.2.11Components of Credit Risk Rating
In the previous version of Credit Risk Grading Manual, 50 percent weights were assigned for quantitative
indicators while 50 percent weights were for subjective judgment. In the ICRR, these weights have been
revised; 60 percent weights are assigned for quantitative indicators while 40 percent are assigned for
qualitative indicators.
6.1.2.12Quantitative indicators and associated weights
Quantitative indicators in ICRR fall into six broad categories; leverage, liquidity, profitability, coverage,
operational efficiency, and earning quality. Details indicators under these categories and associated
weights are shown in Annexure-7.
6.1.2.13Qualitative indicators and associated weights
Qualitative indicators covers six broad aspects of the firms/institutions to be rated, namely
business/industry risk, credit quality enhancement, performance behavior, management risk, relationship
risk, and compliance risk. Noteworthy that aggregate weights against the qualitative indicators stand at 40
percent. Detail indicators and associated weights are in Annexure-8
6.1.2.14Credit Risk Rating Process
After the risk identification & weight assignment process (as mentioned in chapter 2), the next steps will
be to input actual parameters in the score sheet to arrive at the scores corresponding to the actual
parameters. These guidelines also provide a well programmed MS Excel-based credit risk scoring system
to arrive at a total score on each borrower. The excel program requires inputting data accurately in
particular cells for input and will automatically calculate the risk grade for a particular borrower based on
the total score obtained. The following steps are to be followed while using the MS Excel program.
a) Open the MS XL file named, ICRRS
b) The entire XL model named, ICRRS is protected except the particular cells to input data.
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c) Some input cells contain DROP DOWN LIST for some criteria corresponding to the Key Parameters.
Click to the input cell and select the appropriate parameters from the DROP DOWN LIST as shown
below.
d) All the cells provided for input must be filled in order to arrive at accurate risk grade.
The following step-wise activities outline the detail process for arriving at Credit Risk Rating.
A. Input primary information of borrower and select sector/industry of the borrower:
Bank's Name : ABC Bank Limited
Branch Name : Gulshan
File/ Reference No : 10000/100/10/1
Borrower Name : XYZ Limited
Group Name, if any : PQR
Type of Industry/ Sector : 1. RMG
Industry Code : 101
Ownership Type : Sole Proprietorship
Registration No/Trade License No : 123
CIB Status : Standard
Financials Audit Status: : Audited
Name of Audit Farm : MNO
Analyst Name, Designation : PQR
Verifier Name, Designation : UBW
Date of Financials : 04-01-2018
Date of Analysis (DD-MM-YYYY) : 04-01-2018
Date of Verification (DD-MM-YYYY) : 04-01-2018
B. Input data of balance sheet, profit and loss statement and cash flow statement
In the input sheet of the balance sheet, profit, and loss statement and cash flow statement, Input must be
given to all cells that are marked with yellow colors. Moreover, while providing input to the balance sheet,
profit and loss statement and cash flow statement following issues should be taken care of:
a) Current Portion of Long-Term Borrowing/Loan
 Input must be given to this cell. This cell is crucial to calculate "debt service coverage ratio". If
"Current Portion of Long-Term Borrowing/Loan" is not found in the balance sheet, the analyst shall
communicate this to the borrower and determine the amount based on other material information
including notes and communication with the borrower.
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 If the amount is already added with the total loans in the balances sheet then "Current Portion of
Long-Term Borrowing/Loan" must be deducted from the total loans and must insert the split figures
in related cells.
 If the figure is still zero, it means the borrower has no existing long-term borrowings; which is
unusual. If found so, the analyst should interview the borrower.
 If the analyst becomes certain that the borrower has no existing borrowings, then 0.01 shall be
inserted in the corresponding cell.
b) Other Current Liabilities:
 To make the balance sheet balance i.e as sets = liabilities + equity, deduct amount 0.01 in this cell, if
the same is inserted in row 56: Current Portion of Long-Term borrowing/ Loan.
c) Financial/Interest Expenses
 Input must be given to this cell. If not found in the P&L, the analyst shall look into the notes of financial
statement and communicate with the borrower to determine the amount.
 If the figure is zero, it means the borrower has no existing borrowings; which is unusual.
 If the analyst becomes certain that the borrower has no existing borrowings, then figure 1 must be
inserted in the corresponding cell.
C. Qualitative Analysis
After providing input to the balance sheet, profit and loss statement and cash flow statement, the rigorous
qualitative analysis shall be conducted. The qualitative analysis shall be conducted by the relationship
manager. The details qualitative analysis is mentioned Annexure-9.
D. Generating Score:
After providing inputs to the balance sheet, profit and loss statement, cash flow statement and qualitative
analysis, the detail management report and executive summary report will automatically be generated. In
the detail management report and executive summary report, four-color coding are used. The detail of the
color coding are as follows:
Color Rating
Green Excellent
Blue Good
Yellow Marginal
Red Unacceptable
The analyst should meticulously review all color coding and rating. For the quantitative and qualitative risk
analysis, if the ICRR falls under "Marginal" or "Unacceptable" for any risk criteria (among 16 quantitative
and 20 qualitative); whatever the aggregate score is, the relationship manager shall evaluate what would be
the impacts of such risk on loan repayment and justify how those risks are mitigated; and in loan proposal
the approval authority should review that justifications thoroughly and make necessary evaluations on it
and should be documented in the loan file. In the executive summary report, the movement of the key
quantitative indicators for last three years are also disclosed.
The details of the Executive Summary and Detail Management Report are mentioned in Annexure-10 &
Annexure11 Respectively.
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6.1.3 Credit Risk Grading (CRG):

Bank shall follow the guideline/ manual issued by Bangladesh Bank vide BRPD Circular no. 07 dated
09.07.2007 for conducting Credit Risk Grading (CRG) in case of financing to Non- Banking Financial
Institution (NBFI) and Banks.
CRG as per BRPD circular no. 18 dated 11.12.2005 to be conducted on the borrowers those are exempted
from conducting ICRR as per ICRRS guideline of Bangladesh Bank.
6.1.4 The Role of External Credit Assessment Institutions (ECAIs)

The analysis of a potential borrower’s creditworthiness by an ECAI will provide useful input (credit Rating
Report) and assist the bank’s credit analysts in organizing thinking and forming an opinion about the
potential borrower in question. ECAI is registered by Bangladesh Securities and Exchange Commission as
well as recognized by Bangladesh Bank.
Under the guidelines, for calculating RWA, Standardized Approach for Credit Risk, Standardized (Rule
Based) Approach for Market Risk and Basic Indicator Approach for Operational Risk is being followed.
In this regard, following things are shown in Annexure-12 under credit risk:
• Risk weights for Balance Sheet Exposures,
• Risk Weight for Short Term Exposures,
• Risk Weight against SME Exposure
• Credit Conversion Factor for Non-market-related OBS transactions.
Under the standardized approach, the credit ratings assigned by the External Credit Assessment
Institution (ECAI) duly recognized by Bangladesh Bank are used to assign risk weight against credit risk.
BB has already recognized some ECAIs after assessing eligibility criteria and Risk Weights have been
mapped against different credit rating of ECAIs.
Credit rating shall have to be obtained for a customer having exposure of Tk. 30.00 lac or above. Customer
with non investment graded Credit Rating should not be entertained. Credit rating status of the borrower
and percentage of Risk Weighted Assets there against will have to be incorporated in the credit appraisal
form. Good rated (credit rating) constituents/clients bear less Risk Weight than the unrated ones. For
implementation of borrowers credit rating time to time circular, guideline/instruction of Bangladesh
Bank and our internal circular will be followed meticulously.
Banks may make reference to ECAI ratings in their credit risk management policies and loan underwriting
practices, but they must rely on their own assessments of the creditworthiness of their borrowers as the
primary determinants of the decision.
6.1.5 Analysis of Borrower’s Repayment capacity :
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In order to make good credit decisions, bank must know how to analyze financial statements submitted by
loan applicants. Lenders are expected to follow sound risk management practices in the context of
commercial credit analysis activities. A review of the company's current position with respect to the
existing authorized level of commercial lending activities, capital adequacy position and compliance with
commercial credit analysis regulations, guidelines and rulings is essential in determining the
creditworthiness of an applicant.
Analyzing the Financial Statements

There is no substitute for thorough and rigorous analysis of a borrower’s financial statements when
attempting to determine a borrower’s creditworthiness. An analysis of a minimum of 3 years historical
financial statements (where applicable) of the borrower should made. In case of dependency on a
corporate guarantor, guarantor’s Financial statement should also be analyzed. The balance sheet, income
statement, cash flow statement, and financial projections all provide critical information about the
borrower’s creditworthiness and capacity to repay. However, despite the importance of financial
statement analysis in determining creditworthiness, the final credit decision is subjective because the most
important factor in the decision is management of the borrower. An evaluation of management is based on
both objective and subjective factors but is, in the end, subjective because there is no ratio or number that
will inform the banker of management’s intention or willingness to repay a loan. Therefore, the credit
officer should make a serious effort to determine the competence, honesty and integrity of borrower
management in each case. This effort should include what is called “due diligence,” that is, the attempt to
“know your customer” through contacting customers, suppliers and others in the industry who have
experience with the borrower and its management.
Where possible and legal, in the case of smaller companies with single owners where personal guarantees
will be required, a credit history should be obtained to determine the owner’s record of fulfilling his/her
financial obligations. Court records should be reviewed to determine if there have been any court
proceedings against the borrower and/or borrower management. The question is whether or not
borrower management, or the business owner, will honor its obligations to the lender in the best case and
worst case. If the borrower encounters difficulties in repaying its obligation(s) to the bank, will
management, or the owner, be willing to collaborate with the bank to “work out” repayment, however long
it requires.
Limits on total exposure should be set for each individual borrower or group of related borrowers (related
to each other, not to the bank), that are at least as stringent as those set by law or BB regulation. The size
of credit limits should be based on the credit strength of the borrower, genuine purpose of credit,
economic conditions and the bank’s risk appetite. Limits should also be set for respective products,
activities, specific industry, economic sectors and/or geographic regions to avoid concentration risk. Credit
limits should be reviewed periodically at least semi-annually or more frequently if borrower’s credit
quality deteriorates. All requests for increase in credit limits should be authenticated by appropriate
authority.
Sometimes, the borrower may want to share its facility limits with its related companies. Banks should
review such arrangements and impose necessary limits if the transactions are frequent and significant.
Five Key Components of Financial Analysis
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Bank as a lending institution should always use five key components of analysis. These are;
 Income statement,
 Balance sheet,
 Net worth and fixed asset reconciliation,
 Cash flow statement and
 Key ratios
When using accrual basis financial statements, cash flow analysis ties together the income statement and
balance sheet to provide the analyst with a more complete financial picture of the borrower. Cash flow
analysis “looks behind” the accrual basis numbers to identify the actual cash inflows and outflows over a
certain period of time. Since cash flow is the first source of repayment, this exercise is critical.
6.1.6 SWOT Analysis & Decision Making
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. SWOT analysis involves identifying
business’s strengths and weaknesses, and examining the opportunities and threats which may affect the
business. Sample Format of SWOT analysis has been enclosed in Annexure-13.
6.1.7 Loan Structure:

The amount and tenor of proposed facilities should be justified based on the projected repayment ability
and loan purpose. Excessive tenor or amount relative to business needs increase the risk of fund diversion
and may adversely impact the borrower’s repayment ability. Related questions to be addressed such as:
 Whether facilities are justified by the borrower’s business?

 Whether any capital / long term expenditure being financed by short time borrowing (either SOD/
LTR)?
 What is the amount required? Is it sufficient or excess for the purpose mentioned?
6.1.8 Account Conduct:

For existing borrowers, the historic performance of repayment and transaction behavior (trade payments,
installment payments, cheque, interest and principal payments, etc.) shall be assessed. In this regard the
Credit Officer / RM may look into the account turnover like debit summation / credit summation / highest
debit balance/ highest credit balance or lowest debit balance for last three years (year wise) or at least
minimum 01 year (last year).
6.1.9 Adherence to Lending Guidelines:
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The Credit Applications/ Appraisals must be prepared in line with Bank’s lending guidelines. It must be
clearly stated whether or not the application/proposal is in compliance with Bank’s Credit Policy lending
guidelines. Related questions to be addressed are:
 Is proposed application in compliance with Bank’s guidelines?
 Does the lending to clients also compliant with Central Bank’s guideline?
 What are the Niche Products?
6.1.10Supplier/Buyer Analysis/Market Risk
Any customer or supplier concentration shall be addressed, as these could have a significant impact on the
future viability of the borrower.
a. Market Risk:
The sufficient market data to be obtained to identify clients/borrowers’ market share in the
industry/demand-supply gap in the market.
b. Technological Risk:
The product that is manufactured must be technologically viable i.e. whether the technology applied is
updated. The product’s stage in its life cycle must be understood. Technical Aspects of the products must
be addressed. The Credit Officer / RM must be satisfied with the mitigating factors of technical and
technological risk, associated with the products.
6.1.11Interest Rate Risk :

The interest rate must be fixed based on different risk factors associated with the type of business such as
liquidity risk, commodity risk, equity risk, and loan period risk. Interest rate also arises from the
movements of interest rate in the market. In assessing the pricing and profitability, the Credit Officer/RM
must consider the income from ancillary business like foreign exchange business, group business, volume
of business etc. Related questions to be addressed are:
 What is cost of fund and other costs for monitoring the loan and advances and the spread between
the cost of fund and interest rate?
 What is the rate of interest charged?
 Is the rate fixed in consideration to the risk factors?
 Will the rate charged be profitable to the Bank?
6.1.12Foreign Exchange Risk:

The foreign exchange transaction is associated with foreign currency fluctuation risk. Therefore the Credit
Officer/RM must take care of for the Forex risk. The questions to be addressed are:
 Does the business involve foreign currency dealings?
 What are trends of foreign currency fluctuation?
6.1.13Risk associated with cross border lending:
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Borrowers of a particular country may be unable or unwilling to fulfill principle and/or interest obligation,
distinguished from ordinary credit risk because the difficulty arises from a political event, such as
suspension of external payments
-Synonymous with political and sovereign risk
-Third world debt crisis
In this regard Bangladesh Bank guidelines/ Circulars issued from time to time to be followed.
6.1.14Cost Overrun Risk:

This type of risk is generally involved in taking project finance decision. A high degree of cost overrun may
cause the failure of the project. Therefore the credit officer must consider the cost components of the
project and their chance of devaluation. The questions to be addressed are-
 Is the project implementation period is reasonable?
 Whether the construction cost may increase?
 Whether the imported machinery cost may increase for the fluctuation of the foreign currency.
 Are all types of cost components addressed during preparation of feasibility report?
 Does sensitivity analysis prove sufficient shock absorbing capability of the project?
6.2 Industry Analysis (Business and Industry Risk):

The key risk factors of the borrower’s industry shall be assessed. Any issues regarding the borrower’s
position in the industry, overall industry concerns or competitive forces (demand supply gap) shall be
addressed and the strengths and weaknesses (SWOT Analysis) of the borrower relative to its competition
to be identified. For the above purpose the Credit Officers/RM may obtain / collect data from the statistical
year-book / economic trends of Bangladesh Bank / public report / newspaper/ journals etc. The following
questions may be asked to assess the Business and Industry Risk:
 Are there any significant concentrations of sales (by customer, industry, country, region)?
 How does the borrower rate with its competitors in terms of market share?
 Can increased direct production costs be easily passed on to customers?
 Does the borrower deal in any specific product that may be subject to obsolescence?
 Is the purpose of borrowing consistent with the objectives of the Company?
 Is the purpose legal? Does it contravene any rules and laws of the country and any instruction
issued by the Bangladesh Bank/Head Office?
6.3 Environmental & Social (E&S) Risk Management:

Potential E&S risks may not seem significant or relevant at the time of approval of a financial transaction,
but may become so during execution, for instance as a result of higher regulatory standards and
increased levels of enforcement. In other cases, E&S risks, such as spills or explosions, may seem unlikely
to occur, but when they do, the E&S impact is potentially extremely high.
To reduce exposure to risk arising from the E&S risks of the client, Bank needs to ensure that their clients’
financial and operational sustainability is not undermined by adverse impacts on the environment and
surrounding communities. Bank needs to have a clear understanding of potential E&S risks and
implications for a client’s operation prior to being linked to the client in the context of a transaction.
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This requires proactive identification, assessment, and management of E&S risks before they become
significant or result in an adverse outcome on the client. Bank can best achieve this by developing and
implementing an Environmental and Social Management System (ESMS), to systematically assess the E&S
risks and opportunities arising from their clients’ operations and manage its exposure to risk.
6.3.1 Scope of Environmental & Social Risk Management (ESRM)
The loan categories for which the ESRM Guideline is applicable are agriculture finance; cottage, micro small,
medium enterprises (CMSME) finance; financing in retail and trading enterprises; consumer financing;
financing in all large manufacturing and service enterprises (other than CMSME, retail and trading
enterprises) and infrastructure finance. All loan proposals (New/Renewal/Rescheduling/Restructuring) for
the above applicable sectors have to be first screened against the exclusion list (Annex-14). Only on-
balance sheet exposures need to be assessed under this guideline. Whenever any off-balance sheet
exposure would be transformed into an on balance sheet one, ESDD has to be conducted on that. For
demand/continuous loan, conducting of ESDD has to be made during new
approval/renewal/rescheduling/restructuring, not during disbursements.
Agricultu
ulture: In the agriculture sector, if an agriculture loan application (New/Renewal/
Rescheduling/Restructuring) involves activities related to farming (e.g. crop production, animal, farming,
poultry and dairy firms, fisheries and hatchery, shrimp culture, nursery, apiculture, horticulture) and there
is any environmentally or socially adverse agricultural practices involved such as use of pesticides, agro-
chemicals leading to top soil depletion, ground water contamination; use of nitrogenous fertilizers instead
of organic fertilizers leading to nitrous oxide emissions and the loan/investment proposal amounting to
more than BDT 2.5 million (25.00 lac), in addition to exclusion list, it is to be complied with ESDD checklist.
The loan application amounting less than BDT 2.5 million (25.00 lac) for above mentioned farming
activities as well as agriculture financing related to farming with full organic and environment friendly
practices of any amount will not require complying ESDD checklist. Agribusiness involving sorting,
packaging, distribution and sales will also not require completing ESDD checklist.
Cottage, Micro, Retail and Trading Enterprises: For financing in cottage, micro, retail and trading
enterprises, only the exclusion list has to be complied. Loan proposal for E&S sensitive retail & trading
enterprises of any amount which include chemical or chemical ingredients, highly fire absorbent products,
electronic appliances, combustible oil, paper and dry materials, plastic items has to be complied with the
ESDD checklist.
Small Enterprises: Financing in Small Enterprises (manufacturing and services) and the loan/investment
proposal (New/Renewal/Rescheduling/Restructuring) of any amount which include:
i. washing, dyeing and finishing units of RMG sector (water, chemical pollution),
ii. small steel rerolling mills (operational health and safety, thermal, air pollution),
iii. brick kilns (air pollution, child labour, burning of fossil fuel),
iv. units for tanning, dressing and dyeing of leather and fur (water, chemical, air pollution),
v. pesticides, agrochemical and nitrogen manufacturing units (land contamination, water, air
pollution),
vi. chemicals and chemical products manufacturing units (safety, pollution),
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vii. rubber and plastic products manufacturing units (pollution),

viii. batteries and accumulators manufacturing units (chemical pollution),
ix. any other industry or business segment falls under the red category of ECR 1997 (Environmental
Conservation Rule 1997) will have to be complied with the ESDD checklist in addition to Exclusion
List.
Apart from environmental issues mentioned above, for financing in small enterprises amounting to more
than BDT 3.00 million (30.00 lac) has to be complied with the ESDD checklist. If the financing proposal is
not more than BDT 3.00 million (30.00 lac), only the exclusion list has to be complied.
Medium Enterprises: All loan/investment proposals (New/Renewal/Rescheduling/Restructuring) from

medium enterprises (manufacturing and services) amounting to more than BDT 5.00 million (50.00 lac)
enterprises have to be complied with the ESDD checklist in addition to Exclusion List compliance. If the
financing proposal is not more than BDT 5.00 million (50.00 Lac), only the exclusion list has to be complied.
Large Enterprises (Manufacturing and Services):Financing in all large manufacturing and service
enterprises (other than CMSME, retail and trading enterprises) have to be complied with the ESDD checklist
in addition to Exclusion List compliance.
Infrastructure Projects: All loan applications (New/Renewal/Rescheduling/ Restructuring) for

Infrastructure Projects have to be complied with third party Environmental and Social Impact Assessment
(ESIA) in addition to the compliance of ESDD checklist and Exclusion List. Infrastructure projects include
those basic facilities and services which contribute to different economic activities and thereby help in the
large scale socio-economic development of the country. Infrastructure projects will cover the following
categories:
 Power (Electricity, Oil or Gas) Generation, supply, pipelines etc

 Transport; Road, bridge, tunnels, airports, ports, railways, terminal & depots, inland waterways
 Economic Zones, EPZ, PEPZ
 Communication/Telecommunication
 Fixed lines, transition lines & towers, satellites etc
 Land development, Real State, Commercial Building
 Tourism Industries
6.3.2 Conducting ESDD
Conducting ESDD on transactions is a critical component of the bank’s ESMS and its outcome needs to be
factored in the decision-making process for proceeding with a transaction. The purpose of the E&S
appraisal is to:
a) Identify and assess potential E&S impacts and issues, both adverse and beneficial, associated
with a proposed investment project;
b) Conduct a gap analysis to define areas of project noncompliance with the requirements of the
national laws;
c) Assess the commitment and capacity of the client to manage identified impacts and define
remedial measures as needed;
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d) Evaluate the quality and adequacy of the client‘s ESMS and practices to avoid, minimize, or
mitigate adverse impacts, and define remedial measures as needed;
e) Identify measures to avoid, minimize, mitigate, or offset/compensate for adverse impacts on
workers, affected communities, and the environment;
f) Design an E&S Action Plan (ESAP) addressing all deficiencies and non-compliances discerned
during the appraisal containing specific tasks designed to close all significant gaps;
g) Ensure that the loan/investment contracts (e.g., loan documentation) include appropriate
definitions, covenants, clauses and associated elements to obligate the client to comply with all
E&S laws and regulations, the ESAP, and applicable sections of general and sector specific
checklists; and stipulate progress and performance reporting obligations;
Bank needs to refer to the ESDD checklist only for carrying out the ESDD. The ESDD checklists will auto
generate the E&S risk ratings – high, medium and low based on the responses provided to the questions in
the checklist.
The process of E&S due diligence, filling in the ESDD checklists can involve a simple desktop review or may
require a site visit with the use of technical experts, if necessary, to understand potential E&S risks
associated with business activities and review a client‘s compliance with the Bank‘s E&S requirements.
Relevant documents have to be collected to support E&S findings. The ESDD checklist has relevant guidance
to assist in collecting proof points. Below are typical steps for conducting ESDD.
Step1- Exclusion List: Screening of the project against a list of excluded activities adopted by the bank;
Step 2- DoE Categorization: Review of industry sector and environmental and social issues that are
typically associated with this type of operation. The loan/investment applications do not fall into any
category (Red/ Orange/Yellow/Green) defined by DoE, will be categorized as 'others' under this guidelines;
Step 3- ESDD:
Review the project‘s compliance with applicable national environmental and social regulations;
Review the project sponsors‘ track record on environmental and social issues, in terms of potential non-
compliance with national regulations or negative publicity;
Review the project‘s compliance against international standards or industry best practice regarding
environmental and social issues; and
Documenting all required information. Every loan file should have a fully completed E&S checklist, copies of
all permits, clearances (DoE clearance certificate, fire license, buyer‘s financial audit report by external
auditors), ESAP, E&S Covenants in loan agreement and after disbursement subsequent supervision reports.
Step 4- Generate Risk Rating: Upon completion of the relevant checklist a risk rating (High, Medium, or Low)
will be generated automatically.
Step 5- ESAP: For High and Medium Risk transaction, a time bound action plan and relevant covenants
have to be included in the loan documentation.
Step 6- Escalation: Depending upon the risk rating, the transaction has to be escalated to the relevant
authority. Please refer to the escalation matrix (Annex-15) for the process to be followed.
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Step 7- Monitoring: Review of the proposed actions (if any) to mitigate potential environmental and social
issues associated with the project throughout all phases of the project life cycle.
Step 8- Reporting: The bank will have to report both internally to senior management and also externally
to Bangladesh Bank, shareholders on their sustainability performance.
The bank shall document all findings from the due diligence, which will be considered during the decision-
making process before proceeding with a transaction. The bank will ensure that the findings are reviewed
and factored in to the decision-making process. The following flow chart summarizes the steps to be
followed while conducting ESDD.
6.3.3 Decision making process

Once the ESDD is completed the checklist will auto generate a risk rating-High, Medium or Low.
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High Risk: Transactions typically involve clients with business activities with significant adverse E&S
impacts that are sensitive, diverse, or unprecedented. A potential impact is considered sensitive if it may be
irreversible (such as loss of a major natural habitat), affect vulnerable groups or ethnic minorities, involve
involuntary displacement and resettlement, or affect significant cultural heritage sites.
Medium Risk: Transactions typically involve clients with business activities with specific E&S impacts that
are few in number, generally site-specific, largely reversible and readily addressed through mitigation
measures and international best practice. Potential adverse environmental impacts on human populations
or environmentally important areas are less adverse than those of High Risk transactions.
Low Risk: Transactions typically involve clients with business activities with minimal or no adverse E&S
impacts.
All the low risk transactions will be approved by usual approval tier designated by the Credit Policy
of our bank.
All the medium risk transaction will be escalated for approval to respective delegated authority but
not less than Managing Director after reviewed by Sustainable Finance Unit and Credit Risk
Management Committee.
All high risk transaction are to be escalated to the Board of Directors for approval (in urgent cases,
EC may approve the facility but post facto approval to be obtained from the Board of Directors) after
reviewed by Sustainable Finance Unit and Credit Risk Management Committee.
To conduct Generic/ Sector specific ESDD as well as to adhere with the other terms and conditions of
Environmental & Social (E&S) Risk Management issues for expanding credit/ investment, a separate guideline
has been developed which has been circulated vide Instruction Circular no.2995/2023 dated 09.02.2023.
6.4 Special case of related person lending

No loan or advances shall be sanctioned to any Director of our Bank or any firm or company where they have
interest as Proprietor/Partner/Director or to their family members as defined in section 26 (Ga) of Bank
Company Act as well as BRPD Circular No. 4 of 23 February 2014 and any amendment thereafter. However,
where Director’s Loan needs to be approved, it must be approved by the Board of Directors of the Bank. In that
case, a heightened level of caution will be exercised.
A potential area of exploitation arises from granting credit to related persons, whether companies or
individuals. Related parties typically include a bank’s promoters, major shareholders, subsidiaries, affiliate
companies, directors, and executives. The relationship includes the ability to exert control over or influence a
bank’s policies and decision-making, especially concerning credit decisions. It is crucial for a bank to
systematically identify and track extensions of credit to related persons. The issue is whether credit granting
decisions are made rationally and according to approved policies and procedures.
Under no circumstances should a loan be made to a related person on terms and conditions more favorable to
that person than to any unrelated client. In this context, “more favorable” means a lower interest rate, lower
upfront fee, less collateral, lower-quality collateral, longer tenor, or less frequent interest payment. Any loan or
other extension of credit to a related person must be approved by the Board, and the aggregate amount of all
loans and other extensions of credit to bank-related persons cannot exceed 10% of the bank’s Tier 1 capital.
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i) Avoidance of undue influence on credit decision

The Board and senior management must set the proper “tone from the top” in not pushing through loans to
related persons that violate laws, BB guidelines and circulars, the bank’s own credit risk management policy,
and best banking practice. Ability to repay must be the primary criterion for approval. Banks must have
policies and processes to prevent related persons from participating in the proposal and approval discussions.
ii) Avoidance of “daisy chains” and other devices to evade rules and sound practices in related person
lending
The Board and senior management will be held responsible for ensuring that the bank does not enter into so-
called “daisy chains” or other reciprocal arrangements that are designed to evade the rules, aggregate limits,
and sound practices in lending to related persons. A daisy chain is created when Bank A lends to a related
person or persons of Bank B, Bank B lends to a related person or persons of Bank C, and Bank C lends to a
related person or persons of Bank A. (Chains often have even more than three links, to further disguise the
coordinated violation.) A reciprocal arrangement is created when Bank A lends to a related person or persons
of Bank B, and Bank B lends to a related person or persons of Bank A.
BB will closely inspect and monitor for the existence of these daisy chains and reciprocal arrangements, and
those that are entered into without any independent business justification except for the purpose of evading the
rules, limitations, and sound practices, shall be considered as violations of the relevant laws, guidelines, and
circulars, and subject the bank(s) to measures to take corrective action.
6.5 Mitigating factors

Risks inherent in a credit proposal shall have to be identified and appropriate mitigating factors should be
applied. These are to be summarized in the Credit Assessment Form. Bank always try to manage the risk to a
level commensurate with the return. Some of the most commonly used mitigating factors are:
 Secured the facility with collateral security
 Develop a set of covenants that protects the bank for the duration of the relationship.
 Matching an appropriate type of loan to both the loan purpose and the likely repayment source.
 Monitor the relationship.
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CHAPTER-VII
CREDIT APPROVAL AUTHORITY
Mercantile Bank PLC believes in decentralization of powers. In order to implement the system of delegation of
powers effectively, and to derive the desired benefit for the Bank as well as the Executives concerned, the Bank
developed a system to ensure that the delegated authority exercised by the Executives can be evaluated
realistically and qualitatively. For that purpose, the Bank will have to develop a Management Information System
(MIS) so that the Board of Directors gets prompt and systematic feed back as to how effectively and efficiently the
delegated authority is being exercised by the Executives. For the purpose of investment of Bank’s Fund, the
cardinal principle is ‘Safety first, Business next’. Delegation of power shall test the ability of the Executives to take
decisions judiciously with honesty and integrity to achieve the objectives of the Bank.
All powers of the Bank are vested in the Board of Directors. They are the source of all powers and any person or
body can exercise only the powers delegated by the Board of the Directors in ways and manners specified by
them. With a view to ensuring prompt and efficient services to its multitude of clients spread far and wide, the
Bank envisages delegation of optimum powers to its Executives and Officials at different levels of operations. But,
while delegating powers, the Board of the Directors is also aware of the following principles and factors:
(a) The Board of the Directors can delegate the authority, not its responsibility.
(b) The evil of dual sub-ordination may creep in the chain of command if authority is not well defined and
properly implemented.
(c) Exercise of the delegated authority must commensurate with the shouldering of the responsibility.
7.1 Revision of Credit Approval Authority:

The Board of Directors will review enforcement of the delegated authority by the Executive Committee of the
Board of the Directors and the Managing Director at least annually and revise the same as and when required.
On the other hand, the Managing Director will review the enforcement of the delegated credit approval
authority by the Executives at least annually and revise the same within the indicative maximum limit
approved by the Board of the Directors, if necessary. However, the Managing Director may cease or curtail
delegated authority of any Executive at any point of time without assigning any reason. The Managing Director
will place a report before the Board of Directors at least annually regarding enforcement performance of all
executives enjoying credit approval authority.
7.2 General Principles for Credit Approval Authorities:

Delegated powers shall be exercised by the authorized officials judiciously keeping in view the interest of the
Bank. In exercising the powers so delegated, authorized officials shall abide by credit restrictions, CIB
clearance, ICRRS restriction, margin restrictions, stipulation regarding period of repayment in force from time
to time, etc. NOC/ Consent of Bangladesh Bank shall be obtained accordingly, if required.
i) The credit approval function is being segregated from the Corporate/Relationship Management
function (Marketing).
ii) The Managing Director is empowered in line with the prudential guidelines of Bangladesh Bank to
assign any executives with the business power for credit approval of all cases from higher authority
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Chapter – VII (Credit Approval Authority)
to lower authority within the approved structure, if required for better functioning of the delegation
of business power.
Credit approval authority must be delegated in writing from the Managing Director, acknowledged
by recipients, and records of all delegation retained in the Human Resources Management Division.
Information Technology Division will input the delegation in the computer system as assigned to
respective executive/ officer.
iii) Any limit approved by the executives should be within his/her delegated power as conferred to
them by Managing Director and CEO. Pooling or combining of delegated powers of the executives is
not permitted.
iv) Unless personally authorized by a separate letter, mere mention of delegation in this guideline shall
not entitle an official falling under the category to exercise the powers.
v) Any credit proposal that does not comply with Lending Guidelines, regardless of amount, should be
identified in the applications and a justification for approval has to be referred to Head Office for
approval by the Executive Committee of the Board of Directors/Board of Directors of the Bank.
vi) Any breaches of lending authority to be reported to Managing Director & CEO and Head of Internal
Control.
vii) The schedule of business powers lays down in Delegation of Business Power is the maximum power
against per customer. A customer will mean Individual, Proprietorship firm, Partnership firm,
Private Limited company, Public Limited Company, Joint-venture, Co-operative Society duly
registered, Trustee Board operating private education/ health institutions, Micro Financing
Institution duly registered, Group of entities comprising of sister /allied/ associate concerns.
viii) While determining sanctioning power per customer against different types of credit facilities the
existing sanctioned limit /liabilities and the proposed amount of limit to be taken together and the
total amount of a particular facility must not exceed the delegated power of sanctioning authority of
the specific type/nature of credit facility.
ix) Credit exposures will have to be calculated on the basis of the “one obligor principle” i.e. exposure of
the customer, it’s sister/ allied concern(s), director(s), partner(s), proprietor and guarantor’s are to
be considered together. However, the value of lien FDR/ Financial Obligation (issued by MBPLC),
will have to be deducted from the total exposure of the customer to calculate the net exposure.
x) A customer should not be allowed credit facilities in different natures/types form Branches without
the approval of Head Office. However, L/C facilities with eventual liquidation facility i.e LTR, HP,
Lease Finance can be allowed within business delegation.
Head of Branch may also allow loan /SOD against FDR and/or scheme deposit favouring a customer
as per his business delegation irrespective of exposure of the customer/Group.
xi) A party should not be allowed credit facilities in different names or from different Branches without
the authority of Head office. A party will mean any one person/firm/company/ concern and will
include his/its sister concerns.
xii) No Business power shall be applied to accommodate customers to whom Head Office has already
sanctioned limit or proposals of which have already been declined by Head Office. However, the
approved credit facility will be renewed/ enhanced if it falls within the revised Business power or
Business power of concerned authority is increased due to change of incumbent and/ or post/
designation.
xiii) The value of security against loans and advances shall be determined based on banker-customer
relationship, creditworthiness of the customer, potentiality of the business of the customer etc. But
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Head of Branch (HoB) and Head Office Management shall exercise their business delegation for loan
amount (excluding loan/ investment that are exempted from security clause) up to 75% of collateral
value (FSV) [With some exceptions detailed as mentioned in Annexure 16- Delegation of Business
Power. Credit facilities with insufficient or no collateral security will be approved from the
Executive Committee of the Board of Directors or the Board of Directors of the Bank irrespective of
amount ]. Head of Branch may also allow SOD (FDR)/ SOD (SS)/ Loan (FO) favouring a customer as
per his business delegation (maximum 80% of encashment value of FO) irrespective of exposure of
the customer/Group.
However, approval of credit facility under specific PPG/ loan product (without collateral) to be
obtained from Head Office Management/ Competent authority of the Bank.
xiv) Before issuance of any Bid Bond, it must be ascertained whether the customer will require
Performance guarantee or any other subsequent credit facility. In case of requirement of
subsequent facility, the credit worthiness to be assessed before issuance of Bid Bond.
xv) Authority beyond delegated powers of Head Office Management shall be exercised by the Executive
Committee of the Board of the Board of Directors/ the Board of Directors.
xvi) Branch will send proposal as per prescribed format for Force Loan [Force Loan (Export)/ Force
Loan (Import)/ Force Loan (Bank Guarantee)] to the respective division of Head Office well ahead of
the maturity date/ due date/ after receiving encashment claim of Bank Guarantee for ensuring
timely payment against contingent liabilities. After having approval from the respective sanctioning
authority, Branch will seek draw-down permission from Credit Administrative Division.
If a customer is allowed forced Loan[Force Loan (Export)/ Force Loan (Import)/ Force Loan (Bank
Guarantee)], other approved credit limit of the customer will be suspended and case to case
approval from Head Office to be obtained for allowing any other facility till adjustment/
regularization of force loan liability.
xvii) There shall be no power to sanction any clean advance i.e., without any security (primary/
collateral/ guarantee/ Cheque etc.).
xviii) A proposal having Medium Risk in terms of Environment & Social Risk(ESRM), will be approved by
respective delegated authority but not less Managing Director after reviewed by Sustainable
Finance Unit and Credit Risk Management Committee. On the other hand, all High Risk (in respect of
ESRM) proposals will be escalated to the Board of Directors (in urgent cases, EC may approve the
facility but post facto approval to be obtained from the Board of Directors) after reviewed by
Sustainable Finance Unit and Credit Risk Management Committee.
xix) The customer to whom credit to be allowed should be as far as possible within the command area i.
e. area of operation of the branch.
xx) Sanctioning officer/executive shall not be involved in the sanctioning process of any credit to any of
his/her near relations and to any firm/company where his/her relations have financial interest.
Such cases should be sent to Head Office for consideration.
xxi) No loan or advances shall be sanctioned to any Director of our Bank or any firm or company where
they have interest as Proprietor/Partner/Director or to their family members as defined in the Bank
Companies Act, 1991.
xxii) There shall be Credit Risk Management Committee at Branch and Head Office. The role of the
Committee is restricted only to the review of proposal and making recommendation within the
context of the bank’s overall loan portfolio. They also review compliance with regulatory
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requirements. All large loans must be recommended by the Credit Committee & Managing Director
and approved by the Board.
xxiii) However, in case of any disagreement between the committee and the concerned Executive(s), the
matter may be referred to the Head Office/Managing Director for disposal for the greater interest of
the Bank. All members of the credit risk management committee (Management) shall also be
accountable collectively and individually for their injudicious decision.
xxiv) Approvals must be evidenced in written forms which must be kept on file with the Credit
Applications.
xxv) These rules containing schedule of powers shall be treated as strictly confidential and shall always
be in the custody of the executive/Officer to whom it has been issued.
xxvi) Sanction of advance/limit should be advised to the borrowers detailing properly the terms and
conditions and written confirmation of acceptance of the same to be obtained from the customer.
xxvii) Renewal proposal should be properly reviewed and financial projections of earlier proposal will
have to be considered by the respective approval authority.
xxviii) All formalities connected with the investigation into the credit worthiness of the parties, processing
the proposals, compilation of credit reports and obtaining necessary documents should be observed
meticulously.
xxix) Disbursement of loans presupposes observance of all norms and procedures as per rules and
guidelines in this Delegation of powers, Manuals and also conveyed through different circulars of
Head Office and Bangladesh Bank from time to time. The disbursing officer shall ensure that all
documentation of credit have been duly completed before disbursement of credit.
xxx) The Branch In-charge shall remain responsible for constant supervision and follow-up of the
advances allowed under the discretionary powers and keep Head Office informed of the
disproportionate variations.
xxxi) Recommending and supervisory officials shall remain accountable for their respective roles.
xxxii) Sanctioning Officer/ Executive will be accountable for non-recovery due to his injudicious decision.
xxxiii) Any credit proposal that does not comply with the Bank’s Internal Policy, regardless of amount,
shall have to be submitted with justification to the Executive Committee of the Board of Directors/
Board of Directors for approval.
7.3 Rules on Margin
Margin on various loans and advances will be in accordance with instructions issued from time to time by
Head Office. In case where minimum margin is specified, the percentage may be increased according to
market conditions, sale ability/durability/ bulk/storage position and inspection facility of the goods.
Percentage given below shall be followed meticulously:
SL. PARTICULARS REQUIRED MARGIN
1. Hypothecated goods as Primary security having collateral security : Preferably 50%
2. Hypothecated goods as Primary security having no collateral security : Minimum 50%
3. Lien and Pledge of FDR and other scheme deposit of our bank as primary : Minimum 5% on encashment value
security
4. Unit Certificate ; Minimum 10%
5. Documentary Bill : Minimum 10%
6. Immovable property : Preferably 50%
7. Govt. Authorized Debenture Minimum 40% of face value
8. Company Shares & Debentures listed with DSE/ CSE and CDBL : 30% or 40% on last 06 months
avg. market price of A category or
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B category shares respectively.

However, exposure shall not exceed
Tk. 300.00 lac to active member of
SEC.
9. For Industrial working capital margin on raw material/ finished goods : Minimum 20%
7.4 Criteria for Entitlement of Approval Authority:
It is essential that executives enjoying credit approval authority have relevant training and experience to carry
out their responsibilities effectively. As a minimum, approving executives should have the followings:
1. At least 5 years experience working as a relationship manager or account executive.
2. Training and experience in financial statement, cash flow and risk analysis.
3. A thorough working knowledge of Accounting
4. A good understanding of the local industry/market dynamics.
5. Successfully completed an assessment test demonstrating adequate knowledge of the following areas:
 Introduction of accrual accounting.
 Industry/ Business Risk Analysis
 Borrowing Causes
 Financial reporting and full disclosure
 Financial Statement Analysis
 The Asset conversion/Trade Cycle
 Projections Loan Structure and Documentation
 Loan Management
7.5 Credit Approval Authority:
Credit approval authority may be delegated to the following body/Executive:
1. The Board of Directors

2. The Executive Committee of the Board
3. Different tier of the Management
7.5.1 The Board of Directors:

The Board of Directors will have the authority to sanction any loan for the amount not exceeding/ violating
the regulatory limit/ norms. Besides, the following proposals need to be approved from the Board of
Directors of the Bank:
 All proposals for waiver of interest, commission, charges etc must be approved by the Board of
Directors. However, it will not have the authority to approve any proposal for waiver of principal.
 All Large Loans of the bank must be approved by the Board of Directors.
 Any credit proposal loan (irrespective of amount) needs approval from the Board of Directors, if the
Environmental and Social Risk is ‘High’.
 Change of Board of Directors of the borrowing concern
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 Providing NOC for creation of Pari-passu Security Sharing Charge by the other lenders of the
borrowing concern.
7.5.2 The Executive Committee of the Board:
The Executive Committee of the Board of Directors may sanction any loan or facility/ Investment for the
amount exceeding the delegation of the Managing Director below the delegation of the Board of Directors.
7.5.3 The Management:
Different tiers of the Management may be delegated credit approval authority to ensure timely disposal of
the credit proposals at root level. In the Management, the following executives may be delegated credit
approval authority:
1. The Managing Director & CEO can exercise all the powers vested to other Executives/Officers of the
Bank.
2. The Managing Director & CEO can delegate the business power (as approved by the Board of
Directors) to Additional Managing Director / Deputy Managing Director / Executives/ Officers of the
Bank by a separate letter issued by him or under his order.
3. Unless authorized by a separate letter as In-charge of a particular Branch/ Division/ Regional Head,
mere mention of delegation in the business power shall not entitle an official falling under the
category to exercise the powers. Delegation of business power will be communicated to concerned
Executives or officer from Human Resource Division, Head Office at the order of the Managing
Director and CEO of the Bank.
4. Executives and officers shall be authorized to exercise delegated powers only when posted as In-
charge of Branch/ Regional Office/ Division after being authorized by a separate letter.
4. The Managing Director may suspend or reduce delegated powers of any Executive/Officer through
specific or general order at his discretion with the prior/ post facto approval of the Board.
5. The Managing Director may approve the change of/in Proforma Invoice (PI) against which the Board
of Directors/ the EC of the Board of the Directors has approved LC facility with the condition that
value of revised PI shall not exceed the approved amount keeping all other terms, conditions, facility
and security arrangements unchanged. Post facto approval to be obtained from the Board of
Directors/ the EC of the Board of the Directors
6. Managing Director/ Additional Managing Director may allow temporary validity extension of
revolving credit limit (approved by the Board of Directors/ the EC of the Board of the Directors) for
maximum 01 month from the existing expiry of the limit as per prevailing terms and conditions for
smooth transaction, provided that Branch did not send the renewal proposal on genuine ground. In
case of Large Loan, But documentation (At least charge documents to be completed before obtaining
draw down permission) Post facto approval to be obtained from the Board of the Directors.
7. Managing Director & CEO can revive the approved facility(ies) for further 15 days which has been
cancelled due to non availing within 45 (Forty Five) days of issuance of sanction advice under a
genuine ground for not availing the facility within the stipulated time.
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8. The sanctioning authority shall exercise their prudence and judgment at the time of applying
delegated Business powers.
7.6 Rules of Sanctioning Loans

1. Sanction orders will be communicated by Head office to the Branches and by the Branches to the
parties under Double signature as follows :
a. For the limits sanctioned at Head office level : By Executives not below the rank of Assistant
Vice President'
b. For the limits sanctioned at Branch level : Branch-In-Charge along with next senior executive/
officer.
2. Prescribed limit of business powers shall not exceed under any circumstances.
3. Goods and produces against which advances are made should be readily marketable (where
applicable).
4. Loans & Advances allowed against FDRs/Cash Collateral's, etc. shall be adjusted immediately before
the encashment value of the instruments and outstanding advance amount becomes equal or upon
maturity, whichever is earlier.
5. In case of advance against mortgage of property, original Title Deed and all chain of documents i'e'
C.S Parcha, R.S. Khatian, Mutation Certificate, Non-encumbrance Certificate, Municipal Tax Receipt,
Approved plan, Rent Receipt (upto date) etc. should be checked by a paneled lawyer or by the
'Bank's Law Officer who must certify about 'correctness of ownership and suitability as security
against the advance'.
6. Money suit/court cases against any defaulting borrower are to be filed by the branches after
obtaining prior approval from Head Office.
7. Branches shall maintain Bank's printed "Limit Sanction Register" which will record serially all the
limits sanctioned.
7.7 Delegation of Business Power

7.7.1 Delegation for Individual Nature of Loan
Different tier of the Management may be delegated authority to sanction a single product credit limit aimed
at facilitating both continuous and one-off basis transactions. Concerned executives will exercise the
delegated authority after complying with all preconditions set in different chapters of CRM policy and in the
relevant circulars in force. A revised delegation of Business Power is enclosed with this policy for approval
Annexure – 16.
7.7.2 Delegation for composite credit limit/ facilities
Credit Limit to a single customer comprising of more than one facility/product will be treated as a
Composite Limit. The Managing Director is authorized/ delegated to allow composite credit facilities within
the delegation as per delegation allowed for individual nature of loan. But composite limit shall not exceed
Tk.10.00 crore, out of which no circumstances funded facility shall exceed Tk.5.00 crore.
Additional Managing Director/Deputy Managing Director shall exercise business power delegated to them
by the Managing Director. However, Additional Managing Director is allowed to sanction composite credit
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facilities up to Tk.7.00 crore (funded maximum up to Tk.3.00 crore) and Deputy Managing Director is
allowed to sanction composite Credit limit up to Tk.5.00 crore (funded maximum up to Tk.2.00 crore).
The bank’s internal audit department must review the functioning of the authority delegations at
least annually, to ensure that there are no breaches.
7.8 Exceptions of Delegation of Authority

In certain, limited circumstances, exceptions may be granted to the approval authority policy on a case-by-
case basis. However, such exceptions should be rare, and the reason for the exception should be stated in the
loan file. A compilation of the exceptions should be provided to the Board of Directors on a regular basis.
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CHAPTER-VIII
Organization Structure and Segregation of Duties
The appropriate organization structure must be in place to support the adoption of policies. The key feature is the
segregation of the Marketing / Relationship Management function from Approval / Risk Management /
Administrative Functions.
Credit approval shall be centralized within the CRM function. Credit application shall be approved by the
Managing Director and CEO / Additional Managing Director / Deputy Managing Director / Head of Division, Head
Office / Head of Branches as per their delegation of business powers approved by the Board of Directors and
beyond their authority, the proposals are to be placed before the Executive Committee of the Board of Directors /
Board Meeting of Board of Directors for approval.
8.1 Organization Structure :

Management structure for credit marketing, approval, disbursement and monitoring at Head Office level:
Managing Director & CEO
CRO CSBO CBO COO
Head of Head Head of Head of Head of Head of Head of Head of Head of Head of Head of Head of
Credit Risk of Card & SMEFD CBD Islamic Agriculture Retail Central Special Monitoring Internal
Management CAD ADC Banking Credit Banking Law Assets & Early Audit
Division Division Division Division Management Alert
Division
Syndication & Structured Finance Unit
Credit Disbursement & Compliance of
Business Development &Relationship

Management of Islamic Investment
Agriculture CreditApproval
Corporate Credit Approval
Relationship Management
Legal Matters of the Bank

Sustainable Finance Unit
Card Proposal Approval
Business Development
Retail Credit Approval
Central Collection Department

RMG Monitoring Cell
SME Credit Approval
Recovery Unit
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Chapter – VIII (Organizational Structure and
Segregation of Duties)
Management structure for credit marketing, approval, disbursement and monitoring at Branch level:
Head of Branch/RM
CRM (Approval) Credit Administration (documentation, Recovery Unit

disbursement, custodian of documents&
compliance)
8.2Segregation of Duties:
The following lending functions have been segregated:
 Corporate Banking Division
 Credit Approval / Risk Management Division
 Credit Administration and Compliance.
 Special Assets Management Division
- Monitoring & Early Alert Department
- Recovery Department
- Central Collection Department
 Central Law Division
The purpose of the segregation is to improve the knowledge levels and expertise in each department, to decrease
the probability of loan default, to ensure controls over the disbursement of approved loan facilities and obtain an
objective and independent judgment of credit proposals. The job responsibilities of different units are as follows:
8.2.1 Corporate Banking Division
 Functions Corporate Banking Division
1. To act as the primary contact person with the borrower regarding marketing of credit products.
2. To maintain thorough knowledge / up to date position of borrower’s business and industry. The
concerned officer must apply his intelligence/common sense to ascertain whether the proposals carry
value contribute to Bank’s profitability.
3. To cater customer needs and summarize the facilities, rate of interest / commission / charges /
security arrangement etc. and place to the higher authority for further process.
4. To make periodic visit / inspection in borrower’s shop / factory / warehouse/office etc. and submit
the Call report/ Visit Report to the reporting authority.
5. To scrutiny, analyze and primary appraisal of credit proposal.
6. To provide required information to the Credit appraisal team for approval / concurrence or other
action in case of need.
7. To monitor the financial performance and account conduct of the borrower and intimate the updated
position to the Credit Approval Authority.
8. To perform according to this policy that conform with CRM Guidelines of Bangladesh Bank.
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 Responsibilities of Head of Corporate Banking:
The responsibility of the Head of Corporate Banking includes planning, developing and managing the
Bank’s corporate, commercial and institutional business to ensure high profitability and sustained growth
in line with the Bank’s strategic plan, credit policies and business objectives in order to provide overall
coordination of marketing efforts for the Bank’s non-personal business including the formulation of
strategy, establishment of performance tracking systems and joint campaign with other Divisions of the
Bank. He will act as a member of bank’s Assets and Liability Management Committee. The Head of
Corporate Banking Division will report to Additional Managing Director/ Deputy Managing Director.
The other key responsibilities of the Head of Corporate / Commercial Banking are as follows:
1. Oversee the marketing and business development activities of the bank’s non-personal business.
2. Maximize Bank’s profitability through promotion of all loan products and appropriate loan pricing.
3. Ensure that credit quality is maintained and reviewed at all times.
4. Ensure a prudent level of portfolio diversification.
5. Ensure compliance with Bank Credit Policies and Central Bank regulations.
6. Contribute to the development of relationship management skills of staff in Corporate Banking.
7. Provide input to the MD& CEO and place before the Board of Directors regarding the formulation of
strategic operating plans.
8. Maintain in depth knowledge of the local market.
9. Contribute proper assessment and appraisal of credit proposal by way of primary scrutiny and
perusal.
10. To assign specific office duties for all executives and officers of the Division and take necessary steps
for job rotation.
 Responsibilities of Relationship Manager/ Credit Officer:
The responsibility of Relationship Manager (RM) is to serve as the primary relationship contact person
with the Bank’s corporate and commercial customers, to maximize relationship profitably through cross
selling and to minimize credit losses through risk assessment and timely identification of deteriorating
Credit Risk of Customers. Relationship Manager/ Credit Officer of the Branch will report to the Head of
Corporate Banking Division.
The other key responsibilities of the RM is as follows:

1. Maintain thorough knowledge of borrower’s business and industry through regular contact,
factory/warehouse inspections, etc. RMs should proactively monitor the financial performance and
account conduct of borrowers.
2. Timely and accurate submission of Credit Applications for new proposals and annual reviews, taking
into account the credit assessment.
3. Highlight any deterioration in borrower’s financial standing and amend the borrower’s Risk Grade in
a timely manner. Changes in Risk Grades should be advised to and be approved by concerned
approval authority.
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4. Provide good customer service while ensuring that the Bank’s interest is protected.
5. Grow the customer base through marketing and business development efforts, including cross
selling to existing customer base.
6. Ensure that credit quality is maintained and customer reviews are completed in timely manner.
7. Follow up with customers to ensure the timely receipt of financial statements, loan payments and all
documentary requirements of the Bank.
8. Ensure compliance with internal policies and procedures and external regulatory requirements and
that all internal and external audit recommendations are implemented.
8.2.2 Credit Risk Management Division

 Functions of Credit Risk Management Division
1. To conduct the Credit Committee meeting and prepare Minutes of the Meeting after having
recommendation from Corporate Banking Division.
2. To prepare credit proposals (memo/ office note) and place it to the approval authority for decision/
approval.
3. Issuance of Sanction Advice / declining decision to the branches.
4. All sorts of correspondence to the branches / Marketing or Corporate Banking Division for
preparation of memo.
5. Conducting due diligence in line with Bank’s Credit policy and Bangladesh Bank / Govt. rules and
regulations.
6. To review any terms and conditions of Sanction Advice.
7. To enlist surveyor with the approval of the Board of Directors/ Management and to monitor &
review their performance periodically.
8. To produce required statements related to Credit Risk Management Division including statement of
new facilities, renewed facilities, declined facilities and submit it to the Credit Administration
Division (CAD) for placing before the EC / Board for review and guidance.
9. To perform according to this policy that conform with CRM Guidelines of Bangladesh Bank
 Responsibilities of Head of Credit Risk Management Division
To ensure sound asset quality and a conservative credit culture throughout the lending and treasury
trading/underwriting activities of the bank while ensuring the credit approval process is responsive to
customer needs and credit losses and collection costs are minimized. To provide an independent, third
party assessment/approval of credit and business risks of the bank, and serve on the Bank’s Asset and
Liability Management committee. The Head of Credit Risk Management will report to the Additional
Managing Director/ Deputy Managing Director.
The Key responsibilities of the Head of Credit Risk Management are as follows:
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100
1. Oversight of the Bank’s credit policies, procedures and controls relating to all credit risks arising
from corporate/commercial/institutional banking and treasury operations.
2. Oversight of the Bank’s asset quality.
3. To ensure that credit proposals (memo/ office note) are being placed before the competent authority
as per decision of Credit Risk Management Committee and Sanction Advice / declining decision are
being issued to the branches.
4. Provide advice/assistance regarding all Credit matters to line management / RM.

5. Ensure that the lending executives have adequate experience and training in order to carry out job
duties effectively.
6. Formulate and place strategic operating plans (Credit Policy) before the Board of Directors after
consulting in the Credit Risk Management Committee and with the MD & CEO.
7. Ensure a prudent level of portfolio diversification.
8. Ensure that credit recommendations/approvals are taken in a timely manner.
9. Ensure submission of required statements related to Credit Risk Management Division including
statement of newly approved facilities, renewed facilities, declined proposals and submit to the
Credit Administration Division (CAD) for placing before the EC / Board for their review and
guidance.
10. Ensure to follow credit policy that conform with CRM Guideline of Bangladesh Bank and updating
the Bank’s credit policies as and when required.
11. Ensure to enlist surveyor with the approval of the Board of Directors/ Management and to monitor
& review their performance periodically.
12. To assign specific office duties for all executives and officers of the Division and take necessary steps
for job rotation.
8.2.3 Credit Administration Division
 Functions of Credit Administration Division

1. To provide draw down permission to the branches in response to their confirmation that all the
pre-disbursement documentation formalities as per sanction advice has been compiled by the
branches.
2. To ensure completion of documentation formalities in compliance with terms of approval.
3. Ensure that adequate and appropriate insurance is in place on all hypothecated assets, all approved
conditions have been met and exceptions, if any, are approved prior to disbursement of loans.
4. To obtain draw down permission from the Managing Director & CEO in case of any
deviation/deferral on security and/or documentation formalities.
5. To monitor borrower’s compliance with covenants & agreed terms and account performance
annually.
6. To counter sign with the Branch Manager on documentation checklist before disbursement.
7. To issue draw-down permission/ security clearance before disbursement.
8. To ensure that the credit facilities extended to the customer are secured as per sanction.
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9. To ensure that charge documents has been signed by the borrower/ guarantor in presence of HoB or
Branch officials.
10. To provide a copy of draw down permission letter are to be provided to the Monitor & Early Alert
Department after providing draw down permission and queue to the branch.
11. To ensure submission of a one page summary report containing all past due loans, new facilities
provided, written off loans, renewal/rescheduling/enhancement of loans, capital market investment
to the Senior Management and Board of Directors on monthly basis for understanding the current
and past performance of the loans.
 Responsibilities of Head of Credit Administration Division(CAD):
The responsibility of the Head of Credit Administration Division (CAD) includes planning, organizing,
directing, controlling and reviewing the operational and administrative functions of Credit Administration
Division to ensure efficient and effective support to the concerned Divisions in line with regulatory and
Bank requirements while exercising appropriate control and independent judgment. The Head of Credit
Administration Division report to the Additional Managing Director/ Deputy Managing Director.
The other key responsibilities of the Credit Administration Division are as follows:
1. To ensure that draw down permission has been provided to the branches in response to their
confirmation that all the per disbursement documentation formalities as per sanction advice has
been compiled by the branches.
2. Ensure loan documentation and securities are duly completed as per Annexure – 17 and in place
prior to disbursement of loan.
3. Ensure to check collateral periodically and maintain control over all security documentation and the
value of cash collateral which are lien to the bank.
4. To ensure circulation of covenant violations and documentation deficiencies on regular basis to
ensure that discrepancies are being rectified appropriately.
5. To assign specific duties for each officers of Credit Administration Division.
6. Ensure compliance with all formalities regarding large loans as per Directives of Bangladesh Bank
Circulars & rules and regulations of Banking Companies Act.
7. Ensure that adequate insurance is in place on all hypothecated assets, all approved conditions have
been met and exceptions, if any, are approved prior to disbursement of loans.
8. To ensure that obtain draw down permission from the Managing Director & CEO is obtained, in case
of any deviation/ deferral on security and/or documentation formalities.
9. To ensure issuance of drawdown permission/ security clearance before disbursement.
10. To nominate 02 (two) custodians and their alternate in writing.
11. Monitor borrower’s compliance with covenants, agreed terms & conditions and also monitor account
performance.
12. To perform according to this policy that conforms with CRM Guidelines of Bangladesh Bank.
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13. To ensure that a copy of draw down permission letter are to be provided to the Monitor & Early Alert
Department after providing draw down permission and queue to the branch.
14. To ensure submission of a one page summary report containing all past due loans, new facilities
provided, written off loans, renewal/rescheduling/enhancement of loans, capital market investment
to the Senior Management and Board of Directors on monthly basis for understanding the current
and past performance of the loans.
8.2.4 Monitoring & Early Alert Department
The key responsibilities of Monitoring & Early Alert Department are as follows:
1. Receive a copy of draw down permission letter from Credit Administration Division and branches
for the loan sanctioned under Head Office and Branch delegation power.
2. To follow up for recovery of the overdue liabilities of the branches
3. To collect the monthly statement of loans and advances from the branches to monitor the overdue
position of the loan.
4. To Alert and supervise the branches for recovery of overdue to avoid SMA, Classification and
submit reports to the Management of their action on monthly basis.
5. To prepares Early Alert Statement incorporating the Overdue, EOL and SMA accounts from system
Temenos-24 on each month end and send it to the respective branch. Also prepare a progress
report of the statement eliminating the accounts already recovered /regularized and submit it to
the respective Super Cluster and the Cluster Head of the respective branch.
6. To monitor the validity of the sanction and remind the branches / Marketing Division / Account
Relationship Managers / Officers 02 (two) months earlier to the expiry for renewal of the limit.
8.2.5 Special Assets Management Division

The division consists with 02 (two) unit. These are (i) Recovery Unit ii) Central Collection Unit
(i) Recovery Unit
The key responsibilities of Recovery Department are as follows:
1. Maintain all the files of classified (SS/DF/BL/BLW) loan.

2. Takes all possible steps to regularize CL with the co-operation of the branches.
3. Meeting with the customer(s) along with the branch official(s) to know the reason of non-
repayment of the loans, find out a solution for through Rescheduling/Restructuring/ Full & Final
Settlement with waiver facility (reasonable ground, if any).
4. Taking approval of the action plan of recovery/regularization from the competent authority of the
Bank and communicate the approval to the Branch/Division/ Department. Branch will send
proposal accordingly to the Special Asset Management Division.
(ii) Central Collection Unit
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103
The key responsibilities of Central Collection Department are as follows:
1. Recovery of some classified loans (SS/DF/BL/BLW) through 3rd party debt collection agency.
2. Appoint/ engage the recovery agent and monitor their works to recover the classified loans within
the justified/given time frame with the approval of competent authority.
8.2.6 Central Law Division
The key responsibilities of Central Law Division are as
1. Control, guide, monitor, follow-up the branches/divisions/departments regarding legal

proceedings against the defaulted borrower(s) for recovery of Bank’s dues within a reasonable
timeframe so that optimum level of action for recovery, can be taken.
2. Branches/divisions/departments seek approval (where applicable)for filling suit against the
defaulted borrower in writing to the Central Law Division of Head Office with a shadow copy with
numbering of pages of the corresponding file(s) and photocopies of security documents with a
checklist.
3. Central Law Division will maintain the shadow corresponding file and photocopies of the security
documents of all the loan files of the branches/divisions/departments against which suit filed and
to be filed for recovery or writ filed by the defaulted borrower not to classified their account(s) or
to hold the auction of the property.
4. Engage/ appoint capable lawyer with the approval of the competent authority for the legal
proceedings to recover the Bank’s due within shortest possible time and in this respect monitor
the lawyer very closely and advise accordingly.
5. Job for successful auction of the properties for recovery of the loans.
6. Job to expedite the legal proceedings in court for quick disposal of the suit(s) favoring the Bank.
7. Any other work related to legal matters of the bank.
8.2.7 Management Information System Division

Management Information System (MIS) Division consists with 04 (four) cells. These are (i) CIB Cell (ii)CL Cell
(iii) EDW Cell (iv) ISS Cell
(i) CIB Cell:

1. To search for CIB Inquiry and provide the CIB Report to the respective Branch.
2. To provide guideline to the branch for proper input into the CIB data base.
3. To cross-check of the CIB inputs data that were input by the branch.
4. To make Correction/ update of the CIB data base of Bangladesh Bank.
5. To handle protest case regarding CIB from & customer.
6. To provide feedback on the query of other Bank/ Bangladesh Bank regarding CIB.
7. To collect the statement of Credit Report status of the borrowing concern from the respective branch
and update the status.
8. Arrangement of training for CIB
9. Any other job related to the CIB.
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104
(ii) CL Cell:
1. To classify the loans and advances properly in line with the BRPD Circular.
2. To ensure that adequate provisions have been maintained against the loans and advances.
3. To provide the statement regarding CL/ provision to the top management.
4. To upload the CL template (CL-1, 2, 3,4& 5) on Bangladesh Bank Web portal.
5. To circulate CL/ provision related circulars as issued by Bangladesh Bank to our branch.
6. To meet up the appropriate and satisfactory answers against the queries raised by the Inspection
Team during their inspective.
7. To conduct monitoring, supervision and follow- up the potential weakness of the accounts those are
going to NPL and advise to make corrective measures immediately.
8. To ensure proper training for CL marking and CL related operations with the help of MBPLC Training
Institute.
9. Any other job related to CL/ provision.
(iii) EDW(Electronics Data Warehouse) Cell: Major functions of EDW Cell are as under:
1. Responsible for providing different types of statements/ templates (periodic and on-demand) to the
top Management, Bangladesh Bank and other stack holders like ADB, CRISL etc.
2. Extract, Transform and Load (ETL) data from CBS
3. Develop own application to access data from DW
4. Preserve the required data.
5. Providing circulars for posting required and appropriate data in our CBS time to time and when
asked by Bangladesh Bank as well as top management of MBPLC.
6. To assist IT Division for creation of user friendly environment for posting necessary data into CBS.
7. Maintain close communication with other cells and assist them to perform their functions properly.
8. Communicate with Branches and divisions/departments at the Head Office to provide data or rectify
data anomaly when needed.
(iv) ISS (Integrated Supervisory System)Cell: Major functions of ISS Cell are as under:
1. Provide necessary guidelines and Issue circular letters to all the branches/Division to convey
important and urgent issues of ISS reporting instructed by ISM Department of Bangladesh Bank.
2. Checking and rectifying of data of any unauthorized change of Bangladesh Bank template (RIT)
contains in Form-2 & Form-4.
3. Cross checking of data provided by the branches with our GL, PL & CL data to maintain data integrity
and consistency.
4. Prepare Form-1(Monitor-Head Office) and Form-3 (Acceptance-Head Office) and sending to
Bangladesh Bank through their web portal.
5. Send Form-1, 2, 3, 4 reports (Both in Excel & CSV file) to Bangladesh Bank through CD within
stipulated time.
6. Arrange and provide necessary technical supports such as fixing web upload problem, Recover
Passwords to all branches/Head office in submitting ISS statements.
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105
7. ISS Cell collects “Prottayan Patra” from all branches duly signed by Head of Branch and Manager
Operation regarding data accuracy and then prepares the same duly signed by Chief Financial
Officer, Head of ISS Desk and DMD/AMD/MD regarding the authenticity and accuracy of data
provided in different forms and finally sent to ISM Department of Bangladesh Bank.
8. Assess training requirements in particular area of branch officials as well Prepare and send updated
“In house training report” to ISM Department of Bangladesh Bank each month.
9. Maintain close communication with the related desk of ISS reporting department of Bangladesh
Bank to get the update and communicate the same to all the branches/Division.
10. Maintain Branch user ID & Passwords to upload the various reports (RIT’s) to Bangladesh Bank web
portal.
11. To comply Bangladesh Bank’s queries meticulously regarding any issues of ISS reporting and convey
it to the concern branch/authority.
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106
CHAPTER – IX
PROCESS OF WORK FLOW
9.1 Credit Approval Process:
Credit approval process starts with collection of credit application from the customer and ends with issuance of
a written sanction letter by the Bank. Credit approval process in the bank shall be guided by some basic
principles.
9.2 Proposal Origination:

Any credit proposal and/or Pre-sanction Inspection Report/Call Report/Visit Report must be originated by the
Relationship Officer of the Credit Marketing Team or Relationship Manager of the Branch.
9.3 Identification Number:

Each borrower would have a unique identification number. The Branch originating a Credit Proposal shall
assign this number after getting sanction letter of the facility from the competent authority which will
generated from our IT system.
9.4 Time frame for decision:

 At Branch level:
Branch Authority as per their business delegation must take decision within maximum of 5-10 days after due
diligence and obtaining all required papers and documents including CIB report on the customer. Proposals
beyond their business delegation shall be sent to Head Office within 7 days after receiving the complete
proposal from the customers and all required papers and documents including CIB report on the customer.
 At Head Office level:

(a) Corporate Banking Division (CBD): Corporate Banking Division shall take decision for
recommendation or refusal within maximum of 7 days.
(b) CRM/SME/Agriculture Credit/Consumer & Retail Banking/ Special Asset Management
Division:
 If the proposed facilities are within the approved delegation of business power of the Management,
disposal to be made within 7 -10 days after receiving the proposal.
 If the proposed facilities are beyond the approved delegation of business power of the Management,
disposal to be made within 14-21 days. For the Project loan the time shall be 14-30 days. For the
loans under Syndication/ Club financing, time span shall be 30-60 days.
The Head Office Credit Committee (HOCC)/ Executive Committee of the Board of Directors/Board of
Directors shall take decision within maximum of:
 7 –10 days for simple type of facility
 15 – 30 days for Project Loan
 30 – 60 days for Loans under Syndication / Club Finance etc.
 Sanction letter to be issued within 1 – 2 days time from the date of receipt of formal approval.
 In case of Large Loan, it must be reported to Bangladesh Bank.
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Chapter – IX (Process of Work Flow)
9.5 Steps in Credit Approval and Disbursement Process:

Online or Offline Application
Customer
Addressed to
Approves or Declines of Forward
which is recommended by a credit
committee at Branch
Head of
Branch
Return back to HOB with
recommendation Forward
with advice  CIB Query
 Visit/Call Report
 CRG/ICRR
Manager-  Valuation of Collateral by Survey
Firm and Bank Official
Operations/  Legal Opinion
GB Incharge  Confidential Credit Report
 Pending docs to be received from
and then customer
Credit Incharge  Check Current Credit Policy.
Return back to Credit  Check Current Business Delegation.
 Scrutiny of Information Submitted
Incharge with through System
recommendation With advice
 Scrutiny of docs by officer
 Have pending list of documents
which is sent through system to
customer
Credit Officer  Appraisal to be done through
system
 Sanction/Decline letter if approved
Is beyond
HOB
Business
Power
Based on Business Power delegation,
approval could be made by Regional
If Regional Head. They will prepare note and
Office not recommend based on the branch
Yes Available Proposal which is recommended by a
credit committee at Regional Office
and preparation of MOM
Regional Head
Forward
Corporate Committee – Meeting Based Refer with advice
on Agenda and/or note and
recommendation of credit committee or
rejection as well as MOM
Head of Corporate Deputy Head of
Banking Division Corporate Banking
Division
Forward
with Advice
Page 108
Refer
Relationship Officer of
Corporate Banking Division
From a Business Viewpoint
Sent through Head of CBD
Will appraise & ensure that CIB Report,
valuation report, legal opinion, and all
docs are obtained and examined. They
Head of Credit Risk will prepare note and recommend based
on the branch proposal.
Management Division
Refer with With advice

From a Risk Viewpoint recommendation
Will appraise & ensure that CIB Report,
valuation report, legal opinion, and all
docs are obtained and examined. They Deputy Head of Credit
will prepare note and recommend based Risk Management Division
on the Credit Risk Management Place the proposal in Credit Risk
Committee. Management Committee
Refer with With advice
recommendation
To generate Account Officer - CRM

Sanction/Decline letter
based on approval
DMD/AMD/MD Within
No Delegation
Power
Scrutiny of Document Checklist
with Sanction Advice
Within Yes
Delegation
Power Yes Sanction/Decline
CRMD
No Regional
 Branch credit administration will send
Head/Head document checklist and accomplish
Board Division of Branch loan documentation and security
A
intimated formalities for every credit proposal
approved by Regional/HO
with a copy  Drawdown permission will be requested
to CAD from CAD by branch
 If proposal approved by branch then
documentation checklist with sanction
letter sent to CAD for information
EC of Contacts for
Board disbursement
Head
A
of CAD
Drawdown
Board permission to HOB
C CAD will setup limit
Page 109
Recommends Refer
for drawdown
Deputy Head of
Examines
CAD  Security Documents
 Loan Documents
*When documents are not in order,
special permission to be taken from the
Contacts for management (DM to be obtained from
Recommends
disbursement the Managing Director)
for drawdown
Concerned
Account Officer
 Any query at any approval/recommending level goes back to the previous stage with a note
mentioning/requisition additional information/document.
9.6 Renewals and Status Verification:

On expiry of a revolving facility, the borrower may come forward with a proposal along with necessary paper &
documents including latest Form- XII certified by RJSC (in case of Limited Company )for renewal or renewal
with enhancement of the facility for a further period. Borrower may also agree to offer additional
stocks/securities or even furnish a guarantor. The Head of Branch (Branch Manager) should examine all such
proposals and if he is satisfied, the proposals should be sent to Sanctioning Authority at Zonal Office or Head
Office as, as the case may be, if beyond his business delegation power, duly supported by full blown credit
analysis including report of verification of Stocks/status of Collateral Securities etc. as is done in case of fresh
proposals. Preferable annual recycle of the limit is 03 times. The Head Office in turn will process the
renewal/enhancement proposal after verifying the following factors:
 Justification for renewal / enhancement.

 Reasons for non-payment / non-servicing of interest of the loan in time.
 Security aspect in terms of outstanding loan.
 Credit worthiness of the client.
9.7 Reporting of Approved New Facilities And Declined Proposals:

 Monthly summary of all new facilities approved, renewed, enhanced by CRM, EC/ Board and a list of
proposals declined stating reasons thereof to be reported by the Credit Administration Division to the
Board of Directors as per format enclosed at Annexure – 18.1
 Monthly summary of newly approved loan under the delegated business power of Head of Branch
should be sent to the related Division at Head Office for their review as per format enclosed at
Annexure – 18.2
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 Concern division should review at least 10% of approved loan under delegated business power of HoB
to ensure that lending guidelines has been duly followed at the time of loan sanction. If any deviation is
found, it will be brought to the notice of the CRO and CRO shall place it to the MD& CEO of the bank.
9.8 Revision of Credit Decision:

Any credit proposal declined by an executive of the Management shall be placed before next higher authority
for reassessment/review of the decision. But no appeal will go beyond the Managing Director.
9.9 Compliance to regulation:

Any credit approval/sanction shall be subject to the banking regulations in force or to be imposed by the
regulatory body from time to time and to the changes in the Bank’s policy. This is to be specifically mentioned
in the sanction letter issued to the customer.
9.10Disbursement/Drawdown:
Security documents are to be prepared in accordance with approved terms and to be legally enforceable
through the enlisted/ competent lawyer. Standard loan facility documentations are to be drafted / prepared by
the legal counsel to protect bank’s security interest. All loan and security documentation to be completed and
clean CIB report is to be obtained from Bangladesh Bank. All formalities regarding large loans as guided by
Bangladesh Bank circulars and related section of Banking Companies Act will have to be completed as well as
all Credit Approval terms must be met. The checklist certificate is to be signed by Relationship Officer, Credit
in-charge, Foreign Exchange in-charge (where applicable), Manager Operation/GB In-charge and Head of
Branch/ Islamic Banking Window In-charge. Branch will ensure installation of the machinery before taking
draw-down permission against Term Loan/ Lease Finance/ Hire Purchase for procurement of machinery(ies)
from local sources.
The Credit Administration Division should ensure that the credit application has proper approval before
entering facility limits into computer systems. Disbursement should be effected only after execution of charge
documents and completion of covenants and creating charge on primary securities and collaterals. The
disbursement authority will be vested as per following table:
Nature of facility Head of CAD Deputy Managing Additional Managing

Director Director
Funded and Non- Up to 500.00 lac Above Tk. 500.00 lac to Above Tk. 2500.00 lac
funded Tk.2500.00 lac
In case of any deviation/deferral in security and / or documentation the approval for drawdown shall be
obtained from the Managing Director & CEO of the Bank. In no case should any loan be disbursed before
all necessary approvals have been granted. In case of conditional drawdown, the expiry date of the limits
may be up to the deadline of completing pending documentation formalities so that Branch shall be more
cautious in obtaining pending documents within the stipulated time frame.
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9.11Custodian Duties:
 Branch, Zonal Office (as applicable) and Head Office shall preserve credit files under proper control and
use is restricted to authorized individuals only. However, Security Documents are to be maintained at
Branch.
 Cash collateral such as FDR, script, bonds, marketable securities and Security Documents etc are held
under dual control in fireproof vault. Two custodians and their alternatives shall be identified in writing.
 Appropriate insurance coverage is maintained (and renewed on a timely basis) on Hypothecated as
security.
 Branch will nominate 02 (two) custodians and their alternate in writing.
 Safe in safe out register should be properly maintained to track of the movement of security documents.
9.12File Maintenance:
Separate and independent file(s) for each customer shall be maintained by the Branch, Corporate Banking
Division, Credit Risk Management Division, Monitoring, Special Assets Management Division and Credit
Administration Division (Where applicable) of Head Office. File(s) will be under the custody of the concerned
Relationship Officer or Credit Officer or Account Manager (as the case may be) who is handling the customer
within his/her Division/Department. An officer who does not handle the file will have to take written
permission from the higher authority to have access to it.
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CHAPTER-X
CREDIT RISK MITIGATION STRATEGIES
10.1 Credit Risk Mitigation
Credit Risk Mitigation strategies can be of agreements made between the bank and the borrower, or between the
bank and a third party, which lower the credit risk to the bank. The existence of credit risk mitigation is no
substitute for proper loan underwriting and loan administration. They are correctly viewed only as secondary
sources of loan repayment, never primary sources. Given the often lengthy, arduous, and costly process of
realizing the collateral or invoking the guarantee, bank are strongly cautioned against making their loans
collateral- or guarantee dependent. A loan is considered collateral-dependent when repayment is expected to be
provided solely by the seizure and sale of the collateral, the continued operation of the collateral, or, sometimes,
both together.
10.2 Collateral
For proper credit risk management, it is necessary to keep track of which loans are collateralized by which types
of collateral. “Concentrations of collateral” are nearly as dangerous as concentrations by type of loan or industry.
The loans may be categorized by collateral type into following schemes:
1) Shares and securities
2) Commodities/export documents
a) Export documents (export L/C)
b) Commodities
i) Export commodities
ii) Import commodities
iii) Other commodities hypothecated
3) Machinery/fixed assets (excluding land, building/flat)
4) Land, building/flat (owned by 3rd party is discouraged)

5) Financial obligations
6) Guarantee of individuals (personal guarantee)
7) Guarantee of institutions (Corporate Guarantee)

a) Guarantee of Bank or NBFI
b) Other Corporate Guarantee
8) Miscellaneous
a) Hypothecation crops
b) Assignment
b) Others
Page 113
Chapter – X (Credit Risk Mitigation Strategies)
10.3 Amount and type required
It is imperative that bank, when extending credit, demand the type and amount of collateral as stated in its credit
risk management policy. The loan-to-value ratio must be low enough to absorb declines in the value of the
collateral that may occur with a small, though not insignificant probability.
The most valuable collateral is cash and easily en-cashable financial collateral stipulated in Risk Based Capital
Adequacy Guidelines issued by Bangladesh Bank (in line with Basel III). Other collateral in order of its quality and
marketability would be marketable securities, real estate and a personal guarantee. The order of collateral
mentioned is the same as the operating cycle of the company. The farther away from cash, the more tenuous the
value becomes. Real estate, taken as collateral, is less liquid and marketable in the short run but is controllable
and dependable in value.
10.4 Valuation of Collateral Security
Valuation is a difficult and tricky job as there is no uniformity/thumb rule about price of land. It has been
observed in many occasions that two adjacent plots may carry different prices depending on its location and
other facilities connected to it. Bank requires the proper valuation of the property offered by customer to decide
about the credit proposals. To be more acceptable and more accurate, it is safer to assess the value of the
property by branch official(s) besides 3rd party surveyor/valuator.
10.4.1 Valuation by Branch Official(s)

Valuation of a property is a full of twist and turns. Thus, bank should not solely depend on the 3rd party
surveyor/ valuator rather they will also deploy the branch official(s) to conduct the valuation of the property. At
least one branch official along with Head of Branch will physically visit the spot (offered as security to bank) and
exercise his/her/their enhanced due diligence. Branch valuation report should contain photograph & pentagraph
of at least one branch official and Head of Branch (in case of Corporate Branch, Credit-in Charge) on the spot. This
is to ensure that Head of Branch/ Branch Official physically visited and aware of acceptability, value and actual
possession of the property already mortgaged/ to be mortgaged. At least one branch official will conduct proper
checks, search to SRO/land office, measurement etc. He/ she/ they will also keep an eye on the importance of
the locality. After physical verification, the branch official(s) will submit the valuation report as per format
mentioned in Annexure-19.1.
10.4.2 Valuation by 3rd party surveyor/valuator

Bank also dependent on the 3rd party surveyor/ valuator for valuation of the securities who are expertise on the
field of survey. The survey firms are enlisted with the Bank and meet the minimum criteria set by the bank. As
per Bank Companies (Amendment) Act, 2023, such surveyor firm should be enlisted with Bangladesh Bank.
 Job Area/ Scope and Terms & Conditions of Work
The Surveyor/valuator Company must engage professional person(s) for ascertaining the possession,
acceptability & value of the offered property as requested by the branch. The job area of the Surveyor(s)
/valuator(s) Company as under:
Page 114
Possession of the Property
 The Surveyor(s)/Valuator(s) will physically visit the spot (offered as security to bank) and ascertain the
possession, as per documents, through proper checks, search, measurement and all other necessary
things deemed fit. The Surveyor/Valuator will also search the respective SRO and/or Land Office to
ascertain the genuineness of ownership of the property.
 The Surveyor(s)/Valuator(s) will procure Location Map, Site Plan, Mouza Map etc. and furnish
identification certificate. The Surveyor/Valuator will capture the photograph of the land & building along
with the mortgagor(s), concern borrowing client(s) from different angles and be submitted with the
survey report.
 The Surveyor(s)/Valuator(s) shall be responsible to locate/identify the property to the Bank’s
Representative at any time and when required by the Bank.
Determination of the Value of the Property
 The Surveyor(s)/Valuator(s) will determine the Market Value (MV) and Forced Sale Value (FSV) of the
land mentioning its complete description, area, location, nature, ownership etc. after due cross checking
from all authentic/reliable sources. The Surveyor(s)/Valuator(s) will be solely responsible for the
overvaluation/undervaluation of the property.
 Value of building to be estimated based on the rate of plinth area of each floor. In case of under-
construction buildings, value of the property should be assessed only up to the completed portion.
 Depreciation of the buildings should be considered in appraising the buildings. Depreciation of the
building to be calculated on “Straight Line Method”.
 While conducting valuation of a land having tin-shed/semi pacca construction, only value of the land to
be considered.
 In the event of valuations assessed by the 3rd party valuator/surveyor differs widely (more than 20%)
with that of the branch assessment, another enlisted surveyor and other branch official(s) will be
engaged for the valuation of the property. The reports (one from the 3rd party Surveyor and other from
the Branch) which carry lower value will be acceptable.
Acceptability of the Property

 The Surveyor(s)/Valuator(s) will mention acceptability of the property as collateral security along with
its quality and importance of the location.
 Without having any access/approach road (vehicle can go there) a property will not be considered as a
collateral security. Access road must be recognized by the competent local authority. Self-declared
approach road in the individual capacity does not qualify the land to have the access road support.
Valuator has to mention the distance of the approach road from the spot to main road and the width of
the approach road.
 Homestead land in any rural areas cannot be taken as collateral security as it contravenes with the law
(Land Reform Ordinance), implying that none can be evicted from his/her/their habitations in the
process of exercising foreclosure by the Mortgagee Bank.
 Un-demarcated land, land besides river and marshy land will not be considered as collateral security.
 Besides, security owned by third party is to be discouraged.
 Any illegal property (or property not permissible by Sariah) will not be considered as collateral security.
Page 115
 The Surveyor/Valuator will clearly mention the surroundings of the land and/or building in the report.
Valuation of Building/Construction
 Any construction/building on the property to be mortgaged must have plan duly approved by the
competent authority as applicable. Without approved plan, value of construction/building must not be
considered in valuation report. The valuator must unequivocally certify that the plinth area of the
construction is as per approved plan of concerned competent authority.
 The Surveyor/Valuator will mention the complete description, area and nature of building/construction
including the architectural status of existing structures, Civil works mentioning RCC or Brick work, Story-
wise area and determine its Cost price, Depreciated value, Present Market value and Forced sale value
after due cross checking from all authentic/reliable sources.
Valuation of Machinery
 The Surveyor(s)/Valuator (s) will ascertain the year of manufacture, year of procurement,
imported/procurement value, country of origin, Economic life, quality, workability, durability etc. of the
machinery and assess its Market value, Depreciated value and Forced sale value with justification.
 The Surveyor(s)/Valuator(s) will also ascertain whether the installed plant & machinery are balanced in
all respect i.e. capacity wise matched, aligned etc. Images of the machinery will be taken in different
angles and be submitted with the survey report.
Other Job Responsibility of the Surveyor(s)

 The Surveyor(s)/Valuator(s) will provide the services as asked for in possible highest standard level.
They will ensure to provide all other required information, if applicable or relevant somehow relating to
the properties.
 Valuation Report must be in line with bank’s requirement as per Annexure – 19.2 and shall contain all
documents/papers such as Mouza/Ward Map, location map, photographs etc.
 Reports should be based on fair valid judgments. Valuator(s) shall be fully responsible for all the
documents and details stated in their reports.
 Valuators shall be liable to answer any dispute arising out of the possession, location or value of the
property as quoted in the report.
 Valuation report must be signed by authorized officials of enlisted Surveyor(s)/Valuator(s) as approved
by the Bank on each page of the report. Any report with the signature of unauthorized persons should
not be accepted under any circumstances.
Head of Branch must ensured that valuation/ surveyor report submitted by surveyor/ valuator
and Branch is prepared as per prescribed format (Annexure-19.1 and 19.2) duly filled in the
deviation column for processing any loan proposal (Corporate/SME/Agri/Retail). No proposal
shall be entertained unless valuation/ surveyor report is submitted by surveyor/ valuator and
Branch as per prescribed format.
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10.5 Initial and ongoing valuation

Collateral is only as good as the lender’s ability to locate, identify, and legally claim the collateral and
eventually sell the collateral for enough to recover the principal, interest, plus all liquidation costs. When
collateral is taken as security, consideration must be given to the dependability of the value, its marketability,
the liquidity and the ability of the bank to control the collateral when in the possession of the debtor and when
the bank must liquidate.
Cash flow is the primary source of repayment and the collateral taken should be valued on a liquidation basis.
The bank is unlikely to be more successful with the collateral than the borrower.
Determining value of collateral at the time of the inception of the loan is essential. Continuous updated
valuations are needed, depending on the length of the loan, particularly if the loan becomes a problem loan.
The techniques of valuing include the cost, or replacement value, market, income as a going concern or
liquidation, and the liquidation value. It is essential the bank uses outside appraisers or companies familiar
with auctions and liquidation experience. If a borrower gets into trouble, the good collateral will be the first to
be used by the borrower to satisfy other debtors or suppliers. The bank should consider the costs to liquidate,
which includes foreclosure, holding the collateral for sale, and the costs of selling.
To reiterate, it is necessary to reassess the value of collateral on a periodic basis. Appropriate inspection
should be conducted to verify the existence and valuation of the collateral. The frequency of such valuation is
very subjective and depends upon the nature of the collateral. For instance, credits granted against shares
need revaluation on almost a daily basis. Re-valuation of collateral security shall have to be done in the
following cases-
- In every 03 (three) years of valuation
- While enhancing the credit facilities
- In case of security release/replacement, the security (to be released/ replaced and newly offered) shall
have to be revalued.
But revaluation of security is not required for release of security against full and final adjustment of liabilities.
10.6 Insurance Coverage

Bank must take adequate insurance coverage from the listed Insurance Companies of our Bank, preferably
reputed companies against the hypothecated stocks, machineries, vehicles and security which is offered by the
customer for credit facility. Customer’s preference for not taking required insurance must be justified and it
must be mentioned as deviation and the said deviation shall be approved by the respective sanctioning
authority but not less than the Managing Director & CEO with the condition that the customer will provide a
separate undertaking (on non-judicial stamp of appropriate value currently Tk.300.00) to indemnify the bank
in case of any risk which may arise for not taking insurance coverage in different areas.
10.7 Third-party Guarantee(s)

The bank must understand that the credit risk on a loan is not eliminated by the existence of a third-party
guarantee. The bank merely substitutes the credit risk of the guarantor for that of its own client. With regard
to guarantees, bank should evaluate the level of coverage being provided in relation to the credit-quality and
legal capacity of the guarantor. Additional credit enhancing steps are the following:
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 The Corporate Guarantee must supported by a Memorandum of Association (MoA) and Articles of
Association (AoA) of the company giving the Corporate Guarantee. Additionally, the Corporate Guarantee
to be approved in the board meeting of the Corporate Guarantor.
 The guarantor company must be rated in any of the investment grade categories by at least one ECAI.
 The balance sheet of the third party giving a Corporate Guarantee is to be analyzed. Net-worth, total
assets, profitability, existing credit lines, and security arrangements of the company giving the Corporate
Guarantee to be analyzed to ensure that the company is not exposed to financial obligation beyond its
capability. Guarantors’ satisfactory CIB report to be obtained.
 Charges on assets of the guarantor company must be created with the RJSC&F.
 Once the financial stability of the corporate guarantor has deteriorated in terms of the above, branch
shall ask for remedial measures from the borrower (replacement/new/collateral).
 Reciprocal guarantee arrangements between two banks will be disregarded. For example, if Bank A
guarantees loans made by Bank B to certain client(s), and Bank B guarantees loans made by Bank A to
certain client(s), only the difference between the two guaranteed amounts will be considered as a credit
enhancement for the purposes of determining the overall level of credit risk at the bank whose
borrowers benefitted from the higher amount.
10.8 Name lending (Relationship Assessment):

Credit proposals shall not be unduly influenced by an over reliance on the sponsoring principal’s reputation,
reported independent means, or their perceived willingness to inject funds into various business enterprises
in case of need. These situations shall be discouraged and treated with great caution. Rather, credit
proposals and the granting of loans will be based on sound fundamentals supported by a thorough financial
and risk analysis. Related questions to be addressed are:
 Has the borrower complied with the terms and conditions of the facility?
 Adverse features include: any past dues/excesses/delays/cheque returns and or default in
covenants and/or failure to meet interest when due.
 Does the account fluctuate with the seasonality of the business?
 Has the relationship strategy and earnings for the last twelve months been met?
There shall be no power to sanction any clean advance i.e. without any security (primary/collateral/
guarantee).
10.9 Loan Documentation
Documentation should be viewed as a process of ensuring shield against risk of non repayment
comprehensively in three dimensions: (i) The type of borrower (ii) The type of loan and credit facilities &
(iii) The type of security arrangement. Details of documentation are mentioned in Annexure-20.
Annexure-20
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10.10 Residual Risk

Residual Risk is aligned with pillar 2 of Basel III. Residual risk assessment is required to estimate the
requirement of capital in addition to capital maintained under pillar 1 against Credit Risk. Residual Risk
arises from:
i. Error in documentation against loans and advances.
ii. Error in valuation of collateral security (over valuation of collateral)
A. Guidelines for Assessing Capital Requirement against Residual Risk

a. Each and every loan account will be taken for the purpose of assessing Residual Risk except that are
written off and fully covered by financial collateral.
b. Capital charge has to be calculated at Branch level and then it will be consolidated at Head Office level.
c. To avoid duplication, no capital charge is required for error in valuation if charge is imposed for error
in Documentation.
d. An indicative checklist for documentation to be conducted.
e. Documents not duly filled up or erroneous in any way or fake or forged to be taken for capital charge.
f. For a loan account fully covered by collateral and free of documentation error, valuation of collateral
will be the key consideration for capital charge. Overvaluation, if identified will be taken into account.
g. Branch network should be given software support for calculating capital requirement for Residual
Risk.
B. Computation of Capital Requirement Against Residual Risk (Ref: ICAAP Documents Bangladesh
Bank)
Require Capital against Residual risk = Base for capital charge X Factor weight for document or
valuation error.
Base for capita Charge= Outstanding of loan - Provision - MCR - Value of financial collateral
MCR= Outstanding of loan X Risk Weight as per rate or unrated X CRAR
The rate of existing CRAR (Capital to Risk Assets Ratio) set by Bangladesh Bank from time to time (Now
10%). (Example: Annexure-21)
10.11 Disbursement
The Credit Administration Division should ensure that the credit application has properly been approved
before entering facility limits into computer systems. Disbursement should be effected only after execution
of charge documents and completion of covenants and creating charge on primary securities and collaterals
(As applicable). In case of exceptions, necessary approval should be obtained from competent authorities. In
no case should any of the loan proceeds be disbursed before all necessary approvals have been granted.
Branch will ensure installation of the machinery before taking draw-down permission against Term Loan/
Lease Finance/ Hire Purchase for procurement of machinery(ies) from local sources.
In disbursing the loan, it is imperative that the borrower understand and acknowledge the purpose of the
loan. It is also imperative for the bank to design and implement checks, such as the submission of invoices,
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to ensure that the proceeds are spent on the designated purpose and for no other purpose, and for the
borrower to understand and comply with these checks.
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CHAPTER-XI
MANAGING CREDIT RISK IN THE ADMINISTRATIVE PROCESS
11.1 Borrower Follow-up and Corrective Action
Conducting customer calls and site visits to obtain key data is a critical and continuous process. For this reason it
is important for the bank to be out in the field as often as possible because:
 Problems are often evident here first.
 Problems are often disguised in financial statements.
 The loan proceeds may have been diverted to some other purpose.
Depending on the size of loan and risk rating of the customer the bank should conduct a customer call quarterly.
To do this the lender should:
 Develop a call schedule plan.
 Plan other necessary data gathering.
 Determine the frequency of site visits by utilizing the loan classification. The less favorable the
classification, the more frequent the visits should be.
In addition, bank need to watch carefully the financial standing of the borrowers. The key financial performance
indicators on profitability, equity, leverage and liquidity should be analyzed, which confirmed the usage of
borrowed fund. While making such analysis due consideration should be given to business/industry risk,
borrowers' position within the industry and external factors such as economic condition, government policies
and regulations. For companies whose financial position is dependent on key management personnel and/or
shareholders, for example, in small and medium enterprises, institutions would need to pay particular attention
to the assessment of the capability and capacity of the management/ shareholder(s).
In case of an existing borrower, bank will monitor the borrower’s account activity, repayment history and
instances of excesses over credit limits. For trade financing, bank will monitor cases of repeat in extensions of due
dates for trust receipts and bills.
Bank should regularly review the credit in terms of the borrower’s ability to adhere to financial covenants stated
in the credit agreement, and any breach detected should be addressed promptly.
11.2 Independent Internal Loan Review and Changes to the Credit Risk Rating
The concept of an independent, internal loan review is absolutely critical to proper credit risk management.
a) Loan Review vs. Loan Monitoring
Loan Review is a strategic process, a staff function:
 Accomplished by an objective third party (not the loan officer)
 Includes assessment and evaluation of individual loans, loan portfolio components
 Attempts to assess the loan portfolio as a whole
 May make recommendation for achieving corporate strategic objectives through the loan portfolio
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Chapter – XI (Managing Credit Risk in the Administrative Process)
Loan Monitoring is a tactical process, a line function:

 Accomplished by loan officer
 Tracking of a borrower, watching for loan deterioration, with the emphasis on loan repayment
b) Objectives of Loan Review
 Evaluate credit quality of the loan portfolio through an independent assessment of risk ratings
assigned to individual loans
 Assess adequacy of the loan loss reserve with conclusions based on:
 Historical loan loss and recovery experience,
 Projected loan losses and recoveries,
 Review of problem loans,
 Overall portfolio quality,
 Current and anticipated economic conditions, and
 Ability of the bank to replenish (loan loss) reserves through earnings.
Perspective adopted by loan review should be that of a potential purchaser of the loan portfolio
on a non-recourse basis.
 Determine Trends
 Loan review should attempt to extrapolate trends and identify potential problem areas and/or
unique opportunities, after examination of such factors as the quality of loan administration
and personnel, credit concentrations, and vulnerability to economic conditions.
 A review of current conditions alone is not sufficient because banking is a dynamic business,
never static.
 Identify Problems
 Credit concentrations may pose a problem, e.g.
 Once identified, examination of the source of the problem is important.
Perhaps loan administration/monitoring is weak, e.g.
 Evaluate adherence to loan policy, laws, and regulations
 Are individual loans in compliance with policy, laws and regulations?
 Why are the violations occurring?
 Is there a pattern to non-compliance?
-Perhaps the bank’s loan policy is unrealistic or should be altered
-Perhaps additional training of loan officers is needed
 Assess portfolio in relation to profitability and funds management objectives
 Evaluate profitability of individual credits.
 Evaluate the profitability of the portfolio as a whole.
 Evaluate effectiveness of loan administration and personnel by focusing on the effectiveness of:
 Loan policy,
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 Loan approval systems,

 Ongoing loan monitoring,
 Problem loan administration, and
 Loan review itself.
If warranted, make recommendations for improvement. Loan review should assess the loan management
process, credit quality, and the results/ profitability of the loan portfolio, not credit quality alone. External
inspection by BB is not a substitute for a strong loan review function within the bank.
c) Chief Elements of Loan Review
 Senior Management Support Loan review should report to the board of directors and receive strong
support from senior management.
 Objectivity is critical. Senior management sets the example; it must be willing to accept
unfavorable/undesired information without recriminations.
 Credibility is vital. A good loan review team acts as a consultant, identifying problems and
recommending solutions. Loan review staff should be competent and experienced. Loan review can
provide excellent training for potential loan managers.
d) Organizational and Reporting Considerations
Loan review is usually an independent function or part of the overall independent auditing function of the
bank. Ideally, it reports to a committee of the board of directors of the bank. The purpose of an independent
loan review function is the pursuit of objectivity. It is of critical importance, however, that loan review
personnel be competent and have lending experience, in order to maintain credibility and communication
with the lending function. If the loan review department has no credibility and/or poor communication with
the lending function, it cannot perform its function well.
e) How Loan Review Performs Its Function
 Determine what is to be reviewed and when, given time and resource limitations.
 Loans reviewed should be representative of the portfolio as a whole.
 Establish a minimum loan amount for review.
 Employ random sampling on a statistical basis.
 (Suspected) Industry concentrations must be detected and examined.
 Borrowers with certain financial characteristics should be scrutinized, e.g., erratic earnings,
interest-sensitive leverage which exceeds industry standards.
 Examine credits of a particular branch or officer where weakness or incompetence is suspected.
 Frequency of loan review is based on risk rating – the higher the risk the more frequent the review.
 Monitor situations where corrective action has been recommended.
 Be present at loan department meetings to review loan activity for conformity with original
repayment programs, pricing, funds management goals, appropriate monitoring.
f) Content of Loan Review

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Five specific issues should be addressed when examining individual credits:

 Credit Quality
 Documentation
 Liquidation of Collateral
 Pricing and Funds Management Objectives
 Compliance With Loan Policy, Laws and Regulations
g) Credit Quality
Three fundamental questions:
 Is the risk different from that perceived by the lender?
 What is the probability of repayment in accordance with terms?
 Is current monitoring adequate? Use of a risk rating system, is essential in order to reduce the
element of subjectivity as much as possible. In examining a credit, loan review must either confirm
the risk rating assigned by the lender or change it and substantiate the change.
h) Documentation
Documentation is either correct or incorrect. Loan review should point out errors with the aim of improving
protection for the bank, strengthening the position of the bank in the event of a problem. Additional
protection may well be recommended in the case of deteriorating credits. Loan review should be concerned
both with identifying existing problems and eliminating future problems.
i) Liquidation Value of Collateral
The only relevant value to apply to collateral is its liquidation value, because collateral is needed only in the
event that it must be liquidated to repay a loan. Book values are meaningless.
Loan review personnel must be experienced in working with collateral, in identifying liquidation values, in
knowing what is involved in liquidations. It is the responsibility of loan review to provide an objective third-party
opinion so that realistic loan-to-collateral relationships are maintained by lenders.
11.3 Credit Monitoring Process:

Credit monitoring process starts immediately after disbursement of the facility. Credit Monitoring enable the
Bank to monitor quality of the credit portfolio on a day-to-day basis and takes remedial measures as and when
any deterioration occurs. Establishing an efficient and effective credit monitoring system helps senior
management to monitor the overall quality of the total credit portfolio and its trends and helps to reassess credit
strategy accordingly before encountering any major setback. Steps involved in monitoring process are as follows:
Step-1: The customer starts repayment of the loan. Simultaneously, Branch starts monitoring the loan on on-site
basis. If branch finds any deviation to the terms and conditions in repayment on the loan or such any
incidents (changes in local/ global policies, unrest in the firm, declining trend of the industry,
management conflict etc.) which may affect borrower’s financial health, then an Early Alert Report will
be prepared (as per Annexure-22.1) and bring to the notice to the respective sanctioning authority
along with a copy to Monitoring & Early Alert Division, Head Office.
Step-2: The Relationship Officer at Branch level regularly reminds the customer about the irregular repayment,
if any and/or breach of contract through letter and/or phone call and/or visit in person.
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Step-3: Simultaneously, Monitoring & Early Alert Division monitors the loan on an off-site basis. If any deviation
found related to repayment (EOL, Overdue liabilities), then the department will ask the branch for
providing the reason there against (as per Annexure – 22.2). Branch will take necessary action/
strategy for regularization of the account and will sent the reply [along with new ICRR/CRG (if changed)
on the basis of latest position] of the report it to the respective sanctioning authority with a copy to
Monitoring & Early Alert Division, Head Office.
11.4 Early Alert Reporting

An Early Alert Account is one that has risks or potential weaknesses of a material nature requiring monitoring,
supervision, or close attention of the management. If such weaknesses are left uncorrected, they may result in
deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date with a
likely prospect of being downgraded Impaired status, within the next twelve months. Therefore, early
identification, prompt reporting and proactive management of Early Alert Accounts are prime responsibilities of
all Relationship Managers/Officers and the whole process must be a continuous one.
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 quick action to protect the
Bank’s interest. The symptoms of early alert shown in Annexure – 22.2 are by no means exhaustive and hence, if
there are other concerns, such as a breach of loan covenants or adverse market rumors that warrant additional
caution, an Early Alert report should be raised.
Monitoring & Early Alert Division, Head Office prepares a statement (as per Annexure – 22.3) incorporating the
Overdue, EOL and SMA accounts from system Temenos-24 after each month end and sends it to the respective
branches.
Branches send their feedback with the follow up status to the Monitoring and Early Alert Division. After receiving
the reply from the Branches, Monitoring and Early Alert Division prepares a progress report eliminating the
accounts already recovered /regularized and sends the statement to the respective sanctioning Division (to
Credit Risk Management Division for Corporate Loan, to SME Financing Division for SME Loan, to Consumer &
Retail Banking Division for Retail Loan and to Agriculture Credit Division for Agriculture Loan), to the respective
Branches for their further action with a copy to the respective Super Clusters and the Cluster Heads of the
respective branches.
Monitoring and Early Alert Division generates the loan listing of each Branch for tracking the accounts which
have already expired and also the accounts which are going to expire within the next two (02) months and
prepare Branch wise statement and forwards the same to the respective Branches for taking immediate steps for
renewal and regularization. Strong Monitoring & follow up are continued for regularization of the accounts so
that the overdue burden is reduced.
After identification of weaknesses, the Risk Grade should be updated (as applicable) as soon as possible and no
delay should be taken in referring problem accounts to the respective sanctioning Division for assistance in
recovery.
Regular contact with customers will enhance the likelihood of developing strategies mutually acceptable to both
the customer and the Bank.
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An account may be removed from Early Alert Account status when the symptom(s), causing the Early Alert
classification have been regularized or no longer exist.
Branch shall ensure that call/ inspection are regularly made on the Clients and outcome of such
visits/inspections are well documented. Call reports shall be analyzed to ensure that the affairs of the business of
the borrower is being run on expected line and there is no material change in the status of the borrower.
11.5 Timely Identification of Problem Assets

The standard practice of “looking back” at past due status, presence or absence of collateral, and other factors
resulted in provisions that turned out to be grossly inadequate on both an aggregate and individual credit basis.
A more “forward-looking” approach to the identification of problem loans and the establishment of adequate
provisions was clearly needed, and international standards such as International Financial Reporting Standard 9
on the classification and measurement of financial assets are being adopted to provide this forward-looking
approach. The independent, internal loan review described in the previous section is the appropriate framework
through which to apply this forward-looking approach.
As mentioned in the previous section on loan review, bank, in reviewing and classifying their loans, should be on
the alert for developments in the macroeconomic, industry, and competitive environment that could lead to
financial problems for those borrowers in the future. The subjective factors are to be followed as per BRPD
Circular No. 14 of 23 September 2012, “Master Circular: Loan Classification and Provisioning” and it’s related any
amendment thereafter by Bangladesh Bank in determining the classification category, and bank must avoid
taking a mechanistic approach to identifying and classifying their problem loans. In case determining the
required provision against Off-Balance Sheet (OBS) Exposure, Bank will follow BRPD Circular no. 06 dated
25.04.2023 and it’s amendment thereafter (if any).
More specifically, the following warning signs are to be considered by bank in predicting that a loan will become a
problem loan:
a) Documentation Weakness
 Failing to file collateral agreements/security agreements with appropriate public departments
 Transferring the collateral to another country/state
 Guaranties with expired dates
 Changes in legal status
 Unauthorized corporate/partner signatures
b) Collateral Deterioration
 Changes of value in the marketplace
 Rising interest rates decrease real estate and investments
 Technological advances
 Rapid depreciation of equipment or inventory
 Tax law changes (real estate)
 Natural disasters
 Spoilage or mishandling of collateral
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c) Extended Credit and High Use of Lines of Credit

 Borrower is at the top of line each month
 Failure to meet financial covenants in loan agreement
 Delays in payment of principal and interest
 Use of overdrafts/low balances in current account
 Credit inquiries from other lenders
 Change of accountants
d) Other Indications of Problem Loans
 Delay in receipt of financial statements
 Delay in management promises or returning telephone calls
 Change in senior management
11.6 The Role of Provisioning in Managing Credit Risk

Provisions for loan losses (alternatively known as loan loss reserves, loan loss allowances, valuation allowances,
etc.) are more than just an accounting entry on the liability side of bank’s balance sheet. In the aggregate, the
level of provisions must reflect the expected loss on each loan. General provisions are applied to portions of the
portfolio (currently, on unclassified loans and loans in the Special Mention Account) on a portfolio basis, based on
the expectation that some of the loans (without knowing which) will be downgraded in the future and require
specific provisions. Specific provisions are applied to individual classified loans as an estimation of expected
losses on these individual loans.
These balance sheet provisions, formed by debiting expense accounts on the profit and loss statement also
known as “provisions,” play an essential role in managing credit risk. Without accurate provisions, the Board and
senior management do not know completely whether or not certain types of lending are profitable on a risk-
adjusted basis. Funds could then flow to these unprofitable lending activities at the expense of more profitable
activities. Moreover, if loans are overvalued on the balance sheet, then capital will also be overvalued, leading to
misallocation of the bank’s scarce financial resources and interfering with all activities of risk management that
are tied to the level of capital.
The Board and senior management should recognize that loan losses are inherent in their portfolios, and
provisioning policy does not alter the timing and magnitude of these losses. Higher or lower provisions only alter
the timing of recognition of these losses. Accordingly, the bank’s long-run profitability is unaffected by the bank’s
stance on provisioning.
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CHAPTER-XII
MANAGING CREDIT RISK OF PROBLEM ASSETS
Problem loans are an inevitable consequence of lending. Any time a loan is funded, unforeseen events could
arise and make it difficult for the borrower to live up to the terms of the loan agreement. Problem loans often
begin with commercial loan officer errors – for example, inaccurately assessing the character of the borrower,
misinterpreting the figures on a spread sheet, or simply not saying no to the loan request. These causes of
problem loans should and can be minimized.
12.1 Interaction with Borrower

Once a potential problem loan has been identified, the banker needs to follow following steps:
 Develop a preliminary plan before meeting with the borrower.
 Schedule a meeting with the borrower soon after learning about the problem loan.
 Discuss the problem, explore available alternatives to solve the problem, and establish what
actions are acceptable and not acceptable.
 The lender decides what additional information, such as monthly financial statements, the
borrower should supply, so that the bank can more closely track the situation.
 The borrowers also outline interim steps to resolve the problem.
It is not enough to send a letter pointing out how the borrower is in violation of various terms of the loan
documents. The response, if one comes at all, likely will be unsatisfactory; most borrowers deny the problem
or believe that if anything is wrong it will correct itself over time. Instead, call the borrower, inform him of
the bank’s concerns, and schedule a meeting. The lender thus impresses on the borrower the bank’s desire to
cooperate, without downplaying the bank’s resolve to get to the bottom of the problem quickly. A meeting
helps to further define the best course of action – whether to continue working with the borrower, ask for
repayment, or move to liquidate the collateral. For example, an evasive or extremely uncooperative borrower
quickly enables the lender to narrow the bank’s options.
What action a lender takes depends on a thorough analysis of the causes of the loan and the likelihood of their
resolution. However, regardless of whether the bank ultimately decides to continue working with the
borrower or to liquidate, a cooperative effort is important. Avoiding unnecessary animosity is good
customer relations and helps resolve the problem with a minimum of stress for both the bank and borrower.
If the borrower is made to feel that the situation is hopeless, he or she may act precipitously. It is important,
therefore, that the lender understands the borrower’s emotional state and knows how to deal with him so
that the bank’s objective of debt repayment is realized.
12.2 Appropriateness of Rescheduling as a Means to Manage Credit Risk

In certain rare situations, the borrower may find itself in a period of temporary financial distress. Loan
rescheduling – the stretching out over a longer time period of required payments of principal and/or interest
– may be an appropriate way of handling the problem loan situation, but only if the bank is fairly certain that
the borrower can fulfill the rescheduled terms of the contract. In no way must rescheduling be used if the
bank has significant doubt concerning the borrower’s willingness or ability to repay over the long term.
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Chapter – XII (Managing Credit Risk of Problem Assets)
12.2.1 Prior considerations for Rescheduling:

A. Adversely classified Loan due to Non/delayed realization of receivables, affected by natural calamities,
riot, political unrest, sickness/death of borrower, changes in Government policy or any other
unavoidable reasons other than willful default and fund diversion.
B. The borrower who is not financially capable of repaying the loan even after the rescheduling will not b
considered for rescheduling. Specially rescheduling of unprofitable business concern cannot be
considered.
12.2.2 General Conditions for Rescheduling:

A. If a borrower applies for rescheduling the loan by paying the required down payment in cash, the bank
will compulsorily take steps to settle the same within 03 (three) months of receiving the application. If
the required amount is paid as down payment by a customer through cheque, pay order or any other
instrument, the bank will initiate the process of rescheduling after encashment of such instrument.
B. Any amount paid as regular installments prior to submission of loan rescheduling application shall not
be treated as down payment. However, the lump sum deposited by the borrower within 3 months (90
days) after intimation for rescheduling to the bank can be treated as down payment.
C. Before deciding for rescheduling, repayment capacity of the Borrower to be assessed considering the
liabilities with other banks/FIs. In this regard CIB report to be obtained at the time of receiving
Application from the borrower.
D. Repayment Capacity of the borrower to repay the rescheduled/ existing liabilities to be confirmed
through:
 Projected Cash flow Statement
 Audited Financial Statements (as applicable)
E. Head of Branch/Manager Operation and Credit In charge must visit the business premise, residence (if
rented) of the borrower to assess borrower’s capacity of sufficient earnings to repay the loan (to be
rescheduled). A Call Report in this regard to be prepared by the Branch and send to Head Office with
the loan rescheduling proposal.
F. The bank will reschedule the loan if the ability of the customer to repay the loan is proved to be
realistic/rational by following the above banking conditions. Otherwise, branch will take all necessary
legal steps for recovery and maintain appropriate provision.
12.2.3 Steps for approval of loan rescheduling (bottom up):

i. Board of Directors
ii. Executive Committee of the Board of Directors
iii. Managing Director and CEO
iv. Credit Committee
v. Special Asset Management Division
vi. Regional Office (where it is)
vii. Branch
All proposals shall be placed to the Credit Committee by the Special Asset Management Division after scrutiny
of each information given by the Branch in the proposal and confirm that the proposal has been prepared by
the branch in compliance with the BRPD Master Circular No. 16 dated 18/07/2022 and Circular letter No. 33
dated 03/08/2022.
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12.2.4 Responsibility of the Credit Committee:

Credit Committee will certify in writing the justification of rescheduling. The proposal placed before the
Credit Committee by the SAM Division, all the requirements will be incorporated in the proposal for taking
decision by the Credit Committee. The members of the Credit Committee if agreed with all the facts/
information’s of the proposal they will sign on that and that will be treated as Certificate of the Credit
Committee. The proposal of SAM Division shall incorporate the following information related with the
certification of the Credit Committee:
a) Justification regarding long term benefits/profits;
b) Justification regarding Capital adequacy from rescheduling;
c) Effect on liquidity position of the bank for the proposed rescheduling;
d) Effect of proposed rescheduling on the other customers for getting loan facility from the bank.
12.2.5 Maximum Time/Term/Period for Rescheduling:

i) Any classified loan shall be rescheduled maximum of 03 (three) times. However, in case of loss of
business due to reasons beyond the customer's control, the loan can be rescheduled 4 th time with
special consideration for recovery of defaulted loans. If the loan is not recovered even after the 4 th time
rescheduling, the bank will take legal action to recover the dues and maintain appropriate provisions. If
a rescheduled loan is taken over by another bank, rescheduling sequence of the loan will be the same as
previous bank.
ii) Validity of Rescheduled Loan:
a. Maximum term including grace period for 1st & 2nd time rescheduling is as follows:
Maximum Term/Period
Type of Loan Balance of Loan Amount
(Including Grace Period)
Less than Tk. 100.00 Crore 6 years
Tk. 100.00 Crore and above but less than 7 years
Term Loan
Tk.500.00 crore
Tk. 500.00 Crore and above 8 years
Less than Tk. 50.00 Crore 5 years
Continuous
Tk. 50.00 Crore and above but less than 6 years
and Demand
Tk.300.00 crore
Loan
Tk. 300.00 Crore and above 7 years
b. Maximum time limit including grace period for the 3rd and 4th time loan rescheduling will be least
1(one) year each respectively from 5(ii).
c. Maximum time limit will be 3(three) years for the 1st time rescheduling of Agriculture and Micro
Credit Loans, 2 years 6 months for the 2nd and there after each rescheduling of that loan.
d. Grace period will be 6(six) months on the basis of Banker-Customer relationship considering the
amount of loan, but maximum grace period will be ascertained for 1(one) year considering the
amount of loss of the customer.
e. Maximum time limit of rescheduling will not be applicable in equal rate for all the borrowers. The
time limit of rescheduling will be ascertained considering the amount of losses of the real affected
borrowers. The perceivable reasons will be included in the submitted meeting resolution before the
Board of Directors or the Executive Committee of the Bank for determination the time limit of
rescheduling.
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12.2.6 Minimum Down payment requirement for Rescheduling:

Requirement of down payment for rescheduling is as follows:
(1) Minimum requirement of down payment for the 1st and 2nd time loan rescheduling will be as follows:
Nature of % of overdue % of total outstanding

Amount of Loan Outstanding
Loan liabilities liabilities
Less than Tk. 100.00 crore 7.00% 4.50%
Up to Tk.100.00 crore and above 6.00% 3.50%
Term Loan
but less than Tk.500.00 crore
Up to Tk.500.00 crore and above 5.00% 2.50%
Less than Tk.50.00 crore - 4.00%
Up to Tk.50.00 crore and above but - 3.00%
Continuous
less than Tk.300.00 crore
& Demand But not less than Tk.2.00 crore
Loan
Up to Tk.300.00 crore and above - 2.50%
But not less than Tk.9.00 crore
(2) Down payment for the 1st time and 2nd time rescheduling of the Term Loan may be considered on
cash payment of above-mentioned rate of percentages of the overdue instalments or of the total
outstanding whichever is lower.
(3) Down payment will be realized 1% more than the criteria mentioned in paragraph 12.2.6 (1) against
every case of 3rd and 4th time rescheduling.
(4) Condition for realization of minimum down payment cannot be imposed for all borrowers. The rate of
down payment will be ascertained considering the actual financial condition and cash flow of the
borrower.
12.2.7 Minimum compromised amount recovery for providing new loan facility after loan
rescheduling:
(1) After rescheduling complying with this guideline, a customer may be allowed for new loan/
enhancement of existing loan by adjusting (cash) minimum 3% (2% for export oriented borrower)
[compromised amount] on rescheduled loan amount following the existing rules and regulations.
(2) The borrower can avail new loan from other bank(s) after having no objection certificate from the
rescheduling bank/financial institution by depositing the compromised amount mentioned in
paragraph 12.2.7(1).
12.2.8 Obligatory conditions for Restructuring the regular Term Loan

(1) Validity of regular (UC, STD, SMA) Term Loan (Not converted/Rescheduled from demand, continuous
or any other loan) can be extended up to 50% of remaining Term to maturity by restructuring. Such
restructuring during the tenure of a term loan shall be provided.
(2) Term loan can be restructured without taking any down payment.
(3) Approval is to be obtained for such cases from the Board of Directors or the Executive Committee of
the Bank.
(4) No rescheduled loan can be restructured.
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12.2.9 Special Instructions for Rescheduling:

(1) As Demand loan, Continuous loan or Term loan are different in nature, so these loans cannot be
rescheduled into a common loan. But more than one loan of same nature (subject to sequence of
rescheduling is same) can be rescheduled as a common loan.
(2) If any classified loan have been rescheduled 4 (four) or more times before issuing this circular, the loan
can be rescheduled further one time on special consideration which to be considered as 4 th time
rescheduling. This opportunity for this rescheduling will remain until 31st December, 2023.
(3) If the loan became default even after 4 th time rescheduling, Bank must take proper legal action to
recover the bank dues. There is no barrier to take legal action without rescheduling any classified loan
or in any stage of rescheduling.
(4) Rescheduling cannot be made against the Demand Loans created against the L/Cs opened without
obtaining approval from Board of Directors/ Executive Committee of the Board of the Directors to
import capital machinery. This type of loan must have to be adjusted immediately.
(5) The loans which have created by fraud forgery/irregularities, will not be eligible for the facilities
allowed vide this guidelines.
(6) Necessity for rescheduling/restructuring, financial strength of the borrower, projected cash flow to
repay liabilities after rescheduling etc. shall be presented appropriately on the memo/ note to be
submitted before Board of Directors/Executive Committee of the Board/ Senior Management of the
Bank and meeting minutes. Bank has to ensure proper due diligence.
(7) The Board of Directors or the Executive Committee of the Board of the Directors of the bank will be
treated as the final approval authority for the 1st and 2nd time rescheduling. But approval for 3rd and
4th time rescheduling shall be obtained from the Board of Directors of the Bank.
(8) Prior approval is to be obtained from Banking Regulation and Policy Department of Bangladesh Bank
for loan rescheduling/restructuring/new loan facility after rescheduling favouring “Bank Related
Parties” and “Bank Directors” following the guidelines under section 26 (GA) and 27 of Bank Company
Act, 1991 as well as BRPD circular No. 04 dated 23 February, 2014 of Bangladesh Bank.
12.2.10 Guidelines on Classification, Provision and Interest Suspense of Rescheduling Loan:

(1) As per the provisions of Section 5G of the Bank Companies Act, 1991, no rescheduled loan shall be
treated as a 'defaulted loan' and the customer shall be treated as a 'defaulted borrower' for the purpose
of Section 27Ga GA (3) before the rescheduled loan becomes defaulted again. However, the Bank may,
at its discretion, maintain the required provision considering the loan as adversely classified status.
(2) Any loan account inspected by the inspection team of Bangladesh Bank to verify whether all conditions
for rescheduling have been complied with and the decision reached regarding classification shall be
considered final.
(3) After rescheduling, principal and interest shall be recoverable in equal installments on
monthly/quarterly basis. If six monthly or two quarterly installments are unpaid, the rescheduled loan
will be classified as Bad & Loss directly.
(4) Interest kept in Interest Suspense Account against the rescheduled loan and charged interest after
rescheduling shall not be transferred to Income Account without actual realization. However, in case of
3rd and 4th time rescheduling of loans classified bad/loss, the provision maintained against the
rescheduled loan account cannot be transferred to the Income Account of the Bank without actual
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recovery.
12.2.11 Approval of Rescheduling/ Restructuring:

(1) Bangladesh Bank's prior approval is not required for loan rescheduling/restructuring and that have to
be settled as per guideline of clause 12.2.11(2) & 12.2.11(3) on the basis of Banker-Customer
relationship.
(2) Loan rescheduling/restructuring shall have to be approved from the 01 (One) stage higher authority
than the initial sanctioning authority. In case where the loan initially sanctioned by the Board of the
Directors of the Bank it can be rescheduled/restructured from the same.
(3) Approval from Board of Directors of the Bank shall be obtained in case of 3rd and 4th time
rescheduling against the loans (whatever the initial sanctioning authority is) other than agriculture,
cottage, micro and small loans
12.2.12 Reporting of Rescheduled Loan:

(1) Loans which are rescheduled are to be reported to the Credit Information Bureau of Bangladesh Bank.
While reporting to CIB, the rescheduled loan account shall be reported as RS-1 for the first
rescheduling, RS-2 for second and so on. Interest waiver given to the entity should be mentioned as
RSIW-1 for the first, RSIW-2 for second and so on.
(2) The sequence of Rescheduling Loans is to be mentioned in the sanction letter. RS-1/RS-2/RS-3/RS-4
OR RSIW-1/RSIW-2/RSIW-3/RSIW-4 must be mentioned in the column of date of sanction/last
renewal/rescheduling in the CL Form.
(3) Statement of Rescheduled and Restructured loan are to be reported to the Banking Regulation and
Policy Department of Bangladesh Bank on quarterly basis as per their prescribed format.
12.3 Recovery Department/ Recovery Unit and Its Function

In Head Office, there is a Recovery Unit under Special Asset Management Division and there a Recovery
Unit under the supervision of Head of Branch. In order to facilitate the follow up and recovery of NPLs,
the Branch’s Recovery Unit as well as Head Office Recovery Department review all the NPLs on monthly
basis incorporating their comments regarding the prospect and measures taken for recovery.
The Recovery Unit shall manage accounts with sustained deterioration [unacceptable as per ICRRS).
Sometimes, the Management may decide to transfer some EXIT accounts graded as Marginal as per ICRR
for efficient exit. Whenever an account is handed over to Recovery Unit, a Handover/Downgrade
Checklist Annexure – 23 will be prepared by the Relationship Officer of Branch.
The primary function of Recovery Unit are as under:
 Determine Account Action Plan/ Recovery Strategy
 Pursue all actions to maximize recovery, including placing customers into receivership or
liquidation as appropriate
 Ensure adequate and timely loan loss provision are made based on actual and expected losses.
 Regular review of grade Su unacceptable as per ICRR accounts.
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The recovery of problem loans must be a dynamic process, and the associated strategy together with the
adequacy of provisions must be regularly reviewed. A process should be established to share the lessons
learned from the experience of credit losses in order to update the lending guidelines.
Central Collection Department
There is also a Central Collection Department under Special Assets Management Division at Head
Office. The department is engaged to appoint and enlist the recovery agent (3rd party debt collection
agency) with the approval of competent authority for recovery of some classified loans. The department
also monitors their works to recover the classified loans within the justified/given time frame.
12.4 Account Transfer Procedure:

Within 7 days of an account being downgraded to unacceptable (as per ICRR), a Request for Action (RFA)
as per Annexure – 24 and a handover/Downgrade Checklist will be prepared by the RM of the branch
within 07 (seven) days an account being downgraded and forwarded to Recovery Department for
acknowledgment. The account will be assigned to an account manager within the Recovery Department,
who will review all documentation, meet the customer, and prepare a Classified Loan Review Report, CLR
Annexure – 25 within 15 days of the transfer. The CLR should be approved by the CRO, and copied to the
respective sanctioning Division/ Department (CRMD/ SME Financing Division/ Consumer & Retails
Banking division/ Agricultural Division) and to the Branch where the loan proposal was originated. This
initial CLR should highlight any documentation issues, loan structuring weaknesses, proposed workout
strategy, and should seek approval for any loan loss provisions that are necessary.
It is the primary responsibility of Branch to recover/ regularize classified liability. Recovery Department
of Head Office will assist the Branch in that course of action. Thus Branch should not show any negligence
rather exert their all out efforts in the action of recovery.
Special Asset Management Division should ensure that the following is carried out when an account is
classified as Unacceptable as per ICRRS:
 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.
 CL report is updated according to Bangladesh Bank guidelines and the borrower’s Risk Grade is
changed as appropriate.
 Loan loss provisions are taken based on Market value (MV) of the underlying collaterals.
 Loans are rescheduled in conjunction with the Loan Rescheduling Guidelines of Bangladesh Bank
which are in force. Any rescheduling should be based on projected cash flow and should be
strictly monitored.
 Prompt legal action is taken if the borrower is non-cooperative.
12.5 Non-Performing Loan (NPL) Monitoring:

On a quarterly basis, a Classified Loan Review (CLR) will be prepared by the SAM Division to update the
status of the action/recovery plan, review and assess the adequacy of provisions, and modify the bank’s
strategy as appropriate. The Head of Chief Risk Officer (CRO) should approve the CLR for NPLs up to 15% of
the bank’s capital, while MD’s approval will be required for NPLs in excess of 15%. The CLR’s for NPLs above
25% of capital should be approved by the MD/CEO, with a copy presented before the Board of Directors.
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12.6 Accounting of the interest of Classified Loans:

If any loan or advance is classified as 'Sub-standard' and 'Doubtful', interest accrued on such loan will be
credited to Interest Suspense Account, instead of crediting the same to Income Account. In case of
rescheduled loans the unrealized interest, if any, will be credited to Interest Suspense Account, instead of
crediting the same to Income Account.
As soon as any loan or advance is classified as 'Bad/Loss', charging of interest in the same account will cease.
In case of filing a law-suit for recovery of such loan, interest for the period till filing of the suit can be charged
in the loan account in order to file the same for the amount of principal plus interest. But interest thus
charged in the loan account has to be preserved in the 'Interest Suspense' account. If any interest is charged
on any 'Bad/Loss' account for any other special reason, the same will be preserved in the 'Interest Suspense'
account. If classified loan or part of it is recovered i.e., real deposit is effected in the loan account, first the
interest charged and accrued but not charged is to be recovered from the said deposit and the principal to be
adjusted afterwards.
12.7 Maintenance of Provision:
12.7.1 General Provision: Bank will be required to maintain General Provision in the following way :
 Provision against Funded facilities
Nature of Loan Status of the Rate of

loan provision
Cottage, Micro, Small and Medium Credit under CMSME Standard & SMA 0.25%
Consumer Financing & Credit Card (Other than House Standard & SMA 2.00%
Financing)
All Other Loans including House Financing under consumer Standard & SMA 1.00%
financing scheme and Loans to brokerage House, Merchant
Banks, Stock Dealers etc. (other than Short Term Agricultural
& Micro Credit)
 Provision against Non- Funded facilities

Nature of Loan Rate of
provision
Acceptance & Endorsement 1.00%
Letters of Guarantee: 1.00%
Guarantee against Counter-Guarantee of Government NIL
Guarantee against Counter-Guarantee of Bank/Financial Institution or Organization
having Credit Rating (Equivalent BB rating grade) as :
1 NIL
2 0.50%
3 or 4 0.75%
Irrevocable Letter of L/C as :
Short-term self-liquidating trade L/C 0.50%
Other LCs including L/C used as guarantee or confirmation 1.00%
Bills for collection NIL
Other Contingent Liabilities:
With an original maturity up to one year 0.50%
With an original maturity over one year 1.00%
Other Commitments
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Unconditionally cancellable NIL

With certain drawdown 1.00%
Others with an original maturity up to one year 0.50%
Others with an original maturity over one year 1.00%
Additional Provisioning (over the provision required):
OBS exposures 03 (three) months or beyond but less than 12 (twelve) months. 1.00%
remaining
overdue for-
12 (twelve) or beyond but less than 24 (twenty four) months. 2.00%
24 (twenty four) months or beyond 5.00%
OBS exposure under litigation, additional provisioning (over the provision 5.00%
required)
12.7.2 Specific Provision: Bank will maintain provision at the following rates in respect of classified
Continuous, Demand and Fixed Term Loans:
Sub-standard : 20%
Doubtful : 50%
Bad/Loss : 100%
12.7.3 Specific Provision for Cottage, Micro and Small Credit under CMSME:
Sub-standard : 5%
Doubtful : 20%
Bad/Loss : 100%
12.7.4 Provision for Short-term Agricultural and Micro-Credits:
UC (regular & Irregular) : 1.00%

SS & DF : 5%
Bad/Loss' : 100%
12.7.5 Provisions to Cover All Expected Losses:
The expressed minimum percentages of provisions mentioned above for exposures in each
classification category are absolute minimums, and are encouraged to set aside higher provisions if
expected losses on the loan pools (for general provisions) or individual loans (for specific provisions)
warrant.
12.8 Base for Provision:

For eligible collaterals of the following types, provision will be maintained at the stated rates mentioned in
SL-12.8 on the outstanding balance of the classified loans less the amount of Interest Suspense and the value
of eligible collateral:
a. Deposit with the same bank under lien against the loan,
b. Government bond/savings certificate under lien,
c. Guarantee given by Government or Bangladesh Bank.
For all other eligible collaterals, the provision will be maintained at the stated rates mentioned in 12.8 on
the balance calculated as the greater of the following two amounts:
i. outstanding balance of the classified loan less the amount of Interest Suspense and the value of
eligible collateral; and
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ii. 15% of the outstanding balance of the loan. However, the base for provision shall be further
reviewed towards closer convergence with international best practice standards.
12.9 Eligible Collateral :

In the definition of 'Eligible Collateral' as mentioned in the above paragraph the following collateral will be
included as eligible collateral in determining base for provision:
 100% of deposit under lien against the loan

 100% of the value of government bond/savings certificate under lien
 100% of the value of guarantee given by Government or Bangladesh Bank
 100% of the market value of gold or gold ornaments pledged with the bank.
 50% of the market value of easily marketable commodities kept under control of the bank
 Maximum 50% of the market value of land and building mortgaged with the bank
 50% of the average market value for last 06 months or 50% of the face value, whichever is less, of the
shares traded in stock exchange.
12.10 Determination of Market Value of Eligible Collateral :

In determining market value of easily marketable commodities, land and building, it can be follow:
a) Easily marketable goods will mean pledged, easily encashable/saleable goods that remain under full
control of the bank. However, while the branch official will conduct periodic inspection to verify as to
whether requirements have been met such as the suitability of goods for use, expiry period,
appropriateness of documentary evidences, and up to date insurance cover, the same will have to be
assessed by the professional assessor from time to time.
b) For land and building, bank will have to ensure whether title documents are in order and concerned
land and building will have to be valued by the professional valuation firm along with completion of
proper documentation in favour of the bank. Nevertheless, temporary houses including tin-shed
structure shall not be shown as building.
c) In order to facilitate the on-site inspection by Bangladesh Bank’s Department of Banking Inspection,
it is are also advised to maintain a complete statement of eligible collateral on a separate sheet in the
concerned loan file. Information such as a description of eligible collateral, their assessment by a
recognized firm, marketability of the commodity, control of the bank, and reasons for considering
eligible collateral etc. will have to be included in that sheet.
12.11 Legal Action:

Non-performing loans not only devour/erodes our profitability but also expose ourselves to liquidity
crisis and tarnish our image and reputation in the industry. Thus it is our first and foremost duty to keep
the Non-performing loans at minimum acceptable level. The non-performing loans may be regularized
either through persuasion and rescheduling thereof or through stringent legal measures available as per
law of the land. It reveals from our record that number of borrowers do not come forward to settle their
dues with the Bank until facing stern legal action initiate against them. Existing legal framework of the
country provide us the avenues to recover the non-performing loans through filing Artha Rin Suit under
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Artha Rin Adalat Ain-2003 and Criminal Case under N.I. Act-1881. Besides, Criminal Cases may also be
filed against the defaulted borrowers (if needed) of the Penal Code-1860.
However, for conducting the legal proceedings against the defaulted borrower branch will have to obtain
prior approval from Head Office as under:
Particulars Remarks
Publishing Auction Notice and Filing Artha Prior Approval of Head Office is needed
Rin Suit for recovery of bank’s dues
irrespective of amount
Filing Criminal Case under N I Act No prior approval is needed from Head Office
Serving legal notice No prior approval is needed from Head Office
Payment of Court Fee (At actual) Branch may incur the expenditure in connection with
procuring the court fees. However, post factor approval
from Head Office to be obtained at the earliest.
Payment of professional fees favouring the Prior Approval of Head Office is needed
lawyer (irrespective of amount)
Moreover, Head Office conducts/ follow- up writ petition filed by/ against the borrower before the
Honorable High Court Division as well as all other Higher Court cases before the Appellate Division,
Supreme Court of Bangladesh.
Central Law Division, Head Office will control, guide, monitor, follow-up the
branches/divisions/departments regarding legal proceedings against the defaulted borrower(s) for
recovery of Bank’s dues within a reasonable timeframe so that highest level of action for recovery, can be
justified.
12.12 Interest Waiver

In some cases interest waiver proposal may be considered based on the business condition of the borrower.
The power of interest waiver is delegated to the Board of Directors only. However, in no cases principal
amount can be waived.
The bank has the option to offer a whole or partial waiver of loan interest owing to a variety of uncontrolled
circumstances, including the borrower's death, natural disasters, epidemics, plague, river floods, project
difficulties or closure, etc.
To waive the interest against loans, following guidelines must be followed:
(a) The principal amount of a loan cannot be waived.
(b) Interest cannot be waived against the loans obtained by forgery and loans availed by willful
defaulters.
(c) The bank has to ensure the recovery of cost of fund. However, the conditions regarding recovery of
cost of fund may be relaxed in the following cases:
(1) In case of such projects which have been closed for 3 (three) years;
(2) If it is not possible to recover the funds from the sale of securities (primary & collateral), project
property and personal assets of the project promoters;
(3) If the debt cannot be collected even after taking legal measures and other necessary measures;
(4) If the borrower is unable to repay the loan due to the death or natural calamities, epidemics,
pestilence, river erosion or distress.
[Cost of Fund means fund expenditure as on 31 st December of the period/year for which interest
is waived]
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(d) In order to confirm the rationale of relaxing the conditions for recovery of cost of fund in other
essential cases including the areas mentioned in paragraph 2(c), the opinion of the Head of Internal
Control and Compliance Division (ICCD) should be taken through the internal audit done by ICCD.
(e) In the case of loans that require the preparation of financial statements, the bank will compulsorily
review the financial statements of the borrower for the last 3 (three) years. Interest cannot be
waived if the consolidated net profit after tax for the period under consideration or Owners' Equity
as per the last audited financial statement is observed to be positive.
(f) The impact of interest waiver on the bank's own financial position needs to be reviewed. For that
purpose, bank will apply enhanced due diligence by considering own capital adequacy, profitability
and other important financial indicators.
(g) By following this policy, section 28 of Bank Company Act, 1991 should be ensured in case of interest
waiver against the loans availed by the director of any bank-company and his/her family members or
his/her interest bearing concerns.
12.13 Write-off
When the bank considers an account to be no longer collectable, it will "write off' the account (i.e. the amount
is removed from the asset portion of a balance sheet and recorded as an expense item on the income
statement or adjusted against provision). When all security has been realized and all recovery possibility
have been exhausted, a decision may be made to write off, applying the provision in place for this purpose or
debiting profit & loss account. This shall be approved by the Board of Directors. Depending on the product,
the point at which this occurs may vary, but at a minimum, bank is to follow the loan write off policies issued
by Bangladesh Bank as under:
i. When the loan(s) remains classified as Bad & Loss continuously for a period not less than 03 (Three)
years and repayment against those loans are not made since long & recovery possibility have been
exhausted, then a decision may be made to write off the loans.
ii. Bank can also write off the loan of a deceased individual or his proprietorship firm irrespective of
classification status and without filing suit under Artha Rin Adalat-2003 (if it is not sue able). But
Bank will consider the successors status of the deceased person in case of his proprietorship firm. In
that case, all other instructions for write off will be followed.
iii. Before write off, it must have to be ensured that cases have been filed under Money Loan Court Act-
2003. However, bank may write-off default loans up to Tk. 5,00,000.00 without filing suit (if not
necessarily litigable under Money Loan Court Act, 2003) against the borrowers subject to fulfillment
of the condition of Sl-IV mentioned below.
iv. 100% provision on outstanding loan amount (Loan outstanding- Interest suspense amount) to be
maintained before write-off. If provision are not maintained against loan identified loan, current
year’s Income Account of the Bank to be debited to do the same.
v. No loan account will be written off partially.
vi. Loan write-off to be approved from the Board of Directors of the Bank.
vii. Bank’s claim on the related loan will be still enforce after the write-off. Bank will continue the legal
procedure to recover the loan.
viii. Bank’s "Recovery Unit” will take proper steps to recover the written off loans.
ix. A “3rd Party Debt Collection Agent” can be engaged in order to accelerate the settlement of suits filed
against the written off loans or to recovery against the written off loans.
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x. Written-off loans cannot be rescheduled or restructured. Repayment schedule of these loans can only
be made against those loans those are under Bank’s Exit Plan. But still the loan will be treated as
“Defaulted” Loan and will be reported as BLW.
For loan write off procedure, Bank will meticulously follow the instructions of BRPD Circular no. 01 dated
06.02.2019 and BRPD Circular no. 01 dated 05.01.2023 and any amendment thereof.
12.14 Disposition of Collateral

It is not an appropriate policy for a bank to "nurse" or warehouse repossessed properties until the market
picks up, but to dispose them into the market quickly and at the best price. Disposal methods should be
reviewed continuously to ensure the most effective method is being used. The asset disposal policy must
conform to the Transfer of Property Act, and all other applicable laws related thereto. Branch shall be
responsible for repossessed asset disposal with assistance of Central Law Division and other concerned
divisions of the bank.
While repossessed assets are awaiting disposal, the bank should make sure that proper administration is
undertaken on these assets to protect their value. Asset disposal should start immediately when the asset
becomes ready for sale. This is specifically defined as the time when:
 The client surrenders voluntarily the asset or has agreed for the bank to sell the property.
 The bank is awarded possession of the property by legal or other means. As the case may be, titles
and ownership documents have been transferred to the bank's name and registered with the
appropriate Land Registry.
Basic principles to guide the bank in its efforts for asset disposal include:
 Assets acquired have to be disposed of at the earliest time possible within a reasonable time frame
from acquisition / repossession.
 Until disposition occurs, the bank should endeavor to keep costs relative to the upkeep and
maintenance of the assets to a minimum.
 Converting / Liquidating the assets in the bank's possession at the earliest possible date is a lower-
risk strategy than holding the assets for a projected upturn in market prices in the future, which
often do not materialize, and in the meantime the Bank is saddled with a nonearning asset.
Bank is not in the business of asset and property trading or management, and thus are ill-equipped to take
positions on the market trends.
12.15 EXIT POLICY OF THE LOAN CUSTOMER:

Bank will keep its undesired customer into the exit line to maintain its healthy assets. The customer -
- whose business conditions are deteriorated.
- who does not comply with the sanction terms and conditions.
- who does not have/renew the required permission i.e trade license, IRC, ERC, bond license, fire
license, environmental certificate etc.
- who is frequently failed to repay the installments against Term Finance.
- who is frequently failed to serve the interest of revolving credit or frequently become overdue.
- whose security value is deteriorated
will be kept in the exit line of the bank and will be asked to adjust the entire liability immediately from
business/other sources or to shift the business to other Bank/ FI.
Page 139
CHAPTER-XIII
MANAGING CREDIT RISK WITH APPROPRIATE MANAGEMENT
INFORMATION SYSTEMS (MIS)
A Management Information System (MIS) provides quality data to the Board and Senior Management on the
segmented portfolio on a timely basis that will enable the analysis of the current and future risk, and exposure by
both the business areas responsible for its management. The business maintain an accurate database containing
all application information for both approved and declined applications, collateral security information. Data
retention specifications archiving procedures and other information have been maintained to facilitate the
development of credit scores.
The following indicators (both number and amount where relevant) information are available on a monthly basis
at the each business level for Single Products and Multi products:
13.1 Booking MIS
 Applications received, Processed

 Applications Approved, Declined
 Approval rate, Average credit score of approved limits
 High side overrides/ Low side overrides, Policy Overrides
 New Business Booked in ‘Amount’ and ‘Number’
 Bank Directors’ Loan Information
 Rejection Reason Analysis
13.2 Portfolio MIS
 Limit Increases, Limit Decreases, Renewals

 Unutilized and Undrawn amounts
 Attrition (voluntary and involuntary)
 Net Interest Income (NII) %, Net Fees Income (NFI) %, Operating Profit %, Trading Profit (TP)%, Risk
Adjusted Return (RAR) % [Note: These ratios and percentages seem to apply to the entire bank, not to
the credit function or individual portfolios of credits.]
 Delinquency (30+DPD, 60+DPD, 90+DPD, 120+ DPD, 150+ DPD, 180+ DPD or more)
 First Installment Default (FID) or First Payment Defaults
 Risk grading of customer exposures
 Early Alert Reporting (EA Code wise), Classified Account Reporting, Loss Given Default, Collateral Values,
Deviations.
 Overdue Annual Reviews (aged) and Extended Accounts
Page 140
Chapter – XIII (Managing Credit with Appropriate MIS)
 Gross Write-offs, New Provisions, Releases, Recoveries, Net Bad Debt, Provisioning Balance
 Repossessions/foreclosures - initiated, in progress, Inventory
 Expenses associated with foreclosure process
 Foreclosure Assets sold, Write-downs taken periodic and on sale
 Expenses incurred in maintaining and selling repossessed property
 Database of Non-Performing Loans (NPLs) that are due to environmental reasons
 Clients’ Classification based on Environmental and Social Risk Rating (ESRR)
 Environmental and Social Risk Rating (ESRR) wise portfolio MIS
 Monthly Loan Set off data and reason analysis report
 DLA wise loan performance report
13.3 Segmentation MIS
The business must have the ability to generate reports for the above indictors for single and multiple products
(on an as needed basis and, where relevant) by:
 Original loan amount or credit line
 Debt burden
 Risk Score range
 Customer profile
 Collateral Profile (fully secured/ partly secured etc), Breakdown of collaterals held
 Loan purpose
 Loan Size and Tenor
 LTV and geographic location
 Customer Relationship based on Turnover
 Industry according to SBS code.
 Segment / industry-wise / product-wise loan sanctioned vs. utilization vs. outstanding
 Utilization of approved limits (TL / WC)
 Risk based pricing performance monitoring
 Loans under “different customer group” performance report
 Credit Test report if any test is undertaken
 Product wise campaign reports
All indicators should be compared and reviewed with historical performance, expected results and competitive
benchmarks where available. Forecasts for future periods must be updated based on actual performance and
revised expectations.
Page 141
13.4 Disaggregate Loan Portfolio
The loan portfolios according to the schemes shown in Annexure-2. Portfolios also be disaggregated by collateral
type, as shown in 10.2 in the Chapter 10.
13.5 Sufficient Data to Track Loss Experience on Loans Disaggregated by Above Factors
Once the disaggregation of the loan portfolio is in place, banks must begin immediately to record loss experience
by type of loan, disaggregated across all the categories. The reason for this database development and
maintenance is threefold: first, to provide, over time, better estimates of “expected loss” to be used in the setting
of loan-loss provisions and loan pricing; second, to steer the Board and senior management away from types of
lending that have historically been unprofitable; and third, to allow the eventual construction of probability
distributions, both at the level of the individual bank and the banking system as a whole, that are used in the
calculation of economic capital and in the Internal Ratings Based approach to the determination of risk weights in
the Basel III capital requirement calculation.
For each type of loan (disaggregated data) and for the breakdown of industrial loans, the bank must collect the
following data on a quarterly basis:
 Outstanding principal balance of loans written off during the quarter (excluding accrued interest
receivable)
 Estimated market value of collateral related to loans written off during the quarter, subdivided into:
 Collateral already repossessed by the bank
 Collateral not yet repossessed by the bank
 Specific provisions related to loans written off, debited at the time of write-off
 Cash recoveries related to loans written off during the quarter
 Gain or loss on sale of collateral repossessed by the bank
The net credit loss related to these write-offs, then, would be the outstanding principal balance minus the value of
collateral already repossessed, minus specific provisions, minus any cash recoveries on these loans, minus or plus
any gain or loss on the sale of the repossessed collateral. (It is to be understood that as the quarters proceed, the
quarterly net credit losses on various types of loans will not be a smooth data set, but will be subject to sharp
fluctuations. Over time, however, the quarterly figures can be smoothed into a measure of “typical” quarterly
losses on each segment of the portfolio.)
13.6 Sufficient Data to Quantify Embedded Losses in the Loan Portfolio That Have Not Yet Been
Recognized
Particularly on loans that have been rescheduled or restructured, there may be a degree of regulatory
forbearance concerning provisioning of problem loans from time to time. Notwithstanding any such regulatory
or accounting forbearance, it is imperative that management quantify “embedded” losses in the loan portfolio
that have not yet been recognized in the audited financial statements or in regulatory reports to BB.
Page 142
13.7 Periodic Stress Testing

An important element of sound credit risk management is analyzing what could potentially go wrong with
individual credits and the overall credit portfolio if conditions/environment, in which borrowers operate, change
significantly. The results of this analysis should then be factored into the assessment of the adequacy of
provisioning and capital of the bank. Such stress analysis can reveal previously undetected areas of potential
credit risk exposure that could arise in times of crisis. Possible scenarios that banks should consider in carrying
out stress testing include:
 Significant economic or industry sector downturns;
 Adverse market-risk events; and
 Unfavorable liquidity conditions.
Bank has industry profiles in respect of all industries where it has significant exposures. Such profiles to be
reviewed/updated on a regular basis. Each stress test should be followed by a contingency plan as regards
recommended corrective actions. Senior management must regularly review the results of stress tests and
contingency plans. The results must serve as an important input into a review of credit risk management
framework and setting limits and provisioning levels.
13.8 Loss Control limits (“management action triggers”)

Although they were developed primarily to manage market risk, loss control limits (also known as management
action triggers) are usefully applied to credit risk management as well. A loss control limit is a type of limit that
requires specific management action if it is approached or breached. When tracking the loss experience on the
disaggregated portfolio, the MIS should warn the Board and senior management when the loss experience on a
particular type of loan is approaching the established limit (which must also be clearly indicated in the
documentation) so that management can make an informed decision about whether or not to cease or scale back
on that type of lending.
Page 143
Chapter –XIV
MISCELLANEOUS
14.1. Renewal Frequency
All continuous credit facilities and composite limits shall be renewed annually if these are qualified for renewal.
14.2. Title Search

Title search for collateral securities shall be conducted both in Registrar of Joint Stock Companies & Firms
(RJSC) and concerned office of the Land Registrar at the time of sanction.
14.3. Control of Cash Collateral

Cash collaterals held against credit facilities shall be under absolute control of the Documentation Officers of
Credit Administration Department stationed at Branch who have custodial duties for the same. He/she will
check whether facilities are allowed as per approval.
14.4. Register maintenance
a) Limit Register: ‘Limit Sanction Registers’ containing major features of the limit should be maintained
by the respective sanctioning division/ department Head Office (CRMD, SME, CRBD, ACD) as well as by
the Branch to track each and every case of sanctioned limits.
b) Register of Declined Proposals: ‘Register of Declined Proposals’ should be maintained by the

division/ department Head Office (CRMD, SME, CRBD, ACD) as well as by the Branch to track each and
every case of declined credit proposals highlighting the reason for such decline.
14.5. Registered Mortgage with IGPA

In case of taking land and building as security, charge will be created through mortgage duly registered with the
competent authority. Furthermore, registered mortgage will be supported by the Registered Irrevocable
General Power of Attorney to sell the land and building in question without reference to the court in case of
default of the customer.
14.6. Release of Collateral or Debt Obligation

Release of collateral or debt obligation either within the validity period of the limit or after expiry and/or full
and final adjustment of the limit/outstanding must be approved by the sanctioning authority. But where the
sanctioning authority is the Executive Committee of the Board of Directors/ the Board of Directors, then the
delegation lies with the Managing Director. Release of Collateral Security against partial adjustment of the
limit/outstanding requires approval from the sanctioning authority.
Page 144
Chapter – XIV (Miscellaneous)
14.7. Insurance Policy

The customer shall have to take insurance policy as per approved terms of sanction and submit the same to the
Bank. The Documentation Officer/custodian shall keep it in the vault. He/she will ensure that insurance policy
is current and renewed on a timely basis. Bank will take authorization from the customer to debit his/her
account in order to keep the policy in force.
14.8. Diary of Circulars

Bank’s Internal Credit related circular will be maintained in e-circular software. However, a separate diary/
master file will be maintained by the concern division/ department of Head Office as well as by the Branch.
Circulars should be properly indexed.
14.9. Maintaining Individual Unique Control Number

Each borrower should have an individual unique control number.
Page 145

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Chapter – I (Credit Policy Framework)

1.2 Credit Risk

1.5 Superseding Power

1.6 Amendment of the Policy

1.7 Access to the Policy

OVERVIEW ON CREDIT RISK MANAGEMENT

2.1 Credit Risk as Range of Possible Outcomes

2.2 Risk Management Process

2.2.1 Risk identification

2.2.2 Risk Measurement

2.2.3 Risk Monitoring

2.2.4 Risk Control/ Management

2.3 Exceptions and It’s Approval

2.4 Establishment of Control Mechanism

2.5 Indicators of Credit Risk Management

Indicators of high credit risk (not an exhaustive list)

Indicators of poor credit risk management (not an exhaustive list)

2.6 Credit Concentration risk

2.7 Robust Credit Risk Management Policy

2.7.1 Risk Appetite Statement

3.1 Lending Guidelines

xi) Sustainable and Green Finance shall be emphasized.

xviii) Every renewal shall be treated as a fresh sanction.

xlvi) Operation of loan account by through mandate is not permissible.

3.2 Operation of Loan of a Deceased Person

instructions/approval from the regulatory authority(ies).

3.3 Operation of Loan of where mortgagor is deceased

3.4 Single Borrower / Group Limits:

3.4.1 Definition and Interpretation –

i) The bank’s capital declines;

ii) Capital rules or the lending limits undergo changes;

iv) The borrower’s exposure increases due to applied interest;

v) The borrower merges or forms a common enterprise with another borrower;

vii) Percentage of classified loan increases;

viii)The bank’s total exposure decreases.

Group exists if at least one of the following criteria is satisfied:

- Ability to appoint or dismiss an entity‟s administrative, management or supervisory body,

- (4) Commonality of management or interchange of managerial personnel, e.g. single

- (5) Commonality of ownership or interchange of ownership status, e.g. same person

(h) Counterparties which are enlisted in the website of a group.

3.4.2 Exposure Limits – The following limits shall apply:

i) Aggregate Principal Exposure:

ii) Applicable Conversion Factor:

3.4.4 Prudential Norms:

i) there is no increase in the amount of the exposure, either direct or indirect;

ii) security collateral, if any, is not released;

3.4.5 Risk Management Expectations:

3.4.6 Record Keeping:

3.5 Risk Acceptance Criteria

 Benefits gained from taking the risk

 Degree of control over the risk

 Risk aversion – one catastrophe is worse than many small accidents

 Time until effects are experienced.

Some basic risk acceptance criteria are given below:

Inferior Security Position

Financing to new concern

 The owners must have substantial experience in the related field.

 Credit Grade (ICRR) for new project shall be minimum "Marginal”.

Loan Tenor& Repayment

Lending to Foreign Companies and Foreign-Owned Companies