3.19.1 Application for loan:

Applicant applies for the loan in the prescribed form of bank. The purpose of this forms is to eliminate the unwanted borrowers at the first sight and select those who have the potential to utilize the credit and pay it back in due time.

3.19.2 Getting Credit information:

Then the bank collects credit information about the borrower from the following sources:

1. Personal Investigation

2. Confidential report from other bank/ Head office/Branch/Chamber of commerce

3. CIB report from central bank

3.19.3 Scrutinizing and Investigation:

Bank then starts examination that whether the loan applied for is complying with its lending policy. If comply, than it examines the documents submitted and the credit worthiness. Credit worthiness analysis, ie. analysis of financial conditions of the loan applicant are very important. Then bank goes for Lending Risk Analysis (LRA) and spreadsheet analysis, which are recently introduced by Bangladesh Bank. According to Bangladesh Bank rule, LRA and SA is must for the loan exceeding Dhaka core.

If these two analyses reflect favorable condition and documents submitted for the loan appears to be satisfactory then, bank goes for further action.

3.19.4 Existing process of handling loans:

The process of sanctioning loans is as follows:

3.19.5 The C’s of Good & Bad Loan:

The Branch manager of DBL try to judge the possible client based on some criteria. These criteria are called the C’s of good and bad loans. These C’s are described below: Character

The outcome of analyzing the character is to have overall idea about the integrity, experience, and business sense of the borrower. Two variables; Interaction/interview, and Market Research are used to analyze the character of the borrower.

1. Interaction/interview: the indicators are
a) Prompt and consistent information supply, information given has not been found false (Willingness to give information).
b) CIB also reveals business character.
c) Willingness to give owns stake/equity & collateral to cover.
d) Tax payer.

2.  Market Research:
a) Information on business is verified.
b) Dealing with supplier and or customer as supplier is also a kind of lender; the payment character can also be verified. Capital

For identifying the capital invested in the business can be disclosed using the following indicators.

a) Financial Statements
b) Receivable, Payable, statements to practically assess the business positions. Net worth through financial statements or from declaration of Assets & Liabilities. Capacity (Competence)

Capability of the borrower in running the business is highly emphasized in the time of selecting a good borrower. As the management of the business is the sole authority to run the business that is use the fund efficiently, effectively and profitably.  The indicators help to identify the capacity of the borrower.

a) Entrepreneurship skills i.e. risk taking attitude shown by equity mobilization.
b) Management competencies both marketing and products detail, ability to take decision.
c) Resilience or shock absorption: Connection, Back up (if first time falls second lines come to help.) Collateral

Make sure that there is a “second way out “ of a credit, but do not allow that to drive the credit decision. Cash Follow:

Cash flow is the vital factor that is used to identify whether the borrower will have enough cash to repay the loan or advance. Cash keeps the liquidity to ensure repayment. The relationship manager try to identify the annual cash flow from the submitted statements. Conditions:

Understanding the business and economic conditions can and will change after the loan is made. Complacency:

Do not rely on past history to continue. Stay alert to what can go wrong in any loan. Carelessness:

Remember that documentation, follow-up and consistent monitoring are essential to high quality loan portfolios. Communication:

Share credit objectives and credit decision making both vertically and laterally within the bank. Contingencies:

Make sure that you understand the risks, particularly the downside possibilities and that you structure and price the loan consistently with that understanding. Competition:

Do not get swept away by what others are doing.

3.20 Credit Query:

The loans and advance department gets a form filled up by the party seeking a lot of information. The typical credit query form is attached in the appendix iii.