This section outlines of the main procedures that are needed to ensure compliance with the policies contained in Section 1.0 of these guidelines.

4.3.1 Approval Process

The approval process must reinforce the segregation of Relationship Management/ Marketing from the approving authority. The responsibility for preparing the Credit Application should rest with the RM within the corporate/commercial banking department. Credit Applications should be recommended for approval by the RM team and forwarded to the approval team within CRM and approved by individual executives. Banks may wish to establish various thresholds, above which, the recommendation of the Head of Corporate/Commercial Banking is required prior to onward recommendation to CRM for approval. In addition, banks may wish to establish regional credit centres within the approval team to handle routine approvals. Executives in head office CRM should approve all large loans.

The recommending or approving executives should take responsibility for and be held accountable for their recommendations or approval. Delegation of approval limits should be such that all proposals where the facilities are up to 15% of the bank’s capital should be approved at the CRM level, facilities up to 25% of capital should be approved by CEO/MD, with proposals in excess of 25% of capital to be approved by the EC/Board only after recommendation of CRM, Corporate Banking and MD/CEO.

The following diagram illustrates the preferred approval process:

Credit Application

                            Recommended by RM/ Marketing

Zonal Credit Officer (ZCO)

Head of Credit &

                            Head of Corporate Banking (HOBC)

Managing Director

Executive Committee/ Board

1. Application forwarded to Zonal Office for approved/decline

2. Advise the decision as per delegated authority (approved /decline) to recommending branches. A monthly summary of ZCO approvals should be sent to HOC and HOCB to report the previous months approvals sanctioned at the Zonal Offices. The HOC should review 10% of ZCO approvals to ensure adherence to Lending Guidelines and Bank policies.

3. ZCO supports & forwarded to Head of Corporate Banking (HOCB) or delegate for endorsement, and Head of Credit (HOC) for approval or onward recommendation.

4. HOC advises the decision as per delegated authority to ZCO

5. HOC & HOCB supports & forwarded to Managing Director

6. Managing Director advises the decision as per delegated authority to HOC & HOCB.

7. Managing Director presents the proposal to EC/Board

8. EC/Board advises the decision to HOC & HOCB

** Regardless of the delegated authority HOC to advise the decision (approval/decline) to marketing department through ZCO

Recommended Delegated Approval Authority Levels

HOC/CRM Executives      Up to 15% of Capital
Managing Director/CEO    Up to 25% of Capital
EC/Board all exceed          25% of Capital

Appeal Process
Any declined credit may be re-presented to the next higher authority for reassessment/approval. However, there should be no appeal process beyond the Managing Director.

4.3.2 Credit Administration

The Credit Administration function is critical in ensuring that proper documentation and approvals are in place prior to the disbursement of loan facilities. For this reason, it is essential that the functions of Credit Administration be strictly segregated from Relationship Management/Marketing in order to avoid the possibility of controls being compromised or issues not being highlighted at the appropriate level. Credit Administration procedures should be in place to ensure the following: Disbursement:

Security documents are prepared in accordance with approval terms and are legally enforceable. Standard loan facility documentation that has been reviewed by legal counsel should be used in all cases. Exceptions should be referred to legal counsel for advice based on authorization from an appropriate executive in CRM.

Disbursements under loan facilities are only be made when all security documentation is in place. CIB report should reflect/include the name of all the lenders with facility, limit & outstanding. All formalities regarding large loans & loans to Directors should be guided by Bangladesh Bank circulars & related section of Banking Companies Act. All Credit Approval terms have been met. Custodial Duties:

Loan disbursements and the preparation and storage of security documents should be centralized in the regional credit centers.

Appropriate insurance coverage is maintained (and renewed on a timely basis) on assets pledged as collateral.

Security documentation is held under strict control, preferably in locked fireproof storage. Compliance Requirements:

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

Bangladesh Bank circulars/regulations are maintained centrally, and advised to all relevant departments to ensure compliance.

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