Credit Risk Management Practices of Dhaka Bank

Limited

By
Shah Golam Saqlayan Arefin

An Internship Report
Submitted to the
Department of Management
Faculty of Business Studies
Universities of Dhaka

In Partial Fulfillment of the requirements

for the award of the degree

of

Bachelor of Business Administration

Department of Management
University of Dhaka
Dhaka 1000

30th January 2022

Credit Risk Management Practices of Dhaka Bank
Limited

By
Shah Golam Saqlayan Arefin
ID: 024-081

An Internship Report
Submitted to the
Dr. Sumon Das
Professor

In Partial Fulfillment of the requirements

for the award of the degree

of

Bachelor of Business Administration

Department of Management
University of Dhaka
Dhaka 1000

30th January 2022

 Letter of Transmittal

30th January 2022

Dr. Sumon Das,
Professor,
Department of Management
University of Dhaka

Subject: Submission of Internship Report.

Dear Sir,

It is my great pleasure to submit the report on “Credit Risk Management Practices of Dhaka
Bank Limited” as a part of my internship program. I have tried to make the report a
comprehensive one within the given forty-five days. I earnestly thank you for your guidance
during the preparation of this report. Any sort of suggestion regarding the report will be greatly
acknowledged and I will be gratified if my report serves its purpose.

I, therefore, request you to accept this report and give me proper suggestions to work in my
professional life. I am very much glad that you have given me the opportunity to prepare this
report for you and hope that this report will meet the standards of your judgment.

Sincerely yours,
Shah Golam Saqlayan Arefin
ID–024-081
Batch: 23rd; Section: A
Department of Management
University of Dhaka

i
 Bonafide Certificate

Certified that this internship report titled “Credit Risk Management Practices of
Dhaka Bank” is the bonafide work of Mr. Shah Golam Saqlayan Arefin who
carried out the research under my supervision. Certified farther, that to the best of
my knowledge the work reported herein does not form part of any other project
report or dissertation on the basis of which a degree or award was conferred on
an earlier occasion on this or any other candidate.

---------------------------------------------

Dr. Sumon Das

Professor

Department of Management

Faculty of Business Studies

Universities of Dhaka

ii
 Declaration

I, Shah Golam Saqlayan Arefin, a student of BBA 23rd batch, ID: 024-081, Department
of Management, University of Dhaka hereby declare that this study on the topic Credit
Risk Management Practices of Dhaka Bank Limited is prepared solely by me under
the supervision of Dr. Sumon Das, Professor, Department of Management, University of
Dhaka. I confirm that the study is only prepared for my academic requirement not for any
other purpose. I also confirm that this study includes genuine information free from
plagiarism.

…………………………………
Shah Golam Saqlayan Arefin

ID: 024-081

BBA 23 rd Batch; Section: A

Department of Management

University of Dhaka

iii
 Acknowledgment

I am pleased to get this opportunity to give special thanks to the persons whose ideas, views, and
supports have provided fluency to prepare this report and also enriched this report. I am grateful
to all officials and staff of Dhaka Bank Limited for their cooperation.
I am greatly appreciated and inspired by Dr. Sumon Das – Professor, the University of Dhaka to
write this internship report on “Credit Risk Management Practices of Dhaka Bank Limited”. My
special thanks go to Mamun Al Sardar (AVP), Eishita Ali (AVP) from Dhaka Bank Limited
Corporate Office. I would also like to express my gratitude to all the employees of Dhaka Bank
Limited, for supervising me at the time of my internship attachment with their best efforts.
At all, I am greatly thanking the persons whose enrich books, journals, and working papers on
international financial management have provided a guideline to me in preparing this report.
Moreover, I am very much grateful to all officials of Dhaka Bank Limited. This report would not
be possible without the cooperation of all the persons of Dhaka Bank Limited. Finally, I would
like to thank all others whose strong support makes me able to complete this report.

iv
 Executive summary

This internship report is based on my internship program at Dhaka Bank Limited. In this
internship period, I worked in Central Processing Center (CPC) division in a corporate office. As
a part of my BBA program, I have spent 6 weeks in DBL, Corporate Office 71, Purana Paltan
Lane, Dhaka- 1000. It was a great opportunity to experience and gather knowledge about
different types of banking operations. My faculty supervisor helped me to choose the topic-
“Credit Risk Management of Dhaka Bank Limited”.
Dhaka Bank focuses on a wide range of financial products and services comprising commercial
banking. The study not only focuses on the activities of Dhaka Bank Limited but also highlights
the credit management system of the bank. After preparing this report one can come to know the
analysis of financial statements through ratios helps to overcome the past flaws and make future
decisions and strategies.
In the introduction chapter background, rationales, scope, objective of the study, the methods
used for collecting information, limitations have been discussed. Moreover, this report focused
on the overview of Dhaka Bank Limited and its performance. The mission, vision, objectives,
products, and services have also been reflected in this report. Then, it also covered credit risk
analysis, how credit risk is measured, and the models and tools available to evaluate it with
discussing loans and advances of DBL. Then, it focused on the credit sanctioning system, norms
of credit sanction, supervision and monitoring of credit, and the present changes in the credit
approval system. This report conducted a depth interview with various officials of the banks to
collect the necessary information. The findings show that to reduce the non-performing loans,
the bank should select borrowers in respect of their creditworthiness, capability to repay the
loans; the credit rating report of the borrower has a vital role in the selection of borrowers.

The credit sanctioning system of DBL can be known by this report. Dhaka Bank Limited
followed the credit policy and practices set by the management and the guideline set by the
Bangladesh Bank. As a result, they are performing well in reducing the high classification rate
and achieving the profit target of the bank.
v
Table of Content

Letter of Transmittal i
Bonafied Certificate ii
Declaration iii
Acknowledgment iv
Executive summary v
Table of Content vi
List of Figure viii
List of Table ix

CHAPTER- 1: INTRODUCTION 1
1.1 BACKGROUND OF THE STUDY 1
1.2 STATEMENT OF THE PROJECT 2
1.3 OBJECTIVE OF THE STUDY 2
1.3.1 Major Objective 2
1.3.2 Specific Objective 2
1.4 SCOPE AND LIMITATIONS OF THE REPORT 3

CHAPTER- 2: LITERATURE REVIEW 4

2.1 EVOLUTION OF CREDIT RISK 4

2.2 CREDIT RISK 5

2.3 CREDIT RISK MANAGEMENT 6

CHAPTER- 3: PROFILE OF DHAKA BANK LTD 10

3.1 BACKGROUND OF THE DHAKA BANK LIMITED 10
3.2 MISSION 11
3.3 VISION 11
3.4 ORGANIZATIONAL STRUCTURE OF DHAKA BANK 11
3.5 THE STRATEGIC OBJECTIVES OF DHAKA BANK LTD 12
3.6 MANAGEMENT ASPECT 13
3.7 SWOT ANALYSIS 14

vi
3.7.1 Strengths 15
3.7.2 Weaknesses 16
3.7.3 Opportunities 16
3.7.4 Threats 17
CHAPTER-4: METHODOLOGY 18
4.1 PRIMARY SOURCES 18
4.2 SECONDARY SOURCES 18
4.3 DATA ANALYSIS AND PRESENTATION 18
CHAPTER-5: CREDIT RISK MANAGEMENT 19
5.1 THE CREDIT POLICY THAT DBL HAS FOLLOWED 19
5.2 THE CREDIT RISK MANAGEMENT DBL 21
5.3 FUNCTIONS OF THE CREDIT DEPARTMENT 22
5.4 CREDIT RISK ANALYSIS OF DBL 22
5.5 CREDIT RATING REPORT OF DBL 23
5.6 CREDIT FACILITIES IN DBL 23
5.7 CREDIT SANCTIONING SYSTEM 25
5.8 PRELIMINARY SCREENING OF A CREDIT PROPOSAL IN DBL 26
5.9 APPROVAL OF CREDIT BY HIGHER AUTHORITY IN DBL 26
5.10 NORMS OF CREDIT SANCTION IN DBL 27
5.11 DISBURSEMENT PROCESS OF CREDIT IN DBL 28
5.12 CREDIT MONITORING POLICY IN DBL 29
5.13 THE CREDIT ADMINISTRATION & FILE MAINTENANCE OF DBL 29
5.14 PRICING OF LOANS 30
5.15 THE REASON BEHIND LOANS TO DEFAULT 30
5.16 LOAN RECOVERY OF DHAKA BANK LIMITED 31
5.17 CORRECTIVE MEASURES NOT TO DEFAULT LOAN 32
5.18 DIVERSIFICATION OF CREDIT OF DBL 32
CHAPTER-6: CONCLUSION & RECOMMENDATIONS 34
6.1 INTRODUCTION 34
6.2 SUMMARY OF FINDINGS 34
6.3 LIMITATIONS OF THE STUDY 35
6.4 RECOMMENDATIONS 35
6.5 CONCLUSION 36
REFERENCES 38

vii
LIST OF FIGURE

3.1 Organizational overview of DBL 12

3.2 Level of Management 14
3.3 SWOT Analysis of Dhaka Bank Limited 15
5.1 Credit Management Process 20
5.2 Activities of Credit Risk Department of DBL 21
5.3 Different Credit Facilities 24
5.4 Steps of sanctioning credit 25
5.5 A process of credit monitoring 29

viii
LIST OF TABLE

5.1 Credit rating of DBL 23

5.2 Diversification of credit of DBL 33
5.3 Diversification percentage of credit of DBL 33

ix
 CHAPTER- 1: INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Generally by the word “Bank”, we can easily understand that the financial institution deals
with money. The whole scenario of the economy of a country can be ascertained by examining
the condition of the banking sector. The banking sector has a vital role to play in the economic
activities and development of any country. There are different types of banks like Central
Banks, Commercial Banks, Savings Banks, Investment Banks, Industrial Banks, Cooperative
banks, etc. But when we use the term “bank” without any prefix or restriction, it refers to
commercial Banks. Commercial Banks are the primary contributors to the economy of a
country like Bangladesh. In Bangladesh, commercial banks are dominating the financial sector
and macroeconomic management largely depends on the performance of the commercial banks
as well as the banking sector. Banking grew primarily in the public sector with the main
emphasis on restructuring the financial system and development needs of the war-torn
economy with gradual liberalization in subsequent years. It was increasingly felt that banks
should be allowed in the private sector for giving a fillip to the development process based on
private initiative. In the ’80s for the first time, several banks in the private sector were allowed.
Dhaka Bank is one of them. Today the banking concept is not continuing inside the branches or
the cabin of the branches. The bankers are now practicing non-cabin banking. The assurance of
the availability of the service provider is the main factor in bank service. As a result, it has
become essential for every person to have some idea of the bank and banking procedure. At
present, 61 scheduled banks are operating all over the country. Out of these, 9 are state-owned
(including five specialized banks), 43 are private commercial banks and the rest 9 are foreign
commercial banks.
Even though the banking sector in Bangladesh is going through a radical change, it still suffers
from chronic inefficiency. The biggest problem of Bangladesh's banking system is the bank
loan default problem. Various initiatives have been undertaken to tackle the loan default
problem in Bangladesh. One of them is to have a credit policy and procedures
guideline-mandated by the Bangladesh Bank.
The main purpose of the internship program is to expose the students to real-world situations.
This report is prepared for the internship program consisting of a major in-depth study of the

1
total banking business of Dhaka Bank Limited. The goal of this analysis is to expose the
students to the organizational work situation and also to provide an opportunity for applying
classroom learning in practice. The internship in the final of the program gives the way to
practice what we have learned. It enables students to apply their conceptual knowledge in a
practical situation and to learn the art of conducting a study and systematically presenting its
findings. The report has been prepared based on experience obtained throughout the internship
period.

1.2 STATEMENT OF THE PROJECT

The internship program at University of Dhaka is a Graduation requirement for the BBA
students, which is also a partial requirement of the Internship program of the BBA curriculum.
The main purpose of the internship is to get the student exposed to the job world. Being an
intern the main challenge was to translate the theoretical concepts into real-life experience.
The internship program and the study have the following purposes:
● To get and organize detailed knowledge on the job responsibility.
● To experience the real business world.
● To compare the real scenario with the lessons learned in the University

1.3 OBJECTIVE OF THE STUDY

The objective of the report can be viewed as:

● Major Objective
● Specific Objective

1.3.1 Major Objective

The major objective of this report is to evaluate the credit risk management practices of Dhaka
Bank Limited.

● Observing and learning the Credit Process & Risk Management of Dhaka Bank Limited.

1.3.2 Specific Objective

More specifically, this study entails the following aspects:

2
 ● Identifying the procedure of loans and advances.
● Identifying the main factors of credit risk and computation of credit risk grading of
DBL.
● Identifying the financial performance by analyzing ratios.
● Identifying the working environment in Dhaka Bank Limited.

1.4 SCOPE AND LIMITATIONS OF THE REPORT

The report plots a chronicle outline of Dhaka Bank Limited and its operation. The information
consists of the observation and the job experience acquired throughout the internship period.
The report concerned the Credit Division of DBL. DBL invested under the guidelines of the
central bank framed for the banking system as a whole and for banks of the individual sector to
achieve the objective of the study. The report also particularizes the internship research focus,
financial performance of Dhaka Bank Limited. This report has been prepared according to
extensive analysis of financial statements, credit operating system, and procedures of loan
supervision.
Banking contains a huge volume of operations and it is quite impossible to gain knowledge
about all activities during a research period. The major limitations of the study faced in
preparing this report on the disclosure procedure of Dhaka Bank Limited are:

● Getting the information and interpreting it, based on my understanding and then
implementing it.
● Being a public limited company, private commercial banks like Dhaka Bank Limited
keep some information restricted like the actual amount of classified loans.
● Financial statements only portray the figures or numbers and their breakdown but do not
clarify the justifications most of the time.

3
 CHAPTER- 2: LITERATURE REVIEW
2.1 EVOLUTION OF CREDIT RISK
Credit risk is the single most important source of potential losses for banks and determining
the adequacy of both the bank’s capital and loan loss reserves at any given time has long been
a big challenge. The first step is to gain a complete understanding of the bank’s overall credit
risk by viewing risk not only at the individual account level but at the customer and portfolio
levels as well. While banks strive for an integrated understanding of their risk profiles, losses
remain within most banks, and information is scattered among business units, but without a
thorough risk assessment, you have no other way of knowing if your capital reserves
accurately reflect the risks you face or if your loan loss reserves adequately cover potential
short-term credit losses, vulnerable banks are targets for regulatory and investor scrutiny and
debilitating losses. (SAS Institute Inc. 2005)
The key principles in credit risk management are; firstly, the establishment of a clear structure,
allocation of responsibility and accountability, processes have to be prioritized and disciplined,
responsibilities should be communicated and accountability assigned thereto (Lindergren,
1987). According to Demirguc-Khunt and Huzinga (1999), the overwhelming concern on bank
credit risk management is two-fold. First, the Newtonian reaction against bank losses, a
realization that after the losses have occurred that the losses are unbearable. Secondly, recent
development in the field of financing commercial paper, securitization, and other non-bank
competition have pushed banks to find viable loan borrowers. This has seen large and stable
companies shifting to open market sources of finance like the bond market. Organizing and
managing the lending function in a highly professional manner and doing so pro-actively can
minimize whatever the degree of risk assumed losses. Banks can tap increasingly sophisticated
measuring techniques in approaching risk management issues (Gill, 1989).
Credit risk management processes enforce the banks to establish a clear process for approving
new credit as well as for the extension to existing credit. These processes also follow
monitoring with particular care, and other appropriate steps are taken to control or mitigate the
risk of connected lending (Basel 1999).
The banks very frequently suffer from poor lending practices (Koford & Tschoegl, 1999).
Monitoring, and other appropriate steps, are necessary to control or mitigate the risk of
connected lending when it goes to companies or individuals (Basel, 1999). Therefore, the

4
Nepal Rastra Bank (NRB) i.e. central bank, has issued guidelines that attention to general
principles that are prepared for governing the implementation of more detailed lending
procedures and practices within the banks. The NRB has issued some criteria, such as the
credit assessment of borrowers (macro-economic factors and firm-specific analysis), the
purpose of credit, track records, repayment capacity, liquidity status of collateral for new
credit, as well as the renewal and expansion of existing credit (NRB, 2010). A bank must
prepare Credit Policies Guidelines (CPG) for making investment and lending decisions and
which reflect a bank tolerance for credit risk.

2.2 CREDIT RISK

This is the possibility that the actual return on an investment or loan extended will deviate
from that, which was (Conford, 2000). Coyle (2000) defines credit risk as losses from the
refusal or inability of credit customers to pay what is owed in full and on time. The main
sources of credit risk include limited institutional capacity, inappropriate credit policies,
volatile interest rates, poor management, inappropriate laws, low capital and liquidity levels,
directed lending, massive licensing of banks, poor loan underwriting, reckless lending, poor
credit assessment., no non-executive directors, poor loan underwriting, laxity in credit
assessment, poor lending practices, government interference and inadequate supervision by the
central bank. To minimize these risks, the financial system must have; well-capitalized banks,
service to a wide range of customers, sharing of information about borrowers, stabilization of
interest rates, reduction in non-performing loans, increased bank deposits, and increased credit
extended to borrowers. Loan defaults and nonperforming loans need to be reduced (Bank
Supervision Annual Report, 2006; Laker, 2007; Sandstorm, 2009).
Credit risk management is defined as the identification, measurement, monitoring, and control
of risk arising from the possibility of default in loan repayments (Early, 1996; Coyle, 2000).
Credit extended to borrowers may be at the risk of default such that whereas banks extend
credit on the understanding that borrowers will repay their loans, some borrowers usually
default and as a result, banks' income decrease due to the need to provide for the loans. Where
commercial banks do not indicate what proportion of their borrowers will default, earnings
will vary thus exposing the banks to an additional risk of the variability of their profits. Every
financial institution bears a degree of risk when the institution lends to businesses and
consumers and hence experiences some loan losses when certain borrowers fail to repay their

5
loans as agreed. Principally, the credit risk of a bank is the possibility of loss arising from
non-repayment of interest and the principal, or both, or non-realization of securities on the
loans.
According to the Reserve bank of Zimbabwe, risk management operating document (2004),
credit risk or default risk involves the inability or unwillingness of a customer or counterparty
to meet commitments with lending, trading, hedging, settlement, and other financial
transactions. Credit risk arises from uncertainty in the counterparty’s ability or willingness to
meet its contractual obligations. Basis (1998) includes a decline in the credit standing of
the counterparty as part of credit risk. Credit risk management covers both the decision-making
process before the credit decision is made and the follow-up of credit commitments plus all
monitoring and reporting processes (Miller, 1996).

2.3 CREDIT RISK MANAGEMENT

Risks exposed to commercial banks threaten crises not only in the banks but to the financial
market as a whole and credit risk is one of the threats to the soundness of commercial banks.
To minimize credit risk, banks are encouraged to use the “know your customer” principle as
expounded by the Basel Committee on Banking Supervision. (Kunt-Demirguc And
Detragiache, 1997; Parry, 1999; Kane and Rice, 1998).

Subjective decision-making by the management of banks may lead to extending credit to

business enterprises they own or with which they are affiliated, to personal friends, to persons
with a reputation for non-financial acumen or to meet a personal agenda, such as cultivating
special relationships with celebrities or well-connected individuals. A solution to this may be
the use of tested lending techniques and especially quantitative ones, which filter out
subjectivity (Griffith and Persuad, 2002).

As a result of the global financial crisis, international standard-setting bodies and national
authorities are reviewing and revising their expectations as to how banks identify, measure,
monitor, and control their credit risk. These Guidelines have been prepared with these
international standards in mind, most notably Principles 17, 18, 19, and 20 of the Core
Principles for Effective Banking Supervision, issued in 2012 by the Basel Committee on
Banking Supervision. The Board of Directors and senior executive officers of each bank are

6
strongly advised to familiarize themselves with these Principles and apply them throughout
their credit risk management activities. Bangladesh Bank’s Credit Risk Management (CRM)
guidelines for Banks (March 08, 2016).

While financial institutions have faced difficulties over the years for a multitude of reasons,
the major cause of serious banking problems continues to be directly related to the lax credit
standards for borrowers and counterparties, poor portfolio risk management, or a lack of
attention to changes in economic or other circumstances that can lead to a deterioration in the
credit standing of a bank’s counterparties. Credit risk is most simply defined as the potential
that a bank borrower or counterparty will fail to meet its obligations by agreed terms. The goal
of credit risk management is to maximize a bank’s risk-adjusted rate of return by maintaining
credit risk exposure within acceptable parameters. Banks need to manage the credit risk
inherent in the entire portfolio as well as the risk in individual credits or transactions. The
effective management of credit risk is a critical component of a comprehensive approach to
risk management and is essential to the long-term success of any banking organization. (Basel
Committee on Banking Supervision, 1999).

Bangladesh Bank initiated plans for implementation of Basel-II in 2011, for which most of the
banks of the developing countries are not well prepared. Moreover, some of the 1998 previous
Basel Accord is yet to be fulfilled by some banks. Nevertheless, SEBL has been practicing and
considering both ‘market risk’ in addition to credit risk since its inception. To be more
articulated and derive the benefits of orchestral effects, the management of the Board modified
its organogram, separating the corporate and retail functions from credit functions. Two new
divisions namely Corporate Banking Division and Retail Banking Division were thereby
created, who were entrusted with the authorities and responsibilities of analyzing and rating
credit proposals, while the credit risk manager (CRM) is entrusted with the credit risk
assessment.

In commercial lending, commercial banking plays a dominant role (Allen & Gale, 2004). In
many countries, commercial banks routinely perform investment banking activities by
providing new debt to their customers (Gande, 2008). The credit creation process works
smoothly when funds are transferred from ultimate savers to borrowers (Bernanke, 1993).
There are many potential sources of risk, including liquidity risk, credit risk, interest rate risk,
market risk, foreign exchange risk, and political risks (Campbell, 2007). However, credit risk

7
is the biggest risk faced by banks and financial intermediaries (Gray, Cassidy, & RBA., 1997).
The indicators of credit risk include the level of bad loans (Non- performing loans), problem
loans, or provision for loan losses (Jiménez & Saurina, 2006). Credit risk is the risk that a loan
that has been granted by a bank, will not be either by time or fully (Campbell, 2007) and
where there is a risk of the customer or counterparty default (Gray, et al., 1997).
Credit granting procedures and control systems are necessary for the assessment of loan
applications, which then guarantees a bank’s total loan portfolio as per the bank’s overall
integrity (Boyd, 1993). It is necessary to establish a proper credit risk environment, sound
credit-granting processes, appropriate credit administration, measurement, monitoring and
control over credit risk, policy and strategies that summarize the scope and allocation of bank
credit facilities as well as the approach in which a credit portfolio is managed i.e. how loans
are originated, appraised, supervised and collected, a basic element for effective credit risk
management (Basel, 1999).
Credit scoring procedures, assessment of negative events probabilities, and the consequent
losses given these negative migrations or default events are all important factors involved in
credit risk management systems (Altman, Caouette, & Narayanan, 1998). Most studies have
been inclined to focus on the problems of developing an effective method for the disposal
of these bad debts, rather than for the provision of a regulatory and legal framework for their
prevention and control (Campbell, 2007).
According to (Cuthberston & Nitzsche, 2003) risk management technology has been
renovated over the last decade. The swiftness of information flow and the complexity of the
international financial markets qualify banks to recognize, evaluate, manage and mitigate risk
in a way that was just not possible ten years ago. The most current credit modeling software in
place is Basel II Accord. This accord has positively been a substance in leading the drive
towards building applicable credit risk modeling and capital adequacy requirements. Banks
will have to decide what their risk enthusiasm is, how to assign their resources optimally and
how to compete in the market. Generally in the competitive market, a bank trade off the risk
which allows much more competent risk transfer and portfolio optimization. However, for all
these activities, banks must have good knowledge about risk management, pricing of loans in
a competitive market, marginal risk-adjusted contribution, monitoring of economic capital
(Cuthberston & Nitzsche, 2003).

8
The maximum risk limit is determined by the capital allocated to cover credit risks in the
planning process. The bank’s organizational structure has a sign of Dhaka ant impact on how
the limits are designed. One important success factor in the effective use of limits for risk
controlling purposes is that a unit or an employee has the appropriate responsibility for an
organizational unit that is assigned a limit. This is the only way to ensure that compliance with
the limits is monitored and suitable measures are taken. (Bernanke, 2006)
Financial institutions must ensure that their credit portfolio is properly administered, that is,
loan agreements are duly prepared, renewal notices are sent systematically and credit files are
regularly updated. An institution may allocate its credit administration function to a separate
department or designated individuals in credit operations, depending on the size and
complexity of its credit portfolio (Credit Risk Management: Industry Best Practices2005,
Bangladesh Bank).
The borrower should be asked to explain any major variances in projections provided in
support of his credit application and the actual performance, in particular variances respecting
projected cash flows and sales turnover (Credit Risk Management: Industry Best
Practices2005, Bangladesh Bank).

9
 CHAPTER- 3: PROFILE OF DHAKA BANK LTD

3.1 BACKGROUND OF THE DHAKA BANK LIMITED

The nation was just halfway of its age; the passion for history and heritage and an obsession for
a faster pace exerted a powerful force for change in the business world. Dhaka Bank was
incorporated as a Public Limited Company on April 6, 1995, under the Companies Act, 1994.
The company commenced banking operations on July 5, 1995. The Bank has stood out for its
financial strength and operational craftsmanship marking its position as the potential market
player in all core areas of banking in the country. It got listed in DSE and CSE in 2000.
Alongside a lasting bond with the corporate world, DBL has got hold of a countrywide reach
through a larger network of Branches, ATMs, SME channels, agricultural outreach, and mobile
banking. The Bank is now expanding far and wide to a higher market share and a big surge in
assets. A great total of 450,544 customers' accounts now we serve and seek to make them
better off as best as we can. Strong with 164 delivery centers, the Bank is still going strong
with more expansion and inclusive banking programs. Opening many gateways for financial
freedom and services, Dhaka Bank has made its vibrant presence at 106 branches including 2
Islamic banking branches, 14 sub-branches, 3 SME service centers, 68 ATMs, 20 ADMs, 1
customer service center, and 2 offshore banking units across the country. Catering to the needs
of Capital Markets, the bank has established a subsidiary company named `Dhaka Bank
Securities Ltd.' having 106 countrywide- Branches. Another subsidiary in the name of 'Dhaka
Bank Investment Limited' is yet to start operation. This has strengthened its capital base to
TK.15,408 million with a capital adequacy ratio of 10.46%. Sailing past all odds and
uncertainties in 2020, DBL posted an operating profit of Tk.7,210 million. DBL expects to rise
from the heart of Bangladesh as a stronger force in the market that the bank serves.

10
3.2 MISSION
The mission of Dhaka Bank is “To be the premier financial institution in the country providing
high-quality products and services backed by the latest technology and a team of highly
motivated personnel to deliver Excellence in Banking.”

3.3 VISION

“At Dhaka Bank, we draw our inspiration from the distant stars. Our team is committed to
assure a standard that makes every banking transaction a pleasurable experience. We endeavor
to offer you razor-sharp sparkle through accuracy, reliability, timely delivery, cutting edge
technology, and tailored solution for business needs, global reach in trade and commerce, and
high yield on your investments.”

“Our people, products, and processes are aligned to meet the demand of our discerning
customers. Our goal is to achieve a distinction like the luminaries in the sky. Our prime
objective is to deliver a quality that demonstrates a true reflection of our vision – Excellence in
Banking.”

3.4 ORGANIZATIONAL STRUCTURE OF DHAKA BANK

There are four different wings to consist of the organizational structure of DBL. They are
● Board Directors
● Executive Committee
● Audit Committee
● Management Committee

11
 Fig 3.1 Organizational overview of DBL (website of Dhaka Bank Ltd)

3.5 THE STRATEGIC OBJECTIVES OF DHAKA BANK LTD:

DBL’s objectives are to conduct transparent and high-quality business operations based on
market mechanisms within the legal and social framework spelled in their mission with
reflected in vision.

● DBL’s concern is to provide customers with continually efficient, innovative, and

high-quality products with an excellent delivery system.
● DBL’s moto is to generate profit with qualitative business as a sustainable ever-growing
organization and enhance fair returns to our shareholders
● DBL is committed to their community as a corporate citizen and contributing towards
the progress of the nation as their corporate social responsibility.

● DBL’s employees are their backbone. They promote their well-being through attractive
compensation packages, promoting staff morale through training, development, and
career planning.
● DBL strives for the fulfillment of its responsibility to the government through paying an
entire range of taxes and duties and abiding by the other rules.

12
3.6 MANAGEMENT ASPECT:

Like any other business organization, all the major decision in Dhaka Bank Ltd. is made by the
top management. The boards of directors being at the higher level of organizational structure
play an important role in policy formulation. The board of directors is not directly concerned
with the day-to-day operation of the bank. They have delegated this duty to the management
committee. The board mainly establishes the objectives and policies of the bank. There is two
committees of the board for different purposes:

● An executive committee comprising 18 members of the board.

● Audit committee comprising of 3 members of the board.

The chief executive officer, who is assisted by executive vice presidents (EVPs), looks after the
day-to-day affairs of the bank. The human resource department, MDs secretariat, and audit and
compliance department are under the direct control of the CEO. The EVPs are in charge of
operations, credit, and corporate banking respectively. They control the affairs of departments
through the managers who are in charge of various departments under these divisions. Mid and
low-level employees get direction and instruction from the top executives about the duties and
tasks they have to perform. Management of Dhaka Bank Limited assumes that employees are
members of the team, who actively participate in accomplishing the organizational goals. The
chief executive provides the guideline and board direction to the managers and employees but
delegates responsibility for determining how tasks and goals are to be accomplished.

13
 Fig 3.2 Level of Management (Website of Dhaka Bank Limited)

3.7 SWOT ANALYSIS:

SWOT analysis is done for a company to find out its overall strength, weaknesses, threats, and
opportunities leading to gauging the potential of the company. The SWOT analysis enables a
company to recognize its market standing and adopt strategies accordingly. Here SWOT
analysis of Dhaka Bank Limited is made to understand the positioning of Dhaka Bank Limited

14
 Fig 3.3: SWOT Analysis of Dhaka Bank Limited (Website of Dhaka Bank Ltd)

3.7.1 Strengths:
Strong Corporate Identity: According to the customer, DBL is the leading provider of
financial services identity worldwide. With its strong corporate image and identity, it has better
positioned itself in the minds of the customers. This image has helped DBL grab the personal
banking sector of Bangladesh very rapidly.

​Strong Employee bonding and Belongings: DBL employees are one of the major assets of

the company. The employees of DBL have a strong sense of commitment towards the
organization and also feel proud and a sense of belongings towards DBL.

​Efficient Performance: DBL provides problem-free customer services to its clients compared

to other financial institutions.

​Young Enthusiastic Workforce: The selection and recruitment of DBL emphasize having

skilled graduates and postgraduates who have little or no previous work experience.

15
​Empowered Workforce: The HR of DBL is extremely well thought out and perfectly

managed. The empowered environment makes DBL a better place for the employees.

​Hospitable Working Environment: The working environment of DBL is really good and

comfortable.

​Strong Financial Position: DBL is not just sitting on its previous year’s success but also

taking initiatives to improve

3.7.2 Weaknesses:

​High charges of L/C: Presently DBL charges the same rates for all types of import L/C. But

for import L/C of exports oriented industry, DBL should reduce the charge of L/C. As a result,
the country will be benefited and the country will earn more foreign exchange.

​Absence of strong marketing activities: DBL does not have any strong marketing activities

through mass media and television. Although DBL does lots of CSR activities compared to
other banks.

​Not enough innovative products: To be more competitive in the market, DBL should come up with

more attractive and innovative products.

​Lack of proper motivation: The salary at DBL is very decent, but it lacks other sorts of motivation

such as incentive bonuses.

​High cost for maintaining account: The account maintenance cost for DBL is comparatively high.

As a result, this might turn out to be a negative issue for DBL

3.7.3 Opportunities:
Distinct operating procedure: Repayment capacity by DBL of individual clients helps to

16
decide how much one can borrow. So, the recovery rate helps DBL to be remaining in the long
run.

​Country-wide network: The ultimate goal of DBL is to expand its operations to the whole of

Bangladesh. So, by holding the mission and vision DBL can secure its existence in the long
run.

​Experienced Manager: One of the key opportunities for DBL is its efficient managers. DBL

has employed experienced managers to facilitate its operation.

​Huge population: Bangladesh is a developing country. So to satisfy the needs of the huge

population, a large amount of investment is required. The foreign investment in our country
made it attractive to foreigners to invest in our country.

3.7.4 Threats:

​Similar products are offered: Nowadays different foreign and private banks are also offering

similar types of products with an almost similar profit margin.

​Default loans: The problem of default loans or non-performing loans is very minimum or

significant. For this reason, some proactive measures should be taken to minimize this position.

​Industrial downturn: Unemployment may create an industry-wide recession. On the other

hand, inflation also may create downward pressure on the capital demand for investment.

17
 CHAPTER-4: METHODOLOGY

This report is designed by the experience gathered while working in Dhaka Bank Limited.
Different primary and secondary sources of data have been used in ornamenting the report.
Particularly, This report is prepared with mainly secondary sources in a wide range that are very
significant in the organization and development of the report. The sources are as follows:

4.1 PRIMARY SOURCES:

● Discussion with officials of Dhaka Bank Limited.

● Informal Discussion with professionals and observation while working at different desks.

4.2 SECONDARY SOURCES:

For the completion of the present study, secondary data has been collected. The main sources of
secondary data are

● The Annual report of Dhaka Bank Limited.

● The Training Manual of Dhaka Bank Limited is written by some of the departmental heads of
Dhaka Bank Limited and faculties of BIBM.
● Various credit manuals of Dhaka Bank Limited.
● Various circulars of Bangladesh Bank regarding credit risk.
● Study-related books and journals.
● Web sites etc.

4.3 DATA ANALYSIS AND PRESENTATION:

Collected data were presented in different forms of charts and tables using MS Word.
This study contains different Excel Charts and templates which were collected from the
website of Dhaka Bank Ltd.

18
 CHAPTER-5: CREDIT RISK MANAGEMENT

5.1 THE CREDIT POLICY THAT DBL HAS FOLLOWED

To minimize the credit risk, Dhaka Bank Limited has formulated a comprehensive credit policy
according to Bangladesh Bank Core Risk Management guidelines. Credit policy of the bank
provided for the separation of the credit approval function from business, marketing, and loan
administration functions. Credit policy of DBL recommended through a credit assessment and
risk grading of all clients at the time of approval and portfolio review. The credit policy of
DBL has been formulated of the plan of “All-New Loans to Be Goods Loans”. To form the
plan there are some objectives. The objectives are:

● To maximize the profit of the bank by making sound lending

● To deliver credit to viable borrowing at a reasonable cost

● To provide a satisfactory return on investment

● To assist the social and economic development of the country

● To deliver general banking services to the public and credit to viable borrowers at a
reasonable cost

Credit policy of DBL also provides the guidelines of required information for credit
assessment, marketing strategy, approval process, loan monitoring, credit recovery, NPL
account monitoring, NPL provisioning and write off policy, etc.

5.2 THE CREDIT RISK MANAGEMENT DBL

The loan and credit department is a very important department of a bank. The money
mobilized from ultimate surplus units is allocated through this department to the ultimate
deficit it (borrower). The success of this department keeps a great influence on the profit of a
bank. Failure of this department may lead the bank to huge losses or even to bankruptcy. The
loan and credit department receives the application from the client in a prescribed application
form supplied by Dhaka Bank Limited. The Bank implemented the system of credit risk
assessment and lending procedures by stricter separation of responsibilities between risk
assessment, lending decisions, and monitoring functions to improve the quality and soundness

19
of the loan portfolios. The Bank recorded a 31% growth in advances with a total loans and
advances portfolio of BDT 551.60 million at the end of December 2020 compared to BDT
422.47 million at the end of December 2020.

Considering the key elements of Credit Risk, Dhaka Bank Ltd. has segregated duties of the
officers/ executives involved in credit-related activities. Separate divisions for Corporate,
SME, Retail, and Credit Cards have been formed which are entrusted with the duties of
maintaining effective relationships with the customers, marketing of credit products, exploring
new business opportunities, etc. According to DBL credit policy, for transparency in the
operations during the entire credit year, four teams have been set up. Those are:

● Credit Approval Team

● Asset Operations Department
● Recovery Unit
● Impaired Asset Management

A credit management process has been made that helps the credit risk department to deal with
the customers and employees. The process is given below.

Fig 5.1: Credit Management Process (Annual report of Dhaka Bank Ltd. )

This arrangement has not only ensured segregation of duties and accountability but also helps in
minimizing the risk of compromise with the quality of the credit portfolio.

20
5.3 FUNCTIONS OF THE CREDIT DEPARTMENT
Lending money is one of the main functions of a commercial bank. In the lending process, the
selection of borrowers is the most crucial and vital job for a banker. Before a customer enjoys
credit facilities the applicant must qualify for five “C” s. The five “C” s are
1. Character- Intention to pay back the loan
2. Capacity- Borrower' s competence in terms of utilizing the fund profitably and
generating income
3. Capital- Financial strength to cover the risk
4. Conditions- General business condition between two parties
5. Collateral- Implies additional securities

In addition, objectives of the credit department are managing credit exposure of the bank,
maintaining credit risk, compliance of Central Bank Ltd., recovering or collecting dues of retail
loans or advances. At present credit division of DBL performs the following activities.
● Credit Approval Process
● Corporate Credit.
● Retail Credit
● Collection and Monitoring Activity
● Recovery
● Risk management

Besides this, the activities of the Credit Risk Department that are maintained in their working
process are given below.

Fig 5.2: Activities of Credit Risk Department of DBL (Annual report of Dhaka Bank
Ltd. )

21
5.4 CREDIT RISK ANALYSIS OF DBL
Dhaka Bank Limited has a term for credit analysis. Credit analysis includes credit scoring, it is
more commonly used to refer to the process that entails human judgment. Credit professionals
in banks review the client's balance sheet, income statement, recent trends in its industry, the
current economic environment, etc. from this they can also assess the exact nature of an
obligation. Based on this analysis, the credit manager assigns the client a credit rating, which
can be used for making credit decisions.

From the observation of the Credit Risk Department’s working process, it can be said that the
credit risk of DBL arises from the following issues:

● Financial Risk
● Business/Industry Risk
● Management Risk
● Security Risk
● Relationship Risk

Each of the above mentioned key risk areas require evaluating and aggregating to arrive at an
overall risk grading measure.

● Evaluation of Financial Risk: Financial analysis of leverage, liquidity, profitability,

and interest coverage ratios will help to analyze the risk that borrowers might fail to
meet obligations due to financial distress.
● Evaluation of Business/industry Risk: Analyzing the business outlook, size of
business, industry growth, market completion, and barriers to entry or exit to understand
the industry situation or unfavorable business conditions that might have an impact on
the borrower's capacity to meet the obligation. This capitalizes on the risk of failure due
to low market share and poor industry growth.
● Evaluation of Management Risk: Due to poor management skills, the experience of
the management, its succession plan, and teamwork might cause the borrower to default.
● Evaluation. of Security Risk: Risk that the bank might be exposed due to or quality or
strength of the security in case of default. This may involve the strength of security and
collateral, location of collateral, and support.

22
 ● Evaluation of Relationship Risk: These risk areas cover evaluation of limits
utilization, account performance, conditions/covenants compliance by the borrower, and
deposit relationship.

5.5 CREDIT RATING REPORT OF DBL

Dhaka Bank is managing Credit Risk through a powerful process that enables the bank to
manage loan portfolios proactively to minimize losses and earn an acceptable level of return
for shareholders. Dhaka Bank Limited was rated by Emerging Credit Rating Limited (ECRL)
based on audited Financial Statements as of December 31, 2020.

The summary of DBL’s Rating is presented below:

Status 2017 2018 2019 2020

Long Term AA AA AA AA

Short Term ST2 ST2 ST2 ST2

Outlook Stable Stable Stable Stable

Tab 5.1 Credit rating of DBL (Annual reports of Dhaka Bank Ltd )

Emerging Credit Rating Limited (ECRL) rated `AA' indicates a very strong ability to repay
principal and pay interest on a timely basis, with limited increment risk compared to issues
rated in the highest category. Emerging Credit Rating Limited rated ‘ST2’ in the short term is
considered as the strong capacity for timely payment of financial commitments and carry
lowest credit risk

The Outlook “Stable” indicates that a rating is likely to remain unchanged

5.6 CREDIT FACILITIES IN DBL

The CRM department of DBL has different types of loan facilities for its borrowers. The credit
facilities that are offered by DBL in the Credit Risk Department are given below.

23
 Fig 5.3: Different Credit Facilities (Annual report of Dhaka bank )

There are some other loans that the Credit Risk Department of DBL provides its borrowers.
They are
1) Personal Loan: This type of loan is to provide to its fixed-income group and other
eligible borrowers. Car loans, marriage loans,s and loans for household income fall under a
personal loan. Depending on the size of the loan, the installments vary from 12 to 48 months.

The person who can apply for the loan:

-Professionals
-Salaries individuals.

Loan Size:
-Minimum Loan Amount: Tk. 25,000
-Maximum Loan Amount: Tk. 5,000,000

2) Car Loan: The Credit Risk Department provides car loans mainly for purchasing cars
that customers want to purchase.

The person who can apply for the loan:

- Professionals
-Salaries individuals.

Loan Size:
-Minimum Loan Amount: Tk. 500,000

24
-Maximum Loan Amount: Tk. 2,000,000

3) Home Loan: DBL also provides home loans to its borrower by the following situation.

The person who can apply for the loan:

-Professionals
-Salaries individuals.

Loan Size:
-Minimum Loan Amount: Tk. 500,000
-Maximum Loan Amount: Tk. 7,500,00

5.7 CREDIT SANCTIONING SYSTEM

There is no hard and fast procedure of managing credit; it should follow the instructions of the
Bangladesh Bank, Central Bank of Bangladesh, and the Circular of Head Office from time to
time.

The steps that have been followed for proceeding with credit are

Fig 5.4: Steps of sanctioning credit (Annual report of Dhaka bank )

25
5.8 PRELIMINARY SCREENING OF A CREDIT PROPOSAL IN DBL

Screening means critical diagnosis of a credit proposal at the very initial stage. At the time of
screening of a credit proposal, the preliminary screening is done on the following aspects.

● Quality of management and the entrepreneurial background of the sponsor's

● Equity strength the own capital positions
● Position of assets & properties
● Line of business, its prospects and the existing position of the respective industry
● Required technology, machinery, equipment, and their availability
● Location, whether the infrastructural facilities are available
● Potential contribution to the overall economic development of the country
● Security proposed to be given and the genuinely of the title of documents

Analyzing the above matters, it is to be convinced that the credit proposal of DBL satisfies all
the key elements of a lending policy such as

● Safety of fund
● Security
● Liquidity
● Profitability
● Diversity
● National Interest

5.9 APPROVAL OF CREDIT BY HIGHER AUTHORITY IN DBL

Branch credit committee to be headed by the Branch Manager, other members are selected by
the manager in consultation with Head Office of Dhaka Bank Ltd.

a) Head Office Committee: Dhaka Bank Limited Head office credit committee works
under the authority established and delegated by the Board of Directors. Their functions are as
follows:

26
 ● Reviewing, analyzing, and approving the extension of credit following authority is
established and delegated by the Board of Directors.
● Evaluation of the quality of tending staff in the bank & take appropriate steps to improve
upon Recommending credit proposal to the Executive Committee Board of Directors
which are beyond the delegated authority.
● Ensuring, that all elements of Credit application i.e. Forms, Analysis of statements, and
other papers have been obtained and are in order.
● Confirming that the transaction is consistent with existing loan policy and Bangladesh
Bank guidelines & if not the Committee may prepare a recommendation from an
exception to or change in policy for consideration by the Executive Committee Board of
Directors.
b) Executive Committee: Approving credit facilities as delegated by the Board of
Directors. Supervising the implementation of the directives of the Board of Directors.
Reviewing of each extension of credit approval by the Head Office Credit
Committee/Managing Director. Keeping the Board of Directors informed covering all these
aspects.
c) Board of Directors: Establishing overall policies and procedures for approving and
reviewing credits. Delegating authority to approve and review credits. Approving credit for
which authority is not delegated. Approving all extensions of credit that are contrary to the
bank's written credit policies

5.10 NORMS OF CREDIT SANCTION IN DBL

The most important step of providing a credit facility is the sanctioning of credit. In this step,
all the documentation is completed and the customer is sent an advice letter for the credit
facility along with all the terms and conditions.

Norms maintained in sanctioning of credits are described below:

● Credit will be sanctioned and disbursed strictly in terms of the approved Credit
Operating Manual of the Dhaka Bank Ltd. Head Office Circulars issued from time to
time.
● All norms informed through the Circulars of Credit Division in particular and all other

27
 relevant circulars in general, are to be followed meticulously while exercising power.
● Credits will be subject to Bangladesh Bank restrictions.
● The party to whom credit will be allowed should be as far as possible within the
command area
● No Sanctioning Officer can sanction any credit to any of his/her new relations and to any
firm/company where his/her relations have financial -interest. Such cases should be sent
to the DBL Head Office.
● All Sanctioning Officers maintain a Sanction Register for recording serially all the
credits sanctioned by him/her.
● All approval of credit facilities must be conveyed under the dual signature. Ideally both
the signatories must have the required lending authority. If, however, two lending
officers of the required lending are not available, one of the signatories must have the
required authority

5.11 DISBURSEMENT PROCESS OF CREDIT IN DBL

Disbursement of credits requires observance of all norms and procedures, which are conveyed
through different Circulars of Dhaka Bank Limited Head Office, issued from time to time. The
processes of disbursement of Credit in the Credit Risk Department are:

● All standard and security documents are prepared by approval terms.

● A documentation checklist has been prepared.
● The credit administration department has duly authorized the disbursement.
● The disbursement authorization form is documented as evidence of the document.
● A proper backup of all the documents is maintained in the computer system.
● 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 include the name of all the lenders with facility, limit & outstanding.

28
5.12 CREDIT MONITORING POLICY IN DBL

To minimize credit losses, DBL tries to maintain the credit monitoring process.

The process of credit monitoring is given below.

Fig 5.5: A process of credit monitoring (Annual report of Dhaka Bank Ltd. )

5.13 THE CREDIT ADMINISTRATION & FILE MAINTENANCE OF

DBL
The credit file for each facility shall contain all information necessary to facilitate ready
monitoring of that facility. It should contain a thorough history of the file customer relationship
to help credit officer to track any problem, assist a newly assigned credit officer in
understanding the customer and make the lending process transparent, primary items are given
below-

● Credit application and Credit approval notes/analysis: Evidence of credit approval

and data upon which approval was granted together with any continents, if appropriate.
● Copy of sanction and loan agreement: A checklist along with copies of all legal &
banking documents obtained/to be obtained. Details and six-monthly updated
information of all related facilities to the name customer.
● All supporting data such as financial statements and analysis, references, credit

29
 investigation results, CIB & other Banks' reports, and notes of all discussions with the
borrower and other relevant parties with paper clipping.
● Correspondences, call reports, site visit reports, stock reports, etc. Each credit file shall
be maintained in a secured location and where access is restricted to authorized
personnel only. Copies of the information may be kept where regular access is required

5.14 PRICING OF LOANS

This is a great important element in the banking business. Because through pricing, banks
usually create margin/profit so it is determined carefully. In pricing, four` components are
needed to create a definite loss for the bank. The components that Dhaka Bank Limited used
are given below:

● Interest Expense or Cost of Fund

● Administrative Cost
● Cost of Capital
● Risk Premium

5.15 THE REASON BEHIND LOANS TO DEFAULT

By asking questions, I found some reasons for which sometimes Credit Risk Department are
defaulting borrowers loan. The reasons are:

● Some borrowers are usually predetermined that they will take a loan from the bank and
will not repay it.
● Borrowers take a loan by stating one purpose and then using it for another purpose thus
proper investment is not made and the loan defaults.
● Borrowers exploit the loan. For example, a borrower of the Garments factory took a loan
to purchase materials but bought an imported car thus exploiting the loan.
● If the borrower dies unexpectedly and family members do not have the circumstances to
repay the loan then the loan defaults.
● If the ship on which the goods were coming suddenly drowns then a default case arises.
● If the product based on which loan was taken loses the market demand then the

30
 borrower faces a huge loss in the market and thus becomes unable to make payment.
● Default cases arise if there is fire damage to the factory, equipment, warehouse, offices,
etc.
● Natural disasters such as earthquakes or floods.

5.16 LOAN RECOVERY OF DHAKA BANK LIMITED

1. Special Asset Management and Retail Banking: SAM deals with Bank's non-performing
loans through legal persuasion/procedure and facilitates external and internal recovery forces to
maintain Bank's portfolio at risk (PAR) at a steady position. SAM department deals with the
legal actions regarding mitigation of bad portfolios under the SME & Retail Banking Division.
2. File Transfer: Files transfer to SAM from SME when the loan reaches DPD 180. SAM
receives the file from Retail when the loan reaches DPD 360.
3. Legal Notice: SAM-S&R would arrange to serve 1st legal notice for warning the defaulting
borrower to adjust the total outstanding and 2nd legal notice would be served after bouncing
the cheque or before litigation. 1st legal notice served centrally across the country and 3rd
party recovery agencies are working with retail defaulters.
4. Write-off Management: Dhaka Bank has a specific Write-off policy developed based on
Bangladesh Bank circulars. SAM takes initiative to write off bad portfolios as per policy if the
following criteria are satisfied,
● Classification status will be Bad/Loss (BL)
● 100% provided
● Litigated (under any kind of Law of the land)

5. Case Withdraw: SAM withdraws the case when a litigated defaulter adjusts the outstanding
amount in full with updated interest, legal costs, and other expenses if any, and/or upon
amicable settlement SAM withdraws the case against such defaulters on receipt of a clearance
certificate from Operations.

6. External 3rd Party Agency Management: SAM hands over the files to the 3rd party
recovery agency after one month of issuance of 1st legal notice. Only the retail loan files,
which are delinquent, are handed over to outsource. SAM takes over the files from a 3rd party
recovery agency after 90 days.

31
The business department is split up from the Corporate CRM to maintain and ensure
appropriate recovery strategies are implemented as per policy guidelines. The department
functions under three major areas which are as follows:

● Credit Inspection through File and amounts level area

● Early Alert Account
● Legal Procedure
7. Non-Performing Loans Account Monitoring: Nonperforming loans (NPLs) refer to those
financial assets from which banks no longer receive interest and installment payments as
scheduled. As the account is handed over to SAM, the account is assigned to an account
manager within SAM, who will review all documentation, meet the customer with RM and
prepare a Classified Loan Review (CLR) report. The CLR must be approved by the Chief
Credit Officer and copied to the Head of Corporate Banking.

5.17 CORRECTIVE MEASURES NOT TO DEFAULT LOAN

● Legal review of documents & situation.
● Workout strategy & action.
● Stay or leave decision & reclassification.
● Continuous visits to the client (Defaulter).
● Negotiation versus court action.
● Obtain support- senior management, legal counsel, and specialist; legal, business, and
government

5.18 DIVERSIFICATION OF CREDIT OF DBL

As per Bangladesh Bank's rule on credit, Dhaka Bank can extend 80% of its deposits. Dhaka
Bank extends credit in four sectors which are organized under a board sector:
● Agriculture Loan
● Commercial Lending
● Export Financing
● Consumer Credit Scheme
● Small and Medium Enterprise

32
 ● Staff Loan
● Others

The last four years (2017, 2018, 2019, and 2020) loan amounts in different sectors are given
below.

Loan 2017 2018 2019 2020

Agriculture Loan 545,749,021 1,694,224,767 794,199,999 568,067,536
Commercial Lending 73,548,157,735 62,021,821,819 65,949,793,278 59,588,243,925
Export Financing 8,108,727,876 7,224,769,131 1,571,599,470 2,202,046,310
Consumer Credit Scheme 1,367,751,687 1,306,557,535 1,466,864,436 2,115,806,088
Small and Medium 12,218,670,366 10,648,851,988 8,790,565,184 4,770,133,267
Enterprise
Staff Loan 684,472,899 714,351,851 555,090,364 549,802,689
Others 21,193,296,896 19,369,684,887 20,323,214,719 20,238,129,911

Tab 5.2 Diversification of credit of DBL (Annual reports of Dhaka Bank Ltd. )

Name 2017-18 2018-19 2019-20

Agriculture Loan 40% 113% -68%

Commercial Lending 11% -6% 19%
Export Financing -29% 360% 12%
Consumer Credit Scheme -31% -11% 5%
Small and Medium Enterprise 84% 21% 15%

Staff Loan 1% 29% -4%

Others 0% -5% 9%

Tab 5.3 Diversification percentage of credit of DBL (Annual reports of Dhaka Bank Ltd.)

33
 CHAPTER-6: CONCLUSION & RECOMMENDATIONS

6.1 INTRODUCTION
Credit policy is a very convenient banking tool for the business world. The value of this service
is immense. It has gathered such a position in the banking sectors that people in developed and
also developing countries are very much dependent on this service. The study of the report
refers to the fact that people are aware of loan facilities in our country but they are not fully
aware of the services or features of the loan process and its rules and regulations especially in
the case of an individual or consumer loan. From the study, it seems that Dhaka Bank focuses
on the corporate sectors for the credit facility. But in the case of consumer loans, there are lots
of restrictions created by the DBL.

Credit Division of Dhaka Bank, Head Office has a very qualified and dedicated group of
officers and staff who are always trying to provide the best service to the clients. They always
monitor the credit in different sectors and their position. Before providing the loan they analyze
whether the loan will be profitable and whether the client is good enough to repay the loan
within the given time.

6.2 SUMMARY OF FINDINGS

Moreover, there are some other issues for which the Credit Risk Department of Dhaka Bank
Limited is lagging compared to the other banks. The other reasons are:
● Installment period and installment time duration are relatively low. For this reason,
sometimes the borrower cannot utilize their debt facility properly for profit
maximization.
● Not enough innovative products have been used in the Credit Risk Department.
● Online banking facilities, ATM services, and mobile banking facilities are not available.
● The maximum amount of loans are provided in the long-term industrial loan sector.
● The loan and advance activities of the Credit Risk Department of DBL are not
appropriate enough to survive in the market

34
6.3 LIMITATIONS OF THE STUDY
Some limitations of the report are:
● Timespan – 6 weeks was not very sufficient for a report of this magnitude
● Less time to work on as I came back from office at 8 pm.
● Lack of electricity – affected my work as well as my morale to do work
● Hesitance to share all types of information on the part of the Bank
● Lack of availability of sufficient data

6.4 RECOMMENDATIONS
● DBL should increase their LTR interest on the document retirement then their import
business can be increased. Their LTR interest is 13% to 16%. If they decrease LTR
interest by 14% then their import business can be increased.
● If DBL increases the number of employees they can provide more satisfactory service to
the customers.
● DBL should increase the number of PCs with updated hardware and software
● To create better clients the bank should increase the number of consumer loans on a
short-term basis.
● The bank can provide a loan, which may be a student loan. Though in other countries
many banks provide this facility. This may encourage the students to come forward do
something for the economy.
● DBL should fix their margin of decrease their margin; if they fix their margin into 35%
to 45% then their import business can be increased.
● If anybody wants to import then he must have an account. But in DBL if anybody wants
to open an account in DBL at that time he must have an introducer who was doing
anything in the DBL or employee of DBL. For that reason, they lost many clients or
deposits.
● Most of Dhaka Bank’s loans are in the large sector. If the performance of that sector
crash then the bank will fail to continue though the profit is very high. So, the bank
should provide more loans of small scale in different sectors though it will decrease the
profit a little. But it will be very safe.
● The maximum number of loans is provided in the long-term industrial loans. Bank’s

35
 clients are also limited. So, they can’t serve the economy of the country that much. So,
they should diversify their loans more in agriculture, new industries, etc for better
economic growth of the country.
● Improve and maintain a consistent relationship with customers, especially at retail.
● In a competitive financial market, their products & services need to focus more on
customers' needs than simply offering what the customers are offering
● They should do more marketing activities to improve their presence in the minds of the
target market and also the potential target market. As we see, Media coverage of DBL is
not so strong. To attract new clients, they should go for mass media coverage.
● There is a total of 106 branches of Dhaka Bank Limited situated in 31 districts in
Bangladesh. It is very hard to provide the full range of services with those branches.
They already are but they need to pay more attention to the expansion of the branch
network. The latest branch that was opened was Barisal Branch.
● Even though DBL is running an online business very successfully they should open
more ATM booths to meet customer needs and to meet the competitions

6.5 CONCLUSION
The last six weeks were quite intriguing to do my internship at Dhaka Bank Limited, Corporate
Office. I found out about the nature of actually working in a professional environment.
Credit policy is a very convenient banking tool for the business world. The value of this service
is immense. It has gathered such a position in the banking sector that people in developed and
also developing countries are very much dependent on this service. In Bangladesh, credit
facilities or loans started to become very attractive in recent periods. But still, lots of
improvements in services and facilities have to be made in this department.
The study of the report refers to the fact that people are aware of loan facilities in our country
but they are not fully aware of the services or features of the loan process and its rules and
regulations especially in the case of an individual or consumer loans. From the study, it seems
that Dhaka Bank focuses on the corporate sectors for the credit facility. But in the case of
consumer loans, there are lots of restrictions created by the bank.
Credit Division of Dhaka Bank has a very qualified and dedicated group of officers and staff
who are always trying to provide the best service to the clients. They always monitor the credit

36
in different sectors and their position. Before providing the loan they analyze whether the loan
will be profitable and whether the client is good enough to repay the loan within the given
period of time.
Credit department diversified their loans in different sectors classified by them. Among the
sectors, they don’t provide any loans on the agricultural side. The reason they showed is that
this sector is very risky and depends on the natural climate and they still didn’t expand their
service in the rural side. They also didn’t provide any loans in the small & cottage industry.
The reason is that the return from this sector is not very good and also the sector is very
uncertain. They provide most of the credit facilities in term loans mainly in long-term loans.
Return from the short-term loan is very good and also proves to be very safe to finance.
The main competitive advantage DBL is enjoying is that it has online banking whereas another
local commercial bank can not yet achieve that advantage. But all the commercial banks are
now trying to achieve this. In this bank, the employees are highly motivated by their
remunerations and other benefits. Here, all the employees are very much cooperative with their
customers, colleagues and simply visitors.

37
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