Credit Management Procedure and Practices: A Case Study of

First Security Islamic Bank Limited.

First Security Islami Bank Limited ( FSIB) was incorporated in Bangladesh on 29 August 1999 as a banking company under Companies Act 1994 to carry on banking business. It obtained permission from Bangladesh Bank on 22 September 1999 to commence its business. The Bank carries banking activities through its Fifty Three (53) branches in the country. The commercial banking activities of the bank encompass a wide range of services including accepting deposits, making loans, discounting bills, conducting money transfer and foreign exchange transactions, and performing other related services such as safe keeping, collections and issuing guarantees, acceptances and letter of credit.

Vision Mission Strategic Priority Objectives

Organizational Structure

introduction to the study

The word credit comes from the Latin word “Credo” meaning “I believe”. It is a lender’s trust in a person’s/ firm’s/ or company’s ability or potential ability and intention to repay. In other words, credit is the ability to command goods or services of another in return for promise to pay such goods or services at some specified time in the future. For a bank, it is the main source of profit and on the other hand, the wrong use of credit would bring disaster not only for the bank but also for the economy as a whole.

Objective of the ReportTo have better orientation on credit management activities.

To find out the strengths and weakness of the credit procedure method.

To identify the factors that must be considered and analyzed by the bank and financial institutions in determining the credit worthiness of the client.

To get an overall idea about the performance of First Security Islamic Bank Ltd, Mohakhali Branch.

Introduction to the Corporate Credit Management System

Organization Structure of Credit Department of FSIBL

Sales and Marketing Credit Assessment and Approval Credit Documentation and Administration Credit recovery

Management Structure of Credit Department of FSIBL

Head of Credit Department

Head of Credit Corporate Head of Credit

General

Credit Administration Credit Recovery Credit Retail (CCS) SOD, Bank

Guarantee

Different Types of Loan/advance offered by FSIBL

Deposit SchemeInvestment SchemeLetter of GuaranteeLetter of Credit (L/C)/ Back to back Letter of Credit (L/C)Specialized Schemes

Credit Assessment System Allocation of Authority Approving Authority Branch Credit Committee Head Office Credit Department Executive Department Board of Directors

Steps in Loan Processing Credit Request Credit Application form Scrutinizing and Collection of Information Credit Appraising & Presentation of Credit Proposal for Approval Approval of Credit by Higher Authority

Sanction of Credit Disbursement of Credit Credit Administration and File Maintenance Credit Monitoring and Reviewing Taking Precaution/Legal Action against Delinquent Clients

Steps in Loan Processing(Cont.)

Credit Risk Management

Risk Management

Credit Risk

Liquidity Risk

Market Risk

Operational Risk

Reputation Risk

Risk Management Process

Oversight by the Executive Committee. Audit committee of the Board reviews the internal audit reports Different Credit Departments are responsible for implementation of the risk policies Dedicated committee at Management Level has been set up to monitor risk PBL has put in places all manuals as suggested in the core risk management guide lines of Bangladesh Bank.

Credit Risk

Credit risk is one of the major risks faced by the Bank. This can be described as potential loss arising from the failure of a counter party to perform according to contractual arrangement with the bank. The failure may arise due to unwillingness of the counter Party or decline in economic condition etc.

Credit Risk Assessment Assessment Frequency Assessment Documentation KYC Policy Accountability Filing up credit assessment form Repayment source Risk and Mitigating factor Collateral

Credit Risk Grading Superior (SUP) Good (GD) Acceptable (ACCPT) Marginal/Watch list (MG/WL) Special Mentioned (SM) Substandard (SS) Doubtful (DF) Bad and Loss (BL)

Analysis

Analysis of Loans & advances of FSIBLYear Amount

2008 (30/12/2008) 25,854,541,500

2009 (30/12/2009) 42,423,092,722

2010 (30/12/2010) 56,344,959,167

2011 (31/03/2011) 60,615,776,645

.

Source: Annul report of FSIBL

Graph: Scenario of Deposit.

Amount of Various Kinds of Deposit at FSIBL (Last Four Years)

Year Al-Wadia Current Accounts and Other

Deposit Accounts

Mudaraba Savings Bank Deposits Mudaraba Term Deposits including

other Banks

Mudaraba Deposits under Schemes

2008 1,444,525,699 922,379,325 19,319,071,709 3,904,772,214

2009 3,958,510,256 2,441,458,467 26,684,564,624 8,777,183,002

2010 7,043,747,274 3,987,763,459 33,076,189,284 11,691,392,816

2011 6,020,311,799 3,966,246,913 40,391,686,166 9,495,477,187

05000000000

1000000000015000000000200000000002500000000030000000000350000000004000000000045000000000

2008 2009 2010 2011

Al-Wadia CurrentAccounts and OtherDeposit AccountsMudaraba SavingsBank Deposits

Mudaraba TermDeposits includingother BanksMudaraba Depositsunder Schemes

Amount of Various Kinds of Deposit at FSIBL (Last Four Years)

Major Findings Should be careful and control its costs. Amount of Consumer Credit loan increased with the increase of the buying power. According to CCS Policy the loan processing time will not exceed more than 7 days but in reality it takes more time than that. The Head Office sets up the rate of interest. Interest rate has to be with in a limit notified by Bangladesh bank. Credit allocation is set –up by the Head Office Credit Committee.

Recommendations Credit officer should not be liberal in Credit evaluation. It should improve in file management system to faster the dealings with the client's proposal. Most of the clients don’t submit the stock report, monthly statements, and overall stage report in case of large project. For reducing the cost problem the credit officer must look for whether the construction be given contract and turnkey basis. The Risk that can be arises while implementation of the project must be analyzed and mitigated through the perfect risk taker.

Conclusion Though Credit Management is the most important sector in banking Industry, It is not an easy process. Credit risk concern with sanctioning loan, that’s earns a lot of profit for a bank. Who deals with credit risk has to very careful in collecting data & Gathering risk. In perspective of Socio-Economic condition of Bangladesh, it is very difficult to collect proper information in compete with all commercial banks as well as Government Banks.

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