CHAPTER 1: INTRODUCTION

1.1 Origin of the report

To support my internship report I worked as an intern in Sonali Bank Ltd. National University
Branch, Gazipur and my topic of the report is "Credit risk management practices in Sonali
Bank Ltd." as part of the fulfillment of internship requirement. One of the most significant
challenges for a bank is to strongly manage its credits. Since the largest slice of income generated
by a bank and a major percentage of its assets is subject to this credit, it is obvious that sensible
management of this credit is fundamental to the sustainability of a bank.

1.2 Clarification of the Title

Credit: In banking terminology, credit refers to the loans and advances made by the bank
to its customers or borrowers.
Credit Risk: Credit risk arises from the potential that a bank's borrower will fail to meet
its obligations in accordance with agreed terms. Credit risk also refers the risk of negative
effects on the financial result and capital of the bank caused by borrower's default on its
obligations to the bank
Credit Risk Management: Risk management contains
 Identification,
 Measurement,
 Aggregation,
 Planning and management,

As well as monitoring of the risks arising in a bank's overall business

What is Credit Risk Management?

Credit risk is the risk that one party to a financial instrument will fail to discharge an
obligation and cause the other party to incur a financial loss. Concentration of credit risk
arises when a number of counter parties are engaged in similar business activities, or
activities in the same geographical region, or have similar economic features that would
cause their ability to meet contractual obligations to be similarly affected by changes in
economic, political or other conditions. To manage credit risk, the Bank applies credit limits
to its customers and obtains adequate collaterals. Credit risk in the Sonali Bank Ltd.'s
portfolio is monitored, reviewed and analyzed by the Credit Risk Management (CRM).

1
CRM determines the quality of the credit portfolio and assists in minimizing potential losses.
To achieve this objective, CRM formulates appropriate credit policies and procedures for the
Bank to ensure building and maintaining quality credits and an efficient credit process.
Sonali Bank Ltd. has established Asset-Liability Management Committee (ALCO) to
determine the maximum risk exposure. ALCO also assesses recommends and controls cross
border/country risk.
To manage the Non-Performing Loans (NPL), Sonali Bank Ltd. has a comprehensive
remedial management policy, which includes a framework of controls to identify weak
credits and monitoring of these accounts.

1.3 Guidelines for CRM by Bangladesh Bank & Sonali Bank’s Practice

In February 2013 Department of Off-site Supervision of Bangladesh Bank issued "Risk

Management guidelines for Banks" (Bangladesh Bank, 2013) for all scheduled banks in
Bangladesh. These guidelines are issued by Bangladesh Bank under section 45 of and
introduced to provide a structured way of identifying and analyzing potential risks, and
devising and implementing responses appropriate to their impact. Summary of Some of
the important CRM guideline are presented here.

1.4 Credit risk management framework:

A typical credit risk management framework in a bank may be broadly categorized into
following main components:

a) Board oversight

b) Senior management's oversight

c) Organizational structure

d) Systems and procedures for identification, acceptance, measurement of risks

e) Monitoring and control of risk

2
1.5 Objectives of the study
Preparation and presentation of this report contains few specific objectives. These are:
To have a sound understanding of credit risk management system and procedure followed in the
Sonali Bank Ltd.
 To analyze in detail the credit risk management process of the bank and to make
recommendations if needed.
 To get knowledge about the effectiveness of loan and sanction procedure that is
conducted on the evaluation of credit risk.
 To have a general idea about the credit risk management performance of this bank.

1.6 Focus of the study

In this study I made an attempt to demonstrate the credit risk management practices in
Sonali Bank Ltd. The study is carried out in a widely practiced manner. In chapter 2 I
tried to give an overview of the bank. Here I summarized current status of the bank, main
services it offers, practice of CSR as well as government agendas etc. Disclosures that are
made under BASEL-II relating to Credit risk of the bank and credit rating are also
presented here. In the end I tried to do an SWOT analysis on overall position of the bank.
I also tried to illustrate CRM practice that I experienced during my internship period. I
tried to show the performance of this particular branch from the data I collected during
my internship. Though it is near impossible to judge overall CRM practice of such big
organization from working in a small branch for short period of time. In the last chapter I
made some recommendations that I think the management should look into.

1.7 Limitation of the study

The presented study was not out of limitations. But it was a great opportunity for me to
know the banking activities of Bangladesh specially Sonali Bank Ltd. The study carried
on has the following limitations:
The main constraint of the study is inadequate access to information due to
confidentiality of the bank, which has hampered the scope of the analysis required for the
study.

3
 Lake of published materials.
 Some problems create confusions regarding verification of data.

 It was very difficult to collect the information from various personnel for their job
constraint.
 As some of the fields of banking are still not covered by our courses, there was
difficulty in understanding some activities.
 The time is insufficient to know all activities.
 And as it was my first work and inexperience was a problem. So, there may be
some personal mistake in the report.

4
 CHAPTER 2: OVERVIEW OF THE ORGANIZATION

2.1 Status of the Bank

Sonali Bank Limited was incorporated in Bangladesh on 03 June 2007 as a Public
Limited Company under Companies Act 1994. Formally this bank was incorporated as a
nationalized commercial bank 5
named as Sonali Bank established by The Bangladesh Bank Order 1972 (Presidential
Order no. 26 of 1972) and was fully owned by the Government of the People's Republic
of Bangladesh. After incorporation dated 15 November 2007 Sonali Bank Ltd. has taken
over the undertaking and business of Sonali Bank. The Bank has total of 1209 branches
throughout the country along with two overseas branches at Kolkata and Siliguri in India
as on 13 November 2013.

2.2 Mission and Vision of Sonali Bank

Mission: Dedicated to extend a whole range of quality products that support divergent
needs of people aiming at enriching their lives, creating value for the stakeholders and
contributing towards socio-economic development of the country.

Vision: Socially committed leading banking institution with global presence.

2.3 Rate of Interest

SL NO. Deposit description Running Rate of Interest

1 Savings deposit 3.5%
2 Short Notice Deposit (SND) a) Up to 50.00 core – 3.50%
b) Above 50.00 core but up to
100.00 core- 3.75%
c) Above 100.00 core -4.00%
3 Fixed Deposit ( FDR ) a) 3 month & above but below 6
month – 5%
b) 6 month & about but below 1
year – 5.25%

5
2.4 HIERARCHY
Chairman

Board of Directors

CEO & Managing Director

Deputy managing Director (DMD)

General Manager (GM)

Deputy General Manager (DGM)

Assistance General Manager

Senior Principle Officer (SPO)

Principle Officer (PO)

Senior Officer (SO)

Officer

6
2.5 Core Business Services:

 Corporate Banking
 Project Finance
 SME Finance
 Remittance
 Lease Finance
 Consumer Credit
 Trade Finance
 Loan Syndication
 Foreign Exchange Dealing
 International Trade
 NGO-Linkage Loan
 Consumer Credit
 Investment
 Government Treasury Function
 Money Market Operation
 Rural and Micro credit
 Capital Market Operation
 Special Small Loan

Other Services:

 Government Treasury Bonds

 Locker Service
 A.T.M. Card
 Utility Bills Collection
 Ancillary Services
 Merchant Banking

7
The followings are their most recent online services:
 Ancillary Services,
 Locker Service,

Automation Status,

 Q-cash ATM Network Services,

 ATM Location and Services,
 Credit/Debit Card Services,
 Online Tax Payment Services,
 NBR-Sonali Bank e-Payment Service etc.

2.6 Implementation of BASEL-II

To comply with International best practices and to make the Bank's capital more risk-
sensitive as well as to build the Banking industry more shock absorbent and stable,
Bangladesh Bank provides revised regulatory capital framework "Risk Based Capital
Adequacy for Banks" which is effective from 1st January 2009. According to the BRPD
Circular no-09 dated 31st December 2008, following specific approaches are suggested
for implementing BASEL-II:
Standardized Approach for calculating Risk Weighted Assets (RWA) against Credit Risk;
Standardized (Rule Based) Approach for calculating RWA against Market Risk;
Basic Indicator Approach for calculating RWA against Operational Risk.
Under the Standardized Approach of the Risk Based Capital Adequacy Framework
(Basel II), Credit Rating is to be determined on the basis of risk profile assessed by the
External Credit Assessment Institutions (ECAIs) duly recognized by Bangladesh Bank.
Along with the existing capital adequacy rules and reporting Bangladesh Bank (ref.
BRPD Circular no.10 dated 25.11.2002) Banks will start quarterly reporting as per the set
of the reporting formats provided by Bangladesh Bank. Sonali Bank Ltd. Management is
aware about guideline of Bangladesh Bank and prepared for implementing new capital
Accord BASEL-II.

8
2.7 SWOT Analysis of Sonali Bank
Strengths

 Branches throughout the country to serve its customer.

 Very strong relation with Bangladesh bank.
 They have corresponded relationship with other banks so the bank can provide
services of their customers.
 Strong local remittance management systems.
 They have strong relation between every team.
Weakness

 The services are very slow.

 Slow modernization due to its huge size.
 Low salary scale compared to industry.

Opportunities

 The bank can offer more innovative types of services then other banks
 Since Sonali Bank Ltd. has so many branches it can easily influence the banking sector.
 Being a large Bank it can provide large investment.

Threats

 Increase in the competition in banking sector.

 Increase in the use of modern technology and services like online banking, mobile
banking, internet banking etc.
 About remittance business these days many banks are showing greater interest in
the remittance business.
 Recent events like frauds and stealing where employees were found involved.

9
 Chapter 3: LITERATURE OVERVIEW
Review of literature of any research is very important because it provides a scope for
reviewing the stock of knowledge and information relevant to the proposed research. In
this chapter some selected studies reletad to credit risk managment.

Rajagopal et al. (1996) made an attempt to overview the bank’s risk management and
suggests a model for pricing the products based on credit risk assessment of the
borrowers. He concluded that good risk management is good banking, which ultimately
leads to profitable survival of the institution. A proper approach to risk identification,
measurement and control will safeguard the interests of banking institution in long run.

. Froot and Stein (1998) found that credit risk management through active loan purchase
and sales activity affects banks’ investments in risky loans. Banks that purchase and sell
loans hold more risky loans (Credit Risk and Loss loans and commercial real estate
loans) as percentage of the balance sheet than other banks. Again, these results are
especially striking because banks that manage their credit risk (by buying and selling
loans) hold more risky loans than banks that merely sell loans (but don’t buy them) or
banks that merely buy loans(but don’t sell them).

Treacy and Carey (1998) examined the credit risk rating mechanism at US Banks. The
paper highlighted the architecture of Bank Internal Rating System and Operating Design
of rating system and made a comparison of bank system relative to the rating agency
system.

Bagchi et al. (2003) examined the credit risk management in banks. He examined risk
identification, risk measurement, risk monitoring, and risk control and risk audit as basic
considerations for credit risk management. The author concluded that proper credit risk
architecture, policies and framework of credit risk management, credit rating system, and
monitoring and control contributes in success of credit risk management system.

Khan, A.R. et al. (2008) illustrates that Credit risk is one of the most vital risks for any
commercial bank. Credit risk arises from non performance by a borrower.

10
 Chapter 4: Materials and Methods

4.1 Methodology of the study

The following methodology was used for the study:

Both primary and secondary data sources are used to generate this report. Primary data
sources are scheduled survey, informal discussion with professionals and observation
while working in different desks. The secondary data sources are annual reports,
manuals, and brochures of Sonali Bank Ltd. and different publications of Bangladesh
Bank.

To identify the implementation, supervision and monitoring practices interview with the
employee and extensive study of the existing file and practical case observation was
done.

4.2 Sources of data

To perform the study data sources are to be identified and collected, the data are to classified,
analyzed, interpreted and presented in a systematic manner. I collected data from two sources
where one is the primary source and another is secondary source.

a. Primary Sources:
 Practical desk work.
 Face to face contact
 Relevant file study as provide by the concerned officer.

B. Secondary Sources
 Financial Statements & Auditors' report of Sonali Bank Ltd., 31 December 2016.
 Disclosure on Risk Based Capital (Basel-II), December 2016.
 Annual Report (2020) Sonali Bank Ltd.
 Risk Management Guidelines for Banks, by Bangladesh Bank.
 Sonali bank website
 Through internet browsing

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4.3 Sources of Credit Investigation

The following are the sources of credit information

 Loan application
 Financial statements (profit and loss account, Balance sheet, cash flow statement).
 Study of accounts.
 Market reputation.
 CRG.
 Report from CIB.
 Personal interview.
 Personal visit.

Other sources, i.e.

 Income tax statement

 Registration.
 Press report.
 Revenue and municipal rent receipt register of Joint Stock Company.
 VAT return.
 Confidential report from fellow banks.

For investigation the manager or the officer who is in charge of the credit department
have to enquiry about followings

 Who is the borrower?

 Nature of business.
 Location/ site of the business.
 Living standard /living style of the Borrower.
 Experience in the business.
 Equity in the business.
 Purpose of borrowing.
 Duration of loan.
12
  Sources of repayment.
 Means and security offered.
 Physical verification of security.
 Profitability of the transaction.
 History of accounts operated by borrower.
 Market reputation regarding character, honesty, integrity etc.

4.4 Credit Risk Assessment

A through credit risk assessment should be conducted prior to the sanctioning of credit
facilities. They must conduct necessary KYC (Know Your Customer) part on the
customer and money laundering guidelines must be followed.
Following risk areas in the credit proposal should be addressed and assessed before
sending to Head Office.
1. Borrower Analysis:
a. Share holding
b. Education
d. Experience – success history
e. Net worth
f. Age etc.
2. Industry Analysis:
a. Industry Position/Threat/Prospect.
b. Risk factors pertaining to the industry.
c. Borrower's position / share in the industry.
d. Strength, weakness of the borrower compared to the competitors etc.
3. Supplier/ Buyer Risk Analysis
 Concentration on single/few buyer/supplier is addressed.

4. Demand Supply position

5. Technical feasibilities / Infrastructural facilities
6. Management Teams Competence

13
7. Seasonality of demand
8. Debt to equity Ratio
9. Historical financial analysis:

 An analysis of 3 years historical financial statements.

 Earning – its sustainability.
 Cash flow
 Leverage
 Profitability
 Strength and reliability of Balance Sheet etc.

10. Projected Financials:

 Sufficiency of cash flows to service debt repayment.
 Debt Service Coverage Ratio.

11. Trade Checking:

12. Account
a. For existing customer the repayment history, credit turnover, study of account
statement
b. If the customer is proposed to be migrated from other Bank, statement of account from
present Banker is required
 Allied deposit with our Bank.
 Other business with our Bank.
13. Security:
a. A current valuation of collateral security by Professional Enlisted Surveyor be obtained
with photograph and site map. Collaterals within command area of the respective branch
location are preferred. Third Party property and vacant land should be discouraged.
b. Loans should not be considered based solely on collateral.
c. Adequacy and extent of Insurance coverage should be assessed. Insurance Policy
should be obtained from approved Insurance Company. Premium should be paid through

14
Bank, duly stamped money receipt be obtained. Insurance Policy be held by the Bank.
The Policy be renewed in time. Letter of authority be obtained from the customer to debit
account to pay premium for renewal/enhancement of the policy.
14. Succession issue:
Margin, volatility of business, high debt (Leverage / gearing), over stocking, huge
receivables with long aging, rapid expansion, new business line, management change,
lack of transparency should be addressed.
15. Adherence to credit guidelines:
a. It should be clarified whether the customer is agreeable to comply with guidelines in
respect of regulatory requirement and Bank's policy requirement.
b. Any deviation be clearly identified and maintained.
16. Mitigating Factors:
 Risk factors are identified and side by side mitigating factors of those risks should
also be mentioned to justify the proposed facility.

17. Environmental factor.

18. Employment generation and contribution to the national economy. conduct:

4.5 Preparation of credit report

On the basis of investigation the branch manager will prepare a credit report as per
format provided by their head office. After preparing credit report banks ask for loan
documentation.

a. What is documentation?
As other commercial banks one of the main functions of Sonali bank is to extend credit
facilities of its valued customers. The credit facilities are given against varies types of
securities. These are mainly:
Personal i.e. credit worthiness of the proposed borrower and guarantor.
Moveable i.e. FDR, shanchaypattra goods and commodities balance of deposit A/C etc.
Immoveable i.e. land building etc.

15
Before rendering credit facilities bank has to create charge over the securities through a
number of agreements .papers etc. which are called documents.

b. Purpose of document
The entire purpose of the document is that reliance can be place up on the truth of the
statement contains in them. Mainly three questions may be examined when document is
produced in the court.

These are:1. Is the document genuine?

2. What is it's contain?
3. Are the statements in the document true?

The documents should correctly be taken by the bank in order to crate required charges
on the securities defectively in favour of the bank the proper and correct documentation is
essential from the point of view of the safety of the banks interest.

c. Steps of the documentation

For proper and correct documentation a banker has to go through the following steps:
1) Prepare a list of require document
2) Verify the legal capacity of the executor
3) Affix properly valued adhesive stamp or type on a duly stamped paper

4) Execution

 In presence of manager
 In one sitting and with indelible ink
 Any correction altercation etc. must be authenticated with full signature
 Correctly dated
 If several pages execution must put their full signature in all pages
 Witness
5) Registration.

16
4.6 Loan classification

Monitoring can be done through loan classification. Loan is mainly classified to

understand that which loan account are performing well (regularly interest payment,
timely repayment, and timely renewal etc.) and which are not. In classifying the loan and
advance there are two classes in the loan review practiced in SBL. They are as follows as
the table.

A. Unclassified: The loan account is performing satisfactory in the terms if its

installment and no overdue is occurred.
B. Classified: The loan account is not performing satisfactory in the terms of
installments and overdue is occurred. These types of loan need close monitoring
to stop the deteriorating position.
 Substandard: The main criteria for a substandard advance are that despite these
technicalities or irregularities no loss is expected to be arise for the bank. These
accounts will require close supervision by management to ensure that he situation
does not deteriorate further.
 Doubtful: This classification contains where doubt exists on the fully recovery of
the loan or advance but cannot quantifiable at this stage.
 Bad & Loss: A particular loan or advance fall in this class when it seems that this
loan or advance is not collectable or worthless even after all security has been
exhausted.

4.7 Measuring credit risk

The measurement of credit risk is a vital part of credit risk management. To start with,
banks should establish a credit risk rating framework across all type of credit activities.
Among other things, the rating framework may, incorporate:

 Business risk Industry characteristics

 Competitive position (e.g. marketing/technological edge)
 Management

17
  Financial risk Financial condition
 Profitability
 Capital structure
 Present and future cash flows

4.8 Credit Administration

The credit administration function is basically a back office activity that supports and
controls extension and maintenance of credit. While developing credit administration
areas, banks must ensure: The efficiency and effectiveness of credit administration
operations, including monitoring documentation, contractual requirements, legal
covenants, collateral, etc. The accuracy and timeliness of information provided to
management information systems; the adequacy of control over all "back office"
procedures; and compliance with prescribed management policies and procedures as well
as applicable laws and regulations. Banks need to enunciate a system that enables them to
monitor quality of the credit portfolio on day-to-day basis and take remedial measures as
and when any deterioration occurs. Such a system would enable a bank to ascertain
whether loans are being serviced as per facility terms, confirm the adequacy of
provisions, and establish that the overall risk profile is within limits established by
management and compliance of regulatory limits. Monitoring procedures and systems
should be in place so as to provide an early signal of the deteriorating financial health of
a borrower.

4.9 Credit risk monitoring and control

Banks need to develop and implement comprehensive procedures and information

systems to monitor the condition of each individual credit across various portfolios.
Banks need to enunciate a system that enables them to monitor quality of the credit
portfolio on a day-to-day basis and take remedial measures as and when any deterioration
occurs. These procedures need to define criteria for identifying and reporting potential
problem credits and other transactions to ensure that they are subject to more frequent

18
monitoring as well as possible corrective action, classification and/or provisioning.
Establishing an efficient and effective credit monitoring system would help senior
management to monitor the overall quality of the total credit portfolio and its trends and
helps to reassess credit strategy/policy accordingly before encountering any major
setback.

The banks credit policy should explicitly provide procedural guideline relating to credit
risk monitoring. At the minimum it should lay down procedure relating to:

The roles and responsibilities of individuals responsible for credit risk monitoring; The
assessment procedures and analysis techniques (for individual loans & overall portfolio)

 The frequency of monitoring;

 The periodic examination of collaterals and credit covenants;
 The frequency of site visits; and
 The identification of deterioration in any credit

4.10 Managing credit concentration risk

Concentration risk generally designates the risk arising from an uneven distribution of
counterparties in credit or any other business relationships or from a concentration in
business sectors or geographical regions which is capable of generating losses large
enough to jeopardize an institution's solvency. Credit concentrations of a bank may be
pre-planned and part of its business philosophy. However, banks should make greater
efforts to identify and limit concentration risk or to demand appropriate risk premiums.
Each bank should have effective internal policies, systems and controls to identify,
measure, monitor and control credit risk concentrations (CCR). Banks should minimize
concentration risk possibilities rather than providing capital cover. However, BB reserves
the right to require higher levels of capital for individual banks with excessive
concentration risk.

19
 CHAPTER 5: RESULT AND DISCUSSION

To understand how effective CRM practices is I have identified some aspects which are
core to risk management. The analysis was carried out in the following aspects:

 Process of credit risk management in Sonali Bank ltd.

 Credit risk management practices followed in Sonali Bank ltd.
 The credit risk faced by the bank.
 Methods used to mitigate credit risk.
 Overall performance of Sonali bank LTD.

5.1 Processes and practices of credit risk management

 Credit risk in the Sonali Bank Ltd.'s portfolio is monitored, reviewed and
analyzed by the Credit Risk Management (CRM) committee to minimize potential
losses and ensuring efficient credit process.
 They have identified the types of risks and disclosed in the BASEL II disclosures
according to the BRPD Circular no-09 dated 31st December 2008.
 The gross credit risk exposure has grown to BDT 38453.81 crore on balance sheet
as of December 2012.
 Credit quality is standard due to their sound credit risk management system.
 They have made sufficient provisions for NPAs, NPIs and depreciation.
 Volume of off-balance sheet exposures is BDT 19692.61 crore in 2016.
 Sonali Bank Ltd. has its own Credit Risk Management guidelines in terms of Core
Risks Management guidelines of Bangladesh Bank. The Bank also follows other
instructions/guidelines of Bangladesh Bank in this regard.
 The bank decides on how much risk to take based on their risk appetite as well as
government guidelines.
 To manage the Non-Performing Loans (NPL), Sonali Bank Limited has a
comprehensive remedial management policy, which includes a framework of
controls to identify weak credits and monitoring of these accounts constantly.

20
5.2 The credit risk faced by the bank

The Movement of Non-Performing Assets (NPL) as disclosed in Basel II shows increase

in outstanding Loans & advances. Closing balance of non-Performing loan of December
31, 2016 was BDT 13220.50 crore whereas opening balance was BDT 6607.53 crore.
Reduction in outstanding amount of that year BDT 846.84 whereas additions was about
BDT 7459.81 crore.
To manage the Non-Performing Loans (NPL), Sonali Bank Ltd. has comprehensive
remedial management policy, which includes a framework of controls to identify weak
credits and monitoring of these accounts.

5.3 Methods used to mitigate credit risk.

 Based on the policies strategies are developed by the bank to mitigate credit risk.
 Credit risk is mitigated by appropriate credit appraisal systems before lending and
proper collateral or guarantees are taken to hedge the risk.
 Risk management system is put in place for better management of credit risk and
a risk rating is installed which is in compliance with BB guidelines.
 The risk management function is reviewed periodically usually every quarter.
 The rating system for term loans is annual.
 Investment is made in different sectors to diversify risk. Disclosure on Risk Based
Capital (Basel-II)" (December 2012) shows Industry or counterparty type
distribution of exposures:

So, in short, the bank's board of directors and senior management are responsible for
ensuring that the bank have appropriate credit risk assessment processes and effective
internal controls. Bank have a system in place to reliably classify loans on the basis of
credit risk. Bank's credit risk assessment process for loans provides the bank with the
necessary tools, procedures and observable data to use for assessing credit risk,
accounting for impairment of loans and for determining regulatory capital requirements.

21
5.4 Overall performance of Sonali bank LTD.
Capital structure:
Qualitative Disclosures (Disclosure on Risk Based Capital, Dec 2016)
Core capital of Sonali Bank Limited comprises of fully paid up capital against ordinary shares,
statutory reserve and general reserve created out of profit, retained earning etc, and
supplementary capital include General provision & assets revaluation reserve. Eligible Capital of
Sonali Bank Limited on the basis of Audited Balance Sheet of 31 st December 2016 has been
calculated as per Basel-II guidelines as shown below.

Tab-1: Quantitative disclosure

a. Eligible Capital (Tk. in million)

Tier-1 Capital:
(I) Paid up Capital 38300.00
(II) Statutory Reserve 683.40
(III) General Reserve 27.47
(IV) Retained Earnings 805.34

Total Tier-1 Capital 33656.08

b. Total Tier-2 Capital. 13031.80

c. Total eligible Capital. 46687.88

Capital Adequacy (Disclosure on Risk Based Capital, Dec 2016)

Qualitative Disclosures:

Sonali Bank Limited is very much aware of maintaining Capital to support its current and future
activities.

22
 Tab-2: Quantitative Disclosures

Quantitative Disclosures (Tk. in million)

Capital Requirement for Credit Risk 352996.50

Capital Requirement for Market Risk 52615.00

Capital Requirement for Operational Risk 46319.30

Capital Adequacy Ratio (CAR) 10.33%

Capital to RWA 451930.70

Table-3: Total Gross credit risk exposures broken down by major types of credit
exposures

(Tk in crore)

Sl No. On balance sheet solo consolidate

1 Cash credit general (Hypo) 1412.44 1412.44
2 Cash credit general ( pledge) 1187.68 1187.68
3 Packing cash credit 465.74 465.74
4 Overdraft loan 2095.36 2073.88
5 Demand loan 324.71 324.71
6 Small loan 22.97 22.97
7 General house building loan 76.97 76.97
8 Staff house building loan 5456.41 5456.41
9 Staff loan 325.80 325.80
10 Special loan program 20.53 20.53
11 Loan under SB industrial credit scheme 3332.82 3332.82
12 Loan under external credit program 20.11 20.11
13 Working capital to industries (hypo) 2928.23 2928.23
14 Working capital to industries (pledge) 231.83 231.83
15 Sonali credit 11.52 11.52

23
15 Loan under SB agro based industrial scheme 1111.81 1111.81
16 Working capital to agro based industries (hypo) 1169.52 1169.52
17 Working capital to agro based industries (pledge) 672.11 672.11
18 Agricultural loan 4180.98 4180.98
19 Micro credit 1221.84 1221.84
20 LIM( Loan Against Imported Merchandise) 202.24 202.24
21 LTR ( Loan Against Trust Receipt) 2825.00 2825.00
22 Forced loan 2441.59 2441.59
23 Loan for LC under WES 0.01 0.01
24 Loan against inland bill 348.45 348.45
25 Current account barter ( Debit balance) 93.26 93.26
26 Bridge finance 262.45 262.45
27 Small business loan scheme 115.22 115.22
28 Lease finance 14.89 14.89
29 Probasi karmo sangsthan prokolpo - -
30 Consumer loan 2289.17 2289.17
31 Term to freedom fighter 928.87 928.87
32 Education loan 20.18 20.18
33 Foreign education loan program .81 .81
34 SME finance ( term loan service) 57.65 57.65
35 SME finance (term loan to industries) 28.05 28.05
36 SME finance( working capital wing) 1630.57 1926.02630.57
37 Bills discounted and purchased 926.02 926.02
38 Others - 232.94
total 38453.81 38665.27
Off- balance sheet exposure solo consolidate
1 Letter of guarantee 231.26 231.26
2 Irrevocable letters of credit 18775.02 18775.02
3 Bills for collection 686.33 686.33
4 Others -
total 19692.61 19692.61

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 Tab-4: industry or counterparty type distribution of exposures, broken down by major
types of credit exposure

(Tk in core)

Sl no. Types of credit solo consolidated

1 Agricultural credit 4180.98 4180.98
2 Micro credit 1221.84 1221.84
3 Industrial credit 6512.98 6512.98
4 Agro-based industrial credit 2953.43 2953.43
5 International trade 7302.30 7302.30
6 SME finance 4436.60 4436.60
7 General advance & others 11845.68 12057.14
total 38453.81 38665.27

Tab-5: Residual contractual maturity breakdown of the whole portfolio, broken down by
major types credit exposure

(Tk in crore)

Sl no. Types of credit Solo consolidated

1 On demand 1603.28 1603.28
2 No more than three months 1175.31 1175.31
3 More than 3 months but not more than 1 15121.91 15333.67
year
4 More than 1 year but not more than 5 9868.37 9868.37
years
5 More than 5 years 9758.92 9758.92
Total 37527.7 37527.7
Bill purchased and discounted
8 Not More than 1 month 662.96 662.96
9 More than 1 month but not more than 3 189.10 189.10

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 months
10 More than 3 months but not more than 6 52.35 52.35
months
11 More than 6 months 21.62 21.62
Total 926.03 926.03

5.5 Summary of Findings

The Results(findings) of this study are summarized below:
1. The credit risk management process of Sonali Bank Ltd. is quite commendable.
Systematic and timely monitoring and appropriate documentation are tried to be
maintained.
2. Customer satisfaction level is quite good. Informal conversation with some
customers reveals that they approve the credit evaluation and management
process of Sonali Bank Ltd.
3. Governments orders like account opening for 10 taka, etc. increases cost. SME
loans for farmers without collateral not only increases credit risk but also costly
for banks But return on these services are low.
4. Filing procedure is not maintained in a definite and clear manner. It is difficult to
locate the documents in a chronological and sequential manner. A definite
practice, though mentioned in the credit policy is not always maintained by the
credit officials.
5. The credit sanction and disbursement procedure is quite lengthy.

5.6 Contribution of the intern to the Organization

As an intern I worked National University branch, Gazipur for 3 months. The

contribution of me was small but significant. As a non-professional it was difficult to
cope with in the beginning but with the passage of time and their cooperation it had been
possible to work there as per needed. Different time I worked in different division
sometimes in cash and sometimes in management in absence of the respected officer. I
tried to serve the customer in a well manner that will really bring positive impact to the

26
organization. I worked in the absence of officer this really made continuous cash flow to
bank to customer and sometimes from customer to bank. A continuous cash flow really
helps in achieving its objectives and goals. So, giving me the opportunity both the bank
and myself became benefitted.

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 CHAPTER 6: CONCLUSION AND RECOMMENDATION

From the above discussion and my insight investigation I would like to conclude the
followings

6.1 Conclusion:

Sonali Bank Ltd. is much different in any terms. Its activities are vast and in cases unique
to any other bank. Its deposits and loans are huge compared to other banks. It finances
government projects, provides unique services to people in need, even in places it works
as central bank. This Bank often make decision for the welfare of general public despite
risk of credit exposure.
The bank has established a sound credit risk management and credit risk mitigation
policy. Compliance with Basel II norms helps the Bank to improve their profitability
through better credit risk management systems.
From the discussion in this report, it has become clear that credit risk management is a
complex and ongoing process and therefore Banks or any financial institutions must take
a serious approach in addressing these issues.

6.2 Recommendation:

The failure of commendable banks occurs mainly due to bad loans, which occurs due to
inefficient management of the loans and advances portfolio. Therefore any banks must be
extremely cautious about its lending portfolio and credit policy. In the light of the above
findings, following recommendations are proposed:

.
The credit sanction procedure should be made quicker since competition is very hard in
today's business world. People do not want to wait for three to four weeks on an average
to get a loan which is even protected by security.
 Decision making process can be made more decentralized.

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 The bank should emphasize on reducing the classified and non-performing credits
by concerted efforts.
 In the credit department, strict supervision is necessary to avoid loan defaulters.
Bank official should do regular visit to the projects.
 Central monitoring system should be more active to maintain classified loan to a
minimum level.
 Filing is a very important component of proper documentation. It has to be dealt
with importance.
 To attract more clients should sought new marketing strategy.
 Politically influenced Lending or project finance should be checked.

29
 REFERENCES

Altman, E.I., Haldeman, R.G., and Narayanan, P. (1977). Zeta analysis: A new model to identify
b bankruptcy risk of corporations. Journal of Banking and Finance, 1, 29–54

Carey, M. (2001). Dimensions of credit risk and their relationship to economic capital
requirements.
In Prudential supervision: what works and what doesn’t (ed. F. Mishkin).

Arminger, G., Enache, D. & Bonne, T. (1997). Analyzing Credit Risk Data: A
Comparison of Logistic Discrimination, Classification Tree Analysis, and Feed
forward Network. Computational Statistics, Vol. 12, Issue 2, p. 293-310

Altman, E. I. and Saunders, A., (1998), ―Credit risk measurement: Developments over
the last 20 years‖, Journal of Banking and Finance, Vol. 21, pp. 11-12 and 1721-
1742.

SB. Annual Report (2020), Credit risk management.

Web site of Sonali bank LTD. retrieved from www.sonalibank.com.bd.

Valuable discussion of supervisors during the period of internship.

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