Retail Credit Policy

PREFACE

 This Retail Banking Credit Policy Manual of the Bank is prepared prepared in line with the Prudential Guidelines for consumer nancing of Bangladesh Bank on

Credit

Risk

Management

and

for

the

guidance

of

the

Ocers!"ecuti#es in handling a$airs relating to credit in a disciplined way way% This This poli policy cy will will appl apply y to all all Bran Branch ches es of Prime rime Bank Bank &imi &imite ted d in Bangla Banglades desh h and repla replace ce the e"ist e"isting ing Policy olicy guidel guideline ines s that that ha#e ha#e 'een 'een issued from time to time though circulars% (t is #ery #ery lik likely ely that that this this polic policy y may may ha#e ha#e limi limita tati tion ons) s) whic which h will will 'e rectiedremo#ed in due course% Moreo#er) it will 'e re#ised and updated from from time time to time% time% *s such) such) sugges suggestio tions ns from from Bank+s Bank+s !"ecu !"ecuti# ti#es es and Ocers for making further impro#ement are welcome%  The main purpose of this policy is to make the e"ecuti#es e"ecuti#es and ocers of  the 'ank con#ersant with the policy and strategy of the Bank regarding credit operation and ena'le them to discharge duties and responsi'ilities with condence and constructi#e initiati#e%  The concerned !"ecuti#es and Ocers must keep themsel#es fully con#ersant with its contents) which are strictly Private and Confdential  and must not in any way 'e di#ulged to any person not in the ser#ice of  the Bank% (n additi addition on to the instru instructi ctions ons contai contained ned in this this policy policy)) the Branc Branch h (n, chargeManager and Ocers will also 'e guided 'y circulars issued 'y -ead Oce from time to time%  This Policy is printed in loose,leaf form to facilitate the replacement of any page or section due to su'se.uent changes and amendments made at any stage% /uch amendments on printed sheets will 'e supplied to the Branches as and when done and should 'e su'stituted accordingly%

PRIME BANK LIMITED BHUIYAN HEAD OFFICE, DHAKA DIRECTOR

M.

SHAHJAHAN MANAGING 0

1.0 Context

Retail lending is one of the core 'usinesses for Prime Bank &imited and has 'een targeted for signicant further growth% This re1ects the potential of retail lending to produce high le#els of economic prot and percei#ed demographic trends toward an e"panded middle class and higher income le#els%

*sset .uality is generally e"pected to 'e higher in personal lending than corporate lending due to a #ariety of factors including2 •

3i#ersication of risk

•

/ecurity

•

Cultural #alues

•

 The increasing need for indi#iduals to ha#e access to 'ank credit for the conduct of normal daily acti#ities%

Prime Bank is a conser#ati#e lender in retail credit as part of its corporate philosophy% -owe#er) conser#atism does not mean simply minimi4ing 'ad de'ts) 'ut incorporates the concept of lending against accepta'le risks%  The Bank+s o#erriding goal is not only to increase total shareholder shareholder return 'ut also to contri'ute to the socio economy 'y impro#ing the life style of  the limited income segment of the country and that can 'e 'est achie#ed optimi4ing prots) rather than 5ust minimi4ing losses% Prot optimi4ation will follow from2

•

Good,planning and control of appro#al process

•

6ell ell

desig esigne ned d

pro products ucts

with ith

appr appro opriat riatel ely y

focu ocused sed

marketing •

 The use of statistical techni.ues and decision support systems that permit risks to 'e managed predicta'ly

•

Gather Gathering ing high high .ualit .uality y manage managemen mentt infor informat mation ion)) this this is then read and used% 7

1.0 Context

Retail lending is one of the core 'usinesses for Prime Bank &imited and has 'een targeted for signicant further growth% This re1ects the potential of retail lending to produce high le#els of economic prot and percei#ed demographic trends toward an e"panded middle class and higher income le#els%

*sset .uality is generally e"pected to 'e higher in personal lending than corporate lending due to a #ariety of factors including2 •

3i#ersication of risk

•

/ecurity

•

Cultural #alues

•

 The increasing need for indi#iduals to ha#e access to 'ank credit for the conduct of normal daily acti#ities%

Prime Bank is a conser#ati#e lender in retail credit as part of its corporate philosophy% -owe#er) conser#atism does not mean simply minimi4ing 'ad de'ts) 'ut incorporates the concept of lending against accepta'le risks%  The Bank+s o#erriding goal is not only to increase total shareholder shareholder return 'ut also to contri'ute to the socio economy 'y impro#ing the life style of  the limited income segment of the country and that can 'e 'est achie#ed optimi4ing prots) rather than 5ust minimi4ing losses% Prot optimi4ation will follow from2

•

Good,planning and control of appro#al process

•

6ell ell

desig esigne ned d

pro products ucts

with ith

appr appro opriat riatel ely y

focu ocused sed

marketing •

 The use of statistical techni.ues and decision support systems that permit risks to 'e managed predicta'ly

•

Gather Gathering ing high high .ualit .uality y manage managemen mentt infor informat mation ion)) this this is then read and used% 7

 Taking  Taking the foregoing foregoing into account) this manual 8to 'e referred referred as Retail Banking Credit Policy Manual9 sets out the general policy parameters for personal lending% Retail lending in the conte"t of this manual is lending to indi#i indi#idua duals ls in their their own right right and e"clu e"cludes des sole sole propr propriet ietor or and small small 'usiness lending%

1. C!e"#t R#$% M&n&'e(ent Po)#*+

Credit risk management needs to 'e a ro'ust process that ena'les a Bank to proacti#ely manage its loan portfolio in order to minimi4e losses and also to earn an accepta'le le#el of return for stakeholders% Gi#en the fast chan changi ging ng dyna dynami mic c glo' glo'al al econ econom omy y and and the the incr increa easi sing ng pres pressu surre of  glo'al glo'ali4a i4atio tion) n) li'era li'erali4 li4ati ation) on) consol consolida idatio tion n and dis disint inter er media mediatio tion) n) it is essential that Prime Bank has a ro'ust credit risk management policy and procedures procedures that are sensiti#e and responsi#e responsi#e to these changes%

 To  To pro#ide a 'oard guideline for the Retail Retail Credit Operation towards ecient management of the Retail Credit portfolio of the Bank) a clearly den dened ed))

well well,p ,plan lanne ned) d)

comp comprrehen ehensi si#e #e

and and

appr approp opri riat ate e

Cred Credit it

Risk Risk

Management Policy is a pre,re.uisite%

(n the a'o#e 'ackdrop) this policy document has 'een prepared% *nd) it is here'y named as :Ret&#) :Ret&#) B&n%#n' C!e"#t Po)#*+ M&n-&).

1./ P-!o$e

 The sole purpose of this policy document is to set out yardsticks for and spell out standard operating procedures for management of retail credit risk of the Bank% *s such) it specically addresses the following areas2 areas2

•

!sta'lishing an appropriate appropriate credit risk en#ironment

•

 /etting up a sound credit appro#al process

•

Main Mainta tain inin ing g

an

appr approp opri riat ate e

cred credit it

admi admini nist stra rati tion on

and and

monitoring ;

 Process) and •

 !nsuring ade.uate controls o#er credit risk%

1. S*oe

 This policy document will 'e applica'le for issues related to retail lending C!e"#t R#$%  R#$%  oper operat atio ion n and and also also to 'e read ead in con5 con5un unct ctio ion n with with the the C!e"#t M&n&'e(en M&n&'e(entt Po)#*+ Po)#*+ with with respe espect ct to 'oth 'oth dir direct ect and and indi indirrect ect cred credit it products products of traditional and (slamic 'anking products%

1.2 A(en"(ent o3 t4e Po)#*+

 This Retail Banking Credit Credit Policy Manual will 'e amended) re#ised) rened) read5usted as and when warranted to accommodate the changes in the mark market condit condition ion)) cyclic cyclic aspect aspect of the econom economy) y) go#er go#ernm nment ent policy policy)) industry demand) central 'ank regulation and e"perience of the Bank in managing credit risk% other (ncome 3ocuments Ierication

/. Cont&*t Po#nt =e!#>*&t#on t4!o-'4 T4#!" &!t+;$ Board *udit Cell will 'e responsi'le with performing audits of all departments% *udits should 'e carried out on a regular or periodically as agreed 'y the Management to assess #arious risks and possi'le weaknesses and to ensure compliance with regulatory guidelines) internal procedures) and Retail &ending Guidelines and Bangladesh Bank re.uirements%

7A

6.0 Int!o"-*t#on

 This section lays down the procedures with regard to collections and remedial management retail credit to ensure the e$ecti#e control and monitoring in the reco#ery of funds lent to customers%

6.1 O?e*t#9e

 To minimi4e the com'ined collection e"penses) write o$ costs) and reduce the o#erall pro#isions held to minimi4e the 'ad de't charge on the prot and loss account% 6. Mon#to!#n'

* 'ank+s loan portfolio is su'5ect to a continuous process of monitoring%  This will 'e achie#ed 'y regular generation of o#er limit and o#erdue reports) showing where facilities are 'eing e"ceeded and where payments of interest and repayment of principle are late%

6./

Re9#e8

(n order to ascertain the e$ecti#eness of this procedure) the section must 'e re#iewed e#ery after si" months 'y the -ead of Retail Banking or appropriate le#el of authority% *ny modications must 'e appro#ed 'y !C Board of 3irectors%

6.Re*o9e!+

 The collection process for personal loans starts when the account holder has failed to meet one or more contractual payment 8(nstallment9% (t therefore 'ecomes the duty of the Collection 3epartment to minimi4e the outstanding delin.uent recei#a'le and credit losses% 7

 This procedure has 'een designed to ena'le the collection sta$ to systematically reco#er the dues and identify  pre#ent potential losses) while maintaining a high standard of ser#ice and retaining good relations with the customers% (t is therefore essential and critical) that collection people are familiar with the computeri4ed system) procedures and maintain e$ecti#e liaison with other departments within the 'ank%

6.2Co))e*t#on o?e*t#9e$

•

 The collector+s responsi'ility will commence from the time an account 'ecomes delin.uent until it is regulari4ed 'y means of  payment or closed with full payment amount collected%

•

 The goal of the collection process is to o'tain payments promptly while minimi4ing collection e"pense and write,o$ costs as well as maintaining the customer+s goodwill 'y a high standard of ser#ice% /l% o% 0 follows

;,??

7nd reminder letter  /ingle #isit

?A,AF

•

;rd reminder letter 8*ppendi" 009

•

Group #isit 'y team mem'er

•

regulations co#ering their retail 'anking 'usinessJ that any potential pro'lem that arises are promptly resol#ed in a manner which minimi4es any potential damage to the good name and reputation of P!#(e B&n% Lt".

* :Compliance Culture must 'e fostered 'y regular instruction of sta$ on regulatory re.uirements) and the esta'lishment of) and enforcement of) related operating procedures and controls%

(n order to promotion of :good compliance the following ey Business #alues must 'e followed for Retail Banking2

H#'4e$t e!$on&) $t&n"&!" o3 #nte'!#t+

Co((#t(ent to t!-t4 &n" 3&#! "e&)#n'

P-tt#n' t4e B&n%$ #nte!e$t &4e&" o3 t4e #n"#9#"-&)$

Oen)+ e$tee(e" *o((#t(ent to -&)#t+ &n" Co(eten*e

Co((#t(ent to *o()+#n' 8#t4 t4e $#!#t &n" )ette! o3 &)) )&8$

;F

9.# $he Aim o "etail Credit $raining

 To esta'lish and maintaining competiti#e ad#antage) the Bank shall in#est in training) de#elopment and education) which contri'ute directly to the achie#ement of 'usiness o'5ecti#es and good lending practices%

F%0 Ret&#) C!e"#t Co-!$e$

 The Retail Credit training program will 'e comprised of :core courses ranging from fundamental to ad#anced le#el) supplemented 'y short :skill+ courses%

Core !"ecuti#eOcers Training Courses •

Collection unit

 The credit appro#al team will 'e independent from the sales and 'ranch team who will e#aluate and appro#e the loan% The credit administration under Retail operations team will check and ensure the documentation and dis'urse the loans% This will ensure the 'etter control of the 'ank asset and mitigate the risk of compromise of the duties%

 The following chart represents the Retail Banking management structure:

?0