29-08-2014, 02:46 PM
Assignment On SME Credit Risk Management Practice in Agrani Bank Ltd Project Report
Assignment On SME.docx (Size: 119.88 KB / Downloads: 21)
Introduction
The development of small and medium enterprises (SMEs) in developing countries is generally believed to be a desirable end in view of their perceived contribution to decentralized job creation and generation of output. SMEs constitute the dominant source of industrial employment in Bangladesh (80%), and about 90% of the industrial units fall into this category. The actual performance of SMEs, however, varies depending on the relative economic efficiency, the macro-economic policy environment and the specific promotion policies pursued for their benefit.
Financial analysis applies mainly to projects designed to generate income. It is possible to analyze social projects, environmental undertakings or production support activity, by calculating and assigning artificial prices, but such ‘economic analysis’ is generally far too complex for small or medium scale projects.
For income generating projects, the profitability of the activity is the first and most important factor determining sustainability, because no ‘commercial’ project will survive which does not generate enough income to cover operating expenses and pay financial costs. However, there is more than one way to determine the profitability of an investment. Each approach has its strengths and weaknesses. It is therefore convenient to use more than one method.
It is also important to understand that the figures generated through financial analysis are not very useful on their own; they need to be interpreted. It is the responsibility of the technician who carries out the formulation and evaluation process for the project to explain to the applicants, as well as to the committee reviewing the application for financing, the significance of the results, as well as to combine the profitability calculations with other indicators of likely success and sustainability, such as the capability and commitment of the applicants, the reliability of the market, the complexity of the technology, the environmental impact and the degree of organization of the management
Overview of the Assignment
According to the worldwide expansion of the SME financing , In Bangladesh we , the banking sector also take several steps to expand SME Business for the ultimate economic growth of the country. In the assignment we will try to describe SME in Agrani Bank Ltd’s Points of view, define SME , describe CRM policy of our bank for SME’s according to Bangladesh Bank Guidelines and the total procedure of SME CRM practice in our bank
SME Financing at the point of view of Agrani Bank Ltd
Actually, the structured SME financing has come into being in 2005 as per Prudential Guide Lines introduced by Bangladesh Bank. From then, the bank has been taking a number of initiatives to develop SMEs such as, creation of separate SME Credit Division, intensive credit operation as per guidelines of Bangladesh Bank, credit operation through all branches of the bank, sufficient budget allocation for disbursement, area approach/cluster based loan disbursement, introduction of separate credit program for the women, establishment of SME Desks, Women Entrepreneurs Dedicated Desks and SME monitoring cells, appointment of SME focal officers, colorful participation in SME fairs and other promotional activities. As a result, the bank has reached in an outstanding SME position within a short time.
Agrani Bank Limited has a wide vision for the year 2012. Under the vision, the SME credit should be extended to close door people. Keeping this in view, sufficient credit disbursement budget is already allocated for the year 2012. An action plan is made with a view to trained up the managers and SME credit officers for better SME credit services. A country wide SME database system should be developed within the year 2012. Special attention should be given to the green sectors. For extending SME credit, the bank decided to participate in the refinance scheme introduced by the Bangladesh Bank. Apart from this, over all SME activities should be geared up so that the bank can reach in the remarkable SME position
SME CRM Practice /policy in Agrani Bank Ltd
On the basis of prudential guideline of Bangladesh Bank, Agrani Bank Ltd, prepared a credit policy manual, which have been approved by bank’s board of directors is already in force. A separate credit division has been formed at head office, which is entrusted with the duties of maintaining effective relationship with the customers, marketing of credit product, exploring new business opportunities etc. Credit approval, administration, monitoring and recovery functions have been segregated. For this purpose, three separate units have been formed within credit division. These are 1 Risk management 2. Credit administration unit 3. Credit monitoring and recovery unit. Credit risk management unit is entrusted with the duties of maintaining asset quality assessing risk in lending to particular customer sanctioning credit, formulating policy for lending operation etc. In this report organization Overview, Principal guideline of Lending and operation guide line of Agrani Bank Ltd. Will be described Necessary data and other information will be collected from credit risk management division, head office. The report will prepare within 1 month.
Analysis of Small, Medium & Other Retail Loans
Exposures that do not fall into the “large” category may have simpler evaluation routines but should nonetheless provide sufficient information for sound decision-making. These loans will usually fall into two broad categories:
• Formally organized businesses (e.g., corporations, limited liability companies, cooperative and partnerships) – this group should undergo the normal business background checks, and evaluation should focus primarily on: management capability, market prospects, and cash flow.
• Informal businesses (proprietorships) and individuals – this group will undergo the simplest evaluation routine, with the use of specially designed scorecards. Scorecard variations shall be developed over time, to conform to product-market segmentation
Approval Procedures
All facilities strictly require the approval of designated authorities at least one level higher than the originating branch stations, zones, and corporate branches. Exceptions to this requirement involve loans to micro-enterprises or for rural and crop programs
Relationship Management
Front offices (i.e., the branch stations and corporate branches) shall have over-all responsibility for account relationships and customer interface. They have the obligation to monitor the accounts’ business and performance of credit obligations through client calls (evidenced by call reports) and obtaining periodic financial reports. They have the primary task to recover the Bank’s exposures, and to have a proper accounting of all credit-related transactions aside from the normal banking routines related to their deposit business.
Monitoring of Credit Portfolio
The Credit Administration Division will oversee the credit and investment activities of the Bank with a broader portfolio-based outlook (regional dispersal, industry and customer-type segmentation, product performance, portfolio classification, etc.).
3.8.1 The Loan Administration unit of the division will establish and maintain a comprehensive data base on all credit exposures, and monitor consolidated movements as these are reported through copies of transaction sheets and summaries. It will conduct portfolio analyses for the purpose of evaluating portfolio performance and detecting any deterioration in the risk exposures. Summary reports and recommendations will be submitted to the Credit Committee for appropriate action or policy decisions.
3.8.2 The credit review unit of the division is responsible for reviewing the credit process to ensure that approved policies and procedures are being effectively being implemented throughout the Bank
Growth of SME in Agrani Bank Limited
As a state owned commercial bank, Agrani Bank Limited has given more emphasis to the SME financing which resulted in remarkable growth of SMEs. The previous four years growths of SMEs are shown in the tabular and graphical forms below
Conclusion
Agrani Bank Ltd is trying to expand SME financing according to Bangladesh Bank guidelines
And we,as a banker of rural branch are trying to increase SME Finance maintaining Bangladesh Bank guidelines and Credit Risk Management Manual of Agrani bank Ltd . Though Lack of technical support and skilled persons are the barriers but we are trying our best to increase SME finance maintaining CRM guidelines for the ultimate economic growth of the country.