bad debt brac bank

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December 7th, 2009

Dear Madam:

Submission of report on an analysis of method of determining bad debts at the BRAC

Bank Limited.

Here is the report on BRAC Bank Limited: An Analysis of the Method of Determining

Bad Debts as per requirement of the course Financial Accounting II (A102). This report

attempts to give an overview of the method of determining bad debts used in the BRAC

Bank Limited and to what extent their accounting practices conforms to the Generally

Accepted Accounting Principles (GAAP). It also looks into the extent of awareness of the

employees at different level of the organization regarding the accounting practices of the

bank.

Working for this report has been an interesting and informative experience for us. While

doing this report, we learned about data collection and their effective use. We have

enjoyed working on this report and hope that our work will meet up to your expectation.

Sincerely,

_______________ _______________ _______________

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Executive Summary

Risk is inherent in all aspects of a commercial operation however for banks and financial

institutions, credit risk is an essential factor that needs to be managed. Credit risk is the

possibility that a borrower or counter party will fail to meet its obligations in accordance

with agreed terms. Credit risk therefore arises from the banks dealings with or lending to

corporate , individuals, and other banks and financial institutions.

This report titled Brac Bank Limited: An Analysis of Determining Bad Debts mainly

looks into various aspects of credit policy and risk management procedures and practices,risk grading and recovery practices in Brac Bank Limited.

Brac bank limited started its journey on 2002, initiated by BRAC one of the largest

development organizations of the world. Brac bank started its journey with the objective

to build a customer focus with integrity and superior service. Its vision was to channel

funds from the urban areas to the rural areas and contribute to the improvement of the

economy. Being a fully commercial bank Brac bank has always been business focused

and aimed at exploring each and every opportunity available.

Since a banks income is mainly generated form its credit operation, credit risk

management has emerged as a great concern for a banks management worldwide since

long. Since the year 1998 the central bank of Bangladesh, Bangladesh Bank, has issued a

circular that thoroughly provides instructions to all the banks operating in the country

regarding loan classification and provisioning. There is no alternative for an effective

credit risk management system to keep the none performing loans at the minimum level.

The low rate of unclassified loans that The Brac Bank Limited has been maintaining is

evidence of a stringent credit policy that the bank has been following.

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Table of Contents

Executive Summary iii

1 Introduction 1

1.1 Origin Of The Report 1

1.2 Objective 1

1.3 Scope 1

1.4 Methodology 1

1.5 Limitations 1

2. A Glance At Brac Bank Ltd 3

3. Summary Of The Interviews 4

4. Analysis And Findings 7

4.1 Credit Policy Of The Brac Bank Limited 7

4.2 Categories Of Loans 9

4.3 The Credit Facilities Of The Brac Bank

Limited

10

4.4 Basis For Loan Classification 12

4.5 Accounting Interest Of The Classified

Loans

15

4.6 Maintenance For Provision 15

4.7 Basis Of Provision 16

5. Awareness 18

6. Conclusion 18Appendix 19

List of Illustrations

Figure 1. Pie chart showing shareholding structure of 4

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Brac Bank Limited .

List of Tables

Table 1. Structure of Shareholders

.

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Table 2. Personal Loan Amounts Assigned To Different

Type Of Products

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1. Introduction

1.1 Origin of the report:

have prepared this report on the credit risk management policy of the BRAC Bank Limited.

1.2 Objectives:

The objective of the report is to analyze the method of determining bad debts and develop a

valuable insight of the corporate accounting system and its practices. The main requirement is to

obtain sufficient information from BRAC Bank Limited and then analyze and interpret theinformation to identify the strengths and weaknesses of the companys practices regarding this

matter, also to find out whether staffs form different levels of the Bank are aware of the

accounting practices of the bank. The report also looks into the overall situation of the bank and

the know-how of the staffs of the bank. Finding out why they did not use other methods of

determining bad debts was also the objective of this report.

1.3 Scope:

This report is based on the different interviews and the circular issued by the Bangladesh Bank

laying out instructions for the banks regarding loan classification and provisioning. The bad loan

determining procedure practiced at the BRAC Bank is in accordance with the guidelines

provided by the Bangladesh Bank. Whether they make any changes in the method and why the

other methods are not adopted by the bank, were also found out from the interviews.

The knowledge of the staffs of the BRAC Bank Limited regarding their accounting practices wasdetermined by personal interviews with the staffs of the bank. Different questions were asked in

this regard and they gave us a clear view about their knowledge. Some interesting findings came

out in the process.

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1.4 Methodology

Both primary and secondary data sources were used to generate this report. Primary data sources

are scheduled survey, informal discussion with professionals and interviews with staffs from

different levels of BRAC Bank Limited. The textbook, Accounting Principles (Fifth Edition) by

Roger H. Hermanson and James Don Edwards was used for reference and as the basic source of

our knowledge on the subject matter.

The secondary data sources are annual reports, manuals, and brochures of BRAC Bank limited

and different publications of Bangladesh Bank. Different articles from the internet and internship

reports from the IBA library were also used as the source of secondary data.

1.5 Limitations

This report will only consider credit risk management and bad loan determination of BRAC

Bank limited. It will not cover:

Asset and liability/ balance sheet risk.Foreign Exchange Risk

Internal control And compliance risk

Money laundering Risk.

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2. A glance at BRAC Bank Limited

BRAC Bank Limited started its journey on 2002, initiated by BRAC one of the

largest development organizations of the world. Brac Bank Limited started itsjourney wi th the object ive to bui ld a customer focus with in teg ri ty and supe rior

service. BRAC Bank Limited, with institutional shareholdings by BRAC,

International Finance Corporation (IFC) and Shorecap International, has been the

fastest growing Bank from 2004 to 2007. The Bank operates under a "double bottom

line" agenda where profit and social responsibility go hand in hand as it strives

towards a poverty-free, enlightened Bangladesh.

A fully operational Commercial Bank, BRAC Bank focuses on pursuing unexplored

market niches in the Small and Medium Enterprise Business, which hitherto has

remained largely untapped within the country. In the last six years of operation, the

Bank has disbursed over BDT 7500 crore in loans to nearly 200,000 small and

medium entrepreneurs. The management of the Bank believes that this sector of the

economy can contribute the most to the rapid generation of employment in

Bangladesh. Since inception in July 2001, the Bank's footprint has grown to 56

branches, 30 SME Service Center s, 427 SME un it of fi ces and 112 ATM sites acr os s

the country, and the customer base has expanded to 465,000 deposit and 187,000

advance accounts till December 2008. In the years ahead BRAC Bank expects to

introduce many more services and products as well as add a wider network of SME

unit offices, Retail Branches and ATMs across the country.

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Table 1: Shareholding Structure

Shareholders Percent

BRAC 31.74%

IFC 9.50%Shore Cap International 8.76%

General Public through IPO 40%

Non-ResidentsBangladeshis

5%

Mutual funds through IPO 5%

Total 100%

Source: Brac Bank Website

Figure 1: Pie Chart showing shareholding structure of Brac Bank Limited.

Source: Brac Bank Website

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BRAC

a national, private organization, started as an almost entirely donor funded

organization. Today, BRAC has emerged as an independent, virtually self-financed

par ad igm in sustainab le human development. It is one of the la rgest Southern

development organizations employing 97,192 people, with 61% women, and

working with the twin objectives of poverty alleviation and empowerment of the

poor.

International Finance Corporation

International Finance Corporation (IFC) is the commercial wing of World Bank.

Using certain channels and overseas representatives, IFC it helps local financial

institutions find profitable ways to target small and medium sized companies.

Funding comes from the Asian Development Bank, Canada and IFC itself. IFC is a

19% shareholder in BRAC Bank.

ShoreCap International

ShoreCap International Ltd. is an international private non-profit, equity company

seeking to invest in small business banks and regulated micro finance institutions in

countries with developing economies. Founded in mid 2003, ShoreCap has a current

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bas e of $28 .3 mi ll ion in capi ta l commitments . ShoreCap current ly owns 18% of

BRAC Bank Limited.

3. SUMMARY OF THE INTERVIEWS:

We took the interviews of the BRAC Bank employees during two sessions. During

our first visit to the Head Office of BRAC Bank Ltd., we took the interviews of Mr.

Md.Towhidu-Zzaman Fuad, FAVP and Senior Manager and Ms. Tasnuva Rahim,

SPO and Manager, Fulfillment and Disbursement, Banking Services. During the

second session we managed to arrange for interviews with Ms. Parul Das, Head of

Reporting and Taxation and Mohammad Rakib Uddin Ahammad, Assistant Vice

President, Financial Reporting & Taxation of the Finance Department. We also

managed a sitting with Ms. Rifat Sultana, the Manager of Business(MIS) of the

Financial Administration Department. The survey was mainly conducted on the

bas is of the quest ionnai re that we had prepared for the pu rpose, but the co -oper at ive

nature and enthusiasm of the interviewees in making us understand the banking

operations, inspired us to ask them questions for the sake of our better

understanding. It was all quite interesting to know that the practices followed at the

banks were ac tual ly a bit dif ferent from what we read in theor ie s and from boo ks . It

was so known that all the practices regarding credit risk management and bad loan

recording and provisioning were according to the guidelines formulated by the

Bangladesh Bank, the central bank of Bangladesh. All the banks conducting acrossthe country had to essentially conform to these guidelines issued by the Bangladesh

Bank. While we thought that the methods followed in the bank might be different

from the standard methods followed internationally, the interviews with the bank

employees served to remove our misconception. We got to have a thorough

understanding of the accrual basis of recording bad loans at a bank and in what

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respects the recording methods are different from what we learned in books.

However they also added that, they have been successful in maintaining a

considerably lower rate of classified loans, which shows that the method followed is

an effective one which helps the banks to assess the aggregate portfolio at risk andto take corrective measures. While looking into which level of employees were

aware of the bad debt determining and provisioning methods practiced by the

bank, it was found that the range was from middle to higher level employees ofthe

Operations, Credit, Finance and Business Departments.

4.FINDINGS AND ANALYSIS:

4.1 Credit Policy of the BRAC Bank Limited

One of the most important ways, a bank can make sure that its loan meet organizational and

regulatory standards and they are profitable, is to establish a loan policy. Such a policy gives

loan management a specific guideline in making individual loan decisions and in shaping the

banks overall loan portfolio. The credit policy followed at the BRAC bank conforms to the

guidelines given by the Bangladesh Bank. These guidelines have been formulated by the

Bangladesh Bank with a view to strengthening the credit discipline and improve the recovery

position of loans and advances by the banks.

4.1.1Credit Principles

In the feature, credit principles include the general guidelines of providing credit by branch

manager or credit officer. In BRAC Bank Limited they follow the following guideline while

giving loan and advance to the client.

1) Credit advancement shall focus on the development and enhancement of customer

relationship.

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2) All credit extension must comply with the requirements of Banks Memorandum and Article

of Association, Banking Companys Act, Bangladesh Banks instructions, other rules and

regulation as amended from time to time.

3) Loans and advances shall normally be financed from customers deposit and not out of

temporary funds or borrowing from other banks.

4) The bank shall provide suitable credit services for the markets in which it operates.

5) It should be provided to those customers who can make best use of them.

6) The conduct and administration of the loan portfolio should contribute with in defined risk

limitation for achievement of profitable growth and superior return on bank capital.

7) Interest rate of various lending categories will depend on the level of risk and types of

security offered.

4.1.2 Global Credit Portfolio limit of BRAC Bank:The features which deals with how much total deposits would be used as lending the proportion

of long term lending, customer exposure, country exposure, proportion of unsecured facility etc.

the most notable ones are:

1) The aggregate of all cash facility will not be more than the 80% of the customers deposit

2) Long term loan must not exceed 20% of the total loan portfolio.

3) Facilities are not allowed for a period of more than 5 (Five) years.

4) Credit facilities to any one customer group shall not normally exceed 15% of the capital fund

or TK. 100 crores

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4.2 Categories of Loans:

All loans and advances are grouped into four categories for the purpose of classification, namely

(a) Continuous Loan

(b) Demand Loan

(c) Fixed Term Loan &

(d) Short-term Agricultural and Micro- Credit.

(a) Continuous loans:

These are the advances having no fixed repayment schedule but have an date at which it is

renewable on satisfactory performance of the clients. Continuous loan mainly includes "Cash

credit both hypothecation and pledge" and "Overdraft".

(b) Demand loan:

In opening letter of credit (L/C), the clients have to provide the full L/C amount in foreign

exchange to the bank. To purchase this foreign exchange, bank extends demand loan to the

clients at stipulated margin. No specific repayment date is fixed. However, as soon as the L/C

documents arrive, the bank requests the clients to adjust their loan and to retire the L/C

documents. Demand loans mainly include Payment against Documents, "Loan against

imported merchandise (LIM)" and "Later of Trust Receipt".

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(c) Term loans:

These are the advances made by the bank with a fixed repayment schedule. Terms loans mainly

include "Consumer credit scheme", "Lease finance"," Hire purchase", and "Staff loan". The term

loans are defined as follows:

Short term loan: Upto 12 months.

Medium term loan: More than 12 months & up to 36 months

Long term loan: More than 36 months.

4.3 The credit facilities of BRAC Bank Ltd.

The credit facilities of brac bank Ltd. may be broadly classified into five categories they are as

follows:

Loans

Cash Credit

Overdraft

Bills purchased and discounted

Consumer Credit/ personal loan

They are discussed below accordingly.

4.3.1 Loan

In case of loan the banker advances a lump sum for a certain period at an agreed rate of interest.

The entire amount is paid on an occasion either in cash or by crediting in his current account,

which he can draw at any time. The interest is charged for the full amount sanctioned whether hewithdraws the money from his account or not. The loan may be repaid in installments or at

expiry of a certain period. Loan may be demand loan or a term loan.

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Eligibility: loans are normally allowed to those parties who have either fixed source of income or

who desire to pay it in lump sum.

Interest Rate: 12%-15% per annum (Quarterly paid).

4.3.2 Cash Credit

In Cash credit, banker specifies a limit called the cash credit limit, for each customer, up to

which the customer is permitted to borrow against the security of tangible assets or guarantees.

Cash credit is given through the cash credit account. The purpose of cash credit is to meet

working capital need of traders, farmers and industrialists.

Cash credit in true sense is against pledge of goods. Cash credit is also allowed against

hypothecation of goods. In case of hypothecation the ownership and possession of the goodsremain with the borrower. By virtue of the hypothecation agreement bank can take possession of

the goods hypothecated, if the borrower defaults.

Rate of Interest: 12%-14%.

Renew System: it is renewed in periodic basis (yearly).

4.3.3 Overdraft

Overdrafts are those drawings which are allowed by the banker in excess of the balance in the

current account up to a specified amount for definite period as arranged for. These advances are

secured The loan holder can freely draw money from this account up to the limit and can deposit

money in the account off course, this loan has an expiry date after which renewal or

enhancement is necessary for enjoying such facility. Any deposit in the OD account is treated as

repayment of loan. Interest is charged as balance outstanding on quarterly basis. Overdraft

facilities are generally granted to businessmen for expansion of their business, against the

securities of stock-in-trade, shares, debenture, Government promissory notes, fixed deposit, life

insurance policies etc.

4.3.4 Bills purchased and discounted

Banks grant advances to their customers by discounting bill of exchange or pro-note.

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4.3.5 Personal Loan (Consumer Credit Scheme)

Objectives:

The objectives of this loan are to provide essential household durable to the fixed income group

(Service Holders) and other eligible borrowers. Car loan, loan for house renovation, vacation

loan, marriage loan and loan for household equipment well as entertainment products are

governed by personal loan program. The Total amount of loans along with the duration in which

these loans taken, need to be repaid is given below:

Table 2 : Personal loan amounts assigned to different type of products

Type of Product Loan Amount (Tk) Lac Tenure

1. Vehicle Up to 7.00 4 to 5 years

2. Household items

for Businessman

1.00 2 years

3.Household items

for Service holders

Up to 3.00 2 to 3 years

4. Others Special Considerations Special Considerations

Source: Brac Bank Limited website.

Personal loan is given under personal guarantee of the borrower and another third parson known

to the borrower. As this loan is collateral free the rate of interest is little bit high such as 15% to

18%. There is also a processing fee of 1.5% taken at the time of disbursement of the loan.

4.4 Basis for Loan Classification:

4.4.1Objective Criteria:

(A) Past Due/ Over Due

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i. Any Continuous Loan if not repaid/renewed within the fixed expiry date for repayment

is treated as past due/overdue from the day following the expiry date.

ii. Any Demand Loan if not repaid/rescheduled within the fixed expiry date for repayment

is treated as past due/overdue from the following day of the expiry date.iii. In case any installment or part of installment of a Fixed Term Loan(not over 5 years)

is not repaid within the fixed expiry date, the amount of unpaid installment is treated as

past due/overdue from the following day of the expiry date.

iv. In case any installment or part of installment of a FixedTerm Loan (over five years) is

not repaid within the fixed expiry date, the amount of unpaid installment is treated as past

due/ overdue aftersix months of the expiry date.

v. The Short-term Loans if not repaid within the fixed expiry date for repayment is

considered past due/ overdue aftersix months of the expiry date.

(B) All unclassified loans other than Special Mention Account (SMA) are treated as Standard.

(C) Continuous Credit, Demand Loan or a Term Loan which remains overdue for a period of

90 days or more, is put into the Special Mention Account (SMA) and interest accrued on such

loan is credited to Interest SuspenseAccount, instead of crediting the same to Income Account.

This helps the bank to look at accounts with potential problems in a focused manner and helps to

capture early warning signals for accounts showing first sign of weakness.

Loans in the Special Mention Account are reported to the Credit Information Bureau

(CIB) as per the instructions of the Bangladesh Bank.

(D)Any Continues Loan is further classified as:

Sub-standard if it remains past due/overdue for 6 months or beyond but less

than 9 months.

Doubtful if it remains past due/overdue for9 months or beyond but less than 12

months.

Bad/ Loss if it is past due or overdue for12 months or beyond.

(E) Any Demand Loan is classified as:

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Sub-standard if it remains past due/overdue for 6 months or beyond but not

over9 months from the date of claim by the bank or from the date of creation of

forced loan.

Doubtful if it remains past due/overdue for9 months or beyond but not over12months from the date of claim by the bank or from the date of creation of forced

loan.

Bad/ Loss if it is past due or overdue for12 months or beyond from the date of

creation of forced loan.

(F) case any installment(s) or part of installment(s) of a Fixed Term Loan is not repaid within the

due date, the amount of unpaid installment(s) is termed as defaulted installment.

(a) In case ofFixed Term Loans which are payable within maximum five years of time:-

If the amount of defaulted installment is equal to or more than the amount of

installment(s) due within 6 months, the entire loan is classified as Substandard.


installment(s) due within 12 months, the entire loan is classified as Doubtful.


installment(s) due within 18 months, the entire loan is classified as Bad/ Loss.

(b)In case ofFixed Term Loans which are payable in more than five years of time:-


installment(s) due within 12 months, the entire loan is classified as Substandard.


installment(s) due within 18 months, the entire loan is classified as Doubtful.


installment(s) due within 24 months, the entire loan is classified as Bad/ Loss.

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(G)The Short-term Agriculture and Micro-credit is considered irregular if not repaid within

the due date as stipulated in the loan agreement. If the said irregular status continues, the credit is

classified as Substandard after a period of 12 months, as Doubtful after a period of 36

months and as Bad/Loss after a period of60 months from the stipulated due date as per loanagreement.

4.5 Accounting of the interest of classified loans:

If any loan or advance is classified as Sub-standard and Doubtful, interest accrued on such

loan is credited to Interest Suspense Account, instead of crediting the same to the IncomeAccount. In case of rescheduled loans, the unrealized interest, if any, is credited to Interest

Suspense Account and not to Income Account.

As soon as any loan/advance is classified as Bad/Loss, charging of interest in the same account

is ceased. In case of filing a law suit for recovery of such loan, interest of the period till filing of

the suit can be charged in the loan account in order to file the same for the amount of principal

plus interest. But interest thus charged in the loan account has to be preserved in the Interest

Suspense Account. If classified loan or part of it is recovered i.e. real deposit is affected in the

loan account, first the interest charged is to be recovered from the said deposit and the principal

to be adjusted afterwards.

4.6 Maintenance of Provision:

(a) In order to deal with the classified loans BRAC Bank maintains General Provision in the

following way:

i. @1% against all unclassified loans (other than loans under Small Enterprise and

Consumer Financing and Special Mention Account)

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ii. @ 2% on the unclassified amount for small enterprise Financing

iii. @ 5% on the unclassified amount for consumer financing whereas it has to be

maintained at 2% on the unclassified amount for Housing Finance and Loans for

Professionals to set up business under Consumer Financing Scheme.

iv. @5% on the outstanding amount of loans kept in the Special Mention Account

after netting off the amount of Interest Suspense.

(b) Banks will maintain provisions at the following rates in respect of classified Continuous,

Demand and Fixed Term Loans:

i. Sub-standard 20%

ii. Doubtful 50%

iii. Bad/loss 100%

Provision in respect of Short-term Agricultural and Micro-Credit loans is to be maintained at

following rates:

i. All credits except Bad/Loss 5%

ii. Bad/Loss 100%

4.7 Base for Provision:

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Provision is maintained at the above rate on the balance to be ascertained by deducting the

amount of Interest Suspense and value of eligible securities from the outstanding balance of

classified accounts.

Following formula is to be applied in determining the required amount of provision:

A. Gross Outstanding XXX

B. Less: (i) Cash margin held or Fixed

Deposits/SP under lien (XXX)

(ii) Interest in Suspense Account (XXX)

C. Loan Value XXX

(For which provision is to be created before

considering estimated realizable value of other

security/collateral held)

D. Less: Estimated salvage value of security/

collateral held (XXX) Net Loan Value XXX

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5. Awareness:

As a requirement of the report we were to find out the level of awareness of the employees of the

bank regarding the accounting practices and methods followed in the bank. With this view, weinterviewed not only the top level people but also those in the management level. The findings

were as expected. The range of the people who were aware of these practices were from mid to

higher level. The lower level employees were not much aware or concerned about these practices

since there work were not really related to them. Again all the mid and higher level employees of

all the departments were not aware. Only the Finance, Credit, Operations and Business

departments had knowledge of these methods and practices. The Brac Bank Limited has a

definite work structure and the people has definite works. So the employees who has to deal with

bad debts actually know about these practices

6. CONCLUSION:

For a bank to function consistently well, it is extremely crucial that it has a strong credit risk

management policy and procedure. This is important for the bank to cope with the dynamicglobal economy whose change is often difficult to predict.

The failure of commercial banks occurs mainly due to bad loans, which occurs due to inefficient

management of the loans and advances portfolio. Hence, the banks must be extremely cautious

about its lending portfolio and credit policy. BRAC Bank limited has been able to keep its

classified loan at a very lower rate which is evidence of its good credit portfolio management.

Shall the bank continue its efforts in maintaining a standard and stringent credit appraisal policy,

it can be hoped that the bank would maintain its good stand in the banking sector in the future as

well.

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Appendix

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INTERVIEWS

Interview with

Fulfillment & Disbursement

Banking Services

1) How long is the accounting period in your bank?

Ans: Well it is a 1 year long accounting period that coincides with the calendar year. And

this, for the sake of your knowing, is in accordance with the IAS 30.

2) Well sir, we are not quite familiar with this IAS 30. Would you take the trouble of

explaining it to us?

Ans: Well young lady, why dont you google it and find it out for yourself when you go

home today. That would give you a thorough understanding of IAS 30.

3) How is the uncollectible amount determined in your bank?

Ans: It was in 1988 that the Bangladesh Bank laid down clear instructions regarding

credit risk management for the banking sector. All the banks functioning in the country

has to essentially comply by these guidelines. The process of determination is clearly

stated in the Master Circular issued by the Bangladesh Bank.

4) Would you shed some light on the method of handling bad debts in your bank? Is it the

allowance method or the direct write-off method that is followed?

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Ans: It is the allowance method.

5) What precautionary steps does the bank take to deal with bad debts?Ans: The bank has provisions to handle bad loans. The basis of these provisions is again

in accordance with the regulations of the Bangladesh Bank.

6) Does your bank issue notes?

Ans: I am sorry but I am not much informed of notes.

7) Do the methods used by your company conform to the Generally Accepted Accounting

Principles?

Ans: If you are talking about the GAAP that you have learned in your books, then I am

afraid the answer is no. You see, there is always a little variation in what we read

theoretically and what is actually practiced.

8) Are there any differences between the methods your company uses and the standard

methods in practice internationally?

Ans: No, it is the same worldwide.

Interview with

Manager, Fulfillment and Disbursement

Banking Services

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1) How long is the accounting period in your bank?

Ans: It is a one year accounting period as in all the other banks.

2) How is the uncollectible amount of loans that you provide, determined in your bank?

Ans: We divide our classified loans into certain categories based on the number of

days they have been overdue and assign percentage of provision against each

category as instructed by the Bangladesh Bank.

3) Which method is followed for handling bad debts in your bank?

Ans: Since the introduction of the master circular by the Bangladesh Bank in 1988,

all the banks across the country are following the allowance method in recording bad

debts.

4) What provisions does the bank have to deal with bad debts?

Ans: The provisions for bad debts have been outlined by the Bangladesh Bank, and

can be found in the circular.

5) Are the accounting practices in your bank in conformation with the Generally

Accepted Accounting Principles?

Ans: While the underlying concept is the same, there might be very few deviations in

the recording practices from that of GAAP.

6) Are there any differences between the methods your bank uses and the standard

methods in practice internationally?

Ans: Well all the banks across the globe practice the same methods.

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Interview with

Finance Department

1) We were recommended by Mr. Md. Towhidu-Zzaman Fuad to talk to you regarding

notes? Would you be able to tell us if your bank issues notes?

Ans: Well I guess you are talking about bills. Yes we do purchase and discount bills here

in BRAC Bank.

2) Are these interest or non-interest bearing notes/bills?

Ans: We usually deduct the bank discount from the maturity value of the bill and the

proceeds are given to the borrower. So yes, it is generally non-interest bearing bills that

we issue.

3) Is there any fixed rate of bank discount or does it vary from one bill to another?

Ans: No, there is no fixed discount rate. It varies.

4) Why do you think the bank uses the allowance method and not the direct write-off

method for recording bad debts?

Ans: The write-off method is not a plausible option in the practical life. If you do not

have provisions for bad loans beforehand, you can hardly expect a bank to survive.

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Interview with

Manager-Financial Reporting & taxation

Finance

Department

1) Does your bank purchase and discount bills?

Ans: Yes, as a matter of fact we do.

2) Is there any fixed rate of the discount rate on bills your bank issues?

Ans: There usually isnt any fixed discount rate. It changes from time to time.

3) We would like to know about the level of awareness of the employees of your bank

regarding the accounting practices followed here.

Ans: It is mainly the mid level and upper level staff of the bank who are aware of

these practices.

4) Are these mid level and upper level employees from all the departments?

Ans: No, no absolutely not. Only the Finance, Operation, Business and Credit

departments are aware of these methods and practices. The other departments do not

even need to know about these acounting practices since their work is not related to

them.

5) Why is it that the management level people are not aware of the methods practiced in

their organization?

24


30/30

Ans: Atually, the work of the management level people are not related to the

accounting and recording procedures. Hence, their unawareness regarding this

subject.