Socio-Economic and Environmental Aspects of Credit Management

1. Socio-Economic and Environmental Aspects of Credit Management Dr. Shah Md. Ahsan Habib Director [Training], BIBM

2. Why Economic Appraisal? Market Price is not the True Price

3. Why market price is not the true price? • Tax • Subsidy • Tariff & Quota • Currency overvaluation • Externalities

4. Calculation Procedure • IRR and ERR • NPV and NSV

5. Difference between FA and EA • Economic Appraisal • National Point of view • Tax,Subsidy- • Transfer Payment • Use Shadow Price • Does not consider • Distribution • Financial Appraisal • Investor’s Point of view • Tax,Subsidy- • Cost & Benefit • Use Market Price • FA Considers • Distribution

6. Flow Chart Project Duration- 5 Years; Rate of Interest- 10%; Residual value-5

7. Adjusting Financial price to Economic price • Adjustment of Transfer Payment • Adjustment of Traded Component • Adjustment of Non-traded Component

8. Methods of Calculation • LMST Approach- Little, Mirrlees,Squire, Tak • UNIDO Approach SCF: 1/1+FEP SER: OER X [1+FEP]

9. Adjusting/Converting Financial price to Economic price Suppose • Imported Component: 70% • Domestic Component: 30% • Financial price: 65000 • Exchange Rate: USD/BDT: 1.00 • FEP: 20% • Economic Price?

10. Adjusting/Converting Financial price to Economic price

11. Comparing Results

12. Green Banking and Environment

13. What does Environment mean to a Bank Environmental Finance Internal Environment Management

14. Environmental Risk • Credit Risk • Reputational Risk • Security Risk

15. Environment Conservation Act 1995 • The Act was established to promote environmental conservation, develop environmental quality standard, and to control environmental pollution. • The Act repealed the earlier Environmental Pollution control ordnance 1977 • Under the Act, no industrial unit or project shall be established without obtaining Environmental clearance from DG, Department of Environment

16. Environment Conservation Act 1995 • The Act categorizes the project list Green, Orange A, Orange B, Red to obtain environmental clearance • Under the Act, no industrial unit or project shall be established without obtaining Environmental clearance from DG, Department of Environment

17. Environment Court Act 2000 • Under the Act the government has given power to establish one or more Environmental Courts in each of the Divisional Headquarters • Under this Act, the environmental courts will take cognizance of the offences in violating rules under Environmental Conservation Act 1995 and punish the violators as per law

18. ER in Banks in Bangladesh • BB is helping the government to implement Environment Conservation Act 1995. In 1997, BB circular (BRPD-No-12), Commercial banks were asked to ensure that steps have been undertaken to control environmental pollution before financing a new project or providing working capital financing to the existing enterprises.

19. ER in Banks in Bangladesh • The industrial units (that may cause environmental pollution) to be established under bank credit would get permission for opening LC to import machineries only after ensuring that the list of machines include equipments to set up waste treatment plant

20. Thank You