Chapter One INTRODUCTION
1.1 Introduction 1.2 Origin of the report 1.3 Rationale of the study 1.4 Objectives of the report 1.5 Scope of the study 1. !ethodology of the study 1." #i$itations of the study
1
1.1 I%&RO'()& I%&RO'()&IO% IO%
Fina Financi ncial al insti institut tutio ions ns are are very very mu much ch essent essentia iall for for the overa overall ll devel developm opment ent of a country. Especially banks play an important role in the field of promotion of capital, encourag encourageme ement nt of entrepre entrepreneur neurship ship,, generati generation on of employm employment ent opportun opportuniti ities es etc. Market economy or free economy is widely used-concept used-concept about the present economy of Bangl Banglade adesh. sh. Th Thee countr country y adopte adopted d the conce concept pt in the the late late seven seventi ties es with with the privatiation of significant number of enterprises. The practices of free market economy started from the eighties with the changing of the world economy. ! number of initiatives were taken from the nineties to increase the competition and efficiency in money market, rela"ation of unwanted rules and regulations, improvement improvement of loan related law and other situations and improve the financial base of the banks of the country.
1.2 ORI*I% O+ &,- R-OR&
The report entitled #! $ase %tudy on $redit Management of &anata Bank' has been prepared as a partial fulfillment of BB! (rogram authoried au thoried by the )irector of BB! (rogram, )epartment of !ccounting and *nformation %ystems, +niversity of )haka.
1.3 R/&IO%/#- O+ &,- S&('0
)ue to the increased competition of the increased number of commercial banks and the growing economy, the e"pectations of the customers have also increased than ever before. ealiing the present condition, banks, especially the commercial banks are trying to elevate their loan giving service as much as reachable to their customers. The most serious difficulty difficulty facing the financial sector is the high level of interest interest rate and inflation rate. %o it is the duty of the top management of the commercial banks to work with the situation.
2
1.1 I%&RO'()& I%&RO'()&IO% IO%
Fina Financi ncial al insti institut tutio ions ns are are very very mu much ch essent essentia iall for for the overa overall ll devel developm opment ent of a country. Especially banks play an important role in the field of promotion of capital, encourag encourageme ement nt of entrepre entrepreneur neurship ship,, generati generation on of employm employment ent opportun opportuniti ities es etc. Market economy or free economy is widely used-concept used-concept about the present economy of Bangl Banglade adesh. sh. Th Thee countr country y adopte adopted d the conce concept pt in the the late late seven seventi ties es with with the privatiation of significant number of enterprises. The practices of free market economy started from the eighties with the changing of the world economy. ! number of initiatives were taken from the nineties to increase the competition and efficiency in money market, rela"ation of unwanted rules and regulations, improvement improvement of loan related law and other situations and improve the financial base of the banks of the country.
1.2 ORI*I% O+ &,- R-OR&
The report entitled #! $ase %tudy on $redit Management of &anata Bank' has been prepared as a partial fulfillment of BB! (rogram authoried au thoried by the )irector of BB! (rogram, )epartment of !ccounting and *nformation %ystems, +niversity of )haka.
1.3 R/&IO%/#- O+ &,- S&('0
)ue to the increased competition of the increased number of commercial banks and the growing economy, the e"pectations of the customers have also increased than ever before. ealiing the present condition, banks, especially the commercial banks are trying to elevate their loan giving service as much as reachable to their customers. The most serious difficulty difficulty facing the financial sector is the high level of interest interest rate and inflation rate. %o it is the duty of the top management of the commercial banks to work with the situation.
2
1.4 O-)&I-S O+ &,- R-OR&
The obectives of the report are to determine how credit policy applied in sanctioning and recovering loans and advances. $redit policy varies in terms of loan sector, status of the organiation, government policy, fiscal budget and guidelines etc.
Specific objectives objectives
To assess the credit structure of the bank in practice. To measu measure re the the effe effect ctive ivenes nesss of the bank bank in the util utilia iatio tion n of avai availab lable le resources. To identify the recovery performance of the bank. To point out the problems in fund utiliation and recovery thereon. To make a critical reasoning in respect to the treatment of provision for bad and doubtful credit. To assess and highlight on the legal actions followed by the bank. To find out the e"tent of similarities and dissimilarities dissimilarities in the course of action followed by &anata Bank. To compare compare the credit management of the bank with the Bank $ompanies !ct !ct /00/. To evaluate the credit management of the bank with respect to *!%123. To compare the credit supervision of the bank. To compare the 4uantitative change from phase-/ 5/006-73338 to phase-7 57333-7398. To find find out out prob proble lem ms and and sugg sugges esti ting ng reco recom mmenda endati tion onss for for furt furthe her r improvement.
1.5 S)O- O+ O+ &,&,- S&('0
&anata Bank is the second largest commercial Bank in Bangladesh. &anata Bank operat operates es throug through h :;: branch branches es inclu includin ding g ; overse overseas as branch branches es at +nit +nited ed !rab Emirates. *t is linked with /77/ foreign correspondents all over the world. * am assigned to learn practical knowledge from &anata Bank, )haka $ollege Branch. *n this study * would try to concentrate on the theoretical aspect of credit management, that is, the definition of credit management, policy of credit management, tools for 3
managing credit etc. * would analye the data on the bank and various programs for loan recovery, problems in loan in loan recovery, pattern of loan recovery and the performance of the bank under study in loan recovery, the information in respect to the classification of unsound credit and provision thereon and also concentrates on the performance of the bank. !nd finally * would conclude with the critical evaluation of the credit management under the guidelines of the Bank $ompanies !ct /00/, *!%123 and a discussion on the maor findings and recommendations.
1. !-&,O'O#O*0 O+ &,- S&('0
The report is descriptive in nature. To fulfill the obectives of this report total methodology has divided into two maor parts<
a) 'ata )ollection rocedure •
!nnual report of &anata Bank
•
(eriodicals (ublished by Bangladesh Bank
•
=ffice files and documents
•
%tudy related books and ournals
•
>eb sites
b) 'ata rocessing /nalysis
$ollected information have then processed ? compiled with the aid of M% >ord, E"cel ? other related computer software. @ecessary tables have been prepared on the basis of collected data and various statistical techni4ues have been applied to analyses on the basis of classified information. )etail e"planation and analysis have also been incorporated in the report.
4
1." #I!I&/&IO% O+ &,- S&('0
To prepare a report on the topic like this in a short duration is not easy task. *n preparing this report some problems and limitations have encountered which are as follows< a8 The main constraint of the study was insufficiency of information, which was re4uired for the study. There are various information the bank employee cannot provide due to security and other corporate obligations. b8 !s the data, in most cases, are not in organied way, the bank failed to provide all information. c8 )ue to time limitation, many of the aspects could not be discussed in the present report. d8 %ince the bank personnel were very busy, they could not pay enough time. e8 Aack of opportunity to access to internal data. f8 * had to base on secondary data for preparing this report. g8 Aegal action related information was not available. h8 !ll of them are not eager to give me any kind of legal action related information.
5
Chapter Two LITERATURE REVIEW
2.1 )R-'I& !/%/*-!-%& 2.2 RO)-SS O+ )R-'I& !/%/*-!-%& 2.2.1. olicy guidelines 2.2.2 !anage$ent structure and responsibilities 2.2.3. rogra$ guidelines
2.3 &OO#S O+ )R-'I& !/%/*-!-%& 2.3.1 'efinition of )redit Ris6 *rading 7)R*8 2.3.2 +unctions of )redit Ris6 *rading 2.3.2 +unctions of )redit Ris6 *rading 2.3.3 (se of )redit Ris6 *rading 2.3.4 %u$ber and short na$e of grades used in the )R* 2.3.5 +inancial Spread Sheet in )redit !anage$ent
2.1 )R-'I& !/%/*-!-%&
!s &anata bank is providing credit facility out of its total available funds, it has to manage these credits very efficiently. !n efficient credit management system comprises many things and this cover the pre-sanction activities to post-sanction activities. $redit management is important as it helps the banks and financial institutions to understand various dimensions of risk involved in different credit transactions.
!t the pre-sanction stage, credit management helps the sanctioning authority to decide whether to lend or not to lend, what should be the loan price, what should be the e"tent of e"posure, what should be the appropriate credit facility, what are the various facilities, what are the various risk mitigation tools to put a cap on the risk level. !t the post-sanctioning stage, the bank can decide about the depth of the review of renewal, fre4uency of review, periodicity of the grading, and other precautions to be taken.
aving considered the significance of credit risk, it becomes imperative for the banking system to carefully develop credit management. For this reason, the bank is maintaining a new division which is well-known as credit division.
2.2 RO)-SS O+ )R-'I& !/%/*-!-%&
$redit Management (olicy for any commercial bank must have been prepared in accordance with the (olicy Cuidelines of Bangladesh BankDs Focus Croup on $redit and isk Management with some changes to meet particular bankDs internal needs. $redit management must be organied in such a process that the bank can minimie its losses for payment of e"pected dividend to the shareholders. The purpose of this process is to provide directional guidelines that will improve the risk management culture, establish minimum standards for segregation of duties and responsibilities, and assist in the ongoing improvement of concerned bank.
"
The guidelines for credit management may be organied into the following sections<
2.2.1 olicy guidelines<
a.
Aending guidelines
b. $redit assessment and risk grading c. !pproval authority d. %egregation of duties e. *nternal control and compliance
2.2.2 !anage$ent structure and responsibilities
2.2.3. rogra$ guidelines
a. !pproval process b. $redit administration c. $redit monitoring d. $redit recovery
@ow the guidelines are discussed in the following<
2.2.1. olicy guidelines a. Lending guidelines: The lending guidelines include the following<
*ndustry and Business %egment Focus
Types of loan facilities
%ingle borrowers group limits syndication
Aending caps
)iscouraged business types
!s a minimum, the followings are discouraged< o
Military e4uipment weapons finance
o
ighly leveraged transactions
o
Finance of speculative investments
o
Aogging, mineral e"traction mining, or other activity that is ethically or environmentally sensitive 9
o
Aending to companies listed on $*B black list or known
o
$ounter parties in countries subect to +@ sanctions
o
Aending to holding companies.
b. Credit Assessment and Risk Grading:
! thorough credit and risk assessment should be conducted prior to the granting of loans, and at least annually thereafter for all facilities.
$redit !pplications should summaries the results of the risk assessment and include, as a minimum, the following details<
Environment or social risk inputs
!mount and type of loan 5s8 proposed
(urpose of loans
Aoan structure 5 tenor, covenants, repayment schedule, interest8
%ecurity arrangement
!ny other risk or issue
isk triggers and action plan-condition prudent, etc.
isk is graded as per Aending isk !nalysis 5A!8, Bangladesh BankDs Cuidelines of classification of loans and advances.
c. Approval Authority:
!pproval authority may be as the following<
$redit approval authority has been delegated to Branch Manager, $redit $ommittee by the M) Board
)elegated approval authorities shall be reviewed annually by M) Board.
M) Board<
!pprovals must be evidenced in writing. !pproval records must be kept on file with credit application
The aggregate e"posure to any borrower or borrowing group must be used to determine the approval authority re4uired.
:
!ny credit proposal that does not comply with Aending Cuidelines, regardless of amount, should be referred to ead =ffice for approval.
d . Segregation of Duties:
Banks should aim at segregating the following lending function<
$redit approval risk management
elationship management marketing
$redit administration
e. Internal Control and Compliance:
Banks must have a segregated internal audit control department charged with conducting audits of all branches.
2.2.2. !anage$ent structure and responsibilities
The following chart presents an e"ample of credit management structure<
!anaging 'irector
,O usiness 'evelop$ent < )orporate an6ing < !ar6eting
)redit )o$$ittee
,O )redit < Ris6
ranch !anager
!ar6eting
)redit Officer
)redit /d$in.
#oan Recovery 1;
2.2.3. rogra$ guidelines
a. Approval process: The following diagram illustrates an e"ample of the approval
process<
$redit application recommended by Branch Manager elationship Manager $orporate
ead =ffice, $redit )ivision
ead =ffice $redit $ommittee
E"ecutive $ommittee of Board of )irectors
b. Credit administration: The credit administration function is critical in ensuring that
proper documentation and approvals are in place prior to the disbursement of loan facilities.
c. Credit monitoring < To minimied credit losses, monitoring procedures and systems
should be in place that provides an early indication of the deteriorating financial health of borrower.
d. Credit recovery: The recovery unit of branch should directly manage accounts with
sustained deterioration 5a risk rating of sub-standard or worse8. The primary functions of recovery unit are<
)etermine account action plan recovery strategy 11
(ursue all options to ma"imie recovery, including placing customers into receivership or li4uidation as appropriate. Ensure ade4uate and timely loan loss provisions are made based on actual and e"pected losses. 2.3 &OO#S O+ )R-'I& !/%/*-!-%&
For credit management, a firm may use tools available to them. %uch tools include $redit isk Crading 5$C8 and Financial %pread %heet 5F%%8. $redit risk grading is an important for credit risk management as it helps the banks and financial institutions to understand various dimensions of risk involved in different credit transactions. The aggregation of such grading across the borrowers, activities and the lines of business can provide better assessment of the 4uality of credit portfolio of a bank or branch.
The Aending isk !nalysis 5A!8 manual introduced in /002 by the Bangladesh Bank has been in practice for mandatory use by the banks and financial institutions for loan sie of B)T /.33 crore and above. owever, the A! manual suffers from a lot of subectivity, sometimes creating confusion to the lending bankers in terms of selection of credit proposals on the basis of risk e"posure. Meanwhile in 7332 end, Bangladesh Bank provided guidelines for credit risk management of banks wherein it recommended the introduction of isk Crade %core $ard for risk assessment of credit proposals. Bangladesh Bank e"pects all commercial banks to have a well defined credit risk management system which delivers accurate and timely grading. *n practice, a bankDs credit risk grading system should reflect the comple"ity of its lending activities and the overall level of risk involved.
2.3.1 'efinition of )redit Ris6 *rading 7)R* 8
G the $redit isk Crading 5$C8 is a collective definition based on the prespecified scale and reflects the underlying credit-risk for a given e"posure. G ! $redit isk Crading deploys a number alphabet symbol as a primary summary indicator of risks associated with a credit e"posure. G $redit isk Crading is the basic module for developing a $redit isk Management system.
2.3.2 +unctions of )redit Ris6 *rading 12
>ell-managed credit risk grading systems promote bank safety and soundness by facilitating informed decision-making. Crading systems measure credit risk and differentiate individual credits and groups of credits by the risk they pose. This allows bank management and e"aminers to monitor changes and trends in risk levels. The process also allows bank management to manage risk to optimie returns.
2.3.3 (se of )redit Ris6 *rading
G The $redit isk Crading matri" allows application of uniform standards to credits to ensure a common standardied approach to assess the 4uality of individual obligor, credit portfolio of a nit, line of business, the branch or the bank as a whole. G !s evident, the $C outputs would be relevant for individual credit selection, wherein either a borrower or a particular e"posure facility is rated. The other decisions would be related to pricing 5credit-spread8 and specific features of credit facility. These would largely constitute obligor level analysis. G isk grading also be relevant for surveillance and monitoring, internal M*% and assessing the aggregate risk portfolio level analysis.
2.3.4 %u$ber and short na$e of grades used in the )R*
The proposed $C scale consists of : categories with short names and numbers are provided as follows<
*rading
Short %a$e
%u$ber
%uperior Cood !cceptable
%+( C) !$$(T
/ 7 2
Marginal >atch list %pecial Mention %ub %tandard
MC >A %M %%
; 9 6
)F BA
H :
)oubtful Bad and Aoss
13
2.3.5 +inancial Spread Sheet in )redit !anage$ent
/. Financial %pread %heet provides a 4uick method of assessing business trends and efficiency !ssess the borrowers ability to repay realistically show business trends !llow comparisons to be made within industry
7. Borrowers that provide Financial %pread %heets are more likely to be good borrowers •
!t two of the client banks the F%( consultants could not find /3 bad loans with 2 consecutive years of financial statements available.
•
=ut of 79 good loans reviewed by the F%( consultants, at two of the client banks, 2 consecutive years of financial statements were available on all of them.
•
The willingness of the customer to provide detailed financial information and to answer 4uestion regarding that information, is indication of the cooperation the bank will receive in the future.
2. ! Financial %pread %heet is an important tool in a discipline of organied approach to credit analysis.
;. The historic financial reports of a company are a primary indicator of its future financial position. %pread sheets allow proper analysis of financial statements.
14
Chapter Three JANATA BANK: A STUDY
3.1 ,istory of anata an6 3.2 !ission of anata an6 3.3 Services provided by anata an6 3.4 )redit progra$ 3.5 erfor$ance of anata an6 3. #oans and advances
15
3.1 ,IS&OR0 O+ /%/&/ /%=
&anata means people. This is a progressive Bank. *mmediately after the emergence of Bangladesh in /0H/, the erstwhile +nited Bank Aimited and +nion Bank Aimited were nationalied and renamed as &anata Bank. *t has been operating since itIs inception in /0H7 both in Bangladesh and overseas. &anata Bank has been playing a significant role in the economic development of the country by mobiliing savings and channeliing funds into different productive sectors. *t is also a maor player in the fields of micro-credit and software development. &anata Bank, the second largest commercial Bank in Bangladesh, has an authoried capital of +%J /;9.;9 million, paid up capital of +%J ;H./6 million and reserve of +%J 6.6H million. The Bank has a total asset of +%J /::6.93 million.
&anata Bank operates through :;: branches including ; overseas branches at +nited !rab Emirates. *t is linked with /77/ foreign correspondents all over the world. The Bank employs more than /95fifteen8 thousand persons. The corporate head office is located at )haka with 29 5thirty five8 )ivisions. !s a part the conscious development of e"isting uman esources, &anata Bank through its three training institutes during the year 7332 imparted training to ;600 officers and staffs. *t computeried 03 important branchesK non stop services introduced in :: branchesK =@A*@E Banking in 63 important branches under important branches under implementationK !TM, EFT facilities.
The Board of )irectors is composed of H 5seven8 members headed by a $hairman. The )irectors are representatives from both public and private sectors. The Bank is headed by the Managing )irector 5$hief E"ecutive8, who is a reputed banker.
3.2 !ISSIO% O+ /%/&/ /%=
The mission of the bank is to actively participate in the socio- economic development of the nation by operating a commercially sound banking organiation, providing credit to viable borrowers, efficiently delivered and competitively priced, simultaneously protecting depositorDs funds and providing a satisfactory return on e4uity to the owners.
1
3.3 S-RI)-S ROI'-' 0 /%/&/ /%=
&anata Bank offers all the maor banking facilities and services to its customers. The Bank with its network spreading throughout the country has a uni4ue feature of ploughing back savings from those places and then investing them into different loan portfolios.
&anata Bank with its wide ranging branch network and skilled personnel provides prompt and personalied services like issuing< a. )emand )raft b. Telegraphic Transfer c. Mail Transfer d. (ay =rder e. %ecurity )eposit eceipt f. Transfer of fund by special arrangement, i8 @ormal transfer ii8 Electronic transfer through eady $ash $ard.
The Bank provides the following *nternet facilities<
$urrent%avings%T) account status
F) account status
!dvance account status
Aoan account status
emittance services are available at all branches and foreign remittances may be sent to any branch by the remitters favoring their beneficiaries. emittances are credited to the account of beneficiaries instantly or within shortest possible time. &anata Bank has correspondent banking relationship with all maor banks located in almost all the countriescities. E"patriate Bangladeshis may send their hard earned foreign currencies through those banks or may contact any renowned banks nearby 5where they residework8 to send their money to their dear ones in Bangladesh. &anata Bank has already established a world wide network and relationship in international Banking through its ; 5four8 overseas branches and /77/ foreign correspondents. The Bank has earned an e"cellent business reputation in handling and
1"
funding international trade particularly in boosting e"port ? import of the country. The Bank finances e"ports within the frame-work of the e"port policy of the country. 3.4 )R-'I& RO*R/!
*eneral and Industrial )redit
&anata Bank has formulated its policy to give priority to small and medium business while financing large scale enterprise through consortium of banks total loan and advance of the bank stood at B)T /3HH:9.H6 million as of )ecember 2/, 7339 as compared to B)T /3/,;6/.:: million in 733;. *ncrease rate is 6L compared to 733;. Following the guideline of Bangladesh Bank, credit facilities have been e"tended to productive and priority sectors. *n e"tending credit facilities, the Bank has given due importance to sectoral needs and re4uirements of both public and private sectors. Maor sectors include &ute, Te"tile *nd. ? trade, %teel ? Engineering, Food ? !llied, and E"port ? *mport etc.
0ear
/dvance
7337
02702.0
7332 733; 7339
00H;:.H /3/;6/.0 /3HH:6
Rural )redit> !icro -nt. S. rogra$ +inancing
Aoan is provided to the rural people for agricultural production and other off-farm activities.
Aoan pricing system is customer friendly.
(rime customers enoy prime rate in lending and other services.
uick appreciation, appraisal, decision and disbursement are ensured.
$redit facilities are e"tended as per guide-lines of Bangladesh Bank 5$entral Bank of Bangladesh8 and operational procedures of the Bank. The rates may, however, change from time to time depending on the level of competition in the financial sector. !s a nationalied Bank it has a social responsibility to improve the financial condition of the poorunemployed people. >ith a view to perform that social responsibility, Bank has initiated rural credit program since /0H;. @ow under this rural portfolio there are 22 products. 19
*nformation related to important products under this program are shown below<
&able different products under the progra$
Taka in million
Sl. %o.
/ 7 2 ; 9 6 H : 0 /3
%a$e of product
$yber-cafN loan $redit for forestry horticulture nursery $redit program for employees Financing # women entrepreneurship' Financing goat and sheep farming Charoa proect $rop loan program )octorDs loan %mall business )ev. Aoan =thers total
%o of loanees
Outstanding /$ount
?
2;;5
26
:.6
./9
H9;
/0.H
.79
;62/7
/337.33
/3
779
;;.9
.93
7//30
/2/.:
/.33
727/ 2293H9 99
29.2 93H2.: 73.:
.;3 97 .29
02
/:.3
.29
/90229 9692/9
22H;.3 0H7:.6
29 /33
! vast maority of the Bangladeshis live in the rural areas and their main source of income is agriculture and agro-business. &anata Bank has opened branches in rural areas to cater to the banking needs of rural people. !part from accepting deposits from the rich and moderately well-off villagers, &anata Bank encourages the poor people to make small savings through different mechanisms.
%o far lending in rural area is concernedK &anata Bank has been financing agricultural production and poverty alleviation programs since /0HH. *t also lends to the poor landless so that they can make a living. The average loan sie is about Taka /3,333.33
1:
5around +%J 7338 and the number of borrowers under rural credit scheme is more than 933,333.
/.
%hort Term $rop (roduction Aoan
7.
*rrigation and !gricultural e4uipment
2.
Fish%hrimp (roduction
;.
orticulture )evelopment
9.
!gro-based *ndustry
6.
ural Transport
H.
>eavers $redit
:.
!gri-business Aoan
0.
Tea (roduction ? (rocessing Aoan
/3.
)ifferent Micro $redit (rograms
S!- +inancing Sche$e
%mall and Medium Enterprise 5%ME8 Financing %cheme has been introduced to assist new or e"perienced entrepreneurs to invest in small and medium scale industries. %mall
business
development
loan,
Charoa
proect,
credit
for
forestryorticulture@ursery, crop loan proect all are designed for this purpose.
'octors@ )redit Sche$e
)octorsD credit scheme is designed to facilitate financing to fresh medical graduates and established physicians to ac4uire medical e4uipments and set up clinics and hospitals. Ao$en -ntrepreneurs 'evelop$ent Sche$e
>omen Entrepreneurs )evelopment %cheme has been introduced to encourage women in doing business. +nder this scheme, the bank finances the small and cottage industry proects sponsored by women. Total loan outstanding in 7339 was Tk 20.:3 million. The no. of loaned were 7/6.
3.5 -R+OR!/%)- O+ /%/&/ /%=
&anata Bank is the second largest commercial bank in Bangladesh. The aim of the Bank is to actively participate in the socio-economic development of the nation by 2;
operating a commercially sound Banking system. *t provides credit to deserving borrowers and at the same time, protects depositorDs interest.
'eposits
&anata Bank mobilied total deposit of B)T /9/,329.:0 million as of )ecember 2/, 7339 as compared to B)T /2:,906.67 million in 733;. $omparative interest rates deposit mobiliation efforts of the bank and confidence reposed by the customer in the bank contributed to the notable growth in deposit. The bank evolved a number of attractive deposit schemes to care to the re4uirement of small and medium services. This improved not only the 4uantum of deposits, it also brought about 4ualitative change in the depositors structure.
'eposit and 'eposit !iB
Break-up of )eposit and )eposit Mi" &a6a in $illion
Type $urrent and others account deposits
!s on 2/-/7-39 76/0;
!s on 2/-/7-3; 772H:
Bills payable %avings Bank )eposit Term )eposit
/7;: 92/36 ::2;0
//;/ ;:29; H0/62
Total
/6::0H
/9/326
Invest$ent
To earn profit, the Bank (rudently invests its fund to different sectors. The investment portfolio of the Bank is comprised of Treasury bill, other bonds, )ebenture, %hares etc. The Bank earns a handsome profit from this investment portfolio. Oear wise investment of the Bank is shown in the following table<
21
0ear
Invest$ents 7&6. in $illion8
7337
73;99.:
7332 733; 7339
70H/:.6 77:7/.: 7:2H9
(ortfolio wise investment is described below< 5Taka in million8 2;;5
2;;4
/ Treasury bill
Tk /:293.3
Tk /6;93.3
7. =ther bonds
Tk 0002.H
Tk //39H.7
2. )ebentures
Tk 626.7
Tk 6:.2
;. %hares
Tk /::./
Tk /:9.9
Total P
70/6:.3
7:2H9.3
I$port usiness
For the very beginning the Bank has embarked on e"tensive foreign e"change business with a view to facilitating international trade transactions of the country. The Bank has provided B)T H;0/0.H million loan as of )ecember 2/, 7339. *mport mainly confined to consumer goods, capital machineries and industrial raw materials.
-Bport usiness 22
The total e"port business handled by the bank amounted to B)T 9;672.2 million as of )ecember 2/, 7339 as compared to B)T ;7:69 million in 733;. The bank has made made signifi significant cant contribu contribution tion to readym readymade ade garments garments sector sector which which contribu contributed ted H9.63L of total e"port of the country in 733;-3;. =ther items include %hrimps, Tea and @on-traditional item Operating Revenue
The oper operat atin ing g reve revenu nuee of the the bank bank stoo stood d to the the B)T 72/7 72/7.0 .0 milli illion on as of )ecember7339 against B)T 7/73.0 million in 733;. !fter necessary provision net profit stood at B)T 73.0 million as of )ecember 2/, 2 /, 733;.
0ear
Operating r rofit 7&6. in $illion8
7 33 7 7 33 2
;37.9 /720.:
7 33 ; 7 33 9
7/73.0 72/7.0
3. #O/%S # O/%S /%' /'/%)-S /'/%)-S<
The main focus of &anata Bank $redit Aine(rogram is financing business, trade and industrial industrial activities activities through an effective delivery system. &anata Bank offers credit to almost almost all sectors sectors of commer commercial cial activit activities ies having having product productive ive purpose. purpose. The loan portfolio of the Bank encompasses a wide range of credit programs covering about 733 items. $redit is also offered to /9 5fifteen8 thrust sectors, as earmarked by the govt., at a reduced interest rate to develop frontier industries. $redit facilities are offe offere red d to indivi individua duals, ls, bus busine inessm ssmen en,, sm small all and big bus busine iness ss hou houses ses,, trade traders, rs, manufactures, corporate bodies, etc.
Following Following the guidelines guidelines of Bangladesh Bangladesh Bank, credit facilities facilities have been e"tended to productive and priority sectors. The outstanding o utstanding advance of the bank is Tk /7;;6H.2 million on 2/st )ecember 7339. *n credit facilities, the Bank has given due importance to sectoral needs and re4uirements of both public and private sector.
%ector wise !dvances are shown below< QTaka QTaka in million8
23
Sl
%a$e of sector
ublic
rivate
&otal
?
/
&ute sector
;:H7.3
2:3/.:
:6H2.:
H
7
Te"tile *nd. ? trade
HH9.9
;/:/.3
;096.9
;
2
%teel ? Engineering
69;.9
20H.9
/397.3
/
;
Food ? allied
:2.3
//6;.7
/7;H.7
/
9
E"port credit
-
//796.3
//796.3
0
6
*mport credit
/6;22.H
/3:H3.0
7H23;.6
77
H
*ndustrial credit
-
/;2H7.;
/;2H7.;
/7
69.3
0662.6
0H7:.6
:
:
ural, ME ? %( Financing
0
ousing
/9.3
H000.7
:3/;.7
6
/3
others
/9HH.;
267:;.6
2H:67.3
23
Crand total
7;;H6./
0000/.7
/7;;6H.2
/33
SectorCDise SectorCDise advances 731st 'ece$ber 2;;8 are shoDn beloD %l / 7 2 ; 9 6 H : 0
@ame of the sector &ute sector Te"tile *nd. ? Trade %teel ? Engineering Food ? !llied E"port $redit *mport $redit *ndustrial $redit ural, ME ? %( Financing ousing
(ublic 63:9.2 939.H
(rivate 7//:./ ;;/;.2
Total : 7 32 .; ; 0 6 9 .3
L 6L ;L
296.H
6 2 / .:
0::.9
/L
/632.3 /233.3 79:93.3 3 H3.3
/70:.3 /7 0 0 3 .2 :2HH.2 /; 0 6 9 .2 / 3 / 2/ .:
7 0 3/ .3 /;703.2 2;77H.2 /;069.2 /373/.:
7L /3L 7;L //L HL
3
/:76.H
/: 7 6 .H
7L 24
/3
=thers Crand Total
;023.3 ;3H;9.H
; 3 0 0 2 .7 0H H ; 6 .:
;9072.7 / 2 : ; 0 7 .9
22L / 33 L
Rural )redit> !icro -nt. S rogra$ +inancing 731 st 'ece$ber 2;;8
%l
@ame of products
@o. of Aoanees
/ 7
$rop Aoan program !g. *mple ? *rrigation E4uipment Fisheries ? %hrimp $ulture $redit (rogram
2
L
22 ;2 HH 7 9 ;9
=utstanding !mount 7336 9337.; //0.6
/ 3 03
/27.6
/.23L
;0.32L /./HL
25
; 9 6 H : 0 /3 // /7 /2 /; /9
$yber-$afN Aoan $redit for Forestry orticulture @ursery $redit (rogram for Employees Financing #>omen Entrepreneurship' Financing Coat ? %heep Farming Charoa (roect )octorsD Aoan %mall Business )ev. Aoan $redit for )isabled people $onsumersD $redit !gro-based (roect *ndustry =thers Total
27 H30
:.9 /6.6
3.3:L 3./6L
69;23
/27;.0
/7.00L
779
22.2
3.22L
/762:
00.0
3.0:L
726; 99 02
29./ 7;.7 73.:
3.29L 3.7;L 3.73L
/0;
/.6
3.37L
;;/7 ;03
/37.; ;/;.3
/.33L ;.36L
/;922H 960009
7:69.0 /373/.:
7:.30L /33L
Chapter Four
2
CREDIT POLICY
4.1 !-/%I%* O+ )R-'I& O#I)0 4.2 O-)&I- O+ )R-'I& O#I)0 4.3 +OR!(#/&IO% O+ )R-'I& O#I)0 4.4 -SS-%&I/# )O!O%-%&S O+ / SO(%' )R-'I& O#I)0 4.5 #-%'I%* *(I'-#I%-S 4.5.1 Industry and business seg$ent focus 4.5.2 &ypes of credit facilities
4.1 !-/%I%* O+ )R-'I& O#I)0
(olicy entails proected course of action. &anata Bank has its own policy granting credit although credit is always a matter of udgment applying common sense in the light of oneDs e"perience. ! sound credit policy includes among other things safety of funds invested vis-R-vis profitability of the bank. Encouraging ma"imum number of small loans is better than concentration in a particular type of advances, which ensures sufficient li4uidity with least incidence of bad debts.
2"
*t has to be borne in mind that a good loan allowed to a properly selected borrower is half collected. *n order to make a good loan there should have a good loan policy.
4.2 O-)&I- O+ )R-'I& O#I)0
There are some obectives behind a written credit policy of &anata Bank that are as followsK
To provide a guideline for giving loan.
(rompt response to the customer need.
%horten the procedure of giving loan.
educe the volume of work from top level management.
)elegation of authority of work from top level of management.
To check and balance the operational activities
4.3 +OR!(#/&IO% O+ )R-'I& O#I)0
=ne of 4uestions that should arise in a discussion of credit is who should formulate the policy. !lthough the ultimate responsibilities lay at the highest level in the organiation i.e. the board of directors. Oet the actual drafting shall have to be done by the senior lending office in consultations with the chief e"ecutive officer and with contribution from senior officers, associates and subordinates. =bviously the level of origin will vary with the sie and structure of the organiation. The matter then referred to the board for approval after careful e"amination consideration and discussion.
4.4 -SS-%&I/# )O!O%-%&S O+ / SO(%' )R-'I& O#I)0<
There can be some variations based on the needs of a particular organiation, but at least the following areas should be covered in any comprehensive statement of credit policy and &BDs policy also covers these areas< /. #egal consideration< The bankDs legal lending limit and other constraints should be set forth to avoid inadvertent violation of banking regulations. 29
7. 'elegation of authority Each individual authoried to e"tend credit should know precisely how much and under what conditions he or she may commit the bankDs funds. These authorities should be approved, at least annually, by written resolution of the board of directors and kept current at all times. 2. &ypes of credit eBtension =ne of the most substances parts of a loan is a delineation of which types of loans are acceptable and which type are not. ;. ricing *n any profit motivated endeavor, the price to be charged for the goods or services rendered is of paramount without it, individuals have few guidelines for 4uoting retag or fees, and the variations resulting from human nature will be a source of
customer
dissatisfaction. 9. !ar6et /rea Each bank should establish its proper market area, based upon, among other things, the sie and sophistication of its organiation its capital standpoint, defining oneDs market area is probably more important in the lending function than in any other aspect of banking. 6. #oan Standard This is a definition of the types of credit to be e"pended, wherein the 4ualitative standards for acceptable loans are set forth. H. )redit *ranting procedures This subect may be covered in separate manual, and usually is in larger banks. !t any rate, it should not be overlooked because proper procedures are essential in loan establishing policy and standards. >ithout proper procedure for granting credit and constant policing the best conceived loan policy will not function and inevitable, problems will develop. 4.5 #-%'I%* *(I'-#I%-S
!s the bank have a high rate of non-performing loans. Banks risk taking applied should be contained and our focus should be to maintain a credit portfolio keeping in mind of bankDs capital ade4uacy and recovery strength. Thus bankDs strategy will be invigorating loan processing steps including identifying, measuring, containing risks as well as maintaining a balance portfolio through minimiing loan concentration,
2:
encouraging loan diversification, e"panding product range, streamlining security, insurance etc. as buffer again une"pected cash flow.
4.5.1 Industry and business seg$ent focus
*ndustry segment focuses on Te"tile, (harmaceuticals, !gro-based, Food and allied, Telecommunication, (ower generation and distribution, ealth care, Entertainment %ervices, $hemicals, Transport, *nfrastructure development, Ainkage industry, *nformation technology, $eramics, =thers as decided from tome to time. !nd business segment focuses on )istribution, Brick field, ice mill flour mill oil mill, >ork order, Oarn trading, $loth merchant, *ndustrial spares, ardware, Electronic and electrical goods, $onstruction materials, Fish trading, Crocery, >holesale retail, =thers as dedicated from time to time
4.5.2 &ypes of credit facilities Bank will go for
Term financing for new proect had BME of e"isting proects 5large, medium, %ME, %$*8.
>orking capital for industries, trading services and others 5large, medium, %ME, %$*8.
Trade finance for import and e"port
Aease finance
%mall loan for traders, micro enterprise and other productive small venture.
$onsumer finance
Fee business
4. R/&- O+ I%&-R-S& +OR 'I++-R-%& S-)&ORS as on ;1.1;.2;;
(lease see table 3/ in appendi"
3;
Chapter Five FUND INVESTED BY JANATA BANK 5.1 I%&RO'()&IO% 5.2 -)O%O!I) S-)&OR AIS- 'IS&RI(&IO% O+ +(%' 5.3 %/&(R- AIS- 'IS&RI(&IO% O+ #O/%S /%' /'/%)-S 5.4 !/&(RI&0 *RO(I%* O+ 'IS&RI(&IO% #O/%S /%' /'/%)-S 5.5 S-)(RI&I-S I% )R-'I& !/%/*-!-% &
5.1 I%&RO'()&IO%
The principal function of a bank is to lend. Aending is a dynamic activity. *t is through the medium of lending the banking industry promotes economic activity, instills and 31
encourages, at the individual level, the principal of self-reliance, and yield earnings for the bank. *t is lending alone that brings banking into a more meaningful and purposeful contract with public and, therefore, has the greatest impact upon them.
(roper utiliation of fund is an essential pre-re4uisite of successful bank management. The procurements of funds supported by an efficient deployment of that procured fund lead a bank to the highest point of profitability. * would try to concentrate on &anata BankDs nature, pattern, and allocation of invested resources in this chapter. The bank under study has divergence in its investment portfolio, loan programs, advances and recovery rate etc.
5.2 -)O%O!I) S-)&OR AIS- 'IS&RI(&IO% O+ +(%'
&anata Bank is engaged in e"tending long, medium and short term loans to various economic sectors in the country. !s &anata Bank e"tends its credit programs all over the economy such as agricultural credit program, industrial credit program and commercial financing, the bank tries to achieve significant profit from its operations and also to improve the economic conditions of the general public of the country. 5(lease see table 37 in appendi"8
5.3 %/&(R- AIS- 'IS&RI(&IO% O+ #O/%S /%' /'/%)-S
%anctioning advances to customers and others is one of the principal services of a modern bank. !dvances by the commercial banks are made in different forms< •
Aoans
•
=verdrafts
•
$$
•
A*M
•
AT
•
Bills purchase and discounted
&anata Bank sanctions loans under the above mentioned category. *t usually grants short term advances which are utilied to meet the working capital re4uirements of the borrower. =nly a small portion of the bankDs demand and time liability are advanced on long term basis where the banker usually insists on a regular repayment 32
by the borrower in installments. >hile lending fund, a banker, therefore, follows a very cautious policy and conduct his business on the basis of well-known principles of sound lending in order to minimie the risk.
5.4 !/&(RI&0 *RO(I%* O+ 'IS&RI(&IO% #O/%S /%' /'/%)-S
!t the very beginning of taking decision for giving credit, &anata Bank mainly concentrates mainly on li4uidity. !s it is doing business by public deposits, it is bound to pay the money when people want. ! siable portion of bank advances are, therefore, granted to meet the working capital re4uirements of the borrower rather than to meet the fi"ed capital re4uirement, i.e., construction of building or purchase of fi"ed deposits. ! banker would be failing in his duty to safeguard the interest of his depositors and shareholders if his credit policy does not provide a method of gradual repayment and final recovery of the money advanced.
For li4uidity reasons, &anata Bank3is giving credit on short period basis and against security. %hort term loans ensure li4uidity to a greater e"tent than long term loan. >e can classify the bank loans and advances under the following maturity stage< (ayable on demand (ayable within 2 months (ayable within 2 months to /7 months (ayable within / year to 9 years (ayable in more than 9 years
5.5 S-)(RI&I-S I% )R-'I& !/%/*-!-%&
=ne of the most important functions of a bank is to employ its fund by way of loans and advances to its customers and a bankDs strength depends considerably on the 4uality of its loans and advances. *n order times, when the bankers knew the customers personally and intimately and had complete confidence in the integrity and honesty of a customer, they used to allow loans and advances without a security. The position is 4uite different today. Banks having a large number of officers over a wide area cannot allow loans and advances without retention of security in one form or the other. Though the banks are now e"pected to lay greater emphasis on the purpose for which the borrower needs rather than security he can afford to give, security continues 33
to be one of the most important factors which determines to a significant e"tent the bankerDs willingness to lend money. %ecurity is obtained as a line of last defense to fall back upon. *t is meant to be an insurance against emergency. But taking security, bank ac4uires a claim upon the assets of the borrower if repayment is not made as planned. But what should be the significant securities of loans depends in the guidelines prescribed by the Bangladesh Bank through B$) circular no. /H/0HH and also the negotiation of the respective branch to its borrowers. The most significant categories of security lodged are as<
Coods and commodities
F)
eal estate
%tock e"change securities
Aife insurance policies
Cold and gold ornaments
)ocuments of title of goods
Book debts
%upply bills
&anta Bank keeps sufficient security before final sanctioning of loans and advances.
34
Chapter Six LOAN DISBURSEMENT PROCEDURE OF JANATA BANK
.1 *-&&I%* )R-'I& I%+OR!/&IO% .2 I%+OR!/&IO% )O##-)&IO% .3 /%/#0EI%* &,-S- I%+OR!/&IO% .4 #-%'I%* RIS= /%/#0SIS 7#R/8 .5 ROOS/# /%/#0SIS . )O##/&-R/# -/#(/&IO% .9 RO-R S(-RISIO% O+ &,- RO-)& ." +I%/# '-)ISIO% /O(& &,- RO-)& .: 'O)(!-%&/&IO% O+ &,- #O/% .1; )R-/&IO% O+ ),/R*-S +OR S-)(RI%* #O/%
.1 *-&&I%* )R-'I& I%+OR!/&IO% 35
&anata Bank collects credit information about the applicant to determine the credit worthiness of the borrower. The bank collects the information about the borrower from the following sources<
(ersonal investigation.
$onfidential report from other bank ead =fficeBranchchamber of the commerce.
$*B eport from $entral Bank.
.2 I%+OR!/&IO% )O##-)&IO%
The loans and advances department gets a form filled by the party seeking a lot of information. The information is listed below<
@ame and address of the borrower 5present and permanent8.
$onstitution or status of the business.
)ata of establishment and place of incorporation.
(articulars of properties, partners and )irectors.
Background and business e"perience of the borrowers.
(articulars of personal assets, name of subsidiaries, percentage of share holding and nature of business.
)etails of liabilities in name of borrowers, in the name of any directors.
Financial %tatement of the last three years.
@ature and details of businessproducts.
)etails of securities offered.
(roposed debt e4uity ratio.
=ther relevant information.
.3 /%/#0EI%* &,-S- I%+OR!/&IO%
&anata Bank then starts e"amination whether the loan applied for, is complying with its lending policy. *f comply, then it e"amines the documents submitted and the credit worthiness. $redit worthiness analysis, i.e. analysis financial conditions of the loan applicant is very important. *f loan amount is more than 93, 33,333, then bank goes for Aending isk !nalysis 5A!8 and %preadsheet !nalysis 5%!8 which are recently
3
introduced by Bangladesh Bank. !ccording to Bangladesh Bank ules, A! and %! are a must for the loan e"ceed of one crore. *f these two analyses reflect favorable condition and document submitted for the loan appeared to be satisfactory, then bank goes for further action.
.4 #-%'I%* RIS= /%/#0SIS 7#R/8
A! is a very important and vital analysis for deciding whether the loan proposal is potential or not. Many types of scientific, mathematical, statistical and managerial tools and devices are re4uired to perform this analysis. &anata Bank maintains a prescribed format for Aending isk !nalysis, which includes a spreadsheet to analye a lot of things. *t is not possible to discuss the entire A! in this report.
#ending Ris6 /nalysis 7#R/8
! Industry Risk:
i. %upply isk- >hat is the risk of failure to disruption in the supply of inputS ii. %ales isk- >hat is the risk of failure due to disruption salesS c8 Company Risk < /.
$ompany (osition isk< i. (erformance isk- >hat is the risk if the company position is so weak that it can not perform well enough to repay the loan, given e"pected e"ternal conditionS ii. esilience isk- >hat is the risk of failure due to lack of resilience to une"pected e"ternal conditionS
7. Management isk< i. Management $ompetence isk- >hat is the risk of failure due to lack of management competenceS ii. Management *ntegrity isk- >hat is the risk of failure due to lack of Management *ntegrityS d8 Security Risk < i.
%ecurity $ontrol isk- >hat is the risk that the bank fail to realie the securityS
ii.
%ecurity $over isk- >hat is the risk that realied security value is less than the e"posureS 3"
.5 ROOS/# /%/#0SIS
The (roect (roposal is analyed and decision about the proect is taken. The loans and advance department is responsible for the analysis. !fter preliminary appraisal of the loan proect the final approval is obtain from the manager. *f the loan amount crosses a certain amount 5no found8, managers send the loan proect to the principal office for final approval. The e"perts in principal office find out different proected ratios and developed and understanding about the potentiality of the proect. Bank evaluates a loan proposal by considering few predetermined variables. These are<
%afety
Ai4uidity
(rofitability
%ecurity
(urpose of the loans
%ources of repayment
)iversification of risk etc.
The most important measure of appraising a loan proposal is safety of proposal. %afety is measured by the security offered by the borrower and repaying capacity of the borrower. The attitude of the borrower is also important consideration. Ai4uidity means the inflow of cash into the proect in course of its operation. The profit is the blood of any commercial institution. Before approval of any loan proect the bank authority has to ensure that the proposed proect will be profitable venture. (rofitability is assessed from the proected (rofit and Aoss %tatement. The security is the only tangible asset remains with the banker. %ecuring of collateral is the only weapon to recover the loan amount. %o bank has to see that the collateral is easy to sale and sufficient to recover the loan amount. Bank can not sanction loan by only depending on collateral. The sources of the payment of the proect should be a feasible one. )uring sanctioning any loan Bank has to be attentive about diversification of risk. !ll money
39
must not be disbursed amongst a small number of people. *n addition any proect must be established for the national interest growth.
. )O##/&-R/# -/#(/&IO%
&anata Bank is very cautious about valuation of the collateral. The bank officials simultaneously evaluate the collateral of the party offered by the private firm. The valuation of the collateral increases the accuracy of its value estimated. Three types of value of the collateral are assumed<
$urrent market price
)istressed price
(rice after five years
The legal officers of the bank check the document ascertain their impurity.
." +I%/# '-)ISIO% /O(& &,- RO-)&
*f the loan decision remains with the branch level, that branch sanctions the loan and if the approving authority is ead =ffice then the decision comes to the branch by tele" or fa". .9 RO-R S(-RISIO% O+ &,- RO-)&
*f such provision is kept in the sanction contracts, the &anta Bank officials go to the proect area to observe how the loan is utilied. *f no such clause to supervise the loan is added, even then the bank can see the performance of the proect.
.: 'O)(!-%&/&IO% O+ &,- #O/%
These are the most fre4uently used and common documents of above mentioned charged and for other formalities for sanctioning the loan<
)emand (romissory @ote< ere the borrower promises to pay the loan as and when demanded by the bank to repay the loan.
Aetter of !rrangement< ere the written amount of the loan sanctioned to the borrower is specified.
Aetter of $ontinuity< *t is used to take continuous facilities as providing continuous securities.
3:
Aetter of ypothecation< *t is the written document of the goods hypothecated thus to put in case of need.
%tock eport< This report is used for %=) and $$. *n this report information about the 4uality and 4uantity of goods hypothecated have furnished.
(ersonal guarantee< *t is the additional confirmation of the borrower to repay.
Cuarantee of the )irectors of the company.
esolution of the board of directors< *t is used to borrow the fund to e"ecute documents and complete other documents.
Aetter of disclaimer< By this letter, the borrower withdraws his all claim on the propertymortgaged.
Aetter of !cceptance< Aetter indicating the acceptance of the sanction proposal by the borrower.
Aetter of (ledge< *t is the written document of the goods pledge thus the legality of holding the goods.
Aetter of )isbursement< This is the document through which the payment of sanctioned loan indicates.
Aetter of partnership< *n case of partnership firm, the partnership deeds are to be provided.
Aetter of *nstallment< The amount of installment that is to be paid at certain intervals.
Ta" (aying $ertificate.
!ny document if described, as essential in the sanctioned advice sanctioned by the ead =ffice.
.1; )R-/&IO% O+ ),/R*-S +OR S-)(RI%* #O/%
For the safety of loan, &anata Bank re4uires security from the loaner so that it can recover the loan by selling security if borrower fails to repay. $reation of a charge means making it available as a cover for an advance. The method of charging should be legal, perfect complete. *mportance of charging securities is as<
(rotection of interest.
Ensuring the recovery of the money lent.
(rovision against une"pected change. 4;
$ommitment of the borrower.
%ecurities are of two types< a8 ri$ary Security-%ecurity deposited by the borrower himself to cover the loan such as F), cash, (%%, (%(, easily cashable items. b8 )ollateral Security-!ny type of security on which the creditor has personal right of action on the debtor in respect of advance.
Chapter Seven RECOVERY PERFORMANCE OF JANATA BANK
".1 RO*R/!S +OR #O/% R-)O-R0 ".2 R-)O-R0 RO*R/!S &O - &/=-% 0 /%/&/ /%= ".3 R-)O-R0 /&&-R%S /%' #O/% /%' /'/%)-S ".4 RO#-!S I% #O/% R-)O-R0
41
".1 RO*R/!S +OR #O/% R-)O-R0
>hen &anata Bank sanctions loans and advances to its customers, they clearly state the repayment pattern in the loan agreement. But some credit holders do not pay their credit in due period. The nationalied and private sector commercial banks have to face this sort of problems. This situation is, especially severe in &anata Bank. To overcome the problem of overdue loan, the bank need take particular loan recovery program.
".2 R-)O-R0 RO*R/!S &O - &/=-% 0 /%/&/ /%= •
To establish credit supervision and monitoring cell in the bank
•
To re-structure the loan sanctioning and distributing policy of the bank
•
To sanction loans and advances against sufficient securities as best as possible
•
to give more powers to the branch manager in credit management decision making process
•
To offer a package of incentives to the sound borrowers
•
To give more emphasis on short term loans and advances
•
To impose restrictions on loans and advances for sick industries
•
To take legal actions 4uickly against unsound borrowers as best as possible within the period specified by the law of limitations.
".3 R-)O-R0 /&&-R%S /%' #O/% /%' /'/%)-S
Cenerally &anata bank sanctions loans and advances to every sector of an economy. Before going into details of recovery performance, we have to be familiar with some terms used in recovery performance< )isbursement< highest outstanding balance on any date during the reporting period minus outstanding balance at the end of the preceding period. 42
)emand for recovery< overdue at the end of the reporting period plus recovery during the reporting period. ecovery< highest outstanding balance on any date during the reporting period minus outstanding balance at the end of the recovery period. =utstanding< figures in the ledger at the end of the reporting period. =verdue< )emand for recovery minus recovery. &able Recovery perfor$ance of anata an6 7Tk in crore8
articulars
haseC1
haseC2
1::
1::"
1::9
1:::
2;;;
2;;1
2;;2
2;;3
2;;4
/:7/
72/3
7;6:
2/;9
27/;
29;6
2627
9;H6
9079
69;7
;79H
;269
;:79
9/9;
9H06
90:6
6;H9
6:;0
H7/;
H9;;
ecovery =verdue ecovery as a
/6/: 7620
/07/ 7;;;
7/7H 760:
72H/ 7H:2
7;07 223;
7022 2392
7903 2::9
27:: 296/
263H 263H
260H 2:;H
percentage of
2:L
;;L
;HL
;6L
;2L
;0L
;3L
;:L
93L
;0L
67L
96L
92L
9;L
9HL
9/L
63L
97L
93L
9/L
9:H9
9709
9H22
H2;/
:309
0270
00H9
/3/;6
/3HH0
/7;;H
Total disbursement )emand for recovery
2;;5
)F =verdue as a percentage of )F =utstanding
".4 RO#-!S I% #O/% R-)O-R0
There are a lot of reasons for which the loan recovery of the bank is very defective. *n most cases, problems may be raised from sanctioning procedures of loan, investigation of the proect, and investigation of the loans etc. that is, the problem in loan recovery proves the outcomes of the default process in loan disbursement. The main reasons of poor loan recovery are categoried in four broad types as follow<
/. roble$s created by econo$ic environ$ent
The following problems arise from the effect of economic environment<
43
/. Changing in the management pattern < $hanging of management patterns may delay the recover of mature loan. 7. Changing in industrial patterns < The nationalied banks sometimes sanction loan to the losing concern for further improvement of the respective sector, but in most cases, they fail to achieve progress. 2. "peration of open market economy < *n our country mainly industries become sick and also close their business on account of emerging of open market economy. The cost of production is high and the 4uality of goods is not of re4uired of standard. !s a result, they become the losing concerns and the amount of bad loan increases. ;. Rapid e#pansion of usiness < There are many companies which e"pand their business rapidly, but the e"pansion is for short time. *n the long run, the amount of classified loan increases.
. roble$s created by govern$ent
The following problems are arisen by the government< /. $#ternal pressure: &anata Bank has also faced many problems in the loan recovery process as a part of continuous pressure from various interested groups. 7. Loan to government organi%ation < &anata Bank is bound to sanction loan to government organiation, though these are losing concern. For this reason, banks faced problems in loan recovery. 2. Legal prolems< E"isting rules and regulations are insufficient to cover the legal aspects of loan recovery. !s a result, defaulters can get release easily from all charges against them. ;. Fre4uent changes in government policies in regard to recovery of loan.
). roble$s created by the ban6
The following problems are created by the banks< /. Lack of analysis of usiness risk: Before lending, &anata Bank does not properly analye the business risk of the borrowers and the bank cannot forecast whether the business will succeed or fail. *f it fails to run well, the loan becomes classified.
44
7. Lack of proper valuation of security or mortgage property: *n most cases, bank fails to determine the value of security against the loan. !s a result, if the loan becomes classified, the bank cannot recover its loan through the sale of mortgage.
'. Other general causes of poor loan recovery
!part from the specific reasons creating problems to recoup loan, there e"ists some other general causes which have a great impact on creating the problems which are faced by the &anata Bank under study in the loan recovery process. These are< /. Early sanction and disbursement of loan to the borrowers without proper inspection of the proect by the bank on account of pressure from lobbying group. 7. Aack evaluation of technical and economic feasibility of the program. 2. )elay in disbursement of credit. ;. $redit is not allowed to actual entrepreneurs. 9. Aack of proper supervision. 6. *lliteracy of borrowers. H. @egative attitude of borrowers to repay the loan. :. )eterioration of the value system of the borrowers. 0. Money borrowers use their loan-money other than specified proect, i.e., if the loan is sanctioned for industrial purposeK they use the money in house building or purchase of land for their own purpose. /3. %ometimes borrowers invest their money outside the country. Many borrowers transfer loan money to abroad where they deposited this money in their own account or spent some other purpose. //. %ometimes local borrowers are found to be so much compelled to grant them loan without proper study due to some une"pected reasons. %ince these borrowers are capable of getting loan by e"ercising their influence, they can also escape the repayment liability. /7. (roblems
responsible
for
non-implementation
and
delayed
implementation of proect for which the entrepreneurs of the proect cannot repay the loan. The causes of failure may be< Failure to ascertain the economic availability of the proects Time lag between approval and sanctioning of the proects 45
*mport of machinery and raw materials both are the problems of paucity of foreign e"change and procedures of licensing.
!ll of these reasons discussed above are general reasons for problems loan recovery of &anata Bank. Besides these, there are some specific reasons for loan recovery problems faced continuously by &anata Bank. They are as<
Aoans are given under fictitious names and enterprise Aoans are given without sufficient securities !pproval of the loans in e"cess of the branch managerDs power *mproper monitoring and supervision of credit (olitical misuse if loan programs operated by the public sector banks Aack of timely action against willful defaulter Aoans are sometimes for economically unsound proect.
(roblems in loan recovery are the outcome of the default on loans disbursements in the earlier period.
4
Chapter Eight CLASSIFIED LOANS AND BANK’S PERFORMANCE
9.1 I%&RO'()&IO% 9.2 SI*%S +OR )#/SSI+I)/&IO% 9.3 #O/% )#/SSI+I)/&IO%C*(I'-#I%-S +RO! /%*#/'-S, /%= 9.4 -R+OR!/%)- O+ /%/&/ /%= 9.5 I!/)& O+ ROISIO% +OR #O/% O% /%=@S RO+I&
4"
9.1 I%&RO'()&IO%
Banks are financial service firm, producing and selling professional management of the publicDs funds as well as performing many other roles in the economy. But now- adays commercial banks are not performing their activities smoothly for a large burden of default loan. Every year &anata Bank distributes thousand crore taka among individuals, organiations etc. but a large sum of these distributed fund cannot be recovered in due time. The Bank has to classify this loan. *n this chapter * would like to concentrate on classification procedure, provision making for particular classification, performance of the bank regarding classified loan and recovery of such classified loan.
9.2 SI*%S +OR )#/SSI+I)/&IO%
First and foremost re4uirement for any and all credit managers is to identify a problem credit in its earlier stages by recogniing the signs of deterioration. %uch signs include but not limited to the following< /. @on payment of interest or principal or both on due dates or past dues beyond a reasonable period or recurring past dues. 7. *n case of =verdraft no movement in the account beyond a reasonable period. 2. )eterioration in financial condition of the client, as gathered from clientDs latest financial statement. ;. ! shortfall in collateral coverage, particularly if the collateral was a key factor in the decision-making. 9. )eath or withdraw of key-owners or management personnel. 6. $ompany filing for bankruptcy or voluntary dissolution. H. !dverse market report about the company itself or its principal owners.
9.3 #O/% )#/SSI+I)/&IO%C*(I'-#I%-S +RO! /%*#/'-S, /%=
$lassification of overdue loans and advances opened a new era in the credit management of commercial banks in Bangladesh. Before /0:0 no specific guidelines 49
were followed by the commercial banks for this purpose. *n /0:0, Bangladesh Bank issued B$) circular @o.2;/0:0 stating specific rules and conditions of loan classification.
!fter that each schedule banks e"cept BUB, !U+B, and B%B would be responsible for its own loan classification according to the guidelines are presented in the following table<
T!BAE< A=!@ $A!%%*F*$!T*=@ %O%TEMV Aength of overdue
%tatus of classification
/ll loans eBcept
Aoans overdue for / year but less than 2 years Aoans overdue for 2 years but less than 9 years Aoans overdue for 9 years or more
+nclassified
/L
%ubstandard
/3L
)oubtful
93L
Badloss
/33L
+or agricultural loan
$lassified,
Aoans not overdue for 9
substandard,
years or more Aoans overdue for 9 years or
doubtful
more
Fre4uency of classification
/nnual provision
/gricultural loans
Aess than / year
ate of provision
Bad loss
9L
/33L V%ource< B$) $ircular no. /0:0
!ccording to this circular loans and advances were classified on a loan by loan basis rather sample classification. This process was continued till /00;. Bangladesh Bank further issued a circular in/009 5B$) circular173/00;8. The title of the circular was #evised rules of classification and provisioning of loans and advances,' which came into implementation from &anuary /, /009.
4:
&able schedule of loan classification and provision progra$F
a. types of
1st stage
2nd stage
3rd stage
4th stage
5th stage
(eriod
(eriod
(eriod
(eriod
(eriod
overdue
overdue
overdue
overdue
overdue
Aess than
Aess than
Aess than
Aess than 6
Aess than 2
/: months /: months
/7 months /7 months
or more but
or more but
more but
more but
more but
less than 26
less than 7;
less than 7;
less than /7
less than 6
months 26 months
months 7; months
months /7 months
months months 0 months or 2 months or
or more but
or more but
or more but
more but
more but
less than ;:
less than 26
less than 7;
less than /7
less than 6
months More than
months 26 months
months 26 months
months 7; months
months /7 months
;: months
or more
or more
or more
or more
+nclassified %ubstandard )oubtful
/L /3L 93L
/L /3L 93L
/L /9L 93L
/L /9L 93L
/L 73L 93L
Bad c. period of
/33L !nnual
/33L alf yearly
/33L alf yearly
/33L uarterly
/33L uarterly
classification
basis
basis
classification
+nclassified
%ubstandard
)oubtful
Bad
/0 months months months 0 months or 6 months or 2 months or
b. rates of
provision
basis basis basis V%ource< B$) circular no. 73 of 7H/7/00;
For loan classification Bangladesh Bank also issues circular time to time after 7H/7/00; like B() circular no /6,0,7,0 and /H of 6/7/00:, /;9733/, /927339, 79:7339, and 6/77339 respectively. %ome of these are as follows<
5;
&able status> type and definition of classificationF Status
+nclassified
.
%ub standard 5%%8
loan type
'efinition of status
all current loan
all
current
loans
with
re4uired eligible security $ontinuousdemand term overdue is more than 2 loan
months but less than 6
>hen degree of risk for
months if default amount
non-payable is high but 5less than 9 years8
of installment is e4ual to
there is reasonable respect
installment payable in 6
that the loan condition can
months
be improved more than 9 years
*f
default
installment
amount
of
is e4ual
to
installments payable in /7 months. %hort term agro. credit and overdue is more than /7
)oubtful 5)F8
micro credit
months but less than 26
$ontinuous and demand
months overdue is more than 6
>hen chance of recovery
months but less than 0
is uncertain
months
Term loan less than 9 *f years
default
installment
amount
of
is e4ual
to
installments payable in /7 months. More than 9 years
*f
default
installment
amount
of
is e4ual
to
installments payable in /7 to /: months. %hort term agro. credit and =verdue is more than 26 micro credit
months but less than 63 months. 51
Bad loss 5BA8
$ontinuous and demand
overdue is more than /7 months
@o security held, borrower not traceable, time barred loans, no hope of recovery
Term loan
*f
default
5up to 9 years8
installment
amount
of
is e4ual
to
installment payable in/: months. more than 9 years
*f
default
installment
amount
of
is e4ual
to
installment payable in 7; months.
%hort term agro. credit and overdue is more than 63 micro credit
months
%ource< Bangladesh Bank, B() $ircular @o. /6 of /00:V
&able loan classification syste$> 2;;1F
Aength of overdue Aess than 6 months Aoans overdue for 6 months but less than 0 months Aoans overdue for
%tatus of classification +nclassified %ub standard 5%%8
)oubtful 5)F8
ate of provision /L
Fre4uency of classification uarterly
73L 93L 52
0 months but less than /7 months Aoans overdue for
Bad loss
/7 months or more
/33L
V%ource< Bangladesh Bank, B() $ircular @o. 0 of 733/
&able loan classification syste$ 7international standard8
%tatus of
Aength of overdue Aess than 2 months Aoans overdue for 2 months but less
classification
ate of provision
+nclassified
/3L-79L
)oubtful 5)F8
6 months but less than 0 months Aoans overdue for
93L-H9L
Bad loss
0 months or more
classification
/L-9L
%ub standard 5%%8
than 6 months Aoans overdue for
Fre4uency of
/33L
V%ource< %tudies in Bangladesh Banking, B*BM, 7333
9.4 -R+OR!/%)- O+ /%/&/ /%=
From my analysis it is found that during first phase 5/0006-73338 total loan of &anata Bank was TU 9/7:9 crore of which classified loan was TU :399 crore. That is, /9.H/L of total credit is classified. )uring second phase 5733/-73398, total loan of the bank was TU 976H6 crore of which classified loan was TU /7/62 crore. That is 72.30L of total credit is classified.
&able )lassified loan of anata an6
Oear Total
/006 ;:H9
/00H 9709
/00: 9H22
/000 H2;/
7333 :309
733/ 0270
7337 00H9
7332 /3/;6
733; /3HH0
7339 /7;;H
+nclassified Aoan
@!
@!
2;;3 5638
;970 5678
9/;9 56;8
6;0H 5H38
H32/ 5H38
H::/ 5H:8
:0:/ 5:28
//372 5:08 53
$lassified Aoan
@!
@!
7702 7:/7 7093 7:27 70;; 7769 /H0: 727; 5;38 52:8 5708 5238 5238 5778 5/H8 5//8 %ource< annual report of &anata Bank /000, 733/, 7332, 7339
9.5 I!/)& O+ ROISIO% +OR #O/% O% /%=@S RO+I&
(rovisioning by the bank has not been isolated action, but represents one component in an ongoing set of negotiations and relationships between borrowers and the banks, while the borrowers wish to minimie their servicing obligations without damaging their prospect of future market access, the lending bank wish to ma"imie their receipts. %uch ma"imiation may involve agreeing to terms which are not so stringent as to encourage borrowers to opt for all out default. (rovisioning has the effect of bringing the bankDs actual balance sheet more in line with the market perception of what they should look alike.
Bangladesh Bank provides specific guidelines for loan provisioning and bases for calculating such provisions. (rovisions for unclassified as well as classified loan are as follows< &able rates loan provision
(nclassified loan
%mall enterprise financing $onsumer financing E"cept %EF, $F and %M! %pecial account
rovision
)lassified
provision
7L
%ubstandard
73L
7L
)oubtful
93L
/L
Bad or loss
/33L
Mention 9L
54
Bank and financial sector may be termed as the vital complementary power of the economy. But the uncertainty in respect to effectiveness of this sector in the economy continuously increases over time. @ow a days it open secret that &B is under direct control of the Finance Ministry. $redit management of &B was so meaningless and corrupted as it is now assumed that more than Tk 23333 crore have become unrealiable within the last /3 years.
Chapter Nine GUIDELINES FOR CREDIT MANAGEMENT
:.1 I%&RO'()&IO% :.2 &,- )O!/%I-S /)& 1::1 :.3&,- I%&-R%/&IO%/# /))O(%&I%* S&/%'/R'S 7I/S8C3; 55
:.4 *(I'-#I%-S +O##OA-' 0 /%= (%'-R S&('0
:.1 I%&RO'()&IO%
$ommercial banks of Bangladesh are incorporated under $ompanies !ct /00; and Bank $ompanies !ct /00/. But none of this act clearly mentions guidelines for managing credit in commercial banks. $entral bank is the controller of money market in any country. !s central bank, Bangladesh Bank controls money market in our country. Bangladesh bank, time to time, issues some guidelines and regulations for operation of a banking concern. These guidelines are general in nature. Besides these, every commercial bank sets credit guidelines for these operations. >hatever be the guidelines, the aim of it is to reduce the total amount of unsound credit as well as improve the overall performance of the banks.
:.2 &,- )O!/%I-S /)& 1::1
!ccording to the Bank $ompanies !ct /00/, the following rules must be followed by any commercial bank in our country<
Section
)ontents
775/85a8
!ny bank other than new or specialied bank will not declare dividend on its 5
share until the bank as written off its previous losses preliminary e"penses and other deferred revenue e"penses.
775785c8
Bank will declare dividend whatever be stated elsewhere if and only if bank will take proper steps for their bad and doubtful credit in accordance with the satisfaction of their auditors.
7H
)iscuss
on
some
limitations
and
restrictions on the distribution of loans and advances 70
>ithout prior approval of the Bangladesh Bank, commercial banks will not e"tend its credit policy any way.
2H
Bangladesh
Bank
can
disclose
collectively or in any other form the information about the overdue loans and advances which fall due to the BB that those information are re4uired to be disclosed only in public interests.
:.3 &,- I%&-R%/&IO%/# /))O(%&I%* S&/%'/R'S 7I/S8 C 3;
*n our country *nstitute of $hartered !ccountants of Bangladesh 5*$!B8 has so far adopted 7/ *!%s out of ;3 issued so far. The original *!% 23 was issued in &anuary /009. *!% 23 is a Cenerally !ccepted !ccounting %tandard intended for application in the financial statements of the bank and similar financial institutions. *t is a special purposeK disclosure based accounting standard catering to the need for proper presentation of disclosures in the financial statements of bank. *t enumerates the accounting principles and disclosure re4uirements of published financial statements of banking companies. *t thereby provides definitive guidance to corporate management with regard to the preparation and to independent auditors for audit of financial information of banks. 5"
Bangladesh Bank issued a circular entitled !mendment of First %cheduled Forms of the Bank $ompanies !ct /00/, 5B() $ircular @o. 32 dated /: !pril 73338. +nder this circular, newly amended forms have been made mandatory for all concerned banks and financial institutions since 23 March 7333 in Bangladesh. The new forms have been introduced with a view to ensuring the discipline in the banking sector, to minimie the unforeseeable risk, to provide true, relevant and reliable information to the depositors and shareholders and to meet the financial disclosures in compliance with the *nternational %tandards. owever, the financial institutions should be easy to understand, informative and transparent. The new forms will reflect all these aspects in reporting financial information. The features of the newly introduced formats of *!% 23 are as follows< a. To provide vertical form of financial statements. This form complies with the international accounting standards though the heads of accounts are same as those of the previous formsK b. To disclose the assets and liabilities according to their relative li4uidityK c. To bring more transparency in reporting financial position of banks and financial institutions, it is re4uired to disclose gross loans and advances and bills discounted and purchased after charging the necessary provisions thereon. The new format of balance sheet provides the relevant policies for this practiceK d. To disclose the re4uired provisions on securities investments under the new systemK e. To disclose the loan loss provisions on the profit and loss account separately and then show the earning per share 5E(%8 of the banksK f. To show the contingent and contra items 5i.e. off balance sheet items8 on separate statement and enclose with the balance sheetK g. To make comparison between the performance of two financial years, the immediate previous yearDs financial statements to be furnished along with the current yearDs financial statements in the annual reportK and h. To furnish one additional statements vi. cash flow statements as per international accounting standards.
:.4 *(I'-#I%-S +O##OA-' 0 /%/&/ /%= 59
&anata Bank usually prepares its financial statements as per *!% 23 and forms prescribed by the bank $ompanies !ct /00/ after 7333. Before 7333 they usually follow the old format for preparing statements. &B violates the regulations prescribed in Bank $ompanies !ct /00/. Cenerally public bankDs performance is worse than of private banks. (ublic banks specially, &anata Bank shows in its profit and loss account but it is found that if they make actual provisions on their unsound loan they will incur loss. &anata Bank is concerned about the unsound credit. They started to maintain credit risk management division for managing risk of default loan.
Chapter Ten CREDIT RATING OF JANATA BANK
1;.1 I%&RO'()&IO% 1;.2 )R-'I& R/&I%* 1;.3 +/)&ORS O+ )R-'I& R/&I%*
5:
1;.1 I%&RO'()&IO% Bangladesh Bank has made mandatory from &anuary 733H for all Banks to have
themselves credit rated by a credit rated agency vide B() $ircular no. 6 of &uly 7336 for all banks. The first rating by an e"ternal independent rating agency will have to be completed by &une 733H. !ccordingly &anata Bank has appointed $redit ating !gency of Bangladesh 5$!B8 to conduct $redit ating of the bank which will be completed invariably by 23th &une 733H. >ith this end and view a memorandum of understanding has been signed in between &anata Bank and $!B on /;th May 733H.
1;.2 )R-'I& R/&I%* $redit ating of Banks provides opinion on the types of risks associated with the
relative ability of a bank for timely servicing its debts and other obligations. The rating e"ercise is done through a 4uantitative cum 4ualitative approach following a structured methodology.
1;.3 +/)&ORS O+ )R-'I& R/&I%* The maor factors considered in rating analysis are as follows< /. Guantitative +actors
i.
$apital !de4uacy
ii.
!ssets uality
iii.
Funding ? Aeverage ;
iv.
Ai4uidity e4uirements
v.
Earning uality
vi.
Market %ensitivity
. Gualitative +actors
i.
=wnership
ii.
Management uality
iii.
isk Management
iv.
$ompliance with the %tatutory
v.
!ccounting uality
vi.
%ie ? Market (ressure
vii.
Covt. %upport etc.
Chapter Ten FINDINGINGS &ANALYSIS
1
+indings and analysis Every bank has its own credit procedure. Bank under study possesses a standard credit procedure. !s the obective of my study is to make a comment on the credit management of &anata Bank, * tried my best to collect data for the study and find out the reality. Based on the data generated during my study period * will sum up my findings here and * think this will help me to achieve my obectives.
/. *f we look at the historical background of &anata Bank, we see that, the obective of &B is to earn profit as well as to improve the economic welfare of the people as a whole. 7. &anata Bank has a significant role in long term proect financing in both agriculture and industrial sectors. !gain &B has a deep concern for rural farmers. 2. (rivate sector usually concentrates in the urban areas where as public sector i.e. &B spread their banking network all over the world. ;. >ith a view to implementing government policies, &B has been maintaining its position in e"tending credit to government bodies, sector corporations and private enterprises. 9. Though bank re4uires both 4uantitative and 4ualitative analysis but for big loans bank emphasies on the lending risk analysis 5A!8. But A! is not a perfect measure of credit analysis. Because businessmen in our society are
2
usually tempted to take resort of window- dressing that means accounts are so manipulated that the vital facts are concealed and facts presented are superficial. %o banks have to go through both 4uantitative and 4ualitative analysis. 6. !ccording to the standard and bankDs credit procedure, credit operation is started from the customer application to the branch for the loan. But in most cases, many customers go directly to the directors of the bank and directors send them to the branch offices with hisher reference. *n these cases, proper appraisal is not possible as directors the most powerful persons and bank management must give priority towards the decision of the directors. This phenomenon is very common in the bank which hampers the spontaneous procedure of credit appraisal.
H. Bangladesh Bank monitors all the policies of all the private and nationalied banks of the country. !ccording to the Bangladesh BankDs strategy, all banks must possess the standard policies which are designed by the central bank. &anata Bank also possesses a standard credit proposal form. *n that form all necessary information are re4uired to fill up. But in practice credit officers do not fill up the proposal form properly. Most of the cases, they use assumption rather than e"act figure. This practice might end up with bad or classified one. :. ! standard policy starts from the customerDs direct application for the loan in the branch office. But itDs a common phenomenon that most of the customers directly contact with ead office and ead office choose the branch offices to disburse the loan. *t hampers the normal procedure. Branches always stay under pressure when they get order for disbursement from ead office. >hen branches get order from the head office, then appraisal system loses its formal track. %o ead office should not send any order to the branch office without prior appraisal. 0. Every bank has its own budget and plan regarding loan portfolio. This loan portfolio must be diversified so that bank could diversify its risk. ! proper and preplanned portfolio can eliminate the risk of huge classified loan or bad loans as this aspect is very much sensitive toward many e"ternal and internal factors. The bank under study i.e. &anata Bank does not have any proper guide 3
line where to investK moreover they do not do any future plan to maintain a well structured portfolio to decrease the possibility of classified loan. This type of practice is working as an obstacle in smooth credit disbursement as well as in credit appraisal system. /3. Most of the loans that &B distributes are as cash credit hypothecation and &B emphasies less on demand loan. //. &B distribute loans without sufficient security in some cases. This is violation of the Bangladesh bank order. /7. *n many cases bank face this problem because bankDs credit officer fails to value collateral property. (roper valuation means collateral will e"actly cover the risk of bad loan. =fficials must do it with due care.
/2. The recovery performance of &B is not in a satisfactory level at all and the position of those in that respect deteriorated heavily during last two phases. The recovery performance in agriculture is worse than in other sectors. =n the other hand, as private sector banks distribute more loans on short term basis and relatively better than public sector. But if we compare it from the efficiency point, then it is clear that they are not still efficient in credit management as they are unable to recover half of their distributed loan in different sectors. /;. &B does not keep enough provisions against classified loans and advances. /9. (rivate sector banks are relatively efficient in processing and e"ecuting legal actions against defaulters for their nonpayment of loans and advances in due time that of public sector bank. /6. The credit management of &B are not fully conformity with the guidelines prescribed in the bank companies !ct /00/ and *nternational !ccounting %tanderd-235*!%-238
4
Chapter Eleven Conclu!on
"n#
$%co%n#"'!on
5
)onclusion and reco$$endation %o far * have discussed about the different aspects of credit management &anata Bank. For my report, * have selected &anata bank. &B plays an important role in the banking sector as well as in our economy. The success of a bank depends largely on the efficient credit management. ! successful credit management is not only need for a bankDs own performance but also it is needed for the smooth development of an economy. *n any strategy of economic development, therefore, it is essential to emphasie the evaluation of a sound and well integrated credit management system from the view point of both resource mobiliation and efficient allocation of funds. *n conclusion it can be suggested a number of recommendations in order to overcome the problems and how to remove the causes of problem in credit management.
%ince this an e"ploratory research, hence the recommendation given are not decisions rather they are only suggestions to improve the default rate.
/. $entral Bank should take proper actions for ensuring e4uivalent distribution of loans and advances.
7. Aending policies in our country should be geared to grow potentially rather than being determined by the pre-e"isting collateral. 2. $hanges in lending policies will not suffice the purposes unless it is followed by a change in the attitude and out look of both the borrowers and the bankers. ;. *mprovement of credit management depends on the development of relevant, ade4uate, proper and reliable data base at the public sector banks as well as private sector banks in Bangladesh. 9. For developing a reliable credit management system for the commercial banks specially &anata Bank, it should re4uire to introduce as improved information system within bank as well as among the borrowers. Because ultimately it is what a borrower does with money that should guide the credit plan, the borrowers also have to know e"actly where they are going, what their opportunities and how fast they can move. 6. The security must be valued properly by the independent valuers and constantly watched so that the value of mortgage property becomes sufficient to recover the default loan. H. (ublishing the names of defaulter as well as good and regular payers in various dailies and granting various sorts of facilities to good borrowers will create a moral persuasion on the borrowers. This may decrease the number of defaulters and the volume of large outstanding loan amounts as well. :. (ressure from outsider and influence e"torted by borrowers are also a great impediment in the smooth functioning of loan recovery process. The role of government in this case is the most important factor re4uired to solve these sorts of problem. 0. More and more competent personnel must be recruited to reduce the weakness of credit management. $ompetent e"ecutives will ensure the reduction of wrong appraisal and evaluation of proects. /3. (rompt legal actions be taken against willful loan defaulters //. The new entrepreneurs should be encouraged in disturbing loans and those who have the records of regular payment, should be given preference. /7. %teps should be taken so that guarantors cannot avoid their responsibility. /2. *t is observed that the defaulters generally get various sorts of e"emptions as declared by the government from time to time. Covernment must not show any kind of mercy to the defaulters in any way which may encourage the default culture. This type of action may discourse the borrowers to become willful defaulters. "
/;. The e"isting huge amount of classified loans demand for special and corrective attention for e"ample<
By obtaining suitable reduction on amount.
!dditional security.
More complete financial data concerning the obligorDs condition or
=ther such action as the specific circumstances may re4uire.
/9. The attempt to encourage banks to re4uire borrowers comply with banking laws and regulations and clear up industrial properties prior to granting a loan. /6. &B should follow some straight ward mechanical procedures in assessing the risk of a borrower. /H. The formulation of a sound credit policy in the possibility of default loans. /:. The formulation of a sound credit policy in the banking sector as a whole has to take into account all these factors and each bank has to attempt to work out for itself what it is capable of doing so as best as possible.
Bibliography /. !nnual eport of &anata Bank, 7333-7339
: Bangladesh Bank B$) ?B() circulars
7. $howdury, A.(K #! Te"tbook on BankerDs !dvances'K 7nd EditionK (aradise (rinterK 7337
2. Managing $ore isk in Banking< $redit isk Management, &anata Bank, ead =ffice, )haka.
9
;. Md. Maksudur ahman %arder ? (rashanto Uumer Baneree 5)ecember /0068K &ournal of Business %tudiesK #Break Even (oint< ! (roect !ppraisal Techni4ue used in Banking %ector.'
9. Md. Maksudur ahman %arker, #$redit Management of $ommercial Banks< ! $omparative study of (ublic and (rivate %ector Banks', The Bureau of Business esearch, +niversity of )haka, !ugust /006
6. ose, (eter. %K #commercial Bank Management'K Fourth EditionK *rwin-McCrawillK /000
H. Wikmund >illiam, C., #Business esearch Methods'K Hth EditionK Thomson %outh>esternK 7332
/-%'IH
&able ;1 Rate of Interest for 'ifferent Sectors as on ;1.1;.2;;
%l 3/
37
32
@ame !C= $E)*T
)etails !ll $rops, %ugarcane, %hrimp cultivation, $attle raising, poultry, Banana cultivation, (aan cultivation E4uipments for irrigation, !gro- e4uipment, %alt production ))al, %pices, =il seeds, Maie (=XETO Multi-purposes based $redit !AA*X*!T* %F)( =@ $redit for %elf employment $redit for Trained +nemployed Ooung $redit for Educated +nemployed Ooung %elf employment %cheme @C= Ainkage Charoa $redit 5!gri8 Charoa $redit 5@on !gri8 =ther (ersonal Micro $redit %(E$*!A*W $redit for %toring $rops E) $redit for Flower $ultivation ? Marketing $E)*T BC%)(
ate :.3L /3.3L 7.3L //.3L //.3L //.3L /3.3L /3.3L //.3L //.3L /3.3L //.3L /3.3L /3.3L /3.3L :
(=&E$T
3;
=TE (=&E$T%
39
+!A (=&E$T *@)+%T* !A $E)*T
36
3H
%ME (=&E$T
3:
$+E@T $!(*T!A A=!@
30
*M(=T $E)*T
Coat raising (roect $redit for (roduction of EB% $redit for Cenetically Modified $ow raising $redit for Fisheries $redit for handicaps )isables !T)( $onsumer $redit $yber $afN $redit %pecial $redit for &ob holders )octors Aoan >omen EntrepreneursD $redit %mall business development scheme ural transportation Aand Mortgage $redit )airy, (oultry, Fisheries 5above 2 crore taka8 Term Aoan for !gro based *ndustry E"port =riented Business $old storage for (otatoes =ther *ndustries Aeasing $ompanies *ndustries having $apital less than 2 crore =ther %ME loan Aoom industry !gro based *ndustry $old storage =ther $urrent $apital Aoan usking Aoan eadymade Carments, Froen foods, !gro products, Aeather made products
(acking $redit
=ther E"port $redit
/3
=TE
AT E"port oriented proectypothecation *ntermediate term $ash $redit (!) $ash F$ (!) 5+F8 (!) 5CMT8 payable within 2 months (!) 5CMT8 payable after 2 months =ther $ommercial $redit
/3.3L /3.3L /3.3L /3.3L /3.3L /3.3L /;.3L /7.3L /2.93L /2.3L /3.3L //.3L /3.3L /3.3L /7.9L //.3L //.3L //.3L /7.93L /7.93L /7.3L /7.3L /3.3L /7.3L /7.3L /2.9L /7.3L H.3LY /.3L service charge H.3LY /.3L service charge H.3LY /.3L service charge /;.3L /2.93L /7.93L /2.93L /;.3L /;.3L /;.3L /;.3L
";
$=ME$* !A A=!@ =TE%
)emand Aoan
/;.3L
Transportation Brick Field >ork =rder B!)$BT$ Aoan !gainst F) Aoan !gainst F) in =ther Banks Aoan !gainst @ational *nvestment Bond, *$B +nit, *nsurance policy, )ebenture Aoan !gainst >age honors Bond Food industry 5for food collection8 %ervice *ndustry Aoan !gainst )(% $ommercial ome loan in +rban areas esidential ome Aoan in +rban areas &ute Business $ommercial $redit for the proect supported by +%! )iagnostic Business Travel !gency ouse reconstruction Aoan Miscellaneous
/2.93L /;.3L /;.3L /2.93L /2.3L /;.3L /2.9L /2.3L /2.3L /2.3L /H.3L /9.3L /;.3L /2.3L /2.3L /9.3L /9.3L /;.3L /;.3L
&able ;2 econo$ic sector Dise distribution of loans and advances during 1::C 2;;5
-cono$ic
haseC1 1:::
2;;;
2;;1
2;;2
2;;3
2;;4
2;;5
&ute industries
H/:.97
H/0.;/
H;H.:H
HH:.7:
:H3.26
:2H./3
:99.03
&ute trade
72.60
/0./:
/6.23
/.27
/7.26
/7.93
//.93
Tannery
;/0.2:
930.32
;72.06
;;;.69
;20.63
26/.63
2H6.93
Te"tile
2;0.3/
26H.9/
2H7.H6
260.09
29/.66
263./3
;09.63
Transport
27.7H
70./H
23.7H
7;.9;
7;.3;
26.33
9.73
;H;.H7
7/7.0:
72/.3/
73:.9:
769.H3
00.:3
/39.73
Tea
/9.03
/;.33
/;.37
/2.00
/7./6
/7.73
/7.93
%ugar mills
::.;6
:3.3/
0H./H
00.93
//2.7;
/2:.73
//6.;3
ouse building
2H0.2;
;7:.:7
977.90
9:;.30
690.:7
H26.;3
:3/.;3
ural credit
996.7:
637.:/
66H.7:
HH:.93
69:./7
:2/.23
0/H.73
Bricks
.;9.37
;/.97
H0.6;
::.73
03.09
:9.03
:6.93
$old storage
9.32
:.;9
/3.2:
0.9;
/7.27
:.63
/9.H3
Food
H;.7:
:3.3H
/63./9
7/6.73
/7;.7:
//6.H3
/7;.H3
E"port credit
H9/.23
:96.2:
/3/6.93
/3/0.73
/773.H:
/709.33
//79.63
*mport credit
62;.H6
06;.0:
/7H2.36
//9;.0:
/93H.:9
/6/;.;3
7H23.93
*ndustrial credit
H:7.67
:0;.H7
/300.:7
//;6.29
/;32.H:
/2:/.03
/;2H.73
sectors
%teel ? engineering
1::
1::"
1::9
haseC2
"1
=thers
/003.;7
7766./9
7966.6/
2326.00
Total
H2;/.33
:309.70
0270.20
00H;.:H
72H0./H
7:93.03
/3/;6./
/3HH:.9
0
3
2770./3 /7;;6.H3
S-)&OR AIS- )R-'I& -H&-%&IO% O+ /%/&/ /%=
"2
"3
"4
