Portfolio Management of BASIC Bank Limited.

Chapter 1
Introduction

1.1 Background
This report is a pre-requisite for the MBA program from the Department of Finance, Jagannath
University. As part of the course completion process, assigned to the Bangladesh Small Industries &
commerce Bank Limited shortly called BASIC Bank Ltd. As it is one of the specialized banks in
our country, it mainly focuses on small and medium industries. The assignment is performed under
the faculty supervision of Assistant Professor, Md. Omar Faruque, Department of Finance. This
report has been prepared in the light of practical as well as theoretical knowledge.

1.2 Objectives
Banking, being the most sophisticated and organized business is an attractive sector for modernization.
Just like other sectors of the economy, our banking sector is also facing challenges and competitions.
Thats why there is a crying need for managers well equipped with banking knowledge. The following are
the main objectives of the report to gather information about the loan portfolio analysis.

1.3 Scope of the study

This report emphasizes the sequential activities involved in loan portfolio management of BASIC Bank
Ltd. The report also focuses on the loan monitoring techniques adopted by Bank both in pre-sanction and
post-sanction period of a loan. Finally it incorporates an evaluation of the different aspects of the lending
process in comparison to other competitor banks and recommends some measures to further strengthen its
loan portfolio management.

1.4 Limitation of the study

BASIC Bank Limited has become a large financial institution having 32 branches all over the country. So,
it was not possible to find out the true picture of the bank within a short period of time. Some of those are
mentioned below:

Information was not available for conducting full-fledged survey as most of the
information was sensitive regarding the bank.

Due to time constraint the report has been focusing on bankers view and perception. There
may be some deviation in their view compared to actual position of the bank.

Portfolio Management of BASIC Bank Limited.

Chapter 2
An Overview of BASIC
Bank Ltd.
Historical Background:
BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited) registered
under the Companies Act 1913 on the 2nd of August, 1988, started its operations from the 21st of
January, 1989. It is governed by the Banking Companies Act 1991. The Bank was established as the
policy makers of the country felt the urgency for a bank in the private sector for financing small scale
Industries (SSIs). At the outset, the Bank started as a joint venture enterprise of the BCC Foundation
with 70 percent shares and the Government of Bangladesh (GOB) with the remaining 30 percent
shares. The BCC Foundation being nonfunctional following the closure of the BCCI, the Government of
Bangladesh took over 100 percent ownership of the bank on 4th June 1992.

Activities of the Bank:

Industrial Credit
BASIC Bank's services are directed towards the entrepreneurs in the small industries sector.
BASIC Bank's services are specially directed towards promotion and development of small industries.
Its exposure to small and medium industries sector accounted for 56.52 percent of the total loans
and advances. During the year total of 87 projects were sanctioned for term loan. Out of which 26 were
new and the rest were under BMRE of the existing projects. As on 31 December 2012, 850 projects
were in the portfolio of the bank. The textile sector including garments being one of the major
contributors to national economy dominated the loan portfolio of the Bank.

Commercial Credit
The Bank also supports development of trade, business and other commercial activities in the country. It
covers the full range of services to the exporters and importers extending various facilities such as cash
credit, export cash credit, packing credit, short term loans, local and foreign bills purchase facilities.
Micro Credit
BASIC Bank launched a Micro Credit Scheme in 1994. Micro Credit Scheme provides for the poor for
generation of employment and income on a sustainable basis particularly in urban and suburban areas.
The Bank follows three systems of credit delivery.
These are 1. Lending to the NGOs who on-lend to their members. At present there are 15 such NGOs.
2. Lending direct to the targets groups or ultimate borrowers under the Bank's own management.

Portfolio Management of BASIC Bank Limited.

Foreign Trade
The bank achieved substantial growth in export in 2009 and the performance of the bank in import
business was also satisfactory. The Bank handled total export business of Taka 22,270.87 million and
import business of Taka 27,359.77 million in 2009. The export and import business grew by 32.60 percent
and 28.65 percent respectively. Major items of exports were garments, jute products, textile,
etc.

Items

of

import

leather

included mainly industrial raw materials, garments accessories, capital

machinery, food items and other essential commodities.

Other Activities
The Bank provides services for remittance, underwriting, guarantee, public offering of shares etc.
The bank also provides funds to investment and leasing companies. The Bank has recently created a
venture capital fund for equity support to innovative but risky projects.

Monetary & Financial Resources:

Mobilization of Fund:
Like any other financial intermediaries, BASIC Bank Limited is no exception in performing
its core functions viz. Mobilization of fund and utilizing such mobilized fund for profitable purposes.
The main sources of fund for the Bank are:
1. Deposit and 2. Borrowing

Deposit
Deposit is the mainstay of the Banks sources of funds. Following usual practices, it collects deposit
through:
A. Current Deposit
B. Savings Deposit
C. Term Deposit
Borrowing
Apart from deposit, BASIC Bank Limited received funds from:
A. Bangladesh Bank
B. Asian Development Bank (ADB)
C. Kfw (kreditanstalt fur Wieder-aufbau Credit Institution for Reconstruction), a

German

development bank. All of these funding sources are for relatively longer period. Receiving the credit lines
from ADB and KfW has been a recognizing of the Banks highly satisfactory performance.

Portfolio Management of BASIC Bank Limited.

Utilization of Fund:
BASIC Bank Limited utilizes its funds in accordance with its organizational goals and corporate
strategy. Main use is for lending to industrial and trade sectors. Maintenance of cash and statutory
liquidity reserve with the Bangladesh Bank covers 20 percent of demand and time liabilities.
Placement of funds in Nostro Accounts to handle foreign trade and investment in money market is also
done as usual.

Strategic Priorities
BASIC Bank has been strongly positioned in recent years to take up the opportunities of a growing and
transforming Bangladesh marketplace. Our strategy is to serve the full value chain of customers in our
operations, from the most basic to the most sophisticated of financial services needs, and to maintain high
standards of customer service and cost-effective delivery channels. High standards of customer service
must rank as the ultimate differentiator in the banking industry and we would apply ourselves, as we did
in previous years, with great commitment to this important task in 2010

Credit Ration of the Bank:

Credit Rating Information and Services Limited (CRISL) has upgraded its rating and assigned
(pronounced as double A) rating in the long term and ST-1 rating in the short term to the Bank for the
year 2009.

Year
2012
2013

Long Term
AA
AA-

Short Term
ST-1
ST-1

Banks rated AA in the long term are adjudged to be of high quality, offer higher safety and have high
credit quality. This level of rating indicates a corporate entity with a sound credit profile and without
significant problems. Risks are modest and may vary slightly from time to time because of economic
conditions.
Banks rated ST-1 in the short term are considered as the highest certainty of timely payment. Short term
liquidity including internal fund generation is very strong and access to alternative sources of funds is
outstanding. Safety is almost like risk free Government short-term obligations.

Portfolio Management of BASIC Bank Limited.

Chapter 3
Loan portfolio Management & Performance Activities
Portfolio Management of loan implies the deployment of loan able fund among alternative opportunities
through proper allocation. The objective of portfolio management of loan is the best and efficient
management of loan to ensure profitability with optimum risk. Designing the size and pattern of loan
portfolio with accuracy is a tough job.
The return on investment of a loan portfolio management system can be measured in production
efficiencies in the short run and profitability in the long run. Loan portfolio management executes
analyses at both the portfolio and individual customer from origination through servicing .
BASIC is facing increasing growth both in industrial and commercial loans. Industrial loan volume is
very high as the Bank is contributing towards project financing. Commercial loan volume growth is
steady. On the contrary, Micro credit is in static condition.
BASIC Bank services are specially directed towards promotion and development of small industries. The
textile sector including garments being one of the major contributors to national economy dominated the
loan portfolio of the Bank. Other sectors financed include engineering, food and allied industries,
chemicals, pharmaceuticals and allied industries, paper, board, printing and packaging, and other onmetallic goods, leather and jute products. Recovery rate of project loan was 92.00%.

3.1 Sector-Wise Distribution Of Loans And Advances: (Industrial term loan and working
capital)
Table-1
Industrial Sector
Food and allied industry
Textile
RMG
Accessories
Jute products and allied industry

2010(TK in
million)
2037.5
3989.0
1938.3
854.7

2011(TK in
million)
1734.5
2661.6
1343.4
833.0

2012(TK in
million)
1681.0
4432.4
1267.5
754.1

2013(TK in
million)
1371.0
3619.1
1136.7
715.6

1683.0

1629.3

1191.3

633.4

60.3

78.2

11.5

12.7

893.8

698.4

440.0

402.6

547.5
727.2

466.2
742.5

191.2
643

140.4
595.0

197.1

93.2

68.6

71.2

Forest products and allied industry

Paper, board, printing, publishing &
packaging
Tannery, Leather and rubber products
Chemical, pharma and allied
Glass, ceramic and other non metal
products

Portfolio Management of BASIC Bank Limited.

Engineering
Electrical and electronics
Service industries
Misc, industries
Industry not classified
Total
Source- ICD & CCD, April 2010

2002.1
52.30
1493.9
180.7
568.9
17226.3

1699.2
167.5
1454.2
48.1
251.2
13901.4

1664.9
122.1
824.3
338.2
326
13956.1

1143.1
124.9
627.1
453.7
236
11282.5

Figure-1
Sectoral distribution of Industrial Loan

Electrical and electronics

1%

Service industries
10%

Misc industries
2%

Engineering
12%

Food and allied Ind.

12%

Glass , ceramic & other non

metal products
1%
Chemical , pharma and allied
5%

Tannery . Leather and rubber

products
3%

Textile
20%

Paper , printing,& packaging

5%
Forest products and allied
1%

Accessories
6%

RMG
10%

Jute products and allied

12%

3.2 Commercial Credit

The Bank also supports development of trade, business and other commercial activities in the country. It
covers the full range of services to the exporters and importers extending various facilities such as cash
credit, export cash credit, packing credit, short term loans, local and foreign bills purchase facilities.
3.3 Micro Credit
BASIC Bank also provides micro credit to the poor for generation of employment and income on a
sustainable basis, particularly in urban and suburban areas.
3.4 Loan Portfolio
Table-2
Year

Industrial

Commercial

Micro Credit

(In Mn. Tk)

(In Mn. Tk)

(In Mn. Tk)

Portfolio Management of BASIC Bank Limited.

2006

11,282.5

5,013.55

338.30

2007

13,956.1

6,397.21

359.24

2012

13,901.40

7,681.74

680.13

2013

17,226.3

9,278.26

764.46

Source- ICD & CCD, April 2013

Loan Portfolio in Graph
Figure-2

Graph shows that the Loan Portfolio has shown a consistent growth over the years and the
proportion of lending in relative sectors (Industrial, Commercial & Microcredit) has been
consistent with lending in Industrial Sector has been the biggest in the loan portfolio. It reflects
the fact that BASIC Bank Limited is especially interested in project based industrial financing.
Figure-3
Sectorwis e Dis tribution of Loans

Micro Credit
Commercial

3%

34%
Indus trial
63%
Indus trial

Commercial

Micro Credit

Source- ICD & CCD, April 2010

Portfolio Management of BASIC Bank Limited.

Graph shows the sector wise distribution of Loans in the year 2009 for BASIC Bank Limited
where loan in industrial area comprises 63% of the total loan for that year and loans in
Commercial & Micro Credit sector are 34% & 3% respectively. Basic bank is a specialized Bank
as its maximum fund should invest in small industrial sector.
3.5 Income from loan portfolio
The Banks total income was Taka 5,162.30 million in 2009 compared to Taka 5,060.29million
in 2008. Interest income from loans and advances increased to Taka 3,877.17 million in2009
from Taka 3,829.43 million in 2008 .Average yield on lending was 11.72%
Table-3
Year

2006

2007

2008

2009

Income

2278.55

2866.57

3829.43

3877.17

(Tk. in million)

Figure-4
INCOME VS YEAR

AMOUNT(TK. IN
MILLION)

5000
4000
3000

Income

2000
1000
0
2006

2007

2008

2009

YEAR

Incomes from loans are increased from 2006 to 2008 and recovery steps are hardly apply in 2008
according to banks own and Bangladesh bank guidelines but in 2009 loans are disbursed with
mortgaged property in political consideration or non-assessment of client properly as a result
loans are classified consequently incomes increased at a lower rate.
3.6 Geographical location wise loans & advances:
Table-4
DIVISION
Dhaka Division
Chittagong Division
Khulna Division
Rajshahi Division
Sylhet Division

2010 (Taka in
million)
18969
4405
1536
1771
507

2011 (Taka in
million)
15425
3631
1064
1656
432

2012 (Taka in
million)
12817.2
3141.7
1061.4
1361.9
573.5

Portfolio Management of BASIC Bank Limited.

Barisal Division
80
Total loans & advances
27269
Source- ICD & CCD, April 2013

56
22264

44.2
19000

Most of the branches are in the Dhaka division and the industrial locations of our client are
nearest of the Dhaka city such tongi, Gazipur and Narayangonj also in Keranigonj as a result
huge amount of loans are distribute in Dhaka division. More over no valuable industrial areas in
sylhet, Barishal division for distribute of loan as per BASIC Bank loan policy.
3.7 Non-performing loan
Nonperforming loans are loans that have defaulted or are in danger of defaulting when payments
are no longer able to be made. Typically, loans that have not received payments for three months
are considered to be non performing loans, though specific contract terms may differ
occasionally.
Although making loans are still the most important function for commercial banks; with the
innovation of financial instruments and less activity restriction, banks are expanding their
business scope other than lending in order to obtain higher profitability and larger market power.
Especially when banks have less risk constraints, i.e., less non-performing loans, they have more
freedom to engage in various businesses.
It is argued that the non-performing loans are one of the major causes of the making loan
portfolio. each non-performing loan in the banking sector is viewed as an obverse mirror image
of an ailing unprofitable enterprise. From this point of view, the eradication of non-performing
loans is a necessary condition to improve the economic status. If the non-performing loans are
kept existing and continuously rolled over, the resources are locked up in unprofitable sectors;
thus, hindering the economic growth and impairing the economic efficiency.
Non-performing loans have been viewed to constitute one of the most important factors causing
reluctance for the banks to provide credit. In a high NPL condition, banks increasingly tend to
carry out internal consolidation to improve the asset quality rather than distributing credit. Also,
the high level of NPLs requires banks to raise provision for loan loss that decreases the banks
revenue and reduces the funds for new lending.

3.7.1 Non-performing loan in BASIC Bank Limited

In absolute term classified loans and advances stood at Taka 148.02 crore in 2009 from Taka
92.32 crore in 2008. Additional provision made in 2009 was Taka 28.32 crore against classified

Portfolio Management of BASIC Bank Limited.

and unclassified loans and advances. Total cumulative provision made for loans and advances
amounted to Taka 100.14 crore as on December 31, 2009. During the year 2009 loan amount of
Taka 30.33 crore was written off under the guidelines of Bangladesh Bank. Taka .139 crore was
recovered against written-off loans.
Table-5

06 Branches have classified loan above Tk.10 crore as on 31-12-2013

Branch Name

Classified loan
Amount (crore)

Bangshal

44.98

21.22

Dilkusha

30.61

11.01

Gulshan

14.97

6.16

Rajshahi

12.08

26.24

Khulna

11.65

13.24

Principal

10.77

3.35

Source : ICD & CCD, April 2010

Table-6
07 Branches have classified loan above 10 % of their loans and advances.
Branch Name

Classified loan
Amount (crore)

Rajshahi

12.08

26.24

Dilkusha

30.61

11.01

Bangshal

44.98

21.22

Uttara

9.54

13.84

Khulna

11.65

13.24

Zindabazar

9.04

18.45

Barishal

2.43

24.77

Source : ICD & CCD, April 2010

Table-7
08 Branches have classified loan less 10 crore as well as 10% of their loans and advances.( Amount Tk.)
Branch Name
Classified loan
Amount (crore)
%
Khatunganj
1.12
2.74

10

Portfolio Management of BASIC Bank Limited.

Agrabad
Moulvibazar

2.91
0.34

2.03
0.38

Bogra
Jessore

6.58
.38

6.06
.68

Narshindi
Dhanmondi
Karwanbazar

.12
1.06
1.74

.15
1.09
2.61

3.7.2 Some Causes of Non-performing loan in BASIC Bank Limited.

Non-performing loan reduces income from loan portfolio so at first management find out the reasons why
loan are going to be classified. BASIC Bank is a State Owned Scheduled Bank as a result reference of
government leader sometimes crate pressure to management for sanctioning loan & probability of such
loans will be classified very high. Some of the reasons are highlighted here:
Poor Corporate Governance
The general administration and the structure of most banks are definitely poor .Without

proper

documentation loans are disbursement/ approved by the bank authority under reference, some fake
document are also submitted by the borrower so consequently loans are classified.

Fund not properly used

Lending money to investors to buy shares from the banks which result in the rise in their stock prices and
also led to gross loan debts/defaulting,

Non standard outside circumstances

Effective by National policies , behavior of the local governments social credit environment,
Lacking operational management of borrower
Some enterprise lack accurate judgment for the trend of market and enlarge production without
consideration which led to imbalance in supply and demand , some projects go out of production during
construction These factors may create difficult to reclaim loans for banks and turn into non performing
loan

Lacking operational management of Banker

Operational mechanism, credit culture, management skill are not sufficient to analyze the loan proposal.
Timely monitoring and supervision system are not properly continue. Less effective measure to identify ,
quantify control the regional and industrial risk, from historical data. So mainly judgment are completed
on the basis of personal criteria

11

Portfolio Management of BASIC Bank Limited.

3.8 Deposit
Deposit constitutes the core of BASIC Banks fund mobilization. Total deposit of the Bank at the end of
2009 stood at Taka 38,368.23 million (82.22% of Total liabilities) compared to Taka 31,947.98 million

(82.40% of Total liabilities) in 2008. The growth of deposit was 20.09 percent. During 2009, the fixed
term deposit increased to Taka 34,539.71 million from Taka 27,903.72 million in 2008. Savings bank
deposit decreased to Taka 985.51 million in 2009 compared to Taka 886.30 million in 2008. Deposit in
current and other accounts including bills payable increased to Taka 2,873.01 million in 2009 from Taka
2,867.19 million in 2008. At the end of 2012 the deposit mix is showed in the following:

Figure-5

deposit mix at end of 2009

term deposit

savings deposit

7%

current deposit & others

bills payable

1%

2%

90%

Source : Annual report-2012.

Deposit mix has not a good combination because non interest base deposits and Savings deposits are very
poor. There are no attractive product and interest rate offered (as same as private banks are offered)by the
bank as a result banks deposits are based on the corporate deposits specially government institutions and
autonomies body consequently cost of deposit is high.

12

Portfolio Management of BASIC Bank Limited.

3.9 Borrowing
Borrowings were made from various sources for long term funding specially for financing developmentbanking activities. The Bank enjoys a credit line facility from KfW (Kreditanstalt fur WiedraufnbauCredit Institution for Reconstruction), a German development bank for financing micro-credit scheme and
small-scale industries. It has also utilized an ADB credit line for financing small industries. Another loan
of Tk 502.94 million was also received from ADB for financing Agro business development. Ministry of
Finance (GOB) and Bangladesh Bank are the other source of finance. Total outstanding borrowing
against utilization of funds from the above sources in 2009 is Taka 1,708.40 million against Taka 1385.81
million in 2008. An amount of Tk 750.00 million was allocated by the GOB and disbursed to BASIC
Bank to finance Agro-based industry. BASIC was included in this scheme for its outstanding
performance.

3.10 Breakup of Loan Portfolio in different sectors of a model branch

As per Bank loan executive committee or management, our Shantinagar branches invested the fund over
all sectors of the economy and make a good portfolio of loan. It is the model branch out of 32branches.
As a result management announces to other branches hardly follow up their policy, guidelines and
internal Activities.
The following are loan portfolio of the branch and its hold 14% of the total loan in 2009.
Table-8
SMI

Large Indus.

153.77

16.72

Commercial
53.24

Micro
9.73

Trade
119.65

Staff

Total

15.92

369.03
(Tk. In Cr.)

Break Up Of Advance Portfolio In Term Of Loan Types

ACCOUNTS HEADS
TOD(Temporary Overdraft)

BALANCE
0.44

SOD(Secured Overdraft)

23.13

CC(Cash Credit)

60.14

STAFF Loan Against Salary

0.07

STAFF House Building Loan

13.04

STAFF Loan Against P.F

2.19

STAFF Inv. Purpose Loan

0.11

13

Portfolio Management of BASIC Bank Limited.

STAFF consumer Loan

0.52

STL(Short term Loan)/ LADB(Loan Against Documentary Bill)

7.48

Loan General

43.19

T/L(Term Loan)

96.26

REF-HBL(Refinance-House Building Loan)

0.58

PC(Packaging Credit)

9.95

LTR(Loan Against Trust Receipt)

89.56

FBP(Foreign Bill Purchased)

2.35

LBP(Local Bill Purchased)

10.29

MC(Micro Credit)

9.73

Total

369.03

Source- ICD & CCD, April-2012.

3.11 A Comparative Analysis of Loan Portfolio

As BASIC bank is one of the specialized banks, it is mainly focused on small and medium scale
industries. The Memorandum and Articles of Association of the Bank stipulate that 50 percent of loanable
funds shall be invested in small and cottage industries sector. Now we will try to find out the actual
practices against the policy and their sector wise distribution of loan and the problems on disbursement of
loan. Approximately 88% of the loans and advances have been given to small and medium enterprises.
Table-9

Name of the Bank

Investment to small scale industries

AB Bank

4.74 %

Islami Bank

21.21 %

Sonali Bank

10.83 %

Rupali Bank

0.43 %

Agrani Bank

10.45 %

Dutch Bangla Bank

3.45 %

Bank Asia

0.74%

Source-Banks Website.

So we have seen that, comparatively that all other banks are investing less amount to small-scale
industries. By this they are maintaining steady short term profit but endangering long run profitability. By

14

Portfolio Management of BASIC Bank Limited.

examining the figures we have found that, for the month ended December 2009, BASIC employed
51.56% of its loanable funds to small-scale industries. In the credit policy it has been specified that,
approximately 50% of the loans and advances will be given to small-scale industries.

3.12 Analysis of Loans and advances from different years in BASIC Bank Ltd.
Maximum revenue of a Bank generated from loans & advances so it is needed to how much loans and
advances increases in a year compared with previous year. From the analysis Bank can decide in which
sector effort should be occurred for combination of a good portfolio.
Table-10
Year

2006

2007

2008

2009

Loans and

15339.35

19000.00

22263.35

27269.13

advances
Source- ICD & CCD, April-2010.

(TK. in million)
Figure-7

loans
loansand
andadvances
advances

Amount(Tk.in Million)

30000
25000
20000
15000
10000
5000
0
2006

2007

2008

2009

Year

From 2006 to 2009 the distribution of loans and advances are increasing in different sectors especially on
industry. There is different section in the industrial sector. Food and allied industry, Textile, RMG, Jute
products and chemical etc are included. From the analysis we found that the in the textile sector the
disbursement of loan is more than any other sector. Babubazar branch are sufficiently increased the loans
in paper and packaging sector. Khulna branch increased loans in the engineering sector. Dhanmondi
branch are disbursed loan in real estate sector.

15

Portfolio Management of BASIC Bank Limited.

Textile Sector
BASIC Bank Limited disbursed loan in the textiles sector. Textiles mills supply their product in the
garments for manufacturing items which are export to outside of the country. Presently it is the most
valuable sector for financing.
Textile Sector loans
Textile
Sector
5000
4000

A
3000
m
o 2000
u 1000

4432.
4

3619.
1

3989
2661.

0
2010

2011

2012

2013

Year

From 2006 to 2007the distribution is increasing but in 2008 due to global recession and unfavorable
economic condition it is downward. In 2009 it moves upward because in babubazar branch, sister concern
of Alif group started business of interloop socks & styles. Huge amount of exporting charge or
income from exchange gain credited to bank account. Joydevpurchowrasta , Tanbazar & Savar (EPZ)
Branch are increased the loans in 2009. One of the valued client of Tanbazar Branch is Shohagpur Textile
mills Ltd sister concern of Purbani Group received facilitites Tk. 25 crore but due to some reason in 2008
they go another bank for their business propose but they are not satisfied and return again in last

month of December 2008.

Food and Allied Industry
BASIC Bank also focuses on agricultural sector. As our country is an agricultural country in different
years BASIC Banks disbursement of loan are:
Table-12
Year
2010
Food and allied
1371.0
industry
Source-ICD, April 2013

2011
1681.0

2012
1734.5

2013
2037.5
(TK in million)

Figure-9

16

Portfolio Management of BASIC Bank Limited.

Food and allied industry Loan

Food and allied
industry
2500
2000

A
1500
m
o 1000

2037
1371

1734

1681

500

0
2010

2011

2012

2013

Year

In every year the disbursement of loan in this sector is increasing. From 2006 to 2007there is a growth of
22.61%. From 2007to 2008 the growth rate is 3.18%. And in 2008 to 2009, 17.47% increase in growth
rate. Dilkusha Branch provided the loan facilities to Atlas Food & Beverage Ltd of Tk.90 million and
Babubazar branch provided Tk. 30 million to IKSL & Multifold Food Ltd.
The above information shows that BASIC Bank Limited has diversified its loans to different category.
This diversification reduced risks of their overall loan portfolio and increased return.

3.13 Internal and external factor for management to assess of loan portfolio:
Managing the loan portfolio includes managing any concentrations of risk by segmenting the
portfolio into pools of loans with similar characteristics; management can evaluate in the light of
the banks portfolio objectives and risk tolerances and, when necessary, develop strategies for
reducing, diversifying or otherwise mitigating risks. In such assessment BASIC Bank Ltd.
consider some internal & external factors given following:

Internal factors

1. Review recent loan review and loan-related audit reports. If there are any adverse trends in
quantitative measures of risk or control weaknesses reported, comment on whether and how
much they may increase risk.
2. Analyze the level, composition, and trend of documentation exceptions and determine the
potential risk implications.
3. Evaluate the level of compliance with laws, rules, and regulations applicable to the lending
function.

17

Portfolio Management of BASIC Bank Limited.

External factors
1. Review the local, regional, and national economic trends and assess their impact on loan
portfolio risk levels.
2. Evaluate the results of any stress testing of the loan portfolio or portfolio segments. Include

review of testing for changes in interest rates, commodity prices, collateral valuations or product
pricing guidelines due to competition or statutory rate controls.
3. Assess the banks exposure to any pending legislative, regulatory, or accounting changes that

will materially affect the loan portfolio

LPM system that encompasses all the processes used by the board and management to
adequately plan, direct, control, monitor, and evaluate the institutions lending operations is an
essential component of a well-managed institution.

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Portfolio Management of BASIC Bank Limited.

Chapter 4
Findings & Recommendations
4.1 Findings
After analyzing the business performance from disbursed loan in the different sector, loan
classification or Non-performing loan, provision and practices on ground mention the following
findings:
It has been observed that some of the branches of BASIC Bank are being exposed to higher risk
due to highly concentrated loan distribution to some selective big parties. Risk of default can be
minimized by diversifying the customer base with small amount in the total portfolio
Total loan processing time can be reduced but policy guidelines by Bangladesh Bank require
involvement of different top layers of the Bank. Most of the cases, the delayed loan sanction is
due to non-cooperation by the borrower
Small scale industry in our country is not structured in any way. Most of the small scale
entrepreneurs dont have any financial statement of their business. It is difficult and time
consuming to assess the financial strength of the client in a robust manner
BASIC Bank is giving special priority on export oriented and import substitution products,
certain types of manufacturing/servicing industries (like essential consumer goods, goods based
on indigenous raw materials, products for linkage industries, export oriented industries, etc.)
The interest rate offered by BASIC is as follows:

Industrial Term loan

Interest rate is 13.00%

Industrial working capital loan :

Interest rate is 13.00%

Commercial loan

Interest rate is 13.00%

Besides any Adhoc or Excess over limit amount will be charged an additional rate of 1.50% above
the ruling rate mentioned above.
The drawback in the above stated interest rate is that every project has been considered as equally
risky or no risk premium is being added with the prime rate. Interest rate should be adjusted viewing
the risk exposure of the project
BASIC is facing increasing growth both in industrial and commercial loans. Industrial loan
volume is very high as the Bank is contributing towards project financing. Commercial loan
volume growth is steady. On the contrary, Micro credit is in static condition

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Portfolio Management of BASIC Bank Limited.

Project appraisal techniques are not practiced appropriately due to non availability of information
of the said project
Ninety (90%) percent of the total deposit collected from corporate members as term deposit with
high cost as a result income from loans are not more satisfactory.
The importance of Relationship Manager is realized by the Bank. It has been observed that some
loan becomes problematic due to supervision and monitoring deficiency at the Branch level

Loan products of BASIC Bank Ltd. are traditional & number of products are less than private
commercial banks. Loan offering criteria are not sufficiently matched with customer choice so
bank loose many customers under the reason.

4.2 Recommendations
Bank should establish a review process to examine the changing circumstances of borrowers to determine
the position of loans. Attention devoted to these loans is more likely to result in proper action to safeguard
the bank position & to assist the borrower to take appropriate steps in the business to bring back loan
performing.
From personal observation in Branch level banking, loans are deteriorating due to lack of
monitoring and supervision activities. There should be a separate unit in Loans and advances
section named as Monitoring and Supervision Unit. Exclusive job responsibilities should be
delegated to RM (Relationship Manager) and feedback from his activities should be
communicated on daily basis to the Branch in-charge. As a matter of fact, he/she is the
Relationship Manager who oversees disbursement of credit to Monitoring and Follow up.
Technical team is essential in assessing Engineering aspects of a Project. Most of the projects are
typically capital intensive and engineering supervision prior to approval of credit is a prerequisite.
Head Office should have a technical team under Industrial Credit Division whose exclusive job
would be to assess the technical matters such as specification of Machinery, knowledge of
vendors of industrial machinery, installation of machinery, factory layout, and environmental
impact assessment etc. The project proposal submitted by the borrowers can be judged from
technical point of view effectively if a technical team exists in Head Office
Bank has not yet started Retail Banking Division as it is the prospects of widely distributed of
loan products.
Seasonal line of credit program may be offered for short term capital to growing companies
needing to finance seasonal buildups of inventory or accounts receivable. The maturity period

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Portfolio Management of BASIC Bank Limited.

should not exceed 12 months and the company must repay it form cash flow. Accounts
receivables and inventory can be collateral for the loan.
Only policy prescriptions not the end, if it is not implemented through different measures timely
and properly. How far policy measures are implemented, along with, what effect - desired or not such policy measures has had on the development of loan areas/fields should also be monitored
from time to time. This monitoring will provide feedback for taking corrective actions, if
necessary, to ensure desired effect of the policy adopted
BASIC Bank should give more emphasize on their marketing effort and try to increase their sales
force.
BASIC should encourage young entrepreneurs with new business ideas in order to develop the
small industries sector of Bangladesh.
Changes in industry trends may directly affect business so that it can no longer completely
profitable. Therefore, the Bank should keep information about the environment of each industry
in which its customers operate.

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Portfolio Management of BASIC Bank Limited.

Chapter 5
Conclusion & References

BASIC Bank considers not only the risk posed by each loan but also how the risks of individual
loans and portfolios are interrelated in case of measuring portfolio. These practices provided
management with a more complete picture of the banks risk profile and with more tools to
analyze and control the risk.
BASIC Bank is redefining the traditional banking concepts and transforming it into relationship
banking. BASIC considers the Borrower as clients. The mutual relationship is the essence of
long term success in the banking industry. The ever increasing competitive nature of banking
business determines the direction of the bank. Sustainability in better performance is the prime
focus in BASIC Bank.

Reference:
Kothari, C.R. (2005), Research Methodology Methods & Techniques, 2nd Edition, New Age
International (P) Ltd., 4835/24, Ansari Road, Daryaganj, New Delhi 110002.
BASIC Bank Limited, BASIC Bank Annual Report 2009, 17 June 2010
Berger, Allen N. & Robert De Young,(1997) Problem Loans and Cost of efficiency in
Commercial Banks, Journal of Banking and Finance, Vol. 21,
Ernst & Young, Global Nonperforming Loan Report 2004
Barth, James R., Gerard Caprio Jr., & Ross Levine, (2001) Banking Systems Around the Globe:
Do

Regulation

and

Ownership

Affect

Performance

and

Stability?,

http://econ.worldbank.org/docs/1079.pdf
Functions of Bank and Other financial institution, 2013, Central Bank of Bangladesh.
BASIC Bank Ltd. (2012), viewed 14th October 2010, <http://www.basicbanklimited.com>
Credit Department, BASIC Bank Ltd, Dhaka, Paper & Documentation of M/S. XY enterprise &
AB Garments (Pvt.) Ltd (2013).
Malhotra, NK (2008), Research Design, Marketing Research An Applied Orientation, 5th
Edition, Prentice-Hall of India Private Limited, M-97, Connaught Circus, New Delhi 110001.

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