Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Term Paper
on
Loan Services of Commercial Banks of Bangladesh: A Case
Study on Three Selected Banks
Submitted To:
Mr. Fuad Hasan
Lecturer
Department of Marketing
University of Chittagong
Chittagong.
Submitted By:
Moslah Uddin Ahmed
BBA (Hons.) 4th Year
Exam. Roll: 2000/53
Class Roll: 4488
Session: 1999-2000
Department of Marketing
University of Chittagong
Chittagong.
Table of Contents:
Letter of Submission......................................................................................................
Preface...........................................................................................................................
Acknowledgment...........................................................................................................
Objective of Study ........................................................................................................
Scope and Methodology of the Study.
Rationale of the study.
Limitation of the Study..................................................................................................
Part # A Exploratory findings
On National Bank
(1) National Bank at a glace ..................................................................................
(2) Procedures of giving loan by NBL...................................................................
(3) Type of loan sanctioned by NBL......................................................................
(4) Amount of loan given to different sectors during last 5
years (1998-2004). .............................................................................................
(5) Procedures of loan recovery by NBL...............................................................
(6) Classification of loan according to status of Recover.......................................
(7) Conclusion.......................................................................................................
Page No.
5
6
7
8
9
10
11
12
12
15
16
18
19
21
22
22
23
24
25
26
27
28
30
On Pubali Bank
(1) Introduction......................................................................................................
(2) Condition & principles of landing considered for loan. ...................................
(3) Different types of loan & advances..................................................................
(4) Facility for the customer..................................................................................
(5) Investment of fund...........................................................................................
(6) Loan Recovery Producer..................................................................................
(7) Necessary documents.......................................................................................
(8) Problem in Loan recovery................................................................................
(9) Conclusion.......................................................................................................
31
32
36
40
43
44
45
46
53
Part # B
Comparative study
54
PREFACE
Practical knowledge is required to clear views on different issues for the
BBA students. Nevertheless, we have to confess that the raw Business
Tempo is much more complex than the theoretical knowledge. The business
world is going to be more critical in this new millennium and the practical
situations are changing day by day. In developed countries, the business
schools give more preference to practical knowledge than theoretical
knowledge. Keeping this view in mind, our curriculum includes Term
Paper in the 4th year BBA as a part of the final examination.
I am the student of BBA (Marketing), which is very professional subject of
todays business world. We know todays would business activities have to
operate under the tremendous pressure of Globalization. Globalization is
the term, which refers the whole as a village. Therefore, its all business
operations go over all countries of the world. In global perspective, loan
service is the most important matter for all types of bending service.
Financial transaction is the key things in banking service. Loan is one of the
most important sectors in this perspective.
The topic on which I have prepared my term paper is Loan Service of
Commercial Bank in Bangladesh: A Study in NBL, HSBC, and Pubali
Bank. I have tried my best to state all of my activities in this report and
hope this report will help to the readers; the student of business and it will
help to enrich the seminar library of the department.
Any kind of criticism and advice for further development of the report will
be accepted cordially as a sign of recognition to me.
ACKNOWLEDGEMENT
As a student of BBA program, preparing a term paper is a new experience
for me through whom I have tried to gain practical knowledge about loan
service and management system and its practices in Bangladesh. This report
would get birth if there is no inspiration and co-operation from my teacher
and my friends.
I am expressing my heartiest thanks to those persons whose bona fide cooperation and wise suggestion helped me to prepare my Term Paper Report.
I am deeply thankful to my reverend teacher Fuad Hasan, Lecturer,
Department of Marketing for his guidance and all advices that help me to
be more formed and perfect to make the Term Paper Report. In addition, I
pay my regards to all the respected teachers and members of the Marketing
Department.
I express my sincerest gratitude to Md. Kamrul Islam, Sales Officer of
HSBC, Agrabad, Chittagong and Md. Sahadath Hossain, Member of
National Bank and also Salma Sultana, Manager, Puabli Bank, Chittagong,
to prepare the Term Paper entitled on Loan service of Commercial Bank in
Bangladesh.
I express my appreciation for all the personnel of HSBC, National Bank and
Pubali Bank, Chittagong, who provided me necessary information and
helped me in every step.
Yours Sincerely
Moslah Uddin Ahmed
BBA (Hons.) 4th Year
Exam. Roll: 2000/53
Class Roll: 4488
Session: 1999-2000
Department of Marketing.
University of Chittagong
Chittagong.
(iv)
(v)
(vi)
To know about the loan system from the view point of HSBC,
National Bank and Pubali Bank.
(x)
(xi)
10
11
The manager of HSBC, National Bank and Publi Bank did not give
some of their secret information. For this reason, I could not
prepare my term paper meaningfully.
(iv)
12
PART # A
Exploratory Findings
ON NATIONAL BANK
INTRODUCTION
National bank is one of the renowned scheduled commercial bank of
Bangladesh. On March 23,1983 national bank limited (NBL) has started its
operation with an authorized capital of Tk. 1,00,000 million-after then it has
successfully continued its operation allover the country by its 76 branches.
During 2003 NBL earned an operative profit of taka 105 crores.
13
required, the use of the loan, the cost of the project for which loan is
required and for an industrial loan industry's annual report, balance sheet,
statement showing the recent condition of the firm must be included. With
application the security against the loan, the term or period for which loan is
required, the submission period are obviously included.
Appraisal of the Project by the Bank
Project appraisal is done by the bank by evaluating the loan application and
other statements attached with it. Each of the aspects related to project
appraisal are shown below
Technical feasibility: bank judge it by a detailed assessment of the
following factors,
Location of the project.
Technology used.
Plant & equipment.
Construction & installation.
Economic necessity: taking into account the following factors assesses this
aspect:
The response of the t about the project.
Will the project contribute to national economy?
Will the project increase the employment level?
14
15
Other Sources: Inspection of the bank, audit firm, market report, and
credit information bureau.
Consideration of the Bangladesh Bank
Bank sends all the state s to the Bangladesh bank for their consideration. The
department of credit information bureau of Bangladesh bank provides
informs anon of the borrower or company and on b of those consideration
loan is sanctioned by NBL.
TYPES OF LOAN SANCTIONED BY NBL
NBL has several loan programs or schemes for different groups of clients.
Among those following can be mentioned:
1. Working capital to trading houses
2. Import finance, export finance
3. Bank guarantee
4. Term loams for industrial unit
5. Working capital to industry
6. Micro finance
7. Procurement of consumer goods
8. Credit card
9. Contractors for construction work, e.g. building, roads, bridge etc.
10. Rural Credit in Brand area.
The loans NBL provides under those different programs are:
Loan (general)
Cash credit (hypothecation)
16
1998
3689.39
1999
4276.20
3965.84
4162.38
4311.45
4629.67
5193.52
5469.57
6094.51
4301.02
4290.49
4090.38
3703.78
3635.05
4171.17
3868.24
450.89
477.77
489.25
515.33
577.54
661.92
644.29
122.27
185.68
47.31
232.65
265.46
60.60
245.06
287.15
60.83
652.37
329.76
93.31
1112.90
275.05
93.71
1126.18
144.56
93.33
1870.65
313.36
98.46
506.11
713.52
723.33
1443.69
1059.17
863.84
981.61
680.21
969.37
574.34
461.88
282.24
273.78
245.05
2003
7538.76
2004
6392.86
17
1998
87.21
4048.15
1539.62
1999
103.24
4302.18
1816.17
2000
111.30
4306.91
1977.82
2001
63.26
4410.10
2737.58
2002
89.52
3403.14
3270.38
2003
111.90
4390.70
7169.13
2004
613.00
4735.11
8201.27
finance
Export
3940.53
4132.42
4917.31
4960.74
5848.76
6134.80
4969.77
finance
Others
Total
25000
20000
15000
amount of loan
10000
5000
0
Financial year
18
19
Unclassified loan
2.
Classified loan
20
1998
1999
2000
2001
2002
2003
2004
loan
Unclassified 10911.93
Classified
32.04%
(%)
1.sub
730.32
518.37
317.36
475.46
3938.68
16056.4
417.88
791.43
163.02
4863.92 4575.64 5269.43
18239.52 18553.66 20200.62
459.23
254.06
488.90
262.33
standar
d
2.doubtful
3.bad debts
Total
572.18
134.65
973.00
5362.15 5404.96 3865.06
21677.95 22257.15 22840.43
A comparative chart of total loan sanction & total loan recovered by NBL
during 1998-2002 is shown below:
25000
20000
15000
Total loan
Recovered loan
10000
5000
19
99
20
00
20
01
20
02
20
03
20
04
19
98
Financial year
CONCLUSION
21
22
23
the loan section of HSBC. HSBC has a loan section called "My loan".
Under 'My Loan' sector HSBC provide different loan the customer.
TERMS AND CONDITIONS CONSIDERED FOR LOAN
I)
ii)
Customers should be 25 years and the loan must end before their
age reaches 60 years or retirement date, whichever is earlier.
24
Car Loan: Car loan giving facility to the customer to buy car.
25
(C)
Home Loan: To buy or renovate a home. This loan is given after the
construction of home.
26
installments of up to 15 years.
CLASSIFICATION OF LOAN ACCORDING TO STATUS OF
RECOVERY
Classification of loan according to status of recovery.
Unclassified and classified loan
2001-2005 (In Tk.)
Class
of 2001
loan
Unclassified 24999
2002
2003
2004
2005
309993
379936
449927
5999056000.00
Classified
370000.00
.05%
7500.00
.05%
0000.00
.03%
0000.00
.02%
.02%
(%)
1.Sub
4,00,000.00
5,00,000.00
4,50,000.00
5,00,000.00
6,00,000.00
2,00,000.00
30,000.00
450,00,00,000
3,00,000.00
44,000.00
600,00,00,000.00
standard
2. Doubtful 2,00,000.00
1,00,000.00
1,50,000.00
3. Bad debts 30,000.00
25,000.00
40, 000.00
Total
250,00,00,000 310,00,00,000 380,00,00,000
27
28
HOME LOAN
Monthly installments in BDT @14.25% (annual reducing balance)
Loan amount
750,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
7,500,000
10,000,000
5 years
18315
24420
36630
48840
61050
73259
85469
97679
109889
122099
183148
244197
7 years
14687
19582
29373
39163
48954
58745
68535
78326
88117
97907
146861
195814
10 years
12100
16133
24199
32265
40331
48397
56464
64530
72596
80662
120993
161323
12 years
11164
14885
22327
29769
37211
44653
52095
59537
66979
74421
111632
148842
15 years
10304
13738
20607
27475
34344
41213
48081
54950
61819
68687
103031
137374
Loan Term
5 years
7 Years
10 Years
12 Years
15 years
Monthly Reducing
Total
At 14.00%
Payme
with
nt
HSBC
HSBC
(BDT)
(BDT)
93074
5584440
74961
6296724
62107
7452840
57486
8277984
53270
9588600
Annual Reducing
Total
At 14.25%
Payme
with
nt
others
Others
(BDT)
(BDT)
97679
5860740
78326
6579384
64530
7743600
59537
8573328
54940
9891000
Savings
with
HSBC
(BDT)
276300
282660
290760
295344
302400
29
CAR LOAN
Loan amount
100,000
300,000
500,000
700,000
1,000,000
1,500,000
3,000,000
5,000,000
8,000,000
12 Months
8979
26937
44894
62851
89788
134681
269362
448936
718297
24 Months
4802
14404
24007
3610
48013
72020
144039
240065
384104
36 Months
3418
10254
17089
23925
34178
51267
120533
170889
273422
48 Months
2733
8198
13664
19129
24327
40990
81980
136633
218612
60 Months
2327
6981
11635
16288
23269
34903
69805
116342
186147
30
CONCLUSION
HSBC in Bangladesh has the technology to put the customer in better
control of routine operation & has been successfully handling payment
requirements throughout the nations for its corporate clients.
A receivable management is crucial to use financial cycle. HSBC have
developed products for customers to efficiently manage customers
requirements & replace cost.
Thus, from these overall discussions we can say that, HSBC have a
well arrange loan management system is Bangladesh.
31
32
unsecured or long dated advances. It depends upon the nature of his funds
and practical experience, sound common sense and judgment about the
customer.
Liquidity:
The liquidity of an advance means its repayment on demand or on due date
or after a short notice. The loan must stand fair changes of repayment
according to the repayment schedule. It is utmost important that bank loans
must be repaid as they become due otherwise the liquidity position of the
bank is endangered.
33
Dispersal:
The advances should be broad-based as far as possible and must be in
keeping with the deposit structure. The advances must not be in one
particular direction or to one particular industry. There should be spread of
advances against different securities, industries as well as areas.
Diversification of advances will spread risk and will improve safety of the
outstanding advances.
Remuneration:
The variation in the rtes of interest charged depends on the following
considerations
The rate of interest on advances against first class securities is lower than in
the case of clean overdraft or on advances where the securities held are not
easily realizable or are of less stable character or of doubtful value.
Advances for fixed periods and for fixed amounts are generally on lower
rates than fluctuating overdrafts where the borrower is free to utilize the
limit according to his requirement; paying interest only on the amount
actually utilized. The banker on the other hand is under an obligation to keep
funds in readiness and hence for the lock up of funds he charges a higher
rate of interest.
The rate of interest charged on advances normally depends on the following
factors.
a. Interest payable to depositors
b. Depreciation to be provided on the fixed assets of the bank.
c. Staff salaries, provident and pension funds, and other overhead
expenses.
d. Provision to meet the possible bad debts.
34
35
36
ii)
iii)
iv)
v)
Bridge loan sanctioned, is utilized for the purpose, for which the
loan has been sanctioned, has to be ensured.
37
Secured Advances:
Secured Advance means a loan or advance made against the security of
assets, the market value of which is not at any time less then the amount of
such loan or advance. The security can be sold/enforced and adjusted against
the advance after giving proper notice or taking action through the court.
The following type of secured advances may be allowed against tangible
securities subject to margin restrictions:
(i)
Over drafts.
(ii)
Cash credits.
(iii)
Loans
(iv)
(v)
(vi)
Consumer Credits
(x)
(xi)
38
Overdrafts
In the case of advances sanctioned by way of overdrafts, the customer is
sanctioned a limit up to which he can overdraw his current account within a
stipulated period. In cases where the customer cannot offer any kind of
security except his personal security, the facility-is-termed as clean
overdraft. The overdraft may be created by the customer drawing a cheque
on his account. The customer is free to increase or decrease the overdraft
provided it remains within the sanctioned limit and within the agreed period.
The banker must bind the customer by obtaining a letter of continuity,
whereby the customer confirms that he would be liable on the final balance
of his account and that every debt and every credit will not be counted.
Cash credits
This type of facility is always either against pledge or hypothecation of
goods (cash credit) differs from an overdraft in matter of securities obtained
only but for all practical purposes, it has the same legal implication as an
overdraft. Overdraft accounts are maintained in current account ledgers
while a separate ledger or ledgers are maintained for Cash Credit Accounts.
The Cash Credit Accounts represent pledge or hypothecation of goods,
produce and merchandise.
Bills purchased and discounted
Bank purchase demand bill of exchange, which are accompanied by
Documents of Title to Goods such as Bills of Lading, Railway or Steamer
Receipts. While purchasing a cheque or a demand Bill of Exchange a banker
becomes a holder for value and is not entitled to the protection given to him
39
40
Loans
Banks grant loans for different period short, medium and long, and for
different purposes. Broadly, the loans granted by banks are classified as
under.
Fixed Loan
Under this type of loan, the advance is given for a fixed amount recoverable
in fixed monthly installments. This form of loan suits the borrowers need
accommodation against Fixed Deposits, Insurance Policies, Shares of Joint
Stock Companies and Govt. Securities etc. These securities are offered
against an overdraft, for day-to-day facility for business purposes, the
facility is availed by way of overdraft.
Short Term Loan
Short-term loans are granted to meet the working capital needs of the
borrowers. These loans are granted against the security of tangible assets
mainly the movable assets like goods and commodities, shares, debentures
etc. and backed by collateral securities. This loan may be allowed up to 12
months.
Medium and Long Term Loan
Generally bank advances are repayable on demand. But now-a-days banks
are to allow medium and long-term loans. These loans accounts are the fixed
assets of the borrower. These loans are meant for purchase of capital assets
for establishment of new units or for expansion or diversification of an
existing unit. Medium Term Loan may be allowed for more than 12 months
up to 60 months and long-term loan for more than 60 months.
41
Bridge Loan
Bridge loans are short-term loans, which are granted to industrial
undertaking to meet their urgent and essential needs during the period when
formalities for availing of the term loans sanctioned by financial institutions
are being fulfilled or necessary steps are being taken to raise funds from the
capital market. These loans are granted by banks or by financial institutions
and are automatically repaid out of amount of the term loan or the funds
raised in the capital market.
Micro-Credit:
This Short Term Micro Credit will not exceed Tk. 10,000.00 and is
repayable within 12 months. Such loan may be for non-agricultural credit,
swanirvor credit; weaving credit or banks self financed project loan and
whatsoever.
Packing Credits:
Packing credit facility is a pre-shipment advance granted to a customer to
produce or buy goods for export to a foreign country against a letter of
credit, a bankers letter of authority or a firm contract already in hand and
lodged with the banker. Such a credit facility is allowed usually by way of
cash credit to the extent of the contracted amount with or without any
security. The borrower submits the export bills to the banker in due course
and the banker adjusts the advance by negotiation of the documents. The
goods purchased or produced from time to time may be pledged or
hypothecated to the banker to cover the advance.
42
43
44
45
2001
2002
2003
2004
2005
variable
Advances
Deposits
A/D ratio
56.50
42.50
1.329
23
36.30
0.633
21.00
32.30
0.652
25.00
40.04
0.624
75.00
43.60
1.720
In the preceding schedule we observe that in 2001 and 2005 advance is more
than deposit. It may be seemed impossible. But it is reality. Because it can
collect other rural branches deposit through head office and grants as loan.
But total deposits of Pubali Bank are never less than advances.
46
47
48
Illiteracy of borrowers.
49
Undue
influence
by
borrowers-
Sometimes
local
Table:
Economic Sector wise Distribution of advances:
(Tk. In crore)
Sectors
Short Term
2001
2002
2003
2004
2005
15.35
5.10
4.21
6.55
63
.20
0.10
0.10
0.15
0.200
37.20
14.95
14
15
9.30
3. Lease financing
0.35
0.45
4. Consume credit
3.05
2.50
2.25
2.20
1.25
.70
56.50
0.35
23.00
0.44
21.00
0.75
25.00
0.80
75.00
1. House building
2. Other trading business
5. Others
Total
50
Note:
We observe that in 2001 maximum loan in given in other trading business
and then in other foreign business. Loan in other foreign business was
decreased in the next 3 years. But it was increased tremendously in 2005 and
it was 63 crore.
2001
3.52
45.22
2002
5.72
9.50
2003
3.12
14.85
2004
17.25
4.07
2005
65.32
3.10
(DFR)
Recovery
1.02
35.72
(3.35)
10.78
0.97
Overdue
44.97
891
14.05
3.11
1.98
Recovery as 9% of DFR
2.26%
376% (36.02%) 264.86% 31.29%
Overdue as a 100% DFR 99.45% 93.79% 94.61% 76.41% 63.87%
Outstanding balance
56.50
23.00
21.00
25.00
75.00
51
classification
Unclassified
overdue
overdue
overdue
overdue
overdue
Less than Less than Less than Less than Less than
(UC)
Substandard
(SS)
or
but
more or
less but
than
more or
less but
36 than
more or
less but
24 than
Doubtful
months
months
months
36 months 24 months 13
(DF)
or
but
more or
less but
than
months
less
12 than
more or
less but
more
6
months
months
9 months 3 months
months
less but
24 than
more months or or
48 than
more or
more
less
12 than
months
months
months
Bad loss (BL) More than 36 months 9 months 24 months 12 months
b)
Rate
48 months or more
of 1%
1%
or more
1%
or more
1%
or more
1%
provision
(Unclassified)
Substandard 20%
20%
20%
20%
20%
(SS)
Doubtful
50%
50%
50%
50%
50%
(DF)
Bad loss (BL) 100%
c) Period of Annual
100%
100%
100%
Half years Half years Quarterly
100%
Quarterly
classification. basis
basis
basis
basis
basis
52
Date
of
Inspection
2001
2002
2003
2004
2005
advances
56.50
23.00
21.00
25.00
75.00
(OA)
Total classified amount
Classified as a % of
45.22
80%
9.5
41.30%
14.85
70.71%
4.07
16.28
3.10
4.13%
(OA)
Recovery Target
Amount Recover
Recover as a % of
0.85
11.305
2.375
3.625 1.10175
1.03
35.72
(5.35)
70.78
0.79
120% 315.96% (25.26%) 297.37% 95.33%
Particular
Outstanding
Target
2001
44.65
34.80
2002
8.78
3.33
2003
13.78
3.95
2004
3.66
1.08
2005
3.60
1.14
The actual provisions of Agrabad corporate branch are not much lower than
its calculated provision according to the guidelines.
CONCLUSION:
Agrabad corporate branch is one of the most successful and branches of
Pubali Bank. It is plying an important role in our economy and it provides a
53
PART # B
COMPARATIVE ANALYSIS AND INTERPRETATION
The main objective of this study is to know the loan service, i.e. to identify
the problem and position of loan recovery of some commercial bank in
Bangladesh. There are some factors, which make the sanctioned loans as
classified. From the above analysis the following Findings were detected.
In case of National Bank:
The advance credit rations of the National Bank are not bad. It is not quite
satisfactory. Some reasons are given below:
(i)
54
1998,
1999,
2000,
2001,
2002,
2003,
2004
respectively.
(ii)
(ii)
55
(iii)
(iv)
The outstanding advances were Tk. 56.50 core and 75.00 croes in
2001 & 2005 respectively. The classified percentages were 80% &
4.13% respectively and the amount recovered from the outstanding
advances was Tk. 1.02 crores & Tk. 97 crores.
(v)
The provision of Pubali Bank should be Tk. 44.65 crore & Tk. 3.60
crore in the year 2001 & 2005 respectively but the
actual
provisions were only Tk. 34.80 crors & Tk. 1.14 crore respectively.
56
5. Pubali Bank should expand their capital to serve the loan receiver.
6. Pubali Bank should offer various types of loan facility.
APPENDIX
List of Table:
Page
1.
16
2.
17
3.
20
4.
5.
6.
:
:
:
26
27
28
7.
28
8.
9.
Car loan
:
Investment and liquidity position of Agrabad corporate branch(PB) :
29
45
47
57
11. Economic Performance of Pubali Bank
48
:
:
:
51
52
53
List of Chart:
1.
17
2.
20
ACRONYMS
NBL=National Bank Limited.
HSBC=Hong Kong Shanghai Banking Corporation.
SOD=Secured Over Draft
PAD= Payments Against Document
LC= Letter of Credit
LIM=Loan against Imported Merchandise
58