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Loan Performance Analysis of

Bangladesh Shilpa Bank


University Of Dhaka
(Department of Accounting & Information Systems)

Internship Report On
Loan Performance Analysis of
Bangladesh Shilpa Bank

Presented To:
Taslima Nasreen
Assistant Professor and internship supervisor
Department Of Accounting and Information Systems

Prepared By:

Ahmed Nayeem Javed


Roll-9031
Sec A. 9th Batch
Department of Accounting and Information Systems

Presented On:
June 10, 2008
Date: June 10, 2008

Taslima Nasreen
Assistant Professor and Concerned Supervisor
Department of Accounting & Information Systems
University of Dhaka

Dear Madam:

It’s a matter of great pleasure for me to have the opportunity to submit a


term paper titled Loan Performance Analysis of Bangladesh Shilpa
Bank as a part of my internship. After the successful completion of my
BBA program, I was required to complete a three month-long internship
program. As scheduled by the department, I came to your supervision and
joined Bangladesh Shilpa Bank to study the loan performance of this
specialized commercial bank.

During the period of preparation of this paper, I have tried to put my best
efforts to make this paper a comprehensive one. I came to know many
things related to the loan monitoring, loan administration, loan
performance and loan sanction and disbursement system which were a
vital part of our main stream of study. Already I have enjoyed my
internship period very much.

In spite of my best efforts, several limitations caused our report to possess


some shortcomings.

I, therefore, would like to place this report to your judgment and


suggestion.

Sincerely yours,

Ahmed Nayeem Javed


Sec-A, 9th Batch
Dept. of A.I.S
University of Dhaka
ACKNOWLEDGEMENT

I would like to acknowledge sincerely the Assistant Professor Taslima Nasreen, Department
of Accounting & Information Systems, University of Dhaka, for providing me all guidance
and support that I needed. Her sincere guidance, untiring cooperation and valuable
suggestions and inspirations of creating unique report make me able to overcome all the
problems during my study and reach the successful completion of the internship program at
Bangladesh Shilpa Bank (BSB).

At the very beginning I would like to express my deepest gratitude to Almighty Allah for
giving me the strength and composure to finish the task within scheduled time. In writing this
report I have drawn materials from a variety of sources, which have a bearing on different
facts of loan operation and performance.

In preparing the report, I received active-co-operations from the GM, AGM, DGM and senior
manager of BSB. I sincerely express my heart-felt gratitude from their co-operation, which
help me to conduct and complete this report. I thank to MD. Mustafa Kamal, Senior Manager,
Central Recovery Department, Mr.Golam Abbas , Senior Manager , MIS Department,
Shahida Alam , Manager , MIS Department ,Taifur Alam , Manager , Manager , MIS
Department ,Tanvir Ahmed, Senior officer , MIS Department .

I also like to thank the entire departmental heads and staffs who helped me in various ways.
The members of the management of BSB were very co-operative and helpful to me from top
to bottom level. They helped me by supplying various data, guidelines and direction.

At last I am also grateful to my department for giving me the opportunity to work outside for
attaining practical knowledge.

Thanks for all from core of my heart.


EXECUTIVE SUMMARY

Bangladesh Shilpa Bank (BSB) is the prime concern of Development Financing Institution
(DFI) of country that extends financial assistance both in local and foreign currencies for
setting up new industries to boost up the industrial development of the country in conformity
with industrial policy and financial reforms program of government towards market economy.

Bangladesh Shilpa Bank commences its operation form Loan operation department where
they scrutinize the loan proposal and appraise the proposed investment sector form various
aspects, viz. organization and management, technological, marketing, economic and
profitability. The bank has kept on sanctioning term loans during FY 2006-07 also.
This is long term local currency loan of taka 1006 million has been sanctioned to 39
projects and short term loan of taka 105 million to 15 projects. Of the total sanctioned
long term loan, taka 928 is for 37 new projects and an additional loan of taka 78 for 2
existing projects. In the financial year 2006-07, food and allied sector got 4%
concentration of its total loan outstanding amounting to a total of tk224 million.
Analysis of this shows, loans of this sector are performing better year to year and
demands constant concentration. Already bank has stopped sanctioning and disbursing
loan to jute and allied fiber sector, now only job of the bank is to recover the amount
of loan money which was given before. Cotton and woolen fiber is the prime sector
among the sectors with those BSB deals. This sector is getting more concentration
year to year 69% of outstanding in this sector. In the year 2006-07 the percentage of
classified loan is tk818 million which is 19% of total outstanding and 81% of total
outstanding is unclassified which sounds good is of TK 3504 million. In the
consecutive years there is no significant change among the amount of unclassified
loan, which really proves better performance of this sector better planning, monitoring
and controlling of the bank in this specific sector.
Tannery and its products have an outstanding 2% loan of the total. Analysis portrays
that this sector has the percentage of bad loan of 10% which is relatively low
comparing with other sectors and with total outstanding. The bank has stopped
sanctioning any loan to the forest and wood sector. The last disbursement was in
2004-05. In 2006-07 the total outstanding loan amount in basic metal products is TK
10 million and the total amount is classified loan and has gone under the title “bad
loan”. Performance of machinery and parts is relatively satisfactory as 93% of the
total outstanding is classified in this sector and it is near about 47 million in the year
of 2006-07, where the unclassified section is only 7%. Performance of services sector
is also performing well. This sector has got 4% concentration of total outstanding. In
this sector unclassified loan is relatively high, which is 85% of the total outstanding is
of 190 million and classified section is 32.6 million. In essence, BSB deals with 18
sectors, 1 or 2 sectors is going to be closed by the bank because of loan default,
government policy, donor pressure etc, but the remaining sectors will run. So if we
look at the chart, wee see 22% of outstanding amount is bad loan or we can say the
portion under classified section and the rest amount is unclassified.

After the proper assessment, BSB provide loan to invest the proposed sector. Bangladesh
Shilpa Bank also monitors and gives suggestion form site selection to final submission of
report. With a great ambition, BSB was started its operation, but unfortunately it is now a
loosing concern. Now a day, BSB tries to minimize their range of loan operation due to
unethical practice of entrepreneur of misuse fund and money transfer to the other project.
BSB also tries to find out thrust sector and actual entrepreneur those who have interested to
established profitable industry.
Table of Contents

Particulars Page No.


Introduction
Background of the study 01
Rationale of the study 01
Objectives to the Study 01
Chapter One
Methodology of the Study 02
Limitations of the Report 03

Overview of BSB
Historical Background 05
Institutional overview of BSB 05
Capital Structure 06
Ownership and Sources of Fund of BSB 06
Mission of BSB 06
Chapter Two Management 07
Function of BSB 07
Management Apparatus 08
Activities Of BSB 09
SWOT Analysis of BSB 10
Business Programmes 13
Location: Zonal & Branch Offices of BSB 15

Loan Operation Department & Project


Appraisal Activities
Introduction 17
Structure of Loan Operation Department 17
Chapter Three
Functions 18
Loan Sanction Procedure 18
Processing of Loan Proposal 22
Appraisal phase 23

23
Project Appraisal Committee
Different Aspects of Project Appraisal 23
• Management and Organization Aspect 24

• Technical Aspect 28

• Market Aspect 30
31
• Financial Aspect
33
• Socio Economic Aspect
37
Loan sanctions authority
Various functional Departments
Introduction 39
Different Functional department of Bangladesh Shilpa
Bank (BSB)
• Loan Operation Department 40

• Project Implementation Department 40


Chapter Four
• Documentation and Machinery Procurement
41
Department
42
• Central Recovery Department
44
• Project Rehabilitation Department (PRD)
44
• Loan Accounting Department
45
• Law Department
46
• Human Resource Management Department
Findings, Recommendations and Conclusion
Findings 49
Chapter Five Recommendations 51
Conclusion 53
Chapter – 1
Introduction

1.1 Rationale of the study:

When an academic course has practical application in real life then it


creates great value. Only a lot of theoretical knowledge will be little
important unless it is applicable in the practical life. So we need proper
application of our knowledge to get some benefit from our theoretical
knowledge to make it more effective. We engage ourselves in such field
to make proper use of our knowledge in our practical life. Only when we
come to know about the benefit of the theoretical knowledge, such an
application is made possible through internship. My internship is on
“Loan Performance Analysis of Bangladesh Shilpa Bank”. That is to
know about the loan performance of BSB.

As the level of industrial development increases in Bangladesh’s gives loan towards


the advancement of various sectors for industrialization. It helps to manage all types
of efforts from establishment to implement of its operation. There some accumulation
of human capital and technological innovations will also facilitate the project
implementation.

When theoretical knowledge is obtained from a course study it is only the halfway of
the subject matter and procedure through which acquired knowledge of subject
matter, which can be fruitfully applied in our daily life. Various case studies about
various default project has given more realistic idea about the loan default that
hamper the specific project and also the potential benefit driven from the project.
1.2 Objective of the study:

The objective of the study is to find out the Loan Performance of BSB.
The following are the objectives of the study:
o To gather practical knowledge about the loan performance of a financial
institution.
o To highlight the credit and recovery procedures and evaluate performance.
o To develop knowledge about the reasons of making loan default by the
sponsors.
o To get an idea about the condition loan default mechanism of BSB.
o To know the contribution of BSB in the different sectors of the economy.
o To suggest necessary steps for overcoming such problems of BSB.

1.3 Methodology of the study:

To prepare the report, data has been collected from the primary and secondary
sources. Data have been collected by oral interviewing the responsible officers. They
also gave me annual report, annual budget granted through government of BSB and
other documents. Different form of statistical configurations and rations has been used
to make the study meaningful and realistic.
After collecting data from the interview and material, the data was first carefully
scrutinized. Then the data was organized as required. In order to make the study
effective and efficient, following two sources of data and information have been used
widely.

Sources of Data

Primary Sources Secondary sources

Face to face conversation with the


Annual report of the BSB
head of the departments,
. Annual Budget of the BSB.
respective officers and Staff of
Various document of the BSB.
BSB.
Extensive literature search on the basis
Relevant document’s studies as
of these documents of publication.
provided by the officers
Web site of BSB.
concerned.
Newspaper, journal, articles etc.
Observation of department of BSB.
MIS department.
Discussion with my supervising
teacher.
I have analyzed these reports and document in the light of analytical review. I have
used some statistical tools, graphical presentation, and table to find out the different
types of analytical result. Those are given the overall picture of the BSB.

1.4 Limitations of the study:

After completing the institutional experience, practical performances in the formal


stage become difficult. So in performing this report my lack of proper knowledge
greatly influenced in this performance. Besides above, every study has some
limitations. When I conduct my study I also had some problems. Those are as follows:

 Lack of sufficient knowledge.


 Lack of available information and documents to support our study.
 Up-to-date information was not available.
 Improper combination among various departments.
 Confidentiality of the bureaucrats.
 Being busy, also another reason of not giving more information.
 Unwillingness to give information
 And two months time is not enough for a comprehensive study.
Chapter – 2
An Overview of Loan

2.1 Sanction of term Loan:


The bank has kept on sanctioning term loans during FY 2006-07 also.
This is long term local currency loan of taka 1006 million has been
sanctioned to 39 projects and short term loan of taka 105 million to 15
projects. Of the total sanctioned long term loan, taka 928 is for 37 new
projects and an additional loan of taka 78 for 2 existing projects.

Table-1
Sanction of term loans
(million TK)
2005-2006 2006-2007
Nature Number Local Foreign Total Number Local Foreign Total
of the of Currenc currency of the Currenc currenc
project projects y project y y
New 45 1183 - 1183 37 928 - 928
projects
Existing 2 6 - 6 -
project
(BMRE)
Additio 5 122 - 122 2 78 - 78
nal
Loans
Rehabili - - - - - - - -
tation
Total 52 1311 - 1311 39 1006 - 1006
Source: Annual report 2006-07

2.2 Loan Application Received: In FY 2006-07, the bank has received


51 new proposals with loan amount of taka 1699 million after proper
scrutinies. The bank received 96 loan proposals with loan amount of taka
5272 million in FY 2005-06.

2.3 Commitment of Term Loan: During FY 2006-07, the bank has made
a loan agreement of taka 714 million in local currency with the
entrepreneurs of 14 projects and committed loan in this regard were 36
and taka 765 million respectively in FY 2005-06.
2.4 Disbursement of Term loans: In FY 2006-07, the Bank has
disbursed term loans of taka 534 million in local currencies to 53 projects
registering an increase in terms of number of projects and amount of loan
disbursement 23 and 10 per cent respectively over the previous financial
year.

Table-2

Commitment and disbursement of term loans


(Mil
lion TK)

Commitmen 2005-2006 2006-2007


Number of Local Foreign
t/
Number of Local Foreign Total projects Currency currency Total
Disburseme Currency currency
projects
nt

Commitment 36 765 - 765 14 714 - 714

Disbursement 43 485 - 485 53 534 - 534


Source: Annual report 2006-07
2.5 Sanctions and Disbursement of Working Capital / Commercial Loan
During FY 2006-07, the bank sanctioned Working Capital loans of taka 105 million to
15 projects and disbursed TK.196million to 13 projects. The bank sanctioned TK.232
million to 9 projects and disbursed TK.32 million to 7 projects in 2005-06.The
financial year under review has witnessed a fall in sanction but a rise in the
disbursement of working capital.

2.5 Others investments:


During FY 2006-07, the bank has invested TK. 50.36 million to purchase shares from
the primary and secondary market which is higher by TK 15.55 million than those of
the previous financial year. During the same financial year, the Bank has earned an
amount of TK 27.16 million as capital gain, dividend and commission from share
trading. In FY 2005-06, it was TK 10.53 million, showing a rise of 158 per cent 2006-
07.

2.6 Projects implementation:


The bank intensively monitors and supervises implementation of its financed projects.
During FY 2006-07, 8 projects commenced trial run and commercial production and
30 projects are under different stages of implementation .Of these, 14 projects are
under construction, 4 have completed loan agreement and 12 projects are awaiting
documentation.
Table-3
Stages of implementation of projects
Different stages of project 2005-2006 2006-2007
implementation
Start of commercial 12 08
operation
Position of projects under
implementation:
Under construction 25 14
Documentation completed 24 04
Awaiting documentation 11 12
Total: 60 30
Source: Annual report 2006-07

2.7 Loan portfolio:

In FY 2006-07, the total number of projects in the loan portfolio stands at 179 with
total loan liabilities of TK 6229.60 million for keeping the written-off projects
separate as per the guidelines of Bangladesh Bank. Among these existing projects, 59
are export-oriented, 79 import substitute and 41 are service industries. In FY 2006-07,
loan liabilities of 20 projects are liquidated and 31 new projects have entered into the
loan portfolio. In the same date of previous financial year, there were 164 projects
with total loan liabilities of TK. 6260.18 million. Of these 164 projects, 58 were
export-oriented, 71 import substitute and 35 were other industries. In comparison to
the previous financial year, the number of projects has increased @ 9 per cent in the
loan portfolio during the financial year under review. As on June, 2007 the total
written-off projects and amount of loan kept in separate loan ledger by the Bank are
278 and TK 12223.16 million respectively. On the other hand as on June , 2006 the
total written-off projects and amount of loan kept in separate loan ledger by bank
were 283 and TK 12359.55 million respectively.

Table-4

Sector- wise position of

Bank’s Loan Portfolio

As on 30-06-2007

Sectors No of Amount of

Projects Total Loan

(Million TK)

Food and Allied Products 43 224.02

Jute and Allied Products 3 535.75

Cotton, Woolen and synthetic textiles53 4322.43

Paper, paper products and printing 7 104.02

Tannery and leather products 4 106.06

Non-Metallic mineral Products 2 71.36

Forest Wooden Products - -

Rubber and rubber products - -

Basic metal Products 1 10.83


Metal Products 3 14.64

Electrical Machinery and Goods 1 15.81

Machinery and Spare parts 7 47.65

Transport Equipment 7 69.16

Chemical and Pharmaceuticals 14 230.22

Petra - Chemical products 5 120.84

Service industries 25 224.50

Miscellaneous 4 96.31

Grand Total 179 6229.60

Source: annual report 2006-07

2.8 Loan Recovered:

Recovery of loan is a crucial index to measure the success of a lending organization.


Like previous years, this year too, the Bank has strengthened its recovery drive
realizing loans and dues from its borrowers and notable success has achieved. Total
recovery target of loans during the FY 2006-07 is TK. 1000 million, against which
actual cash recovery is TK. 1065.71 million, showing about 106.54 per cent up to the
target. During the reporting year, outstanding loan of TK. 280.20 million is
regularized rescheduling and replacement of bad and doubtful loan accounts. The
amount regularized through cash recovery and rescheduling was TK. 1158.85 million
and TK. 790.10 million respectively in FY 2005-06. In FY 2006-07, the amount of
classified loan decreased by TK. 356.00 million from TK. 2604.30 million of the
previous financial year 2005-06 and has reached to TK 2248.30 million. As a result,
the percentage of classified loan declines by 6 per cent from 38 per cent of the
preceding year and has stood at 32 per cent in FY 2006-07.

Table-5

Recovery of loans

Category of Loans: Amount Recovered (million TK)


2005-2006 2006-2007
(A) Long Term Loans:

Long Term projects Loans 934.27 774.00

Bridge Loan .82 .50

Staff Loan 41.62 52.40

Administered loan 118.10 35.10

Subtotal 1094.81 862.00


(B) Short Term Loans:

Working capital loans 30.47 44.80

Others (Debentures/shares/loans 33.57 9.90


against FDR) - 149.01
Written-off loans
Sub-total: 64.03 203.71

Grand Total (A+B): 1158.85 1065.71


Source: Annual report 2006-07
Chapter – 3

Administration of Loan

3.1 Process of Loan Appraisal

1) Issue of Loan Application form.


2) Instruction &co-ordination to fill the form.
3) Receive form (BSQF) along with 1/8th of 1% project estimated cost & other
necessary documents.
4) Scrutiny of loan application and other papers for evaluation of loan proposal.
5) Preparation of Appraisal Report.
6) Granting /Rejecting loan application.
7) Put-up loan appraisal is granted.
8) Loan sanctioned with memorandum.
9) Send information to PID, documentation &other department.

The function loan operation department (LOD) has been seen in a flowchart but
now it is discussing elaborately one by one are as follows:

3.2 Issue of loan application form:


This is given by the bank taking TK.1000 from the sponsors of the proposed
project where includes various aspects of the project are as follows:
1. Proposed project;
*Name of the project.
*Location of the project.
*Line of the product.
*Amount of the project. (a) F/C
(b) L/C

2. Promoter’s applicant;
(a) Particulars of the promoters.
(b) Particulars of the persons relates with promoters (i.e.) father,
mother, spouse, son(s), daughter(s), brother(s)
3. Corporate set up (constitution);
4. Management;
5. Proposed product;
6. Foreign collaboration, if any;
7. Project land:
(a) Water.
(b) Power.
(c) Gas.
(d) Communication facilities.
8. Building& civil works;
9. Plant machinery;
10. Erection &installation;
11. Utilities;
12. Raw materials;
13. Personnel;
(a) Managerial &technical;
(b) Administrative &staff;
(c) Labor:
*Skilled
*Unskilled;
(d) Cost of the project and means of finance, etc.
3.3 Instruction & co-operation to fill up the form:

The bank authority helps to the sponsors by providing necessary information required
by the sponsors for filling up the form about the knowledge advice necessary by them.
And then sponsors prepare feasibility report. Receive form Bangladesh Standard
Questionnaire Form (BSQF):

After fulfilling this form by the sponsor’s bank authority receive with 1/8of1%project
estimated cost other necessary documents complied by the sponsors.

3.4 Scrutiny of loan application and other paper evaluation of loan proposed:
The bank officials then scrutinize all the papers with the given
documents that mean feasibility report given by the sponsors. If all of this
are correct then bank prepare appraisal report about given information.

3.5 Preparation of appraisal report:


The bank authority makes the report, which consists of three (3) types of analysis, is
as follows:
(a) Technical analysis
(b) Financial analysis.
(c) Economic analysis/market analysis.
3.6 Technical analysis:
The technical engineer does this report whether the proposed project is viable or not.
It gives indication about the project technically sound or not. Here engineer justify
several aspects are follows:

The project will be established which is suitable or not for the project whether the
road, railway, riversides or airport etc that are precondition for establishing the project
situates this place. He also justifies the types of machines, capacity, types, production
capacity etc and gives permission for that company.

3.7 Financial analysis:


A financial analyst of the responsible officer makes financial analysis. He
will examine prospect of the company about the demand of the product,
marketability of the product, profitability of the product, supply and
production capacity of the product to meet the market demand through
various a financial analysis such as current ratio, profitability ratio, asset
management ratio etc.

3.8 Economic analysis/market analysis:


This analysis is also made by an economist or market analyst that is
feasibility report of the product of related company. This study comprises
of whether the product will be launched that’s acceptability and other
related economic matter of the product such as marketability of the
product, profitability of the product, supply and production capacity of
the product to meet the market demand.

Chapter 04
Analysis of Loan Performance
4.1 Definition of loan performance:
Financial soundness of all banks depends on the performance of its disbursed loan on
various sectors. Loan performance means how the loans were scheduled to act and
how they are actually acting. It is closely associated with timely and steady repayment
of interest and principal of a loan. A loan is said to be well performed when its
repayment is duly made. If a loan fails to be repaid duly for some consecutive period
or installments, it falls under the classification criteria.

Performance bank’s loan is usually measured through the percentage of classified and
unclassified loan of total outstanding. If the amount of classified loan is high, overall
loan performance of a bank is poor and low amount of classified loan indicates an
effective and efficient loan performance.

4.2 Bangladesh Bank Guideline for loan classification: Policy on loan


classification and provisioning:
The process of gradually upgrading the policies on loan classification and
provisioning to the international level is going on. Measures have been taken to
strengthen the credit discipline and the process of classification has been simplified.
The following revised policies on loan classification and provisioning has been issued
amending the previous circulars in this regard: -

1. Categories of Loans
All loans and advances will be grouped into 4(four) categories for the purpose of
classification, namely (a) Continuous Loan (b) Demand Loan (c) Fixed Term Loan
and (d) Short-term Agricultural and Micro Credit.

Continuous Loan: The loan Accounts in which transactions may be made within
certain limit and have an expiry date for full adjustment will be treated as Continuous
Loans. Examples are: CC, OD etc.
Demand Loan: The loans that become repayable on demand by the bank will be
treated as Demand Loans. If any contingent or any other liabilities are turned to
forced loans (i.e. without any prior approval as regular loan) those too will be treated
as Demand Loans. Such as: Forced LIM, PAD, FBP, and IBP etc.

Fixed Term Loan: The loans, which are repayable within a specific time period
under a specific repayment schedule, will be treated as Fixed Term Loans.

Short-term Agricultural Credit will include the short-term credits as listed under
the Annual Credit Program issued by the Agricultural Credit Department of
Bangladesh Bank. Credits in the agricultural sector repayable within less than 12
months will also be included herein. Short-term Micro-Credits will include any micro-
credits for less than TK.25,000/= and repayable within less than 12 months, be those
termed in any names such as Non-agricultural credit, Self-reliant Credit, Weaver's
Credit or Bank's individual project credit.

2. Basis for Loan Classification: -


(A) Objective Criteria:
(1) Any Continuous Loan if not repaid/renewed within the fixed expiry date for
repayment will be treated as past due/overdue from the following day of the expiry
date. This loan will be classified as Sub-standard if it remains past due/overdue for 6
months or beyond but less than 9 months, as `Doubtful' if for 9 months or beyond but
less than 12 months and as `Bad-Debt' if for 12months or beyond.

(2) (1) Any Demand Loan if not repaid/rescheduled within the fixed expiry date for
repayment will be treated as past due/overdue from the following day of the expiry
date. This Loan will be classified as Sub-standard if it remains past due/overdue for 6
months or beyond but not over 9 months from the date of claim by the bank or from
the date of creation of the forced loan; likewise the loan will be classified as
"Doubtful' and Bad/loss if remains past due/overdue for 9 months or beyond but not
over 12 months and for 12 months and beyond respectively.
(3) In case any installment (s) or part of installment (s) of a Fixed Term Loan is not
repaid within the due date, the amount of unpaid installment (s) will be termed as
`defaulted installment'.
(3.1) In case of Fixed Term Loans, which are repayable within maximum five years of
time: If the amount of `defaulted installment' is equal to or more than the amount of
installment (s) due within 6 months, the entire loan will be classified as ``Sub-
standard''.
If the amount of 'defaulted installment' is equal to or more than the amount of
installment (s) due within 12 months, the entire loan will be classified as ''Doubtful. If
the amount of 'defaulted installment' is equal to or more than the amount of
installment (s) due within 18 months, the entire loan will be classified as ''Bad -Debt.''
(3.2) In case of Fixed Term Loans, which are repayable in more than five years of
time: -
(a) If the amount of `defaulted installment' is equal to or more than the amount of
installment (s) due within 12 months, the entire loan will be classified as 'Sub-
standard.'
(b) If the amount of `defaulted installment ' is equal to or more than the amount of
installment (s) due within 18 months, the entire loan will be classified as 'Doubtful'.
(c) If the amount of 'defaulted installment 'is equal to or more than the amount of
installment (s) due within 24 months, the entire loan will be classified as 'Bad-Debt'.
Explanation: If any Fixed Term Loan is repayable at monthly installment, the amount
of installment (s) due within 6 months will be equal to the amount of summation of 6
monthly installments. Similarly, if repayable at quarterly installment, the amount of
installment (s) due within 6 months will be equal to the amount of summation of 2
quarterly installments.

(4) The Short-term Agricultural and Micro - Credit will be considered irregular if not
repaid within the due date as stipulated in the loan agreement. If the said irregular
status continues, the credit will be classified as 'Substandard ' after a period of 12
months, as 'Doubtful' after a period of 36 months and as 'Bad Debt' after a period of
60 months from the stipulated due date as per loan agreement.

(5) All unclassified loans other than Special Mention Account (SMA) will be treated
as Standard.

(6) A Continuous credit, Demand loan or a Term Loan which will remain overdue for
a period of 90 days or more, will be put into the "Special Mention Account (SMA)''.
This will help banks to look at accounts with potential problems in a focused manner
and it will capture early warning signals for accounts showing first sign of weakness.
Loans in the "Special Mention Account (SMA)" will have to be reported to the
Credit Information Bureau (CIB) of Bangladesh Bank.

(B). Qualitative Judgment:


The concerned bank will classify on the basis of qualitative judgment and can
declassify the loans if qualitative improvement does occur. But if any loan is
classified by the Inspection Team of Bangladesh Bank, the same can be declassified
with the approval of the Board of Directors of the bank. However, before placing such
case to the Board, the CEO and concerned branch manager shall have to certify that
the conditions for declassification have been fulfilled.

4.3 Sector wise loan performance analysis BSB:

4.3.1 Food and allied products:


Food and allied product sector is one of the improving sectors of BSB. In the
financial year 2006-07, food and allied sector got 4% concentration of its total loan
outstanding amounting to a total of TK224 million.
Status of classified loan:
For the year 2006-07 food and allied sector classified TK38 million as bad loans,
representing 17%percent of the total outstanding where as TK185 million is still
unclassified. Percentage of classified and unclassified loan is presented in the
following pie chart:

Food and Allied Products '06-'07

17%
Unclassified
Substandard
Doubtful
Bad Loan

83%

Findings of the sector:


Though the percentage of classified loan is 17% but the total outstanding is still too
high in 2006-07, this sector got some improvements over the last couple of years. The
following chart shows the improvements
Food and Allied Products
450000
400000
350000
300000
'000 tk

250000
200000
150000
100000
50000
0
2006-07 2005-06 2005-04
Unclassified 185612 118428 66876
Substandard 0 1786 987
Bad Loan 38411 172050 423007

Total bad loan of this sector in 2004-05 was TK 423 million but it was reduced to TK
172 million in 2005-06 and got a dramatic improvement in 2006-07 with a 78%fall to
TK 38 million . This sharp and continuous reduction in Bad loans indicates better loan
monitoring and administration in this sector.

From unclassified loans point of view, this sector also conveys some positive signal.
Unclassified loans with the reduction in bad loans, goes up from 66 million in 2004-
05 to 185 million in 2006-07. In short, loans of this sector are performing better year
to year and demands constant concentration.

4.3.2 Jute and allied fiber:


Jute and allied fiber is that sector with which BSB is going to close its operation.
Already bank has stopped sanction and disbursement in this sector only job of the
bank is to recover the amount of loan money which was given before. In 2006-07 this
sector got 9%concentration and its loan outstanding amount is 535 million.
Status of classified loan:
For the financial year 2006-07 this sector has classified TK 416 million as bad loan
which is 78% of total outstanding where as TK 118 million is still unclassified. The
view of the classified and unclassified loan is given below:

Jute and Allied Produts '06-'07

22%
Unclassified
Substandard
Doubtful
Bad Loan

78%

Findings of the sector:


This sector has 78% bad loan comparing with the total outstanding, though it is 78%
and seems too high but if we analyze the previous year’s data we will get some
different idea about this sector.
Jute and Allied Fibers
600000

500000

400000
'000 tk

300000

200000

100000

0
2006-07 2005-06 2005-04
Unclassified 118834 112375 7394
Substandard 0 0 0
Bad Loan 416912 424338 530993

If we start talking about bad loan or classified section we see the difference year to
year. In 2004-05 the amount of bad loan was TK 530 million, in 2005-06 the amount
was TK 424 million and in 2006-07 the amount is TK 412 which is comparatively low
than previous years. But the decreasing speed is slow here.

If we see the diagrams here we see the amount of unclassified loan is increasing and
its growth rate is good enough. It was only TK 7 million in 2004-05; in 2005-06 there
was huge change, it was TK 112 million which is 16 times more than previous year.
And in 2006-07 TK 118 million is also good if we apply the growth of unclassified
loan point of view.
4.3.3 Cotton and Woolen Products:
This is the prime sector among the sectors with those BSB deals. Sanction,
disbursement and recovery all is good in this sector. This is the sector by which the
country earns most of its foreign income and it is playing a vital role since couple of
years. This sector is getting more concentration year to year 69% of outstanding in
this sector.

Status of classified loan:


In the year 2006-07 the percentage of classified loan is TK818 million which is 19%
of total outstanding and 81% of total outstanding is unclassified which sounds good is
of TK 3504 million.

Cotton and Woolen Products '06-'07

19%
Unclassified
Substandard
Doubtful
Bad Loan

81%

Findings of the sector:


In 2004-05 the amount of bad loan was of TK 1588 million and in the year 2005-06
that was of TK 948 million and in the year 2006-07 it is of TK 818 million. So here
we see 40%fall of bad loan in the year 2005-06 comparing with 2004-05 and 13%fall
in the year 2006-07.So it indicates well performance of the bank as well as well
performance of the sector.

Cotton and Woolen Products


4000000

3500000

3000000

2500000
'000 tk

2000000

1500000

1000000

500000

0
2006-07 2005-06 2005-04
Unclassified 3504207 3338733 3604658
Substandard 0 158 110021
Bad Loan 818225 948011 1588881

If we talk about substandard loan in the diagram, we see in 2004-05 it was of TK 110
million and in 2005-06 it was of TK .158 million and in 2006-07 no existence of this
class. So it indicates well because a class has dropped out.

In the consecutive years there is no significant change among the amount of


unclassified loan, which really proves better performance of this sector better
planning, monitoring and controlling of the bank.

4.3.4 Paper and Paper products:


Only 2%of total outstanding exist in this sector. This is the sector which is very
important for a country, if the sector falls then the country become dependent on
import which may not be good for a country.

Status of classified loan:


In this sector here the percentage of bad loan is10% which is relatively low comparing
with other sectors and with total outstanding. The amount of bad loan is of TK 14
million in 2006-07 where unclassified loan is 90% and it is of TK 125 million.

Paper and Paper Products '06-'07

10%
Unclassified
Substandard
Doubtful
Bad Loan

90%

Findings of the sector:


In this sector the data gives us that kind of information which can be matter of hope.
Here he see, in 2004-05 bad loan was of TK 54 million, in 2005-06 the amount was
TK 22 million and in 2006-07 the amount is only 14 million. So the falling rate of bad
loan is 60% and 37% in two consecutive years, a positive change in unclassified
section.
Paper and Paper Products
140000

120000

100000
'000 tk

80000

60000

40000

20000

0
2006-07 2005-06 2005-04
Unclassified 125424 29294 122639
Doubtful 0 88582 0
Bad Loan 14599 22711 54522

Though in 2005-06 unclassified section showed negative signals and there was also a
big amount of doubtful loan but the bank has crossed the session and now is in good
position. In 2006-07 the unclassified loan is of TK125 million which is 76.8% more
than the last year, so it proves the great performance of the bank and demands such
kind of performance in all sectors.

4.3.5 Tannery and its products:


This is the sector from which country can earn money by export though this sector is
earning money but it is not equal to the opportunity and also the expectation. This
sectors has 2% of total outstanding is of TK 14 million

Status of classified loan:


This sector’s classified loan is 14% of outstanding is of TK 91 million in the year
2006-07 is conveys a message that the amount of classified loan is almost same of the
year 2005-06.And the unclassified loan is 86%.

Tannery and Its Products '06-'07

14%
Unclassified
Substandard
Doubtful
Bad Loan

86%

Findings of the sector:


When we see the same scenario year to year then it is said that, probably the same
effort has given to this sector or we can say that no strategic change. In this sector in
2004-05 the amount of bad loan was 79 million, in 2005-06 it was 91 million and in
2006-07 it is 91 million also. So this sector demands some new policy to recover the
bad loan amount quickly.
Tannery and its Products
100000
90000
80000
70000
60000
'000 tk

50000
40000
30000
20000
10000
0
2006-07 2005-06 2005-04
Unclassified 14540 17257 19767
Substandard 0 0 0
Bad Loan 91523 91773 79798

Comparing with bad loans or the classified sectors, it is too low, the amount of
unclassified loan. And year to year the amount is falling. So from this scenario we can
conclude that this sector is in danger and the bank should reform all strategy and need
new plan if the bank wants to deal with this sector

4.3.6 Non-metallic mineral products:


Non-metallic sector is that kind of sector which is actually helping the bank indirectly
because bank doesn’t need to think about the sectors like others because it is
performing very well.

Status of classified loan:


Total outstanding loan was 71 million in the year 2006-07 and the total amount has
gone under the title unclassified loan and the classified section is 0%, really sounds
good.
Non Metalic Products '06-'07

0%
Unclassified
Substandard
Doubtful
Bad Loan

100%

Findings of the sector:


The amount of unclassified loan was TK 100 million in the year 2004-05, 86 million
in the year 2005-06 and in 2006-07 it is 71 million , its falling year to year so it can be
seems that the sector is not performing well but it will not be right cause this sector
keeping its classified sector nil, year to year. Fall of the amount of unclassified loan
can be linked with other sections like sanction, disbursement etc.
Non Metalic Mineral Products
120000

100000

80000
'000 tk

60000

40000

20000

0
2006-07 2005-06 2005-04
Unclassified 71356 86008 100303
Substandard 0 0 0
Bad Loan 0 0 0

4.3.7 Forest and Wood Products:


Though it is an important sector of the country but BSB is not currently dealing with
this sector.

Status of classified loan:


There is no amount of outstanding loan in last two years and also classified and
unclassified loans.

Findings of the sector:


In 2004-05 there was only of TK 6 million bad loans in this sector. After that we see
no activities of this sector. BSB need to consider the sector again not only for its
profitability but for the people who deals with this sector.
Forest and Wood Products
8000

7000
6000

5000
'000 tk

4000
3000

2000

1000

0
2006-07 2005-06 2005-04
Unclassified 0 0 0
Substandard 0 0 0
Bad Loan 0 0 6784

4.3.8 Basic metal Products:


Though the outstanding amount of this sector has a little significance but it is not a
matter of hope that the total outstanding amount is bad loan.

Status of classified loan:


In 2006-07 the total outstanding loan amount is 10 million TK and the total amount is
classified loan and has gone under the title “bad loan”
Basic Metal Products '06-'07

0%
Unclassified
Substandard
Doubtful
Bad Loan

100%

Findings of the sector:


In 2006-07 the amount of bad loan is of TK 10 million and it was of TK 11 million in
2005-06. And in those years these amount were also the total outstanding amount. So
it means either the sector has fallen totally or the inefficiency of loan handling of
BSB. So BSB should keep watching and think how the can recover their money
quickly and how the sector can be raised again.
Basic Metal Products
12000

10000

8000
'000 tk

6000

4000

2000

0
2006-07 2005-06 2005-04
Unclassified 0 0 2182
Substandard 0 0 0
Bad Loan 10832 11188 0

4.3.9 Metal products:


Among the sectors with which BSB deals this is one of the small sectors. BSB is
doing transaction with this sector regularly but the amount is comparatively low.

Status of classified loan:


In 2006-07 the total amount of outstanding was of TK 14 million. Of that amount bad
loan is 81% and unclassified loan is 19%.bank actually does not expect this type of
scenario but it happed.
Metal Products '06-'07

19%
Unclassified
Substandard
Doubtful
Bad Loan

81%

Findings of the sector:


Last three years three years the bad loan has shown abnormal attitude, in 2006-07 the
amount of unclassified loan was .5 million and the amount of bad loan was 30 million
which was 60 times more than the unclassified loan after that year bad loan was 11
million and after that year it means an 2006-07 it was 11 million also and in the other
hand unclassified loan
Metal Products
35000

30000

25000
'000 tk

20000

15000

10000

5000

0
2006-07 2005-06 2005-04
Unclassified 2801 958 500
Substandard 0 0 0
Bad Loan 11839 11820 30212

4.3.10 Electrical Machinery:


This is the sector with which BSB has started dealing again with a very good
performance.

Status of classified loan:


In the year 2006-07 the there was only outstanding amount 15 million and the whole
amount is unclassified.
Electrical Machinery '06-'07

0%
Unclassified
Substandard
Doubtful
Bad Loan

100%

Findings of the sector:


In the year there 2004-05 and 2005-06 there was no amount of outstanding loan. But
in the year 2006-07 here there was only 15 million outstanding and which is totally
unclassified. So from these data we can say that the sector is really performing well
and the bank should keep and monitor the performance level which exists now.

Electrical Machinery
18000
16000
14000
12000
'000 tk

10000
8000
6000
4000
2000
0
2006-07 2005-06 2005-04
Unclassified 15807 0 0
Substandard 0 0 0
Bad Loan 0 0 0
4.3.11 Machinery and spare parts:
This sector is very much necessary for a country to make production and the bank is
dealing with this sector year to year

Status of classified loan:


93% of the total outstanding is classified in this sector and it is near about 47 million
in the year of 2006-07, where the unclassified section is only 7%.

Machinery and Spare Parts '06-'07

7%
Unclassified
Substandard
Doubtful
Bad Loan

93%

Findings of the sector:


In 2004-05 the amount of bad loan was 26 million and substandard loan was 13
million and the unclassified loan was only 12% of the total unclassified loan. In 2005-
06 the amount of bad loan was 29 million and the doubtful amount was 14 million
and the unclassified loan was 4 million which only 9% of total classified amount and
in 2006-07, here we see the unclassified amount is only 7% of classified loan. So
finally we see the section’s performance is not rising rather falling.
Machinery and Spare Parts
50000

40000

30000
'000 tk

20000

10000

0
2006-07 2005-06 2005-04
Unclassified 3431 4905 5492
Substandard 0 0 13272
Doubtful 0 14237 0
Bad Loan 44214 29953 26912

4.3.12 Transportation:
One of the most important sectors with which BSB deals. This sector has a great
utility for communication purpose.

Status of classified loan:


19% of total outstanding is not bad when the amount of bad loan is falling year to
year. In 2006-07 the amount of classified loan was 13 million and the unclassified
loan was almost 56 million.
Transportation '06-'07

19%
Unclassified
Substandard
Doubtful
Bad Loan

81%

Findings of the sector:


In 2004-05 the total outstanding amount was bad loan , in 2005-06, the amount of bad
loan was 15 million which was 26% of total outstanding and that year unclassified
loan was 44 million, which was 78% of total outstanding and in2006-07 the difference
between classified and unclassified loan improved and turned into the proper way.
Transport
60000

50000

40000
'000 tk

30000

20000

10000

0
2006-07 2005-06 2005-04
Unclassified 55792 44387 0
Substandard 0 0 0
Bad Loan 13369 15911 15842

4.3.13 Chemicals:
Chemical sector is one of the important sectors of BSB. This sector has the
outstanding amount which is 230 million and this amount is 4% of the total
outstanding.

Status of classified loan:


We divided the total outstanding amount into two sections, classified and unclassified.
In this sector in the year 2006-07 bad loan we 44% and the unclassified amount was
56%.
Chemicals '06-'07

Unclassified
44% Substandard
Doubtful
Bad Loan
56%

Findings of this sector:


In this sector, here we see the contra situation of the two sections. In the year 2004-05,
bad loan was 120 million and unclassified loan was 76 million, in the year 2005-06,
bad loan was 111 million and unclassified loan was 125 million and finally in the year
2006-07, bad loan was 102 million and the unclassified loan is 127 million. So here
we see that, the amount of bad loan is falling and unclassified section is improving.
Chemicals
140000

120000

100000
'000 tk

80000

60000

40000

20000

0
2006-07 2005-06 2005-04
Unclassified 127978 125969 76815
Substandard 0 0 0
Bad Loan 102245 111223 120627

4.3.13 Petra Chemicals:


This is a sector which is really important for our country and in the current situation
the sector has to do a lot for us. This sector got 2% concentration of total outstanding
loan.

Status of classified loan:


In the year 2006-07 the total outstanding amount was 120 million of that amount 19%
considered as bad loan or the classified loan and the rest amount considered
unclassified.
Petro Chemicals '06-'07

19%
Unclassified
Substandard
Doubtful
Bad Loan

81%

Findings of this sector:


Again we see the contra situation between classified and unclassified section and also
seeing the positive changes .2004-05, 2005-06 and 2006-07 in these years position of
unclassified loan improved and bad loan also improved with a positive change.

Petro Chemicals
120000

100000

80000
'000 tk

60000

40000

20000

0
2006-07 2005-06 2005-04
Unclassified 98016 85868 92998
Substandard 0 0 0
Bad Loan 22822 40621 40399
4.3.14 Miscellaneous:
When the outstanding amount of a section is 2% of total outstanding and the total
amount are classified then the sector is bad can be easily said.

Status of classified loan:


In the year 2006-07 the total outstanding amount is 97 million and 96.5 million is bad
loan, so this is the section which is in danger.

Miscelleneous '06-'07

0%
Unclassified
Substandard
Doubtful
Bad Loan

100%

Findings of this sector:


In 2004-05, the amount of bad loan was 12 million; the amount of substandard loan
was 69 million and the unclassified loan was 14 million which only 19% of total
outstanding was. In the year 2005-06, the classified loan was 76 and unclassified was
6 million only and the final year the situation is 96 million bad loan and unclassified
loan is only 7 million, and the ratio is 14:1. So BSB need to take quick and effective
initiative to bring the sector from this kind of bad situation.
Miscellenous
120000

100000

80000
'000 tk

60000

40000

20000

0
2006-07 2005-06 2004-05
Unclassified 7 6901 14375
Substandard 0 0 69193
Bad loan 96298 76328 12684

4.3.15 Service Sector:


Last decade some Industries has come under the focus of BSB, service sector is one of
them and performing well. This sector has got 4% concentration of total outstanding.

Status of classified loan:


Here unclassified loan is relatively high, which is 85% of the total outstanding is of
190 million and classified section is 32.6 million.
Service Industries '06-'07

15%
Unclassified
Substandard
Doubtful
Bad Loan

85%

Findings of this sector:


In 2004-05 classified and unclassified section was almost in competition, classified
loan was 96 million and unclassified loan was 112 million. In 2005-06, we see the
ratio of classified and unclassified loan is 2:1 and the most recent year the ratio is 6:1,
so finally we can say the section is really performing well.

Service Industries
250000

200000

150000
'000 tk

100000

50000

0
2006-07 2005-06 2005-04
Unclassified 190839 151316 112150
Substandard 671 0 24
Doubtful 0 0 46716
Bad loan 32994 77060 44810
4.3.16 Classified and unclassified loan at glance:
BSB deals with 18 sectors, 1 or 2 sectors is going to close by the bank because of loan
default, government policy, donor pressure etc, but the remaining sectors will run. So
if we look at the chart, wee see 22% of outstanding amount is bad loan or we can say
the portion under classified section and the rest amount is unclassified.

Total Loan Status

28% Unclassified
Substandard
0% Doubtful
72% Bad Loan

4.3.1 Total Findings in brief:


In the year 2004-05, bad loan was 2975 million, doubtful loan was 46 million,
substandard loan was 193 million and unclassified loan was 4226 million, so by ratio
the situation was 1.3:1. In 2005-06, bad loan was 2033 million, doubtful loan was 102
million, substandard loan was 1.9 million and unclassified loan was 4122 million, the
ratio was 2:1, and in the recent last year 2006-07, the ratio is 2.63:1, so considering
the previous situations, comparing the performance of year to year, the bank is
performing good now and their loan performance is coming in control.

Total Loan Status


5000000

4000000

3000000
'000 tk

2000000

1000000

0
2006-07 2005-06 2005-04
Unclassified 4514644 4122399 4226149
Substandard 671 1944 193497
Doubtful 0 102819 46716
Bad Loan 1714283 2033014 2975566
Chapter – 5

Summary & Conclusion

5.1 Recommendations
There are some problems involved in the project appraisal practice of BSB. Some of
them relate to BSB’s own institutional weaknesses and some of them relate to the
borrowers and govt. also involved. During the internship program the following
findings are obtained:

1. Sometimes improper feasibility reports are submitted by sponsors, which do


not contain adequate and reliable information.
2. Lengthy procedure and long time (more than three months) involved in the
appraisal of project.
3. Lack of business experience of the entrepreneurs
4. Lack of financial commitment on the part of the borrower, the result being
the failure of mobilization of equity by them in future means they divert
their equity in other purpose after getting the loan amount.
5. Inadequate attention is paid to analyze risk and uncertainties associated with
the projects, means only sensitivity analysis is done to analyze risk.
6. Lack of co-ordination among various financial institutions in exchange of
information..
7. There is no system of accountability of the appraisal team if the approved
project fails due to their improper appraisal.
8. Unstable tariff and fiscal policy, political instability of the country, resulting
in poor project appraisal especially from the economic viewpoint.
9. The main aim of BSB is to stimulate industrialization throughout the
country.
10. Loans are given to sponsors through preparing appraisal report.
11. Inadequate attention to social cost and benefits
12. The nature of credit shows that it mainly grants term loan.
13. Sometimes inefficient allocations of resources have created a huge amount
of bad debt
14. There are some sick industries are in the BSB
15. Political interruption in sanctioning loan.
16. Lacking of co-ordination among the various departments.
17. Lacks of eagerness to devote themselves for bank because of lower benefits
are given to employees.
18. Despite of BSB’s problem in financial condition, it helps in various social,
cultural development of the country.
19. Sometimes BSB helps more by giving more than the expectation of the
client.
20. Project rehabilitation is one of the criteria of BSB that revive the sick
project.
21. Contribution to the GDP is remarkable through industrialization process.
22. Help in implementing the projects.
23. Complex judiciary systems
24. Giving advice about the projects function for their future success.
25. Contribution of BSB is highest in the industrialization of Bangladesh though
there’s some problem.
5.2 Conclusion:

I would like to say and believe that this report will offer a number of benefits to
improve and update the loan sanction procedure for its smooth operation and will co-
operate in redesigning the system and atmosphere of the department. If a small
portion of sickness of the projects can reduced it would be a great benefit to the bank
as well as to the whole nation. I put here some recommendations it would help in
selecting appropriate, socially contributable and more employment opportunity
creatable projects in true sense. If this report can improve the existing condition of
sanctioning procedure, and is implemented, my little initiatives will get a breathed
satisfaction because I poured effort which I could.

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