Professional Documents
Culture Documents
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:
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:
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.
Sincerely yours,
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.
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
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
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
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.
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
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
2.3 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
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
As on 30-06-2007
Sectors No of Amount of
(Million TK)
Miscellaneous 4 96.31
Table-5
Recovery of loans
Administration of Loan
The function loan operation department (LOD) has been seen in a flowchart but
now it is discussing elaborately one by one are as follows:
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.
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.
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.
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) (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.
17%
Unclassified
Substandard
Doubtful
Bad Loan
83%
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.
22%
Unclassified
Substandard
Doubtful
Bad Loan
78%
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.
19%
Unclassified
Substandard
Doubtful
Bad Loan
81%
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.
10%
Unclassified
Substandard
Doubtful
Bad Loan
90%
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.
14%
Unclassified
Substandard
Doubtful
Bad Loan
86%
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
0%
Unclassified
Substandard
Doubtful
Bad Loan
100%
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
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
0%
Unclassified
Substandard
Doubtful
Bad Loan
100%
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
19%
Unclassified
Substandard
Doubtful
Bad Loan
81%
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
0%
Unclassified
Substandard
Doubtful
Bad Loan
100%
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
7%
Unclassified
Substandard
Doubtful
Bad Loan
93%
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.
19%
Unclassified
Substandard
Doubtful
Bad Loan
81%
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.
Unclassified
44% Substandard
Doubtful
Bad Loan
56%
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
19%
Unclassified
Substandard
Doubtful
Bad Loan
81%
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.
Miscelleneous '06-'07
0%
Unclassified
Substandard
Doubtful
Bad Loan
100%
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
15%
Unclassified
Substandard
Doubtful
Bad Loan
85%
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.
28% Unclassified
Substandard
0% Doubtful
72% Bad Loan
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
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:
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.