Credit Management of Commercial Banks ( A Comparative Study of Public and Private sector banks.

Prepared for: Mr. e!an Ma"bub #ossain epartment of A$S %aculty of Business Studies &niversity of "aka

Prepared by: Md. Saiful $slam (Saif) BBA 't" Batc" (oll)*++ epartment of A$S &niversity of "aka

$nterns"ip (eport

Submitted ,o Accounting and $nformation

epartment

UNIVERSITY OF DHAKA

Mr. Dewan Mahbub Hossain Department of AIS Faculty of Business Studies University of Dha a

Subject: Letter regarding sub issi!n !" Interns#i$ Re$!rt !n %redit &anage ent !" %! ercia' (an) *A %! $arati+e Stud, bet-een $ri+ate . /!+ern ent sect!r (an)s01

Dear Sir! Here is the report on 2Credit Management of Commercial Bank (A Comparative Study between private & Government sector Banks) 3 you as ed me to conduct on the be"innin" of the Internship. In this assi"nment! I have tried to focus some ey aspects of credit mana"ement of Ban Services. Here I show how here I use different tools of credit mana"ement of commercial Ban s. I appreciate havin" this assi"nment. I prepared this assi"nment with sincerity and serious effort. #han you for providin" me the opportunity to prepare this. I am really "rateful to you for "ivin" me the scope to prepare this report under your observation. I have en$oyed preparin" this report and presented it for your $ud"ment. Sincerely yours! &d0 Sai"u' Is'a *Sai"1 BBA %th Batch &oll'()) Department of AIS University of Dha a

Ackno!ledgement
It*s a "reat pleasure for me to wor with the report based on a topic 2Credit
Management of Commercial Bank (A Comparative Study between private & Government sector Banks)3 which is very much si"nificant for economy. I hope wor in" on this

topic will help me to "ather various e+posures to practical field. So! at the very be"innin"! I would li e to e+press my "ratitude to almi"hty Allah for whose indness I am sound mentally and physically enou"h to prepare this report. I wish to e+press my heartiest sense of "ratitude! sincere appreciation to my honorable teacher Mr. Dewan Mahbub Hossain! Associate ,rofessor! Faculty of Business Studies whose support and advice was instrument in preparin" this report. #hen I would li e to than the Dha a Ban -imited authority to "ive me this opportunity to wor there. .ithout their support as well as help this paper could never have been completed. I would li e offer a special than to Mr.Md.Abdul Basir Hasu! senior officer!

Advance Division Dha a Ban -imited. Dhanmondi Branch. Here I cannot but state some of the person*s name who really helped me lots while preparin" the report with inspections and ideas. I would li e to than Mr. Abdullah

Al Mahmud Shawon. MBA(6th batch).DU. and Nilufar Yasmin. BBA. (7th batch).DU.

-.ecutive Summary
Internship pro"ram is the pre're/uisite for the "raduation in BBA. 0lassroom discussion alone cannot ma e a student perfect in handlin" the real business situation1 therefore! it is an opportunity for the students to now about the real life situation throu"h this pro"ram. A report has to be built for the university and or"ani2ation re/uirement. #he topic of my report is 30redit Mana"ement of 0ommercial Ban 4A 0omparative Study between private 5 6overnment sector Ban s78. #he main purpose of the report becomes very clear from the topic of the report. #he report discusses about the credit mana"ement of private 5 6overnment sector commercial ban s and compare with each other. For comparin" between private and "overnment sector commercial ban s I use Dha a Ban ban s. Both the ban s 4public and private sector7 in our country are under some "eneral special "uidelines of the central ban framed for the ban in" system as a whole and for ban s of individual sectors. #he concept of private sector ban in" in our country is not so old and private sector ban s are now "ivin" more emphasis to create a constructive and meanin"ful competition with the nationali2ed commercial ban s. #his study ma es an attempt to cover within its scope almost all the si"nificant aspects of the credit operations of the selected ban s. #he rest of the study is or"ani2ed as follows' -imited as the sample of private sector commercial ban s and 9anata Ban as the sample of "overnment sector commercial

0hapter: ;< #his section deals with the broad aspect of methodolo"y followed in derivin" the ultimate conclusions of the study. Samplin" desi"n1 data collection method1 data analysis process also include in this section.

0hapter: ;= #his section "ives a clear view of the selected ban s. 0hapter: ;> Both ban s* credit mana"ement policy includes in this section. 0hapter: ;) &espective areas of credit operations and as well as their credit structure are included this section. 0hapter: ;? Measurin" and comparin" credit flow with other selected variables such as deposit1 employee number1 number of branches. 0hapter: ;% ,ro"rams for loans recovery! problems for loan recovery! patters of loan recovery! etc are the main covera"e of this section. 0hapter: ;@ #his section of the study deals with the information in respect to the classification of unsound credit1 and provision thereon. 0hapter: ;A Finally this study covers a "eneral "uidelines and recommendations based on the above mentioned analysis and findin"s.

,able of Contents
Cha t!r" #$ %ntroduction. Cha t!r" #& M!thodolo'( and limitation of th! stud(. Cha t!r" #) Ban* o+!r+i!w, Dha*a Ban* -imit!d . /anata Ban*. Cha t!r" #0 Cr!dit 1is* Mana'!m!nt 2olic(, Dha*a Ban* -imit!d . /anata Ban*. Cha t!r" #3 4und %n+!st!d B( th! S!l!ct!d Ban*s. Cha t!r" #6 Cr!dit Com arison . Anal(sis. Cha t!r" #7 1!co+!r( of ad+anc!s. Cha t!r" #5 Natur! of D!fault. Cha t!r" #6 1!comm!ndation and conclusion. Cha t!r" $# Biblio'ra hi!s.

C"apter:/* $ntroduction
*.* 0ork Study:
Internship &eport on 30redit Mana"ement of 0ommercial ban : A comparative study of public and private sector ban s8 has been assi"ned to me by Mr. Dewan Mahbub Hossain. In this re"ard an or"ani2ational attachment at Dhanmondi Branch of Dha a Ban -imited has been "iven to me from March ;( to May =;! <;;?. .ithin that period! I collected necessary data for the report.

405

Background of t"e Study:

#oday*s economic policy is concerned to obtain the optimum economic condition in an economy. Ban in" sector is playin" the pioneer role to achieve that optimum. #he ban in" sectors channel resources throu"h deposit mobili2ation and providin" credit for different business venture. #he successful runnin" of ban business depends upon effective and efficient commercial and or"ani2ational activities of the commercial ban s. Ban in" sector of Ban"ladesh entered into a new era when all the commercial ban s and financial institutions were nationali2ed after the emer"ence of Ban"ladesh as an independent nation. In the year (A@<'(A@=! the 6overnment of Ban"ladesh felt the necessity of private sector participation in all over the sectors of the economy. As a result the 6overnment*s all over the privati2ation policy! the 6overnment of

Ban"ladesh allowed the establishment of commercial ban

in private

sector. #he private ban has passed about twenty three years of functionin". But now which /uestion arise that is whether the private sector commercial ban s have successfully been competin" with the nationali2ed commercial ban s or not! .hether they fulfill the e+pectation beyond privati2ation policy of Ban"ladesh 6overnment or not. #his study is an attempt to produce a constructive answer to the above /uestions on the basis of the defaults pattern of nationali2ed commercial ban s and privati2ed commercial ban s and its impact of the profit performances. Here in my study I have been selected 9anata Ban as the sample of nationali2ed commercial ban and Dha a Ban -imited as the sample of privati2ed commercial Ban .

*.1 2b3ective of t"e study:

#he ob$ective of the study is nothin" but to produce a constructive answer whether the private sector commercial ban s have successfully been competin" with the nationali2ed commercial ban s or not! .hether they fulfill the e+pectation beyond privati2ation policy of Ban"ladesh 6overnment or not. Here! for the findin" the answer of the above /uestion I use the default pattern of both cate"ories of ban and its impact on their profit performance. #he detail ob$ectives of my study are as follows' #o ensure the credit structure of ban s in practice. #o access the credit structure of ban s in practice. #o measure the effectiveness of the selected ban s in utili2ation of their available deposit and resources. #o identify the relationship with their customers. #o identify the loan recovery performances of the selected ban s.

 #o find out the deposit utili2ation problems. #o find out the implementation of credit ris mana"ement policy of the selected ban s. #o find out the unsound credit accordin" to the credit ris mana"ement policy. #o assess and hi"hli"ht on the le"al actions followed by the ban s. #o find out the implementation of the credit ris "radin" manual of Ban"ladesh ban by the selected ban s. #o compare the credit supervision of the ban s. #o compare the profit shown and real profit there on. #o find out the performance of private sector commercial ban and nationali2ed commercial ban to the money mar et. #o find out the effect of private sector commercial ban nationali2ed commercial ban to whole economy. and

*.4 Scope of t"e study:

#he central ban of Ban"ladesh! Ban"ladesh Ban has re"ulation on

the ban s. Both the public sector and private sector commercial ban s have to follow some special "uidelines provided by the Ban"ladesh Ban . #he scope of this study is credit mana"ement of commercial ban s! both private sector and "overnment sector. #his study ma es an attempt to cover within its scope almost all the si"nificant aspects of credit operations of the selected ban s. #he study is or"ani2ed as followes: Methodolo"y and limitations of the study. 0redit profile of the selected ban s. 0redit comparison and analysis. -oan recovery.

 #he nature of default. 0redit mana"ement and "uidelines. Analysis of the findin"s and recommendatio

C"apter: /5 Met"odology and limitation of t"e study

Statistical frame!ork of t"e study:
#he study cover sector wise credit distribution! si2e wise credit allocation! cate"ory wise credit allocation! security wise credit allocation! recovery pattern of credit! defaulter patterns of credit etc! Data were collected from both primary and secondary sources. ,rimary data ware collected from both Dha a Ban -td. and $anata Ban . Secondary data ware ac/uired from annual report of the ban s! their published brochures! and web sites of the Ban s and relevant ma"a2ines! boo s! Bewspaper! 9ournals etc! Monthly &eports! ,ublished documents! Cffice circular and other published papers! documents 5 reports.

Sampling design:
#he population of the survey represents all the nationali2ed commercial ban s and private sector commercial ban s operatin" in Ban"ladesh. After consultation with my supervisory teaser! I selected 9anata Ban from the nationali2ed sector and Dha a Ban -td. from the private sector. 9anata Ban is second bi""est nationali2ed ban in Ban"ladesh. 9anata Ban is called second bi""est nationali2ed ban not only for its operational activities but also for its

branches. It has @>= branches in Ban"ladesh and also > branches out side of the country and ((<; a"ents and correspondents all over the world. Dha a Ban -td. represents the private sector ban . DB- is fast "rowin" private sector commercial ban in Ban"ladesh. Dha a Ban -td. is the mar et leader of

private sector commercial ban . DB- has <A branches across the country and a wide networ of correspondents all over the world.

ata collection:
Data were collected from both primary and secondary sources. ,rimary data ware collected from both Dha a Ban -td. and $anata Ban . Secondary data ware ac/uired from annual report of the ban s! their published brochures! and web sites of the Ban s and relevant ma"a2ines! boo s! Bewspaper! 9ournals etc! Monthly &eports! ,ublished documents! Cffice circular and other published papers! documents 5 reports. Some data were also collected from Bureau of Business &esearch1 Dha a University.

ata analysis:
#he topic of my study is 30redit Mana"ement of 0ommercial Ban s: A comparative study of public sector and private sector ban s.8 #he main focus of the study is to evaluate the credit mana"ement performance of selected ban s. A ban *s credit mana"ement performance depends on the disbursement and recovery of the advances. It is also depends on the deposit advance ratio and so on. For measure the actual condition I use both /ualitative and /uantitative tools.

6imitations of t"e study:

I*d li e to than

all the employees of DB-! Dhanmondi and Head

Cffice for their wholehearted co'operation and arran"in" time to help me to ma e this report properly in all these days of my internship period! when they were so busy. But as it was a new branch! they were not able to provide me much documents and papers! as they and me would li e. Cn the way of my study! I have faced the followin" problems that may be terms as the limitations D shortcomin" of the study. Budgeted times for t"e study) #he first obstruct is time itself. Due to the time limitation! the scope and dimension of the study has been curtailed. As the time limit was assi"ned for submittin" the report was very short! it was not possible to spend sufficient time for the study. ata $nsufficiency) It was very difficult to collect data! which is very essential for interpretation! because this branch of DB- was newly established. #herefore! it was not possible to supply my topic related data. Cn the other hand 9anata Ban is very much restricted for provide sufficient data for my study. #hey did not help me by "ivin" the sufficient data. -ac s of records! sufficient boo s! publications! facts and fi"ures narrowed the scope of accurate analysis and interrupted the ways to ma e the report more useful and attractive. Poor 6ibrary %acility) Most of the commercial ban s have itsE own modern! rich and wealthy collection of hu"e and various types of Ban in" related Boo s! 9ournals! Ma"a2ines! ,apers! 0ase Studies! #erm ,apers! Assi"nments etc But the library of Dha a Ban -imited is not well ornamented.

C"apter:/1 Bank overvie! B6 7 8B

"aka Bank 6td. at a glance:

Dha a Ban -imited is the leadin" private sector ban in Ban"ladesh offerin" full ran"e of ,ersonal! 0orporate! International #rade! Forei"n F+chan"e! -ease Finance and 0apital Mar et Services. DB- is the preferred choice in ban in" for friendly 5 personali2ed services! cuttin" ed"e technolo"y! tailored solutions for business needs! "lobal reach in trade 5 commerce and hi"h yield on investments! assurin" F+cellence in Ban in" Services. DB- is a scheduled ban that was incorporated under the 0ompany Act (AA>! started its operation on 9uly (AA) with a tar"et to play the vital role on the socio'economic development of the country. Aimin" at offerin" commercial ban in" service to the customers* door around the country! the DB- established <A branches up to this year. #his or"ani2ation achieved customers* confidence immediately after its establishment.

.ithin this short time DB- has been successful in positionin" itself as pro"ressive and dynamic financial institution in the country. #his is now widely acclaimed by the business community! from small entrepreneur to bi" merchant and con"lomerates! includin" top rated corporate and forei"n investors! for modern 5 innovative ideas and financial solution.

Capital Base:
Authori2ed 0apital : DB# (;;;.;; million. ,aid up 0apital : DB# ??>.;; million 4=(.(<.;>7

Mission Statement:
#o be the premier financial institution in the country providin" hi"h /uality products 5 services bac ed by latest technolo"y and a team of hi"hly motivated personnel to deliver F+cellence in Ban in".

9ision Statement:
At Dha a Ban ! we draw our inspiration from the distant stars. Cur term is committed to assure a standard that ma es every ban in" transaction a pleasurable e+perience. Cur endeavor is to offer you ra2or sharp spar le throu"h accuracy! reliability! timely delivery! cuttin" ed"e technolo"y! and tailored solution for business needs! "lobal reach in trade and commerce and hi"h yield on your investments. Cur people! products and processes are ali"ned to meet the demand of our discernin" customers. Cur "oal is to achieve a distinction li e the luminaries in the s y. Cur prime ob$ective is to deliver a /uality that demonstrates a true reflection of our vision' F+cellence in Ban in".

Slogan" F+cellence in Ban in".

Motto: #he ban will be a confluence of the followin" three interests:

Cf the ban Cf the customer Cf the society : ,rofit ma+imi2ation and sustained "rowth. : Ma+imum benefit and satisfaction. : Ma+imi2ation of welfare.

DB- has <A the branches and Head Cffice which all are brou"ht under Fle+cube.

2b3ective 2%

B6:

Be one of the best ban s in Ban"ladesh. Achieve e+cellence in customer service ne+t to none and superior to all competitors 0ater to all differentiated se"ments of retails and wholesales customers. Be a hi"h /uality distributor of product and services. Use state'of the art technolo"y in all spheres of ban in".

9alues of

B6:

0ustomer focus Inte"rity #eam wor &espect for individual Guality &esponsible citi2enship.

$ntroduction of $nformation ,ec"nology at

B6:

After the successful mi"ration from ,0Ban DM ban in" system! I# Division has now focused on reportin"! fine'tunin"! issue mana"ement and trainin" under Fle+cube.

Management $nformation System:

Since its $ourney as commercial ban in (AA) DB- has been layin" "reat emphasis on the use of technolo"y. It has "one to online operation system since <;;=. And the new ban in" software Fle+ cube is under process of installation. As a result! the ban will be able to "ive the services of international standard.

Correspondent (elations"ip:
#he ban established correspondent relationship with a number of forei"n ban s namely American F+press Ban ! Ban of #o yo! Standard 0hartered Ban ! Mashre/ Ban ! HSB0! 0iti Ban BA'Bew Hor and AB Ban -imited. #he ban is maintainin" forei"n e+chan"e accounts in Bew Hor ! #o yo! 0alcutta and -ondon. #he ban has setup -0 on behalf on its valued customers usin" its correspondents as advisin" and reimbursin" ban s. #he ban maintains a need'based correspondent relationship policy which is "radually e+pandin". #he number of forei"n correspondents is >;?.

8anata Bank at a glance:

9anata Ban was established in (A%<. 9anata Ban is second bi""est nationali2ed ban in Ban"ladesh. 9anata Ban is called second bi""est nationali2ed ban not only for its operational activities but also for its branches. It has @>= branches in Ban"ladesh and also > branches out side of the country and ((<; a"ents and correspondents all over the world.

-stablis"ment and status:

9anata Ban is nationali2ed commercial ban established by the Ban"ladesh Ban *s

4Bationali2ation7 order (A%<4,.C. no.<? of (A%<7 and is fully owned by the "overnment of the ,eoples &epublic of Ban"ladesh.

Capital Base:
Authori2ed 0apital : DB# @;;;.;; million ta a. ,aid up 0apital : DB# <)A>.;; million ta a. 4=(.(<.;>7

2t"er financial and operational performance: (1*.*5./4)

&eserve fund Deposits Advance Investment &evenue 0ost Cperatin" profit F+port Forei"n funds : (<A=.;; million ta a. : ()(;=?.;; million ta a. : (;%%@?.;; million ta a. : <@=%).;; million ta a. : (;A=>.); million ta a. : @?<(.?; million ta a. : <=(<.A; million ta a. : )>?<=.=; million ta a. : %>A<;.;; million ta a.

,rovision for loans : <(@;.>; million ta a.

#otal number of employees: ()%;).;; million ta a.

Mission Statement:
#o be the Financial "iant in Ban"ladesh.

9ision Statement:

#o be the lar"est! stron"est! innovative and service en"ineerin" commercial ban .

Motto: #he ban will be a confluence of the followin" three interests:

Cf the ban Cf the customer Cf the society : ,rofit ma+imi2ation and sustained "rowth. : Ma+imum benefit and satisfaction. : Ma+imi2ation of welfare.

Performance 2% 8B:
9anata Ban is the second lar"est commercial ban in Ban"ladesh. #he aim of is to actively participate in the socio'economic development of the nation by operatin" a commercially sound ban in" system. It provides credit to deservin" borrowers and at the same time protect depositor*s interest.

9alues of 8B:
0ustomer focus Inte"rity #eam wor &espect for individual Guality &esponsible citi2enship.

%oreign correspondents:

9anata Ban

has already established a worldwide networ

and relationship with

international ban in" throu"h its > branches in u.a.e. two subsidiaries 3 9anata F+chan"e 0ompany s.r.l.8 in Italy and ((<; forei"n 0orrespondents all over the world.

#uman resource development:

As a part of the continuous development of e+istin" Human &esources 9anata Ban throu"h its three trainin" institutes conducted (%@ trainin" courses durin" the year <;;> imparted trainin" of >;=% e+ecutives! officers and staff which is about <?I of the total manpower. It may be mentioned that to built up a "roup of well trained and s illed mana"ers in ban ! trainin" pro"ram named 3Mana"ers Introduction 0ourse8

$nformation ,ec"nology:
0omputeri2ed (;= important branches with Cne Stop Services. Successfully implemented the Ban in" application software named 39B Soft Ban in"8. Cther important in house developed application software4s7 vendors* are also bein" used by the ban . Introduced internet Ban in"! S.IF#! A#M! ,CS! FF# facilities. Fstablished > computers -ab to develop computer s illed person. are functionin" smoothly. Besides above branch ban in" software of four different

C"apter:4 Credit (isk Management Policy B67 8B

Credit (isk Management Policy of $:,(2 &C,$2::

B6:

0redit &is Mana"ement ,olicy for Dha a Ban -td. has been prepared in accordance to the ,olicy 6uidelines of Ban"ladesh Ban *s Focus 6roup on 0redit 5 &is Mana"ement with some chan"es to meet DB-*s internal needs.

0redit &is means the un'certainty to meet financial obli"ations as per a"reed terms by the borrowers durin" the tenure of the credit facilities. For maintainin" steady "rowth rate and economical development of the country! Ban s and financial institutions are re/uired to man"e 0redit &is properly. 0redit ris arises from the facilities e+tended to corporate 5 individuals by the financial institutions. 0redit &is to be mana"ed in such a process that the ban can minimi2e its losses for payment of e+pected dividend to the shareholders. .ith the introduction of Fle+ cube! DB- has the ability to capture all ey customers* data! ris mana"ement and transaction information includin" Forei"n #rade 5 Forei"n F+chan"e. #he purpose of this document is to provide directional "uidelines that will improve the ris mana"ement culture! establish minimum standards for se"re"ation of duties and responsibilities! and assist in the on"oin" improvement of DB-*s Ban . #he "uidelines have been or"ani2ed into the followin":

*. P26$C; <&$ -6$:-S:

-endin" 6uidelines 0redit Assessment 5 &is 6radin" Approval Authority Se"re"ation of Duties Internal Audit

5. MA:A<-M-:, S,(&C,&(- 7 (-SP2:S$B$6$,$-S: 1. P(2C- &(A6 <&$ -6$:-S:

 Approval ,rocess 0redit Administration 0redit Monitorin" 0redit &ecovery #he "uidelines were prepared and endorsed by senior credit e+ecutives from private sector! forei"n and nationali2ed commercial ban operatin" in Ban"ladesh. #hey are intended for use in the corporateDcommercial ban in" businesses. DB- also su""est to follow these "uidelines for DB-*s Ban . All Branch Mana"ers and 0redit Cfficers must be conversant with the "uidelines and ensure that the rules are strictly observed as hi"hli"hted in this policy.

*. P26$C; <&$ -6$:-S:

6ending <uidelines:
#he -endin" 6uidelines includes the followin": Industry and Business Se"ment Focus #ypes of -oan Facilities Sin"le BorrowersD6roup -imitsDSyndication -endin" 0aps

Credit Assessment 7 (isk <rading:

0redit Applications should summari2e the results of the ris assessment and include! as a minimum! the followin" details: Fnvironment or social ris inputs Amount and type of loan 4s7 proposed. ,urpose of loans.

 -oan Structure 4#enor! 0ovenants! &epayment Schedule! Interest7 Security Arran"ements Any other ris s or issue &is tri""ers 5 action plan'condition prudent! etc.

(isk <rading:
&is are "raded as per -endin" &is AnalysisE 4-&A7 Ban"ladesh Ban Es 6uidelines of 0lassification of -oans and Advances.

Approval Aut"ority:
0redit approval authority has been dele"ated to Branch Mana"er! 0redit 0ommittee by the MDDBoard. Dele"ated approval authorities shall be reviewed annually by MDDBoard. Approvals must be evidenced in writin". Approval records must be ept on File with the 0redit application. #he a""re"ate e+posure to any borrower or borrowin" "roup must be used to determine the approval authority re/uired. Any credit proposal that does not comply with -endin" 6uidelines! re"ardless of amount! should be referred to Head Cffice for Approval.

Segregation of

uties:

Ban will aim at se"re"atin" the followin" lendin" function: 0redit approvalD&is Mana"ement &elationship Mana"ementDMar etin" 0redit Administration

$nternal Control 7 Compliance

Ban

already has a se"re"ated internal auditDcontrol department char"ed with

conductin" audits of all branches.

5.

MA:A<-M-:,

S,(&C,&(-

(-SP2:S$B$6$,$-S:
Management Structure:
#he followin" chart represents the Mana"ement Structure: Mana"in" Director

Ho Business DevelopmentD 0orporate Ban in"DMar etin"

0redit 0ommittee

Ho 0reditD&is Mana"ement

Branch Mana"er

Mar etin"

0redit Cfficer

0redit AdmnD Mar etin"

-oan &ecovery

1. P(2C- &(A6 <&$ -6$:-S

Approval process:

#he followin" dia"ram illustrates the approval process:

0redit application &ecommended By Brach Mana"erD &elationship Mana"ementD0orporate Ban in"DSyndication Unit Head Cffice! 0redit Division

Head Cffice 0redit 0ommittee

F+ecutive 0ommittee of Board of Directors

(ecommended 6evels:
Branch Mana"er

elegated

Approval

Aut"ority

# .().;; lac to #J.(.;; crore accordin" to desi"nation of Branch Mana"er 5 Bature of advances # .<).;; lac to #J.=.;; crore accordin" to nature of advances. Beyond the dele"ation power of Branch Mana"erD0redit 0ommittee

0redit 0ommittee F0DBoard

Credit Administration:
#he 0redit Administration function is critical in ensurin" that proper documentation and Approvals are in place prior to the disbursement of loan facilities.

isbursement:

Disbursements under loan facilities are only to be made when all security documentation is in place. 0IB report should reflectDinclude the name of all the lenders with facility! limit 5 outstandin". All formalities re"ardin" lar"e loans 5 loans to Directors should be "uided by Ban"ladesh Ban circulars 5 related section of Ban in" 0ompanies Act. All 0redit Approval terms have been met. A sample documentation and disbursement chec list is attached as Appendi !! which ban will use to control disbursements

Custodial

uties:

Appropriate insurance covera"e is maintained 4and renewed on a timely basis7 on assets pled"ed as collateral. Security documentation to be held under strict control! preferably in loc ed fireproof iron'safe at branches under dual custody.

Compliance (e=uirements:
Fnsure all e+cess 5 e+ceptions are approved from the appropriate credit discretion level. All re/uired Ban"ladesh Ban returns are to be submitted in the correct format in a timely manner. Ban"ladesh Ban circularsDre"ulations are to be maintained and advised to all relevant departments to ensure compliance. All third party service providers 4valuers! lawyers! insurers! 0,As etc.7 are to be approved. -ist of -awyers to be enlisted and approved and circulated accordin"ly.

Credit Monitoring:
#o minimi2ed credit losses! monitorin" procedures and systems should be in place that provide an early indication of the deterioratin" financial heath of borrower. At a

minimum! systems should be in place to report the followin" e+ceptions to Head Cffice! 0redit: ,ast due principal or inters payments! past due trade bills! account e+cesses! and breach of loan covenants: -oan terms and conditions are monitored! financial statements are received on a re"ular basis! and any covenant breaches or e+ceptions are referred to HC 0redit for timely follow'up. #imely corrective action is ta en to address findin"s of any internal! e+ternal or re"ulator inspectionDaudit. All borrower relationshipsDloan facilities are reviewed and approved throu"h the submission of a 0redit Application at least annually.

Credit (ecovery:
#he &ecovery Unit of Branch should directly mana"e accounts with sustained deterioration 4a &is &atin" of Sub Standard or worse7. #he &U*s primary functions are: Determine Account Action ,lanD&ecovery Strate"y ,ursue all options to ma+imi2e recovery! includin" placin" customers into receivership or li/uidation as appropriate. Fnsure ade/uate and timely loan loss provisions are made base o'n actual and e+pected losses.

:P6 Account Management:

All B,-s should be assi"ned to an Account Mana"er within the &U! who is responsible for coordinatin" the action planDrecovery of the account! and should serve as the primary customer contact after the account is down"raded to substandard.

Procedures:
&ecovery Units should ensure that the followin" is carried out when an account is classified as Sub Standard or worse: Facilities are withdrawn or repayment is demanded as appropriate. Any drawin"s or advances should be restricted! and only approved after careful scrutiny and approval from HC 0redit. 0IB reportin" is updated accordin" to Ban"ladesh Ban "uidelines and the borrower*s &is 6rade is chan"ed as appropriate. -oan loss provisions are ta en based on Force Sale Kalue 4FSK7 -oans are only rescheduled in con$unction with the -ar"e -oan &eschedulin" "uidelines of Ban"ladesh Ban . Any reschedulin" should be based on pro$ected future cash flows! and should be strictly monitored. ,rompt le"al action is ta en if the borrower is uncooperative.

:on Performing 6oan (:P6) Monitoring:

A 0lassified -oan review 40-&7 should be prepared by the &U Account Mana"er to update the status of the actionDrecovery plan! review and assess the ade/uacy of provisions! and modify the ban *s strate"y as appropriate. #he proper authority should approve the 0-& for B,-s.

:P6 Provisioning and 0rite 2ff:

#he "uidelines established by Ban"ladesh Ban for 0IB reportin"! provisionin" and write off of bad and doubtful debts! and suspension of interest should be followed in all cases. &e"ardless of the len"th of time a loan is past due! provisions are to be raised a"ainst the actual and e+pected losses at the time they are estimated. #he approval to ta e provisions! write offs! or release of provisionsDup"rade of an account should be restricted to the 0redit 0ommitteeDF+ecute 0ommittee or Board.

Credit management policy of 8anata Bank: Accounting policies related to Advances:

4a7 Interest on advances i. Interests is calculated on classified loans and advances as per Ban"ladesh ban circulars and ept in interest suspense account and credited to income on reali2ation. ii. Interest is calculated on a daily product basis but debited to the party*s loan account /uarterly. Bo interest is char"ed on bad and loss loans advances from the date of filin" money suits a"ainst the borrowers. 4b7 ,rovision for bad and doubtful debt 6eneral and specific provisions a"ainst bad and doubtful loans and advances are made in the boo s of the Ban *s head office on the basis of information furnished by the branches. 4c7 Interest and discount income

Interest on loans and advances! investment and other assets and discount income are stated at "ross amount as per re/uirement of B&,D circular L (> dated <) 9une <;;= 4d7 Interest suspense and penal interest accounts. Interest suspense and penal interest! if any! calculated on classified advances are ta en into income in the year of receipt of such interest from the defaultin" borrowers. Ban"ladesh Ban issued circular on ;%.(;.;= to mana"e the main ris in ban in" business. In this conte+t 9anata Ban rearran"ed its conventional credit mana"ement based on the circular issued by Ban"ladesh Ban .

,"e main ob3ectives are:

#o establish more powerful and or"ani2ed credit mana"ement. #o reduce loss. #o earn profit in acceptable manner. #o establish credit mana"ement based on information and communication technolo"y. #o establish credit mana"ement considerin" "lobali2ation! free mar et economy! decentrali2ation and international environmental factors. #o establish stron" credit "uideline. Se"re"ation of duties. #o establish ris mana"ement culture.

6ending <uidelines:

#he followin" lendin" "uidelines have been established for $anata ban in <;;> which are sub$ect to chan"es. Fnsurin" profitability. #o encoura"e activity for socio economic development! poverty reduction and increase employment. 0redit assessment and ris "radin". Se"re"ation of duty of e+ecutive and officials related to credit mana"ement. Determination of credit bud"et and sect oral distribution. -endin" 0ap. ,revention of credit centrali2ation and ensure diversification of credit flow: Mone based distribution. Sector based distribution. &eduction of lon" term lendin". 6ivin" emphasis on a"ro based industries. #o e+pand and consolidate of e+port business. #raditional sector. ,riority imposed sectors. 0reation of new credit sector. Banned sector. 0ompetitive interest rate. Assessment credit /uality. Assi"n of security. Decentrali2ation of credit "rantin" authority and proper monitorin". -endin" "uidelines are discussed briefly as follows:

-nsuring Profitability:

#hrou"h various credit mana"ement policies and realistic measures! such as increase performin" loan portfolio! reduction of credit cost. It is mentionable that before "rantin" credit! its feasibility! viability and profitability should be ensured.

Active encouragement in t"e development of socio economy> poverty reduction and increase of employment:
For poverty reduction and increase of employment special pro$ects have been adopted. In this conte+t! credit has been "ranted to AA special sectors. #he sectors are forestation! nursery! fishery! and others.

Assessment of credit and risk grading:

0redit ris should be measured based on new ris mana"ement as well as traditional ris mana"ement and appropriate action should be ta en.

6ending Cap:
6ending cap in case of individual> organi?ation and group: Accordin" to MCU credit should not be "ranted more than )I of paid up capital to any individual! or"ani2ation or "roup. Syndication:

It is necessary to "rant credit to any individualDfirmD"roup more than )I of paid up capital! syndication is necessary with other state owned ban and at least one private ban .

6imit of credit of large sum: 0redit of ()I of ban total capital is called credit of lar"e sum. Bo ban can offer more than ()I of its capital to any individual! firm or "roup.

isbursement of credit budget and sect oral distribution:

Credit Budget 5//4

Balance <;;= Balance
,articulars

F+pecte ,erce nta"e I I of increase liability distribution collection <;;> 4F+pected7 d Balance as at =(.(<.; > ,ercenta "e I

as at =(.(<.;=

4Actual7 distribution 0ollection

as at =(.(<.; <

F+port -oan Import -oan Industry -oan Killa"e -oan 6eneral -oan Brid"e Financin " Balance end of the financial year A))A.A? (=???.A; (=(?@.=? (;;)@.); (;;I ).<( (>A=A.(( (>>=?.?( (;)?(.; ; (;;I (A.@@ ;.%% (A.(( ;.(A '=.@% ' ;.@; (@.=( ;.(% ?%A.>A )<%<.?; <=<.=@ <A(?.?( <(;.?; <=;@.=% %;(.<% )@@;.@> ?.A% )@.>% '=.<( ((.)= )<).;; ==%A.(( >;(.A; =(A%.>% @<>.=% ?;?<. )> %.@; )%.>; (>>).)A (@=.<< =;A.(@ (=(A.?= (=.(( @.%( <=).;; (=(.); (><=.(= (=.>% (()>.>; ?;>%.?@ ?(?%.A; (;=>.(@ (;.<@ (;.>( ?;;;.;; )A?;.;; (;%>.(@ (;.(% A@@.;; ><@%.;( >(%(.)> ((;=.>% (;.A% ((.?@ >@;;.;; >%>).;; (()@.>% (;.A%

Prevention of credit centrali?ation and diversification of credit:

0redit should be distributed amon" various sectors and it should be diversified in the followin" ways: Mone based diversification: More credit is distributin" in the sector of a"riculture! electricity and others in underdeveloped 2one. Specially e+port oriented a"ro based industry is "iven priority. Sector based diversification 0redit will be "iven to the conventional sectors as usual but ban will adopt cautious step in "ivin" credit to the sectors which are unprofitable and ris y. 0redit will not concentrate in sin"le sectors. 0omparatively small and short term credit will be "iven priority. A"ro based industries will be "iven priority. #he followin" a"ro based industries are included in the prior list. Bread and biscuits! Semai! -accha! chanachur! nuddles etc. Ata! flour and su2y industry. &ice! fried rice! beaten rice industry. Mass room and spirulina processin" industry. Starch! "lucose de+trose! producin" industry. Mild processin" industry. ,aper processin" industry. Shrimp and other fish processin" industries for e+port. 0old stora"e. ,ly wood. A"ro product processin" industries.

-.panding and organi?ing e.port trading:

F+port treadin" will be "iven priority in distributin" credit interest rate has been hu"ely reduced. #he present interest rate is %I

Conventional sector:
,revailin" "eneral credit! import e+port loan! industrial credit! rural credit! a"ricultural credit and other will be contained.

Sectors of priority:
A"riculture and rural sector. F+port oriented industries. Industrial term loan.

:e! sectors:
Fundin" facility to woman entrepreneurs. 9ob holders. 0yber cafe credit. 0omputer. Disable credit. Fasy &eceivable consumers credit loan. Small power plant.

Banded Sectors:
Military e/uipmentD.eapons finance! hi"hly levera"ed transactions! finance of speculative investments! lo""in"! mineral e+tractionDminin" or other activity that is ethically or environmentally sensitive! lendin" to companies listed on 0IB blac 'list or nown defaulters! counterparties in countries sub$ect to UB sanctions! share

leadin"! ta in" an e/uity sta e in borrowers! lendin" to holdin" companies! Brid"e loans relyin" on e/uityDdebt issuance as a source of repayment.

Competitive $nterest (ate:

#o ma e our e+portable product compete in the international mar et! rate of interest has been reduced. Moreover interest rate of all inds of credit has been reduced to increase the flow of credit.

Assessment of credit c"aracteristics:

0redit should be analy2ed in term of its nature. -on" term credit would be reduced "radually and term loan should be e+panded.

ecentrali?ation of aut"ority of credit distributors proper monitoring:

0redit distribution authority has been decentrali2ed and as a result flow of credit has increased.

2bservation and recovery of loan:

#o recover loan plan has been made in each branch. 0lassified loan will be reduced. #he followin" steps are ta en: Seminar. ,ac a"e reward. #hreat for dissatisfactory result in credit handlin". Mobile team. ,roper application of law. Farly alert process.

C"apter:/+ %und $nvested By ,"e Selected Banks

$ntroduction:
,roper utili2ation of fund is essential behind the success of a ban . #he nature! pattern and allocation of the sample ban s! invest able resources is the main point of my interest in this chapter. #he classification of the ban s advances in to! lon"! short and medium! classification on the basis of allocation to various economic sectors and economic purpose etc .0omparative analysis has been made with respect to their recovery performances! pattern of default. Both the ban s under study have been en"a"ed themselves in e+tendin" lon"! medium and short term loans to various economic sector in the country. As a nationali2ed 0ommercial Ban 9anata Ban e+tend its credit pro"rams all over the economy such as a"ricultural credit pro"ram! "eneral trade and commercial financin"! because 9anata Ban tries to achieve si"nificant profit from its operations and also to improve the economic contributions of the "eneral public in the country. Cn the other hand Dha a Ban -td. because of it*s absolutely profit earnin"s motive always e+tends its credit pro"ram to profitable sectors only which are comparatively low ris and ris free. #he comparative advance distributions of the both ban s are "iven below.

-conomic Sector !ise distribution of 6oans 7 advances of 8anata bank:

Followin" the "uidelines of Ban"ladesh Ban ! credit facilities have been e+tended to productive and priority sectors. #he outstandin" advance of the ban is t . (<>>?.%; crore on =(st December <;;). In e+tendin" credit facilities! the ban has "iven due importance to overall every sectors of economy. #he economic sector wise distribution of advances durin" the year <;;('<;;) of 9anata ban is "iven below:

Ec!n! ic sect!r -ise distributi!n !" '!ans and ad+ances during t#e ,ear *5664756681
9ANATA (ANK *N%(1 *Ta)a in cr!re1 Fconomic sector <;;( i. ii. iii. iv. v. vi. vii. viii. i+. +. +i. +ii. +iii. +iv. +v. +vi. +vii. 9ute industries 9ute trade #annery #e+tile #ransport Steel 5 en"ineerin" #ea Su"ar mills House buildin" &ural credit Bric s 0old stora"e Food F+port credit Import credit Industrial credit Cthers %>%.@% (?.= ><=.A? =%<.%? =;.<% <=(.;( (>.;< A%.(% )<<.)A ??%.<@ %A.?> (;.=@ (?;.() (;(?.) (<%=.;? (;AA.@< <)??.?( <;;< %%@.<@ (.=< >>>.?) =?A.A) <>.)> <;@.)@ (=.AA AA.); )@>.;A %%@.) @@.< A.)> <(?.< (;(A.< (()>.A@ ((>?.=) =;=?.AA Hears <;;= @%;.=? (<.=? >=A.?; =)(.?? <>.;> <?).% (<.(? ((=.<> ?)A.@< ?)@.(< A;.A) (<.=< (<>.<@ (<<;.%@ ();%.@) (>;=.%@ <=%A.(%

<;;> @=%.(; (<.); =?(.?; =?;.(; =?.;; AA.@; (<.<; (=@.<; %=?.>; @=(.=; @).A; @.?; ((?.%; (<A).;; (?(>.>; (=@(.A; <@);.A@

<;;) @)).A; ((.); =%?.); >A).?; ).<; (;).<; (<.); ((?.>; @;(.>; A(%.<; @?.); ().%; (<>.%; ((<).?; <%=;.); (>=%.<; =<<A.(;

#otal

A=<A.A;

AA%>.@%

(;(>?.(A

(;%%@.)@

(<>>?.%;

Sources: (. Statistic Department 9anata Ban <. Annual &eport Hear ended <;;) 9anata Ban =. Annual &eport Hear ended <;;> 9anata Ban

-conomic Sector !ise distribution of 6oans 7 advances of "aka bank limited:

#he outstandin" advance of the ban is t . <(AA.>? crore on =( st December <;;). In e+tendin" credit facilities! the ban has "iven due importance to overall every sectors of economy. #he economic sector wise distribution of advances durin" the year <;;(' <;;) of Dha a Ban -imited is "iven below:
Ec!n! ic sect!r -ise distributi!n !" '!ans and ad+ances during t#e ,ear *5664756681

D#a)a (an) Li ited0 *5664756681

Ta)a in cr!re
Sectors of loan and advances i. ii. iii. iv. v. vi. vii. viii. i+. #otal A"riculture Industrial term lendin" .or in" capital F+port #rade and commercial lendin" Special pro"ram Urban housin" Cfficers and staff house buildin" loan Cthers (;.%< (%%.(= ((.;> <)=.<( (<.@( <A<.%= <(.@% (>%.@= <A.)@ >=<.(% 2199.46 <>A.A% >%.(< @A.=< >?<.<; >?.(% >=;.=? %>.;% @;(.@) ()=.)> %@.== @>@.(? <;@.?< (;>.?= <;;( ?.?( (<?.%? <;A.@( (;%.<( <;;< >.%? ((;.)% <.<@.;; (>=.;( Hears <;;= <.%( (@).;? (<>.<% (;%.%=

<;;> (.A@ <;(.;? (=;.%) ((?.(%

<;;) (.?> <A@.<% (>%.)( (<@.@@

A;.)%

)A.@A

(;<>.?;

((<(.(;

(<@@.%;

(?)=.A;

Sources: (. Statistic Department Dha a Ban -imited. < Annual &eport Hear ended <;;) Dha a Ban -imited. =. Annual &eport Hear ended <;;> Dha a Ban -imited.

(emarks:

From the above tables we see that DB- was very much interested to "o throu"h on short term commercial and trade loans and advances. #hey are also not e+tendin" their credit co'operation in the a"ricultural sector as well as Industrial term lendin". #he other*s classification of DB- credit pro"ramme includes mainly the credit for F+port e+pansion. Bedises! 9anata Ban too participation in all aspects of the economy whether profitable sector or not.

:ature !ise distribution of loans and advances of 8B6 7 B6

*Ta)a in cr!re1 Nature -ise distributi!n !" '!ans and ad+ances *5664756681

year Ban s <;;( 9B DB<;;< 9B DB<;;= 9B DB<;;> 9B DB<;;) 9B DB0D0 >=>(.)A >(<.(> >?>;.?@ ><=.A= >=)%.A( )=).?; =@)?.>< %(A.=; >@=%.>= @<%.;= CDD )<).<; (@;.>A ?;(.== @A.?< >;(.)? ?;.); %(%.@> =>.%@ ?%?.%; )@.((

Forms of 0redit -#& 00S ,AD

Cthers >>?=.(( >=<.;% >%=<.@? ===.A= )=@?.%< )().A@ ?<>;.=< %>A.AA ?A=<.)% ((<@.(>

#otal A=<A.A; (;<>.?; AA%>.@% ((<(.(; (;(>?.(A (<@@.%; (;%%@.)@ (?)=.A; (<>>?.%;
2199.46

(?;.@% (<).<A (;=.A? (=(.?;

((<.@@ )(.)> >).?A )>.?(

Sources: (. Statistic Department 9anata Ban . <. Annual &eport Hear ended <;;) 9anata Ban . =. Statistic Department Dha a Ban -imited. >. Annual &eport Hear ended <;;) Dha a Ban -imited. ). Advance department Dha a Ban -imited.

(emarks:

Both 9B and DB- F+tend their credit pro"rammes under various terms and conditions. 0ash credit refers to the "rantin" of credit by the ban s to its customers for a lon" period and for a lar"er amount. It is also a seasonal borrowin" renewed each season of year. #he ban places the a"reed amount of advancer to the credit of the customers account "ains some securities. Fven thou"h the ma+imum amount to be advanced is credited to the customers account! the ban chares interest only on the amount actually withdrawn by the customers. Both the ban s e+tend financial accommodation to their customers who are already operatin" current accounts with them throu"h overdraft1 -IM: and other facilities. Cther facilities includes bills purchased and discounted both 4forei"n and local bills7 etc.

$nstitutional Sector !ise distribution of %und:

F'!- !" L!ans and Ad+ances t! :ub'ic and :ri+ate Sect!r *5664756681 4#a a in 0ores7 9B ,ublic Hear Sector ,rivate Sector #otal ,ublic Sector DB,rivate Sector #otal

<;;(

>;;).%@

)=<>.(<

A=<A.A;

BA

BA

(;<>.?;

<;;<

=<(@.@A

?%)).A@

AA%>.@%

>;).()

%(?.<;

((<(.(;

<;;=

>?(A.)%

))<?.?<

(;(>?.(A

<@%.<%

(;;(.?>

(<@@.%;

<;;>

(%=%.=<

A;>(.<?

(;%%@.)@

(<@.(<

()<).?

(?)=.A;

<;;)

)>%=.(<

?A%=.)@

(<>>?.%;

<;<.<(

(AA%.<@

2199.46

Sources: (. Statistic Department 9anata Ban . <. Annual &eport Hear ended <;;) 9anata Ban . =. Statistic Department Dha a Ban -imited. >. Annual &eport Hear ended <;;) Dha a Ban -imited.

(emark:

As a nationali2ed commercial ban 9anata Ban invests a lar"e portion of its funds to public sector1 thou"h it has a notable participation in the private sector trade and business also. Besides as a private ban and also a profit motive ban DB- always avoids public sector investment as far as possible. From the above table we can see that in avera"e >>I of total advance of 9anata ban is in public sector and )?I in private sector. Cn the other hand in avera"e AI of total advance of Dha a Ban -imited is in public sector and A(I in private sector. So from here we can say that 9anata Ban "ive more emphasis on the public sector. But in the recent years! DBta es some interest in public sector investment.

(ural Credit> Micro -nt. 7 Special program financing B; 8anata bank :

As nationali2ed commercial ban it has a social responsibility to improve the financial condition of the poorDunemployed people. .ith a view to perform that social responsibility! ban has initiated rural credit pro"ram since (A%>. Bow under this rural credit portfolio there are == products. Information related to important products under this pro"ram are shown below:

Sl ;( ;< ;= ;> ;) ;? ;% ;@ ;A (;

Bame of the products

Bo. of -oanees Cutstandin" #a a'<;;) @.?; (>.@; %AA.); =A.@; @;.%; =).>; >>@(.; (A@; (;.<; ?@<<.=; (<=(<.(;

0yber cafe loan =? 0redit for forestyDBursery ??= 0redit pro"ram for )<(?% Fmployees Financin" .oman <(?

Fntrepreneurship Financin" 6oat 5 Sheet ((A@> Farmin" 6haroa ,ro$ect 0orp -oan ,ro"ram Doctor*s -oan Small business Dev -oan Cthers #otal <=<( =>?)A( )= >% <?=;A? ?%%(%>

Sources: (. Statistic Department 9anata Ban <. Annual &eport Hear ended <;;) 9anata Ban

&aj!r L!an :r!gra s !" 9anata (an) and D#a)a (an) Li ited

9anata (an) ID% (. 9ute Miles <. #e+tile and cotton. =. Su"ar Miles >. 6arments. ). Iron steel. ?. #ransport. etc A/RI%ULTURAL %REDIT (. Irri"ation e/uipment. <. Handloom credit. =. Fisheries Development. >. Su"ar cane cultivation. ). Fertili2er Dealers -oan. ?. Salt 6rower*s -oan. Ftc. /ENERAL %REDIT (. #rade and 0ommerce. <. -ar"e medium and small Manufacturin". =. Import and F+port financin". >. &eal Fstate. ). Cverseas and Forei"n #rade and bills. ?. Cthers. ID% (. 6arments <. #ransport.

D#a)a (an) Li ited

=. -i"ht Fn"ineerin" >. #anneries. Ftc

A/RI%ULTURAL %REDIT (. Fisheries development. <. Su"ar cane cultivation.

/ENERAL %REDIT (. #rade and 0ommerce. <. Small Scale Manufacturin". =. Import financin". >. ,ersonal and ,rivate -oans. ). Cthers.

C"apter:/@

Credit Comparison 7 Analysis.

Percentage of ma3or credit program as against total outstanding credit of 8anata Bank: As at 1*st ecember 5//+.

9ute industries' ?.@@I 9ute trade' .;AI #annery' =.;<I #e+tile' =.A@I #ransport' .;>(I Steel 5 en"ineerin"' .@)I #ea(' .(;I Su"ar mills' .A>I House buildin"' ?.>>I &ural credit' %.=%I Bric s' .%;I 0old stora"e' .(=I Food' (.;I F+port credit' A.;>I Import credit N <(.A=I Industrial credit' ((.))I Cthers' <).A>I

Grap"ical presentation is given below#

fig-6.1

1 12

2 13

3 14

4 15

5 16

6 17

10

11

:ercentage !"

aj!r credit $r!gra

as against t!ta' !utstanding credit !" 9(

Percentage of ma3or credit program as against total outstanding credit of

"aka Bank 6imited: As at 1*st ecember 5//+.

A"riculture '.;@I Industrial term lendin"' ().;=I .or in" capital'%.>=I F+port '?.);I #rade and commercial lendin"'=(.A;I Special pro"ram'(;.)(I Urban housin"').<%I Cfficers and staff house buildin" loan'(.); Cthers'<(.%@I

Grap"ical presentation is given below#

fig 6.2

:ercentage !"

aj!r credit $r!gra

as against t!ta' !utstanding credit !" D(L

eposit) Advance (atio:

Bormally ban s are directed to invest not more than %)I of their total available li/uid fund. But this is not a hard and fast rule in the sense that if Ban"ladesh Ban is satisfied about their li/uidity position then the ban may invest more then that limit. #he deposit advance ratio indicates the ban s usual performance in respect to their fund utili2ation because idle fund always incurs costs. #he deposit advance ratios of both the ban s have decreased in the year <;;> as compared to the previous years.

Tabular presentation is given below:

De$!sit Ad+ance Re'ati!ns#i$s !" 9( and D(L
Ta)a in i''i!n

Ban

,articulars

<;;;

<;;(

<;;<

<;;=

<;;>

Advances

@;A)<.A

A=<AA.;

AA%>@.%

(;(>?(.A

(;%%@).@

9B

Deposit &atio Advances

(;>?%@ 60;; )>()

(<);??.> 60;< (;<>?

(=@@A<.? 60;4 ((<((

(=@)A% 60;= (<@@%

()(;=? 60;4 (?)=A

DBDeposit &atio (;%>A 6086 (%%;? 608; (?@)> 60>> (@=?? 60;6 <)%;; 60><

>. Annual &eport Hear ended <;;) 9anata Ban ). Annual &eport Hear ended <;;> 9anata Ban ?. Annual &eport Hear ended <;;) Dha a Ban -imited. %. Annual &eport Hear ended <;;> Dha a Ban -imited.

Grap"ical presentation is given below# Deposit advance ratio of JB & DBL

0.8 0.7 0.6 Advance as a 0.5 0.4 % of deposit 0.3 0.2 0.1 0 1 2 3 Year 4 5

Janata bank Dhaka bank limited

%ig)@.1

-mployee Advance (atio:

#his ratio shows human resource mana"ement efficiency as compared to the utili2ation of available fund. #his is one of the most important measures of ban s fund allocation efficiency. #he ratio shows the proficiency in "eneral rather specific. #he employee'advance ratio of both the selected ban s is shown in the followin" table:

$abular presentation is given below#

E $'!,ee7Ad+ance Re'ati!ns#i$ !" 9( and D(L

#a a in million Ban ,articulars Advances 9B Bo of Fmployee &atio Advances Bo of Fmployee &atio (?A>% >.%% )>() >;? (=.== <;;; @;A)<.A <;;( A=<AA. ; (??A< ).)@ (;<>? >A) <;.?A <;;< AA%>@. % (?==; ?.(; ((<(( )=< <(.;% <;;= (;(>?(. A ()AA= ?.=> (<@@% )?@ <<.?@ <;;> (;%%@).@ ()%;) ?.@? (?)=A ?(? <?.@>

DB-

Grap"ical presentation is given below#

Emp o!ee advance Re ations"ip of JB & DBL
30 25 20 Ratio 15 10 5 0 1 2 3 Year 4 5

DB-

/B

%ig @.4

(emarks:
#he human resources 4H&7 of DB- are better set for the achievement of the or"ani2ational "oals. #he position of per employee loans and advances is very much

satisfactory and the ratio increased "radually. ,er employee advances of DB- in <;;># <?.@> million a"ainst #J. (=.== million in <;;;at is the increasin" tend was (;(I#his increasin" ratio between the year <;;( and <;;< was only (.@=I and in between <;;= and <;;> it was only (@.=>I. #his implies that the increasin" trend "radually increased. Cn the other hand! the position of 9anata Ban in that respect was not so "ood and its increasin" trend was also very small. In <;;> per'employee advances was #J. ?.@? million as a"ainst # . >.%% million in <;;;. #he increasin" rate over the time under study was only >=.@(I. #he poor employee advance ratio of 9B is due to its "rass'root level service and operational features.

Branc" Advance (atio:

Branch'advance ratio is an indication of the branch mana"ement performance and as well as the contribution of the branches in fund utili2ation and over all profitability contributions thereon. #he two ban s under study are different with respect to the areas of their operational level. DB- operates only within the urban areas whereas 9B is functionin" both in urban and rural areas. So the analysis as a"ainst the branch' advance ratio is only "eneral not specific. For 9anata Ban the ratio of advance per branch is very poor as bi""est nationali2ed commercial ban in the country. Cn the other hand the ratio of advance per branch of DB- is very hi"h.

#abular presentation is "iven below:

(ranc#7Ad+ance Re'ati!ns#i$ !" 9( and D(L

#a a in million Bame of the Ban Advances 9B Bo of Branches &atio Advances Bo of Branches &atio @A@ A;.(> )>() (> =@?.%@ @;A)<.A A=<AA. ; A;; (;=.?? (;<>? (% ?;<.%; AA%>@. % @%; ((>.?) ((<(( (@ ?<<.@= (;(>?(. A @>% ((A.%@ (<@@% <; ?>>.=) (;%%@).@ @>% (<%.<) (?)=A <= %(A.;@ ,articulars <;;; <;;( <;;< <;;= <;;>

DB-

Grap"ical presentation is given below#

Branc"-Advance Re ations"ip of JB & DBL

800 700 600 500 Year 400 300 200 100 0

JB DBL 1 2 3 Ratio 4 5

%ig: @.+

C"apter: /' (ecovery of advances

$ntroduction:
#he most important part of sound credit mana"ement is of disclosin" the recovery of loans and advances! problems thereon defaulter patterns! provisionin" a"ainst bad and doubtful loans and advances etc. Usually ban *s credit mana"ement performance represents the recovery performance of loans and advances as a"ainst the utili2ation of funds. Because! it has substantial impact on the ban s ultimate profit performance. In this 0hapter the recovery performance of both the ban s under study are critically analy2ed from various socio'economic points in the county.

:r!gra

es "!r '!an rec!+er,:

It is the subse/uent step of pro"rams for loan distribution. #he detailed pro"rammes for loans recovery are stated within the terms and conditions of loans distribution. As a result! it is not a new sub$ect in sound credit mana"ement. As the recovery performance of commercial ban s both public and private sector in Ban"ladesh "radually decreasin" over time! "overnment as well as the board of directors of the respective ban s have ta en some special pro"rammes in the area of recovery. As the bi""est B0B in Ban"ladesh! 9anata Ban *s recovery performance is not in satisfactory level. For increase the loan recovery performance 9anata Ban *s recovery pro"rams are: #o re'structure the loan sanctionin" and distributin" policy of the ban . #o sanction loans and advances a"ainst sufficient securities as best as possible. #o "ive more powers to the branch mana"er in credit mana"ement decisions ma in" process. #o offer a pac a"e of incentives to the sound borrowers.

 #o "ive more emphasis on short term loans and advances. #o impose restrictions on loans and advances for $ust manufacturin" and tradin" business as also for te+tile industries. #o ta e le"al actions /uic ly a"ainst un'sound borrowers as best as possible within the period specified by the -aw of -imitations. Rec!+er, $attern !" '!ans and ad+ances: #hus is the actual focus of this chapter. As the bi""est B0B in the county! 9anata Ban e+pands its credit pro"rammes in each and every corner of the economy. -oans are approved and disbursed thorou"hly &ural 0redit Division 4&0D71 Industrial 0redit Division 4I0D7 and 6eneral 0redit Division 460D7 in 9anata Ban . .here as DBoperates only one division i.e. Advance Division 4AD7 because of their limited operational areas! before analy2in" the recovery performance of the ban s under study the meanin" of the followin" terms should be specific to us. Disburse ent Hi"hest outstandin" balance on any date durin" the reportin" period minus outstandin" balance at the end of the precedin" period. De and "!r Rec!+er,: Cverdue at the end of the reportin" period plus recovery durin" the reportin" period. Rec!+er,: Hi"hest outstandin" balance on any date durin" the reportin" period minus outstandin" balance at the end of the recovery period. Outstanding: Cutstandin" fi"ures in the led"er at the end of the reportin" period.

O+erdue: Demand for recovery minus recovery. Demand for recovery 4DF&71 &ecovery1 Cverdues! and outstandin" amount includes both interests and principal amount. #able shows the detail recovery position of 9anata Ban . Durin" the periods under study 9B never could achieve );I recovery performance as a"ainst DF&. #his is an indication of the ban s inefficient credit mana"ement in respect to its outstandin" loans recovery. #hou"h the position was improvin" slowly the year <;;= and <;;>1 but later on the situation deteriorated. In <;;) this ban only recovered >AI of its total demand loans as a"ainst );I in the precedin" year. As a result! the overdues percenta"e increased "radually1 and also the amount of outstandin" loans and advances cumulatively increased. Cn the another table shows the recovery performance of the DB-. Information reflects the fact that the recovery performance of DB- was also not satisfactory! &ecovery as a percenta"e of DF& in <;;) was ?=.(<I as a"ainst )A.A?I in the year <;;>. #his situation indicates the positive improvement in loans recovery of DB-.

Rec!+er, :er"!r ance !" N%( *9(1

4#a a in 0rores7

,articulars #otal Disbursement Demand for &ecovery &ecovery Cverdue &ecovery as a I of DF& Cverdue as a I of DF& Cutstandin" <;;( =)>? )A@? <A== =;)= >AI )(I A=<A <;;< =?=< ?>%) <)A; =@@) >;I ?;I AA%)

Hear <;;= )>%? ?@>A =<@@ =)?( >@I )<I (;(>?

<;;> )A<) %<(> =?;% =?;% );I );I (;%%A

<;;) ?)>< %)>> =?A% =@>% >AI )(I (<>>%

Rec!+er, :er"!r ance !" :S%( *D(L1 4#a a in 0rore7

Bow a day ban in" laws and financial re"ulations have introduced additional uncertainty and new dimension of ris for ban in" sector in credit operations. In ,articulars <;;( #otal Disbursement Demand for &ecovery &ecovery Cverdue &ecovery as a I of DF& Cverdue as a I of DF& Cutstandin" (;<>.?; ((<(.(; (<@@.%; (?)=.A;
2199.46

<;;<

Hear <;;= =>@.@(

<;;> ><;.((

<;;) >?;.<%

))<.<=

?<).)>

%<;.))

<%).<= <%%.;; >A.@=

=%).(; <);.>> )A.A?

>)>.@@ (?).?% ?=.(<

);.(%

>;.;>

=?.@@

reviewin" the default ris s! the ban s both in public and private sector must also consider the borrowers* current and potential cost of compliance with recent ban in" laws and re"ulations. For avoid the default loans! ban s should not "ive loans to the client without receivin" the 0lean &eport from the 0redit Information Bouro. 4%I(7

C"apter:/A :ature of efault

$ntroduction:
#he causes of default are multifarious and they vary from sector to sector as well as from institution to institution. #his chapter is intended to identify and measure the impact of the poor loan recovery on the profit performances of the commercial ban s of Ban"ladesh.

0"at is defaultB
Bormally the term default refers to the non'repayment of loans and advances within prescribed time limit. #hose who subse/uently default are termed as defaulter. Before (A@A there was no specific "uideline for commercial ban s in Ban"ladesh to identify their default borrowers. Durin" that time it was mostly dependent on the discretionary power of respective ban and also on the ODepartment Cf Ban in" Inspection* 4DBI7.

Classified loan of 8anata Bank

%'assi"ied L!an !" 9anata (an) *Ta)a in cr!re1

Hear #otal loan Unclassified loan 0lassified loan

(AA? (AA% (AA@ (AAA <;;; <;;( <;;< <;;= <;;> <;;) >@%) )<A) )%== %=>( @;A) A=<A AA%) (;(>? (;%%A (<>>% BDA BDA BDA BDA =>>; 4?;7 <<A= 4>;7 >)<A 4?<7 <@(< 4=@7 )(>) 4?>7 <A); 4=?7 ?>A% 4%;7 <@=< 4=;7 %;=( 4%;7 <A>> 4=;7 %@@( 4%@7 <<?) 4<<7 @A@( 4@=7 (%A@ 4(%7 ((;<= 4@A7 <=<> 4((7

Rec!+er, *9(1:

Cut of # <A); crores classified as unsound credit as on <;;;1 only # )A; crores could be reali2ed as on the subse/uent inspection date of <;;(. #hat is only <;I could be possible to reali2e1 which indicates the ban s low performance in credit recovery mana"ement. #his proportion a"ain deteriorated in the subse/uent inspection period. Cut of # <@=< crores classified as on <;;(! only # .);A.%? crores was reali2ed as on the later inspection date of <;;<1 which was only (@I as a"ainst <;I of the previous inspection date. #he credit recovery ratio is "radually decreasin" and the percenta"e of classified loan is decreasin".

Classified loan of

"aka Bank 6imited:

%'assi"ied L!an !" D#a)a (an) Ltd *Ta)a in cr!re1

Hear #otal loan Unclassified loan 0lassified loan

(AA? (AA% (AA@ (AAA <;;; <;;( <;;< <;;= <;;> <;;) BA BA BA BA )>< (;<) ((<( (<@A (?)> 2199 BA BA BA BA BA BA BA BA );( 4A<7 >( 4;@7 A>) 4A<7 @; 4;@7 (;>> 4A=7 %% 4;%7 (<>? 4A?7 >= 4;>7 (?<? 4A@7 <@ 4;<7 (@=< 4@=7 =?% 4(%7

Rec!+er, !" D(L: <@=< Cnly # (;.<) crores were reali2ed out of # >( crores classified as on

<;;; which represent only <)I of the total classified amount. #his recovery percenta"e decreased in the subse/uent inspection date. Cnly t .(?.@ crores were recovered durin" the period! as a"ainst # @; crores of classified credit on <;;(. .hich represent only <(I of the total classified amount. #hat is! the recovery performance of the ban *s mana"ement in credit operations of the ban . #he ban *s percenta"e of classified loan is increasin".

Conclusion:
Ban and financial sector may be termed as the vital complementary power of the economy! But the uncertainly in respect to effectiveness of this sector in the

economy continuously increase over time! now a days it is an open secret that B0Bs in Ban"ladesh are under direct control of the respective ministry and the private commercial ban s in Ban"ladesh are "oin" ahead accordin" to the directions of the directors! that is meanin" of the term Oban in" is beyond considerations in both cases whether it is public sector or private sector ban . In most cases sale of favour e+ist rather than ban in". 0redit mana"ement of the B0Bs in Ban"ladesh was so meanin"less and corrupted as it is now assumed that more than # .<>;; crores has become unreali2able from the total loans and advances disbursed within the previous A years. Another source reported that out of # (A;; crores disbursed to various economic sectors by the B0Bs in Ban"ladesh within the last () year! # N crores became unreali2able and was considered as bad or loss. Cnly tow hundred luc y persons were responsible for these over dues loans and advances of # );;; crores

C"apter: C

(ecommendation and conclusion

Summary and findings of t"e study:
As mentioned earlier the ob$ectives of the study is to ma e a comparative evaluation of the credit mana"ement performances between public and private sector ban s in Ban"ladesh as on a sample basis and the scope of the study was desi"ned in such a manner to achieve the ultimate ob$ectives of the study and I thin that the results and findin"s of the study which are stated below will coincide with the predetermined ob$ectives of the study. P From their historical bac "round and ori"in the two ban s under study are

/uite different from each other with respect to their ob$ectives! or"ani2ation structure! and operational areas and so on. As an B0B! the ob$ectives of 9anata ban are to earn profit as well as to improve the economic welfae of the people as well to improve the economic welfare of the people as a whole. Cn the other as a private ban ! DB-J always wants to earn satisfactory profit with little emphasis on all the variables of the economic welfare of the people. P #he nature and types of advances of the two ban s shoe some diver"ences.

First! 9anata Ban has been e+tendin" a si2able amount of lon"'term pro$ect financin" in both a"ricultural and industrial sectors! while DB- has an insi"nificant role in lon"' term financin" in any of these two sectors. Second! a ma$or proportion of 9anata ban *s loan "oes to the a"ricultural sector for the rural farmers while DB- has no contribution in a"ricultural financin". #he DB- loans and advances are dominated financin" on a short'term basis to the industries mostly to international trade. P ,rivate sector ban s in Ban"ladesh were located in few metropolitan and

urban cities ne"lectin" the vast and potential rural areas unban ed. #he rural people are almost outside the credit networ of DB-.

,rivate sector ban in" reminded confined to industry and trade business

i"norin" vital interests of priority and ne"lected sectored includin" a"riculture! small' scale industries! etc P Fconomic de"ree of connection on of economic power e+isted in the ban s

both in public and private sector contrebuted to the enormous "rowth of only a few persons fore a few persons for a few bi" business houses leadin" to concentration of industrial and political monopolies. P .ith a view to implementin" "overnmental policies 9anata ban has been

maintainin" its pioneer position in e+istin" loans to "overnmental bodies. Sectors! corporations and private enterpriners but DB- still now has an insi"nificant contribution to public sector entrepreneurs in the country rather it has predominant role in the private sector band individual persons. P 0ontributions of 9anata ban in trade and commerce financin" decreased

"radually over time. P Dha a ban limited was comparatively efficient in processin" and e+ecutin"

le"al actions a"ainst defaulters for their non'repayment of loans and advances in due time than that of 9anata ban ! 9anata ban too more time in that respect and the number of pendin" cases increased "radually over time that reason. P =;7 P ,olitical misuse of credit pro"rams operated by 9anata ban was a common #he credit mana"ement system both in public and private sector in Ban"ladesh

are far from the "uidelines stated by International Accountin" Standard L =; 4AIS L

phenomenon. Cn the other hand director*s misuse of loan pro"rams operated by Dha a ban was a continuous event. Accordin" to Ban"ladesh ban inspection report loans are "iven to the directors beyond their limit.

So Ban"ladesh is an a"ricultural country that Dha a ban limited should "ive

loan to the a"ricultural sector more and 9anata ban should provide lendin" facilities more liberally. P #he deposit advance ratio indicates the ban s usual performance in respect to

their fund utili2ation. #he deposit advance ratio of Dha a ban limited was''''' 566<7 ><0=8 ?@ 566=7;604; ?@ 56657 >>085 ?@ 56647 8;0A; ?@ 56667 860=;?0 Cn the other hand the deposit advance ratio of 9anata ban was ''''' 566<7 ;40=> ?@ 566=7 ;=056 ?@ 56657 ;40A4 ?@ 56647 ;<08B ?@ 56667 ;;0==?0 In avera"e Dha a ban *s deposit advance ratio >40A8 ? on the other hand 9anata ban *s avera"e deposit advance ratio is ;=0>8 ?0 So 9anata ban utili2es more than %=I of its inevitable fund as credit which are "uided by the Ban"ladesh Ban s standard notion in fund utili2ation. But the performance of Dha a ban is not satisfactory.

Conclusions and (ecommendations:

Ban in" sectors no more depends on only on a traditional method of ban in". In this competitive world ban in" sector has stretched its win"s wide enou"h to cover any ind of financial services. Bot only from the local ban s but also from the forei"n ban s! the ban s of today face a tou"h competition. #he ma$or tas s of ban s for ban s to survive in this competitive environment are by mana"in" its assets and liabilities in an efficient way. #o ma e the assets especially loan and advances ban s must have to more cautious and otherwise these asset will became a burden for the ban . #o have fruitful investment ban must have to do the credit appraisal perfectly. Ctherwise loan default culture will never end. I have seen that DB- is not much different from other commercial ban of

Ban"ladesh. It follows the same practice and procedure which is followed by its elders. But one thin" should be mentioned new loan reformation have sli"htly chan"ed the appraisal procedure. #his -endin" &is Analysis ma es the procedure better than previous.

I should say that the standard appraisal procedure is nearly perfect. But ban s have to practice this procedure rather followin" their own procedure. If ban follow the standard appraisal hopefully the chances of failure will be decline in future. -endin" policies in Ban"ladesh should be "eared to "rowth potential. Improvement of credit mana"ement depends on the maintainin" and development of relevant! ade/uate! proper and reliable data base both at private and public sector commercial ban s. #he re"ional imbalance between private and public sector ban s in respect to their computational areas should be removed by enforcin" private sector ban s to e+pand their activities and loan pro"rams in the rural areas. More trainin" should be conducted for the ban ers to improve their analytical ability and professional standard re"ardin" the use of -&A and other tools and techni/ues in selectin" the borrowers and analy2in" the loan proposals. Ban s should be dele"ated to the lower level with ade/uate measures for the necessary control and follow'up for ma in" the lendin" decision and recovery In case of both Ban s one proper standard procedure should be developed for all types of clients and no interpersonal relationship should be involved in approve a loan Ban s should fi+ed'up specific types of client strate"y accordin" to the different character of client. Interest income occupies the ma$or part of the total earnin"s of a ban and ban *s profitability mainly depends on interest earnin" capacity! so ban should establish a research and development cell for the purpose of lendin" analysis and recovery of loans. For /uic information and proper monitorin" of client! private sector and public sector commercial ban s should e+pand computer based data base system. 9anata ban use a software named O$b soft* which facility do not "et all the branches of the ban .

C"apter: */ Bibliograp"y
7Annual 1! ort of Dha*a Ban* -imit!d.&##3. 7 Annual 1! ort of Dha*a Ban* -imit!d.&##0. 7Annual 1! ort of /anata Ban*.&##0 . 7Annual 1! ort of /anata Ban*.&##3. 78!b sit! of Dha*a Ban* -imit!d www.dha*aban*ltd.com 78!b sit! of /anata Ban*. www.9anataban*:bd.com 7Cr!dit 1is* Mana'!m!nt olic( of Dha*a Ban* ltd. 7 Cr!dit 1is* Mana'!m!nt olic( of /anata Ban*. 7 Cr!dit ris* 'radin' manual. Ban'lad!sh Ban*. 7Ban* Statistics. Ban'lad!sh Ban*.

1!s!arch 1! ort"
7 Md. Sar*!r 1ahman Ma*sudur. ACMA.: ;Cr!dit Mana'!m!nt of Comm!rcial Ban*s.< " A Com arati+! stud( of ublic and ri+at! s!ctor ban*s.