Internship Report On Mercantile Bank LTD

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CHAPT!-"
#$T!%&'CT#%$
"." #ntro()ction:
Loans comprise the most important asset as well as the primary source of earning for
the banking financial institutions. On the other hand, this (loan) is also the major
source of risk for the bank management. A prudent bank management should always
try to make an appropriate balance between its return and risk involved with the loan
portfolio. An unregulated banking financial institution might be fraught with
unmanageable risks for the purpose of maimi!ing its potential return. "n such a
situation, the banking financial institutions might find itself in serious financial
distress instead of improving its financial health. #onse$uently, not only the
depositors but also the general shareholders will be deprived of their money from the
bank. %he deterioration of loan $uality will also affect the intermediation efficiency of
the financial institutions and thus the economic growth process of the country. %his
establishes the fact that banks should provide increasing emphasis on various
analytical tools and techni$ues for screening proposals and loan decision taking.
#redit &orthiness Analysis is one of the most important activities before sanctioning
any credit to a new borrower as well as eisting borrower to avoid any default risk
and for improving the operational efficiency of nationali!ed and private sector
commercial banks.

".* !ational o+ the st)(,:
%he principal function of the bank is to lend. Lending comprises a very large portion
of a bank's total activities. (ound lending practice therefore, is very important for
profitability and success of a bank. Like other financial intermediary, commercial
banks also intermediate between the savers and borrower to mobili!e the financial
surplus of the savers and allocate these savings to the creditworthy borrowers of
different sectors of the economy. "n this way they not only help in financial
development of a country, but also facilitate its economic development. )or the sake
of sound lending, it is necessary to develop a sound policy and modern lending
techni$ues to ensure that loans* advances are safe and the money will come back
within the time set for repayment. )or this purpose, proper and prior analysis of credit
proposals is re$uired to assess the credit worthiness for avoiding risk. +isk is inherent
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and absolutely unavoidable in banking. Lending itself is risky and the very purpose
of analy!ing the credit worthiness is to determine whether a particular loan applicant
is credit worthy or not. &hile deciding a loan proposal we should judge the degree of
credit worthiness of individual potential borrower, risk in a given situation. Lending is
a judgment which depends upon ones ability to assess the shortcomings in the
proposals and to identify the risk. Ability in taking prior measures to minimi!e the
risk is very much important. "n the background of the above things, the issue -Cre(it
.orthiness Anal,sis/ has been undertaken as a comprehensive research topic, which
will serve the 00A program.
".1 %b2ecti3e o+ the st)(,
%he basic objective of this paper is to be ac$uainted with how a banking financial
institution evaluate individual potential borrower - based on which sanction different
of credit limit to different customer and charges different interest rate to different
borrower. %hat is what factors determine this decision.
%he specific objectives are.
,. %o fulfill the partial re$uirement of 00A program
/. %o be ac$uainted with the background of the bank, 0ercantile 1ank Limited
(01L).
2. %o know more about the credit sanctioning policy of 01L.
3. %o have an ade$uate knowledge about which factors mostly affects the loan
sanctioning decisions, what amount of loan should be sanctioned to a particular
loan applicant depending on his credit worthiness.
4. %o furnish the possibilities that the commercial banks can etend their epertise
#onsultation services to control risk eposures of a loan.
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CHAPT!-*
%V!V#. %F M!CA$T#4 0A$5 4#M#T&
*." #ntro()ction
0ercantile 1ank Limited was incorporated in 1angladesh as a banking company
under the #ompany Act ,553 and commenced operation on /nd 6une ,555.
7umerically it is just another commercial bank, one of many now operating in
1angladesh, but the founders are committed to make it a little more different and a bit
special $ualitatively. %his bank will have a new vision to fulfill and a new goal to
achieve. "t will try to reach new heights for reali!ing its dream.
0ercantile 1ank Limited, 8A 1ank for the /,
st
#entury8, it is not a mere slogan. %he
1ank has been manned with talented and brilliant personnel, e$uipped with modem
technology so as to make it most efficient to meet the challenges of /,
st
centuries.
As regard the second slogan of the bank 89fficiency "s Our (trength8 is not a mere
pronouncement but a part of their belief, which will inspire and guide them in there
long and arduous journey ahead.
*.* Historical 0ac6gro)n( o+ M04
%he declaration of the :overnment;s bold and far sighted decision to allow banks in
the private sectors to play its due role in the economy of 1angladesh, have started the
process of creating new and dynamic financial institutions. 01L is one such
institution. %he emergence of 01L in the private sector is an important event in the
banking arena of 1angladesh. 01L came into eistence as a <ublic Limited #o.
incorporated in 1angladesh on 0ay /=, ,555 with the primary objective to carry on
all kind of banking business in and outside 1angladesh and to give effect to the bank
of credit and commerce international limited scheme, ,555. )ramed by the
1angladesh 1ank with a view to safeguard the interest of the depositors. 01L
commenced its business from 6une /=,,555 with authori!ed capital >= crore and paid
up capital /3.4 crore. )amous 2= entrepreneurs gave helping hand to set up the bank
at that time. %hen Abdul 6alil was elected as chairman of the 1oard of directors. %he
bank stood 23 branches all over the country upto 2,
st
?ecember ,/==@.
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*.1 Hea( %++ice an( 0ranch $et7or6:
#urrently 01L is operating with one head office and thirty four branches. %he
locations of the head office and name of the branches are described below.-
Mercantile 0an6 4imite(:
Aead office
@,, ?ilkusha #*A, ?haka-,===.
%el. >>=-/-5445222, 0obile. =,B,-@B5=/2
)a. >>=-/-54@,/,2, %ele. @3/4=5 01L"? 16
9-mail. mblCbol-online.com
&ebsite. www.mblbd.com
0ain branch
?hanmondi 1ranch
Dawran 1a!ar 1ranch
6oypara 1ranch
1anani 1ranch
+ajshahi 1ranch
7aogaon 1ranch
(ylhet 1ranch
1oard 1a!ar 1ranch
7ayaba!ar 1ranch
Dhatunganj 1ranch
0ohakhali 1ranch
0irpur 1ranch
Ashulia 1ranch
Ettara 1ranch
6ubilee +oad 1ranch
9lephant +oad 1ranch
0otijheel 1ranch
0adam 1ibir Aat 1ranch
Dhulna 1ranch
(atmasjid +oad 1ranch
6hilongia 1ranch
O+ 7i!am +oad 1ranch.
1ogra 1ranch
#homohoni 1ranch
Donabari 1aranch
*.8 The Corporate 9tr)ct)re o+ Mercantile 0an6 4imite(
%he 1oard of ?irectors, the ape body of the 1ank, formulates policy guidelines,
provides strategic planning and supervises business activities and performance of
management while the 1oard remains accountable to the company and its
shareholders. %he 1oard is assisted by the 9ecutive #ommittee and Audit
#ommittee.
0oar( o+ &irectors
%he board of ?irectors consists of ,2 members elected from the sponsors of the bank.
One-third of the members retired every two years.
:ec)ti3e Committee
All routine matters beyond delegated powers of management are decided upon by or
routed through the eecutive committee, subject to ratification by the board of
?irectors.
A)(it Committee
All matters relating to the principles, policies, rules and regulations, ethics etc. for
operation and management of the bank are recommended by the committee to the
1oard of ?irectors.
*.; %rgani<ational Chart
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(ponsor (hareholders
1oard of ?irectors
Executive
committee
Policy
committee
Managing
Directors
Audit
Committee
Company
Secretary
Chief
Advisor
Asst. 0.?.
?eputy 0.?.
(enior 9e. Fice <resident
9ecutive F.<
#redit ?ivision (enior F.<. %reasury and 0oney
0arketing ?ivision
Fice president
:eneral
(ervice
?ivision
"nformation
%echnology
?iv.
?evelopment
and 0arketing
?iv.
Auman
+esource
?iv.
)irst F.<.
"nternational
?iv.
:eneral A*#
?iv.
Audit and
"nspection
?iv.
+esearch and
planning ?iv.
*.6 Compan, Anal,sis:
*.6." =)antitati3e anal,sis
CAM4 !ating
%he #A09L rating system provides a general frame work for evaluating and
assimilating all significant financial operational and compliance factors in order to
assign a seminary or composite supervisory rating to each regulated commercial bank.
%he purpose of the rating system is to effect in a comprehensive and uniform fashion
on institutions financial condition, compliance with laws and regulations and overall
operating soundness. "n addition it serves as a useful tool for the standard of a
financial institution. "t is the other operator to assess the grade of banks.
Capital A(e>)ac,:
#apital rating is based upon the calculation of the following ratio.
#apital and +eserve (Adjusted)
G ,==
%otal +isk &eighted Assets
+ating ?escription <ercentage
, (tong >H
/ (atisfactory >H
2 )air BH
3 0arginal 4H
4 Ensatisfactory Less %han 4H
Asset =)alit,:
Asset $uality rating is based upon calculation of the following ration.
#lassified Loan
G ,==
%otal loan
!ating &escription Percentage
, (trong Ep to 4H
/ (atisfactory 4.=,H to ,=H
2 )air ,=.=,H to ,4H
3 0arginal ,4.=,H to /=H
4 Ensatisfactory above /4H
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Management !ating:
0anagement +ating is an average of the four ratings given to #apital, Assets,
9arnings and Li$uidity ( #IAI9IL) * 3
, (trong ,-,.35
/ (atisfactory ,.4=-/.35
2 )air /.4=-2.35
3 0arginal 2.4=-3.35
4 Ensatisfactory 3.4-4
arning !atio:
9arnings rating is based upon the calculation of the following ratio.
7et "ncome
+eturn of AssetJ
%otal assets)
, (trong =.>4 and above
/ (atisfactory =.@4-=.>3
2 )air =.34-=.@3
3 0arginal 1elow =.34
4 Ensatisfactory 7et losses
4i>)i(it, !ating:
Li$uidity rating is based upon the calculation of the following ratio
Li$uid assets
G,==
%otal time and demand liabilities
, (trong 2=H and above
/ (atisfactory /=-/=.55
2 )air ,5-,5.55
3 0arginal ,4-,>.55
4 Ensatisfactory 1elow ,4H
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Composite !ating:
#omposite rating is the average of all ratings. %his is calculated as follows.
#IAI0I9IL
4
, (trong ,-,.35
/ (atisfactory ,.4=-/.35
2 )air /.4=-2.35
3 0arginal 2.4=-3.35
4 Ensatisfactory 3.4=-4
Mercantile 0an6 4imite(
CAM4 !ating
)or the year of /==4
arning
7et "ncome %otal Asset +OA +ating
2,/4>,3/@ /3B=4=34=52 ,./BH /
Capital rating
#apital K +eserve
%otal +isk
&eighted Asset
#apital
Ade$uacy +ating
,@,B>,==== ,4B523,==== ,=./3H ,
Asset =)alit,
#lassified Loan %otal Loan +atio +ating
B/@,@B=== ,B@@5/5//B, 3.,,H /
4i>)i(it, !ating
Li$uid Asset
%otal ?emand K
%ime ?eposit +atio +ating
34243=4/@, //2>4,5===== /=./@H /
Management
,.4
Composite !ating
Average +ating ?escription
,.B / (atisfactory
)rom the $uantitative analysis it is found that the average rating of 01L is ,.B which
is between ,.4 to /.3. According to standard rating the rating of those banking
institution having this range is /, i.e., the rating is satisfactory.
*.6.* =)alitati3e anal,sis
9.%T Anal,sis:
(&O% analysis is an important tools for evaluation the company strengths,
weaknesses, opportunities and threats. "t helps the organi!ation to identify how to
evaluation which in turn would help the organi!ation to navigate in the turbulent
ocean of competition.
Although 01L very much conscious about its activity, there also occurs some
irregular activities in its operation specially, in the lending side.
"nsufficient manpower is another shortcoming for proper functioning of the credit
operation. %here is a policy to conduct lending risk analysis but it is hardly done. %he
main strength of the bank is the attitude of its employees toward organi!ation. %hey
are very much united and motivated and devoted to the bank. %heir morale is very
high.
%he recovery rate (less than ,=H) of the classified amount is also unsatisfactory,
though it is not worse than the overall position of the countries other banks.
9T!$?TH9:
a. 9perienced, skilled and proficient
top management
b. #reative and effective bank in the
banking industry.
c. (trong morale of the employees.
d. 0odern facilities and
computeri!ed banking.
.A5$999:
a. #losed +ecruitment <olicyL
b. Lack of effective
aggressive marketing
activities
c. Low remuneration package
for entry level and mid-
level officer.
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e. "nteractive corporate culture.
f. (ponsors directors belong large
industrial conglomerate of the
banking industry
%PP%!T'$#T#9:
a. "ncreasing demand for
advanced and customi!ed
banking servicesL
b. :oing for other domestic and
international market.
c. <ursue diversification strategy
in epanding current line
business.
d. <rovide A%0 service which is
most important in today's
online business.

TH!AT9:
a. Opening of new 1anks with
technological advantages and
innovativenessL
b. "ncreasing number of
defaulters in the economy.
c. (trong competitor like <rime
bank Limited,. 9M"0 1ank
Limited, ?utch 1angla 1ank
Limited.
c. +apid epansion of
multinational bank , eg, A(1#,
(tandard #hartered 1ank Ltd.
*.@ %peration o+ M04
%he importance of the mobili!ation of savings for the economic development of our
country can hardly be over emphasi!ed. %he bank considers savings and deposits as
lifeblood of the bank. 0ore the deposit greater is the strength of the bank. (o they
intend to launch various new savings schemes with prospect of higher return duly
supported by a well-orchestrated system of customer services. %echnologies such as
computer, A%0, telecommunication etc. all would be harmoni!ed and adapted to
the system in order to provide found the clock and any branch services to the
clients.
%he %hree main operating divisions of 0ercantile 1ank Ltd. are as follows.
*.@." ?eneral 0an6ing:
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"t is the most important side for a bank. 1ank is nothing but a middleman between
lenders (surplus sector) and borrowers (deficit sector). %o provide loan, bank needs a
huge amount of money from the lenders. :eneral banking is the side where bank
offers different options to the clients to deposit (save) and remit their money. %o
invite the clients, bank offers different options in front to their clients. 0ost of these
options are very much similar between the banks, but the customer services and
facilities may not be the same.
&i3isions o+ ?eneral 0an6ing in M04:
G Account Opening
G #learing
* +emittance
Acco)nt %pening:
Esually a person needs to open an account with the bank to take services from it.
&ithout opening an account, one can get a few services from the bank. (o we can
say that banking begins with the opening of an account with a bank. :enerally, there
are three types of accounts in our country;s banking system.
A. #urrent ?eposit Account (#? Account)L
1. (avings 1ank Account ((1 Account)L
#. %ime ?eposit AccountL
A. C'!!$T &P%9#T:
#urrent account is purely a demand deposit account because the bankers are bound to
pay the amount to the account holder on demand at any time. "t is a running and active
account which may be operated upon any number of times during a working day.
%here is no restriction to the number and the amount of withdrawals from a current
account.
0. 9AV#$?9 0A$5 ACC%'$T:
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%his is an account for a student, an employee, a widow and an organi!ation that is not
working for profit. "t pays interest to the client and the service charge of this account
is less than the #? Account.
C. F#A& &P%9#T A/C:
A deposit that is received for a specific period of time, paid with interest after the
period is over, is called fied deposit. "t is also called %erm ?eposit.
Clearing:
%here are two type of clearing.
Out-ward #learing
"n-ward #learing.
Other banks che$ues which are submitted to 01L for collection is known as Out-
&ard #learing #he$ue. %he bearer of the che$ue has to have an account in 01L to
clear the che$ue. After submission of the che$ue, the bearer has to fill up a deposit
slip against the che$ue, then the in charge of that department entry the information of
the che$ue in the log book and send the deposit slip to the computer section for
computer entry. At the end of the day, the in charge make clearing slip for each
che$ue through computer using a customi!e software (7"DA(A) supplied by
1angladesh 1ank (11). And finally these che$ues are sent to the 11 clearinghouse
then clearing house sends these to the different banks.
!emittance: +emittance refers to sending of money that is the process of sending
money from one place to another is called remittance. 1anks remit funds one place to
another through the network of their branches. %he main instrument for remittance of
funds is drafts, mail transfer, telephone transfer and traveler;s che$ues.
0an6 &ra+t:
A bank draft is an unconditional order issued by one branch of a bank on its branch
to pay a certain sum of money to the named person or order of demand.
Telegraphic Trans+er:
%elegraphic %ransfer, it may branch %elephonic or %9L9M %ransfer means
fund*money transfer from one branch to another branch not in same area. (ometimes
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the remitter of the funds re$uires the money to be available to the payee immediately.
"n that case the banker is re$uested by him to remit the funds telegraphically. %he
bank passes %.% by a secret code, which input by the :1 in-charge K branch
0anager.
Pa,ment %r(er BP/%C:
<ay Order gives the payee the right to claim payment from the issuing bank. "t can
be encashed from issuing bank only. Enlike check, there is no possibility of
dishonoring pay order because before issuing <ay Order, bank takes out the money
of the pay order in advance. <ay Order cannot be endorsed or crossed and so it is not
negotiable instrument.
*.@.* Cre(it &epartment
"t is a very important department and it;s a major income side for a bank. %his
department mainly deals with loans and advances. %here is two major part of this
department.
a. )unded <art (<roviding #ash Amount to the #reditor).
b. 7on-)unded <art (7o #ash Amount "nvolve).
aC F)n(e( Part:
Over ?raft and loan comes under this section. 1y taking a collateral (most of the time
holding nay financial instrument, like )?+, (anchay <atra etc.) from the borrower
bank allow to take over draft facility is a continuous process (borrower can deposit
and withdraw money at same time) borrower has to pay interest on the withdrawn
money. "nterest of credited amount is 15%. %o provide a loan, bank job is to do-
lending risk analysis. %here are two types of loan.
%ime loan (not more than one year).
%erm loan (more than one year).
b. $on-F)n(e( Part:
%here is no cash amount involved in this kind of loan. 1L# (1ill for L*#) and bank
guarantee falls in this kind of loan. "n case of 1L# foreign echange department
mainly deals with it.
*.@.1 Foreign :change
%his department deals with foreign currency and the transaction of it. %he major jobs
of this department are listed below.
Letter of #redit ()or 9port and "mport).
?ollar*%raveler #he$ue (%#) endorsement,
)oreign +emittance.
)oreign #urrency Account
a. 4etter o+ Cre(it B4/CC
"n case of any foreign trade there must be a L*# procedure. As we know, there is no
guaranteed relationship between importer and eporter. As a result, they use a media
to secure their goods and currency. (o, eporter and importer use their respective
bank as a media and L*# is a legal obligation between eporter and importer. "n case
of import the importer have to submit necessary documents to his respective bank (the
issuing bank).
b. &ollar an( Tra3elerDs Che>)e n(orsement:
01L is an authori!ed dealer of American 9press %*#. At the same time, they can
buy and sell %*# and dollar every morning they get a tele from head office, which
carries the rate of foreign currency of that day. 01L do not fi the rate by them, they
use the rate of 6anata 1ank. At the end of each month, they submit all supportive
documents and transaction condition of the whole months and balance to 1angladesh
1ank and their head office.
c. Foreign !emittance:
)oreign ?? and paying or receiving any bill from foreign country is known as
foreign remittance. %he amount of foreign remittance is very significant in 01L.
(. Foreign C)rrenc, Acco)nt:
A foreigner a wage earner working in foreign country can open this account. 01L
mainly maintain ?ollar account, but it is possible to open an account in other
recogni!e foreign currency (1ritish pound, ?eutsche 0ark, )ranc etc.). %he account
holder gets a che$ue book against the account. and has to mention the amount m
respective currency.
*.E F#$A$C#A4 P!%&'CT A$& 9!V#C9 %F M04
0ercantile 1ank Limited has different types of scheme for a customer. %hese are as
follows as.
Financial pro()cts
&eposit 9cheme Cre(it 9cheme
0onthly (aving
(cheme
?ouble 1enefit
?eposit (cheme
(pecial (aving
(cheme
)amily 0aintenance
?eposit
<ension and )amily
(upport ?eposit
<ersonal Loan (cheme
#onsumer #redit
(cheme
(mall Loan (cheme
Lease )inance (cheme
?octor;s #redit
(cheme
#ar Loan (cheme
+ural ?evelopment.

*.E." &eposit scheme o++ere( b, Mercantile 0an6 limite(:
&eposit scheme %b2ecti3e Mo(e 0ene+its
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" &o)ble 0ene+it
&eposit 9cheme
, :ive maimum
benefit.
/ Aelp in meeting
specific needs like
education, marriage
?eposit a fied
amount of money
for B ((even) years.
?ouble of the amount
deposited after B years.
0inimum deposit shall
be %k.,=,===.== or its
multiple.
* 9mall 9a3ing
9cheme
Aelp in meeting
specific needs like
education, marriage
etc.
?eposit a fied
amount of money
for any period up to
,4 ()ifteen) years.
%riple of the amount
deposited after ,4
years.
0inimum deposit shall
be %k.4=,===.== or its
multiple.
1 Monthl, 9a3ings
9cheme
1uild up habit of
savings.
Attract small savers.
(aving for rainy days.
9nsure regular income-
flow
0onthly
installments of
various si!es.
%riple of the amount
deposited after ,4
years.
One person can have
one 0(( account in
his*her name.
A family can have a
maimum of =3 ()our)
0(( accounts in
names of persons
(his*her) in his*her
family.
8 Famil,
Maintenance
&eposit
Aelp the retired
persons for investing
their retirement
benefits.
#reate investment
opportunities for 7on-
+esident 1angladeshi.
?eposit a fied
amount of money
for =4 ()ive) years
A fied amount of
money in every month
for =4()ive) years
0inimum amount of
re$uired deposit is
%D.4=,===.== or its
multiple
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9plore investment
opportunities for
school, college,
university etc.
:ive investment
opportunities for %rustL
)oundation etc.
;Pension an(
Famil, 9)pport
&eposit
Aelp the retired
persons for investing
their retirement
benefits.
?eposit a fied
amount of money
for ,= years or ,4
years on monthly
installments of
various si!es.
A family can have a
maimum of =/ (%wo)
<)(? account in
names of persons
(his*her) in his*her
family
0inimum amount of
re$uired deposit is
%D.4,==.== or its
multiple or /4== or its
multiple.
*.E.* Cre(it scheme o++ere( b, Mercantile 0an6 4imite(:
Cre(it scheme %b2ecti3e Terms an(
Con(itions
0ene+its/9pecial
Feat)res
" Cons)mers
Cre(it 9cheme
Aelp fied-income people for
buying house hold durable.
)or the amount up to %k.
,,==,=== the period is two
"nterest +ate ,@.==H
+isk )und ,.==H
(upervision #harge
(per year on
%he loan amount is
directly credited to
the customer;s
account.
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years.
"nterest rate will be charged
$uarterly rest.
outstanding
balances) =.4 H
Application
)ee 1?% ,==.==
* Car 4oan
9cheme
buying car
/4,==,=== the period is five
years that is @= monthly
installments
$uarterly rest.
"nterest +ate
,@.==H
+isk )und ,.==H
(upervision #harge
(per year on
outstanding
balances) =.4=H
Application
)ee 1?% /4=.==
1?% B.4= Lac for
reconditioned
#ar*6eeps*(EFs and
1?% /4.== Lac for
new
#ars*6eeps*(EFs.
1 &octorsD
Cre(it 9cheme
"nterest +ate
,@.==H
+isk )und ,.==H
)or new doctor 4.==
Lac and for
eperienced doctor
,4 Lac
)or Aospital, #linic
and ?iagnostic
#enter 4=.== Lac
Application )ee 1?%
/4=.==
8 !)ral
&e3elopment
9cheme
+aise the standard of living of
rural people.
"nitiative to break the vicious
cycle of poverty.
9nhance the purchasing power
of rural people.
#redit limit are as
follows
"nterest +ate
,,.4=H.
+isk )und ,.==.
(ervice #harge
(ecurity. :roup
guarantee, no
collateral
2= person in a group
, group leader
=./4H per year on
outstanding balances.
+epayment period ,
years.
; 4ease
Financing
Assist and encourage
entrepreneurs for ac$uiring
capital machinery, medical
e$uipment, automobiles etc..
Lease period up to B
years
Lease rent C
,@.==H
+isk )und ,.==H
(ervice #harge
=.4=H per year on
outstanding
balances.
<rimary. Ownership
of fied items.
#ollateral. Landed
property, 1ank
:uarantee, "#1 Enit
#ertificate etc
6 Personal 4oan
9cheme
buying house hold ?urable
2,==,=== the period is =2
(%hree) years.
$uarterly rest.
"nterest
+ate ,@.==H
+isk )und ,.==H
(upervision #harge
(per year on
outstanding
balances) ,.==H
Application
)ee 1?% ,==.==
%he loan amount is
directly credited to
the customer;s
account.
Loan limit 1?% 2.==
Lac or > times of
monthly evidenced
income, whichever is
lower.
+epayment period
0aimum 2 years,
that is 2@ monthly
installments.
@ 9mall 4oan 9tend credit facility to small
shopkeepers.
0aimum amount of
loan %k. /,4=,===.
+epayment period 2
years
"nterest rate will be
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:ive collateral-free credit "nterest +ate ,@.==H
+isk )und ,.==H
(ervice #harge
=.4=H per year on
outstanding balances
Application )ee
1?% /4=.==
charged at $uarterly
rest
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*.E.1 %nline 0an6ing:
Online 1anking is an optional service to the 01L clients. %he interested clients
should apply for the service. %he service charge for this sort of service is %k. @== per
year.
*.E.8 ATM F Cre(it Car(:
M04 is committed to provide A%0 K #redit #ard service for its valuable customers
which adds an etra edge to its competitive strength.
*.G M04 at a glance
Particulars 2000 2001 2002 2003 2004 2005
Authorized Capital 800 800 1200 1200 1200 1200
Paid up capital 245 276.85 319.765 639.53 799.413 799.413
otal Assets 9364.5 13078.93 16383.17 18324.73 24705.05 30014.94
otal !eposits 8896.2 12234.7 15150.42 16285.19 22385.19 24959.5
otal "oans # Ad$ances 3912.97 6707.42 8896.19 10775.95 17669.29 21857.7
%&port 9219.5 12268 15112.5 20380.8 28325.2 33307.7
'(port 6554.4 10457.5 11377.3 15250.6 17411 22039.5
Pro)it 192.13 214.962 256.541 215.913 312.581 569.965
*o o) +ranches 10 14 15 20 25 28
'arnin, per -hare.'P-/.0./ 39.62 77.65 84.24 57.88 39.1 58.50
*o o) '&plo1ees 271 305 363 411 514 576

CHAPT! -1
C!&#T P!%F#4 %F M04
1." #ntro()ction:
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%he basic functions of bank are deposit etraction and credit etension. #redit is the
hub of banking business. "t helps this kind of organi!ations to earn more than 4=H of
the total revenue. 0anaging credit operation, thus, is the crying need for any bank. "n
case of failure in credit management, a bank may face etinction. "t is, therefore,
necessary that a bank has a proper credit profile that guides the credit operation of the
bank in an effective manner. )or proper management of credit each and every bank
follows the profile for smooth approval, direction, monitoring and review of lending
operation.
1.* Cre(it Polic, o+ Mercantile 0an6 4imite(:
A credit policy includes all rules relating to loans and advances made by the bank to
the borrowers. "t includes types of credit etended by banks, method of judging the
credit worthiness of borrowers, the collateral or securities that are accepted by the
banks and so on. %his policy guidelines refer to all credit facilities etended to
customers including placement of funds on the inter bank market or other transactions
with financial institutions. 01L #redit policy contains the views of total macro-
economic development of the country as a whole by way of providing financial
support to the %rade, #ommerce and "ndustry. %hroughout its credit operation 01L
goes to every possible corner corners of the society. %hey are financing large and
medium scale business house and industry. At the same time, they also takes care
entrepreneur through its operation of Lease )inance and some 0icro #redit, (mall
Loan (cheme etc. As a part of its #redit <olicy 01L through its credit operation
maintains commitment for social welfare. %he bank is coming up with a scheme
where the under privileged children will be given financial support for education and
self-employment.
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)rom operational aspects it is observed that as a matter of policyN
,. #harging of interest is fleible depending on the proposal and the customer.
/. "t takes care in maintaining proper mi of short medium and long term finance
for a period not eceeding 4 years.
2. 01L puts emphasis on the customers, ie, the man and business not on the
security in selecting borrowers.
3. "t takes care of diversity in credit portfolio.
1.1 9o)n( Principles o+ len(ing:
(ound principle of lending is obvious to avoid loan default tendency and risk
elements to safeguard of public money as well as business of a bank. (o, there must
be a principle of advance and efforts should be made to make it a sound one for which
in depth study must be made on the following points by this bank.
a) &hen the loan is to be given
b) &hy the loan is to be given
c) Aow the loan is to be given
d) &hat may happen after disbursement of the loan
e) :enerally what happen (from past eperience) after disbursement of the loan
f) "s it hopeful that the borrower will repay the loanO
g) &hether loan should be given only in private sector or also in government
sector as well.
h) &hether only secured loan will be etended or provision should be kept for
clean loan also
i) &hether only short term and mid term loan will be considered or long term
will also be consideredO
j) &hom to be financedO
k) &hether loan will be etended to trading sector only or industrial sector will
also be considered.

Fig)re: Tools +or appraisal cre(it
CAMPA!#
,. #haracter
/. Amount of
loan
2. 0eans of
repayment
3. <urpose of
loan
4. Accountabilit
; CHs
,. #hara
cter
/. #apa
city
2. #apit
al
3. #ollat
eral
PA!9A!
<urpose
Amount
+eason
(ource of repayment
Ability
+isk
; !Hs
+esponsibility
+esource
+eliability
+eturn possibility
+isk
; MHs
0an
0otive
0oney
0arket
0odification (0onetary bank's
grand)
#redit
worthiness of the
loan applicant
1esides the above mentioned decision, the managers must ensure materiali!ation of
following safe guards for proper use and timely reali!ation of loans, commission.
"nterest etc and minimi!e the risk and ha!ards.
a) 9a+et, o+ F)n(. (afety means the assurance of repayment of distributed loans.
%his depends mainly on integrity, business behavior, reputation, past
eperience in the particular line of business, financial solvency, $uantum of
own e$uity in business, capability to run business efficiently, capacity and
willingness to repay the loan etc. of the loan.
b) 9ec)rit,: "t must be ensured that repayment of the loan is secured and for this
purpose manager must retain security against loan to fall back upon incase of
borrower's default. %he securities must possess re$uired basic $ualities such as
possession, title deed, parches etc.
c) 4i>)i(it,. %he borrower should have li$uid assets so that he can adjust
liability on demand and as much as possible loan itself should be $uasi li$uid
so that it can be reali!ed on demand in case of need.
d) P)rpose. <urpose of a loan should be production, development and economic
benefit oriented.
e) Pro+itabilit,. %his is applicable both for bank and the borrower.
f) &i3ersi+ication: ?iversification means to distribute the loan to a large number
of borrowers rather to a small number of borrowers. %his will increase the
services of the bank and it will reduce the risk of loan recovery.
g) $ational #nterest. 7othing can be done legally if it jeopardi!es national
interest in any way.
h) Cre(it restriction impose( b, Central 0an6. At the time of sanctioning
loan, the commercial banks must have to follow the restrictions that are
imposed by 1angladesh 1ank from time to time.
Financial &ata Anal,sis: %he credit manager has to compare financial statements of
at least three years. )or this s*he takes help of different ratios such as li$uidity ratio,
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solvency ratio, profitability ratio and activity ratio. (*he also needs to eamine bank
account statement of the applicant very keenly. "n addition to analysis, the manager
should visit the business concern to get a true picture of it.
#n()str, Anal,sis: "n this part, the manager is re$uired to study the business
behavior, which includes market demand, competitors and government barriers.
4en(ing !is6 Anal,sis. "t is a systematic and structural way to assess lending risk,
which covers all the factors described above. Aere a form has to be completed by the
lending officer. "f lending risk is found to be low, financing can be done and vice
versa.
)inally based on the above information provided by the loan applicant and after
analy!ing all the information and information provided by #redit "nformation 1ureau.
(#"1) a credit committee of a bank takes the lending decision.
1.8 Cre(it Facilities :ten(e( b, M04
Lending of money to different kinds of borrowers is one of the most important
functions of 0ercantile 1ank Limited (01L). 0ajor amount of income of this 1ank
comes from its lending. 01L makes advances to different sectors for different
purposes, such as financing in trade and commerce, imports and eports, industries,
transport, house building, agriculture etc.
1.8." ?eneral 4oan:
&hen an advance is made in a lump sum repayable either in fied monthly
installment or in lump sum and no subse$uent debit is ordinarily allowed ecept by
way of interest, incidental charges, etc it is called a loan. %he whole amount of loan
is debited to the customers name on a loan account to be opened in the ledger and is
paid to the borrower either in cash on by way of credit to his current* savings
account. "t is given against <ersonal guarantee, hypothecation of goods and land K
building.
ligibilit,: Loans are normally allowed to those parties who have either fied
source of income or who desire to pay it in lump-sum.
#nterest !ate: ,@H
4oan (isb)rsement s,stem: One time.
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Terms an( Con(itions:
?isbursement will be made after
1ank reserve the right to cancel or amend the terms and conditions
partly or wholly at its directions without assigning any reason
whatsoever.
&hen the principal debtor fails to fulfill this obligation or promise,
liability bestow on guarantor.
1.8.* Cash Cre(it BCCC H,pothecation
#ash credit is another method of lending by 01L. Ender this system, the banker
specifies a limit called the cash credit limit, for each customer is permitted to borrow
against the security of tangible assets or guarantees. #ash credit in its truest sense is
against pledge of goods. #ash credit is sometimes allowed against hypothecation of
goods.
"n case of cash credit hypothecation the ownership a possession of the goods remain
with the borrower. 1y virtue of the hypothecation agreement the bank can take
possession with the borrower defaults
ligibilit,: Aypothecation advances are normally allowed by bank to limited
companies and businessmen for their working capital and not for any capital
investment.
#nterest !ate: ,@H-,B.4H which depends on the relationship between the banker
and the client.
!ene7 9,stem: "t can be renewed after one year.
"nsurance policy to be obtained against the stocks to be hypothecated to cover
in fire and +(? at the cost of the customer.
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(tock report to be submitted on monthly basis.
1ank reserve the right to cancel or call back the sanctioned credit limit.
1.8.1
1.8.8 Pac6ing Cre(it
<acking credit is essentially a short-term advance granted by 01L a to an eporter
for assisting him to buy process, pack and ship the goods. %he credit is generally
etended for payment of freight, handling charge, insurance and eport duties. %he
packing credit advances docs not normally etend ,>= days and has to be li$uidated
by negotiation*purchase of the eport bill covering the particular shipment for which
the packing credit was granted.
ligibilit,: <acking credit facility has given for small-scale indigenous manufactures
or eporters.
#nterest !ate: ,4.4H
?isbursement will be made be made after completion of all formalities as per
sanction terms.
%he amount of advance against packing credit will be adjusted from the
amount payable to eporter on negotiation or purchase of bill.
%he eporter's letter of credit should be irrevocable, constricted and valid and
confirming bank must mark lien on it.
1.8.; 4T! B4oan against Tr)st !eceiptC
01L has given the facility of L%+ under this arrangement, credit is allowed against
trust receipt and the eportable goods remain in the custody of the eporter but he is
re$uired to eecute a stamped eport trust receipt in favor of the bank. &here in
declaration is made that he holds goods purchased with financial assistance of bank
in trust for the bank.
ligibilit,: Loan against trust receipt is generally granted to 9porter for eportation
of good.
#nterest !ate: ,3.4H-,4.4H which depends on relation and fre$uency of taking
loan.
Terms an( Con(ition:
?isbursement will be made after completion of all formalities as per
sanction terms.
(upplier credit report to be obtained before opening of L*#s.
9cess drawing over the sanction limit is strictly prohibited.
#ustomer will maintain effective and constant supervision and follow
up to ensure timely adjustment of the loan to avoid overdue.
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#redit
)unded 7on-funded
:eneral Loan
#ash #redit Aypothecation
Aousing 1uilding Loan
<acking #redit
Loan against trust +eceipt (L%+)
<ayment against ?ocuments (<A?)
(ecured Overdraft
<ersonal Loan (cheme
#onsumer #redit (cheme
#ar Loan
(taff Loan
Aire <urchase
Lease finance
0icro-credit
P (mall loan (cheme
P <ersonal Loan (cheme
P #onsumer #redit (cheme
P ?octor's #redit (cheme
Letter of #redit
1ank :uarantee

Fig)re:: )unded and non -funded loan
1.8.6 PA& BPa,ment against (oc)mentC
A loan facility provided by the banks to the customers against document*bills, like,
1ill of Lading, &arehouse keepers #ertificate*receipts, +ailway receipt. ?elivery
order, ?ock &arrant. "n other word, payment made by the 1ank against lodgment of
shipping documents of goods important through L*# falls under this head. "t is an
interim advance connected with import and is generally li$uidated shortly against
payments usually made by the party for retirement of the documents for release of
imported goods from the customer's authority. "f falls under the category
8#ommercial Lending8.
ligibilit,: %his type of credit facilities is given generally 9porter and importer.
#nterest !ate: ,4.4H
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"n the of default by the borrower bank has the right to sell the goods.
"nsurance policy to be obtained against the goods covering fire and +(?
risk at the cost of customer.
1ank reserve the right to cancel or amend the terms and conditions
partly or wholly at its direction without any reason whatsoever.
1.8.@ 9ec)re( %3er(ra+t B9%&C:
"t is a continuous advance facility. 1y this agreement, the banker allows his customer
to overdraft his current account up to his credit limits sanctioned by the bank. %he
interest is charged on the amount, which he withdraws, not on the sanctioned amount.
&hen a current account holder is permitted by the banker to draw more than what
stands to his credit, such an advance is called an overdraft. %he banker may take some
collateral security or may grant such advance on the personal security of the borrower.
01L has given this overdraft facility to clients.
ligibilit,: Overdraft facilities arc generally granted to businessmen for epansion
of their business, against the securities of )?+, 0(<, 01?(, ?1?(, (((, against
earnest money, work orders and general*others.
)?+, 0(<, 01?(, ?1?( are together called secured overdraft against )inancial
Obligation. )or this, it can be classified in three types of (O?. %hese are follows.
i. (O? )inancial Obligations
ii. (O? against 9arnest 0oney
iii. (O? &ork Order
i. 9%& Financial %bligation
aC F&! BFi:e( &eposit rateC:
&hen deposited by a customer is not repayable on demand and is payable only
after the epiry of a specified period from the date of deposit or after a specified
period of notice.
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#nterest !ate: 9ither )?+ I/.4H
Or ?1?(, 0<(, (((, 01?(I2H
bC M9P BMonthl, 9ancha, Pro6olpoC:
"t is also known as 80onthly (aving (cheme8. %he prime objective of this scheme is
to encourage people to build up a habit of saving. Ender this scheme, one can save a
fied amount of money every month and gel a lucrative amount of money after five,
eight or ten years.
cC M0&9 BMonthl, 0ene+it &eposit 9chemeC
Ender this scheme, one can deposit certain amount of money for five or more years
and in return he will receive benefits on monthly basis. 1enefits start right from the
first month of opening an account under the scheme and continue up to five or more
years.
(C &0&9 B&o)ble 0ene+it &eposit 9chemeC
Ender this scheme, depositor;s money will be doubled in =>-year period and the
scheme is one of the highest yielding deposit schemes in 1angladesh.
eC 999 B9pecial 9a3ing 9chemeC
Ender this scheme, depositor;s money will be tripled in ,,-year period. %he main
attraction of the scheme is that one can get his money after one year and onward with
attractive benefits.
ii. 9%& against arnest Mone,
#ontractors have to participant in tender for being awarded of the work. )or getting
better probability, contractors usually participate in various names in the tender. 1ank
makes finance to the participating contractors for ac$uiring the works. "f a contractors
wish to participate in ,=(ten) works. 1ank receives the value of , (one) earnest money
and finance the rest 5(nine) earnest money. 1ank also keeps certain percentage of
margin for adjustment of the interest amount no collateral security is re$uired for this
finance.
#nterest !ate: ,B.4H
iii. 9%& .or6 %r(er
%his loan is speciali!ed for contractor and suppliers. 1ank makes finance to the
customers after being awarded of a work order. %he work order is assigned with the
bank so that payment of bill is paid only through the account marinating with the
lending bank. 0aimum /=H value of the work order is paid to the contractor as
loan. %he loan amount is credited to the account of the borrower and from each bill
certain percentage is debited for adjustment of the loan. 0aimum validity period of
the credit facility is up to the validity period of the work order.
1.8.E Car 4oan:
#ar loan is a kind of consumer credit scheme. 1ut the maimum limit on this
specified type is different from others. %he maimum limit is higher than other types
of consumer credit scheme.
ligibilit,: %his is one kind of consumer credit scheme. (o the $ualification should
be the same as re$uired for consumer credit scheme.
#nterest !ate: ,@H
1.8.G 9ta++ 4oan:
0ercantile bank Limited provides advances to the staff for purchasing house building,
(anchay <atras, and meeting up certain re$uirements like family medical, personal
medical, wedding purposes. 1ank provides this facility under installments. Loan able
amount varies on the basis of purpose.
ligibilit,: %he borrower must be eecutive and staff of this 1ank.
#nterest !ate: ,@H
1.8."0 Hire P)rchase
Another form of consumer credit is Aire <urchase facility also given by 01L. %he
feature of hire purchase is that usually a deposit has to be paid and the rest of the
purchase price is spread over a period of si month, two years or sometimes even
longer, the article being regarded as the property of the bank until the final payment
has been made
ligibilit,: Aire <urchase is normally allowed to those persons who have either fied
sources of income or who desire to pay it in lump sum.
#nterest !ate: ,3H
1.8."" 4ease Finance
%his scheme has been designed to assist and encourage the genuine and capable
entrepreneurs and professionals for ac$uiring capital machineries, medical
e$uipments, computers and other items which may help them to be economically self-
reliance.
ligibilit,: Aelp the entrepreneurs to buy #apital 0achinery, 0edical 9$uipment,
Automobiles, Lift and :enerator etc.
1.8."* Micro Cre(it:
%he credit program that promotes small credit to the poor people for creating self-
employment with a view to alleviating their poverty and attaining sustainable
development is referred here as micro-credit program. "t is especially related to micro
level development. 1ut 01L thinks about micro-credit in different way. %hey are
providing micro-credit facilities (mainly) among the mid level people. 01L has some
strong reason behind it. %heir main objective for providing micro-credit program in
banking sector are given below-
%o small entrepreneurs for developing his business,
Q 7ewly established doctors-for better treatment in the society,
Q <urchase household e$uipment;s- for leading comfort life and fulfill the hope
of humanity,
Q +ural development.
Q "ncrease self employment.
&i++erent Micro Cre(it Program o+ M04:
01L provides different types of micro-credit programs among the poor*mid-
class*lower mid-class categories person. 0ainly the bank provides micro-credit loan
among the minimum a fied income group of people. #onsumer #redit is a relatively
new field of collateral-free finance of 1ank. <eople with limited income can avail of
this credit facility to buy households goods including car, computer and other
consumer durable.
%he main objectives of this scheme are to help the lower mid-class people for
purchase different types of household e$uipment;s. And also help to the mid-class
people for buy car*microbus for personal use.
aC 9mall 4oan 9cheme B949C
%his scheme has been evolved especially for small shopkeepers who need credit
facility for their business and cannot provide tangible securities. 0aimum loan
amount of this program is to %D. / lac, which is payable within / years (etensional).
#reditor has to pay ,4H interest, +isk )ee =.4H and (upervision fee ,H (for one
time).
ligibilit,: (mall and 0edium 9ntrepreneur are financed this loan.
#nterest !ate: ,@H
bC Personal 4oan 9cheme
<ersonal loan is another method of lending by 01L. Ender this system, the banker
specifies a limit called the credit limit, for each customer, up to which the customer
is permitted to borrow against the security of tangible assets of guarantees.
ligibilit,: %o have personal loan scheme, the loan applicant should be P
:overnment Officials
(emi-:overnment Officials
9mployees of Autonomous 1odies
9mployees of 1anks and other )inancial "nstitutions
9mployees of 0ultinational #ompanies
9mployees of reputed private Organi!ations
%eachers and staff of public*private Eniversities
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%eachers of recogni!ed (chools and #olleges
#nterest !ate: ,@H
cC Cons)mer Cre(it 9cheme BCC9C:
#onsumer credit is a relatively new field of micro-credit activitiesL people with
limited income can avail of this credit facility to buy any household effects including
car, computer and other commercial durable. 0ercantile 1ank Limited plays a vital
role in etending the consumer credit.
ligibilit,: %he borrower must be confirmed official of any of the following
organi!ation-
:overnment Organi!ation
(emi-:overnment Organi!ation
0ultinational Organi!ation
1ank and "nsurance companies
+eputed #ommercial Organi!ation
<rofessionals
#nterest !ate: ,@H
#reditor will procure the specified goods from the dealer * agent * shop(s)
acceptable to the bank.
All the papers* cash memos etc. related to the procurement of the goods will
be in the name of the ensuring ownership of the goods. %he ownership shall be
transferred in the name of the client after full adjustment of bank's dyes.
%he client shall have to bear all the epenses of license, registration and
insurance etc. of the articles wherever necessary.
%he client shall have to bear all the cost of repair and maintenance of the
ac$uired articles.
(C &octorsD Cre(it 9cheme:
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?octors; #redit (cheme is designed to facilitate financing to fresh medical graduates
and established physicians to ac$uire medical e$uipments and set up clinics and
hospitals.
ligibilit,: Only the doctors are financed through this scheme.
1.8."1 4etter o+ Cre(it
Opening or issuing letter of credit is one of the important services provided by 01L.
A letter of credit is a document authori!ing a bank to pay the bearer a specified sum of
moneyL it provides a useful means of settlement for a foreign trade transaction, the
purchase establishing a credit in favor of his credit at a bank. Letters of credit are of
two types.
%raveler;s letter of credit issued for the convenience of the traveling
public and
Letter of commercial credit issued for the purpose of facilitating
trade transaction.
ligibilit,: Letter of #redit facilities are given to eporter*manufacturer*producer and
importer for eportation and importation of good.
"t should stipulate the name of the loan.
"t should bear the name of the designated bank.
"tems mentioned in L#A form must contain with the permissible items.
%he bank officer periodically inspect the goods and verify that they
conform the top $uality and $uantity etc. as mentioned in the particular
letter of credit.
"n case of first class customer , the facility may, however , be granted
against firm's contracts with overseas buyer.
1.8."8 0an6 ?)arantee
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:uarantee has been defined very clearly in various statues of law in various parts of
the worldL however, the substance of all these definition is same. %he #ontract of
:uarantee has been defined under (ection ,/@ of the #ontract Act which reads.
8A contract of guarantee is a contract to perform the promise or discharge the liability
of a third person in case of his default8.
"n the course of normal trading, customer may need guarantee to be given by the
bank to support a trading transaction or bank may take guarantee as security against
advance.-
ligibilit,: %his loan is allowed for the business person.
1.; &isb)rsement 9it)ation o+ &i++erent T,pes o+ 4oan:
Particulars 2000 2001 2002 2003 2004 2005
2eneral "oan
!isburse&ent 236.86 219.68 819.33 1488.42 4015.73 4532.78
"oan a,ainst rust 3eceipt 746.46 1600.86 1644.31 1953.53 3092.34 3758.39
Pac0in, Credit 155.09 214.07 239.70 220.49 264.24 287.86
"ease 4inance 67.63 194.15 165.41 131.40 107.94 132.73
5ire Purchase 324.80 634.47 975.55 1310.41 1669.66 1734.35
Pa1&ents a,ainst
!ocu&ents 205.30 256.33 222.56 293.27 513.87 569.18
Cash Credit .56P7/ 483.73 957.55 1304.41 1669.48 2404.98 2658.39
7$erdra)t 771.25 1430.35 2260.45 2560.52 3161.80 3429.21
Consu&ers Credit 207.06 215.39 178.83 169.98 138.54 163.45
5ouse +uildin, "oan 6.38 22.01 34.29 264.88 962.11 986.25
-ta)) "oan 9.13 15.85 52.47 63.76 71.36 102.63
7ther Credit -che&e 37.62 80.73 396.61 176.99 363.74 527.80
?raphs !egar(ing Cre(it &isb)rsement




1.6 $at)re o+ the 4oan
1ank advances loans for short, medium and long terms. %he term of the loan is
determined on the basis of gestation period of a project and generation of income by
use of the loan.
$at)re o+ 4oan at a glance
Loan %ype (hort %erm ( up to ,
year)
0edium %erm (over
,year to 4 years)
Long %erm (over 4
years )
7ame of Loan #ash #redit
Aypothecation,
L%+,<A?,(O?,L*#
(O? work
Order,<L(,##(,#ar
Loan,?octors #redit
(cheme,(mall Loan
:eneral Loan,
Aouse 1uilding
Loan, (taff Loan,
Lease )inance.
Here
L%+JLoan against %rust +eceipt L*#JLetter of #redit
<L(J<ersonal Loan (cheme <A?J<ayment against ?ocuments
##(J#onsumer #redit (cheme (O?J(ecured Overdraft
1.@ T,pes o+ 0orro7ers
A borrower should be legally competent to enter into a contract, as borrowing is a
contract between the lender and the borrower. 0inors, lunatics, drunkards and
insolvents cannot enter into a valid contract and cannot, therefore, be entertained as
borrowers. 1efore entertaining an application for loans and advances, banker should
verily borrowers; capacity to contract and, his power to borrow, so as to effectively
charge the security offered as a cover for the advances.
%here are certain conditions to be fulfilled by the consumer to apply for the loan.
#onsumer should be eligible to apply for a loan. (ervice person get loan only when
the retirement date must be after the date of epiry of loan. %he target customer of the
1ank is all people. 1usiness, service, doctors, suppliers, contractors are he customers.
7ow it can be classified into four types.
T,pes o+ 0orro7er at a glance
(" 7o. 1orrowers 7ame of the Loan H
,. 1usiness :eneral Loan, #ash #redit (##)
Aypothecation, <acking #redit, L%+ (Loan
against %rust receipt), <A? (<ayment
against document). Lease )inance, (mall
4=
/. (ervice <ersonal Loan 4
2. 1oth Aouse 1uilding Loan, #onsumer #redit
(cheme, #ar Loan
/=
3. Others (?octors,
(uppliers,
#ontractors,
?eposit holders.
?octors #redit Loan, (ecured Overdraft,
(taff Loan
/4
1.E #nterest !ate:
"nterest rate is the etra money that pays back when someone borrows money or that
someone receives when invest money. "t;s the percentage of the principal paid by the
borrower to the lender for the use of the lender;s money.
"nterest rate fied after negotiation between banker and customer. 1usiness
eperience, security value and relationship between banker and customer are the main
factor for fiation the loan. &hen loan is taken against )?+, 01?( K ?1?(, the
interest rate is specified by the summation of the interest rate of )?+, 01?( K
?1?( and 2H of the deposit. "n the case of )?+, the interest rate is different in
different durations.
At present maimum interest rate of different types of loan which are applied, are
given bellow.
4$&#$? #$T!9T %F M04
(".7o. 7ame of Loan "nterest +ate (H)
,. :eneral Loan ,@
/. #ash #redit (##) Aypothecation ,@-,B.4
2. Aouse 1uilding Loan ,4.4=
3. <acking #redit ,4.4=
4. L%+ (Loan against %rust receipt). ,4.4=
@. <A? (<ayment against document) ,4.4=
B. (ecured Overdraft &ork Order ,4.4=
>. (ecured Overdraft
a) )inancial Obligation "nterest rate I/.4()?+)
"nterest rate I2(Others)
b) Against 9arnest 0oney ,4.4=
5. <ersonal Loan (cheme ,@
,=. #onsumer #redit (cheme ,@
"". #ar Loan ,@
,/. (taff Loan ,@
,2. Letter of #redit ,B.4=
,3. ?octors #redit (cheme ,@.
,4. (mall Loan ,@
,@. Lease )inance ,B.4=
1.G T,pe o+ 9ec)rit, +or 4oan
(ecurity is obtained as a line of last defense to fall back upon. "t is meant to be an
insurance against emergency. 1y taking security, bank ac$uires a claim upon the
assets of the borrower if repayment is not made as planned.
A collateral security is a security belonging to and deposited by borrower himself or
by a third party to secure loans and advances. #ollateral security in a wider sense is
used to denote any type of security that runs parallel to or side by side with the
personal right of action against a debtor in respect of an advance.
#ollateral securities of different type of loan at a glance
(l.7o. 7ame of Loan 7ame of (ecurity
,. :eneral Loan Land, (tock of :oods, 0achinery, )urniture, )iture etc.
/. #ash #redit (##)
Aypothecation
(tock of goods
2. Aouse 1uilding Loan Land and 1uilding
3. <acking #redit #orporate :uarantee, Land, %rust +eceipt, (tock
4. L%+ (Loan against %rust receipt). #orporate :uarantee. Land, %rust +eceipt, (tock
@. <A? (<ayment against
document)
#orporate :uarantee, Land, %rust +eceipt, (tock
B. (ecured Overdraft &ork Order Lien of &ork Order, Land, #onstruction 0achinery and %ools
>. (ecured Overdraft )inancial
Obligation
0(<, )?+, 01?(, ?1?(.(((
5. (ecured Overdraft Against
9arnest 0oney
9arnest 0oney Amount, 0argin, <ersonal :uarantee
,=. <ersonal Loan (cheme (pouse :uarantee, <ostdated and updated #he$ue, <ersonal
:uarantee of acceptable person(col league or :ovt. (ervice)
,,. #onsumer #redit (cheme Aypo of <roduct, <ersonal :uarantee(/ person), /3 1lank #he$ue
,/. #ar Loan #ar, <ersonal :uarantee of ;acceptable two
person(colleague or :ovt. (ervice)
,2. (taff Loan #ar, Land, 1uilding, <rovident fund benefit
,3. ?octors #redit (cheme #ertificates, 0achinery, )urniture, )iture, <ersonal :uarantee of
acceptable two person(col league or :ovt. (ervice)
,4. (mall Loan (tock of :oods, <ersonal :uarantee of acceptable two
person(colleague or :ovt. (ervice)
,@. Lease )inance 0achinery, Land, 1uilding (if any)
1."0 &isb)rsement 9it)ation :
%he bank has many loans from the beginning of the bank. %he total disbursement of loans
within /=== to /==4 from this bank is given below
Iear *000 *00" *00* *001 *008 *00;
Total no
o+ 4oan
54B> ,24@> ,@/42 ,55B> /,=/, //,@5

)igure. 7o of loan disbursement over years
)rom the above figure this can be found that loan disbursement is growing gradually.
1."" F)n(e( an( $on-F)n(e( 4oan
0ercantile bank Limited offers more type of funded loan than 7on-funded loan. 1ut
disbursement, non-funded loan more disburse than funded loan.
$ame o+
4oan
*000 *00" *00* *001 *008 *00;
)unded 3==3 4>4, B=// >55/ BB2@ 55=/
7on-
funded
44B3 BB,B 5/2, ,=5>@ ,2/>4 ,43/B


)igure. %rends of )unded and 7on-funded Loan
%he above figure shows that no of non-funded loan which includes letter of credit and
bank guaranty is always more than no of funded loan. %hrough this data it can be said
that the bank is better in performing its foreign echange division as most of the non-
funded loan is comprised of letter of credit.
1."* 4oan !eco3er,
%o lend money is an easy matter. %o be sure of recovery of the loan is not that easy.
"n whatever form bank advances are granted, they are repayable on demand or at the
epiry of some fied period. Overdraft and cash credit are legally repayable on demand.
Loans are repayable on the epiry of the periods for which they are granted. "n case loan
is repayable in installments and default occurs in the payment of any installment, entire
loan usually becomes immediately recoverable at the option of the bank. Letter against
trust receipt, payments against documents, letter of credit are payable on maturity
.1anker has to keep a close watch on the borrower and to take ade$uate follow-up
measures for ensuring that recovery of advances is smooth and timely.
0ost of the loan of this bank is recovered but not ,==H. (ituation of loan disbursement
and recovery of 01L is given below
7ame of Loan %otal
?isbursement
%otal
+ecovery
<ercentage
:eneral Loan,L%+,<acking
#redit.<A?,Aouse 1uilding Loan,(O?
Against )inancial Obligation,<ersonal Loan,
(taff loan Letter of #redit, ?octor's #redit
(cheme
,@>3= ,44>5 52H
Lease )inance, #ash #redit Aypothecation 3@/ 3=5 >5H
(O? &ork Order 2>3 23B 5=H
#ar Loan >5 B@ >4H
#onsumer #redit (cheme 25@/ 23@2 >BH
(mall Loan 32/ 3/, 5BH

)igure. (ituation of ?isbursement and +ecovery of Loan
According to the data and the above figure it obvious that more than 5=H of the loan
disbursed has been recovered that is the recovery rate is high which indicates
better performance of the in managing its credit activities.
1."1 Classi+ication o+ 4oans an( A(3ances:
%he management of the institution as well as their supervising authority i.e. the #entral
1ank evaluates the assets of the institution keeping in view the aforesaid aspects. %his
evaluation at stipulated intervals is called R#lassification of AdvancesS. "t is in fact,
placing all loans and advances under pre-determined different heads* classes based on the
depth of risk each and every loan has been eposed to and to bring discipline in financial
sector so far risk elements concerned in credit portfolio of banks.
At present loans and advances are classified under three heads according to degree of risk
element involved these are-
,. (ub-standard
/. ?oubtful
2. 1ad
".9)bstan(ar(: A loan value of which is impaired by evidence that the borrower is
unable to repay but where there is a reasonable prospect that the loan's condition can be
improved is considered as substandard.
*. &o)bt+)l: A loan is doubtful when its value is impaired by evidence that it is unlikely
to be repaid in full but that special collection efforts might eventually result in partial
recovery.
1. 0a(: A loan is considered as bad when it is very unlikely that the loan can be
recovered.
:ood loans are classified as un-classified loans. 7aturally depth of risk is more in
doubtful or bad loans than unclassified ones.
)igure. (tatus of #lassified Loan
1."8 Concl)sion
%he 1anking sector in any country plays an important role in economic activities.
1angladesh is no eception of that. As because it;s financial development and economic
development are closely related. %hat is why the private commercial banks are playing
significant role in this regard. %his report focused on and analy!ed Operational
<erformance of 0ercantile 1ank Limited, 9lephant +oad 1ranch. 0ercantile 1ank
Limited is a new bank in 1angladesh but its contribution in socio-economic prospect of
1angladesh has the greater significance. %otal deposit of 01L 1ranch was %k. /3545.4
million as on 2,
st
?ecember /==4, whereas total Loans and Advances were %k /,>4B.B
million. Aere we observe its deposit figure is not so strong, so the bank should take
necessary action for increasing deposit promptly. 01L attaining offer special deposit
scheme with higher benefits, which is a crying need for long-term position in financial
market. 1ecause of the entrance of more banks in the financial market, deposits will be
spreaded over. (o it is high time to hold some permanent customers by offering special
deposit scheme otherwise in future amount of deposit may come down. %o strengthen the
future prospect of branch, it is emergency to collect more deposit. #omparably the 01L;s
local remittance is less than the other banks because of less number of branches. 01L
should etend its branches to become a sustainable financial institution in this country. Tet
last year 01L has obtained second position in #A09L rating. As a new branch 9lephant
+oad 1ranch of 01L has been able to maintain its recovery position in sector-wise credit
financing is up to the satisfactory level. At last it should give more emphasis in this sector
to ac$uire more profit.
CHAPT!-8
!9A!CH MTH%&%4%?I A$& 9AMP4
8." #ntro()ction:
+esearch is a process with a set of interrelated activities such as the identification of
research problems, choice of research methodology, data collection, sample, data analysis
and recommendations. +esearch problems are the first stage of the secondary research
process. %hese indicate gaps in the scope or the certainty of our knowledge. %hey point
out problematic phenomena, observed events that are pu!!ling in-terms of our currently
accepted ideas or current ideas that are challenged by new $uestions. %his study is based
on research topic R#redit &orthiness AnalysisS. "t has been identified by the eperts and
bankers that risk involved in providing loan to a particular borrower is the main reason
for failing to recover the bank's money and the issue of risk analysis remains as one of
the main factors in determining the status of loan*investment in-terms of recovery. )or
this purpose, banks need to determine the credit worthiness of individual loan applicant
before sanctioning any credit.
8.* Metho(olog,:
%he research has been done through regression method in the empirical way. %hese
calculations have done in three ways:
First : "n this case it has assumed that interest rate is a dependent variable or interest rate
is a function of loan type, loan demand, total asset, total liability, district, age, eperience,
personal guaranty, no of installment, loan sanctioned and credit rationing.
9econ( : "n this case it has assumed that credit rationing is a dependent variable or credit
rationing is a function of loan type, loan demand, interest rate, total asset, total liability,
district, age, eperience, personal guaranty, no of installment, loan sanctioned and interest
rate.
8.1 4iterat)re s)r3e,
%he study has been conducted by etensive review of related literature available in
various libraries and collections such as various books, publications, periodicals and
journals. )or this purpose, it has also taken help from the websites containing information
pertinent to my study.
8.8 Pop)lations an( sampling
%his research has been conducted using sampling method. ?ue to time constraint, study
of the whole population has not been possible. )ifty clients of 0ercantile 1anks have
been selected with the help of simple random sampling method to test the hypothesis.
8.; &ata Collection: ?ata constitute the foundation of statistical analysis and
interpretation. Aence the first step in statistical work is to obtain data. ?ata can be
obtained from three important sources, namely.
aC Primar, so)rce: <rimary data are measurements observed and recorded as part of an
original study. &hen the data re$uired for a particular study can be found neither in the
internal records of the enterprise, nor in published sources, it may become necessary to
collect original data, i.e., to conduct first hand investigation. &hen the data to be
collected are very large in volume, it is possible to draw reasonably accurate conclusions
from the study of a small portion of the group called a sample. %he actual procedures
used in collecting data are essentially the same whether all the items are to be included or
only some items are considered. %here are two basic methods of obtaining primary data,
namely
Uuestioning, and
Observation
bC #nternal !ecor(s: "nternal data refers to the measurements that are the by- product of
routine business record keeping like accounting, finance, production, personnel, $uality
control, sales, + K ? etc.
cC 9econ(ar, so)rce: (econdary data can be obtained from journals, reports, and
government publications, publications of research organi!ationsL trade and professional
bodies. 0y project paper is conducted based upon the secondary source of information.
"nformation is collected from the records of the bank, &eb (ites, Annual +eport of 01L .
1efore using secondary data some, some aspects should be considered
?ata should be suitable for the purpose of investigation.
?ata should be tested for ade$uacy
?ata should be reliable
"f the enumeration based on sample, sample should be representative.
)or preparing this paper, " have collected suitable, ade$uate, reliable and representative
data. (ome information is $ualitative they are organi!ed on the basis of rational judgment
and scores have been given to those $ualitative factors.
8.6 &ata Processing:
?ata was analy!ed both manually and with the aid of computers. +elevant descriptive
and inferential statistical tools have been used.
8.@ Anal,sis o+ &ata:
+egarding data analysis utili!ed techni$ues are-
8.@." Classi+ication o+ (ata: #lassification is the grouping of related facts into different
classes. %he process of classification gives prominence to important information gathered
while dropping unnecessary details facilitates comparison and enables a statistical
treatment of the material collected.
T,pes o+ classi+ication
1roadly, the data can be classified on the following four bases.
?eographical: "n geographical classification, data are classified on the basis of
geographical or locational differences between the various items .%hat is area wise, e.g.,
#ities, districts, etc.
Chronological: &hen data are observed over a period of time the type of classification is
known as chronological classification. " have collected data for /==4 upto ?ecember.
=)alitati3e: "n $ualitative classification, data are classified on the basis of some
attributes or $uality such as se, purpose, types etc. " have collected data based on some
$ualitative factors such as loan type, purpose of the loan of the borrower.
=)antitati3e: Uuantitative classification refers to the classification of data according to
some characteristics that can be measured such as income, net asset etc. "t includes
interest rate, total asset, total liability, personal guaranty, no of installment, loan
sanctioned and credit rationing of the borrower.
8.@.* Tab)lation o+ (ata: One of the simplest and most revealing devices for
summari!ing data and presenting them in meaningful fashion is the statistical table. A
table is a systematic arrangement of statistical data in columns and rows. " have presented
data in the tabulation form highlighting loan type, loan demand, interest rate, total asset,
total liability, district, age, eperience, personal guaranty, no of installment, loan
sanctioned and credit rationing.
8.@.1 Charting &ata: One of the most convincing and appealing ways in which data may
be presented is through charts. A chart can take the shape of either a diagram or graphs.
)or representing the data " have used many graphs than charts.
8.E 9)mmar, an( concl)sion:
%his chapter has two main objectives one is to introduce the choice of particular research
methodology which have been used in this paper and the other is to provide the
description about the sample that have been used in this study. %he study follows both the
$ualitative and $uantitative research method. %he choice of the both method is influenced
firstly by the research topic of this study, which is subjective and have influenced the
choice of $ualitative research method. On the other hand, details about classification
tabulation and charting have been given here.
CHAPT! -;
#$T!9T !AT - A$ MP#!#CA4 9T#MAT#%$
;." #ntro()ction:
"t is fundamental precept of banking everywhere that loan is made to customers in return
for interest ."nterest is the price charged by the bank against the loan taken by customers.
(ecurity is re$uired by the banker as a protection against unepected default in
repayment by the customer. 1ut bank charges different rate of interest to different
customer based on the purpose of loan, amount of loan demanded, personal guarantee
and the collateral provided the customers. "n addition to these, bank also charges different
interest rate based on the occupation. %hose who are the staff of the bank are normally
charged lower interest rate.
;.* &escripti3e anal,sis o+ +actors )n(er consi(eration:
01L provides different types credit facilities to its customers. ?ifferent types of credit
facilities have different terms and conditions. 01L considers some factors in determining
interest rate that include loan purpose, no of installment, personal guaranty, collateral,
age, eperience, total asset , total liability, income.. %hese factors have relation with
interest rate to different etent. 7ow, through some statistical analysis the effect of these
factors are being described including interest rate-
Table-Fre>)enc, Table o+
#nterest !ate
+ange )re$uency
4.4-B ,
B->.4 2
>.4-,= ,=
,=-,,.4 2
,,.4-,2 ,
,2-,3.4 B
,3.4-,@ /4
4=

"n the above fre$uency table, it is found that most of the clients are in the no of
fre$uency is 2, out of sample si!e 4= and interest rate is ,4.4H.%his implies that most of
the customers of our sample are taking the loan which charge ,4.4H interest rate .
Table- Fre>)enc, Table o+ $et Asset
+ange )re$uency
,=====-2===== /=
2=====-4===== >
4=====-B===== 3
B=====-5===== /
5=====-,,===== 2
,,=====-,2===== /
,2===== -,4===== ,,
4=

"n the above table, it is found that most of customers have net asset ranging from
tk,===== to tk.2=====. "t is observed that customer takes consumer credit scheme,
personal loan scheme that is they normally avail small amount of loan as have small
amount of net asset.
Table- Fre>)enc, table o+ loan p)rpose
+ange )re$uency
,@-,> 2
,5-/, 3
//-/3 ,/
/4-/B 4
/>-2= ,/
2,-22 5
23-2@ 4
4=
Aere, different loan purpose has been given different score and thereafter have been
categori!ed. "n the above table it can be observed that most of the customer falls in two
fre$uencies. Aere the fre$uencies of both categories are same which is ,/.
Table- Fre>)enc, Table o+ Age
+ange )re$uency
/3-2= 2
2=-2@ ,4
2@-3/ ,/
3/-3> ,,
3>-43 4
43-@= 2
@=-@@ ,
4=
%he above fre$uency table is based on age category. Aere, the sample si!e has been
categori!ed based on age differences of the client. %hat is in what aged people take the
loan most from the bank. Aere we can see that people take the loan most that fall in the
age range of 2= years to 2@ years. %he net most fre$uency is ,/.
Table- Fre>)enc, Table o+ #ncome
+ange )re$uency
4===-,4=== /,
,4===-/4=== ,=
/4===-24=== /
24===-34=== 4
34===-44=== /
44===-@4=== 3
@4===-B4=== @
4=
)rom the above table it is obvious that most of the customers of our sample fall in the
fre$uency of which is /,. %he range of income of this category is from tk.4=== to tk.
,4===.%his implies that middle income level customer most fre$uent in our sample. %he
net most fre$uency is ,= which indicate the income level from tk.,4=== to tk./4===.
Table- Fre>)enc, Table o+ no o+ ,ears o+ :perience
+ange )re$uency
=-4 @
4-,= ,3
,=-,4 ,,
,4-/= >
/=-/4 4
/4-2= 3
2=-24 /
4=
%he above table is based on the no of years of eperience in job. Aere, we can see that
most of the customer belong which is ,3 and the range of this category is 4 to ,= years.
Table- Fre>)enc, Table +or Cre(it !ationing
+ange )re$uency
.24-.34 /
.34-.44 /
.44-@4 @
.@4-.B4 ,,
.B4-.>4 ,@
.>4-.54 ,/
.54-, ,
4=
#redit rationing is the ratio of amount of loan sanction and amount of loan demand. %he
no of most fre$uency is ,@. %his implies that most of the loan application the bank
sanctioned B4H to >4H of the total loan demanded. %here are a few customers who get
the total of their demanded amount
http://bba-mba-arena.blogspot.com/p/internship-reports_06.html @=
Table- Fre>)enc, Table +or the categor,
0ase( on Personal ?)arant,
+ange )re$uency
/B-/5 ,=
/5-2, /
2,-22 4
22-24 2
24-2B ,=
2B-25 ,>
25-3, /
4=
Like the loan purpose, personal guaranty has also been given score based on judgment for
the analysis purpose as it is a $ualitative factor affecting our decision. 1ased on the score,
they have been categori!ed. Aere, the most fre$uency is ,>.
;.1 Correlation Anal,sis:
"f two $uantities vary in such a way that movement in one are accompanied by
movements in other, these $uantities are said to be correlated. )or eample, there eist
some relationship between interest rate and no of installments. %he statistical tool with
the help of which this relationship is measured is called correlation.
)or determining why interest rate differs from customer to customer and thereby for
determining the credit worthiness of individual borrower the correlation between
different two variables has been calculated .Ender this study , the variables that are taken
into consideration are interest rate , loan purpose, personal guaranty, age, eperience, net
asset , income and loan sanction-loan demand ratio.
http://bba-mba-arena.blogspot.com/p/internship-reports_06.html @,
Correlations
1.000 .572 .464 8.184 .297 .407 8.015 8.230
. .090 .147 .347 .259 .183 .487 .310
7 7 7 7 7 7 7 7
.572 1.000 8.425 8.528 .644 8.378 8.7579 8.452
.090 . .171 .111 .059 .202 .024 .154
7 7 7 7 7 7 7 7
.464 8.425 1.000 .181 8.399 .6899 .7579 .412
.147 .171 . .349 .188 .044 .025 .179
7 7 7 7 7 7 7 7
8.184 8.528 .181 1.000 8.616 .7259 .414 8.240
.347 .111 .349 . .070 .033 .178 .302
7 7 7 7 7 7 7 7
.297 .644 8.399 8.616 1.000 8.350 8.401 8.207
.259 .059 .188 .070 . .221 .186 .328
7 7 7 7 7 7 7 7
.407 8.378 .6899 .7259 8.350 1.000 .637 8.141
.183 .202 .044 .033 .221 . .062 .382
7 7 7 7 7 7 7 7
8.015 8.7579 .7579 .414 8.401 .637 1.000 .575
.487 .024 .025 .178 .186 .062 . .088
7 7 7 7 7 7 7 7
8.230 8.452 .412 8.240 8.207 8.141 .575 1.000
.310 .154 .179 .302 .328 .382 .088 .
7 7 7 7 7 7 7 7
Pearson Correlation
-i,. .18tailed/
*
Pearson Correlation
-i,. .18tailed/
*
Pearson Correlation
-i,. .18tailed/
*
Pearson Correlation
-i,. .18tailed/
*
Pearson Correlation
-i,. .18tailed/
*
Pearson Correlation
-i,. .18tailed/
*
Pearson Correlation
-i,. .18tailed/
*
Pearson Correlation
-i,. .18tailed/
*
"%*'3'-
"*'A--'
""7A*P:3
"A2'
"%*C7;'
"'<P
"C3'!
"P'3-7*
"%*'3'- "*'A--' ""7A*P:3 "A2' "%*C7;' "'<P "C3'! "P'3-7*
Correlation is si,ni)icant at the 0.05 le$el .18tailed/.
9.
)rom the correlation matri, it is found that interest rate has positive correlation with loan
purpose, net asset , income and eperience which indicates that if the value of these
variables increase , the interest rate will also increase or vise versa. %he other
variables-age, credit rationing, personal guaranty, have negative relation with
interest rate .%his means that if the values of these variables increase then interest
rate decreases or vise versa. 1ut here the degree of correlation are not so much
significant Aere it can be observed that the degree of correlation between interest
rate and the net asset is the largest.
http://bba-mba-arena.blogspot.com/p/internship-reports_06.html @/
;.8. !egression Anal,sis:
+egression is a statistical tool with the help of which we are in a position to estimate or
predict the unknown values of one variable from known values of another variable. &ith
the help of regression analysis, we are in a position to find out the average probable
change in one variable given a certain amount of change in another. )or the research
purpose " have done regression analysis to determine the reason of different interest rate
upon which the credit worthiness analysis for individual borrower can be done by the
bank. )or regression analysis purpose it is assumed that interest rate is dependent on loan
purpose, no of installments, personal guaranty, age, eperience, net asset, income, and
loan sanction Ploan demand ratio. " tried to analy!e it through regression analysis using
(<((. )or convenient (<(( run in two classes (aKb). 7ow, the regression model can be
written as-
Regression
a) "n.Interest Rate/=a
0
>a
1
ln.Age/ >a
2
ln.loan purpose/
>a
3
ln.Asset/ >E
Variables Entered/Reo!ed
b
"A2'?
""7A*P:
3?
"*'A--
'
a
. 'nter
;odel
1
@ariables
'ntered
@ariables
3e&o$ed ;ethod
All reAuested $ariables entered.
a.
!ependent @ariableB "%*'3'-
b.
"odel #uar$
b
.985
a
.970 .941 .1475
;odel
1
3 3 -Auare
AdCusted
3 -Auare
-td. 'rror o)
the 'sti&ate
PredictorsB .Constant/? "A2'? ""7A*P:3? "*'A--'
a.
b.
http://bba-mba-arena.blogspot.com/p/internship-reports_06.html @2
A%&VA
b
2.143 3 .714 32.846 .009
a
6.525'802 3 2.175'802
2.208 6
3e,ression
3esidual
otal
;odel
1
-u& o)
-Auares d) ;ean -Auare 4 -i,.
PredictorsB .Constant/? "A2'? ""7A*P:3? "*'A--'
a.
b.
Coe''icients
a
810.988 1.472 87.464 .005
1.257 .151 1.058 8.315 .004
1.703 .214 .874 7.960 .004
.348 .188 .217 1.850 .161
.Constant/
"*'A--'
""7A*P:3
"A2'
;odel
1
+ -td. 'rror
:nstandardized
Coe))icients
+eta
-tandardi
zed
Coe))icien
ts
t -i,.
a.
Residuals #tatistics
a
.8848 2.4946 1.6117 .5977 7
81.216 1.477 .000 1.000 7
8.016'802 .1347 .1094 2.303'802 7
.9415 2.2433 1.6197 .5280 7
8.1536 .1584 81.59'817 .1043 7
81.042 1.074 .000 .707 7
81.399 1.304 8.016 1.095 7
8.4723 .3536 88.00'803 .2892 7
81.938 1.618 8.105 1.404 7
.915 4.151 2.571 1.378 7
.000 2.082 .567 .763 7
.153 .692 .429 .230 7
Predicted @alue
-td. Predicted @alue
-tandard 'rror o)
Predicted @alue
AdCusted Predicted @alue
3esidual
-td. 3esidual
-tud. 3esidual
!eleted 3esidual
-tud. !eleted 3esidual
;ahal. !istance
Coo0Ds !istance
Centered "e$era,e @alue
;ini&u& ;a(i&u& ;ean -td. !e$iation *
a.
C(arts
*or&al P8P Plot o) 3e,ression -tandardized 3esidual
7bser$ed Cu& Prob
1.00 .75 .50 .25 0.00
'
(
p
e
c
t
e
d

C
u
&

P
r
o
b
1.00
.75
.50
.25
0.00
Comment.
"n model summary + s$uare is approimately e$ual to adjusted + s$uare. (o the model is
fit. (5BH) "n the above figure the green colored line is best fit line. %he normal plot of
regression standardi!ed residuals for the dependent variables also indicates a relative
normal distribution as they are not scattered and very close to the best fit line.
bC ln(#nterest !ate) J a0 I a"ln(Person) I a*ln(:perience) Ia1ln(#ncome) I
a8ln(Cre(it !ationing) I
b
"P'3-7*?
"'<P?
"%*C7;'?
"C3'!
a
. 'nter
;odel
1
@ariables
'ntered
@ariables
3e&o$ed ;ethod
a.
b.
"odel #uar$
b
.745
a
.556 8.333 .7004
;odel
1
3 3 -Auare
AdCusted
3 -Auare
-td. 'rror o)
the 'sti&ate
PredictorsB .Constant/? "P'3-7*? "'<P? "%*C7;'?
"C3'!
a.
b.
A%&VA
b
1.227 4 .307 .625 .691
a
.981 2 .491
2.208 6
3e,ression
3esidual
otal
;odel
1
-u& o)
PredictorsB .Constant/? "P'3-7*? "'<P? "%*C7;'? "C3'!
a.
b.
Coe''icients
a
810.391 9.321 81.115 .381
1.061 1.158 .480 .916 .456
2.412 1.854 1.363 1.301 .323
81.249 1.433 81.087 8.871 .475
1.089 1.553 .687 .701 .556
.Constant/
"%*C7;'
"'<P
"C3'!
"P'3-7*
;odel
1
+ -td. 'rror
:nstandardized
Coe))icients
+eta
-tandardi
zed
Coe))icien
ts
t -i,.
a.
http://bba-mba-arena.blogspot.com/p/internship-reports_06.html @@
a
.8769 2.0436 1.6117 .4523 7
81.625 .955 .000 1.000 7
.4775 .6876 .5868 8.387'802 7
.1479 3.0382 1.8498 1.0555 7
8.6772 .5485 3.172'817 .4044 7
8.967 .783 .000 .577 7
81.414 1.255 8.027 .959 7
82.2424 1.8183 8.2381 1.4281 7
835.368 1.929 84.699 13.556 7
1.931 4.926 3.429 1.197 7
.003 1.976 .578 .707 7
.322 .821 .571 .200 7
Predicted @alue
-tandard 'rror o)
Predicted @alue
3esidual
-td. 3esidual
-tud. 3esidual
!eleted 3esidual
;ahal. !istance
Coo0Ds !istance
a.
C(arts
7bser$ed Cu& Prob
1.00 .75 .50 .25 0.00
'
(
p
e
c
t
e
d

C
u
&

P
r
o
b
1.00
.75
.50
.25
0.00
Comment:
"n model summary + s$uare is not e$ual to adjusted + s$uare. (o the model is fit.
(44.@H) "n the above figure the green colored line is best fit line. %he normal plot of
normal distribution as they are scattered.
http://bba-mba-arena.blogspot.com/p/internship-reports_06.html @B
Anal$sis)
All the independent variables have been entered as specified in the regression e$uation.
Aere the dependent variable is interest rate. )or regression analysis, " have used standard
multiple regression under which " have entered all the independent variables to eamine
the relationship among the whole set of predictors and the dependent variable. 1ut here "
have used my judgment to enter the variables which variables affect the most the interest
rate.
All the variables together eplain 5BH of the variance in interest rate which is significant
as indicated by the )-value. An eamination of the t-value indicates that net asset
contributes more to the prediction of interest rate which is also supported by correlation
analysis. Analy!ing the significance level from the above table, only loan purpose, no of
installments and income are important as the determinants of interest rate variation for
determining credit worthiness.
;.; Fin(ings an( Concl)sion:
"nterest rate is an important factor to the entire potential borrower and the bank. "t is the
most important source of income for bank. )rom the correlation analysis and regression
analysis it is obvious that net asset is the most important factors in determining interest
rate this means mainly based on net asset among other variables bank charges different
interest rate for different borrower which indicates their credit worthiness. 1ut the factors
that 01L takes into consideration are not sufficient factors. "t should consider some
other factors for determining credit worthiness before sanctioning any loan for more
security and avoid default of customers.
http://bba-mba-arena.blogspot.com/p/internship-reports_06.html @>
CHAPT! -6
C!&#T !AT#%$#$?-&T!M#$A$T
%F C!&#T .%!TH#$99
6." #ntro()ction:
#redit rationing means the amount of loan sanctioned against the amount of loan
demanded. Esually, 1ank does not sanction the whole amount of loan for which it
accepts the application. 1ased on some $uantitative information and judgment, it takes
the decision whether it will accept the loan application or not and if yes then what should
be the sanction limit based on the credit worthiness of individual potential borrower. %his
chapter is about why credit rationing is different for different borrower
6.* Correlation Anal,sis:
#orrelation analysis is an empirical estimation through which it is possible to estimate the
degree of relationship of one variable with another variable other variables. %hrough this
estimation, we are able to determine the degree of relationship between two variables at a
time. Like the interest rate ,as determinants of credit rationing , " have considered some
variables which include age , eperience, income , net asset, personal guaranty, loan
purpose and interest rate .%he degree of relationship of each of the variable with credit
rationing is represented in the following correlation matri.
Correlations
1.000 .572 .464 8.184 .297 .407 8.015 8.230
. .090 .147 .347 .259 .183 .487 .310
7 7 7 7 7 7 7 7
.572 1.000 8.425 8.528 .644 8.378 8.757 8.452
.090 . .171 .111 .059 .202 .024 .154
7 7 7 7 7 7 7 7
.464 8.425 1.000 .181 8.399 .689 .757 .412
.147 .171 . .349 .188 .044 .025 .179
7 7 7 7 7 7 7 7
8.184 8.528 .181 1.000 8.616 .725 .414 8.240
.347 .111 .349 . .070 .033 .178 .302
7 7 7 7 7 7 7 7
.297 .644 8.399 8.616 1.000 8.350 8.401 8.207
.259 .059 .188 .070 . .221 .186 .328
7 7 7 7 7 7 7 7
.407 8.378 .689 .725 8.350 1.000 .637 8.141
.183 .202 .044 .033 .221 . .062 .382
7 7 7 7 7 7 7 7
8.015 8.757 .757 .414 8.401 .637 1.000 .575
.487 .024 .025 .178 .186 .062 . .088
7 7 7 7 7 7 7 7
8.230 8.452 .412 8.240 8.207 8.141 .575 1.000
.310 .154 .179 .302 .328 .382 .088 .
7 7 7 7 7 7 7 7
Pearson Correlation
-i,. .18tailed/
*
Pearson Correlation
-i,. .18tailed/
*
Pearson Correlation
-i,. .18tailed/
*
Pearson Correlation
-i,. .18tailed/
*
Pearson Correlation
-i,. .18tailed/
*
Pearson Correlation
-i,. .18tailed/
*
Pearson Correlation
-i,. .18tailed/
*
Pearson Correlation
-i,. .18tailed/
*
"%*'3'-
"*'A--'
""7A*P:3
"A2'
"%*C7;'
"'<P
"C3'!
"P'3-7*
"%*'3'- "*'A--' ""7A*P:3 "A2' "%*C7;' "'<P "C3'! "P'3-7*
)rom the above correlation matri, we can see that credit rationing has positive
relationship with most of the variables which include loan purpose, personal guaranty age
and eperience. Among these variables, credit rationing has significant positive
relationship with loan purpose considering ,H significance level. "t has negative
relationship with interest rate, net asset, income. Among all the variables credit rationing
has the largest relationship with loan purpose.
6.1 !egression Anal,sis:
Ender this empirical analysis loan sanction-loan demand ratio has been considered as the
dependent variable and other variables (interest rate, loan purpose, net asset, age,
eperience, personal guaranty, and income) have been considered as independent
variables. %he regression model can be written as
http://bba-mba-arena.blogspot.com/p/internship-reports_06.html B=
Regression
a/ ln.Credit Ratio/= a
0
> a
1
ln.*oan Purpose/ >a
2
ln.%et Asset/ >
a
3
ln.Interest Rate/ >E

b
""7A*P:
3?
"*'A--
'?
"%*'3'-
a
. 'nter
;odel
1
@ariables
'ntered
@ariables
3e&o$ed ;ethod
a.
!ependent @ariableB "C3'!
b.
"odel #uar$
b
.912
a
.832 .663 .3064
;odel
1
3 3 -Auare
AdCusted
3 -Auare
-td. 'rror o)
the 'sti&ate
PredictorsB .Constant/? ""7A*P:3? "*'A--'?
"%*'3'-
a.
b.
A%&VA
b
1.391 3 .464 4.939 .111
a
.282 3 9.391'802
1.673 6
3e,ression
3esidual
otal
;odel
1
-u& o)
PredictorsB .Constant/? ""7A*P:3? "*'A--'? "%*'3'-
a.
b.
Coe''icients
a
7.353 7.905 .930 .421
.578 .820 .664 .705 .532
81.194 .954 81.154 81.252 .299
87.06'802 1.447 8.042 8.049 .964
.Constant/
"%*'3'-
"*'A--'
""7A*P:3
;odel
1
+ -td. 'rror
:nstandardized
Coe))icients
+eta
-tandardi
zed
Coe))icien
ts
t -i,.
a.
http://bba-mba-arena.blogspot.com/p/internship-reports_06.html B,
a
8.1921 1.2613 .4965 .4816 7
81.430 1.588 .000 1.000 7
.1592 .2950 .2267 5.145'802 7
81.3983 1.7022 .3723 .9219 7
8.2394 .3322 1.299'815 .2167 7
8.781 1.084 .000 .707 7
81.027 1.299 .068 1.098 7
8.5949 1.3014 .1242 .6973 7
81.041 1.603 .175 1.194 7
.762 4.704 2.571 1.469 7
.027 4.179 .891 1.475 7
.127 .784 .429 .245 7
Predicted @alue
-tandard 'rror o)
Predicted @alue
3esidual
-td. 3esidual
-tud. 3esidual
!eleted 3esidual
;ahal. !istance
Coo0Ds !istance
a.
C(arts
7bser$ed Cu& Prob
1.00 .75 .50 .25 0.00
'
(
p
e
c
t
e
d

C
u
&

P
r
o
b
1.00
.75
.50
.25
0.00
Comment.
fit. (>2./H) "n the above figure the green colored line is best fit line. %he normal plot of
http://bba-mba-arena.blogspot.com/p/internship-reports_06.html B/
Regression
b) ln.Credit Ratio/ = a
0
> a
1
ln.Person/ >a
2
ln.E+perience/
>a
3
ln.Incoe/ >a
4
ln.Age/ > E
b
"P'3-7*?
"'<P?
"%*C7;'?
"A2'
a
. 'nter
;odel
1
@ariables
'ntered
@ariables
3e&o$ed ;ethod
a.
b.
"odel #uar$
b
.930
a
.865 .594 .3365
;odel
1
3 3 -Auare
AdCusted
3 -Auare
-td. 'rror o)
the 'sti&ate
PredictorsB .Constant/? "P'3-7*? "'<P? "%*C7;'?
"A2'
a.
b.
A%&VA
b
1.447 4 .362 3.194 .252
a
.226 2 .113
1.673 6
3e,ression
3esidual
otal
;odel
1
-u& o)
PredictorsB .Constant/? "P'3-7*? "'<P? "%*C7;'? "A2'
a.
b.
Coe''icients
a
84.982 5.342 8.933 .450
.237 .716 .169 .331 .772
.150 .738 .078 .203 .858
.991 .598 .643 1.656 .240
.998 .423 .723 2.361 .142
.Constant/
"A2'
"%*C7;'
"'<P
"P'3-7*
;odel
1
+ -td. 'rror
:nstandardized
Coe))icients
+eta
-tandardi
zed
Coe))icien
ts
t -i,.
a.
http://bba-mba-arena.blogspot.com/p/internship-reports_06.html B2
a
8.1251 1.2046 .4965 .4910 7
81.266 1.442 .000 1.000 7
.2121 .3362 .2806 4.985'802 7
84.5736 2.0950 8.3495 2.3716 7
8.2277 .3051 9.762'816 .1943 7
8.677 .907 .000 .577 7
81.267 1.230 .031 1.016 7
81.0616 4.5626 .8460 2.0225 7
82.014 1.765 8.042 1.274 7
1.526 5.134 3.429 1.461 7
.067 36.714 7.280 13.635 7
.254 .856 .571 .244 7
Predicted @alue
-tandard 'rror o)
Predicted @alue
3esidual
-td. 3esidual
-tud. 3esidual
!eleted 3esidual
;ahal. !istance
Coo0Ds !istance
a.
C(arts
7bser$ed Cu& Prob
1.00 .75 .50 .25 0.00
'
(
p
e
c
t
e
d

C
u
&

P
r
o
b
1.00
.75
.50
.25
0.00
Comment.
fit. (>@.4H) "n the above figure the green colored line is best fit line. %he normal plot of
Anal,sis
"n the analysis, credit rationing has been entered as dependent variable and the other
variables as independent variables .)or this case, " have selected the independent
variables by turn and entered them so to find out which variable contribute the most
based on my judgment

%he value of significance indicates that loan purpose is most significant in determining
the differences in credit rationing which also support the correlation analysis. %he beta
value indicates what unit in dependent variables will change for a one unit change in the
independent variables. "n the table, the beta value contains both the positive and negative
sign .%his indicates that for a one unit change in independent variables may cause a
negative change in the dependent variable which shows negative relation or vise versa.
%he calculated %-value presented in the table is compared with compared with the table
value of %.
6.8 Fin(ings an( Concl)sion
)rom the empirical analysis it can be inferred that the factors 0ercantile 1ank Limited
considers before accepting any credit proposal and sanctioning loan limit for determining
credit worthiness of individual borrower are not sufficient. 1ecause they contribute
>3.>4H of variance in credit rationing. (o, from my view point, it will be wise for the
bank to consider some other factors eg education, family si!e co-applicant, relationship
with applicant that may contribute to a large etent.
CHAPT!-@
!9A!CH 9'MMA!I A$& C%$C4'9#%$
@." #ntro()ction:
#redit &orthiness Analysis is undoubtedly a milestone in the modern techni$ue in
assessing the risks for lending bankers in 1angladesh. "t can be confidently said that
through implementing the statistical tools, e,g. #orrelation Analysis, +egression Analysis,
the financial institutions and banks in 1angladesh will get the necessary help and thus
would reduce the lending risk to minimum level. %he objectives of this chapter are to
discuss the research summary and the conclusions of this paper. %he substance of the
empirical results of this study and the especial findings are discussed here.
@.* 9)mmar, o+ the ma2or +in(ings:
%hrough #orrelation Analysis, interest rate has significant relationship with loan purpose
whereas credit rationing has with income level .%he +egression Analysis indicates that
the factors that 01L considers in determining interest rate and credit rationing are not
sufficient 1ecause the factors that have been used as input variables in interest rate
determination can eplain B@.2 H variance in interest rate and in case of credit rationing
>3.>4 H is eplained through these variables. Again by the )-value it is obvious that the
contribution of these variables is not highly significant. 1ut the adoption of regression
analysis along with other reform measures, for eample, Lending +isk Analysis (L+A) in
the banking sector, the concept of lending can be changed. 7owadays, it is production
and purpose oriented not security oriented. %oday, more emphasis is given on the
background of the customers, soundness and viability of business, cash flow of the
business etc. 1ut " think sometimes security is needed for the protection of any adverse
situation. "n my study it is also found that bankers and eecutives of 01L as well as
others don't use any statistical tools in their lending decision. 1ut in my opinion, it is
important for the entire bank to use some statistical tools, eg. +egression analysis to
assess which factor is mostly important that the bank should consider along with L+A.
Again the eisting L+A form have been designed only for manufacturing concerns but in
reality there are other concerns eist as well. %hat's why besides L+A some other tools
should also be used in lending decision and before sanctioning any credit limit.
http://bba-mba-arena.blogspot.com/p/internship-reports_06.html B@
@.1 #mplication o+ the st)(,
#redit &orthiness Analysis helps to assess whether the potential borrower will be able
to repay the loan that is the risk of failure to repay loan. %he findings of the empirical
study might serve the interests of a number of parties. %he 1ank can get effective
feedback regarding their promotional performance. %his study will help the 01L to have
a thorough assessment about the financial $uality of the before sanctioning any credit and
ensure repayments. %his study will make the bank more careful in lending activities and it
will help the 1ank in the long run. %his study will also help 01L to grow efficiently in
this competitive business world. %his research will help the planners, eecutives and
practitioners in understanding about +egression analysis and the recommendations will
help for future application of statistical tools in banking sector. %he other 1ank's can
redesign their banking policy according to the re$uirement of the 1ank's need. %he
findings of this study will also provide more valuable information to the teachers and
academicians, who can find the study useful in designing academic curriculum, preparing
and delivering class lectures, designing course outline etc. %he students can also use the
findings for their academic purpose.
@.8 4imitations o+ the st)(,
%hough " have given utmost effort to prepare this paper but there are some limitations of
the study. %hey are as follows-
,. %his paper has focused on the most sensitive part of the organi!ation i.e. loan and
advance. (o the bank authority hesitated to disclose important information to maintain
business secrecy.
/. Only 2 months time is not enough to complete such a study in a lucid manner.
2. %here is also cost constraints, because " am a studentL it is very difficult for me to
spend much money.
3. 1ank was not that much willing to provide the re$uired data.
4. %o make a comprehensive study on #redit &orthiness Analysis through +egression
analysis it was difficult for me as " was not a research student it is crucial to make a broad
based survey on this topic. All things cannot be possible to consolidate by an individual
within 2 months period. (o absence of etensive survey, limits the depth of the study.
http://bba-mba-arena.blogspot.com/p/internship-reports_06.html BB
@.; !ecommen(ations
0ainly, my topic was credit worthiness analysis but " have also focused and analy!ed on
Operational <erformance of 0ercantile 1ank Limited 9lephant 1ranch. 01L is a new
bank in 1angladesh but its contribution in socio-economic aspect of 1angladesh has
greater significance. %hough my topic is connected on the overall banking divisions or
sectors, " have tried to identify the process of disbursement of loan, performance and
problems of the bank as a whole. " have found a fewer number of factors, which impede
the achievement of ultimate goals of 01L. "t is not easy to find out the solution for an
ineperience internee like me. 1ut " do believe that the suggestions mentioned below will
obviously increase the efficiency of 0ercantile 1ank Limited.
.ea6 $et7or6
%here is no $uestion about the returns to scale for the banks that developed their financial
products and built the delivery system on a global scale. %he 1ank whose network system
is strong enjoys a cost and competitive advantage over the financial institutions. "n the
electronic world the nature of competition is different and efficient bank can get a benefit
from being and innovator, which sticks with a bank for a long time. 0ercantile 1ank
Limited as a new 1ank hasn;t yet setup proper network system. "t is really very important
of present time. At present all the branches of 01L can;t share online banking at the same
time. 7ow 01L is thinking to implement software where a client can deposit, withdraw,
get loan by only one account. %his should be implementing as early as possible to meet
the challenge of /,st century.
A& Facilit,
A? stands for Authori!ed ?ealer. 1angladesh 1ank provides Authori!ed ?ealership to
the commercial banks. (ome branches of 01L has got A? license but 9lephant +oad
1ranch is yet to get this. 9lephant +oad 1ranch is providing the service of A? to its
honorable customers via other branches (Dawran 1a!ar, ?hanmondi) which kill the
valuable time of its customers. )or this reason 9lephant +oad 1ranch is losing its
epected customers. %o capture those customers 01L should take necessary steps to have
an A? license for 9lephant +oad 1ranch.
http://bba-mba-arena.blogspot.com/p/internship-reports_06.html B>
5eep the ?i3en Commitment
01L has committed to their prospective customers to payment of che$ue within 2=
seconds after submission but unfortunately they are not able to payment of that che$ue. "
think the bank should try to keep its commitment hearty or it should be remove form the
characteristics of 01L. Otherwise the customers can think that the bank has no
uniformity between its word and action.
Cre(it Management
01L 9lephant +oad 1ranch is now doing well in credit management especially in 0icro
#redit ?ivision. 0oreover the bank may face problem if it does not take some necessary
steps to correct the flows that are identified.
)or increased effectiveness of various activities of 01L-the bank should not sanction any
loan to those clients * customers, whose necessary information is not fully disclosed to
the bank. %o get information, which is needed for credit appraisal, the bank should not
only depend on the client but also should try to eplore the other sources of information
for its authentication. %hey must rationali!e portion of loans and advances to different
sector for risk diversification. %he bank also should go for long-term investment, which
will diversify the risk.
@.6 Concl)sion
#redit worthiness analysis reflects the degree of credit worthiness of individual borrower
which measures the risk of repayment involved with the borrower. +egression analysis
for credit worthiness determination is not still in practice in any banking sector. All the
banking sector in 1angladesh use L+A in lending risk determination but they do this only
as formality. %hey sanction loan based on interview and the reputation of the borrower
and after sanctioning loan they do L+A as formality. (o " think as they don't follow L+A
strictly and only as formality, mainly based on interview and reputation, they should
apply some statistical tools such as regression analysis. )or a long time, 01L have been
carrying the burden of huge amount of classified loans. " hope that, 01L will minimi!e
the dangers regarding the bad loans and advances through implementing the credit
worthiness analysis . Obviously, this is not the ready prescription on all ills but it would
be helpful to the 01L to go one step forward of their mission to minimi!e lending risk.
0#04#%?!APHI
,. )inancial "nstitution 0anagement, +isk 0anagement Approach, )ourth 9dition, by
Anthony (aunders and 0arcia 0illon #ornett
/. Annual reports of 01L years /===, /==,, /==/,/==2,/==3,/==4
2. )inancial 0anagement, %heory and practice, by 1righam and 9hrhardt (,=th 9dition)
3. "ntroduction to )inancial 0anagement by #harles <. 6ones
3. 1usiness (tatistics, 7inth %horoughly +evised K 9nlarged 9dition, by (.<. :upta K
0.<. :upta.
4. (<(( Analysis, (heridan 6. #oakes. Lyndall.:.(peed.
@. (<(( 0anual
B. &eb (ite of 01L-www.mblbd.com
http://bba-mba-arena.blogspot.com/p/internship-reports_06.html >=

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