Analysis of Credit Schemes of National Bank

The general objective of this report is to analyze the credit schemes of the National Bank Limited, Babu Bazar Branch. Other objectives are to describe different credit schemes of the bank and analyze various credit policies of National Bank Limited of Babu Bazar branch. Finally, prescribe some suggestions based on findings of credit schemes. Overall discuss the activities that are required to provide valuable services to its customers to make them satisfy, are related to the fund management system, NBL is so much care about its fund management system.

OBJECTIVE OF THE STUDY:

As an integral part of my BBA program, this September in the year of 2012, I have enrolled myself in completing the Internship Report. It requires me to submit a paper on which I have worked. To fulfill this requirement I have prepared this paper and have chosen “An analysis of credit schemes of National Bank Limited, a study on babu bazar branch” as my paper’s topic. We know theoretical knowledge makes better sense when it’s associated with practical experience. For me, my exposure to banking started not with theoretical knowledge but rather from direct involvement. This report is based on what I have learned from my practical experiences.

The general objective of this report is:

• To analyze the credit schemes of the National Bank Limited, Babu Bazar Branch.

Specific Objectives

• To describe different credit schemes of the bank
• To analyze various credit policies of National Bank Limited of Babu Bazar branch
• To prescribe some suggestions based on findings of credit schemes.

METHODOLOGY:

To meet the objectives of the study I have chosen to do the following things:

1. Nature of the Report: Descriptive & Quantitative.
2. Primary and Secondary Data: For the report, I have used both the Primary & Secondary data. In the case of Secondary data, I have used five years of data of NBL (from 2006 to 2010) for my analysis.
3. Instruments: To express the analyses I have used a pie chart, bar diagram, etc.
4. Data Collection: The necessary data to analyze the credit was collected from the Annual Report on 2007, 2009 and 2010 of the NBL.
5. Data analyses: I have analyzed the data from two points of view. Those are-
6. Tine Series Techniques. And
7. Cross-Section Techniques.

Data Collections:

The report was fully investigative in nature. Data have been collected from two sources—

1. Primary Sources. And
2. Secondary Sources.

These two sources are explained below:

Primary Sources: Primary sources are as follows:

• Face to face conversation with the respective officers and staffs of the banks.
• Practical work experience in the different desks of the department of the branch covered.
• Relevant file study as provided by the officers concerned.

Secondary Sources of data and information are as follows:

• Annual Report of the National Bank Limited.
• Web Site of the National Bank Limited.
• Other important Documents of the National Bank Limited.
• Different procedure Manual, Published by the National Bank Limited.
• Internet.

AN OVERVIEW OF BANKING INDUSTRY AND NATIONAL BANK LIMITED

INTRODUCTION:

The foundation of the independent banking system in Bangladesh was laid through the establishment of the Bangladesh Bank in 1972 by the Presidential Order No. 127of 1972 (which took effect on 16^th December 1971). Through the Order, the eastern branch of the former State Bank of Pakistan at Dhaka was renamed as the Bangladesh Bank as a full-fledged office of the central bank of Bangladesh and the entire undertaking of the State Bank of Pakistan in, and in relation to Bangladesh has been delivered to the Bank.

Bangladesh Bank has been entrusted with all of the traditional central banking functions including the sole responsibilities of issuing currency, Keeping the reserves, formulating and managing the monetary and credit policy, regulating the banking system, stabilizing domestic and external monetary value, preserving the par value of Bangladesh Taka, fostering economic growth and development and the development of the country’s market.

Modern banks play an important part in promoting the economic development of a country. They collect savings of large masses of people scattered throughout the country, which in the absence of banks would have remained idle and unproductive. These scattered amounts are collected, pooled together and made available to commerce and industry for meeting the requirements. So they have highly recommended for reforming the financial sector. Since, 1990, Bangladesh government has taken a lot of financial sector reform measurements for making the financial sector as well as banking sector more transparent formulation and implementation of these reform activities has also been participated by a different international organization like World Bank, IMF, etc.

An overview of Private Banks in Bangladesh

There were no domestic private commercial banks in Bangladesh until 1982; When The National Bank Limited started there journey in 1983 as the first fully owned by Bangladeshi Entrepreneurs five more commercial banks came up in 1983 and initiated a moderate growth in banking financial institutions. Despite slow growth in the number of individual banks, there had been a relatively higher growth of branches of nationalized commercial banks (NCBs) during 1973-83. Their number had increased from 1512 in 1973-74 to 4603 in 1982-83.

Financial sector reforms to strengthen the regulatory and supervisory framework for banks made headway in 2006 although at a slower than expected pace. The overall health of the banking system showed improvement since 2002 as the gross Non-performing Loans (NPL) declined from 28 percent to 14 percent while net NPL (less Provision) reduced to 8 percent from 21 percent. This led to significant improvement in the profitability ratios. Although the Private Commercial Banks (PCB) NPL ratio registered a record low of 6 percent, the four Nationalized Commercial Banks (NCB) position are still weak and showed very high NPL at 25 percent. The NCBs have large capital shortfalls with a risk

Weighted capital asset ratio of just 0.5 percent (June 2006) as against the required 9 percent. For the PCBs risk-weighted capital asset ratio stood at 10 percent. Bangladesh Bank issued a good number of prudential guidelines during the year 2006 and the first quarter of 2007 which among others relate to:

• Rationalization of prudential norms for loan classification and provisioning.
• Policy for rescheduling of loans.
• Designing and enforcing an “integrated credit risk grading manual”.
• The credit rating of the banks. And
• Revisions to the make-up of Tier-2 capital.

Besides, the recent decision of the Government to corporative the remaining three NCBs along with the initiative to sale the Rupali Bank are bound to usher in changes in the banking sector competitiveness aspect. Bangladesh Bank has also taken up the task of implementing the Basel II capital accord. Further, the recent enactment of the Micro-credit Regulatory Authority Act (MRAA) for the regulation of the Micro Finance Institutions (MFI) has been a major development in the year 2006. Since 1998 CAMEL rating of banks gradually improved and in 2006 Bangladesh Bank updated this rating model by incorporating the market risk and the new model is known as CAMELS.

Current Structure of Banks in Bangladesh

Bangladesh Bank (BB) has been working as the central bank since the country’s independence. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. BB is also responsible for planning the government’s monetary policy and implementing it thereby. The BB has a governing body comprising of nine members with the Governor as its chief. Apart from the head office in Dhaka, it has nine more branches, of which two in Dhaka and one each in Chittagong, Rajshahi, Khulna, Bogra, Sylhet, Rangpur, and Barisal. Following is the country’s banking system as on 29^th April 2010.

AN OVERVIEW OF THE NATIONAL BANK LIMITED:

National Bank Limited has its prosperous past, glorious present, prospective future and under processing projects and activities. Established as the first private sector bank fully owned by Bangladeshi entrepreneurs, National Bank Limited was born as the first hundred percent Bangladeshi owned Bank in the private sector. From the very inception, it was the firm determination of National Bank Limited to play a vital role in the national economy. We are determined to bring back the long forgotten taste of banking services and flavors. We want to serve each one promptly and with a sense of dedication and dignity. At present we have 145 branches under our branch network. In addition, our effective and diversified approach to seize the market opportunities is going on as a continuous process to accommodate new customers by developing and expanding rural, SME financing and offshore banking facilities. We have opened 10 branches and 5 SME/Agri branches during 2010.

The then President of the People’s Republic of Bangladesh Justice Ahsanuddin Chowdhury inaugurated the bank formally on March 28, 1983, but the first branch at 48, Dilkusha Commercial Area, Dhaka started commercial operation on March 23, 1983. The 2nd Branch was opened on 11th May 1983 at Khatungonj, Chittagong.

At present, NBL has been carrying on business through its 130 branches and 15 SME / Agri Branches (total of 145 service locations) spread all over the country. Since the very beginning, the bank has exerted much emphasis on overseas operations and handled a sizable quantum of homebound foreign remittance. It has drawing arrangements with 415 correspondents in 75 countries of the world, as well as with 37 overseas Exchange Companies located in 13 countries.

MISSIONS OF THE NATIONAL BANK LIMITED:

The missions of the National Bank are as follows: The aim of NBL is to become one of the leading Banks in Bangladesh by its prudence, fair and quality of operation.

• Its effort for expansion of its activities at the home and abroad by adding a new dimension to its banking services is contributed unabated.
• It is also putting highest priority in ensuring transparency, accountability, and improved clientele services as well as to its commitment to serve the society through which it wants to get closer and closer to the people.
• Its goal is to act as a caring companion in uplifting the national economic standard through continuous gradation and diversification of its clientele services in line with the national and international requirement.
• It intends to meet the needs of its clients and enhance its profitability by creating a corporate culture.
• It believes in strong capitalization.
• Its aim is to ensure its competitive advantages by upgrading banking technology and information system.
• It maintains a high standard of corporate and business Seth’s. It provides high-quality financial services to strengthen the well being and success of individual, industries and business communities.

VISIONS OF THE NATIONAL BANK LIMITED:

Ensuring the highest standard of clientele services through the best application of latest information technology, making due contribution to the national economy and establishing ourselves firmly at home and abroad as a front-ranking bank of the country are our cherished vision.

PRODUCTS AND SERVICES OFFERED BY THE NATIONAL BANK LIMITED: 

General Products:

1. Savings Account
2. Current Account
3. Corporate Account
4. Short Term Deposit

Deposit Scheme:

1. Special Deposit Scheme
2. Monthly Saving Scheme
3. Education Scheme
4. Double scheme

Loan Scheme:

1. Loan General
2. Terms Loan
3. SOD
4. Cash Credit
5. Loan against Imported Merchandise
6. Loan against Trust Receipt
7. Loan against House Building S. Housing Loan Scheme
8. House repairing / Renovation loan Scheme
9. Consumers Finance Scheme
10. Festival Personal loan Scheme
11. Small Business loan Scheme
12. Personal loan Scheme.
13. Working Capital Loan.
14. Contractor Loan. Etc

Services:

1. Western Union money transfer.
2. First Solution
3. Locker Services
4. Remittance- T.T., D.D
5. Online Banking.
6. Quick Pay.
7. Samba.
8. A to Z money transfer.
9. Al- Fardan.
10. Git.
11. Coin Star.
12. Express. Etc.

SWOT ANALYSIS OF THE NATIONAL BANK LIMITED:

SWOT analysis is the detailed study of an organization’s exposure and potential in the perspective of its strength, weakness, opportunity, and threat. This facilitates the organization to make its existing line of their performance and also foresee the future to improve its performance in comparison to its competitors. As though this tool, an organization can also study its current position, it can also be considered as an important tool for making changes in the strategic management of the organization.

Strengths: 

National Bank Limited has already established a favorable reputation in the Banking industry of the country. It is one of the leading private sector commercial banks in Bangladesh. The bank has shown tremendous growth in the profit and deposits sector.

National Bank Limited has already achieved a high growth rate accompanied by an impressive profit growth rate in 2010. The number of deposits and loans and advances is also increasing rapidly.

National Bank has the reputation of being the provider of good quality services to its potential customer.

Weaknesses:

The main important thing is that the bank has no clear mission statement and strategic plan. The banks did not have any long term strategies of whether it wants to focus on retail banking or become a corporate bank. The path of the future should be determined now with a strong feasible strategic plan.

The bank failed to provide a strong quality recruitment policy in the lower and some mid-level position. As a result, the services of the bank seem to be dues in the present days.

Poor service quality has become a major problem for a bank. The quality of the service at National Bank Limited is not higher than the Dhaka Bank, Prime Bank or Dutch Bangla Bank, etc. So the bank has to compete with the multinational bank located here.

Some of the job in National Bank has no growth or advisement path. So lack of motivation exists in persons filling those positions. This is a weakness of NBL that it is having a group of unsatisfied employees.

In terms of the promotional sector, NBL has a need to give more emphasize on that. They have to follow an aggressive marketing campaign.

NBL remittance payment system is very poor, to pay a customer bank to consume huge time ( in some cases it takes a day to pay) because their IT investment is very poor.

Opportunities:

In order to reduce business risk, NBL has to expand its business portfolio. The management can consider options of starting merchant banking or diversify into leasing and insurance sector.

NBL has a huge scope to increase their customer service quality. By investing more in IT sector and recruit dynamic people who can ensure maximum customer benefit.

The percentage of classified loans of NBL is about 5% and in Babu Bazar Branch it is less than 1%. So here the bank has a huge scope to maximize their performance.

A large number of private banks coming into the market in the recent time in this competitive environment NBL must expand their product line to enhance its sustainable competitive advantage in that product line, they can introduce debit card and ATM Booth system for their potential customer.

In addition to those things, NBL can introduce a special corporate scheme for the corporate customer or officer who has an income level from higher to lower. At the same time, they can introduce scheme or loan for various service holders and the scheme should be separate according to the professions such as engineers, lawyers, doctors, etc.

Threats:

All sustain multinational banks and upcoming foreign private banks possess enormous threats to NBL. If that happens the intensity of competition will rise further and banks will have to develop strategies to compete against on slough of foreign banks.

The default risks of all terms of the loan have to be minimizing in order to sustain in the financial market because default risk leads the organization towards to bankrupt. NBL has to remain vigilant about this problem so that proactive strategies are leading them to minimize this problem if not eliminated.

The low compensation package of the employees from mid-level to lower level position is another threat of the NBL. As a result, good quality from employees leaves the organization and its effects on the organization as a whole.

LOANS AND ADVANCES OF THE NATIONAL BANK LIMITED

INTRODUCTION:

National Bank Limited formulated befitting credit risk management criteria and strategies for the creation of balance lending mix in its portfolio both for short and long term with the bottom line objective to ensure the risk-adjusted rate of return in its credit transactions. Loan and advances in the year 2010 registered an increased by 41.26% to BDT 92,003.56 million from BDT 65,129.29 million in 2009. During the year 2010, the credit expansion mainly was in–

a) Bilateral project finance.

s) Syndicate finance.

c) Export.

d) Import.

e) Trade financed.

f) SME and

g) Agri finance.

The bank as a matter of policy prioritizes to make lending in the thrust sectors of the economy so as to make distinctive value addition in overall economic uplift of the economy.

CURRENT OR CONSCIOUS LOAN:

The current loan is also called revolving credit. Current loan holder can withdraw or deposit money in his account in several times within the loan period. If the loan holder wants to renew his loan amount then it can be done with the authorization of the bank. The current loan duration time is one year and interest is charged by quarterly basis. At the end of the loan, the period borrower pays the loan amount with the interest. There are two types of the current loan. They are-

• Cash Credit.
• SOD.
• Demand Loan. And
• Term Loan.

Cash Credits:

There are two types of cash credit. These are

1. CC-pledge
2. CC-Hypothecation

CC-Pledge:

CC-Pledge is sanctioned against pledge of marketable commodities. When such advance is allowed to traders or wholesalers or stockiest the underlying merchandise is pledged with the banker. When manufacturing concern is allowed CC-pledge facilities, commodities such as raw materials, finished products, stores, and spares are taken under pledge,

Cash credit-Hypothecation:

Another type of cash credit is Hypothecation- in short CC (HYPO) This is also an advance against stock of commodities and finished products but CC (HYPO) is also extended against work-in-process, Bills receivable, commercial vehicles etc. for a borrower CC (Hypo) is advantageous because in hypothecation neither ownership nor possession of goods is transferred to the bank but an equitable charge is created over the movable assets in favor of the bank. The goods remain under the possession of the borrower who binds himself to give the possession to the banker whenever the latter requires him to do so.

Secured Over Draft (SOD):

• Overdrafts are those drawings, which are allowed by the banks in excess of the balance in the current account up to a specified amount for a definite period as arranged for.
• Usually, provide against FDR.PSS, i.e. financial obligation or any primary securities. The interest charges from the date of first withdraw.
• Interest is calculated and charged only on the actual debt balance on a daily product basis.
• Balance of OD accounts are fluctuates
• The interest rate of SOD is 3% above of FDR interest rate if the FDR is in our Bank.
• If the FDR is in other banks then the interest rate is 14.50%

a) SOD against Work order:

Advances may be allowed in the form of overdraft to genuine contractors against work orders from various Government and semi-government agencies and other reputed organizations.

b) SOD (Bid Bond)

SOD (Bid Bond) is given to those borrowers who want to participate in a bid for a collection of work. In SOD (Bid Bond) payment is making by the payment order. If a borrower gets that work then interest is charged on that amount If a borrower does not get that work then he deposits that amount which he has issued by pay order.

Demand Loan:

The loan that becomes repayable on demand by the bank will be treated as Demand Loans. If any contingent or any other liabilities are turned to forced loans those too will be treated as a Demand loan.

a) Loan against trust receipt

When the importer fails to pay for the import bills, the bank can allow certain facilities. In case LIM facility is given, the bank itself arrange clearance of the goods on payment of import duty, sales tax, etc. and store the goods at the bank’s go down subject to its release in part or in entirely against payment at a time or gradually as per arrangement with the importer.

b) Payment against Document (PAD)

Payment made by the bank against lodgment of shipping documents of goods imported through L/C falls under this type head. It is an interim type of advance connected with import and is generally liquidated shortly against payments usually made by the party for retirements of documents for the release of import goods from the customs authority.

c) Loan against Trust Receipt (LTR)

Advances allowed for retirement of shipping documents and release of goods imported through L/C without effective control over the goods delivered to the customer fall under this head. The goods are handed over the importer under trust with an arrangement that sales proceed should be deposited to liquidate the advances within a given period. This is also a temporary advance connected with import that is known post-import finance under category ‘Commercial lending’

d) Inland Documentary Bill Payment (IDBP)

Payment made through purchase of Inland Bill to meet urgent requirements of customer fall under this type of credit facility. This temporary advance is adjusted from the proceeds of bills purchased for the collection.

e) Foreign Documentary Bill Payment (FDBP)

Payment made to a party through the purchase of foreign documentary bills falls under this head. This temporary advance is adjustable from the proceeds of negotiable shipping/export documents. It falls under the category ‘Export Credit’.

f) Packing Credit (PC)

The packing credit limit is sanctioned to the exporter against the security of R/R, B/R, truck receipt, etc evidencing transportation of goods from up-country to the port for shipment, in addition to the usual charge document and original export letter of the credit contract. This type of credit is given for transit period starting from dispatch of the goods by the exporter to finance transportation and freight of goods to sustain the export activity.

Term Loan

NBL also offers term loan to its customers by giving different terms and conditions like- HBL, EHBL, Car Loan, and CCS, etc. Those are explained below:

i) House Building Loan:

Purpose:

To help people of all classes to purchase house/flat or to construct house Size of Loan: Maximum limit 75 lac taka Debt Equity ratio:

1. Max 70:30 for purchasing flats/houses.
2. Max 80:20 of construction cost (for-Construction).

Repayment period:

The loan is to be repaid by monthly equal installments including interest within a maximum period of 20 years (including the grace period) depending on the size of loan and repayment capacity of the borrower.

Grace period:

For purchase of fiat (s)/houses(s):

The client will enjoy a maximum of 9 month’s grace period from the date of availing of the loan. Repayment will start from the 10th month of availing of the loan and the entire loan will be adjusted within the validity period. For Self-Construction:

The client will enjoy the maximum 12-month’s grace period from the date of availing of the loan within which construction is to be completed. Repayment will start from the 13th month of availing of the loan and the entire loan will be adjusted within the validity period.

Interest

National Bank Limited (NBL) in 2007 introduced 2 (two) Housing Loan Products for individuals who desire to construct own residential home or apartment or decides to improve/ renovate/ expand their existing residential house/ apartment. The products are:

1. Long Term Housing Loan under the Scheme “NBL Housing Loan” to construct or purchase a residential building or apartment. And
2. Medium Term Housing Loan under the Scheme “Small Housing Loan” for repair, renovation, extensions, etc. of existing building or apartment to individuals only.

Side by side NBL also provides General/Commercial House Building Loan to the Developers/Individuals for developments/construction of apartment/commercial complexes which does not fall within the purview of NBL Housing Loan or Small Housing Loan. Thus Housing loan products have created an opportunity for NBL to make the best use of its fund to maximize its profit and participating to enhance the housing stock of the country. In 2010 the total amount of Tk. 5,864.96 million has been sanctioned under t

ii) Employees house building loan (EHBL):

The employee of NBL can take a house-building loan from the bank but the range of loan amount depends on the person’s designations. Simple interest rate is a charge on employee’s house building loan and interest rate is 8%.

iii) Consumer Credit Scheme

The products of National Bank with their financing items under CCS loan are given below:

• Household Durable Loan for Motor Cycle, Personal Computer.  Photocopier,
• Fax machine. Small PABX system, Television, Mobile Phone set, Refrigerator, Audio video equipment, other home electric appliances furniture and any other household items.
• Car Loan for Car, Jeep, Station Jeep, Pick up Van, Cover Van, Bus, Truck,   Ambulance and any other vehicle for own use.
• Advance against salary for any qualified person.
• Education Loan for study purpose only.
• Travel Loan for traveling purpose.
• Wedding Loan for the wedding only.
• CNG Conversion Loan to convert into CNG.
• Any Purpose Loan for emergency need.
• Hospitalization loan for treatment in the hospital.

Credit Limit, Period of Loan, Down Payment:

Under CCS program of National Bank Limited, a borrower can get a maximum of Taka 4,000,000 and minimum Taka 20, OOO. The down payment is 10% of the loan for each product.

Interest and other charges:

The interest rate is 15% for all products. And National Bank charges 1% service charge and 1% risk fund for all products other than for Car loan, Doctor’s loan, Advance against salary and CNG Conversion loan.

WORKING CAPITAL LOAN

CONTRACTOR LOAN:

Some other types of loan schemes that are provided by NBL are explained below:

RURAL MICRO-CREDIT AND AGRI-FINANCING:

The Bank, from the year 1993, started focusing on rural and microcredit and in its effort, delivered credit services to the marginal farmers through Barendra Multipurpose Development Authority (BMDA) and subsequently intensified the area coverage through extension of the facilities to Naogaon, Chapai Nababganj and Thakurgaon districts and succeeded plausibly to change the socio-economic of the marginal farmers. The bank, in 2010, has made a significant contribution in the Agri sector by sanctioning fresh Agri loan to tune of BDT 775.00 million among the targeted segments comprising of 56,938 borrowers.

SME AND WOMEN ENTREPRENEURS FINANCING:

The role of Small and Medium Enterprise (SME) acts as the engine for the growth of the countries economy. Due to labor intensiveness and shorter lead time of production, the SME sector can create huge employment opportunities and its contribution is immense for economic growth. Limited access to financing SME still forms the crux of the problem.

NBL expanded its SME financing activities through its large network of 145 branches and SME/Agri Branches attracting entrepreneurs in various fields of trade and industry. NBL launched different attractive products for the SME sectors.

Total disbursement in the SME sector was BDT 14,094.70 million in 2010 against BDT 8,253.00 million of 2009, which registered 70.78% growth. As a matter of policy perception, they are prioritizing to bring more women entrepreneurs within the fold of their SME lending activities. To this effect, they have launched the dedicated product for this segment titled as “Nari Jagoron” which has in the meanwhile received wider acceptance. Moreover, NBL has enhanced 10% of SME related fund among the women entrepreneurs as directed by Bangladesh Bank.

SYNDICATION AND PROJECT FINANCING:

National Bank Limited prioritizes to appreciate the loan syndication both as a lead and as participating Bank for the large ticket borrowers. The modality of syndicated finance enables the Banks to diversify the credit portfolio. The syndicated finance creates the opportunity for risk sharing and standard of credit remains on the higher end because of co-appraisal by the multi-banks/ financial institutions. NBL participated in syndicated loan arrangements for financing in the different sectors of the economy like textiles & spinning, RMG, Pharmaceuticals, power plants, food processing, etc. So far, the bank extended financing in loan syndication to the tune of BDT 3,938.20 million, comprising of 22 deals in different capital intensive projects.

RETAIL BANKING OR CONSUMER CREDIT:

To help the needs of household individuals for the purchase of various consumable products NBL introduced retail loans or consumer credit during the last couple of years. There is the number of products introduced for the customers like any purpose loan and consumer durable loans.

LEASE FINANCING:

As part of the diversification of credit products, National Bank has introduced Lease Financing Scheme which can be availed from any branch of the bank. To assist a large group of people especially industrialists, business entities or individuals the scheme is designed with competitive terms \and conditions. The scheme facilitates to acquire capital machinery, equipment, medical instrument, automobile, CNG refueling machinery, and consumer durable, etc. Besides, the individuals and industrial entrepreneurs are showing much interest in Lease Financing to increase production, restructuring through BMRE, etc. The bank has already sanctioned lease finance amounting Tk. 84.05 crore up to December 31, 2010, under Lease Financing Scheme.

CREDIT ADMINISTRATION:

Bank’s investment is always exposed too much risk both external and internal. Profit maximization of a bank depends on the optimum utilization of its assets. The Bank structured devices and pragmatic approaches to pinpoint the inherent risk associated with loans and advances and keep constant follow up of the credits, right from its sanction and continues its efforts to keep the credits performing and unclassified. With constant vigilance default culture of borrowers has substantially declined.

CLASSIFIED LOANS AND ADVANCES:

Among other banking activities, “Loan Classification” and “Provision Build-Up” there against is very significant. If any loan account shows any difficulties or weakness in its objectives, it undergoes with close monitoring of the Management according to Bangladesh Bank directives.

By taking all their effort & effective measures Bank succeeded to prevent further bad debt and reduced 6.13% to Tk. 3,642.57 million as on December 31, 2010, from Tk. 3,880.31 million in the previous year. Besides, the Bank also achieved success in regard to the recovery of non-performing loans. During the year Bank recovered Tk.568.17 million & Tk. 268.01 million against classified loans & advances and written-off loan respectively. The amount of non-performing loans also decreased remarkably to 3.96 percent of total loans and advances.

During the year under review, the National Bank maintained the provision of Tk. 2,547.36 million as on December 31, 2010, against the requirement of Tk. 2,444.57 million ( including Off-Shore advance & off-balance sheet items) keeping a surplus of Tk. 100.29 million.

CREDIT MANAGEMENT

INTRODUCTION:

Credit management is the part of bank management which decides what type of lending product will be offered, to whom it will be offered, how much it will be offered and analyze and measure the credit risk on loans and manage all the activities regarding the loans. The aim of credit management is to have a secured loan portfolio so that the bank can earn profit by keeping the depositors’ savings secured. The entire job regarding that consists the credit management.

CREDIT PRINCIPALS OF NBL:

To achieve the goal for maximizing the stockholders’ value and protect the interest of the depositors as well as to improve the quality of banks assets as the fundamentally sound financial institution, National Bank follows the following credit principles:

LOAN PROCESS OF THE NATIONAL BANK LIMITED:

A) Application for the Loan

The loan process starts with the submission of loan application by the borrower. The borrower submits an application for a loan to the branch manager. In the loan, application borrower provide the following information

• Personal Details of Applicant.
• Nature of business.
• Amount and duration of the loan.
• Purpose of the Loan.
• Details of the collateral.

 B) Preparation of Loan proposal

A loan proposal is prepared in the prescribed format. At the time of originating a proposal accuracy of all information is ensured. Originating officers follows credit principles, credit policy and guidelines and conduct due diligence on new borrowers, principals and guarantors. That is also adhering to the NBL’s established Know Your Customer (KYC), Money Laundering guidelines, and Bangladesh Banks regulations.

For initiating credit relationship credit officer call on (the client, visit factory/business center to see Production facility/stock/storage pattern/business transaction/reputation, etc and through these, assess possibilities of establishing a remunerative relationship, He/She also conduct due diligence to get market information on the borrower from industry sources, competitors, local area. Branch Manager may also be part of this process, hi this regard, if required, the BM/Credit officer also take help of head Office Engineer/HO personnel for initial assessing credit needs of large borrowers.

Based on findings of such calls/visit/inspection, Credit Office Officer, along with the Branch Manager, initiate proposal, containing information on client’s background, business, market share, integrity, credit exposure/existing banking relationships, and credit needs along with pricing, etc.

CREDIT ANALYSIS

INTRODUCTION:

Credit analysis is the method by which one calculates the creditworthiness of a business or organization. The audited financial statements of a large company might be analyzed when it issues or has issued bonds. Or, a bank may analyze the financial statements of a small business before making or renewing a commercial loan. The term refers to either case, whether the business is large or small.

Credit analysis involves a wide variety of financial analysis techniques, including ratio and trend analysis as well as the creation of projections and a detailed analysis of cash flows. Credit analysis also includes an examination of collateral and other sources of repayment as well as a credit history and management ability. Analysts attempt to predict the probability that a borrower will default on its debts, and also the severity of losses in the event of default. Credit spreads–the difference in interest rates between theoretically “risk-free” investments such as U.S. Treasuries or LIBOR and investments that carry some risk of default–reflect credit analysis by financial market participants.

Before approving a commercial loan, a bank will look at all of these factors with the primary emphasis being the cash flow of the borrower. A typical measurement of repayment ability is the debt service coverage ratio. A credit analyst at a bank will measure the cash generated by a business (before interest expense and excluding depreciation and any other non-cash or extraordinary expenses). The debt service coverage ratio divides this cash flow amount by the debt service (both principal and interest payments on all loans) that will be required to be met.

Usually to analysis the credit the analyst used two types of technique. Those are —

• Time-Series Technique.  And
• Cross-Sectional Technique.

Those techniques are explained below—

Time-Series Technique: The analysis of the performance of a given entity over a period of time is called the time-series techniques.

Cross-Section Technique: Analyzing the performance of two or more different entities at a given or certain point if time. That means cross-section techniques compare the performance of two or more entities, companies or economy within one sector.

Cross-Section Techniques can be classified into two ways—

1. Common-Size Techniques: Common-Size Techniques express the component of the balance sheet as a percentage of total assets.
2. Financial Ratio Analysis: Financial Ratio Analysis expresses the component of the income statement as a percentage of total revenue.

In my report, I have used both the Time-Series and Cross-Section Techniques to analyze the data.

DATA ANALYSIS

As the topic of my report is “Credit Analysis of NBL” I have analyzed the credit of NBL from a different point of view. I have used five years of data (from 2006 to 2010) of NBL for analysis.

TIME-SERIES TECHNIQUE: In case of Time-Series Technique I have focused on different topics. Those are listed below:

1. Loans and Advances (Taka in million).
2. Advance Deposit Ratio.
3. The concentration of Loans and Advances to Mitigate Risk.
4. Non-Performing Loan.
5. Industry-wise Loans and Advances (Including Bills Purchased and Discounted).
6. Maturity Grouping of Loans and Advances Including Bills Purchased & Discounted Repayable.
7. Classified, Unclassified, Doubtful and Bad Loans & Advances.

Those are explained below through Graph with their explanation.

Loans and Advances (Taka in millions):

During the year of 2006, the Loans and Advances of NBL was Tk 32,709.68 million. In the year 2007 it was increased to Tk 36,475.74 million next year it increases to Tk. 50,665.07 million. In the year 2009, it stood at Tk 65,129.29 million and in the year 2010, the loans and advances of NBL increase up to Tk 92,003.56 million. So in this graph, we can see the increasing trend on Loans and advances of NBL.

Advance Deposit Ratio:

The concentration of Loans and Advances to Mitigate Risk (From 2006 to 2010):

i) Agriculture

ii) Term Loan to Small Cottage Industries.

iii) Term Loan to Large & Medium Industries.

iv) Working capital to Industry.

v) Export Credit.

vi) Trade Finance.

vii) Credit Card.

viii) Consumer Credit.

Those are explained below:

i) Agriculture:

In the year 2006, the Loans and Advances of NBL in Agriculture sector to mitigate the risk was Tk.98 million. In the year 2007, it increases to Tk.332.3 million.  From the year 2008 to 2010 there was an increasing trend in the investment in the Agriculture sector. In the year 2008 it was Tk.682.5 million, in 2009 it was Tk.694.76 million and in 2010 it was Tk.984.01 million.

ii) Term Loan to Small Cottage Industries:

In the year 2006, the Loans and Advances of NBL in the Term Loan to Small Cottage Industries to mitigate the risk was Tk.148.6 million. In the year 2007, it decreases to Tk.99.7 million. But in the year 2008, the investment increases at Tk.275.3 million. In 2009 the investment again decreases and the investment was Tk.110.94 million but in the year 2010, the investment again increases up to Tk.258.14 million.

iii) Term Loan to Large & Medium Industries:

In the year 2006, the Loans and Advances in the Term Loan to Large and Medium Industries to mitigate the risk was Tk.4, 172.6 million. In the year 2007, the amount increases at Tk.6, 393.20 million. In the year 2009, the amount increases from Tk.8, 322.50 million to Tk.10, 317.93 million. In the year 2010, the investment increases at Tk.13, 897.12 million.

iv) Working Capital to Industry:

To mitigate the risk the Loans and Advances of the investment in Working capital to Industry in the year 2006 was Tk.2, 135 million. In the year 2007, the investment increases at Tk.3, 421.50 million. In the year 2008 and 2009, the amount increases from Tk.5, 222 million to Tk.5, 871 million. But in the year 2010, the investment amount sharply increases to Tk.9, 154.12 million.

v) Export Credit:

To mitigate the risk the Loans and Advances of the Export Credit in 2006 was Tk.3, 075.80 million. In the year 2007, it increases to Tk.4, 216.40 million. Again in the next year, the amount increases up to Tk.5, 792.80 million. But in the year 2009, the Loans and Advances of the Export Credit decreases to Tk.5, 028.79 million. In the year 2010, the amount again increases to Tk.5, 059 million.

vi) Trade Finance:

To mitigate the risk the Loans and Advances of Trade Finance was Tk.10, 239.90 million in the year2006. Next year in 2007 the amount increases to Tk.10, 339.20 million. From the year 2008 to 2010 there was a sharply increasing trend in the Loans and Advances of Trade Finance. Like in the year 2008 the amount was Tk.15, 171.60 million. In 2009 the amount was Tk.22, 559 million and in the year 2010, the amount was Tk.35, 346.41 million.

 vii) Credit Card:

In the year 2006, the Loans and Advances of Credit Card were Tk.305.37 million to mitigate the risk. In the year 2007, the amount decreases to Tk.264.76 million. In 2007 the amount increases at Tk.253.12 million. From the year 2009 to 2010 the Loans and Advances on Credit Card sharply increases. In 2009 the amount was Tk.265.09 million and in 2010 the amount was Tk.412 million.

Export Credit:

The Loans and Advances of the Export Credit in 2006 were Tk.3, 075.80 million. In the year 2007, it increases to Tk.4, 216.40 million. Again in the next year, the amount increases up to Tk.5, 792.80 million. But in the year 2009, the Loans and Advances of the Export Credit decreases to Tk.5, 028.79 million. In the year 2010, the amount again increases to Tk.5,059 million.

Maturity Grouping of Loans and Advances Including Bills Purchased & Discounted :

Maturity grouping of loans and advances including bills purchased & discounted can be classified into the following six groups. To analyze them I have used five years of data (from 2006 to 2010) of NBL. Those are explained below:

1. On Demand.
2. Within 1 month.
3. More than 1 month but not more than 3 months.
4. More than 3 months but not more than 1 year.
5. More than 1 year but not more than 5 years.
6. More than 5 years.

Those are present below through table and graph.

On Demand:

According to the maturity grouping of Loans and Advances including Bills Purchased & Discounted, On Demand Loan in the year 2006 was Tk.3, 492.50 million. In the year 2007, the amount increases to Tk.4, 498.34 million. But in the year 2008, the amount of Loans and Advances was decreases to Tk.1, 151.20 million. Next two years the amount increases from Tk. 1,044.20 million to Tk.1, 708.60 million due to increasing the demand of the customer on Demand Loan.

Within 1 month:

According to the maturity grouping of Loans and Advances including Bills Purchased & Discounted, The loans which will be matured within one month, the amount was Tk.2, 567.20 million in 2006. In the year 2007, the amount was Tk.3, 972.20 million. But in 2008 the amount sharply decreases at Tk.1, 213.15 million. From the year 2009, the loan amount again increases from Tk.1, 527.19 million and in 2010 the amount was Tk.2, 123.36 million.

More than 1 month but not more than 3 months:

The Loans and Advances matured within more than One Month but not More than Three Months, the amount was Tk.6, 146.37 million. In 2007 the amount was 6,995.30 million but in 2008 the amount was decreases at Tk.6, 364.30 million. In 2009 the amount again increases at Tk.6, 428.42 million and in 2010 the amount was Tk.6, 296.06 million.

More than 3 months but not more than 1 year:

Loans and Advances matured within more than Three Months but Not More than One Year, the loan amount was Tk.10, 454.08 million in 2006 and Tk.11, 747.06 million in 2007. From the year 2008, the loan amount sharply increases. In 2008 the amount was Tk.22, 233.50 million, in 2009 the amount was Tk.23, 500 million and in the amount was Tk.30, 316.02 million.

More than 1 year but not more than 5 years:

From the graph, we can see an increasing trend in the Loans and Advances amount, matured within More Than One Year but Not More Than Five Years.  In 2006 the amount was Tk.5, 832.24 million and in 2007 the amount was Tk.6, 255 million. From 2008 the loans and advances amount increased sharply. In 2008 the amount was Tk.11, 739.45 million, in 2009 the amount was Tk.27, 813.70 million and in 2010 the amount was Tk.37, 235.04 million.

More than 5 years:

The table is explained through Column Chart in below:

The Loans and Advances, which will be matured within More than Five Years, the amount was Tk.4, 217.25 million in 2006. In 2007 the amount decreases at Tk.3, 007.30 million but in 2008 the amount increases at Tk.7, 963.48 million. In 2009 the amount again decreases at Tk.4, 649.40 million and in 2010 the amount increases at Tk.8, 838 million.

Classified, Unclassified, Doubtful and Bad Loans & Advances:

Unclassified Loans & Advances :

The Unclassified Loans and Advances of NBL in 2006 were Tk.30, 742.52 million and in 2007 was Tk.34, 824.64 million. From the year 2008, there was a sharp increasing trend in the loans and advances amount up to the year 2010. In 2008 the amount was Tk.47, 935.75 million, in 2009 the amount was Tk.61, 082 million and in 2010 the amount was Tk.85, 874.03 million.

Classified, Sub-Standard, Doubtful and Bad Loans & Advances :

In 2006 the Classified, Sub-Standard, Doubtful, Bad Loans and Advances of NBL was Tk.1, 967.20 million. In 2007 the amount decreases at Tk.1, 651 million. In the year 2008 the amount increases at Tk.2, 729.33 million and in 2009 the amount again increases at Tk.3, 880.31 million but in 2010 due to proper monitoring, the amount decreases at Tk.3, 642.57 million.

CROSS – SECTION TECHNIQUES: In the case of Cross – Section Techniques I have focused on the following topics:

NPLs to total loans ratios of PCBs and NBL.

Writing-off Bad Debts.

Those are analyzed below:

• NPLs to total loans ratios of PCBs and NBL:

In the year 2006, the NPLs to Total Loan Ratios of NBL was 6.01 percent and the PCBs was 55 percentages. In 2008, the NBL held 5.39 percent of the total industry loans as against 4.53 percent in 2007. PCBs’ percentage decreases to 44 percent in 2008 as against 50 percent in 2007. In 2010, the NBL held 3.96 percent of the total industry loans as against 5.97 percent in 2009. PCBs’ percentage decreases to 32 percent in 2010 as against 39 percent in 2009.

• Writing-off Bad Debts:

In the year 2006, the Write-off Bad Debt of NBL was Tk.1.52 billion and the PCBs was Tk.40.7 billion. In 2008, the NBL held Tk.2.15 billion of the total industry loans as against Tk.1.78 billion in 2007. PCBs bad debt loan increases to Tk.49.4 billion in 2008 as against Tk.45.5 billion in 2007. In 2010, the NBL held Tk.2.94 billion of the total industry loans as against Tk.2.45 billion in 2009. PCBs amount increases to Tk69.6 billion in 2010 as against Tk.54.7 billion in 2009.

FINDINGS

We can see from this report that the classified loan of the bank is decreasing, it means that the efficiency of management is improving.

1. The realization of classified loan is increasing, because of good administration.
2. This bank is trying to improve their credit product to satisfy the consumer.
3. National Bank Ltd is trying to improve and straightening its credit policy.
4. National Bank tries to follow all rules and regulation given by Bangladesh Bank when they sanction any loan.
5. Trying to increase credit in the small and medium entrepreneur.
6. According to the ratio analysis, we can see that the amount of loans and advances are increasing year by year which is a good sign for the bank. During the year of 2006, the Loans and Advances of NBL was Tk 32,709.68 million and in the year 2010, the loans and advances of NBL increase up to Tk 92,003.56 million. But they should care about bad debts.
7. The increasing percentage of advance deposit ratio is also positive. It increases 81.06%-89.78% in the year 2006-2010.

RECOMMENDATIONS

It is also very difficult for me to give any recommendation with my little working experience but I have tried as my best to give the best recommendation above shortcomings:

• NBL should give more freedom to their branches for taking decisions and their head office should take decision more quickly.
• NBL should build separate loan recovery division if it happened then their classified loan amount will reduce and they can invest more.
• NBL should go through online banking as early as possible for better service to the customer
•  All branches should properly maintain all documents on a daily basis.
• It is required to develop some effective motivational programs.
•  The interest rate should be increased.
• Modern technology should be used to maintain documentation. Like the computer, software for any calculation. If they store their documents in a computer, they can easily search it & it takes only a few seconds.
• They should try to minimize their risk level besides their investment.

I do believe that the suggestions and recommendations mentioned below will obviously increase the efficiency of National Bank Ltd. in analyzing credit schemes.

CONCLUSION

I acknowledged different banking functions and day to bay banking operation on my way to complete this internship.

From my starting day to up to date my practical implementation of customer dealing procedure during the whole period practical orientation in NBL at Babubazar branch, I have to try my best to reach a firm and concrete a conclusion very confident way. In this report, I have explained my best with respect to my real life experience gathered from different departments. I believe that my realization will be in harmony with most of the banking thinkers

Now a day the banking sector is more competitive. To achieve a proper reward for performance, it is essential to satisfy its customer by providing them different valuable and dynamic services. Because a satisfied customer will talk to others about the services those he/she is very justifiable enjoying and a satisfied customers statement is more effective than a thousand of commercial advertisement. People depend on the people – is the mode of human civilization. Therefore, the importance to satisfy the customer is increasing day by day in the private commercial sector especially in the private banks.

As all the activities that are required to provide valuable services to its customers to make them satisfy are related to the fund management system, NBL is so much care about its fund management system. NBL always gives its highest attention in monitoring and managing the bank fund, which is consists of the fund, capital, reserve, deposit, loan, and advance. At present NBL is successful in effectively and efficiently managing these vital issues. In spite of that, in order to keep its success continue and reach the pinnacle of success it, its managers, board of directors and employee must have the comprehensive and clear idea about the reserve, fund, loan, capital, deposit and liquidity regarding the smooth control of bank and continue its vital operation toward country’s economic development.