Loan disbursemer and recovery of bkb

Loan Disbursement

BKB has formulated and implemented its loan disbursement policy. The salient features of the above policy were as follows:

With the objective of ensuring harmonious development and growth in every phase of agriculture and other sectors inter-related with it were brought under the purview of agricultural credit rather than confining it to a few sectors only.

Considering potentiality and labor intensity, seven sectors were identified according to priority for loan disbursement with the objective of diversification, modernization and commercialization of agriculture and promotion of the standard of living of the rural people. The seven sectors for loan disbursement are

1.      Crop
2.      Fishery
3.      Livestock
4.      Irrigation & Farm Machinery
5.      Agro Industries
6.      Working Capital
7.      Socio Economic Development Activities
8.      Others

With the objective of adding further value to agro products and promoting their market arrangement identification and financing of new prospective projects. Such as potato products, juice production, food processing industries etc were undertaken.

Importance was given to disbursement of credit to the entrepreneurs as per their need by exploring potentialities under Area Approach. As for example, extending credit to the entrepreneurs of Jessore, Sathkhira, Rangunia, Hathajari for flower cultivation and marketing.

Importance was also given to extending credit to the private organization engaged in diversification of agro products, improvement of marketing channel and above all modernization of agriculture. For example, financing different project of Square, BRAC, Pran, Harvest Rich, Kazi Farms, Bay Agro, Ifad multi products and others.

To increase credit disbursements, especially in sectors like fishery, livestock, agro based industries etc. so as to meet the increasing demand.

Main sector of loan disbursement

Crop Loan:

Crop is the most important sector in Bangladesh agriculture. Fifty percent of the total labor force is engaged in agricultural activities and its exclusive contribution to GDP is 4.7 percent during the year under report. BKB gives highest priority to crop loan disbursement considering labor intensity of the crop sector and its contribution to national economy. Crop loan constitutes 41 percent of the total disbursement of loan.

Fishery:

Fishery is a large potential sector for economic development and employment generation in Bangladesh. It contributes a lot to GDP and helps to meet protein needs of the vast population, earn foreign exchange through export, reduce poverty through employment generation for the poor and improve socio economic condition of the people.

Livestock:

Livestock plays a vital role in an agro based economy like Bangladesh. Livestock products like leather, fur and bones play a great role in earning foreign exchange. BKB disbursed a huge amount for purchase of draft animals for cultivation of 90 percent of the cultivable land. BKB provides credit facilities to different sub sectors of livestock for purchasing bullock, rearing milk cow, beef fattening etc.

Farm Machineries:

BKB provides credit facilities for machineries to various organizations involved in product diversification, value addition and export of agricultural goods. By this time the bank has provided loan to M/S Padma Bleaching and Dying Ltd, Paragon Grand Parent Stock Farm, M/S Sakura Flower Mills Ltd, M/S Ifad Agro Complex Ltd etc.

Irrigation and Agriculture Equipments:

BKB plays a pioneering role for increasing agricultural productivity. For this purpose the Bank extends credit under simplified process for LLP, STW, DTW, HTW, Tractor, Power Tiller etc.

Agro based Industry:

The role of agrobased industries in a developed country like Bangladesh is enormous in respect of commercialization of farming, diversification of export and value addition to agro products. Keeping in this vies, BKB provides huge credit facilities for establishing different types of agrobsed projects like poultry, dairy, food and food processing plant, fish processing plant, packaging industries etc.

Financing Socio Economic Development programs:

With its wide network of branches through out the country BKB provides credit to the distressed people engaged in socio economic activities. These are-

Credit program for landless and marginal farmer

Joint program for poverty alleviation

Swanirvar credit program

South East Asia Poveryt Alleviation Program

United Nation Capital Development Fund

Employment Development Program for Rural Women

BKB-NGO small credit program

Milk cow rearing program for women

Special credit program for handicraft

Micro Enterprise development program for Monipuri

Special Credit program for the Rakhains of Cox’s Bazar

Ghore Fera Kormosuchi

Others:

Besides financing in the agricultural sector, BKB like other commercial banks provides credit facilities for export and import. With the objective of expediting export performance the bank undertakes other functions like purchase and negotiation of export bills, pre export finance. Along with this BKB finances import sector for import of raw materials and machinery for projects and garment industries.

Sub sectors of crop loan

Food Grain and Cash Crop:

Cereals, Cash Crops (Banana, Sugarcane, Betel leaf, Jack fruit, Guava, Betel nut, Pine apple, Melon etc.) winter and summer vegetables.

Horticulture:

BKB attaches special importance to the expansion and diversification of programs related to horticulture. The sub sector of horticulture:

Establishing nursery and its marketing

Growing mushroom and its marketing

Producing Capsicum, Lattus, Brukly, French Bean and another vegetables for export extension.

Producing and marketing spices like Onion, Garlic, Zinger, Turmeric etc.

Producing bamboo and murta used in marketing mat, making betel-nut and guava garden.

Credit program for fruit, forest, herbal nursery and gardening:

With the objective of meeting protein needs of the common people of ensuring supply of the herbal ingredients for Unani and Ayurbad system of medical treatment BKB disburses necessary loan on simple terms for plantation of fruit trees, forest for making government declared “National Tree Plantation Program” a success. Through this credit program, BKB is also providing employment to the rural people ensuring maximum utilization of fallow land. Considering exkport potentialities of herbal medicine and plants government identified this sector as a special development sector in the export policy.

Tea:

Tea is one of the environment friendly exportable agricultural products. BKB is the main financial institution to provide credit in this sector. Out of 158 gardens in the country, BKB exclusively finance 135 tea gardens. About 500 thousand people with their dependents are directly or indirectly related to this labor-intensive industry. Side by side with the production loan BKB provides long term loan in the tea sector for development of tea garden and for balancing, modernization, replacement and expansion of the factory.

Prospective new agriculture sector

Production of Pulse, Oil seeds and Spices:

A special credit program has been undertaken jointly by BKB and the Director of Agriculture Extension for production of pulse, oil seeds and spices covering 48 districts under the jurisdiction of BKB. In this program 15 crops like Soybean, Mustard, Ground nut, Lentil, Gram, Onion, Peeper, Turmeric, Zinger, Maze, Betel leaf, Tomato etc have been included. In the said project Agriculture Extension Department will hold the responsibility to identify crop wise land, select, motivate and train farmers. They will also monitor the program and assist production through loan disbursement.

Maize Production:

There is a huge gap between demand and supply of maize in the country. With the demand of maize for the increasing poultry industry and also due to its popularity as human food the gap between its demand and local supply is widening day by day. As the land for maize cultivation is easily available in the country and its production cost is comparatively low, prospect of maize cultivation in the country is bright. Keeping this in view and with a consideration to minimize dependency on its import, maize cultivation has been given priority by BKB.

Cotton production:

With the purpose of providing indigenous raw materials to the export oriented garment industry and reducing import dependency and also for commercializing cotton cultivation BKB extends necessary credit to the farmers engaged in cotton cultivation and marketing.

Orchid production:

In the context of huge export potentiality of orchid, BKB has come forward for lending in the sector. The orchid projects financed by BKB have recently started exporting orchid abroad.

Flower cultivation:

Flower cultivation is a profitable business now a day. Besides huge demand in the domestic market, it has a bright prospect for export. So considering flower cultivation as a potential sector BKB extends necessary credit facilities on simple terms for its cultivation in Jessore, Shathkhira, Chitagong, Ptiya, Rangunia, Hathajari and other areas.

Rubber Plantation:

Bangladesh Krishi Bank finances the private sector rubber gardens for development, production and processing of rubber goods and its marketing.

Loan Recovery

With the objective of reducing classified loans and preventing further classification a number of strategies and techniques have adopted by the bank. These include:

Reduction of classified loans in each branch to an acceptable level and for this purpose, in each accounting year classified loan of the previous year to be reduced by 5 percent.

Identification of loan accounts as would be classified (which will become classified after 30 June, each year if they are not recovered on or before 30 June) and all out efforts to be under taken to recover them.

Preparation of the list of the would-be-classified (WCL) and classified loan accounts to be completed at the beginning of the year.

Taking various steps at the beginning of the year to achieve recovery targets of classified and WCL loans. Such steps include arrangement of Shuvo halkhata, Modhu Mela, Nobanno Mela, Maha Camp etc.

Financial Analysis

A coin has two sides. Though the BKB development in the past few years is highly witnessed, during the last five years, BKB witnessed sharp increase in crop loan. They amounted to 44% in 2010, which brought BKB close to its declared planned strategy aimed at poverty alleviation. In this section I tried to analyze the effectiveness of BKB in sector wise and regional agricultural financing.

Sector wise loan analysis-

Disbursement of Crop loan

Our most of the farmers are poor. They need credit assistant for harvesting seasonal crop. Hence BKB gives large amount of crop loan to farmer. The crop loan disbursement is increased 18% over the five year. From the above table: 1 and graph: 1, it is seen that loan disbursement in crop sector of BKB was increased year to year. In 2006 it was Tk 1254.74 crore and after 5 year it was Tk 1448.75 crore that was increased.

Growth of Crop loan

Table: 2 shows the growth of crop loan. BKB’s crop loan growth was 12.09% on 2006. The bank had increased crop loan up to the end of 2010, which indicates a growth rate of 1.79% for BKB.

Disbursement of Fishery loan

Table: 1 and graph: 2 show that loan disbursement in Fishery was increased year to year. It was significantly increased from 2006 to 2008 and after 5 year it was Tk 297.48 crore.

Growth of Fishery loan

Table: 3 shows the growth of fishery loan. During 2006 to 2010 every year fishery loan of BKB had increased from the previous year. The highest growth of fishery loan of BKB was observed in 2008 that was 36.16%.

Disbursement of live stock loan

From the above table: 1 and graph: 3, it is seen that loan disbursement in livestock sector of BKB was increased year to year. In 2006 it was Tk 190.54 crore and after 5 year it was Tk 301.14 crore that was increased.

Growth of live stock loan

It is observed from the table: 2 that during 2006 to 2010 every year live stock loan of BKB increased from the previous year except in 2010. The highest growth was observed in 2009.

Disbursement of farm machineries loan

hineries sector of BKB was increased in 2007 from 2006. But it was decreased in 2008 and 2009. After that it was increased in 2010.

Growth of farm machineries loan

Table: 2 shows the growth of loan allocation for farm machineries sector. Loan allocation for farm machineries by BKB was increased from the previous year in 2007 and 2010, but it was decreased from the previous year during 2008 to 2009.

Disbursement of agro based industries loan

From the above table: 1 and graph: 5, it is seen that loan disbursement in agro based industries sector of BKB was increased in 2007 from 2006. But it was decreased in 2008. After that it was increased in 2009 and 2010.

Growth of agro based industries loan

Table: 2 shows the growth of loans allocation for agro based industry. BKB had allocated the loan into two sectors, Large and Medium Industry and Small and Cottage Industry. BKB had sanctioned the maximum amount of loan in the year 2010 and the growth was 141.18%.

Disbursement of working capital loan

Loan disbursement in working capital sector of BKB was slightly decreased in 2007 from 2006. But it was increased in 2008 and decreased in 2009. After that it was increased in 2010. It appears in table 1 and graph 6.

Growth of working capital loan

Table: 2 shows the growth of loan allocation for working capital. In 2008 and 2010 the amount of loan disbursement by BKB for working capital had been increased from the previous year that was 34.12% and 41.92% respectively.

Disbursement of socio economic activities loan

Result from the above table: 1 and graph: 7 show that loan disbursement in socio economic activities sector of BKB was decreased in 2007, 2008 and 2009 from 2006. But it was increased 7% in 2010 from the past five year.

Growth of socio economic activities loan

Table: 2 shows the growth of loan allocation for socio economic activities sector. During 2006 to 2009 the loan disbursement by BKB had been decreased from the previous year. The highest growth of the loan was 29.96% observed in 2010.

Disbursement of other loan

From the table: 1 and graph: 8, it is seen that loan disbursement in others sector of BKB was decreased in 2007 from 2006. After that it was increased in every year up to in 2010.

Growth of other loan

It is observed from the table: 2 that during 2006 to 2010 every year other loan of BKB increased from the previous year except in 2007. The highest growth was 115.30% observed in 2008.

Sector wise loan Portfolio analysis

Credit mix of BKB

Loan disbursement in all sectors of BKB was not proportionately same in every year. It is seen that from the above table: 3 and graph: 9. But loan disbursement in crop sector is always higher than other sector.

Credit portfolio of BKB

Table: 4 and graph: 10 show that overall loan disbursement in all sectors of BKB was not always proportionately same. Loan disbursement in crop sector is highest that is 43% of portfolio. Marginal farmers are benefited by the crop loan. Entrepreneurs are also benefited by the working capital sector. It is second highest portion of credit portfolio.

Loan Portfolio Analysis

Regional loan disbursement of BKB

The government aims for balanced regional development; keeping this aim the regional development is more sustainable. The amount of loan allotted region wise shows a remarkable improvement for the past five years. Table 4 shows the region wise allotment of loan for the year 2006 to 2010. In 2006, chitagong region with 19% of the total allotment constitute the highest. The above analysis revealed that despite crop loan is 43% of credit portfolio, Dhaka region is getting large portion of loan amount that is almost used as working capital or as long term investment in industries. Consequently non performance loan may increase day by day.

Region wise loan Analysis

Percentage of Loans Allocated In Different Region

Table: 5 shows the percentage of loans allocated in different region. More than 18% of loans were distributed in Dhaka region by BKB during 2006 to 2010. The bank had distributed about 16% loan in Chitagong region, more than 15% loans in Khulna region, about 8% loans in Sylhet region and more than 10% loan in Barishal region during 2006 to 2010.

Table 1: Growth of sector wise loan

(Taka in Crore)

Disbursement sector

Loan Disbursement

FY 2005-06FY 2006-07FY 2007-08FY 2008-09FY 2009-10Crop

1254.76

1406.51

1431.48

1452.78

1478.75

Growth

12.09%

1.78%

1.49%

1.79%

Fishery

160.74

207.73

282.85

294.97

297.48

Growth

29.23%

36.16%

4.28%

0.85%

Livestock

190.54

202.98

226.3

289.47

301.14

Growth

6.53%

11.49%

27.91%

4.03%

Farm Machineries

21.45

31.76

28.74

19.92

34.52

Growth

48.07%

-9.51%

-30.69%

73.29%

Agro-based Industries

376.88

468.88

181.45

202.78

489.07

Growth

24.41%

-61.30%

11.76%

141.18%

Workin g Capital

724.74

707.43

948.83

697.21

989.45

Growth

-2.39%

34.12%

-26.52%

41.92%

Socio-economic

57.02

54.51

53.43

48.13

62.55

Growth

-4.40%

-1.98%

-9.92%

29.96%

Other

254.55

133.99

288.48

306.41

327.41

Growth

-47.36%

115.30%

6.22%

6.85%

Table 2: Five Year Credit Portfolio of BKB

				(Figure in percentage)
Disbursement sector	Loan Disbursement
	FY 2005-06	FY 2006-07	FY 2007-08	FY 2008-09	FY 2009-10
Crop	42	44	41	44	45
Fishery	5	6	8	9	7
Livestock	6	6	7	9	5
Farm Machineries	1	1	1	1	1
Agro-based Industries	12	15	5	6	10
Working Capital	24	22	28	21	22
Socio-economic	2	2	2	1	2
Other	8	4	8	9	8
Total	100	100	100	100	100

Table 3: Average Credit Portfolio from FY 2005-06 to FY 2009-10

				(Figure in percentage)
Disbursement sector	FY 2005-06	FY 2006-07	FY 2007-08	FY 2008-09	FY 2009-10	Average
Crop	42	44	41	44	45	43
Fishery	5	6	8	9	7	7
Livestock	6	6	7	9	5	7
Farm Machineries	1	1	1	1	1	1
Agro-based Industries	12	15	5	6	10	10
Working Capital	24	22	28	21	22	23
Socio-economic	2	2	2	1	2	2
Other	8	4	8	9	8	7
Total	100	100	100	100	100	100

Highlights on the overall Performance Of BKB

Taka in Million

SI No	Particulars	2010	2009
1.	Paid up capital	3500	3000
2.	Capital & Reserve	5040.80	4368.68
3.	Capital surplus/(shortfall)	(28117.82)	(26059.73)
4.	Total Asset	117823.02	105735.52
5.	Total deposit	80308.53	71623.19
6.	Total Loans and Advances	89141.85	78443.84
7.	Contingent Liabilities and other commitments	10905.06	6353.91
8.	Credit deposit Ratio	111%	109%
9.	Percentage of classified loan against total loans and advances	26.45%	34.98%
10.	Profit after Tax and Provision	(1966.38)	(1487.69)
11.	Amount of Classified loan	23575.22	27440.05
12.	Provision against classified loan	3590.70	4157.15
13.	Provision excess/(short fall):
	*Loans and Advances	(8627.84)	(7310.21)
	*Other Asset	(7504.20)	(7059.54)
14.	Cost of fund	7.91%	7.51%
15.	Interest earning Asset	67452.84	54817.56
16.	Non-Performing Asset	50370.19	50917.96
17.	Return on Investment (ROI)	(-)4.22%	(-)4.32%
18.	Return on Asset (ROA)	(-)1.66%	(-)1.40%
19.	Income from Investment	81.49	80.24

SWOT Analysis:

SWOT analysis refers to analysis of Strengths, Weakness, Opportunities and Threats of the organization. This facilitates the organization to make its future performance improved in comparison to its competitors. An organization can also study its current position through SWOT analysis. For all of these, SWOT analysis is considered as an important tool for making changes in the strategic management of an organization.

Strengths:

BKB has already established its wide image and favorable reputation in the banking territory of the country. It is one of the leading specialized banks in Bangladesh.
The bank posses the reputation and goodwill of quality services to its all kinds of customers.
The bank has already achieved a high growth rate of deposit, investment and profit.
The bank has unique corporate culture, which acts as a great motivational factor among the employees.
The working environment in the bank is very friendly, interactive and informal. There is no barrier or boundary for communication between the superiors and the employees.
The bank has experienced efficient Management & Board of Directors.
The promotional activities of the Bank are not adequate to widen its function.
The Branches of the bank have to depend on its Head office for decisions.
The bank does not provide online banking service and ATM service, which limits its competence in the fast changing banking sector.
The product diversification of the bank is very narrow.
The bank has more redundant lower level manpower compared to other banks of the same generation, which increases it operational cost.

Weaknesses:

Opportunities:

Our people are going to be savings oriented in the small scheme, which can be provided by BKB by its different schemes.
BKB may help small and medium enterprises by lending.

Threats:

Some foreign and local banks may be threats for BKB for their diversified financial products.
Regulatory restrictions may be a cause of threats.
The selection of default customers may be a hindrance of its rapid growth.
In our country industries are becoming sick at an increasing rate and growth of industrialization is very slow in the country. Therefore, it is very likely that poor industrial growth will affect the potentiality of BKB.

Identification of the problem

The journey of agricultural banks has started in Bangladesh in the year 1973. After commencement the agricultural banks, BKB plays a vital role in the economic development of the country. The reflection from the analysis are given below-

Management

It is reflected from the analysis that almost every year management of BKB has opened new branches. Now BKB has 973 branches. However, management should open up more new branches for the overall development of agricultural sector of Bangladesh. The agricultural banks have created employment opportunities for more than twelve thousand people in Bangladesh. However, we have found that the bank lost its employees during the year 2005 to 2008 but it has regained its manpower at the end of 2008. Even worse, BKB employee turnover will continue in the future. These indicate that the prospect of employees in the bank is very poor. The management should take remedial measures to reduce their employee turnover.

Funding

From the analysis it is reflected that BKB had experienced a negative growth for deposits. The deposit base of BKB has to improve. It indicates the banks will not be able to attract more deposit in the future years. It is a negative sign that the bank has not increased the deposit interest rate significantly. From the analysis it is expected that the banks will continue to increase the deposit interest rate in the future as well. It will encourage small savers to save more and allocate their saving in the overall improvement of the country.

Loan Disbursement

I have found that BKB has increased its loan disbursement gradually throughout the years. From the trend analysis we have seen that the trend values for loan of both the bank is positive which indicates that the bank will increase the amount of loan disbursement in future. But the loan interest rate shows a increasing pattern which will discourage small and medium entrepreneurs to take loans from the bank. However, the bank should focus more on this issue regarding reducing the loan interest rate even more. It is observed that BKB does not sanction adequate loan in large and medium agro based industry. So, BKB should give attention for large and medium industry more and may allocate more loans in this sector. At the same time bank should focus more on small and cottage industry. This is an important sector which helps many landless and unemployed people to become self dependant and thereby earn their livelihood. So, adequate loan disbursement with easy formalities by the banks in this sector is a must. However, in a country like Bangladesh, where about 40% population lives under the poverty line and reducing loan for poverty alleviation is even more harmful. The banks should make easy formalities for loan disbursement for this purpose; so that poor people can improve their financial condition by taking loan. BKB is allocating less than 1% loan in small and cottage industry, which is alarming. Bank should focus more in this sector. They should also focus more attention for poverty alleviation without which it is impossible to think about the proper development of the economy.

Recovery

Both banks should concentrate more on loan recovery. It is reflected from the analysis that there is no consistent pattern for agricultural loan disbursement and recovery. However, the scenario is relatively better for industrial loan disbursement and recovery. It is recommended that the banks should disburse loan for easy condition and should set a target for loan recovery in both the sectors. It is always better if the bank can recover loan at a consistent pattern in every year. Otherwise the banks’ profitability can be hampered.

Others

The product diversification of the bank is very narrow. The promotional activities of the Bank are not adequate to widen its function. The Branches of the bank have to depend on its Head office for decisions. The bank does not provide online banking service and ATM service, which limits its competence in the fast changing banking sector.

Recommendation s and conclusion

Recommendations:

Bangladesh Krishi Bank has established itself as premier and efficient one in innovating new financial products and service and in grabbing the market in which it operating. Banking is a service – oriented marketing, its business profits depends on its service, quality. That is why the authority always should be aware about their service quality in order to get competitive advantage and to deliver quality and to be more fruitful to our economy.

The analysis suggests that the agriculture credit in crop sector has a positive and statistically significant impact on agriculture output and its effects is immediate. BKB gives crop loan 45% of credit portfolio. It should increase up to 50%.

Agro based industries finance also has a positive significant impact on agriculture output, but with a long period. Hence BKB have to conscious for financing properly.

BKB is allocating 1% loan in farm machineries, which is alarming. The bank should focus more in this sector. It should also focus more attention for poverty alleviation without which it is impossible to think about the proper development of the economy.

The role of BKB can be further enhanced by much greater financial inclusion by involving of all especially self-help groups.

Gradually the Bank is improving its Position. The volume of financing in agriculture and agro based products is increasing rapidly and a good response is getting from the clients in different scheme.

Bangladesh Krishi Bank is the largest specialized bank in our country. Therefore, it must think seriously to adopt ON LINE banking. Data base networking is one of the most recent technologies to transfer from branch to branch or from branch to head office and vise versa.

Modern technical equipment such as computer is not sufficient in branch banking operation and manual banking also makes the process complicated. Therefore, the branches should be computerized so that the client can get better service as quickly. It is quite evident that to build up an effective and efficient banking system to the highest desired level, computerized transaction is a must.

The bank should try to arrange more training programs for their officials. Quality training will help the officials to enrich them with more recent knowledge of banking. To provide quality service to the customer it is necessary to have trained team of staff
Bank should introduce more promotional program.

Conclusion

In general it can be concluded that the agricultural loans in Bangladesh are easily noticeable, they contribute to the economy in terms of goods and services ; creation of employment opportunities at relatively low capital cost; reducing income disparities; develop a pool of skilled and semiskilled peasants as a basis for the future industrial expansion; it improves forward and backward linkages between economically, socially and geographically diverse sector of economy; it provides opportunities for developing and adapting appropriate technological approaches, which is often a great to the progressive economic development. These results reveal that even though there are several gaps in the present institutional credit delivery system like inadequate provision of credit to small and marginal farmers, paucity of medium and long term financing and limited deposit mobilization and heavy dependence on borrowed funds by major agricultural credit purveyors, agriculture credit is still playing a critical role in supporting agriculture production in Bangladesh. I am quite optimistic that if the given suggestions of this paper are implemented then the agricultural banks may be able to overcome its present problems and may contribute in the rapid development of the agricultural sector of Bangladesh.

Biography

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