Performance of Loans and Advance Scheme In Bangladesh

Introduction

Loans and advance Credit Program is an important development scheme in the banking sector in most of the developing economies including Bangladesh. In Bangladesh people of limited monthly income are faced with the problem of improving their standard of living. Considering this, some commercial banks have started Consumer Credit Program especially since the mid-1990s. The broad objectives of this scheme, among others, are to help service holders by providing consumer credit at a reasonable rate of interest encouraging saving habit, developing the saving habit, facilitating increasing standard of living and finally to play the active role in the socio-economic development of Bangladesh. The middle class and the disciplined professionals cannot afford to buy essential utility products at a time. As such, they cannot able to raise their living standard to an expected level. Different private sector banks and foreign commercial banks have introduced the household durable loan scheme known as “Consumers Credit Scheme” to fulfill the dreams and desires of middle class fixed income group by providing loan to purchase necessary products.

 L&A in Bangladesh

Consumer Loans and advance Scheme is very much popular in most of the developed and developing countries of the world. This is designed to finance the fixed income group for buying essential commodities, which is to be repaid by monthly installment over a period in accordance with a contractual agreement. Consumer Loans and advance Credit Scheme is becoming very much popular in our country. A good number of financial institutions in our country are successfully operating this program.

Islami Bank Bangladesh Limited first introduced this loan in 1993. Following their success other private banks like Prime Bank Ltd., Uttara Bank Ltd., Pubali Bank Ltd., Mercantile Bank Ltd., IFIC Bank Ltd. and other introduced this scheme later. Now about to every private banks offers this household durable loan. But among the foreign commercial banks this is not that much practiced. But very few banks offer this loan extensively.

 Loans of  of Different private Banks

 From the table we can see that though Islami Bank Bangladesh Limited has was only offering Household Durables Investment Scheme in 1993, But Prime Bank Limited has offered full scale consumer credit first time in Bangladesh.

 Objective of Loans  Program

The main and specific objectives of Loan program in Bangladesh are:

• To provide financial help for purchasing necessary goods
• To improve the standard of living of middle class income group
• To provide loan which can be repaid in some easy installments
• To build up the habit of savings in limited income group
• To contribute in the socio-economic development of the country

 Goods under this Scheme

This Consumers Credit scheme program of different private sector banks is designed to provide loans only for household durables and some intangible personal expenses purpose. The area for which CCS loan is disbursed can be classified as bellow:

•       Vehicles: Car, Microbuses, Motorcycle.
  • Domestic Appliances: Air conditioners, Fan, Refrigerators, Washing machine, Microwave ovens, Cooking ranger, Knitting machine, Mobile, Telephone, Furniture and others.
  • Office Equipment: Personal computer, Printers, Photocopier, Generator, UPS, Fax machine.
  • Entertainment: VCD, VCR, TV, Music system, Camera.
  • Intangibles: Holidays, Education, Medical, wedding expenses.
  • Others: Home repair, Redecoration, Renovation etc.

 Eligibility for Consumer loans

To be eligible for CCS loan different banks has different criteria. Some banks offer this loan to each level of income group with every profession where others have some limited area for disburse this loan. Most of the bans offer this loan to the following professions with an age range of 18 to 60

•                     Government organization.
•                     Semi-government and Autonomous bodies.
•                     Banks. Insurance Company and other financial institutions.
•                     Armed force, BDR, Police and Ansar.
•                     University, College and School.
•                     Locally established and renounced Public Limited Companies.
•                     Multinational Companies.
•                     Bank acceptable Company.
•                     Professionals Doctor, Engineer, Lawyer, Architect, Chartered Accountant, Journalist, and self employed person etc.

 Advance Schedule- PBL

ADVANCE AGAINST IMPORT BILLS (BLC)

Advance against Bills under Letter of Credit are originated from the lodgment of shipping documents received from foreign banks against letter of credit established by the bank.

ADVANCE AGAINST IMPORTED MERCHANDISE (LIM)

Under loan against imported merchandise bank release the imported goods through the nominated clearing agent of the bank. In this case bank holds the possession of the goods. Importer takes delivery of the goods from the bank’s go-down against payment. It is one type of forced loan.

ADVANCE AGAINST TRUST RECEIPT (TR)

Advance against Trust Receipt to the client are to release shipping documents for taking delivery of merchandise which is hypothecated to the bank.

ADVANCE AGAINST EXPORT BILLS PURCHASED I DISCOUNTED

Discounting of bill: Banks allow advances to the clients by discounting bill of Exchange I promissory note which matures after a fixed tenor. In this method, the bank calculates and realizes the interest at a prefixed rate and credit the amount after deducting the interest from the amount of instrument.

Purchase of bill: Banks also make advances by purchasing bills, instead of discounting, which are accompanied by documents of title of goods such as bill of lading or railway receipts etc. In this case the bank becomes the purchaser / owner of such bill which are treated as security for the advance. This is allowed primarily relying on the credit worthiness of the client.

ADVANCE AGAINST WORK ORDER

Advance can be made to a client perform work order. The following points are to be taken into consideration:

•     The client’s management capability, equity strength, nature of the scheduled. Work and feasibility study should be judiciously made to arrive at a logical decision.

•     If there is a provision for running bills for the work, appropriate amount to be deducted from each bill to ensure complete adjustment of the liability within the payment period of the final bill.

•     Besides assignment bills receivables, additional collateral security may be insisted upon.

•    Disbursement should be made only after completion of documentation formalities and fulfillment of arrangements by the client to undertake the contract.

•     The progress of work under contract is reviewed periodically.

Non-Funded Business

Non flamed credit facility to a customer refers to a bank’s commitment to a third party on behalf of the customer. The commitment itself constitutes facility but does not involve cash outflow from the bank. The bank’s commitment essentially states that in the event of occurrence / non occurrence of a particular event, within a particular date, due to a particular reason or reasons, a specific sum of money shall be paid by the bank to the third party upon claim in a particular manner. Though these types of facilities are primarily non-funded in nature but at times it may turn into funded facility. As such liabilities against these types of credit facilities are termed as ‘contingent liability’ and do not affect the balance sheet of the bank at the time of commitment but contain the possibility. The non funded facilities are:

Letter of Credit: A banker’s documentary credit is an instrument or letter issued by a bank on behalf of and for the account of the buyer of the merchandise. By this instrument the bank undertakes that the bill(s) of exchange of the beneficiary (the seller of the merchandise) drawn on the buyer, or on the issuing bank, or on another bank designated in the instrument, strictly according to the conditions stipulated in the instrument, will be duly honored by acceptance and by payment depending upon the issuance of the bill(s) of exchange in question.

A banker’s letter of credit gives the seller or the exporter:

(a)   Credit security- by eliminating the credit risk in the sale and the shipments of goods

(b)   Credit facilities- by financing the sale when the goods are in transit; and

(c)   Exchange security- by assuring him that the required amount is available to him under credit from the time he receives the buyer’s order and the time of shipment and presentation of shipping documents.

Guarantee: In banking, it is an irrevocable obligation of a bank to pay a certain sum of money in the event of non performance of a contract by a third party. The basis of guarantee is always a contractual relationship between principal debtor (account holder) and creditor (beneficiary), which is either a contract that has been definitely concluded or a relationship in its pre-contracted as is the case with the tender guarantee. This relationship is referred to as the principal or underlying relationship or contract. The contract of guarantee is independent of this underlying relationship.

SECURITY FOR LOANS AND ADVANCES:

Security is a Cover against loans and advances. It ensures recovery of loans and advances. Though now-a-days greater emphases are put on the purpose of the loan rather than securities, nevertheless the securities play an extremely important role to take a decision. Security is an insurance or cushion to fall back upon in emergency if borrower fails to repay the loan amount. Importance of charging security is:

i.            Protection of Interest

ii.         Ensuring the recovery of the money lent

iii.        Provision against unexpected change

iv.        Commitment of the borrower.

Types of Security:

The types of securities offered vary from place to place. In metropolitan cities, it may be Govt. bonds / share I assignment of Book debt I Bills receivable etc. whereas, in the industrial area raw materials & finished goods etc. may be offered as securities. Again agricultural produce is the principal securities in the agricultural centers. Further, a bank also accepts moveable & immovable properties, life insurance policy etc. as securities.

Securities are classified into three broad categories:

COLLATERAL SECURITIES: The tangible securities pledged I assigned by the borrower to the bank and additionally held by the bank to secure a loan are called Collateral Securities. In case of advances against pledge I hypothecation of goods, bank may insist on immovable properties as collateral.

GUARANTEE: At times when the personal security of the borrower is not considered sufficient or when the risk involved is a border line case and the borrower is not in a position to offer sufficient collateral to the loan, the bank may ask for a guarantee of a third party whose financial ability and credit standing is acceptable to the bank. A guarantee is an undertaking given to the bank by a third party, called the guarantor to be answerable to the bank for the debt of the borrower upon his default in repayment of the loan. It should be remembered that such security for the loan depends on the continued solvency of the guarantor. To safeguard the bank’s interest a continuing guarantee in the bank’s standard form should be obtained.

MARGIN: The difference between the market value / asset valued of the goods, merchandise

Consumer Loans Schemes of Prime Bank Limited

Bangladesh is a country having its population of above 140 million. When the world turns to be a “Global Village”, 36% of our people live below the poverty line. In this situation when all other banks are running after making profit, Prime Bank is committed to play a vital role in the overall socio economic development of our country. As per its commitment, it launched “Consumer Credit Scheme” in the Year 1995 to enhance the living standard of the people of limited and fixed income.

Prime Bank tries to establish the concept of “Relationship Banking”. It treats clients as its ‘Financial Partner’ and always intends to be a friend of rainy days by means of proving financial assistance in those days. Till the current fiscal period it provides financing for the following purposes:

•   To purchase different home appliances
•   To purchase equipments for medical services
•   To purchase motor vehicles
•   To meet up emergency or sudden needs
•   To arrange marriage ceremony
•   To enjoy vacation both inward & outward of the country.
•   To bear the educational expenditures of children.

All of the above facilities were not available under the ‘Consumer Credit Scheme, launched in the year 1995. The new facilities are added with the Consumer Credit Scheme under the head of the “Retail credit Scheme”. This new scheme has been introduced and came to effect from the 1^st March 2004.

It is the ideal solution of customer’s needs. It is used to finance toward the people of fixed income for purchasing various durable goods. The credit scheme is introduced with a set of liberal terms as:

• It is provided against personal Guarantee
• It requires to a certain percent of equity investment
• It is to repaid by equal monthly installment
• It is to be repaid within a specific period.

objectives of Loans advance:

Prime Bank Limited started the Consumers Credit Scheme program with a view to fulfill its beneficiary institutional objectives through financing the middle class limited income of prime Bank Ltd. are bellow.

• To bring the credit facility to the middle class limited income group.
• To improve the living standard of limited income group through financing to purchase necessary goods.
• To participate in the socio-economic development of the country.

eligibility of the Customer

Any interested person with an age range of 20 to 50 and having a permanent job or officer of the following organization can apply for the CCS loan of the bank.

•                     Government organization.
•                     Semi-government and Autonomous bodies.
•                     Banks, Insurance Company and other financial institutions.
•                    Armed force, BDR, Police and Ansar.
•                     University, College and School.
•                     Locally established and renounced Public Limited Companies
•                     Multinational Companies.
•                     Bank accepted Privet Company.
•                     Professionals Doctor. Engineer, Lawyer, Architect, Chartered Accountant. Journalist and self employed person etc.

Types of Consumer Loans

Car Loan: For many of us the most sought after dream is to own a car. As possessing a car is no longer luxury but necessity. Prime bank offers the financial support by providing Car Loan facility. The custom-design car loan with easy repayment schedules gives borrower the opportunity to purchase a brand new or reconditioned car.

• Eligibility: Prime Bank gives car loan to borrowers whose age is between 25 to 60 years. Borrowers have to earn at least Tk. 20,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 40,000. Prime Bank gives Car Loan to

Employees of:

•  Government, Semi Government, Autonomous bodies
•  Sector Corporation
•  Non-Government Organizations
•  Multi-national Companies
•  Banks & Financial Institutions
•  Educational Institutions

 Professionals:

•  Doctor
•  Engineer
•  Accountant

 Self Employed:

 Businessman ( At least five years of successful track record)

• Loan Limit: Prime Bank gives loan up to Tk. 20, 00,000 for recondition and new car.
• Loan period: In Prime Bank maximum loan period for car loan is 6 years.
• Down Payment: Borrowers have to make 10% down payment in case of car loan.
• Interest Rate: For car loan interest rate is 16%

 Home Loan

Prime Bank offers customers an easy-to-avail Home Loan with convenient repayment options, also with maximum limit on the loan amount.

Purpose of the loan:

• Purchase of apartment/house (not older than 10 years)
• Constructing a new home
• Taking over of regular house building loans from other banks/non banking financial institution.

Eligibility: Prime Bank gives car loan to borrowers whose age is between 25 to 60 years. Borrowers have to earn at least Tk. 20,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 40,000. Prime Bank gives Home Loan to
 Employees of:

•  Government, Semi Government, Autonomous bodies
•  Sector Corporation
•  Non-Government Organizations
• Multi-national Companies
•  Banks & Financial Institutions
•  Educational Institutions

 Professionals:

•  Doctor
•  Engineer
•  Accountant

 Self Employed:

 Businessman ( At least five years of successful track record)

• Loan Limit: Prime Bank gives loan up to Tk. 50, 00,000 for home loan.
• Loan period: In Prime Bank maximum loan period for home loan is 20 years.
• Down Payment: For home loan down payments differs as per purpose. If home loan is for building a house down payment will be maximum 60%, if home loan is for buying apartment or house the down payment will be maximum 70%, if home loan is for buying old apartment or house the down payment will be maximum 50%.
• Interest Rate: For home loan interest rate is 16%

Education Loan: Now-a-days to give your child the best education or to get a higher degree either at home or abroad requires a substantial amount of finance. To relieve from this burden prime bank offers education loan that ensures uninterrupted study through steady flow of cash.

• Eligibility: Prime Bank gives car loan to borrowers whose age is between 25 to 60 years. Borrowers have to earn at least Tk. 12,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 25,000. Prime Bank gives Education Loan to

  Employees of:

•  Government, Semi Government, Autonomous bodies
•  Sector Corporation
•  Non-Government Organizations
•  Multi-national Companies
•  Banks & Financial Institutions
•  Educational Institutions

 Professionals:

•  Doctor
•  Engineer
•  Accountant

 Self Employed:

 Businessman ( At least five years of successful track record)

• Loan Limit: Prime Bank gives loan up to Tk. 5, 00,000 for education loan.
• Loan period: In Prime Bank maximum loan period for education loan is 4 years.
• Down Payment: Borrowers have to make 20% down payment in case of education loan.
• Interest Rate: For education loan interest rate is 17%

Travel Loan:When planning an overseas vacation or making a trip to chosen exotic location, financing may be the key issue. To resolve this problem Prime Bank came up with the travel loan offer.

• Eligibility: Prime Bank gives travel loan to borrowers whose age is between 25 to 60 years. Borrowers have to earn at least Tk. 20,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 40,000. Prime Bank gives travel Loan to

  Employees of:

•  Government, Semi Government, Autonomous bodies
•  Sector Corporation
•  Non-Government Organizations
•  Multi-national Companies
•  Banks & Financial Institutions
•  Educational Institutions

 Professionals:

•  Doctor
•  Engineer
•  Accountant

 Self Employed:

 Businessman ( At least five years of successful track record)

• Loan Limit: Prime Bank gives loan up to Tk. 2, 00,000 for travel loan.
• Loan period: In Prime Bank maximum loan period for travel loan is 3 years.
• Down Payment: Borrowers have to make 20% down payment in case of travel loan.
• Interest Rate: For travel loan interest rate is 17%

Marriage Loan:

Trying the martial knot is an event of a life time and its celebration and memories should last forever. Prime Bank offers marriage loan which enable borrower to organize and celebrate the marriage in style.

• Eligibility: Prime Bank gives travel loan to borrowers whose age is between 25 to 60 years. Borrowers have to earn at least Tk. 20,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 40,000. Prime Bank gives marriage Loan to

  Employees of:

•  Government, Semi Government, Autonomous bodies
•  Sector Corporation
•  Non-Government Organizations
•  Multi-national Companies
•  Banks & Financial Institutions
•  Educational Institutions
•  Professionals:
•  Doctor
•  Engineer
•  Accountant

 Self Employed:

Businessman ( At least five years of successful track record)

• Loan Limit: Prime Bank gives loan up to Tk. 3, 00,000 for marriage loan.
• Loan period: In Prime Bank maximum loan period for marriage loan is 3 years.
• Down Payment: Borrowers have to make 20% down payment in case of marriage loan.
• Interest Rate: For marriage loan interest rate is 17%

Doctor’s Loan: As part of the global phenomenon, medical profession is changing fast. With this ever changing environment, ground breaking products and equipments are coming to the market. In a country like ours it is to be at par with that change. Keeping that in mind and with a vision to support and promote health services, Prime Bank has introduced Doctor’s Loan. This easy and flexible loan is designed to provide financial support to noble professionals for purchasing medical equipments and to furnish their own chambers.

• Eligibility: Prime Bank gives doctors loan to borrowers whose age is between 25 to 65 years. Doctors have to earn at least Tk. 10,000 per month if he/she is service holder, if doctor is self employed his earning per month should be at least Tk. 25,000 to take Doctor’s loan.

• Loan Limit: Prime Bank gives loan up to Tk. 5, 00,000 for doctor’s loan if he/she is general practical and if doctor is post graduate (Specialist) Prime Bank gives loan up to Tk. 10, 00,000.
• Loan period: In Prime Bank maximum loan period for Doctor’s loan is 5 years.
• Down Payment: Borrowers have to make 10% down payment in case of Doctor’s loan.
• Interest Rate: For Doctor’s loan interest rate is 17%

Hospitalization Loan:

Crisis comes without warning and well-being comes at a price. For this reason Prime Bank provide quick and convenient hospitalization loan for all medical emergency. With easy repayment option through equal monthly installments Prime Bank provide loan service in time of crisis.

• Eligibility: Prime Bank gives hospitalization loan to borrowers whose age is between 25 to 65 years. Borrowers have to earn at least Tk. 12,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 25,000 (If live in rental house). Borrowers have to earn at least Tk. 10,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 15,000 (If live in own resident). For Government, Semi Government, Autonomous body’s monthly incomes have to be at least Tk. 10,000. Prime Bank gives education loan to

 Employees of:

•  Government, Semi Government, Autonomous bodies
•  Sector Corporation
•  Non-Government Organizations
•  Multi-national Companies
•  Banks & Financial Institutions
•  Educational Institutions

 Professionals:

•  Doctor
•  Engineer
•  Accountant

 Self Employed:

Businessman ( At least five years of successful track record)

• Loan Limit: Prime Bank gives loan up to Tk. 5, 00,000 for hospitalization loan.
• Loan period: In Prime Bank maximum loan period for hospitalization loan is 2 years.
• Down Payment: Borrowers have to make 20% down payment in case of hospitalization loan.
• Interest Rate: For hospitalization loan interest rate is 17%

Loan Against Salary:

Life is full of surprises. We often tumble into unforeseen cost that leaves us especially the fixed income people unprepared. To face this unpredictability in life Prime Bank has introduced “Loan against Salary” scheme. This scheme tailored to provide loan to fixed income people against their salary to mitigate any emergency.

• Eligibility: Prime Bank gives loan against salary to borrowers whose age is between 21 to 65 years. Borrowers have to be at least one year in a job. Borrowers have to earn at least Tk. 12,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 25,000 (If live in rental house). Borrowers have to earn at least Tk. 10,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 15,000 (If live in own resident). For Government, Semi Government, Autonomous body’s monthly incomes have to be at least Tk. 10,000.Prime Bank gives loan against salary to

  Employees of:

 Government, Semi Government, Autonomous bodies

•  Sector Corporation
•  Non-Government Organizations
•  Multi-national Companies
•  Banks & Financial Institutions
•  Educational Institutions

• Loan Limit: Prime Bank gives loan up to Tk. 3, 00,000 for loan against salary. Borrower gets loan amount to eight times of his/her gross salary if he has salary account in Prime Bank. For the borrowers who have salary account in other banks gets loan amount to six times of his/her gross salary.
• Loan period: In Prime Bank maximum loan period for loan against salary is 3 years.
• Down Payment: Borrowers don’t have to make any down payment for loan against salary, just have to pay 1% service charge and 1% security.
• Interest Rate: For loan against salary interest rate is 17%

 Household Durables Loan:

There are some household products which makes our life easy and comfortable like Refrigerator, Micro-oven, Air condition, Television, Furniture etc. Prime Bank’s consumer loan provides the ideal solution for these needs. Raging from household appliances and furnishing to life style products for leisure and entertainment, household durables loan offer the convenience people looking for.

• Eligibility: Prime Bank gives travel loan to borrowers whose age is between 21 to 60 years. Borrowers have to earn at least Tk. 10,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 25,000 (If he/she owned residence than 15,000 per month). Prime Bank gives household durables loan to

  Employees of:

•  Government, Semi Government, Autonomous bodies
•  Sector Corporation
•  Non-Government Organizations
•  Multi-national Companies
•  Banks & Financial Institutions
•  Educational Institutions

 Professionals:

•  Doctor
•  Engineer
•  Accountant

 Self Employed:

 Businessman ( At least five years of successful track record)

• Loan Limit: Prime Bank gives loan up to Tk. 5, 00,000 for household durable loan.
• Loan period: In Prime Bank maximum loan period for household durable loan is 4 years.
• Down Payment: Borrowers have to make 20% down payment in case of household durable loan.
• Interest Rate: For household durable loan interest rate is 17%

  Any Purpose Loan:

Necessity and needs are constantly changing phenomena in our efforts to improve the quality of life. That necessity cannot always wait for peoples savings to accumulate. To take care of peoples financial needs, Prime Bank offers any purpose loan which is a type of consumer credit scheme.

• Eligibility: Prime Bank gives any purpose loan to borrowers whose age is between 25 to 65 years. Borrowers have to earn at least Tk. 10,000 to 12,000 per month to get any purpose loan from Prime Bank. Prime Bank gives any purpose loan to

  Employees of:

•  Government, Semi Government, Autonomous bodies
•  Sector Corporation
•  Non-Government Organizations
•  Multi-national Companies
•  Banks & Financial Institutions
•  Educational Institutions

 Professionals:

•  Doctor
•  Engineer
•  Accountant

 Self Employed:

 Businessman ( At least five years of successful track record)

• Loan Limit: Prime Bank gives loan up to Tk. 3, 00,000 for any purpose loan.
• Loan period: In Prime Bank maximum loan period for any purpose loan is 3 years.
• Down Payment: Borrowers don’t have to make any down payment for any purpose loan, just have to pay 1% service charge and 1% security.
• Interest Rate: For any purpose loan interest rate is 17%

CNG Conversion Loan:CNG is a kind of fuel which is cheap and environment friendly. Vehicles run by oil cost more than CNG. As a result CNG driven vehicles became popular. Many car owners want to convert their engine from oil to CNG. But it requires a lump sum amount not more than one lac taka. To finance this conversion Prime Bank offer CNG conversion loan.

• Eligibility: Prime Bank gives CNG conversion loan to borrowers whose age is between 21 to 65 years. Borrowers have to be at least one year in a job. Borrowers have to earn at least Tk. 12,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 25,000 (If live in rental house). Borrowers have to earn at least Tk. 10,000 per month if he/she is service holder, if borrower is businessman his earning per month should be at least Tk. 15,000 (If live in own resident). For Government, Semi Government, Autonomous body’s monthly incomes have to be at least Tk. 10,000.Prime Bank gives CNG conversion loan to

  Employees of:

•  Government, Semi Government, Autonomous bodies
• Sector Corporation
•  Non-Government Organizations
•  Multi-national Companies
•  Banks & Financial Institutions
•  Educational Institutions

 Professionals:

• Doctor
•  Engineer
•  Accountant

 Self Employed:

Businessman ( At least five years of successful track record)

• Loan Limit: Prime Bank gives loan up to Tk. 1, 00,000 for CNG conversion loan.
• Loan period: In Prime Bank maximum loan period for CNG conversion loan is 1.5 years.
• Down Payment: Borrowers have to make 20% down payment in case of CNG conversion loan.
• Interest Rate: For CNG conversion loan interest rate is 17%

 Consumer Loans administration

The retail credit unit handles consumer credit scheme. The Unit is established and placed at the head office under the credit division. The unit is headed by the senior executive supported by a team consisting of a numbers of officers.

Functions of Retail credit and Loans unit:

1. The unit makes agreement with the well-reputed, reliable suppliers for supplying their products under this scheme.
2.  They operate marketing of Consumer Credit Scheme by acting as a team.
3. They evaluate the loan proposal in respect of:

      a) Cash flow or income to service the loan.

b) Pre finance inspection of the applicant’s   and the guarantor’s premises.

1. They make follow up, monitoring, supervision recovery of the problematic cases.
2. They also supervise recovery position, revise credit portfolio, take action plan, and guide the branches time to time.

Documents Needed For Credit Loans:

For execution of CCS loan Prime Bank usually use two types of documents. One is application from and other is clear document, detail of these documents is given bellow.

 Application Form

The contents of application form for CCS loan of different banks are about to same and as follows:

1. Personal Details of Applicant(s): In this section all about the application will have to write down specially.
2. Employment Details: This is the section where the applicant have to specify the name of organization where he/she engage, designation, years of engagement, salary and soon.
3. Loan Details: Here amount of loan, Period, interest, consumer’s equity mode of repayment, security and other charges are to mention.
4. Financial Details: Total assets, total liability monthly income, month expenses and all others financial details of the applicant are to mention here.
5. Particulars of Guarantors: All details about the guarantor(s) and his/her job descriptions are to mention in this section.
6. Quotation: Quotation contains the detail description of the goods/items-brand, model size manufacturer, price and details of supplier.
7. Letter of Assurance: This is the assurance of the working organization of the client that in any case if the borrower fails to pay the installments the organization will fill it up.
8. Declaration: This is the declaration of the borrower that all the information regarding the quotation of goods is correct and he/she agrees with all terms and condition of the bank.
9. Certification of the Organization: In this section the working organization will certify that the borrower is the employee of the organization.

10. Photograph: Two copies of photograph are required for each consumer.

Charge Documents

Charge documents are stamped documents, which contains different rules, terms and conditions. If the borrower of CCS loan is agreed upon all these terms and conditions regarding the loan he/she with need to sign the documents. If any disagreement or irregularities occur in future this documents are sued to remedy situation.

Before disbursing the CCS loan, the following documents must be completed by customers/ borrower. On these documents the stamp is needed for legislative reasons, which is paid by borrower.

 1.                  Letter of Guarantee: This letter of guarantee is two sided- one is borrower side guarantee and other is guarantor side guarantee. Borrower side guarantee consists of agreement of all terms and condition of bank as well as assurance of proper and repayment of installment in case of failure of the client.

2.                  Letter of Hypothecation: In conations the terms and condition CCS loan and borrower is hypothecated for equipment.

3.                  Demand Promissory Note: In is a promise of borrower to pay on demand to the bank

4.                  Letter if Installment: In this document borrower promise to pay all regular and irregular installments in nay time.

5.                  Letter of Disbursement: This is the declaration of disbursement of loan to the borrower.

6.                  Letter of Agreement:  This is the agreement of borrower that he/she is bound to pay all dues together with all other charges and given the bank the authority to discharge the agreements any time due to the fault in borrower side.

7.                  Letter of Authority: This is the given authority of the borrower to the bank to debit his/her account in necessary.

Judgment of the process Loan Policy:

 Loans and advances are the main form of assets of a bank. It is so crucial for any bank because it generates the greatest part of revenue for a bank. Within the total credit portfolio Consumer Credit is the most popular form of credit because it is unsecured. As it is totally unsecured it requires a great extent of prudent judgment. By applying the most common form of analytical tool like financial statement analysis and the ratio analysis, the credit worthiness and trustworthiness cannot be evaluated properly. This is why credit unit have to apply additional subjective judgment in this course of action. The credit officer has to verify the potential borrower‘s income, expenditure pattern type of service to select the appropriate borrower the factors, which are considered in this process, are as stated here:

1)     Borrower’s Income: It is the vital factor for selecting a borrower. To gather required information in this regard the borrow is requested to allow the credit officer to verify the following subject natters:

a)     Place of employment

b)     The stated salary

c)     The continuity of existing job

For a permanent employee it can be verified from the concerned employer. But if the potential borrower engages with several jobs, then it becomes difficult. Other information’s which are required to be verified to identify the proper income source and amount. Those are:

a)     Income from part time employment

b)     Spouse income

c)     Income from rentals

d)     Dividend or interest

e)     Children’s support

 Besides these the credit officer also verifies a borrower’s income from the TIN certificate, Tax return, Salary statement.

2)     Estimated Housing Expenses: The credit officer tries to evaluate the expenditures pattern as well as monthly living expenditure with the help of the following information’s:

a)     Children’s education expenditure

b)     House rent

c)     Interest payment for other borrowings

d)     Interest payment for the loan which is under consideration

If the total amount of expenditure becomes higher than total income, then the concerned credit proposal is to be rejected.

3)     Location: The location of the borrower is an important factor for selecting any borrower. If the location the borrower is far from the bank, then the physical communication becomes tough for the part of the bank. This becomes crucial In case of the default loan, because the regular follow up becomes impossible. So Prime Bank likes to provide loan to those borrower who stays near to the bank’s branch.

4)     Assessment of credit history: The credit officer tries to evaluate the credit history of a potential borrower with help of the CIB report and by asking his or her business community.

5)     Social status: Social status of a borrower is to be verified from the following information:

a)     Ownership of a car

b)     Ownership of a house in the metropolitan area

c)     Holding a land phone in residence

d)     Holding passport, TIN certificate

e)     Membership of a first class club

f)      Marital Status

If the borrower can meet the above criteria the he or she gets favored in case of having loan under the Consumer Credit Scheme.

6)      Guarantor’s status: Under the Consumer Credit Scheme credit is to be offered by taking a personal guarantee form a third party. Prime Bank takes guarantee from the spouse of the borrower and from another officer. The guarantor will liable for the remainder of the loan in case of defaulter. So the credit officer tries to verify the guarantor’s designation, type of job, monthly salary, period of service, office address, and the consent of the guarantor regarding this mater.

7)     Loan pricing and payment pattern: Loan pricing is a very important mater in banking business. Under the Consumer Credit Scheme, the loan is to be priced at a fixed interest. If the borrower provides a security equal to the 50% of the loan amount, the interest rate is to be reduced by 1%

Besides the above source of information Prime Bank evaluate the status of potential borrower from taking clearance from the police, lawyer, and journalist. After gathering information regarding a borrower fro then above source the credit officer applies his or her subjective judgment to evaluate a particular borrower.

Numerical judgment for selecting a borrower

Under the Consumer Credit Scheme the Bank is dealing directly with the borrowers, and provides unsecured loan to them so should apply some numerical judgment to select a particular borrower. In this regard Prime Bank uses numerical credit scoring model.

Under this model the potential borrower is asked a set of question at the beginning of processing of loan proposal. The answers are then scored based on the standard value previously set to scorer a loan application. Based on the scoring a credit proposal is stated to process further or refused. The total cost of credit processing is to be reduced by two-third just because of applying this model. The variables, which are used to score under this model, are:

 Based on the scoring a benchmark range of score is to be fixed and a limit of loan is to be fixed base on the range, which is given below:

• The total scoring is calculated based on a cumulative value of 100.

Applicable for Consumer Credit: (Out of Total value 100)

Applicable for Car loan: (Out of Total value 100)

 Applicable for Doctor’s loan: (Out of Total value 100)

 Applicable for Home loan: (Out of Total value 100)

Applicable for Travel loan: (Out of Total value 100)

Applicable for Education loan: (Out of Total value 100)

Applicable for Hospitalization loan: (Out of Total value 100)

Applicable for Marriage loan: (Out of Total value 100)

 Applicable for Loan against Salary: (Out of Total value 100)

 Applicable for Household Durable loan: (Out of Total value 100)

Interests and Other Charge

Prime Bank Ltd. charges interest service and risk fund for the CCS loan. The rate of these interest and charges are as bellow.

                        Interest:          15% simple rate of interest yearly.

                        Risk Fund:     2% of loan amount

                        Service charge: 1% of loan amount

                        Stamp charge:           Tk. 500

                        Application Form: Tk. 10 each

Risk fun and service charge are one time, which will be collected at the time of sanctioning of the loan, which are not refundable.

Mode of Repayment

The loan of Prime Bank Ltd. is adjusted by monthly installment started from the following month of disbursement of the loan. The borrower has to deposit advance dated cheques against all installments which to be presented in the concerned bank with in the first week of each month towards adjustment of monthly installment. However, the customer can pay installments even before due date, If the account contain insufficient fund only then the borrower will pay installment in cash with in the first week of the month.

 Securities and Documents

The borrowers with submit the agreement paper to pay the monthly installment properly. For the Government employee semi-government, autonomous bodies, bank, insurance companies and other financial institution, defense; and teachers the guarantors will be the senior officers. For other types of customers the bank will accept same amount of bank guarantee or insurance guarantee. For private organization the guarantors will be the head (employer) of the organization and a bank accepted personal having a high social status. For professionals, the guarantors will be a senior one of same profession and a bank accepted personal having a high social status.

Except these any person who is competent and eligible for the loan can apply for the loan by depositing Bangladesh Wage earners development bond, fixed deposit receipt etc to the concerned bank.

The following charge documents are required for the CCS loan Prime Bank Limited.

1. Demand Promissory Note
2. Letter of Agreement
3. Letter of Hypothecation
4. Letter of Guarantee

The clients have to provide the following documents to get under the Consumer Credit Scheme:

1. Salary certificate
2. Letter of introduction from the employer
3. Salary statement for three months
4. Evidence of other income source
5. TIN certificate (If had)
6. Copy of Tax return (if had)
7. Copy of current Trade license for business man
8. Personal Bank statement for business people

Other Relevant Conditions

 Client will bear all necessary expenses relating to license, registration, insurance etc, of the goods supplied.

 The client will use the goods with ultimate care and he will be liable to pay for any damage to the goods.

 The client is bound to allow the bank’s authorized agent and representatives to inspect good as and when required.

 The client must keep the branch abreast and informed about any change in his of and residential address.

Steps Taken Against Defaulters

If a borrower fails to pay 3 installments consecutively then he/she will be considered as defaulter. Prime bank Ltd. usually follows the following guideline for treatment of its overdue installments.

• Telephone contact
• Cheque bounce letter
• Overdue recover letter
• Letter to guarantors
• Letter to authority
• Legal notice to borrower and guarantor suit notice.

Prime bank Limited in these contexts is very much successful. It started the CCS operation from the beginning of its banking operation with keeping a separate cell to deal and look after the program in each branch. The bank to be the pioneer in the field of consumer credit scheme program as it is in the field of banking operation.

Loan and Advance Execution Process:

Loans and advance Scheme program Prime Banks is executed based on its policy. Though the policy may differ from bank to bank, but the main framework of this program is about to same. The overall process of this scheme is describing step wise in the following.

 1.      Application: First of all, the customer comes to the bank and pursue for the loan to purchase the desired goods/item. Bank then inspect and verify about the applicant, if the bank considers the applicant suitable and competent for the loan bank sell an application form to the applicant at a price of Taka 500, after submission of the application form with proper filling up main process of the loan started.

 2.      Amount of Loan and Duration: The amount of loan varies among types of Customer Loan. Different types of Credit Loan offer different amount of money and different time. Usually the ceiling of Credit loan is higher for car and home loan. This loan is disbursed for the period of l to 20 years duration. The time period of installment depends on the amount of loan.

 3.      Security: For Credit loan Prime Bank doesn’t demand any kind of monetary security or mortgage. The only security for this loan is guarantor of the borrower. This guarantor may be one person or may be two as the bank demand. The duty of this guarantor (s) is to give the assurance to the bank that if in any case the borrower fails to pay the installment he/she (guarantor) with be liable for the whole amount. This Guarantor (s) must be acceptable to the bank.

4.      Down Payment: Down payment or the borrower’s equity of the total loan differ from bank to bank. This down payment means that the borrower has pay a certain percentage of total price of the commodity before disbursement of the loan. This percentage is between 10 to 50 percent for different type of Credit Loan. The borrower has to open an account in the bank where the down payment amount and installment are deposited.

 5.      Interest & Other Charges: Interest on Credit loan differs among different schemes. The amount of interest on loan, which is charged by the Prime Bank, is ranged from 16% to 17% per year. Prime Bank charges penalty interest for the defaulters. Other charges include service charge and risk fund, which is 1% each.

 6.      Repayment Process: The CCS loan is to pay through monthly installment with interest, as the bank determines. The first installment begins from after the following month of the disbursement of loan. Every installment is to pay with in the first week of the month, otherwise many banks advance cheques for each installment to the bank.

 7.      Other Conditions: Prime Bank executes this CCS program following the above mention systems and the borrower is bound to agree all the terms and conditions of the respective bank. The borrower is responsible for the goods. After disbursement no excuse will be allowed about the products. Bank has the right to the borrower, it will given to the supplying firm through a crossed pay order and the borrower with acknowledge the bank in any change of his/her habitation and job.

Consumers Credit Scheme is becoming popular day by day in our country especially to middle class fixed income group, who have a dream and desire but have not sufficient financial support.

Loan sectioning process:

   The officer of the retail credit unit pursue the prospective customer to take the retail asset product

   The customer may submit the loan application directly to the retail credit unit or to any nearest branches of Prime Bank as convenience.

  After receiving the credit application from the customer the branch forward it to retail credit unit immediately.

  Then the retail credit unit inspect and verify the information provided by the customer in the credit application and apply al due diligences for approval or declining the loan.

  If the retail credit committee approves the proposal, section advice is issued to the customer and asked to finish all other documentation and to give the required number of post date cheques.

  Both the Retail credit unit and branches keep the record of approved and declined loan proposals.

 Monitoring and Recovery

Monitoring and supervision are the main methodology for collecting the loan. This is a stepwise process:

  The branches maintain the record of the date of payment of monthly installments

 The branches place the cheques to the particular bank in the appropriate date.

 The unit member remainder notice to the customer 10 days before the due installment

 If the installment money is not deposited after the 2^nd or 3^rd   remainder notice then the brace officer visits the customer personally.

 The classified loans are referred to retail credit unit to take required steps.

 Loan amortization

Prime Bank uses the most common loan amortization method the=at is “Capital recovery method”. Under this method constant monthly payment is calculated on an original loan amount at affixed rate of interest for a given term.

 Example:

Loan amount = BDT 100000 (PV)

Interest rate    = 15% (r)

Number of installments monthly=24 months

So monthly Installment will be: PV/ (MPVIFA* @15%, 24 months)

Giving the value we get: 100000/20.62423451 = Taka 4848.66/month.

*MPVIFA= monthly present value annuity factor.

Amortization schedule

 Findings: From the table is to be noticed that in the early payment interest amount is greater. Interest amount is reducing at a very slow rate in the beginning stage and it start to increase with the following installment. As the loan approaches to the maturity the fraction of principal is growing at a high rate.

The payment pattern is established for the welfare of both the bank and borrowers. As the payment remains equal throughout the loan period, more people of fixed income can qualify for this loan.

On the other hand bank is convinced because of the fact that the income of the borrower is increasing over time, so default risk is reduced by means of using this method of amortizing.

 Prepayment:

Customers can repay the loan before maturity of the loan. In case of early payment bank has to face reinvestment risk. That is from the early payment of a loan bank gets an unanticipated fund that may or may not be invested at the previous rate, because interest tends to decline over time because of the growing competition among banks. But Prime Bank usually welcomes the early repayment of loan and offers a rebate of interest amount as well as no prepayment penalty is to be charged like other banks. The reason behind this is that Prime Bank tries to avoid classified loan even at the cost of losing some profit and receiving risk just to maintain its credit history and good CAMEL rating.

Loan Classification

If any customer failed to repay the loan within the fixed time period, the loan may be treated as classified loan. The portion of loan which is not paid within the time is known as overdue.

 Overdue means:

  Continuous Loan is not renewed or repaid within expiry date, the treat of overdue from the following day of expiry date.

  Demand Loan is not renewed or scheduled within expiry date, the treat of overdue from the following day of expiry date.

According to Bangladesh Bank Circular, Loans & Advance are classified in the following manner.

SMA (Special Mention Account): Overdue period 90 days or more.

For Continuous Loan:

Sub Standard: Overdue 6 Months or beyond but less than 9 months

Doubtful:  Overdue 9 Months or beyond but less than 12 months

Bad/Loss: Overdue 12 Months or beyond

Fixed Term Loan (Within 05 Years):

Sub Standard: Defaulted installment is equal or more than the amount of installment within 6 months.

Doubtful: Defaulted installment is equal or more than the amount of installment within 12 months.

Bad/Loss: Defaulted installment is equal or more than the amount of installment within 18 months.

Fixed Term Loan (More than 05 Years):

Sub Standard: Defaulted installment is equal or more than the amount of installment within 12 months.

Doubtful: Defaulted installment is equal or more than the amount of installment within 18 months.

Bad/Loss: Defaulted installment is equal or more than the amount of installment within 24 months.

• Maintenance of Provisions:

1)     1% against all unclassified loans.

2)     1% on the unclassified amount od Small Enterprise Financing

3)     5% on unclassified amount of consumer Financing

4)     5% for SMA

5)     20% of Substandard

6)     50% of Doubtful

7)     100% for Bad/Loss

Rescheduling

To reschedule loans the bank shall examine the following:

  Causes as to why the Loan has become non-performing

  Has diversion of Loan taken place?

  Is the defaulter a habitual one?

If the answer is yes, the bank shall take all legal steps for recovery.

Bank must assess:

1)     Borrower’s overall repayment capacity taking into account the borrower’s liability position with other bank.

2)      Review the borrower’s cash flow statement, audited balance sheet, income statement & other financial statement.

3)     Bank officials may visit the borrower’s business place.

4)     If it is proved that the borrower’s will not be able to repay, the bank shall all legal steps to realize the loan, make necessary provisions and take measures to write off.

5)     The rescheduling shall be for the minimum reasonable period of time.

6)     In the approval process, the Bank shall apprise the Board of the implications of such loan rescheduling on the income and other areas of the bank.

Down Payment for Rescheduling:

For Term Loans:

  Cash payment at least 15% of the overdue installments or 10% of the outstanding amount of loan, whichever is less.

  Rescheduling for second time will require Cash payment at least 30% of the overdue installments or 20% of the outstanding amount of loan, whichever is less.

  For more than twice, Cash payment at least 50% of the overdue installments or 30% of the outstanding amount of loan whichever is the lesser amount.

 For Demand & Continuous Loan:

  For up to Tk. 1 Crore of overdue, down payment is 15%

  For Tk. 1 Crore to 5 Crore of overdue, down payment is 10% (but not less than Tk. 15.00 Lac)

  For Tk. 5 Crore and above  of overdue, down payment is 5% (but not less than Tk. 50.00 Lac)

If rescheduled by restructuring converting party or wholly into Term Loan and repayment installments have been fixed,

  Cash payment of minimum 30% of the overdue installments or 20% of the outstanding amount of loan, whichever is less.

  For subsequent rescheduling minimum 50% of the overdue installments or 30% of the total outstanding amount of the loan amount shall have to be deposited in cash.

Trend Analysis

 Classified Loan & Advance against Total Disbursed Loan Amount (2004-2008)                                          

From the table we can see that in 2004 the total loan amount & advances was 232197 Lac, by 2008 which increased to 751562 Lac. In 2004 classified loan amount was 3527.5 Lac which was 1.52% of total loan amount & advances, has increase to 13226 Lac which was 1.76% of total loan amount.

 Outstanding Loan Status as on 30.12.2008( Advance)

From the table we can see in 2008, total outstanding loan was 751562 Lac of which 13226 Lac was classified. This classified amount is categorized as sub standard which is 2631.23 Lac, default is 5617.83 Lac and Bad & Loss is 4926.94 Lac. It can be said from table that in 2008, 0.35% of total outstanding loan is sub standard, 0.75% is default and 0.66% is bad & loss.

 Sector-wise Classified Loan as on 31.12.08

(Amount in Lac)

 From the table we can see that in 2008, amount of CCS classified loan was 2027.32 Lac, which was the second biggest amount of sector-wise classified loan.

Graphical Presentation:

From the pie chart we can see, CCS held the 15% of total loan classified loan and media sector held the highest classified loan, which is 26%. Loan on spinning sector held 12% of classified loan, credit card and trading loan each have 3% classified loan. Classified loan on other sector is not remarkable.  
 Year wise Retail Portfolio (1995-2008)

 (Amount in Crore)

From the table we can see that in 1995 loan disbursement was 5.34 Crore taka, by 2008 which has increased to 334.08 Crore taka. In 1995 Prime Bank’s loan outstanding was 4.93 Crore taka which has increased to 501.69 Crore taka in 2008. In 2001 Prime bank had overdue of 1.90 Crore taka, by 2008 overdue amount has increased to 24.08 Crore taka.

Year wise Retail Credit Overdue Position (2001-2008)

From the graph we can see that loan overdue amount has decreased gradually from 2002 to 2005, but after 2006 loan overdue has been increasing. In 2008 loan overdue increased by 62%, which is a bad indication of the bank’s performance.

Year wise Retail Credit Disbursement Position (1996-2008)

From the graph we can see, Prime Bank has achieved over hundred percent growths in retail credit disbursement in 1996, 1999 and 2005. Prime Bank had negative growth in 1997 and 1998.

Year wise Retail Credit Outstanding Position (1997-2008)

From the graph we can see, Prime Bank has positive growth in retail credit outstanding in almost all the year from 1997-2008. In 2008 Prime Bank’s retail credit outstanding has increased in highest amount which was 76%. We can also find a decrease in retail credit outstanding by 14% in 1998. In may be due to the great flood of 1998.

 Retail Product wise Position:

(Amount in Crore)

 From the table we can see that car loan has the highest loan outstanding, which is 205.47 Crore taka. House hold durables have second largest outstanding, Sapna Neer or home loan has 114.89 Crore taka outstanding.

We can also find from the table that House hold durables loan have higher level of overdue and classification than other consumer credit product.

From the pie chart we can see that car loan is 40% of total loan outstanding of CCS products. House holds durables and Sapna neer is 25% and 23% of total loan outstanding, where any purpose loan is 9%. There are eleven types of consumer loan but car loan; House hold durables, Sapna neer and any purpose loan encompass 97% of total consumer credit, where other seven types encompass 3% of consumer credit loan.

From the pie chart we can see, house hold durables have highest loan overdue, which is 60%. Car loan has 26% overdue. Other Loans products encompass rest of the overdue.

From the pie chart we can see that house hold durables have 71% of total CCS classification, Car loan have 19% of CCS loan classification. Sapna neer and any purpose loan comprise rest of the CCS classification.

 Product wise 04 years Outstanding Comparison

 From the table we can see that sapna neer loan has the highest growth, any purpose loan has the second highest growth and car loan has the third highest growth in 2007 & 2008.

Graphical Presentation:

From the graph we can see that in 2005 car loan has an outstanding of 42.66 Crore taka, which increase to 205.48 Crore taka by 2008. In 2006 growth rate of car loan outstanding was 50%, which became 80% in 2007 and 78% in 2008.

From the graph we can see that in 2005 HHD has an outstanding of 62.61 Crore taka, which increase to 125.35 Crore taka by 2008. In 2006 growth rate of car loan outstanding was 23%, which became 16% in 2007 and 40% in 2008.

From the graph we can see that in 2005 any purpose loan has an outstanding of 7.34 Crore taka, which increase to 43.23 Crore taka by 2008. In 2006 growth rate of car loan outstanding was 13%, which became 115% in 2007 and 142% in 2008.

Product wise 04 years Overdue Comparison (Retail Credit)

 From the table we can see Sapna neer has the highest loan overdue growth rate, car loan has the second highest growth and any purpose loan has the third highest growth in 2007 & 2008.

From the graph we can see that in 2005 car loan has an overdue of 1.39 Crore taka, which increase to 6.26 Crore taka by 2008. In 2006 growth rate of car loan overdue was 23%, which became 73% in 2007 and 111% in 2008.

From the graph we can see that in 2005 HHD has an overdue of 7.85 Crore taka, which increase to 14.37 Crore taka by 2008. In 2006 growth rate of car loan overdue was 14%, which became 15% in 2007 and 40% in 2008.

From the graph we can see that in 2005 any purpose loan has an overdue of 0.35 Crore taka, which increase to 2.26 Crore taka by 2008. In 2006 growth rate of car loan overdue was 109%, which became 62% in 2007 and 92% in 2008.

Types of Advances IFIC Bank:

The different types of advance are as follow:

CONTINUOUS LOAN:

Types of continuous Loan:

(i)                Cash Credit Hypothecate (CC HYPO).

(ii)             Cash Credit Pledge (CC PLEDGE).

(iii)           Secured Overdraft (SOD).

 Cash Credit Hypothecate (CC HYPO) :

  Cash credit is the favorite mode of borrowing by traders, industries, agriculturist etc. for meeting their working capital requirement. This type of facilities is always against (1) pledge of goods produced and merchandise, (2) sometimes it is allowed against hypothecation. It is operated like an overdraft account. The principle advantages of a cash credit account to borrower are that, unlike the party is borrowing on a fixed loan basis, he may operated the account within the stipulated limit and when required he can save interest by reducing on any day , however, should not exceed the agreed limit granted. Technically a cash credit advance is repayable on demand, without any specific date of repayment.

But

1. Cash credit is given through the cash credit account.
2. Instrument hypothecation Deed.
3. 50% margin requires opening a CC account.
4. It is granted only the first class parties.

Cash Credit Pledge (CC PLEDGE):

a) The nature, operation work & characteristics of CC PLEDGE in as same CC HYPO.

b) It is charged against properties where the ownership may remain to the borrower but the possession is passed to the bank.

c) Instrument pledge Deed.

Table: 1 Cash Credit (Hypo & Pledge)

In this graph shows CC (Hypo & Pledge) at Naya Paltan Branch constantly decreasing.

Secured Overdraft (SOD) :

Secured Overdraft (SOD) are those drawing which are allowed by the banks in access of the balance in the current account up to a specified amount for definite period as arranged for?

(i)                Generally it given to the businessmen to increase their business activities.

(ii)              Usually provide against FDR, PSS, i.e. financial obligation or any primary securities.

(iii)            Balance of OD account is fluctuates.

TERM LOAN:         

Types of term loan:

(i)                Industries

(ii)             Staff loan:   (a) Staff house building loan. (b) Staff loan against provident fund.

(iii)           Others Loan.

(iv)           Loan against PSS.

(v)              House building loan

(vi)           Consumer Credit Scheme.

Industries Loan:

  It is given for 3 (three) years at equal installment & 15.50% interest is charged to the loan amount.

Staff Loan:

     (a) Staff House Building Loan – SHBL

           (i) 120 times of the basic salary is provided as SHBL

           (ii) Bank Rate + 1%, interest is charged to the employee

          (iii) Repayment is adjusted from their monthly salary

          (iv) Repayment is made at equal monthly installment

    (b) Staff Loan against Provident Fund – SPF:

          (i) 10% of basic is contributed by employee in every month

          (ii) 10% of basic is also contributed to the PF by the Bank

          (iii) Repayment is adjusted from their monthly salary

          (iv) Maximum Sanction from PF

 Others Loan:

Transport loan (It is given for 3 years at equal monthly installment), Cold storage, Service Industries, Other Non-manufacturing Industries, & Execution of work order interest rate are 15.50%.

Agricultural Loan : Actually Agricultural loan is not given from this branch of IFIC Bank but the all other items excluding the mentioned above will go under this head of term loans. Generally its interest rate is 12.00%.

Loan against PSS

This is 100% secured for the bank.

Table:-2: Total Advance of IFIC Bank Ltd. Naya Paltan Branch.

                                              2008                                                       2392111170.00

Source: Yearly Statement of IFIC Bank Ltd. Naya Paltan Branch.

Table: 3: Term Loan (Consumer Credit) of IFIC Bank Ltd. Naya Paltan Branch.

Source: Yearly Statement of IFIC Bank Ltd. Naya Paltan Branch.

From the above analysis we say that Due to the continuous observation from top management and selection of worthy borrower yearly loan distribution scenario is satisfactory.

Comparative Analysis of Advances between IFIC Bank & The Prime Bank Limited.

 Table: 4: Growth in Advances:

Source: Yearly Statement of IFIC Bank Ltd. & CBL

From the above figures we can find that in the end of year- 2004 CBL is not properly responding in advance sector than IFIC Bank. But after that both banks are growing faster in terms of time. But CBL is growing faster than IFIC bank. But IFIC Bank re-organized in 2008 and takes new project like Transportation Loan, House Building Loan etc. By this it is also on the Track in this year.

 Recovery of loan:

This is vital for IFIC Bank Limited because the financial market strength of our country is not so strong. As far to recover the lending money and great threat, because in our country; business chain is so difficult like other countries and depend to other. So, if the monetary flow faces any obstacle it hampers the functioning of full chains. As a result recovery face a great threat for commercial banks as well as IFIC Bank Limited is not out of this threat. However, this stagnant may cover up duly taking proper planning and implementation of the same in regards of loan sanctioning and proper monitoring for recovery of the same. But IFIC bank Limited yet doing well for recovery of its loan amount. It  is good news for all the stakeholders that the percentage of classified loan of the end less than 1% where this ratio is very high for similar types of banks prevailing in our country  especially for older banks of the country. Here remind that now IFIC Bank offered by the general loan interest rate is 14% and CCS loan is 16%

Comparative Scenario

In previous chapter we have had idea about the credit appraisal and management process of the Prime Bank Limited and The International Finance and Investment Banking Corporation Limited (IFIC). Now let’s perceive the comparison in different aspects of those policies through the following table:

Objectives 

To provide reachable credit facilities 

Conservative lending policy & Long term ethical client service

Eligibility Judgment 

As per Banks own policy and Bangladesh Bank guidelines

As per Banks own policy. 

Security/Collateral 

Moderate 

High

Tenure 

Long, Short & Mid-term 

Short & Mid-term

Loan Pricing 

Moderate; determined tat market price

High & Complex 

Loan Processing time 

Moderate 

Long

Amount of Loan 

Depends on types of loan

Depends on types of loan 

Sect oral Investment 

Encouraged 

Partially encouraged

Supervision, monitoring & implementation

Strict & Regular Follow-up 

Ensured by Legal Framework & Regular Follow-up 

Products 

Wide Range of Products

Limited range of Products 

Refinancing 

Provided for good clients

Provided for good clients

Installment 

Determined by the turnover & loan ratio 

Fixed up as per the bank policy

Interest Rate 

Always follow the market rate 

Hig

Marketing Strategy 

Long term, contemporary & Customer oriented

Long term, Modern & Customer oriented 

Flexibility 

Flexible to adjust with the changes 

Flexible 

Complexity 

Loan disbursement procedure is not complex

Complex provisions& stipulation 

Recovery 

Recovery Rate is high

Recovery Rate is lofty 

Diversification of Portfolio 

Well diversified  

Non diversified 

Uniqueness 

Unique

contemporary 

Transparency 

Well maintained

Not publicly disclose  

Social Contribution 

Has huge contribution to the economic & socio-economic sectors

Improves standard of living 

Network banking 

Exists

 SWOT ANALYSIS:

SWOT analysis enables an organization to have a comprehensive insight about its current position in the industry compared to the competitors. It provides the organization a scope to strategically improve its position in the market. Here, the internal strengths and weaknesses of Prime Bank Limited as well as the external opportunities and threats are discussed:

Strengths

Strong Management: Prime Bank Ltd. has a very efficient and strong management team. Administration is done in a timely and systematic manner. There is a close relationship between the employees and the management though the chain of command is maintained strictly. Overall, there is a good balance between the administration and the employees. Prime Bank is recipient of ICAB Award for best Published Report. It clearly demonstrates the good corporate governance.

Managing director of PBL visits all the branches frequently and randomly, so that he can observe and can be informed about each segment of operations of all the branches. He is also a very capable person for his position.

In this bank, branch managers have the authority to select different executives from whole PBL for their branch. This is a very effective system of management, because then they can work smoothly and cooperatively.

Customer Care: PBL has a very good relationship with its customers. The core philosophy of this bank is customer car. The bank believes in maintaining personal relationship with its clients. One of the major goals of the bank is to build long term relationship with the customer and to create value for them. To maintain this relationship, PBL sometimes waive high charges for those valued clients who are linked with the bank for a long period of time. Moreover, in order to provide full support and high quality service, a complaint cell has been formed.

Risk Management: Prime Bank places utmost importance on managing credit risk. The bank closely examines credit risk from both micro perspective (credit risk of individual customer) and a macro perspective (loan portfolio risk). Lending functions have been segregated into three broad functions:

(a) Credit Approval

(b) Relationship Management/Marketing, and

(c) Credit Administration

PBL gave special attention to the risk management and the process includes:

(1)              Management of Credit Risk

(2)              Management of Foreign Exchange Risk

(3)              Prevention of Money Laundering

(4)              Asset-Liability Management

(5)              Internal Control and Compliance

The bank implemented the guidelines given by Bangladesh Bank in this regard for safeguarding stakeholders’ interest. That is why PBL can maintain efficient use of assets.

Innovative Products:

Prime bank has been offering various kinds of deposit schemes by which people have got opportunity to save their small money and bank is also able to earn more for themselves from their clients. Most of the private banks are offering three to four number of deposit schemes. Comparatively Prime Bank offers maximum number of deposit schemes by which the bank is successful to capture and retain large number of customers. Prime also provides different types of credit schemes for different types of customer. As a result, Prime Bank can satisfy customer needs according to their demand.

Weaknesses

Compensation: The pay scale of employees in PBL is not competitive compared to the effort they put it on their job. Employees of the PBL have to stay at least one hour more every day after office hour. There is also a rule in PBL that, AD branches remains open in one of the weekly holiday (Saturday – from 9.00 am to 1.00 pm) and some of the employees have to work overtime. But, here too, the remuneration is not satisfactory.

This creates dissatisfaction among the employees which carries the risk of rise in employee turnover rate. Those who cannot switch bank are often discouraged to give their best effort in the job.

Succession plan and Promotion: There is no succession plan in the employee hierarchy. That means, even if one employee-performance is outstanding there is no assurance that he/she can reach in the top position of this bank. When an employee gets a promotion to the next level, he/she gets more compensation. PBL is regular in giving promotion, but the employees get late effect of this promotion. Often there is a long gap, for example a six month gap in getting the effect.

Training: PBL has its own training institute PBTI (Prime Bank Training Institute) to strengthen the capabilities of human resources. However, it is not always possible to give thorough training. Especially, there is a lack of specific training for specific jobs. As a result, the employee has to learn things from the job by doing it practically. Moreover there is no security of getting promotion even after a successful training accomplishment.

Technology:

One of the major weaknesses of Prime Bank Ltd. is the technology used by the bank. With the change of time, technological advancement is essential to survive in the competition. Hence, PBL is lagging far behind in this area. PBL was the pioneer in online banking but the online facility which the bank is providing currently is not up to the standard.

Opportunities

ATM Facility: In 1999, PBL obtained the membership of Master Card and a separate division has been assigned to look after the credit card operation. There are four types of credit card; Local Silver Credit Card, International Silver Credit Card, Local Gold Credit Card, International Gold Credit Card. Prime Bank Ltd. has launched its ATM (automated teller machine) service aiming to provide 24-hour services including ready cash, balance searching and instant mini-statement facilities to their clients. PBL has limited number ATM facilities compare to their competitor. PBL has to share ATM Booth with Dutch-Bangla Bank.PBL has a good opportunity to provide their own ATM facility to the customers in near future and survive in the competition.

Branch Expansion: Prime Bank Ltd. is growing very quickly all over the country. Besides expanding in the urban areas, PBL has the prospect to open more branches in suburban areas which will eventually enhance the government’s effort at reviving the rural economy. It will also serve the people of those areas better. For example, Madhabdi Branch (beside “Baburhat”) is running its business successfully, but there is a need of a branch in the inner side of Norshingdi, where the actual small businesses are situated.

Training Facility: Prime Bank Training Institute (PBTI) is supporting the bank by offering in house training courses, workshop and seminars. As the bank has its own training institute to enhance the capability of their human resources, PBL can use this opportunity to train their employees in specific areas and create specialize and expert people for the bank.

 Threats

Level of Competition: Competition is always a major threat for any organization. In recent years, the number of private bank is rapidly increasing. These banks always pose a threat for others by coming up with new product line, innovative technology, quality services, etc. Thus the level of competition rises and creates threat for Prime Bank Ltd. In recent years well-built banks are operating in this country, which poses a great threat to any private bank in banking industry Bangladesh.

Compensation Package: Compared to other private banks of Bangladesh, the compensation package of Prime Bank Ltd. is not attractive. Though the employees of PBL gets fair financial and other benefits in general, the base pay is not sufficient. This poses a threat of switching banks as other private banks are giving lucrative offer.

Political Instability: The political unrest as well as the law and order situation of Bangladesh is always a threat for banking industry. Especially, the events of recent years, the corruption level of our country; the terrorist attack, money laundering, and the poor infrastructure are affecting the national economy. The current economic situation is very likely to get worse further. In this case, the whole banking industry is facing a big threat.

Global Economic Crisis: Global economic crisis pose a threat to banking sector. Because of global economic crisis, number of export-import decrease as well as taking loan from banks. As a result banks profit goes down. Though global economic crisis hasn’t severely affected our economy but still it is the biggest threat to any bank.

 Findings

The contribution of banking industry towards the whole economic development of Bangladesh is beyond doubt. It up holds the economic base by way of increasing total foreign currency reserve. As we are import-based country the foreign currency reserve play a vital role in the economic activities. Day by day the popularity of banking business is increasing as well as the competition is also increasing. Currently 52 commercial banks are operating in Bangladesh. Most of the products of commercial banks are almost same, but the ways of providing services are different. So consumers choose their banks based on their needs and satisfaction. Because of the existing economic vulnerability, both the Banks and the consumers are afraid of taking long-term loan. This is why the popularity of Consumer Credit is increasing, as it is easily recoverable, sanctioned for a very short period of time and sanctioned a less amount of credit under the Consumer Credit Scheme. During the period of working on the Consumer Credit Scheme of Prime Bank, I have noticed the following facts:

  Prime Bank employs young people as sales representative for pursuing the people directly. There are two types of direct sales agents in Prime Bank, one type of agents visit offices of different business organization to get deposit for bank and the other type of agents find customer for consumer credit loan. They bring a large amount of deposits for the bank as well as promote the Consumer Credit Scheme .They also offers home service to the clients.

   The number of customer of Prime Bank is increasing is because of the better service that is provided towards the customers, despite the fact that Prime Bank does not promote their Consumer Credit Scheme as other banks.

   Prime Bank has their own direct sales agents whose job is to attract customer for their consumer credit scheme. Direct sales agents have a target sixteen Lac taka, which they have to achieve every month. If they fail to achieve their target for three months they will be put on provision and may lose their jobs if they continue to perform below standard. For this reason all agents are concerned about achieving their target. Direct sales agents tend to fulfill their target with any means possible, so they sometimes bring customer who is not qualified to take loan. As a result, the amount of overdue of Prime Bank is increasing.

   Though the portion of Consumer Credit Scheme within the total credit portfolio of Prime Bank is very small, it generates a huge amount of interest income for the bank. So the Prime Bank increases its investment in the field of Consumer Credit Scheme over time. Because the short-term loan provided under the Consumer Credit Scheme is less risky and easily recoverable, the foreign banks offer a huge amount of credit under this Scheme.

   The borrowers sometimes provide faulty information regarding income, expenditure, and guarantor and intense of taking the loan.

   The market for the consumer credit is very competitive, so it needs to be promoted seriously. The promotional activities of Prime Bank are not sufficient.

  There are eleven types of consumer credit scheme in Prime Bank but only four types of consumer credit are provided to customer. Car loan, Sapna neer (Home loan), HHD (House Hold Durables) and any purpose loan encompass almost ninety seven percent of total consumer credit disbursement.

During my internship I found out that structure of some consumer credit scheme is unfriendly in nature like education loan. Education loan have to be taken in the name of parents and have to start paying installment like other consumer loans, but most customer of this loan are not able to pay installment immediately. In many cases parents lives outside Dhaka and Prime Bank does not have branches covering all the districts as a result most of the customer don’t get education loan. In Kawran Bazar Branch, everyday at least one person comes for education loan and return without taking the loan because of its unfriendly structure.

Some consumer credit schemes have negative impact on customer like marriage loan. There was some cases where retail credit officer go to inspection in bride’s home, the bride’s family took it negatively and call of the wedding. As a result customer doesn’t take the loan and it had negative effect on bank’s reputation.

Direct sales agents don’t promote all Loans. They concentrate on bigger and popular consumer loans like- car loan, any purpose loan etc. As a result most of the costumer only takes four types of consumer loan.

Prime Bank got eleven types of consumer credit schemes but most of the schemes are unknown to customers because of lack of promotional activity.

Prime Bank got only seventy branches in major cities and districts of Bangladesh.

Prime Bank got limited Islamic Banking services in few branches.

Recommendations

• Prime Bank’s existing reputation in the market bringing up most of its customer. Though Prime Bank use electronic media for promotional activity, but it’s not enough. Prime Bank also uses their sales agent for promoting their services. But now competition in banking sector has increased, Prime Bank should use more creative advertisement on electronic media for promotional activities. Prime Bank should also use CSR activities to create positive impression on customers mind as well as for promotional activity. If Prime Bank uses more promotional activity, it will attract more customers and Prime Bank will able to make more profit.

• Prime Bank only have seventy branches, most of the branches are in Dhaka and Chittagong city.  As a result, Prime Bank losing business opportunities. Prime Bank should increase it numbers of branches to cover a large number of clients in rural and urban areas. Prime Bank should set up branches where customer demand exists and bank will able to make profit.

• As majority of people of Bangladesh is Muslim, there is always a huge demand for Islamic Banking services. The Prime Bank should increase their Islamic banking branches. Many Non-Islamic banks taking this opportunity by opening Islamic Banking branch. Prime Bank got few Islamic banking branches but there is more demand. So, Prime Bank should open more Islamic Banking branches to attract more customers. Furthermore, Prime Bank should introduce consumer credit scheme in Islamic version to attract fundamental Muslim customer.

• Prime Bank’s loan classification and loan overdue is increasing with retail loan’s disbursement amount. In 2008 Retail loan overdue increased by 62%, which is an alarming rate. Prime Bank should investigate the reason behind such increase in retail loan overdue amount. Prime Bank also should increase its monitoring and supervision activities to reduce its default loan as number of loan overdue and default is increasing. Prime Bank should also inspect carefully before giving any loan because creditors can give wrong information, because the borrowers may provide faulty information regarding income, expenditure, and guarantor and intense of taking the loan, this information should be justified properly by the credit officer.

• Some loan structure of Prime Bank is not customer friendly like education loan and marriage loan. There are some terms and procedures of these consumer loans which prevent customers to take loan. Prime Bank should restructure these loans so that it becomes customer friendly and they start to take these loans.

• There are eleven types of consumer loan but customers tend to take only four types of loan from Prime Bank. Prime Bank should re-launch the less popular consumer credit categories to attract more customers like hospitalization loan, doctors loan etc.

 CONCLUSION:

Prime Bank limited is a modern commercial bank. It is committed to provide high quality financial services / products to contribute to the growth of G.D.P. of the country through stimulating trade & commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the educated youth, raising standard of living of limited income group and overall sustainable socio-economic development of the country. The Bank is operating efficiently with its existing products and services. It has remained profitable from the inception of its operation in the commercial banking sector. The emergence of fierce competition and adverse economic condition has forced the bank to be innovative in offering its products and customer services. The services which the Bank provides to their clients are very prompt and quality one compare to other private or foreign banks. The consumer credit business of Prime Bank Limited provides tailored services to clients. The consumer credit one of profit making segment of the business. Asset liability management is the main sector in banking for achieving a good position in banking sector. As Loan & Advance is the main asset of a bank, quality of asset should be managed well for better performance of a bank. It can be said that the Credit Risk is very uncertain and increasing default of any type of credit may create a great problem for a bank even sometimes it may arise a question regarding the existence of a bank. So, it is very important for retail credit department to select a customer. In this regard, Bangladesh Bank is publishing different types of circular very frequently for increasing the carefulness and alertness of the bankers. Prime Bank Limited is very much complied when they disburse any type of Loan. Besides this, the audit at PBL is conducted by the internal auditor very frequently. As a result, the employees of PBL are doing their duties according to the circulars provided by their Head Office as well as Bangladesh Bank. The percentage of classified loan of PBL is near 1.73% which reflects the competency of the employee of PBL. It is observed that the big portion of credit portfolio is covered by Overdrafts and Loan General enjoyed by a limited number of customers, which may be a threat for the branch. So if the management tries to diversify their loan product in Small & Medium Enterprise sector and Retail credit, the credit portfolio will be more strengthen.

References

• Bangladesh Bank, BRPD Circular 09; August 20,2005, BRPD Circular 02;

       February 02, 2005, BRPD Circular 09; May 14, 2001

• Prime Bank Ltd., Annual Report; 2004, 2005, 2006 & 2007
• Prime Bank Ltd., Head Office Circulars; 2006, 2007
• Prime Bank Ltd., Brochures of Loans and Advances; 2007
• www.prime-bank.com.bd

Created by : Asad Saimon