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0 INTRODUCTION
In today’s world, education is the tool to understand the real world and apply
knowledge for the betterment of the society as well as economy. From education the
theoretical knowledge is obtained from courses of study, which is only the half way of
the subject matter. Practical knowledge has no alternative. Therefore, an opportunity
is offered by Govt. Titumir College, Dhaka as “Term paper Program”. As practical
orientation is integral part of MBA Final requirement, I have worked on
Premier Bank Limited, Urdhuroad Branch. After collecting information from all
possible sources, I started to work on the project titled “A study on Loan Recovery
System of Premier Bank Ltd”. Loan or credit management is very important for
bank to balance their risk and return. Basically, it is a function performed by a bank to
improve and control credit policies that will lead to increased revenues and lower risk,
including increasing collections, reducing credit costs, extending credit to
creditworthy customers, and developing competitive credit terms.
The study is entitled “Loan Recovery System of Premier Bank Limited” originated
from the fulfillment of the term paper program. For the term paper program, each
student is attached with an organization. I have to prepare a term paper under the
supervision of Mohammad Jahangir Alam, Associate Professor and Department of
Financing & Banking, Govt. Titumir College, Dhaka.
Due to the increased competition of the increased number of commercial banks and
the growing economy, the expectations of the customers have also increased than ever
before. Realizing the present condition, banks, especially the commercial banks are
trying to elevate their loan giving service as much as reachable to their customers. I
wanted to complete my Term paper program from a reputed Bank which would be
helpful for my future professional career. I have selected the Loan Recovery System
of Premier Bank Ltd. This study will absolutely help me to know how the execution
of credit management is performed and what are the procedures taken to give loan and
for its recovery.
Broad Objective:
The primary objective of preparing this term paper is to fulfill the partial requirement
of the MBA Final program and to represent the “Loan Recovery System of Premier
Bank Limited”.
Specific Objectives:
1. To study the loans disbursement & recovery system of Premier Bank Ltd.
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2. To identify problems related to various loans & advance products of PBL.
3. To explain how the bank sanction loan to clients.
4. To illustrate the loan recovery system of Premier Bank Ltd.
5. To make some recommendations on the basis of the problems.
The broad objective of the term paper is to determine the Credit Management of
Premier Bank Limited.
1.4 Methodology
In order to make the term paper more meaningful and presentable, two sources of data
and information have been used widely.
1. Primary Sources:
• Relevant file study as provided by the officers concerned.
• Personal observation- observing the procedures of banking activities
followed by each department
2. Secondary Sources:
• Annual term paper of Premier Bank-2013, 2014, 2015, 2016, 2017.
• Periodicals Published by Bangladesh Bank
• Office files and documents
• Premier Bank web site.
• Other websites.
• Articles regarding Credit Management.
• Some of my course elements as related to this term paper.
In order to accomplish the aims of the research, the following analytical software will
be used for the data analysis:
- SPSS
- Excel.
1.6 Limitations
The present study was not out of limitations. But as an intern it was a great
opportunity for me to know the banking activities of Bangladesh especially Premier
Bank. Some constraints are as follows:
The main constraints of the study are inadequate access to information, which
has hampered the scope of analysis required for the study.
• Large scale analysis was not possible due to constraints & restrictions posted by
the banking authority.As the data, in most cases, are not in organized way, I failed to
process all information.
• In some other cases, access was denied to procedural matters conducted directly
by the top management in the operations of loans & advance department.
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2.0: LITERATURE REVIEW
2.1 The Credit Risk of Banks
2.1.1 Definition
According to the Basel (1999a), credit risk is defined as “the potential that a bank
borrower or counterparty will fail to meet its obligations in accordance with agreed
term”. And the Monetary Authority of Singapore 2013 has defined it to be the “risk
arising from the uncertainty of an obligor’s ability to perform its contractual
obligations”, where the term “obligor” refers to any party that has either direct or
indirect obligations under the contract. Regarding the importance of this kind of
financial risk, Kaminsky and Reinhart, as cited by Jackson and Perraudin (1999),
think of it to be the largest element of risk in the books of most banks and if not
managed in a proper way, can weaken individual banks or even cause many episodes
of financial instability by impacting the whole banking system. Thus to the banking
sector, credit risk is definitely an inherent and crucial part.
Generally, credit risk is related to the traditional bank lending activities, while it also
comes from holding bonds and other securities. Basel (1999a) term papers that for
most banks, loans are the largest and most obvious source of credit risk; however,
throughout the activities of a bank, which include in the banking book as well as in
the trading book, and both on and off the balance sheet, there are also other sources of
credit risk. Various financial instruments including acceptances, interbank
transactions, financial futures, guarantees, etc increase banks’ credit risk. Therefore, it
is indispensable to identify all the credit exposures-- the possible sources of credit risk
for most banks, which can also serve as a starting point for the following parts of this
work.
Derivatives Contracts
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According to Saunders and Cornett (2006), banks can be dealers of derivatives that
act as counterparties in trades with customers for a fee. Contingent credit risk is quite
likely to be present when banks expand their positions in derivative contracts. Since
the counterparty may default on payment obligations to truncate current and future
losses, risk will arise, which leaves the banks unhedged and having to substitute the
contract at today’s interest rates and prices.
Bank Guarantee is an undertaking from the bank which ensures that the liabilities of a
debtor will be met, while a bankers’ acceptance is an obligation by a bank to pay the
face value of a bill of exchange on maturity (Basel 1986). It is mentioned by Basel
(1986) that since guarantees and acceptances are obligations to stand behind a third
party, they should be treated as direct credit substitutes, whose credit risk is
equivalent to that of a loan to the ultimate borrower or to the drawer of the instrument.
In this sense, it is clear that there is a full risk exposure in these off balance sheet
activities.
Interbank Transactions
Banks send the bulk of the wholesale dollar payments through wire transfer systems
such as the Clearing House Inter Bank Payments System (CHIPS). The funds or
payments messages sent on the CHIPS network within the day are provisional, which
are only settled at the end of the day. Therefore, when a major fraud is discovered in a
bank’s book during the day, which may cause an immediate shutting down, its
counterparty bank will not receive the promised payments and may not be able to
meet the payment commitments to other banks, leaving a serious plight. As pointed
out by Saunders and Cornett (2006), the essential feature of the above kind of
settlement risk in interbank transactions is that, “banks are exposed to a within-day, or
intraday, credit risk that does not appear on its balance sheet”, which needs to be
carefully dealt with.
Loan Commitments
A loan commitment is a formal offer by a lending bank with the explicit terms under
which it agrees to lend to a firm a certain maximum amount at given interest rate over
a certain period of time. In this activity, contingent credit risk exists in setting the
interest or formula rate on a loan commitment. According to Saunders and Cornett
(2006), banks often add a risk premium based on its current assessment of the
creditworthiness of the borrower, and then in the case that the borrowing firm gets
into difficulty during the commitment period, the bank will be exposed to dramatic
declines in borrower creditworthiness, since the premium is preset before the
downgrade.
Hennie (2003) states that despite innovations in the financial services sector over the
years, credit risk is still the major single cause of bank failures, for the reason that
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“more than 80 percent of a bank’s balance sheet generally relates to this aspect of risk
management”. The consultative paper issued by Basel (1999a) also points out that the
major cause of serious banking problems continues to be directly due to the loose
credit standards for borrowers and counterparties, poor portfolio risk management and
so on. All such evidence proves the extremely vital role credit risk management plays
in the whole banking risk management approach as well as the sustainable success of
the organization. In this section, the goal and principles of banking credit risk
management will be summarized briefly, which together with the above part on the
identification of the existing credit risk in banking activities, will provide a basic
framework for the understanding and discussion of banks’ credit risk management
practices.
Measuring risk is always a crucial part in risk management process, and as suggested
by Fabozzi (2006), quantifying credit risk can be complicated due to the lack of
sufficient historical data, the diversity of involved borrowers and the variety in default
causes. With the dramatic development of technology, credit risk measurement
evolves greatly during the last 20 years. In the following, the fundamentals of credit
risk measuring and the three categories of methods for bank credit risk measurement--
-credit rating, credit scoring and credit modeling will be explained.
The last step for any kind of risk management is to mitigate and transfer the risk in
order to avoid or reduce losses. In this area, a variety of approaches are available and
new methods keep on emerging. Generally speaking, the traditional methods for
reducing credit risk focus on loan underwriting process and diversification, while the
new means refer to asset securitization and hedging with credit derivatives (Neal
1996). In this section, all those essential ways for minimizing credit risk will be
covered.
The last two decades have witnessed the development of more efficient and less
costly financial instruments, which make credit risk more manageable. Banks begin to
pool assets with credit risk and sell parts of the pool; loan sales come into play; and
credit derivatives are also gaining importance (Broll, Pausch and Welzel 2002). In the
following part, those methods will be described individually.
a. Asset Securitization
Asset securitization is about turning traditional, non-marketed balance sheet assets
into marketable ones and moving them off balance sheet (Twinn 1994). For a bank,
securitization requires it to set aside a bunch of incoming-earning assets and to sell
securities against those assets in the open market, which means transforming loans
into public traded securities in effect (Rose and Hudgins 2008). Many kinds of assets
can be securitized including residential mortgages, commercial mortgages, credit card
loans, trade receivables. Asset securitizations can improve credit risk management
because they help to diversify a bank’s credit risk exposure and reduce the need for
monitoring each individual loan’s condition. For instance, if a bank finds its lending
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too concentrated in a given sector, it can securitize some of lending to reduce
exposures.
b. Loan Sales
Rather than being collateral in the securitization, bank loans themselves can be sold in
entirety to a new owner, and such a bank loan sale occurs when a bank originates a
loan and sells it either with or without recourse to an outside buyer (Saunders and
Cornett 2006).1 According to Haubrich and Thomson (1993), there are two types of
loan sales, the participation and the assignment. In the participation, the original
contract between the borrower and the bank remains in place, and the bank still keeps
on collecting payments, overseeing the collateral as well as examining the books.
While in the assignment, which is a less common type, the debtor-creditor
relationship is transferred to the buyer by allowing the buyer to take direct action
against the borrower.
c. Credit Derivatives
The continuous development of credit risk transfer techniques brought credit
derivatives several years ago, which recently have gained importance rapidly in
situations where the diversity of loans and credit risk makes it difficult to carry out
securitizations or sell loans individually (Broll, Pausch and Welzel 2002). They are
contractual agreements based on credit performance that mainly refers to
predetermined events such as default, nonpayment of loan obligations, downgrading
and insolvency. According to Neal (1996), credit derivatives can help banks to
manage the credit risk by insuring against adverse movements in the credit quality of
the borrowers, and the major types of credit derivatives are credit default swaps,
credit options and credit-linked notes.
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3.0 OVERVIEW OF THE PREMIER BANK
Premier Bank Limited is a state owned commercial bank and is catering the need of
the mass business people. Immediately after the independence Premier Bank was born
with a new concept of purposeful banking sub serving the growing and diversified
financial needs of planned economic development of the country. The noble intention
behind starting of this Bank was to bring about a qualitative change in the sphere of
banking and financial management. Premier Bank is playing a significant role towards
socio-economic development of the country by financing Non-Banking Financial
Institutions dealing with Home Loan, Corporate Financing & Loan Syndication.
Immediately after the independence of Bangladesh in 1971, the erstwhile United Bank
Limited and Union Bank Limited were nationalized and renamed as Premier Bank.
Premier Bank is a state owned commercial bank which was incorporated as a Public
Limited Company on 21 May 2007 as per Companies Act 1994 and took over the
business of the then Premier Bank with all of its assets, liabilities, right, power,
privilege and obligation on a going concern basis through a vendor agreement signed
between the Peoples Republic of Bangladesh and Premier Bank Limited on 15
November 2007 with a retrospective effect from 1 July 2007. All of its operational
activities are governed by the Bank Companies Act 1991.
Premier Bank Ltd creates new opportunities for its clients. It gives customized
services & maintains harmonies banker client relationship. To mobilize financial
resources from within & abroad to contribute to agricultures, industry & socio-
economic development of the country & to pay a catalytic role in the formation of
capital market. It also contributes trade commerce & industry of the country. To carry
on the business dealer in foreign exchange including buying & selling of foreign
exchange, dealing in foreign currency notes, granting & issuing of letters of credit &
negotiating & discounting of export documents & all other matters related to foreign
exchange business.
To become the bank of choice in serving the nation as a progressive & socially
responsible financial institution by bringing credit & commerce together for profit &
sustainable growth. And to be a leading Bank in South Asia.
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To remain one of the best banks in Bangladesh in terms of profitability and
Assets Quality.
To ensure an adequate rate of return on investment.
To maintain adequate liquidity to meet maturing obligations and
commitments.
To maintain a healthy growth of business with desired image.
Authorized Capital: The authorized capital of the bank at present remained at Tk.
20000 million (approx. US$ 283.33 million).
Paid up capital: Tk. 5000.00 million.
Reserve fund & other fund: Reserve fund Tk.10823.01 million and retained surplus
Tk. 5167.18.
IPO Size: Tk. 10,000 million.
Face Value: Tk. 100.00.
Offer Price: Tk. 1000.00 (including a premium of Tk. 900).
Net interest income: Tk. 3,646.71 mn and Tk. 4,490.98 mn year ended on 31.12.16
and 31.12.17.
Profit/ (Loss) after tax: Tk. (9,968.18) mn, Tk. 1,094.44 mn, Tk.
3,145.38 mn and Tk. 2,981.87 for the year ended on 31.12.14, 31.12.15, 31.12.16
and31.12.17 respectively.
Retained Earnings: Tk. 3,252.47 million as on 31.12.17.
Total Liabilities: Tk. 279,802.41 million as on 31.12.17.
NAV per share: Tk. 341.83 as on 31.12.17.
EPS (As per prospectus): Tk. 100.62 as on 31.12.17.
EPS (restated): Tk. 78.02 (considering bonus & rights issue).
Major Product: All kinds of commercial banking, the bank recently has got
merchant banking license and also plan for Islamic banking operation.
Performance of the Bank: Despite various setbacks in economy, Bank’s
performance may be termed as satisfactory in respect of deposit mobilization and
profit earning The Bank has a total asset of Tk. 345233.92 million as on 31st
December 2017.
Deposit: As December, 31, 2017, Bank’s total Deposit stood at tk.246175 million.
Credit: During the year total Advanced stood at tk.166.359 million. As Dec.31, 2017.
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Credit Administration: The rate of classified loans during the year was 13423
million.
Investment: Investment figure of the Bank as on 31st December, 2017 stood at
tk.72533 million.
Foreign Exchange Business: During 2017, the Bank handled Export and Import
Business to the tune of tk.88653 million and tk. 118525 million respectively.
Capital Market Operation: The Bank has a separate Brokerage House established
with a view to facilitating the investors to operate in capital market in a hassle free
atmosphere.
Operational Result: The operational profit of the Bank during 2017was
13860million.
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3.9: Organizational Structure of Premier Bank Ltd.
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3.10: Name & present place of posting of Managing Director, Deputy Managing
Director & General Manager of Premier Bank Limited
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15 Md. Afzalul Bashar General Manager Off- 880-2- rpd@Premier bank-
Research & Planning 7115619 bd.com
Division Res-880-2- abashar@Premier bank-
9143660 bd.com
16 Md. Monjerul Islam General Manager Off- 880-2- id-obd@Premier bank-
OBD, FTD & 7115379 bd.com
Treasury Division
17 Md. Shafiqul Islam General Manager Off- 880-0721-
Rajshahi Division 775725
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4.0 LOAN MANAGEMENT OF PREMIER BANK LIMITED
Loans or credits comprise the most important assets as well as the primary sources of
earning- ‘bread and butter’ for the banking institutions. On the other hand, loan/credit
is also the major source of risk for the bank management. A prudent bank
management should always try to make an appropriate balance between its return and
risk involved with the loan portfolio. Credit appraisal process is the tool, which helps
the bank to predict the risk and return on the proposed project for credit disbursement.
To get a clear idea about credit appraisal process we need to know the key factors of
credit appraisal procedures.
4.2: Credit
The word credit is derived from the Latin word “credo” which means “I believe” and
is usually defined as the ability to buy with a promise to pay. It consists of actual
transfer and delivery of goods and services in exchange for a promise to pay in future.
It is simply the opposite of debt. Diversification of banking service has accelerated the
use of credit in the expansion of business operation. It is a fundamental precept of
banking everywhere that advances are made to customers in reliance on his promise
to pay rather than the security held by the banker.
A prudent Banker should always adhere to the following general principles of lending
funds to his customers.
Creditworthiness- Character, Capacity and Capital of the borrowers
• Purpose of the facility,
• Term of facility,
• Safety,
• Security,
• Profitability,
• Liquidity,
• Source of repayment,
• Diversity
Premier Bank is one of the leading largest commercial banks in our country. It has
been playing a vital role in our economy flourishing industrial sector by providing
financial support. Following the guidelines of Bangladesh Bank, credit facilities have
been extended to productive and priority sectors.
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4.5: Guidelines followed by Premier Bank Ltd.
Premier Bank Ltd. usually prepares its financial statements as per IAS 30 and forms
prescribed by the bank Companies Act 1991 after 2000. Before 2000 they usually
follow the old format for preparing statements. PBL violates the regulations
prescribed in Bank Companies Act 1991.Generally public bank’s performance is
worse than of private banks. Public banks specially, Premier Bank Ltd. shows in its
profit and loss account but it is found that if they make actual provisions on their
unsound loan they will incur loss. Premier Bank Ltd. is concerned about the unsound
credit. It started to maintain credit risk management division for managing risk of
default loans and advances.
1. Continuous Loan:
Secured Over Draft Against Financial Obligation [SOD(FO)]
Secured Over Draft Against Work Order [SOD(G)]
Cash Credit (Hypothecation)
Cash Credit (Pledge)
Export Cash Credit (ECC)
2. Demand Loan:
Loan general
Demand loan against ship breaking
Payment against documents (pad)
Loan against import merchandise (LIM)
Loan against trust receipt (LTR)
Forced loan
Packing credit
Secured over draft against cash incentives
Foreign documentary bills purchased (FDBP)
Local documentary bills purchased (LDBP)
Festival business loan
3. Term Loan
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Project loan
Transport loan
House building loan
Small business loan
Consumer finance loan
Lease finance
Personal loan
Term Deposits:
3 months & above but < 6 months 07
6 months & above but < 1 year 07.50
1 year & above but < 2 year 07.75
2 year & above but < 3 year 08.00
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Confidential term paper from other bank Head Office/Branch/chamber of the
commerce.
CIB Term paper from Central Bank.
Bazar Term paper.
Other Banks.
Financial Statements.
Premier Bank Ltd. then starts examination whether the loan applied for, is complying
with its lending policy. If comply, then it examines the documents submitted and the
credit worthiness. Credit worthiness analysis, i.e. analysis financial conditions of the
loan applicant is very important. If loan amount is more than 50, 00,000, then bank
goes for Lending Risk Analysis (LRA) and Spreadsheet Analysis (SA) which are
recently introduced by Bangladesh Bank. According to Bangladesh Bank Rules, LRA
and SA are a must for the loan exceeding Tk one crore.
If these two analyses reflect favorable condition and document submitted for the loan
appeared to be satisfactory, then bank goes for further action.
LRA is a very important and vital analysis for deciding whether the loan proposal is
potential or not. Many types of scientific, mathematical, statistical and managerial
tools and devices are required to perform this analysis. Premier Bank Ltd. maintains a
prescribed format for Lending Risk Analysis, which includes a spreadsheet to analyze
a lot of things. It is not possible to discuss the entire LRA in this term paper.
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If there is any recovery on the above accounts that recovery/ portion of recovery will
be treated as interest recovery, not principal recovery. After adjustment of interest
due, principal portion of respective loan account will be adjusted later on. Cost of
application form and processing fee will be credited to bank’s income A/c “Service
and other charges”.
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5.0: RECOVERY PROCEDURE OF INVESTMENT
Recovery procedure of Premier Bank is the ultimate combination of time, effort of
money. It follows four procedural steps to recover the lending amount, which is joint
effort of Bank, society and legal institutions, which are shown below:
A. Safety: Premier Bank exercises the lending function only when it is safe and the
risk factor is adequately mitigated and covered. Safety depends upon:
The security offered by the borrower.
The repaying capacity and willingness of the borrower is to repay the advance.
It is very risky for a bank to invest all its assets into a particular sector or a single
borrower or to one particular region. If somehow the business of that sector or area or
borrower collapses, the bank may fall in a critical situation. So it is better to invest in
different sectors/borrowers and spread over the country. That’s why Premier Bank
invests its fund in various sectors.
Loan
Classified Loan
Unclassified Loan
Classified loan: If any continuous credit is not adjusted/ renewed within expiry date,
the loan will be treated as classified/ irregular loan from the next day of the expiry
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date. Loans are classified which are judge to have a reduced chance of repayment.
Classified loan can be three types:
Substandard
Doubtful
Bad/ loss
1. Substandard: If the loan unadjusted for six months or more but less than nine
months, the loan will be treated as “substandard”.
2. Doubtful: For nine months and above but less than twelve months the loan
will be treated as “doubtful”.
3. Bad: If the period is twelve months or more, the loan will be classified as
“bad”. The above time frame is applicable in respect of demand loan also.
Unclassified loan: Unclassified loan are those which are repay regularly. Objectives
of loan classification:
Find out net worth/ adjust capital of a bank
Help for assessing financial soundness of a bank.
Calculate the required provision and the amount of interest suspense
Put the bank on sound footing in order to develop sound banking practice in
Bangladesh.
Loan Provisioning:
A certain amount of money is kept for the purpose of provisioning. This percentage is
set following Bangladesh Bank rules.
Loan Type UC SS DF BL
Basis for loan classification: All loans and advances are classified on the basis of
two criteria. These are Qualitative judgment criteria and Objective criteria
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Logging, Mineral Extraction/Mining, or other activity that is Ethically of
Environmentally Sensitive.
Lending to companies listed on CIB black list or known defaulters,
Counter parties in countries subject to UN sanctions.
Taking an Equity Stake in borrowers.
Lending to Holding Companies.
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6.0: ANALYSIS PART
I Strengths Opportunities
N • Business Strength • Maintaining required Capital
T • Second Largest bank of the Adequacy
E country • Business expansion in capital
R • Wide network of 874 Branches market
N across the countries • Gradual expansion of branch
A • Holds a sound reputation in the network
L banking industries • Progressive automation of the
• Sponsoring by the government branches
• Personalized services • Real online banking software will
• Well connected distribution be in function soon
channel from Head Office to all • Expansion of ATM and Credit
branches Card
• Healthy correspondent • Consideration of prime
relationships with foreign banks customers.
• Provide a record business in • The bank has enough opportunity
international trade and remittance to increase deposits by offering
• Majority of the branches run with hew attractive deposit services /
computers under centralized product
network
• Sound and large capital base
• Sustainable growth
E Weakness Threats
X • The bank does not have any long- • Now days different foreign,
T term strategies of whether it public and private bank are also
E wants to focus on retail banking offering similar types of retail
R or become a corporate bank lending service like PBL. So it all
N • The bank failed to provide a competitors fight with the some
A strong quality-recruitment policy weapons the natural result is
L in the lower and some mid level declining profit.
position. As a result the services • Bangladesh Bank providing new
of the bank seem to be dues in the rules and regulations for the
present days banking institutions made tougher
• Lack of quality service banking business. When there the
• Lack of using single softer to rules and regulations suit the
integrate all the branches of the organization or not it must obey
bank. these that some time imposes
• Lack of new product barriers on daily normal
• Not implementing the Online operation.
Banking in all activities • The default risks of all terms of
loan have to be minimizing in
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order to sustain in the financial
market. Because default risk leads
the organization towards to
bankrupt
• After all Mismanagement of
administration
The advance portfolio of the bank is well diversified covers a wide range of small and
medium enterprises, businesses, and industries
Table 6.1: Sector wise distribution of loans and advances during 2010-2013
(Figure in million Tk).
SL Sector wise of
No Loan 2018 2017 2016 2015 Average
1 Jute industries 12,704.0 9,201.0 8,809.3 8,997.5
Growth 38% 4% -2% 13%
2 Jute trade 238.0 167.0 100.3 75.4
Growth 43% 67% 33% 47%
3 Tannery 4,723.0 5,316.0 4,613.3 4,150.6
Growth -11% 15% 11% 5%
4 Textile 7,452.0 5,663.0 6,250.0 4,725.0
Growth 32% -9% 32% 18%
5 Transport 32.0 31.0 30.8 40.2
Growth 3% 1% -23% -7%
6 Steel & engineering 2,726.0 2,218.0 1,515.0 1,484.7
Growth 23% 46% 2% 24%
7 Tea 89.0 88.0 86.2 85.8
Growth 1% 2% 0% 1%
8 Sugar mills 3,790.0 2,962.0 2,559.6 1,561.9
Growth 28% 16% 64% 36%
9 House building 1,512.0 1,160.0 1,050.0 1,264.9
Growth 30% 10% -17% 8%
10 Rural credit 14,578.0 12,885.0 11,496.0 9,825.3
Growth 13% 12% 17% 14%
11 Bricks 1,428.0 1,203.0 1,439.9 1,143.0
Growth 19% -16% 26% 9%
12 Cold storage 285.0 67.0 160.0 157.0
Growth 325% -58% 2% 90%
13 Food 1,896.0 1,642.0 1,257.1 1,209.6
Growth 15% 31% 4% 17%
14 Export credit 28,267.0 19,083.0 15,550.0 14,835.9
Growth 48% 23% 5% 25%
15 Import credit 52,760.0 32,705.0 32,510.0 14,216.5
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Growth 61% 1% 129% 64%
16 Industrial credit 40,054.0 22,372.0 17,160.0 15,963.9
Growth 79% 30% 7% 39%
17 Others 53,198.0 49,626.0 39,820.0 41,467.2
Growth 7% 25% -4% 9%
Grand Total 225,732.0 166,389.0 144,407.5 121,204.4
Average 24%
Table 6.2: Growth Rate of Sector wise Loan
SL
No Sector wise of Loan 2018 2017 2016 Average
1 Growth rate of Jute Industries 38% 4% -2% 13%
2 Growth rate of Jute Trade 43% 67% 33% 47%
3 Growth rate of Tannery -11% 15% 11% 5%
4 Growth Rate of textile 32% -9% 32% 18%
5 Growth rate of transport 3% 1% -23% -7%
Growth rate of Steel and
6 Engineering 23% 46% 2% 24%
7 Growth rate of Tea 1% 2% 0% 1%
8 Growth rate of Sugar Mills 28% 16% 64% 36%
9 Growth rate of House Building 30% 10% -17% 8%
10 Growth rate of Rural Credit 13% 12% 17% 14%
11 Growth rate of Bricks 19% -16% 26% 9%
12 Growth rate of Cold storage 325% -58% 2% 90%
13 Growth rate of food 15% 31% 4% 17%
14 Growth rate of Export Credit 48% 23% 5% 25%
15 Growth Rate of Import credit 61% 1% 129% 64%
16 Growth rate of Industrial Credit 79% 30% 7% 39%
17 Growth rate of others 7% 25% -4% 9%
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Figure 6.1: Growth Rate of Sector wise loan
Table 6.3: Rural Micro and special program financing (Tk. in Millions)
Rural Micro and special program Financing(Tk. in Millions)
SL No. of Outstanding
No. No. Of Products loans 31-12-2016 Percentage
1 Crop loan program 350674 6874.1 47.15%
2 Agricultural and irrigation equipment 229 14 0.10%
3 Fisheries and ship cultural credit 934 171.6 1.18%
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4 Cyber-café loan 11 1.6 0.01%
Credit for
5 forestry/horticulture/nursery 860 13.8 0.09%
6 Credit program for service holders 83773 2220.3 15.23%
7 Financing “ women entrepreneurship 289 43.3 0.30%
8 Financing goat and sheep farming 7212 98.5 0.68%
9 Gharoa project 3996 72.6 0.50%
10 Doctor’s loan 58 13.2 0.09%
11 Small business Dev. Loan 126 5.6 0.04%
12 Credit for disabled people 111 1.6 0.01%
13 Consumer's credit 1208 40.9 0.28%
14 Agro based project or industry 512 563.5 3.87%
15 Others 159887 4443.58 30.48%
Total 609880 14578.18 100.00%
Explanation: Here it is clear that the higher the number of loan, the higher the
percentage of loan in crop loan Program. After that they gave priority to the service
holders in case of loan. Depending in the different circumstance the rural .micro and
special program financing vary over the years.
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Figure 6.2: Geographical area wise loan and advance
Explanation: Majority portion of their loan is provided to the borrowers of the Dhaka
Division. Secondly Chittagong Division has got priority in case of providing loan.
After that, they provide 8% of their loan in Khulna Division.
Small and Medium Enterprise (SME) Financing Scheme has been introduced to assist
new or experienced entrepreneurs to invest in small and medium scale industries.
Small business development loan, Gharoa project, credit for
forestry/Horticulture/Nursery, crop loan project all are designed for this
purpose.Tk25500 million has been granted as loan up to 31-12-2016.
The Bank has been playing a vital role in supporting rapid industrialization of the
Country. The bank continue to provide medium and long term loan as well as working
capital finance to industrial project
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7:0: FINDINGS & RECOMMENDATION
Every bank has its own credit procedure. Bank under study possesses a standard credit
procedure. As the objective of my study is to make a comment on the credit
management of Premier Bank Ltd, I try my best to collect data for the study and find
out the reality. Based on the data generated during my study period I will sum up my
findings here and I think this will help me to achieve my objectives.
• If we look at the historical background of Premier Bank, we see that, the
objective of PBL is to earn profit as well as to improve the economic welfare
of the people as a whole.
• The loan and advance of the bank registered an impressive growth during the
year 2010 comparing to other years. The Total loan and advance as on 31
December 2010 stood Tk. 225732 million compared to as against previous
year showing growth rate of 36%
• In extending credit facilities, the bank has given importance to overall every
sectors of economy. From the Growth rate in 2010 the impressive growth has
been shown in Cold industries (325%).After that Industrial Credit has been got
priority of 79%.It has been observed that Fluctuation become take place over
the years from industry to industry.
• From the Year 2005 to 2009 the growth rate of Credit was on an average
17.74% per year. If the present trend continues in future then the growth rate
of credit will increase on an average 7.47% per Year
• Though bank required both quantitative and qualitative analysis but for big
loans bank emphasizes on the lending risk analysis (LRA). But LRA is not a
perfect measure of credit analysis.
Though in present days Premier Bank are doing well in credit disbursement and its
recovery, some problems are founded in its credit sections. Some reasons are founded
for which the loan recovery of the bank become defective. In most cases, problems
may be raised from sanctioning procedures of loan, investigation of the project, and
investigation of the loans etc. that is, the problem in loan recovery proves the
outcomes of the default process in loan disbursement. The main reasons of poor loan
recovery are categorized in four broad types as follow:
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B. Problems created by government
The following problems are arisen by the government:
External pressure: Premier Bank Ltd. has also faced many problems in the loan
recovery process as a part of continuous pressure from various interested groups.
Loan to government organization: Premier Bank Ltd. is bound to sanction loan to
government organization, though these are losing concern. For this reason, banks face
problems in loan recovery.
Legal problems: Existing rules and regulations are insufficient to cover the legal
aspects of loan recovery. As a result, defaulters can get released easily from all
charges against them.
Frequent changes in government policies in regard to recovery of loan.
Waiver by the govt.
C. Problems created by the bank:
The following problems are created by the banks:
Lack of analysis of business risk: Before lending, Premier Bank Ltd. does not
properly analyze the business risk of the borrowers.
Lack of proper valuation of security or mortgage property: In most cases, bank fails
to determine the value of security against the loan. As a result, if the loan becomes
classified, the bank cannot recover its loan through the sale of mortgage.
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Money borrowers use their loan-money other than specified project, i.e., if the
loan is sanctioned for industrial purpose; they use the money in house building
or purchase of land for their own purpose.
Sometimes borrowers invest their money outside the country. Many borrowers
transfer loan money to abroad where they deposited this money in their own
account or spent some other purpose.
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Conclusion
I have discussed so far about the different aspects of credit management Premier Bank
Ltd. For my term paper, I have selected Premier Bank Ltd. PBL plays an important
role in the banking sector as well as in our economy. The success of a bank depends
largely on the efficient credit management. A successful credit management is not
only need for a bank’s own performance but also it is needed for the smooth
development of an economy. In any strategy of economic development, therefore, it is
essential to emphasize the evaluation of a sound and well integrated credit
management system from the view point of both resources mobilization and efficient
allocation of funds. In conclusion it can be suggested a number of recommendations
in order to overcome the problems and how to remove the causes of problem in credit
management.
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Recommendations
When Premier Bank Ltd. sanctions loans and advances to its customers, they clearly
state the repayment pattern in the loan agreement. But some credit holders do not pay
their credit in due period. The nationalized and private sector commercial banks have
to face this sort of problems. This situation is, especially severe in Premier Bank Ltd.
To overcome the problem of overdue loan, the bank needs taking particular loan
recovery programs.The following steps can be taken for better credit management and
for better performance by PBL.
• Central Bank can take proper actions for ensuring equivalent distribution of
loans and advances.
• Lending policies in our country can be geared to growth potential rather than
being determined by the pre-existing collateral.
• Improvement of credit management depends on the development of relevant,
adequate, proper and reliable data base at the public sector banks as well as
private sector banks in Bangladesh.
• The procedure of giving loan can be fast, so that borrowers can get their loan
on demand to compete with other banks in this
• For developing a reliable credit management system for the commercial banks
specially Premier Bank Ltd, it is required to introduce improved information
system within bank as well as among the borrowers. Because ultimately it is
what a borrower does with money that should guide the credit plan, the
borrowers also have to know exactly where they are going, what their
opportunities and how fast they can move
• They might focus also on demand loan increasing interest rate
• The security must be valued properly by the independent valuers and
constantly watched so that the value of mortgage property becomes sufficient
to recover the default loan.
• Pressure from outsider and influence extorted by borrowers are also a great
impediment in the smooth functioning of loan recovery process. The role of
government in this case is the most important factor required to solve these
sorts of problem.
• More and more competent personnel must be recruited to reduce the weakness
of credit management.
• For recovery their loan on time they must communicate with the borrowers
properly disclosing all the facts regarding payment.
• Adequate information and documents should prove in the credit proposal so
that Risk Managers can make their decision with a very minimum time.
• They can also provide their loan to the private sector as they give importance
on rural, micro, and SME financing
• The existing loan process of Premier Bank for sanction a loan is time
consuming. But a customer wants less time.
• The formulation of a sound credit policy in the banking sector as a whole has
to take into account all these factors and each bank has to attempt to work out
for itself what it is capable of doing so as best as possible.
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Bibliography
32
Appendix
Questionnaire
A study to determine Credit Management of Premier Bank Limited from the point of
view of Customers
This survey is being conducted to determine Credit Management of Premier Bank
Limited from the point of view of Customers. It may take approximately 5 to 10
minutes to complete this questionnaire. Participation in this survey is completely
voluntary. You can rest assured that all your given information will be kept strictly
confidential. Please try to fill in the entire questionnaire.
Please put circle at your preferred option:
1=strongly disagree, 2=Disagree, 3=Neutral, 4=Agree, 5=strongly Agree
Personal Information:
Name:
Age:
Sex: □ Male □ Female.
Occupation: □ Teacher. □ Student □ Employee. □ Businessman □ Others.
Statements S A N D S
A D
1. Image of the Premier Bank Ltd. to the customers is satisfactory. 5 4 3 2 1
2. The formalities followed by the bank providing loan are necessary. 5 4 3 2 1
3. The processing of providing loan is quick. 5 4 3 2 1
4. The bank keeps customers informed about when loans and advances 5 4 3 2 1
are provided.
5. The bank’s authority tries to provide its services at the same time it 5 4 3 2 1
promises to do so.
6. You feel safe in your loan-transaction with PBL. 5 4 3 2 1
7. When problems arising from loan facilities the PBL authority shows 5 4 3 2 1
sincere concern on it.
8. The terms and conditions are flexible regarding loan sanction. 5 4 3 2 1
9. The loan interest rate is competitive 5 4 3 2 1
10. The amount of security against loan amount is tolerable. 5 4 3 2 1
11. Circumstances arising from loan default are strict. 5 4 3 2 1
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Credit for production of HERBS 10.0%
Credit for Genetically Modified cow rising 10.0%
Credit for Fisheries 10.0%
Credit for Handicaps / Disables 10.0%
ATDP 10.0%
04 OTHER PROJECT Consumer credit 14.0%
Cyber café credit 12.0%
Specials credit for Job holder 13.5%
Doctors Loan 13.0%
Women Entrepreneurs’ Credit 10.0%
Small business development scheme 11.0%
05 RURAL PROJECT Rural transportation 10.0%
Land Mortgage Loan 10.0%
06 INDUSTRIAL Daily, Poultry, Fisheries (above 3 core Taka) 12.5%
CREDIT Export Oriented Business 11.0%
Cold storage for Potatoes 11.0%
Other Industry 12.5%
Leasing companies 12.5%
07 SME PROJECT Industry having capital less than 3 core 12.0%
Other SME Loan 12.0%
Loom Industry 10.0%
08 CURRENT Agro based Industry 12.0%
CAPITAL LOAN Cold storage 12.0%
Other current Capital Loan 13.5%
Husking Loan 12.0%
09 IMPORT CREDIT Readymade garments, Frozen foods, Agro products, Leather 7.0% +
made products 1.0%
sevice
charge
Packing credit 7.0% +
1.0%
sevice
charge
Other export credit 7.0%+
1.0%
sevice
charge
LTR 14.0%
Export oriented project 13.5%
Intermediate term 12.5%
Cash credit 13.5%
PAD Cash FC 14.0%
PAD (UF) 14.0%
PAD (GMT) payable within 3 months 14.0%
PAD (GMT) payable after 3 months
10 OTHER Other Commercial Credit 14.0%
COMMERCIAL Demand Loan 14.0%
LOAN
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