Welcome To Our Presentation!

Topic
The Loan Granting and
Recovery Problems of
Commercial Banks in
Bangladesh
Group Information

Course: Business Finance

Course Code: FIN105

Group: “B”

Members:
Name Student ID
Hossain Anirban Momin 2104210110218
Nizum Shajrin 2104210110220
Meraz Mahmood 2104210110219
Alifa Bintha Snighdha 2104210110260
Md Eftehaz Efti 2104210110261
 Introduction

What is a Bank?
Bank is a financial institution whose
purpose is to accept deposits from people
and provide loans and other facilities. It
deals in money and provides other money
related services.
Commercial Bank

Provide Short-term
Collects Deposits
It Practices Debt and Long-term The Main Objective
from Publics at a
Financing Loans at a Higher is to Earn Profit
Lower Rate
Rate
Loan Granting & Recovery Problem

Default on Loans is a huge

Problem in Bangladesh

Commercial Banks of Bangladesh

are facing a large amount of Non-
Performing Loan (NPL)

The Amount of Default Loans in

the country climbed at Tk1.25 lakh
crore in 2022
Literature Review

• Objectives of Commercial Banks

• Definition of Loan
• Categories of Loan
• Definition of Loan Default
• Definition Non-Performing Loans
 Objectives of Commercial Banks

• Earn Profits or Maximizing Profits

• Collect Savings from Public at a Lower Rate of Interests
• Lend Money at a Higher Rate of Interests
• Motivate People to Invest Money
• Build Up Capital through Savings
Commercial
• Manage Investments Banking

• Provide Monetary Services to the Customers

• Maintain Economic Stability
• Act as an Advisor to the Government on Economic Issues
• Assist the Government for Trade and Business
 Definition & Categories of Loan

Loan: A loan is a sum of money that one or more

individuals or companies borrow from banks or
other financial institutions

There are 4 types of loans in Bangladesh. These are-

1. Continuous Loan Loan

2. Demand Loan
3. Fixed Term Loan
4. Short Term Agricultural and Micro-Credit
Loan Default & Non-Performing Loan

Loan Default: Loan default is the failure to

make required interest or principal
repayments on a debt.

Non-Performing Loan: A non-performing loan Loan Default

(NPL) is a loan that is in default because the

borrower has not made the scheduled
payments for a specified period.
 World Practice

• Commercial banks help businesses around

the world by providing loan.

• It plays a major role in the world’s economy.

• Worldwide revenue under the commercial

banking sector was $2,140 billion USD in
2021.

• However, commercial banks around the

world face loan granting & recovering
problem too
Loan Default Problem Around The World

Problems of Loan Default Causes of Loan Default

• Profits will shrink • Weak corporate governance

• Banks will face major loss • Corruption & political
• Banks cannot meet its risks and intervention within a bank
return targets • No proper documentation
• Credit needs of customers will not • GDP growth & Inflation

be made • Unwillingness to pay or act

of fraud
Recovery Measures

Several steps were taken by commercial banks around the world in recovering their loan from the
defaulters. These steps are: -

1. Demand Notice: Commercial banks notify customers by writing or calling to repay his debts. If the
customer fails to respond to the first letter, a reminder may be sent.
2. Realizing The Security: If the banks fail to recover the loan, they minimize any loses by disposing the
collateral.
3. Take legal action: Before taking legal action, the legal department will issue strongly worded demand
to the customer asking for the repayment. If after 14 days, and the debtor fails, then the legal
department can take legal action against the defaulter.
 Bangladesh Practice

• Economy of Bangladesh is Heavily

Dependent on Commercial Banks

• There are 43 Commercial Banks in

Bangladesh
Functions of Commercial Banks in Bangladesh

Functions of
Commercial Bank

Public Utility
General Functions Agency Functions
Functions
Examples of loans in Bangladesh

Business Consume Home Personal Educatio Overseas

Car Loan SME Loan
Loan r Loan Loan Loan n Loan Job Loan
Non-Performing Loan Problems In Bangladesh

• Commercial banks of Bangladesh are facing a large amount of NPLs

• Total Amount of NPLs from 2010 to 2020 is shown below:

Source: (Siddique Islam, 2021)

 Non-Performing Loan Problems In Bangladesh

• The gross NPL ratio for private commercial banks from March 2018 to September 2021 is shown below:

Source: (IDLC, 2020)

 Prospects & Challenges in Bangladesh

Prospects Challenges

• Capital Formation • GDP Growth & Inflation

• Credit Creation • Higher Interest Rate of Banks
• Trading Functions • Rigorous Loan Extension
• Growth of Entrepreneurship • No Fixed Interest Rate
• Financialization of Savings • Lack of Proper System & Monitoring
• Funds Transfer • Unqualified Bank Staff
• Wealth Creation • Corruptions & Political Intervention in Bank
• Lack of Taking Proper Action
• Unwillingness to Pay
• Fund Alteration
• Frequent Policy Change of Government
• Political Uncertainty
• Growing Crimes
 Recommendations

• Commercial Banks are one of the Major

Elements of Bangladesh’s Economy

• Loan Granting & Recovering Problem is one

of the Major Concerns within Commercial
Bank

• A well-planned set of process can solve this

problem
Recommendations

Strict regulation should be implemented on lending process

Lending process should be monitored by central bank

GDP growth & inflation rate should be considered

Corporate Governance must be strengthened

A fixed & reasonable rate should be charged

Qualified business-background students should be hired

Financial documents must be reviewed

Recommendations

Loans should not be provided to unknown individuals & organizations

Loans should not be provided without any collateral

Proper documentation should be created

Corruption within the bank must be controlled

Political influence must be reduced

Action plan should be created for preventing Non-Performing Loan

Legal action must be taken against loan defaulters

Thank You!