Non-performing Loans in Banking Sector of Bangladesh Causes and Effect
Submitted to: Sk. Alamgir Hossain Lecturer Dept. of Finance Jagannath Universit! Dhaka.
Submitted b: "d. Abdullah Al "asum "#A $D. "%&'('&')) Session: ('%&*%+ Dept. of Finance Jagannath Universit! Dhaka.
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Letter of transmittal Ackno0ledgement 12ecutive Summar -hapter 3 % $ntroduction 4b5ective of the Stud "ethodolog of the Stud Limitations of the Stud -hapter*( Literature 6evie0 -hapter 3 & #anking industries of #angladesh
Strategic 4b5ectives 1thical Standards -hapter 3 + Definition of /L -lassified Loan on /erforming Loan in #D #ase for /rovisioning and accounting treatment of /Ls ,rend of Loan Default /roblem in #angladesh ,he /resent status of Loan Defaults -ulture in #angladesh /resent Status of on*performing Loans -auses 4f on /erforming Loans -hapter 3 ) Analtical /art Descriptive Analsis "ultiple 6egression Analsis -hapter 3 7 Findings! 6ecommendation 8 -onclusion Findings 6ecommendation -onclusion Appendi2
List of tables Name of Tables ,able*% ,able*% #anking industries of #angladesh ,able*( ,able*( -ontribution of #anking sector sector in ational $mport ,able*& ,able*& ational and Agrani #ank Limited9s 12port /erformance ,able*+ ,able*+ -ountr 0ise remittance of #anking sector ,able*) Data Analsis ,able*7 ,able*7 $ncome from 12port! $mport and 6emittance comparison 0ith et $ncome ,able* ,able* Amount of 12port! $mport! 6emittance and et $ncome
Page no.
Letter of Submission &rd Septeber! ('%) ,o S;. Alamgir Hossain Lecturer Department of Finance Jagannath Universit! Dhaka. Sub5ect: Submission of internship report. Dear Sir! $t is m great pleasure to submit the report on NPLS in Banking Industr of Bangladesh! Causes and Effects that ou have assigned me. $t has been a great e2perience for me to prepare a report. $ tried m level best to put meticulous efforts for the preparation of this report. An shortcomings or fla0 ma arise as $ am novice in this aspect. $ have tried tried to make each and ever element element relevant to m topic and discussed discussed under the conte2t conte2t of 0hatever $ have learned from the course. $t 0ould be pleasure for me! if this report can serve its purposes. ,hanks and 6egards
==========... "d. Abdullah Al "asum "#A /rogram >+th #atch? 6oll o. "%&'('&'))! 6eg. o. %''%&&)(@( Department of Finance Jagannath Universit! Dhaka
Super"isor#s Certification
,his ,his is to certif certif that that $d. %bdullah %l $asum is a student of "#A >Finance?! Jagannath Universit bearing $D o: "%&'('&')). He has completed his $nternship 6eport entitled NPLS in Banking Industr of Bangladesh! Causes and Effects B. He has completed the $nternship report under m supervision for the partial fulfilment of the a0ard of "#A >Finance? degree. As far as $ kno0 he tried his h is best to conduct this report successfull. $ think this stud 0ill help him in the future to build up his career. $ 0ish his ever success in life.
Cith Cith best 0ishes 8 regards
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S&. %lamgir 'ossain Lecturer! Department of Finance Jagannath Universit! Dhaka
(eclaration Non-pe -perfor rforming ming Loa Loans ns in Bank Banking ing Sect Sector or in $ af affi firm rmed ed th that at th thee $n $nte tern rnsh ship ip re repor portt ti titl tled ed Non ca rried Bangladesh being submitted for the internship part of "#A program is the original 0ork carried out b me. $ further declare that this $nternship report is based on m original 0ork and no part of this pro5ect has been published or submitted to an bod.
,hanks and 6egards
=========............ $d. %bdullah %l $asum
"#A /rogram >+th #atch? 6oll o. "%&'('&')) 6eg. o. %''%&&)(@( Department of Finance Jagannath Universit Dhaka
%ckno)ledgement ,he report on onperforming Loans in #anking Sector of #angladesh: -auses and 1ffectsB has been prepared to fulfill the reuirements of "#A degree. $ am ver much fortunate that $ have received received sincere sincere guidance! guidance! supervisio supervision n and co*operatio co*operation n from various respected people 0hile preparing this report. At the the ver ver begi beginn nnin ing g $ 0oul 0ould d like like to e2pre e2press ss m grat gratit itude ude to Eod Eod for for spec specia iall bles blessi sing ng in completing the report. ,hen! $ 0ould like to thank m academic supervisor of the $nternship /rogram S&. %lamgir 'ossain* Lecturer!Department of Finance !Jagannath Universit! Dhaka for giving me the opportunit to prepare this report. He also provided me some important advices and guidance for preparing this report. Cithout his assistance! this report 0ould not be a comprehensive one.
==========.
$d. %bdullah %l $asum
"#A /rogram >+th #atch? 6oll o. "%&'('&')) 6eg. o. %''%&&)(@( Department of Finance Jagannath Universit Dhaka
%bbre"iation
AD #L # L-D/S 16FDD LL,6 /F H#L 4D DL -LS
AuthoriGed Dealer #ills under letter of -redit -ash -redit Deposit /ension Scheme 12port 6egistration -ertificate Foreign Demand Draft Letter of -redit Loan against ,rust 6eceipt /rovident Fund House #uilding Loan 4verdraft Demand Loan -onsumer Loan Scheme
E+ecuti"e Summar onperforming loans is common phenomena for banking industr in #angladesh. A Nondefault or close to being in default. default. "an loans become non* performing loan is a loan that is in default performing after being in default for @' das! but this can depend on the contract terms. /Ls started at the earl stage of liberation. During %@I's and %@@'s! /rivatiGation and liberaliGation of banking sector could not control /Ls. 6ate of /Ls 0as +%.% in %@@@. o0 it is %%.@'.,he amount of /Ls increased to taka &.& billion in ('%( from taka +.& billion in (''&.,here are man reasons behind the /Ls in #angladesh. First reason is entrepreneurs related. #orro0er ma be have lack of e2perience! lack of business and lack of institutional training background or lack of supporting facilit. Sometime borro0ers do it intentionall. 1ntrepreneurs age also an important factor. Second reason is business related. Sometime banks give loan to businesses 0hich are not attractive. Strong competition is another business related cause. #orro0er becomes defaulter if there is poor management capabilit! poor financial performance! and poor cash flo0. #usiness could be defaulter because of lo0 market share. Lo0 market share mean lo0 revenue so that business cannot pa p a the interest pament. ,hird reason is leading related. $t is mainl #ank9s fault. Loan could be default if #ank delaed assessment of loan proposal! delaed disbursement of fund! lack of proper monitoring! lack of taking proper action. Last reason is macroeconomic factors. Lo0 ED/ gro0th! increasing crimes! hartals and freuent polic change effect loan. For those reasons loan loanss beco become me defau default lt loan loan.. 1ffe 1ffect ctss of /L /L are are such such as Stopp Stoppin ing g "one "one -cl -clin ing! g! 1arn 1arnin ing g 6eduction! -apital 1rosion! $ncrease in Loan /ricing! Frustration etc. As a result! the values of securit are increased and the risks of financial recession also see a rise.
-hapter *% $ntroduction Smooth and efficient flo0 of saving*investment process is a prereuisite for the economic development of a countr. #angladesh! being a developing countr and 0ith an underdeveloped capital market! mainl depends on the intermediar role of commercial banks for mobiliGing internal saving and providing capital to the investor. ,hus! it matters greatl ho0 0ell our financial sector is functioning. Looking at the performance of our financial sector for the last decade or so! 0e observe that our banking sector is heavil burdened 0ith a high percentage of non*performing loans >/Ls?. $t is obvious that /Ls reduce banks9 profitabilit! as banks cannot appropriate interest income from their classified loans. /Ls reduce loan able funds b stopping reccling. #anks need to set aside a portion of their income income as loan loss reserve reserve to make up bad debt. A bank 0ith a high percentage of /Ls suffers from erosion of the capital if there is no provision >assume?. All those adverse impact of /Ls on banks9 financial health such as lo0 profitabilit and lo0 capital base are clearl reflected in #angladesh #anglad esh banking sector. ,he ratio of /L to total loans of all the banks had sho0n an overall declining trend from its peak &+.@ percent to %' percent in December ('%(.,he ratio further increased to %%.@ percent at the end of June ('%&.
1.1. Objective of the Study ,he ob5ectives of this paper are i. ,o assess the present situation of non*performing loans in our banking sector. ii. ,o sho0 the trend of the loan default problem99 in #angladesh. #an gladesh. iii. ,o e2amine the loan default status of commercial banks. iv. ,o ,o discuss legal aspect to recover loans from the defaulters. v. ,o ,o identif the causes and remedies of non*performing loans and. vi. ,o raise some issues and observations 0hich need to be looked upon uickl for ensuring a financiall sound banking sector.
1.2. Me th
ology od ology
of Study:
,he research methodolog of the stud has been enumerated belo0: Sources of Data and Data -ollection: Data has been collected from the various secondar sources like research 0orks of individuals! different publications! 5ournal of different institutions! #angladesh #ank -redit 6isk Erading manual ! #angladesh #ank annual report etc.
1.3. Limitations of the study: ,he limitations of the stud are %. ,his stud did not cover primar primar and unpublished unpublished data. data. (. ,he ma5or problem problem faced 0hile 0hile conducting conducting the the research 0as 0as unavailabil unavailabilit it of relevant relevant data. data. &. ,ime ,ime con const stra rain int. t.
Chapter – 2 Literature 6evie0: on*performing loans refer to those financial assets from 0hich banks no longer receive interest or installme installment nt paments as scheduled. $t is a ver critical critical but freuent issue in bank fund management management and the present situation of /Ls in #angladesh is a topic of great concern. $t can bring do0n investors9 confidence confidence and if created created b the borro0ers borro0ers 0illingl 0illingl and left unresolved unresolved might act as a contagi contagious ous financial financial malais malaisee b driving driving good good borro0ers borro0ers out of the financia financiall market. market. ,he volume volume of default default loans of state o0ned commercial banks in #angladesh >#D? has been increasing at an alarming rate. $t is not a ne0 issue but the tendenc of fraud! embeGGlement and loan default is in a serious situation in recent ears due to e2cessive political interference and illegal interruption interruption of the concerns. ,he ,he amount of total /Ls in the banking sstem of #D 0as ,k )(&.% billion at the mid of ('%+! 0hich 0as ,k +(.& billion in ('%& and ( ''.% billion in (''. ,he amount doubled 0ithin I ears. For last I ears! loan default as a percentage of outstanding outstanding loans in state o0ned commercial commercial banks 0as )' or above 0here /rivate /rivate commercial commercial banks and foreign commercial banks and hold ma2imum )*%' amount of the total. $f the scam series continues then it ma put the entire banking sector in an embarrassing situation 0ith the increase of on*/erforming loan in an alarming rate. #angladesh #ank has given ultimatum to %% local and foreign banks to bring do0n their soaring non*performing loans to belo0 %' per cent of their respective outstanding loans .
Lending decision of a bank is ver important because it determine the future future profitabilit and performance of the bank. 6ecentl banks are becoming more and more conscious in customer selection to avoid the negative negative impact impact of bad loan or non*perform non*performing ing loan. ,he issue of nonperforming nonperforming loans >/Ls? has gained increasing attentions in the last fe0 decades. Amounts of bad loans are alarmingl increasing in not onl the developing and under developed countries but also in developed countries. #anks9 lending polic could have crucial influence on non*performing loans. A default is not entirel an irrational decision. 6ather a defaulter takes into account probabilistic assessment of various costs and benefits of his decision. LaG banking9 criticall reflects on banks9 investment portfolio and lending polic >,edd $ohan /00123 Sinke 45542 (ash /040 ? sector. According to the definition of the 6inancial ,econstruction La) 6,L2 ! the
total amount of /Ls of all banks in Japan as of the end of "arch (''& 0as &).& trillion en! although there are claims that the actual amount of /Ls might e2ceed %'' trillion en. 4n the other hand! the causes of the financial and e2change rate crisis that erupted in 1ast Asia >,hailand, ,ai0an! "alasia and $ndonesia? in
%@@ are vie0ed as high short*term e2ternal debts! e2cessive loans for real estate! large current account deposits! high international interest rates and 0eaknesses in the balance sheet of financial institutions. $n addition! &)ack /000! 457-/082 finds that the &*month L$#46 interest rate and nonperforming loan rates of banks 0ere the ma5or determinants of the Asian financial crisis. 'uang and 9ang 455:! 442 report that unlike the other countries of 1ast Asia! -hina did not face financial fragilit because of the siGe of its foreign e2change reserve! its current account surplus! the dominance of foreign direct investment in capital flo0s and the control of the capital account. As of June (''&! -hina recorded onl ).7I of its total loans as nonperforming 0hile! in contrast! ,hailand! $ndonesia! /hilippines and "alasia record /Ls at %).(@! I! %) and I. I . respectivel. Unfortunatel! Unfortunatel! the present >December! ('')? rate of /Ls in -hina has increased to I.7.
$n the $ndian subcontinent >$ndia! /akistan! Sri Lanka! #angladesh and epal?! ho0ever! the causes of nonperforming loans are usuall attributed to the lack of effective monitoring and supervision on the part of banks >as reuired b the #AS1L principles of bank monitoring and supervisions?! lack of effective lenders9 recour recourse! se! 0eaknes 0eaknesses ses of legal legal infras infrastru tructu cture! re! and lack lack of effect effective ive debt recove recover r strate strategie gies. s. Among Among the countries in the $ndian sub*continent! the rate of /Ls as a percentage of total loans disbursed in ('') is seen to be minimal in $ndia >).(?! follo0ed b Sri Lanka >@.7?. #angladesh! ho0ever! still records a staggering rate of %&.)7.
Chapter -3 &.% Histor of #anking $ndustr in #angladesh : #angladesh : After the independence! banking industr in #angladesh started its 5ourne 0ith 7 ationaliGed commercialiGed banks! ( State o0ned SpecialiGed banks and & Foreign #anks. $n the %@I's banking industr achieved significant e2pansion 0ith the entrance of o f private banks. o0! banks in #angladesh are primaril of t0o tpes: Scheduled #anks: ,he banks 0hich get license to operate under #ank -ompan Act! %@@% >Amended in (''&? are termed as Scheduled #anks.State*o0ned commercial banks! private commercial comm ercial banks! $sl $slamic amic commercial banks! forei foreign gn comm commercial ercial banks and some specialiGed specialiGed banks are Scheduled #anks. on*Scheduled #anks: ,he banks 0hich are established for special and definite ob5ective and operate under the acts that are enacted for meeting up those ob5ectives! are termed as on* Scheduled #anks. ,hese banks cannot perform all functions of scheduled banks. Erameen #ank ! /robashi /robas hi ;all ;allan an #ank! ;armasangsthan ;armasangsthan #ank! /rogot /rogotii -o*ope -o*operati rative ve Land Development #ank Limited >progoti #ank? and Ans0er KD/ Unnaan #ank are on*Scheduled #anks. on*banking financial institutions 0hich are not banks.,hese institutions cannot perform all functions of banks! 0hich get license to operate under Financial $nstitution Act! %@@& are termed as on*banking financial institutions.
&.(
List of of co commercial #a #anks
State-o)ned Commercial Banks 1. Sonali Bank Limited Bank Limited 2. Janata Bank Limited 3. Agrani Bank Limited 4. Rupali Bank Limited Bank Limited 5. BASI BASI Bank Bank Lim Limit ited ed !. B"BL #Banglades$ #Banglades$ "e%el "e%elopment opment Bank Limited& Limited&
State-o)ned Speciali;ed Banks 1. Ra'sa$i Ra'sa$i (ris$i (ris$i )nno*on )nno*on Bank Bank #R()B& #R()B& (. Banglades$ (ris$i Bank Limited Bank Limited
Pri"ate commercial Bank
/rivate banks are the highest gro0th sector due to the dismal performances of government banks >above?. ,he tend to offer better service and products. Here is the list: %. A# #ank #ank Limi Limite ted d (. #angla #anglades desh h -ommerce -ommerce #ank #ank Limite Limited d &. #ank #ank Asi Asiaa Limi Limite ted d +. #6A#6A- #an #ank k Limi Limite ted d ). Dhaka Dhaka #ank #ank Lim Limit ited ed 7. Dutch Dutch #angl #anglaa #ank #ank Limit Limited ed . 1aster 1astern n #ank #ank Limite Limited d I. $F$$F$- #ank #ank Lim Limit ited ed @. Jamu Jamuna na #ank #ank Limi Limite ted d %'."eghna #ank Limited %%."ercantile #ank Limited %(."idland #ank Limited %&."odhumoti #ank Limited %+."utual ,rust #ank Limited %).ational #ank Limited %7.-- #ank Limited %.6# #ank Limited %I.6# -ommercial #ank Limited %@.6# Elobal #ank Limited ('.4ne #ank Limited (%./rime #ank Limited ((./ubali #ank Limited (&.Simanto #ank Limited >proposed? (+.South #angla Agriculture and -ommerce #ank Limited >000.sbacbank.com?
().Southeast #ank Limited (7.Standard #ank Limited (.,he -it #ank Limited (I.,he Farmers #ank Limited (@.,he /remier #ank Limited &'.,rust #ank Limited &%.United -ommercial #ank Limited &(.Uttara #ank Limited ,here are eight private $slamic -ommercial #anks in #angladesh: %. $slami $slami #ank #ank #anglad #angladesh esh Limi Limited ted (. Al*Ara Al*Arafah fah $slam $slamii #ank Limit Limited ed &. 12port $mport $mport #ank of #anglad #angladesh esh Limite Limited d +. Social Social $slam $slamii #ank #ank Limite Limited d ). Shah5al Shah5alal al islam islamii #ank Limit Limited ed 7. First Securit Securit $slami $slami #ank Limited Limited . Unio Union n #ank #ank Lim Limit ited ed I. $-# $slami $slamicc #ank #ank Limit Limited ed
6oreign Commercial Banks
,here are nine foreign commercial banks currentl operating in #angladesh. ,hese are: %. #ank #ank Al* Al*Fa Fala lah h (. -iti -itiba bank nk A &. -ommer -ommercia ciall #ank #ank of -elon -elon +. Habi Habib b #ank #ank Lim Limit ited ed ). HS#- >,he >,he Hong ;ong ;ong and Shanghai Shanghai #anking #anking -orporation -orporation Ltd.? Ltd.? 7. ation ational al #ank #ank of of /akis /akistan tan . Standa Standard rd -har -harter tered ed #ank #ank I. Stat Statee #ank #ank of of $nd $ndia ia @. Coori ori #an #ank k
Speciali;ed Banks
SpecialiGed banks 0ere established for specific ob5ectives like agricultural or industrial development. ,hese banks are also full or ma5orl o0ne d b the Eovernment of #angladesh. %. #angladesh #angladesh Development Development #ank Limited Limited (. #angla #anglades desh h ;ris ;rishi hi #ank #ank &. 6a5sha 6a5shahi hi ;rish ;rishii Unnaa Unnaan n #ank +. ;arm ;armas asan angs gsth than an #ank ). /robas /robashi hi ;all ;allan an #ank 7. /all /allii Sanch Sancha a #an #ank k . Eram Eramee een n #an #ank k I. Ansar Ansar*KD *KD/ / Unna Unnaan an #ank #ank @. #angla #anglades desh h Samaba Samabaaa #ank Ltd %'.,he Dhaka "ercantile co*operative #ank Ltd %%./rogoti -o*operative Land Development #ank Limited >/rogoti #ank?
NPSB member Banks %. A# #an #ank k Limi Limite ted d (. Al*Ara Al*Arafah fah $sla $slami mi #ank #ank Limi Limited ted &. #angla #anglades desh h ;rishi ;rishiban bank k +. #ank #ank Asia Asia Limi Limite ted d ). #AS$ #AS$- #an #ank k Lim Limit ited ed 7. #6A#6A- #ank #ank Limi Limite ted d . Dutch* Dutch*#a #angl nglaa #ank #ank Lim Limit ited ed I. 1ast 1aster ern n #ank #ank Limi Limite ted d @. 1$" 1$" #ank #ank Limi Limite ted d %'. First Securit $slami #ank Limited %%. $-# $slamic $slamic #ank Limited Limited %(. $F$- #ank #ank Limited Limited %&. $slami #ank #ank #angladesh #angladesh Limited Limited %+. Jamuna #ank Limited %). "eghna #ank Llimited %7. "ercantile #ank Limited Limited %. "idland "idland #ank Limited Limited %I. "odhumoti #ank Limited %@. "utual ,rust ,rust #ank Limited Limited ('. ational #ank Limited
(%. 6# #ank Limite Limited d ((. 6# -ommercial -ommercial #ank #ank Ltd (&. 6# Elobal #ank Limited Limited (+. 4ne #ank Limite Limited d (). /rime /rime #ank Limited Limited (7. /ubali #ank Limited (. S#A- #ank #ank Limited Limited (I. Shah5alal $slami #ank #ank Limited Limited (@. Social $slami $slami #ank Limited &'. Sonali #ank Limited
&%. Southeast #ank Limited Limited &(. Standard #ank Limited &&. Standard -hartered -hartered #ank #ank Limited Limited &+. ,he -it -it #ank Limited &). ,rust #ank Limited &7. Union #ank #ank Limited Limited &. United -ommercial -ommercial #ank Limited &I. Uttara Uttara #ank Limited Limited &@. Agrani Agrani #ank Limited Limited +'. Habib Habib #ank Limited Limited
Non-banking financial Institutions
%. $nvestment -orporation of #angladesh >$-#? (. Uttara Uttara Finance Finance and and $nvestme $nvestments nts Limit Limited ed &. United United Leasi Leasing ng -ompan -ompan Limi Limited ted +. Union Union -apita -apitall Limi Limited ted ). ,he UA1*#ang UA1*#anglades ladesh h $nvestment $nvestment -ompan -ompan Limited Limited 7. Saudi*#angla Saudi*#angladesh desh $ndustrial $ndustrial 8 Agricultural Agricultural $nvestment $nvestment -ompan Limited >SA#$-4? >SA#$-4? . 6elian 6eliance ce Financ Financee Limit Limited ed I. /rime /rime Finance Finance 8 $nvestm $nvestment ent Limited Limited @. /remie /remierr Leasing Leasing 8 Finance Finance Limit Limited ed %'./hoeni2 Finance and $nvestments Limited %%./eopleMs Leasing and Financial Services Limited %(.ational Housing Finance and $nvestments Limited %&.ational Finance Limited
%+."$DAS Financing Limited %).Lanka#angla Finance Limited %7.$slamic Finance and $nvestment Limited %.$nternational Leasing and Financial Services Limited %I.$nfrastructure Development -ompan Limited >$D-4L? %@.$ndustrial %@. $ndustrial /romotion and Development -ompan of #ang ladeshLimited ladeshLimited >$/D-? ('.$ndustrial and $nfrastructure Development Finance -ompan >$$DF-? Limited (%.$DL- Finance Limited ((.SU"4 #ank (&.Ha55 Finance -ompan Limited (+.ES/ Finance -ompan >#angladesh? Limited >ES/#?
().Firt Lease Finance 8 $nvestment Limited (7.FAS Finance 8 $nvestment Limited (.Fareast Finance 8 $nvestment Limited (I.Delta #rac Housing Finance -orporation Limited >D#H? (@.#a Leasing 8 $nvestment Limited &'.#angladesh &'. #angladesh $ndustrial Finance -ompan Limited >#$F-? &%.#angladesh Finance 8 $nvestment -ompan Limited &(.Agrani S"1 Finance -ompan Limited &&.-A/" Kenture enture -apital and Finance Limited &+."eridian Finance and $nvestment Limited &).6ealistic Finance #ank Limited
-hapter *+ +.%Definition of onperforming Loans >/Ls?:
A Non-performing loan is a loan th t hat is in default or r close to being in default. "an loans become non*performing after being b eing in default for @' das! but this can depend on the con trac ractt terms. According to $"F! definition of /Ls is A loan is nonperforming 0hen paments of interest and principal are past due b @' das or more! or at least @' das of interest paments have been capitaliGed! refinanced or delaed b agreement! or paments are less than @' das overdue! but there are other good reasons to doubt that paments 0ill be made in fullB >Cikipedia! >Cikipedia! definition definition of /Ls?.# /Ls?.# bank regulator definition non*performing loans consist of: N
N
Loans that are @' das or more past due and still accruing interest! and Loans 0hich have been placed on nonaccrual >i.e.! loans for 0hich interest is no longer
accrued and posted to the income statement?.
Loan ma also be non* performing if it is used in a different 0a than that for 0hich it has been taken. As per Section ) >cc? of o f #ank -ompan Act %@@%! Mdefaulting debtorM means an person or institution served 0ith advance! loan granted in favor of him or an institution involving interest or an portion thereof! or an interest 0hich has been overdue for si2 months in accordance 0ith the definition of #angladesh #ank. on*performing loans are also called non*perform non*performing ing assets >/A?! 0hich are loans! classified classified b a bank or a financial institute! institute! at the instruction instruction of the regulator authorit! authorit! on 0hich repaments or interest interest paments are not being made on scheduled time. A loan is an a n asset for a bank as the interest inte rest paments and the repament of the principal create a stream of cash inflo0s. $nterest cash inflo0 is e2cess mone over principal .#anks usuall treat assets as non*performing! if the are not serviced in scheduled time. $f paments are late for a short time! a loan is classified as past due. 4nce a pament becomes late >usuall 7' das?! the loan is classified as non* performing. /L is a sum either of the borro0ed mone upon 0hich the debtor has not made hisher scheduled paments! 0hich is in default or close to being in default. 4nce a loan is non* performing! the odds that it 0ill be repaid in full are considered to be substantiall lo0er. $f
the debtor starts making paments against a non*performi non*performing ng loan! it becomes a performing performing loan.
C la s s i f i ed L oa n: A classified loan is the term used for an loan that a bank e2aminer has deemed to be in danger of defaulting. ,he borro0er does not necessaril need to miss paments order for a bank to label the account in this manner. A borro0er can have 0hat the bank calls a classified loan for different reasons. ,his is simpl a precaution that financial institutions take to prepare for a possible loss and to prevent an further risk. ,he #angladesh #ank defines an I*tier loan classifing sstem such as Superior! Eood! Acceptable! "arginal! Special "ention! Sub*standard Sub *standard >SS?! Doubtful >DF? and #ad Loss >#L?. ,his is actuall the ke risk grading sstem in order to measure the assetsM ualit. ,his grading must be used to check asset*ualit asset*ualit periodicall. Do0ngrading of an facilit should be informed in 1arl Alert 6eporting >1A6? for decision*making authorities. ,he loans are usuall classified b the lending bank! 0henever the bank has reasons to believe that the borro0er 0ould not be able to repa the loan regardless of 0hether the loan is overdue or not. Loans e2tended b a bank are classified into the follo0ing three categories. i. Substandard: Advances 0hich appear substantial degree of risk to bank b reason of unfavorable record or other unsatisfactor characteristics. ii. Doubtful: Advances the ultimate realiGation of 0hich is doubtful and in 0hich a substantial loss is probable. iii. iii. #adLos #adLoss: s: Advance Advancess 0hich 0hich ma not be recover recoverable able at all and entire entire loss is probable.
+.( onperforming Loan in #angladesh: ,he issue of nonperforming loans in #angladesh is not a ne0 phenomenon. $n fact! the seeds 0ere cultivated during the earl stage of the liberation period >%@(*%@I%?! b the government9s e2pansion of creditB policies on the one hand and a feeble and in firm banking infrastructure combined 0ith an unskilled 0ork force on the other. ,he e2pansion of credit polic during the earl stage of liberation! 0hich 0as directed to disbursement of credit on relativel easier terms! did actuall e2pand credit in the econom on nominal terms. Ho0ever! it also generated a large number of 0illful defaulters in the background 0ho! later on! diminished the financial health of banks through the sick industr sndromeB. Despite the liberaliGing and privatiGing of the banking sectors in the %@I's 0ith a vie0 to increasing efficienc and competition! the robustness of the credit environment deteriorated further because of the lack of effective lenders9 recourse on borr borro0 o0er ers. s. Eover Eovernm nmen entt dire direct ctio ion n to0a to0ard rdss nati nation onal aliG iGed ed comme commerc rcia iall banks banks to lend lend to unprofitabl unprofitablee state state o0ned enterprises! enterprises! limited polic polic guidelines guidelines >banks 0ere allo0ed allo0ed to classif classif their assets at their o0n 5udgments? regarding loan classification and provisioningB! and the use of accrual policies of accounting for recording interest income of /Ls resulted in alignments of the credit discipline of the countr till the end of %@I@.
$n the %@@'s! ho0ever! a broad based financial measure 0as undertaken in the name of FS6/! enlisting the help of Corld #ank to restore financial discipline to the countr. Since then! the banking sector has adopted prudential normsB for loan classification and provisioning. 4ther la0s! regulations and instruments such as loan ledger account! lending risk analsis manual! performance planning sstem! interest rate deregulation! the "one Loan -ourt Act %@@' have also been enacted to promote sound! robust and resilient banking practice. Surprisingl! even after so man measures! the banking sstem of #angladesh is et to free itself from the grip of the /L debacle. ,he present stud has concentrated on the above issues mainl 0ith a vie0 to assisting policmakers to formulate concrete measures regarding sound management of /Ls in #angladesh.
4.2.1. ase fo! "!ovi "!ovisioning sioning and accounting t!eatment t!eatment of #$Ls: A balance sheet item representing funds set aside b a compan to pa for losses that are anticipated to occur in the future. ,he actual losses for the earmarked funds have not et occurred! but the general provisions account is counted as an asset on the balance sheet.
,he bank managers of #angladesh deduct the amount of interest suspended and the value of eligible securitiesB from the outstanding amount in order to determine the base for provisioning to /Ls. /Ls. For unclas unclassif sified ied loans! loans! ho0ever ho0ever!! the the keep keep a genera generall provis provision ion >%? >%? against against the outstanding amount and include it in the capital to determine the capital adeuac of the bank >at present %'?. Cith Cith regard to income recognition! bank managers do not consider the amount of interest on substandard and doubtful loans as income for the bank! but rather keep it separatel in an interest suspense accountB. Ho0ever! if an amount is received against sub*standard and doubtful loans! the said amount is deducted from the total interest suspense amount. $n the case of a badloss loan! the interest on such loan is also kept in the interest suspense account if a suit is filed in the court. Seemingl! 0ith regard to substandard and doubtful loans! this interest is also e2cluded from the income of the bank. ,hese accounting accounting measures measures have made the banking sector more transparent and credible than the 0ere in the past.>"arge 0ith provision? .
4.2.2 %!end of the Loan &efault $!oblem in angladesh 'me!gence of &efault Loans As banki banking ng rema remain inss the the main main inte interm rmed edia iar r vehic vehicle le of harn harnes essi sing ng inve invest stib ible le capi capita tall for for accele accelerat rating ing the gro0th gro0th of the product productive ive sector sectorss in #anglad #angladesh esh!! the continu continuing ing crisis crisis of accumulation of non*performing and defaulted banks loans has emerged as one of the most serious constraints in the path of economic development of our countr. o0 0e 0ill discuss ho0 the loan default problem has emerged in our countr b ear*0ise.
$ost libe!ation "e!iod
After the liberation of #angladesh! the A0ami League Eovernment9s decision to nationaliGe the banks and insurance companies operating in #angladesh should be considered a logical step but the task of re*organiGation of the nationaliGed banks in the chaotic! 0ar*ravaged and crisis*ridden post*liberation ears and a ver rapid e2pansion of banking net0ork in rural #angladesh created some problems for the banking sector. ,here 0as no time after nationaliGation as the most corrupt! corrupt! undisciplined! undisciplined! over manned and mismanaged mismanaged concerns mired in sea of recurrent recurrent losses in the backdrop of the political and administrative ine2perience of the post liberation regime.
$n this scenario! the nationaliGed banks 0ere involved in t0o sorts of pressure situations! firstl! the almost insatiable demand for credit from the loss making state*o0ned enterprises kept the banks under constant pressure due to a shortage of adeuate liuidit and secondl the ne0l emerging so called briefcase business manB 0ith connection 0ith politics and politicians! top bureaucrats and top bankers! and retired militar and civil bureaucrats 0ere constantl lobbing for access to bank credit and in the process 0ere vitiating the 0ork atmosphere in the banks b alluring a section of the banker to indulge in corruption and malpractices. $t is no0 0idel recogni recogniGed Ged that that toda9 toda9ss millio millionai naires res of #anglad #angladesh esh came came mostl mostl from from the 6anks 6anks of those those brief briefcas casee busine businessm ssmanB anB and the groups groups menti mentioned oned!! 0ho could could succes successfu sfull ll establ establish ish and maintain this tpes of patron clients relationship 0ith the bankers and in the process created a host of millionaires from amongst those bankers themselves! 0ho had activel connived and harvested the illicit margins in e2change of the favors rationed ou t to those fortunate loaners.
,he political changes of %@) ushered in an era of political culture! 0here in corruption graduall became institutionaliGedO the economics of rent seeking took firm roots in the bod politic of #angladesh. $n the process! sanctioning of bank loans became one of the prime victims of the buing and selling process afflicting the political part affiliation process! and a popular mechanism for doling out financial favors to part leaders as 0ell as political cadres. ,his politiciGation of the banking bank ing practices has seriousl hampered the institutional disciplines of the banks! 0here professional e2pertise! integrit and ethical values have become e2ceptions to some e2tent rather than rules. 12*banker emerged as financiers as the ne0l floated private banks! but
there 0as no mechanism to make them accountable or to kno0 about the sources of their cash. Defaulters of bank loans taken from nationaliGed banks or state*o0ned development finance institutions s0elled the rank of directors of the ne0l established private banks! but nobod intervened on behalf of the loan*giving banks caught in the middle 0ith defaulted loans. ,he la0s! rules and regulations relating to banking remained mostl in the booksO and the 5udicial process utterl failed to take the 0illful defaulters to task! thereb making the process of lender9s recourse on borro0ers almost a mocker in #angladesh. ,herefore! 0e surmise that behind all thes thesee mala malais ises es!! the the natur naturee of the the stat statee and of polit politic icss pla plaed ed the the real real vill villai aino nous us role role b patroniGing and developing a class of Pcomprador bourgeoisie9 in #angladesh! created! nursed and consta constantl ntl nourish nourished ed b state* state*pat patron ronage! age! and in this this nursin nursing g proces process! s! bank loans loans 0ere 0ere rampantl used as lucrative doles.
$n the eighties! the rapid liberaliGation of #angladesh9s import regime has created the so*called Psick* Psick*ind indust ustr r sndr sndrome ome9! 9! 0hich 0hich provid provided ed a potent potent e2cuse e2cuse for some! some! and create created d genuine genuine hardships regarding repament of bank loans for the other. ,he domestic industries have been bearing the brunt of this ill*advisedl too rapid pace of liberaliGation of #angladesh9s international trade 0ithout appropriate preparator polic measures. ,he political doldrums of the late*eighties provided additional e2cuses to these s0elling groups of defaulters. ,he #/ government of %@@%*@7 tried to stem the rot in this field in the initial ears of its term. ,he repeated the blunders of its predecessor of providing lavish encouragement to bank managements to ease and e2pedite the process of term lending! especiall according to its o0n political e2igencies at the later stated of its rule! 0hich added a massive amount of fuel to the fire of the so*called Pdefault*culture. And earlier lending sprees continues to haunt the banking section even toda be sustaining the momentum of the build*up of the defaulted loans of the earlier t0o decades.
4.2.3. %he $!esent status of Loan &efaults Cultu!e in angladesh: As loans comprise the most important asset as 0ell as the primar source of earning for the banking financial institutions and on the other hand also the ma5or source of risk for the bank management so a prudent bank management should al0as tr to make an appropriate balance bet0een its return and risk involved 0ith the loan portfolio. #ut #anking sectors recent involving involving activities! guidelines and their concentration in that is not satisfactor.
,he prudential guidelines also call for making adeuate provisionsB against classified loans in order to protect the financial health of the banks are prepared but 0hich is meaningless as b making making provis provision ion the number number of 0illfu 0illfull defaul defaulter terss increa increasin sing g da b da. da. ,he econom economic ic implications of the non*performingdefault loans are not onl stoppage of creating ne0 loans but also the erosion of banks profitabilit! liuidit and solvenc! 0hich might sometimes leader to0ards collapse of the baking financial sstem. $t has therefore become sine ua non for polic makers to stud the loan default scenario of the banking sector of routine basis for estimating classified loan! making appropriate provisioning! adopting effective recover strateg and thus ensuring soundness and efficienc of the banking sector.
#efore privatiGation and liberaliGation this banking activities 0ere thus directed to disburse credit! according to the government9s economic priorit! and hence little attention 0as placed to identif the problem loans and making provisions thereon! although there 0as significant amount of hidden hidden defaul defaultt loans. loans. After After %@I(! %@I(! the banking banking sector sector of #angla #anglades desh h under0 under0ent ent a rapid rapid denationaliGation and privatiGation process. ,he out of si2 nationaliGed commercial bank Uttara #ank and /ubali #ank 0ere denationaliGed in %@I& and %@I+ respectivel 0ith a vie0 to increasing the efficienc of the banking sector. Hencefor0ard! private bank 0ere allo0ed to conduct conduct bankin banking g operat operation ionss in order order to increa increase! se! compet competiti ition! on! reason reasons! s! the effici efficienc enc and productivit of the banking sector. #ut due the various reasons! the efficienc of the banking sector did not increase rather the credit discipline 0as further eroded.
,he ver freuent and fashionable stle of loan defaulting stor in banking sector of #angladesh is loan scam. 6ecentl a series of scams has started threatening the banking sector in a great 0a. Last ear! Sonali #ank loan scam started the episode and is continuing 0ith #ismillah loan scam! #asic #ank loan scam and so on in a large scale. ,he stor of all episodes is almost same and follo0s a ccle.
According to Anti*-orruption Anti*-orruption -ommission! +% reputed commercial banks in #angladesh 0ere involved activel in Sonali bank scam of ,k.&77) crore 0ith Hallmark>%he (inancial ')"!ess*. 4ver %'' branches of seven state*run banks! (@ private banks and five foreign banks patroniGed that loan scam according to them.
$n (''@! #angladesh Shilpa #ank and #angladesh Shilpa 6in Sangsta 0ere merged due to huge amount of /L in both of them. ,he operational activities of #S6S came to a halt! 0hen its classified loans reached up to I) to @' percent of its total portfolio. ,he situation 0as almost same same for for #S# #S# alth althoug ough h it trie tried d to e2pa e2pand nd its its depo deposi sitt coll collec ecti tion on on its its o0n o0n rath rather er than than rescheduli rescheduling ng the previous non performing performing loans. $t had about ,k ()' crore classified classified loans on the eve of being merged! according acc ording to media reports.
(efaulted Loan bet)een bet)een September September 14* /04< to $arch $arch 14* /047 >in crore? #ank ame S4AL$ AE6A$ 6U/AL$ #AS$#D#L A# #A; AS$A #6ADHA;A D##L 1#L 1$" F$6S, S1-U6$,< $-# $SLA"$$##L JU"UA 41 "U,UAL ,6US, A,$4 A,$4AL AL
Defaulted Loan as of Sept &%! ('%+ %%!)'.(% +&I.% )%%I.&7 %7@.+) %II&.( %7.'+ )@7.%I I@@.'% I&.I) )).(& ++.&& )@.@7 %''&.(@ (%I.+7 +@.(I (II.&& &&%.+' 7').(I 7@I.@'
Defaulted Loan as of Dec &%! ('%+ @7(@.(@ (7').(7 &&%.I+ %')&.' %(I(.&7 )('.&I ++'.+I )I'.@( )'.' &).(+ +'(.'+
[email protected]( )%7.I( (+I.&I %.)@ %&7+.(@ %&.%' ++I.@7 +7).@I
Defaulted Loan as of "arch &%! ('%) %'!+&(.+& &&+&.+I &&(&)+ %)II.) ()).)+ 7%7.&( +7&..7% @@.@' I+'.(& )7&.%+ +.'7 +(.)) 7.'( (+I.7& ().II ('7).@@ (I%.+) ))I.'I )&+.+
4.2.4. $!esent Status of #on+"e!fo!ming Loans:
,he most important indicator intended to identif the asset ualit in the loan portfolio is the ratio ratio of gross gross non*per non*perfor formi ming ng loans loans >/Ls? >/Ls? to total total loans. loans. $n ('%( Foreig Foreign n -ommer -ommercia ciall #anks>F-#s? have the lo0est and State o0ned Development Financial $nstitutions >DF$s? have the highest ratio of gross /Ls to total loans. State o0ned commercial banks >S-#s? had a gross /Ls to total loans of (&.@ percent! 0hereas /rivate -ommercial #anks >/-#s?! F-#s ! and DF$s! had ratios of +.7!&.) and (7.I percent respectivel at the end of December ('%(.
NPL ratios B = 2 of Banks
#ank tpes
(''
(''I
(''@
('%'
('%%
('%(
('%&
('%+
S- #s DF$s /- #s F- #s ,otal
( % .+ & +.@ ) .7 % .& % & .7
((.@ &&. ) .) ' .I %&.(
( @ .@ ( I.7 ) .' % .+ % &.(
().+ ().) +. + %. @ %'.I
(%.+ ().@ & .@ ( .& @ .(
% ) . ( +.( & .( & .' .&
%%.& (+.7 (. @ &. ' 7. %
( & .@ ( 7. I + .7 & .) % ' .'
1nd June ('%& (7.+ (7.( 7.7 +. %%.@
,he gross /Ls ratios to total loans for the S-#s! /-#s! F-#s and DF$s 0ere recorded as (7.+! 7.7! +. and (7.( percent respectivel at the end of June ('%). ,he ratio of /Ls of all the banks had sho0n an overall declining trend from its peak >&+.@ percent? $ (''' up to ('%% before it increased to %'.' percent in December ('%+.
,he amount of /Ls of the S-#s increased from taka %'). billion in (''& to taka (%).% billion in ('%+. ,he /-#s recorded a total increase of taka I%.I billion in their /L accounts! 0hich stood at taka %&'.&billion in ('%+ as against taka +I.) billion in(''&. ,he amount of /Ls of the DF$s increased to taka &.&billion in ('%+ from taka +.& billion in (''&.
Sonali #ank has the Highest default loan >%'!+&(.+& cores? and HS#- has the lo0est default loan>%(I.'7 cores? among the banks at the end of "arch ('%). $n September ('%)! Sonali #ank had the highest default loan >%()'.(% cores? and HS#- had the lo0est default loan >%'@.') cores?.
+.& -auses of onperforming Loans
,. '#%-'$-'#'-S -'L,%'& A%: Lac/ A%: Lac/ of business e)"e!ience. e)"e!ience.
Sometimes people 0ithout prior business e2perience 0ant to do something. $t ma so happen that after retirement retirement from govt. or private private service people 0ant to establish establish a business! business! 0hich is not ver relevant to his past e2perience. #esides his o0n euit the look for bank finance. ormall banks do not finance in the pro5ects 0here the ke personnel do not have enough background in that particular business. Chen banks finance in the pro5ects here the ke personnel lack relevant business e2perience! it becomes risk for the bank. /robabilit of failure in these sorts of pro5ects tends to be higher. A(: Lac/ A(: Lac/ of usiness and Lac/ of 0nstitutional %!aining %!aining ac/g!ound .
#usiness e2perience is someho0 related to business background. Here business background means means famil famil busine business ss backgr background ound.. ,hough ,hough famil famil busine business ss has a role role in entrep entrepren reneur eurial ial orie orient ntat atio ion! n! ther theree is no dire direct ct rela relati tions onshi hip p bet0 bet0ee een n busin busines esss backg backgro roun und d and and busi busine ness ss performance of loan repament. $t is true that ouths coming from business background are familiar 0ith business and banking but there are other 0as to get oriented 0ith the same! not necessaril one has to come from business famil.
A&: nillingness to $ay . Ce all kno0 this is one of the most common reasons behind default culture in #angladesh. $t can happen happen in some some situat situation ionss like like 0hen 0hen securi securit t*bac *backin king g loan loan is 0eakO 0eakO custom customer er feels feels that that defaulting defaulting the loan 0ill not harm him much. $n that case he tends to default. default. $n other cases like 0hen cash flo0 from the business is not impressive! people are un0illing repa the loans.
A+: A+: Lac/ of Su""o!ting (acilities
Sometimes business need support from other sources like government authorit. authorit. Chen cash flo0 is lean and the pro5ect is in lull! it needs feeding. Cithout further feeding compan ma become sick and incur loss in consecutive time periods. $n our countr most of the companies do not have the supporting sources 0ith 0hich the can 0ithstand the turmoil that comes in to their business from time to time.
#: S0#'SS #: S0#'SS -'L,%'& #%: #on+att!active #%: #on+att!active 0ndust!y Sometimes non*attractive industr acts as primar cause of loan default. default. -ompanies operating in non*attractive industries have higher probabilit of performing poor. #ecause of poor financial performance! compan9s cash flo0 gets affected. #ecause of cash flo0 the compan becomes less liuid liuid 0hich contributes contributes in defaulting defaulting bank loan. ot necessaril necessaril that all the companies companies no non*attractive industr perform poor. For e2ample: suppose in #angladesh Jute industr is one of the non 3attractive industries. o0 an investor 0ant to invest in this sector ma be cause loss. So this investor can9t pa the interest. #(: St!ong Com"etition Strong competition does not directl contribute in defaulting loan. Strong competition takes place 0hen man companies enter into an industr 0here the industr cannot accommodate so man man compani companies. es. $n strong strong compet competiti ition on onl onl effici efficient ent plaer plaerss surviv survive. e. So the ineff ineffici icient ent companies find it difficult to make profit and sale their product. 4nce the fail to make profit! the compan is likel to default its loan installment in the bank. #&: $oo! #&: $oo! Management ca"ability #efore #efore sanctioning sanctioning a loan banks look into the matter matter that ho0 the management management of the compan is. $f the bank feels that the management is capable enough to successfull run the business and
utiliGe bank finance! then bank agree to finance other0ise not. 1ven sometimes banks sets conditions like some of the ke personnel must not uit the organiGation before repament of the loan. "anagerial capabilit plas vital role in repaing bank loan. ,he more professional the management is! the less is the probabilit of defaulting loan. #+: $oo! #+: $oo! (inancial $e!fo!mance Definitel poor financial performance is the most important cause of loan default. 4nce a compan is not solvent! it is unlikel to repa its loan. /oor financial performance is the ke reason behind ma2imum loan default. /oor financial performance can be arisen from man other reasons described above.
#): $oo! #): $oo! Cash (lo
$n most cases poor cash flo0 is the aftermath of poor financial performance. #ecause of poor cash flo0 companies mainl default loan. #ecause of irregular cash flo0! business becomes unstable and illiuid. $n that case business does not have enough cash to service loans pament and interest. 1ven if a compan is profitable! the compan ma default because of cash flo0. $n some cases! a business ma sell most of its finished goods on credit. So it ma not have enough cash to support the loan and other debts. So it ma cause default. #7: Lo #7: Lo Ma!/et Sha!e Lo0 market share ma be a reason of loan default but not a single respondent mentioned it as one of the reasons of their loan default. Lo0 market share means lo0 sales! lo0 sales mean lo0 profit and lo0 profit results default. 4perating in a niche market! h aving a ver lo0 market share a firm can be profitable enough to repa its entire loan obligation as 0ell as retain siGable earning. #ut operating in niche product in a market 0hich is not proper or have fe0er customers that it e2pected then it cannot be profitable. So it cannot pa pa its interest pament. -: L'#&0# -: L'#&0# -'L,%'& -%: &elayed -%: &elayed ,ssessment of Loan $!o"osal $!o"osal #anks sometimes make dela in assessing loan proposals of the business firms. Chen the firm badl needs mone! it does not get enough funds because of delaed assessment assessment b the bank.
,his infuses shortage of cash in their business operations. ,he hardl manage their da*to*da business e2penses let alone repament of the loans. -(: &elayed -(: &elayed &isbu!sement of (und 1ven after assessment of the proposal and taking positive decision! banks do not disburse funds until securit documentation formalities are completed. As a result business do not get fund 0hen actuall it reuires it. Some of the defaulters complained about subseuent disbursements. -&: Lac/ -&: Lac/ of $!o"e! Monito!ing "onitoring is one of the most important parts for financial institutions. ,hrough monitoring lenders come to kno0 that 0hether their fund is being used for the desired purpose or not. Sometimes disbursed mone is used for purposes other than the specific areas. $n that case risk of loan default gets higher. #anks sanction loan on the basis of feasibilit of the pro5ect. #ank as a lender e2pect that the loan 0ill be serviced b the cash flo0 generated from that particular business. #ut if credit is used in some other areas desired cash flo0 ma not come from the business and chance of loan default gets high. ,herefore banks monitor activities of the borro0er 0hether the fund is being properl utiliGed or business is generating enough cash flo0 or not. #anks use specialiGed formats for loan monitoring. #ank periodicall revie0 the performance of the borro0er and based on that bank decides 0hether to rene0 the facilities or not. ,he tools used for monitoring are portfolio revie0s! profitabilit analsis etc. before diverse loan! #anks can check the credit rating of the organiGation. #anks can generate information about borro0ers from #angladesh #ank. ,hen banks can decide ho0 much mone investor needs and ho0 much mone he 0ill be invested. Kaluation culture of the securit or collateral is absent in man of banks. -+: Lac/ -+: Lac/ of ta/ing $!o"e! ,ction ,ction Action comes after loan monitoring. "onitoring is done for identifing deviations or e2ceptions. $f there is an e2ception then corrective action needs to be taken. $f corrective actions are taken on time chance of default loan reduces. Chen -ustomer misses one installment! concerned officer of the bank must visit the customer and understand 0here the problem lies. $f proper action is taken! probabilit of loan default is reduced
D: M,C-O'CO#OM0C D: M,C-O'CO#OM0C (, (,C%O-S D%: Lo D%: Lo &$ !oth !oth $t is evident that companies 0hich deal in consumer products are directl affected b the ED/ gro0th of the entire econom. 6egular customers and defaulters have opined that this macro indicator influences the cash generation of a compan and hence the repament of the loan. D(: 0nc!easing D(: 0nc!easing C!imes $t is revealed that the effect of the increasing crimes in the business of the companies. ,he think that forced subscription sometimes make the profitabilit of the compan lo0er. D&: a!tals D&: a!tals by the $olitical $a!ties /olitical instabilit of the countr hampers the production and the distribution of the products in a smooth 0a and the political turmoil is considered one of the other causes of the loan default in our countr coun tr.. D+: (!euent D+: (!euent "olity Changed by the ove!nment Eovernment is considered as the minor cause of the loan default as per the surve since it has a little impact on the local sales and distribution of the products of the companies. For e2ample: in this budget government increase ta2 on mobile phones 0hich are imported from foreign countr! so mobile phone importer ma not generate e2pected revenue. So importer could not par their interest pament. So the could be defaulter. Cithout these are other causes such as imperfect lending practice! lack of analsis of business risks! lack of proper valuation of securit or mortgage propert! undue influence b borro0ers! e2ternal pressure! loan go Eovt. organiGation! Eovt. polic for disbursement of credit! lack of legal action.
ame of firm
Approved Loan
,pes ,pes of Loan
Samam ,rade
'% -rore
,erm Loan for ('%%
$nternational
& ears
('%+
$t is a trading firm. $t imports Locker from china through issuing L-. From 4ct9%&* Jan9%+ the firm didn9t open an L-! due to political unrest. $t happened because the firm had enough stock in its 0arehouse! but due to strike it could not sell its goods! as a result the firm got stuck in fund shortage. 4n the contrar! the firm has a limit of fund for importing goods. Due to nonpament of loan that created problem against $mport process! the outstanding of the loans 0ere getting higher. At the end of ovember9%& the client listed as S"A! And $n "arch9%+ the loan declared #ad Loan . Causes ! %. Hartals b the /olitical /arties: Due to strike! firm did not perform according their plan. So the can not generate enough revenue to pa the interest pament. (. /oor /oor Finan inanci cial al /erf /erfo orman rmance ce:: lack of proper strateg for strike. So $t cannot generate revenue.
S0adesh Steel
)' Lac
4D loan
('%&
('%+
,he client is a local supplier of rod! angel
revolving
bar etc. $t approached the loan to allo0 a 4D limit of I' Lac. ,he bank approved )' Lac for e2tension of its operation. #ut the proprietorPs intention intention 0as mischievous. mischievous. $nstead of investing the fund into business the o0ner purchased Land in Savar. Just after & month of disbursement the client9s transaction became irregular. ,he bank tried to make the client pa the out standings. #ut the client9s business business 0as not capable of to pa the proceeds on regular basis. After % ear the Loan became #ad Loan. ,he #ank is is tring to recover the amount. Cause! 1. Lack of /roper "onitoring: #ank should take information about the client before approve loan. 2. Un0illingness to /a: ,he client intension 0as not good. "a be bank kept lo0 collateral so that he thought that it 0ill not harm him a lot. &. "is use of fund: -lient use the fund to bu the land rather than invest in business. He ma thought that it 0ill be more profitable than business.
Cha"te! +56,nalytical "a!t * 5.1&esc!i"tivee analysis 5.1&esc!i"tiv
Some research regarding identification! measurement! causes and effect analsis of /Ls has been done b scholars of our countr in different different times both issues issues 0ithin countr as 0ell as cross boarder comparison. onperforming loans in the banking sector of #D! realities and challenges of /Ls in #D! $mpact of supervisions in controlling /Ls are some freuent topics of articles published in reputed 5ournals in our countr in recent ears. S-#s in our countr holds ma5or proportion of total deposit of the hole industr industr but it is ver unfortunate to see the regular default of loan recover and scams b them in recent times. So to realiGe the impact of this evil practice on their performance is a need of time. ,his paper focuses some factors directl or indirectl affects their performance performance that ma uest the thrust to some e2tent.
Figure 1: Capial to risk weighted we ighted asset ratio % 3 0 2 5 2 0 1 5 1 0 5
SC Bs PCB s
'
('' S-#s %.%
(''I
('%'
('%%
:.@
(''@ 7.@
/-#s
I.@
('%( %%.
('%& I.%
('%+ %.(
@
FCB
@.I
%'.7
%%.+
%(.%
%'.%
%%.)
%%.+
%%.+
s
F-#s ((.
((.
(+
(I.%
%).7
(%
('.7
('.&
Source: #anking /erformance $ndicators! Appendi2*& >,able >,able $$?! #anking regulation 8 /olic Department! #angladesh #ank! >('')*('%&?
on /erforming Loan 6ate is the most important issue for banks to survive. ,here are lots of factors responsible for this ratio. Some of them belong to firm level issues and some are from macroeconomic measures. -apital to risk 0eighted assets of S-#s for the selected I ears ears is ver much dissatisfactor. dissatisfactor. $n F< ('' it 0as %.% that 0as reall alarming but graduall the started to recover it and in F< ('%% it reached up to I.@ 0hich reaches up to %%. in ('%% that is the highest among all the ears. #ut in ('%& it decreases to I.% and drasticall fell in ('%+ b touching onl %.(. $f 0e make a comparison the
ratio of S-#s 0ith /-#s and F-#s then 0e easil have a clear idea about the competitive scenario. ,he lo0est value of /-#s and F-#s are @.% and %).7' respectivel 0here the highest value of S-#s is belo0 than @.
Figure 2: NPLs to Total Loans ratio % 3 0 2 5 2
SCB s
0 1
PCB
5
s
1 '
(''@
S-#s 5
(''@
((.@
(''I (@.@
/-#s
).)
F-#s
'.I
0
().+
('%' (%.+
('%% %).
('%( %%.&
('%& (&.@
('%+ (7.+
)
+.+
&.@
&.(
( .@
+.7
7.7
%.+
%.@
(.&
&
&
&.)
+ .
FCB s
Source: #anking /erformance $ndicators! Appendi2*& >,able >,able $$$?! #anking regulation 8 /olic Department! #angladesh #ank! >(''7*('%+?
/L is a general factor for banking as it is acceptable up to a certain limit. Ho0 much loans are being non* performing each ear is a relevant measurement in this regard. /Ls to total loans ratio for S-#s for selected I ears is reall alarming as most of the ears it holds more than (' /Ls as per ,otal Loans and Advances. $n ('%% there 0as a breakthrough in /L ratio in S-#s as it sho0s a negative gro0th rate of *'.( and the ratio 0as %).' that 0as a positive sign but it could not keep it up rather it touches (7.+ in ('%+ that is surel alarming. >See Figure (? $f 0e make a comparison among three categories of banks 0e find that /-#s has ma2imum /Ls in ('%+ and the ratio 0as 7.7 and in ma2imum ears the are maintaining a limit 0ithin ).Again! F-#s are performing 0ith a great e2cellence in this topic b maintaining the limit of /Ls ratio 0ithin & in ever selected ears.
6igure 1! Comparati"e position of NPLs 7'' )'' +'' &'' ('' %'' (''@
,otal /Ls >in
(''.%
/Ls in S-#s S-#s
%%)
(''I (''@ ('%' ('%% ('%( ('%& ('%+ ((7.( ((+.I ((+.I ((.% ((7.+ +(.& )(&.% %&.@ %(.7 %(%.7 %'.7
@%.
(%).% (7%.))
Source: #anking /erformance $ndicators! Appendi2*& #anking regulation 8 /olic Department! #angladesh #ank! >(''*('%+?
From the above graph it has been found that S-#s hold the ma2imum portion of the total /Ls in banking industr over the selected ears from ('' to ('%+. Among them in ('%) the industr tested the largest amount of /Ls that 0as tk. )(&.% billion dollar. ,here e2ists a consistent harmon in /Ls amount 0hich depicts depicts that there is ver poor initiative initiative in controlling controlling and recover recover process of those banks. ,he graphical graphical presentation given belo0 >figure +? is sho0ing the percentage of /Ls hold b S-#s of the total amount. Here! it is found that each of the ears holds more than )' of total /Ls e2cept in F<* ('%% and F<* ('%(. So! there is a red light to the S-#s to reduce the amount of problem lending as earl as possible.
3 0 2 5 2 0 1 5 1 0 5*%) 0
S-#s
SC Bs PCB s
(''
(''I
'
5/-#s %).( - F-#s (%.) 10
('%' (7.(
('%% %I.+
('%( %@.
('%& *%%.@
('%+
'
(''@ ((.)
%7.
%7.+
(%
('.@
%).
%'.(
).)
('.+
%.I
((.+
%
%7.7
%.&
%@.
%%.
FCB s
Source: #anking /erformance $ndicators! Appendi2*& >,able >,able $?! #anking regulation 8 /olic Department! #angladesh #ank! >(''*('%+?
,he graph can be a great source to understand ho0 much poor the profitabilit trend of S-#s in our countr. $n ('' and (''I 641 for S-#s 0as 5ust '. #ut this horrible situation has been changed drast drastica icall ll in (''@ (''@ 0hen 0hen the ratio ratio touche touched d ((.) ((.) and the ne2t (7.(. $n ('%% it decrease decreased d but the percentage is tolerable. ,he gro0th rate of 641 0as also so poor and in a declining mode up to ('%& also 0ith a negative value in ('%&. $f 0e tr to dra0 a comparative idea then find /-#s maintained at least %) 641 in last I ears e2cept ('%& and ('%+ 0ith huge fall. #ut F-#s sho0 a great performance as it maintains at least % 641 in ever ear.
#ased on the revie0 of the literature it has been clear that there is e2tensive national as 0ell as international evidence 0hich suggests that /Ls can be e2plained b both macroeconomic and bank specific factors. #ut there there are some ualitative variables that have significant effect effect on increasing /Ls that can be included in a model to find out the effect. "oreover /Ls / Ls have serious negative negative impact on loan gro0th rate. So there should have a impact of /Ls on banks profitabilit as it reduces loan amount and interest income of the banks simultaneousl. simultaneousl.
5.2Multi"le -eg!e -eg!ession ssion analysis : $n order to investigate the impact! the follo0ing four research hpothesis have been developed* d eveloped* H' >%?: ,here is no significant impact of on /erforming Loan 6atio on profitabilit >et $nterest $ncome? of S-#s for last I ears. H% >%?: ,here is significant significant impact of on /erforming Loan 6atio on profitabilit of S-#s for last last I ears. H' >(?: ,he impact of Deposit Ero0th 6ate 6ate on S-#s profitabilit >$$? is statisticall statisticall insignificant insignificant for last I ears. H% >(?: ,here is significant impact of Deposit Ero0th 6ate on S-#s profitabilit >$$? for last I ears. H' >&?: ,he impact of Ero0th 6ate of /Ls on S-#s profitabilit >$$? is statisticall insignificant for last I ears. H% >&?: ,here is significant impact of Ero0th 6ate of /Ls on S-#s profitabilit >$$? H' >+?: ,he impact of /rovision Ero0th 6ate on S-#s profitabilit >$$? is statisticall insignificant for last I ears. H% >+?: ,here is significant impact of /rovision Ero0th 6ate on S-#s profitabilit >$$? for last I ears. $n this paper! paper! $ have selected selected + state o0ned commercial commercial banks in #angladesh and collected collected data based on some factors factors affect affect bank9s bank9s profitabili profitabilit t as 0ell as performance. performance. /L is one of the ma5or factors factors of the analsis. A model has been be en established to find out the significance of impact of those factors on performance of the S-#s like the model used b
(''7? to find out the effect of /LS on loan gro0th rate of commercial banks. ,he model developed is as follo0s: < Q R %% - ( (* & &R + +R ) )R 7 7RTi Chere! < et $nterest $ncome >$$? Q $ntercept -oefficient % /Ls 6atio >/L6? ( Deposit Ero0th 6ate >D/E6?
& /Ls Ero0th 6ate >/LE? + /rovision Ero0th 6ate of >/6KE? i Slope -oefficient! Ti 1rror ,erm
,he data used in this linear regression model is time series da ta as the values used here is collected from same sources at a fi2ed interval of time for F<*(''7 to F<*('%+. 12cess ratio of /Ls to total loans is harmful for a bank as it negativel affects the the lending behaviour b decreasing interest income and loan gro0th rate. ,his paper is mainl focused on ho0 much negative effect /Ls have on $$ of S-#s in #angladesh.
Table ! 4 $odel Summar
b
Std. 1rror of "odel %
6
6 Suare a
Ad5usted 6 Suare
.@)@
.@'+
the 1stimate
Durbin*Catson
&.(%&&&
(.&%'
a. /redictors: >-onstant?! /6K6! /L6! /LE! D/E b. Dependent Kari Kariable: able: $$6
,able*% ,able*% represent that the coefficient co efficient of correlation of the model 6 is '.@@that states there is strong relationship bet0een dependent and independent variables variables used in this model. -oefficient of determination (
6 '.@)@ that sho0s the highest percentage value that the independent variables e2plain @7 percent change (
of $$. ,he goodness of fit test of the model is also e2cellent as the ad5usted 6 is '.@'+. ,he value of Durbin Catson is (.&%' that lie 0ithin the range bet0een %.) and (.). so 0e can easil state that there is no autocorrelation among the independent variables of the the stud.
Table ! / Coefficients
a
StandardiGe UnstandardiGed -oefficients -oefficients # %
Std. 1rror
>-onstant?
&.%I
I.@()
/L6
*%.II'
.(+(
D/E
*.I@@
/LE /6KE
d
-ollinea -ollinearit rit Statisti Statistics cs #eta
,olerance
K$F
I.(''
.''+
*%.'I
*.
.''+
.'%
%.+(
.(@)
*.+I%
*&.')'
.'))
.)+@
%.I('
.'@%
.'(
.%@)
%.()
.(@I
.)7@
%.)I
*.'+
.'(@
*.&)+
*(.)7I
.'I&
.%@
%.&@%
a. Dependent Kariable: $$6
From table*( it is found that there is a positive value of intercept coefficient >Q? means that if all the independent variables remain constant then $$ 0ill be &.%I percent carring a viable econom economic ic meanin meaning g that that genera generall ll there e2ist e2ist around around &.%I percen percentt $$ in S-#s S-#s of the countr. Slope coefficient of /L6 is *%.II' that means if /L ratio increases b % percent then the $$ 0ill be decreased b %.II percent and it is statisticall significant at % percent significant level. $n case of Deposit gro0th rate it is found that there is inverse relationship bet0een $$ and D/E as $$
decreases b '.I@@ percent due to % percent increase increase D/E 0here at ) percent significance level it is accepted. Again! the slope coefficient of /L gro0th is '.'@% that states if /L gro0 b % percent $$ increased b '.'@% percent that is statisticall insignificant at %' significant level. So there e2ists no strong negative relationship bet0een Ero0th rate of /L and $$. Here! slope coefficient of /6KE /6KE has a value of *'.'+ sho0 a negative relationship relationship 0ith $$. Due to % percent increase in provision gro0th rate $$ 0ill be decreased b '.+.
b
Table ! 1 %N>?%
"odel %
Sum of S uares 6e re ression 6esidual
,otal
df
"ean S uare
(&.+I(
+
%I'.I%
&'.@7
&
%'.&()
)+.+)@
F %.)%
Si .
a. /redic /redictor tors: s: -onsta -onstant nt /6KE /6KE /L6 /LE /LE D/E b. De endent Karia Kariable: ble: $$6
,he variables used in the regression are potentiall endogenous as the are simultaneousl determined through banks9 balance sheet constraints and are correlated 0ith each other. From the A4KA table >Appen >Appendi2 di2 $? it is found found that comparin comparing g calcul calculate ated d F value value of %.)% %.)% 0ith table table value value at ( significance level the null n ull hpothesis of H' >%?: ,here is no significant impact of on* /erforming Loan 6atio on profitabilit >et $nterest $ncome? of S-#s for last I ears! H' >(?: ,he impact of Deposit Ero0th 6ate on S-#s profitabilit >$$? is statisticall insignificant for last I ears! H' >&?: >&?: ,he impact impact of Ero0th Ero0th 6ate of /Ls /Ls on S-#s S-#s profi profitab tabili ilit t >$$? >$$? is statis statistic ticall all insignificant for last I ears! H' >+?: ,he impact of /rovision Ero0th 6ate on S-#s profitabilit >$$? is statisticall insignificant for last I ears are re5ected. So! 0ith @I confidentl 0e can conclude the statement that alternative hpothesis of H% >%?: ,here is significant impact of on */erforming Loan 6atio on profitabilit of S-#s for last I ears. H% >(?: ,here is significant impact of Deposit Ero0th 6ate on S-#s profitabilit >$$? for last I ears. H% >&?: ,here is significant impact of Ero0th 6ate of /Ls on S-#s profitabilit >$$?H % >+?: ,here is significant impact of /rovision Ero0th 6ate on S-#s profitabilit >$$? for last I ears are accepted .
a
.'('
-hapter* 7
(indings -ecommendation -ecommendation Conclusion
7.% Findings : Finding9s of /L are such as Stopping "one -cling! 1arning 6eduction! -apital 1rosion! $ncrease in Loan /ricing! Frustration etc. As a result! the values of securit are increased and the risks of financial recession also see a rise. Amplifications Amplifications of the effect of /L are as follo0s:
%. /L /L can lead lead to effi effici cienc enc probl problem em for for the the banki banking ng sect sector or.. $t is foun found d b a numb number er of economists that failing banks tend to be located far from the most*efficient frontiers! because banks do not optimiGe their portfolio decisions b lending less than demanded.
(. ,her ,heree is a negat negativ ivee rela relati tion onsh ship ip bet0e bet0een en the the non* non*pe perf rfor ormi ming ng loan loanss and and perfo perform rmanc ancee efficienc. So! increase in /L hampers the performing loan. "ost of the cases! it occurs 0hen there is an adverse selection. Averse selection is asmmetric information problem that occurs before the transaction. For e2ample: big b ig risk takers or outright crooks might be the most eager to take out a loan because the kno0 that the are unlikel to pa it back. #ecause adverse selection increases the chances that a loan might be made to a bad credit risk! lender might decide not to make an loans! even though there are good credit risks in the market place.
&. /L creates the -redit -redit -runch situation. -redit crunch is a phenomenon that banks ration loan disbursement and ne0 credit commitments in order to protect! but add more risks. #anks treat loan as an asset. ,he e2pect return from it. $f loans become /Ls then banks have lack of fund to give loan according their commitment or banks could give loans at their previous interest rate. -lients have to pa more. So loans ma be defaulted. -redit crunch also increases the rate of
/L.
+. ,here ,here is a cclic cclic relation relation bet0een bet0een poor economi economicc condit condition ion and the depresse depressed d econom economic ic gro0th as follo0s:
a. During the crisis moment! in order to restore the credibilit among creditors and depositors! failing financial institutions not onl tr to e2pand their euit b ases! but also reduce their risk assets or change the composition of the asset a sset portfolio. #ecause of such defensive actions! the corporate debtors are al0as targeted! thus the economic gro0th is being stalled overall. #ank tr to collect loans amount as fast as possible and most of the banks have huge number of corporate clients so the tr to recover those loans as earl as possible to reduce risk assets.
b. "one ccling gets stopped due to increase in /L. Slo0 flo0ing of cash al0as has negative impact on an business.
c. Chen the /L is increased! increased! interest interest earning earning gets stopped. #ut the cost of fund and the cost of management are not stopped. ,o run the management cost along 0ith the cost of fund! the e2isting lending price has to be increased. Suddenl increased rate of interest makes hard the return of bank mone for a ne0 borro0er. So rate of investment 0ill be lo0er.
d. /L affects affects opening of L- >Letter >Letter of -redit?. $nternation $nternational al importers importers al0as choose health condition of the e2porterMs bank. Corse health condition of the bank affects the opening of ne0 L-s. Lo0 rate of L-s makes lo0 bank earning.
). /L e2ists e2ists as a natura naturall conse conseuenc uencee of lendin lending g behavi behavior or.. Chen Chen banks banks re*bal re*balanc ancee their their portfolio! the decide on the degree deg ree of risks the 0ill tolerate for a given level of e2pected return according to their risk preference because banks have to keep %' of their risk 0eight asset as capital or +'' cores. #anks treats loans as a risk asset. $f the risk is high! banks 0ill e2pect high return. Chen the level of non*performing loans goes beond a certain point banks cannot accept! and then it affects affects bankMs re*balancing re*balancing actions. So! 0hen /Ls cross the boundar of the above threshold! the start to spa0n negative effects on more lending.
7./L has a positive relationship 0ith interest rate. Chen /L increases! loan 0hich is treaded as asset becomes more risk. So that the rate of interest also increases to get sufficient retune from the loan to cover the risk.
7.(6ecommendation
%. o comp compro romi mise se 0ith 0ith due due dili dilige genc ncee in the the sanc sancti tion onin ing g proc proces ess. s. ;eep ;eepin ing g in mind mind prevention is better than cure.#anks should take high collateral. $f a borro0er defaults on a loan! the lender can sell the collateral and use the proceeds to make up for the loss. ,he securit or collateral provided must be valued b proper agenc or put up on a regular Pmark to market9 valuation process.
(. Action Action plan for potential potential /Ls. /Ls. #anks #anks should should have some step step to collect collect the /Ls loan. loan. At the end banks should go to Artha 6in Adalat.
&. $dentifica $dentification tion of highl highl risk sensitiv sensitivee borro0ers borro0ers in the credit credit portfolio. portfolio. #anks #anks should take take information about the clients before giving loans. #anks could go #angladesh #ank to collect the information and verif the financial statement carefull from reliable sources to identif the risk borro0ers.
+. $dentifica $dentification tion of geographical geographical area*0ise area*0ise risk risk sensitivit sensitivit.. #anks should should identif identif the clients according area 0ise that9s mean in #angladesh! there is some places 0here gro0th rate is lo0 or rate of repa rate is lo0.
). ,arget ,argeting ing high value value end /L accounts accounts >having >having e2posure e2posure of ,k. ).'' ).'' crore and and above?
7. /rompt /rompt action action on credit credit report reportss
. -apaci -apacit t building building of office officers rs and e2ecuti e2ecutives ves in the recover recover departme department. nt. #anks should should give proper training to emploee. So the can handle loans properl. $f there is short of e2perience emploee! bank should recruit e2perience emploee for recover department.
I. A robust robust risk risk management management culture! culture! 0ith a P0ell articulat articulated9 ed9 risk risk management management polic polic can help the institutions to avoid such loan default.
7.& -onclusion : 4ur banking sector is characteriGed b lo0 profitabilit and inadeuate capital base because there are lots of banks in #angladesh. #anks revenue comes from spread >Lending rate 3 borro0ing rate?.#ut there is huge competition among banks. bank s. So the profit is minimum. ,he cru2 of the problem lies in the accumulation of high percentage of non*performing loans over a long period of time. ,he problem is most severe for -#s and an d DF$s. Ho0ever! starting from a ver high rate of +%.% in %@@@ it came do0n graduall to %%.@' in ('%+ according to latest published data. Still! it is ver high b an standard. Unless it can be lo0ered substantiall 0e 0ill lose competitive edge in the 0ave of globaliGation of the banking service that is taking place throughout the 0orld. Ce have had a t0o*decade long e2perience in dealing 0ith the /Ls problem and much is kno0n about the causes and remedies of the problem. Unfortunatel! Unfortunatel! the banking sstem is still burdened 0ith an alarming amount of /Ls and lags far behind the neighboring countries of $ndia and Sri Lanka. Although #angladesh has to a large degree adopted international standards of loan classification and provisioning! the management of /Ls is found ineffective! as the sstem has failed to arrest fresh /Ls significantl. $t needs to be mentioned that that managem management ent of /Ls /Ls must must be multi* multi*pro pronged nged!! 0ith 0ith differ different ent strate strategie giess pursue pursued d at the different stages through 0hich a credit facilit passes. "easures should be in place for both prevention and resolution. Cith regard to preventive measures! emphasis needs to be placed on credit credit screening! screening! loan surveilla surveillance nce and loan revie0 revie0 functionar functionaries ies both at individual bank levels levels and in the central bank of the countr. 6esolution measures must be accompanied b legal measures! i.e. improving the efficienc of the legal and the 5udicial sstem and developing other out of the court settlement measures like compromise settlement schemes! incentive packaging! format formation ion of asset asset manage managemen mentt compan companies ies!! factor factoring ing!! and asset asset securi securiti tiGat Gation ion and so on. Unfortunat Unfortunatel el!! #angladesh #angladesh is found to be ver 0eak from the above point of vie0! vie0! and strictl strictl speaking! it has mainl concentrated on a fe0 legal measures that have also been found to be ineffective. ,herefore! this stud has highlighted some challenges! sho0n belo0! for improving the debt recover environment and solving the /L problems of the countr as 0ell.
Bibliograph! Books:
#asel! Scote 8 #righam! F. 1ugine! 1ssential "anagerial FinanceB % &th edition! ,homson >e0
http:000.$nvestopedia http:000.$nvestopedia .com http:000.oppapers.com http:000.ask.com 0ebsite 000.bangladesh*bank.org http:000.Financiale2press.bd.com http:000.Financiale2press.bd.com
Articles :
Ahmed! Ahmed! Shahabu Shahabuddi ddin. n. %@@I. %@@I. 1thic 1thicss in #ankin #anking!B g!B ,he First First urul urul "atin "atin "emori "emorial al Lecture! "a 7! #angladesh $nstitute of #ank "anagement! Dhaka. Unpublished.
Asian Development #ank. (''&. -egional (''&. -egional and a nd Count!y Coun t!y ighlights + S!i Lan/a. #angladesh #ank. %@@%. Loan %@@%. Loan Classification Manual.
#angladesh #ank. (''&. ,nnual (''&. ,nnual -e"o!t7 2882+2883.
#ang #angla lade desh sh $nst $nstit itut utee of #ank #ank "anag "anagem ement ent >#$# >#$#"? "?.. ('''. ('''. Studie Studiess in angla anglades desh h an/ing: Se!ies 17 #$#"! June: 7.
#ank #ankin ing g 6egu 6egula lati tion on and /oli /olic c Depa Depart rtme ment nt!! #ang #angla lade desh sh #ank #ank.. #-D #-D and and /6/D /6/D -irculars! %@I@*(''%.
#ern #ernan anke ke!! #en #en and and Lo0n Lo0n!! -ara -ara.. %@@%. %@@%. ,he ,he -red -redit it -runc -runch. h.BB !oo/ings $a"e!s on 'conomic ,ctivity (: ('+*(+I.
Software:
"egastat 12cel>(''&?! >(''?O S/SS >(''? .
Appendi2 : Appendi2 : -ompartive positon of /L ,able* % :
@rban
,ural
Total
NCBs
(%.@@
&.&7
)@.&)
SBs
(.+)
%.%)
%@.7'
6CBs
'.)7
'
'.)7
PCBs
%).((
).(
('.+@
/Ls to total total loan ratio ratio ,able*( ,able*( :
9ear
NCB
SB
PCB
6CB
Total
455A
()+!)+'
('!%%'
%%+!(&'
(%!(+'
<40*4/0
455:
(!)7'
(%!&&'
%(@!('
(!&'
<77*5:0
4555
&'!&I'
()!)&'
%&)!+)'
&%!(('
<55*7:0
/000
&+(!&@'
(@!77'
%))!%I'
+%!@+'
785*4A0
/004
&)!@'
&I!%'
%II!&'
+I!(+'
870*510
/00/ Sept.2
+''!77(
++!II'
(((!&''
7'!()7
A/:*05:
-apital to risk 0eighted assest ,able*& :
Tpes of Bank
@rban
,ural
Total
NCB
(7!&%I
%(+!&++
<00*88/
SB
(+!&'&
('!)
<<*::0
PCB
('(!))7
%@!++
///*100
6CB
7'!()7
*
80*/78
Total
781*<11
48<*887
A/:*05:
/Ls 6atio of ,pes of banks table*+ :
#ank tpes
(''
(''I
(''@
('%'
('%%
('%(
('%&
('%+
1nd June ('%&
S - #s DF$s / - #s F - #s ,otal
(%.+ &+.@ ) .7 % .& %&.7
( ( .@ & & . ) .) ' .I % & .(
(@.@ (I.7 ). ' %. + %&.(
().+ ().) + .+ % .@ %'.I
( %. + ( ) .@ & .@ ( .& @ .(
%). (+.( &. ( &. ' .&
%%.& (+.7 ( .@ & .' 7.%
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