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THE PROBLEMS AND PROSPECTS OF RETAIL CREDIT

IN CONTEXT OF
PRIME BANK LIMITED IN BANGLADESH

By

Kashfia Nehereen
ID: 0310001

Has been approved


September, 2007

_________________________________

Mr. Samir Mainuddin


Lecturer
School of Business
Independent University Bangladesh
THE PROBLEMS AND PROSPECTS OF RETAIL CREDIT
IN CONTEXT OF
PRIME BANK LIMITED IN BANGLADESH

By

Kashfia Nehereen
ID: 0310001

An Internship Report Presented in Partial Fulfillment


of the Requirements for the Degree
Bachelor of Business Administration

INDEPENDENT UNIVERSITY BANGLADESH


September, 2007
September 9, 2007.

Mr. Samir Mainuddin


Lecturer
School of Business
Independent University, Bangladesh.

Subject: Submission of internship report.

Dear Sir,

With due respect, I, Kashfia Nehereen, ID: 0310001, would like to inform you that, it is a

great pleasure for me to submit the report on “The Problems and Prospects of Retail Credit in

context of Prime Bank Limited in Bangladesh”, as a requirement for BBA 499 program. While

conducting the report, I have gathered lots of knowledge about retail credit and many unknown

facts, problems and prospects of retail or consumer lending on second generation banks like

Prime Bank, Eastern Bank, Dhaka Bank and National Credit and Commerce Bank.

Therefore, I firmly believe that, this report will be able to meet your approval. I would

genuinely appreciate to make further corrections where it seems necessary by you. Your kind

advice will encourage me to conduct more research on retail credit in future

Sincerely Yours

…………………….
Kashfia Nehereen

ID: 0310001
Acknowledgement
At the very beginning, I would like to express my sincere gratitude to Allah, who has given me

the chance to complete my internship report in a very comfortable manner. My gratitude and

thanks goes to my respected supervisor Mr.Samir Mainuddin, Lecturer, School of Business, who

co-operated me all through the times for completing my internship report. I want to mention my

special gratitude and thank to Dr.S.U. Ahmed, Assistant Professor, School of Business, without

the special guideline of whom, it would be impossible on my part to complete my internship

report successfully. I have conducted my report on” The Problems and Prospects of Retail Credit

in context of Prime Bank Limited in Bangladesh” for which, I want to express special thanks to

all the employees of SBC Tower branch of Prime Bank. I am also acknowledging the co-

operation and support that I received from the Retail Credit Head Office of Prime Bank. I want to

mention special thanks to Mr.Shahjahan Bhuiyan, Managing Director of Prime Bank Limited for

allowing me to do my internship in this bank. I also want to mention two names who’s all over

inspiration and guidelines were there during my internship period for completing my report.

Those are

• Mr. Sk Matiur Rahman,Vice President, Head of Treasury

• Mrs.Tahmina Akhter,Principal Officer, International Division of Prime Bank

There is no doubt that, because of their help, I, as an inexperienced person was able to

accomplish the report. These persons gave me their valuable time whenever I needed their help.

This report is so a blessing of the individuals who gave the valuable information of their banks

other than Prime Bank. Lastly, I would like to express my special honor to Mr.Nadim Jahangir,

Director in charge, School of Business for his co-operation.


TABLE OF CONTENTS

Contents Page No.


Letter of Transmittal

Acknowledgement

Executive Summary

1.0 Introduction 1

1.1 Background of the Problem 1

1.2 Problem Statement 1

1.3 Objectives 2

1.4 Methodology 3

1.5 Limitations 3

1.6 Research Timeline 4

2.0 Review of the Literature on Retail Credit 5

3.0 A Brief Profile of Prime Bank Limited 6

3.1 Vision 6

3.2 Mission 7

3.3 Strategic Priority 7

3.4 Core Values 7

3.5 Products and Services 7

3.6 Depository Services 8

3.7 Loan Services 8

3.8 Types of Credit Facilities 9

3.9 Other Services 10


Page No.(Continued)
4.0 Retail Credit Practices in Prime Bank Limited(PBL) 11

4.1 Credit Portfolio 11

4.2 Income Generation by Retail Credit 13

4.3 Target Clients 13

4.4 Typology of the Products offered by Prime Bank 14


Limited(PBL)

4.4.1 Car Loan 15

4.4.2 Household Durables Loan 16

4.4.3 Any Purpose Loan 17

4.4.4 Doctors Loan 18

4.4.5 Marriage Loan 19

4.4.6 Education Loan 20

4.4.7 Loan against Salary 21

4.4.8 Travel Loan 22

4.4.9 Hospitalization Loan 23

4.4.10 CNG Conversion Loan 24

4.4.11Swapna Neer 25

4.5 Credit Assessment, Approval and Disbursement 26


Procedure

4.5.1 Credit Assessment 26

4.5.1.1 Application 27

4.5.1.2 Contact Point Verification(CPV) 28

4.5.1.3 Guarantee 28

4.5.1.4 De duplication check 28


Page No.(Continued)
4.5.1.5 Assessment Method 29

4.5.2 Credit Approval Process 29

4.5.3 Credit Disbursement 30

4.6 Number of clients in Retail Credit 32

4.7 Promotional Activities 32

5.0 Retail Credit Practices in Eastern Bank Limited(EBL), 33


Dhaka Bank Limited(DBL), and National Credit and
Commerce Bank Limited(NCCBL)

5.1 Retail Credit Practices in Eastern Bank Limited(EBL) 33

5.1.1 Credit Portfolio of EBL 33

5.1.2 Income generation by Retail Credit 35

5.1.3 Target Clients 35

5.1.4 Typology of the Products offered by EBL 36

5.1.4.1 EBL Jibandhara or Any Purpose Lifestyle 36


Loan

5.1.4.2 EBL Auto(Car) Loan 37

5.1.4.3 EBL executive Loan 38

5.1.4.4 EBL Utshab or Vacation Loan 39

5.1.5 Credit Assessment, Approval and Disbursement 40


Process

5.1.6 Number of clients in Retail Credit 41

5.1.7 Promotional Activities 41

5.2 Retail Credit Practices in Dhaka Bank Limited(DBL) 42

5.2.1 Credit Portfolio 42

5.2.2 Income Generation by Retail Credit 44


Page No.(Continued)
5.2.3 Target Clients 44

5.2.4 Typology of the Products offered by DBL 44

5.2.4.1 Personal or Any Purpose Loan 45

5.2.4.2 Car Loan 46

5.2.4.3 Home Loan 47

5.2.4.4 Vacation Loan 48

5.2.5 Credit Assessment, Approval and Disbursement 49


Process

5.2.6 Number of clients in Retail Credit 49

5.2.7 Promotional Activities 50

5.3 Retail Credit Practices in National Credit and 51


Commerce Bank Limited(NCCBL)

5.3.1 Credit Portfolio 51

5.3.2Income Generation by Retail Credit 52

5.3.3 Target Clients 53

5.3.4 Typology of the Products offered by NCCBL 53

5.3.4.1Personal or Any Purpose Loan 54

5.3.4.2 House Renovation Loan 55

5.3.5 Number of clients in Retail Credit 56

5.3.6 Credit Assessment, Approval and Disbursement 56


Process

5.3.7 Promotional Activities 56


Page No.(Continued)
6.0 Comparative Analysis of Retail Credit Status of PBL 57
with EBL, DBL and NCCBL

6.1 Disbursed Amount of Retail Credit 57

6.2 Interest Income Generated by Retail Credit 57

6.3Number of Clients in Retail Credit 58

6.4 Types of Retail Credit Products Offered 58

6.5 Different Features of Similar Products Offered 58

6.6 Promotional Activities 60

7.0 Problems of Prime Bank in Retail Credit Operation 61

8.0 Prospects for Prime Bank in Retail Credit 63

9.0 Recommendation 64

10.0 Conclusion 65
LIST OF TABLES

Tables Page No.

1.List of Depository Services provided by PBL 9

2.List of Loan Services provided by PBL 9

3.Features of PBL Car Loan 15

4. Features of PBL Household Durables Loan 16

5. Features of PBL Any Purpose Loan 17

6. Features of PBL Doctors Loan 18

7. Features of PBL Marriage Loan 19

8. Features of PBL Education Loan 20

9. Features of PBL Loan Against Salary 21

10. Features of PBL Travel Loan 22

11. Features of PBL Hospitalization Loan 23

12. Features of PBL CNG Conversion Loan 24

13. Features of PBL Swapna Neer Loan 25

14. Features of EBL Jibandhara or Any Purpose Lifestyle Loan 36

15. Features of EBL Auto(Car) Loan 37

16. Features of EBL Executive Loan 38

17. Features of EBL Utshab or Vacation Loan 39

18. Features of DBL Personal or Any Purpose Loan 45

19. Features of DBL Car Loan 46

20. Features of DBL Home Loan 47


Page No.(Continued)

21. Features of DBL Vacation Loan 48

22. Features of NCCBL Personal or Any Purpose Loan 54

23. Features of NCCBL House Renovation Loan 55

24.Comparison of retail credit disbursed among four banks 57

25.Comparison of retail credit interest income among four banks 57

26. Comparison of number of clients in retail credit among four

banks 58

27. Comparison of retail credit products offered among four banks 58

28. Comparative Features of Any Purpose Loan among four banks 59

29. Comparison of promotional activities among four banks 60


LIST OF FIGURES

Figures Page Number

1.Credit Portfolio of PBL 12

2.Retail Credit Growth of PBL 12

3.Interest Income Growth of PBL Retail Credit 13

4.Process flow Chart of Retail Loan Processing of PBL 31

5. Clients Growth in PBL Retail Credit 32

6.Credit Portfolio of EBL 34

7.Retail Credit Growth of EBL 34

8.Interest Income Growth of EBL Retail Credit 35

9.Clients Growth in EBL Retail Credit 41

10.Credit Portfolio of DBL 43

11.Retail Credit Growth of DBL 43

12.Interest Income Growth of DBL Retail Credit 44

13.Clients Growth in DBL Retail Credit 50

14.Credit Portfolio of NCCBL 51

15.Retail Credit Growth of NCCBL 52

16.Interest Income Growth of NCCBL Retail Credit 52

17.Clients Growth in NCCBL Retail Credit 56


EXECUTIVE SUMMARY

In the new competitive business era, Private banking sector is getting more competitive in

Bangladesh. Besides this, as the number of salaried individuals are increasing day by day, they

are also becoming more aware about the utilization of their money while fulfilling their personal

needs. To consider these needs of people, Prime Bank Limited has recently emphasized more on

“Retail credit” or “Consumer Credit” Therefore, to find out the possibility of establishing the

leading position of Prime Bank in terms of retail credit, this report has been conducted to find out

the problems and prospects of Prime Bank retail credit. In this report, the total credit portfolio of

Prime Bank has been shown that indicated a positive growing trend in the retail credit amount

disbursed. Again, in terms of interest income, retail credit is also accounting an increasing trend.

One of the crucial parts of this report is that, Prime Bank Retail Credit has been compared with

other three similar second generation bank like Eastern Bank, Dhaka Bank and National Credit

and Commerce Bank in some aspects to understand the current position in the market. The retail

credit disbursement procedure is also described. From the comparison with three second

generation banks, some problems and prospects are found in Prime Bank Retail Credit. The most

important prospects of Prime Bank Retail credit are that, it has diversified product portfolio and

lowest rates in different charges of retail credit which is the strength of Prime Bank to proceed

further in retail credit business. Again, Prime Bank has a few problem regarding target client

segments and promotional activities that should be rectified.Overall, there are huge opportunities

for Prime Bank to develop and enter in retail credit market with a massive amount of investment

as this is one of the ways for risk diversification. In recent banking business, modern countries

are focusing more and more on retail credit to shuffle their past ideas about investing in corporate

credit. If Prime Bank desires to keep in balance of its reputation compared to other well-reputed

private commercial banks, it should consider more of its credit business on Retail Credit
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 1

1. Introduction

1.1Background of the Problem

Banking concept has been evolved since the rapid development of Information Technology.

Nowadays almost all over the world, retail-banking concept is a well-orchestrated name which

has indeed added a new feather to the gamete of banking lexicon. The primary activities of any

bank is to collect deposit and invest in different areas to earn profit.Besided this, the asset value

maximization of the shareholders and maintaining strong clientele are another two important

duties for any bank. To maintain these, Prime Bank Limited (PBL) has reached a vast amount of

Tk. 54, 724 million balances during 2006 with a 52% growth rate over the year 2005(Annual

Report, 2006).This large amount has been invested in different purpose to provide industry loan,

export-import finance, commercial lending, house-building finance and others. From the very

beginning, the credit exposure of PBL has been focused on commercial lending that is

international trade Finance, domestic trade finance, contractor/supply finance etc.But from the

annual report (2006) of PBL, it has been revealed that out of total classified loan of Tk. 651.58

lac in transport sector, Tk.648.44 lac was in the name of Cab Ex. Ltd, a corporate borrower. One

of the prudent conditions of ensuring profit is to minimize risk. Such defaults by one of the

corporate clients and the adverse effect of political situation at the end of 2006 have made the

bank management to rethink about its existing credit portfolio with an emphasis on retail credit.

1.2 Problem Statement

According to Math (2005), demand and credit cycle in retail credit is less volatile than that of

corporate credit. He also mentioned that, credit risk can be well diversified through retail credit as

loan amounts are relatively small. Because of wide spread interest rate, revenue can be higher

since clients are too fragmented to bargain effectively. The loan portfolio of PBL has been
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 2

increased by Tk. 1303.72 Cr. from Tk 3193.38 Cr. at the end of 2005 to Tk 4497.10 Cr. at the end

of 2006 registering 40.82% growth over the previous years. But the bank management has

recently felt the need to expand its credit facility on retail credit sector which is almost

unattended by bank till now. During the year 2006, only3.65% of total credit portfolio went to

finance retail credit or consumer credit. Day by day, the fixed income earning population is

increasing in number and therefore, the market for retail credit is expanding with large

opportunities for banks.

Again according to Clark et al. (2007), at the bank level, the principle attraction of retail

credit lending seems to be the belief that, its revenues are stable and thus can offset volatility of

non-retail business. As PBL management is emphasizing its focus on retail credit, this study aims

to investigate the feasibility of expanding the retail credit operation in PBL. More specifically,

this study wants to explore the problems and prospects of retail credit in context of Prime Bank

Limited in Bangladesh.

1.3 Objectives
The main objective of this study is to explore the problems and prospects of retail credit in

context of Prime Bank Limited in Bangladesh.

Moreover, this study wants to analyze

• the portfolio of credit disbursed

• the current retail credit product portfolio

• the credit assessment , approval and disbursement procedure and

• the current position of PBL in comparison with three other similar second generation

private commercial banks.


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 3

1.4 Methodology

• Though there is no established definition for second generation banks, it has been

assumed for many years that, the banks that were established and started their banking

activities in the first half of twentieth century are called second generation bank. According

to a yearly publication of Ministry of Finance (2006), there are four second generation

banks named as, Eastern Bank Limited (EBL), National credit and Commerce Bank Limited

(NCCBL), Prime Bank Limited (PBL) and Dhaka Bank Limited (DBL).All of these banks

are offering retail credit at present.

This study is mainly focused on Prime Bank Limited and to compare different aspects of

retail credit of PBL, three other second generation banks are selected. As PBL is one of the

second generation banks, therefore, other second generation banks will be appropriate for

comparison with PBL to maintain the consistency.

• For completing the study, both primary and secondary data sources are utilized. For

primary data sources, self-developed questionnaire has been used which is given to the

appendix. For secondary data sources, annual reports of PBL, EBL, DBL and NCCBL for

2004, 2005 and 2006, different credit policies etc. are used. Also, the retail credit

brochures of these banks are used.

1.5 Limitations
Although it has been tried on the level best to make this report based on facts and complete

information available, there are some limitations that are inevitable. They are following:

• This study is limited to only retail credit of PBL.

• There was a time limitation as three months internship period is not enough to study on

retail credit in details.


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 4

• Because of being private limited companies, PBL, EBL, DBL and NCCBL keep some

information restricted like the amount of classified loan. For this reason, classified loan

status of these banks is not stated in this report.

1.6 Research Timeline

Time Activities

June 11 –July 1, 2007 Problem Searching

July 2 – July 18, 2007 Collection of Annual reports and brochures

July 19- July 31, 2007 Introduction, Literature Review and overview of Prime

Bank

August 1- August 4, 2007 Development of questionnaire

August 5- August 17, 2007 Primary data collection from Eastern Bank, Dhaka Bank

and National Credit and Commerce Bank

August 18-August 22, 2007 Compilation of data

August 23- August 29, 2007 Interpretation of findings

August 30-September 1, 2007 Completion of the report with references

September 2, 2007 Submission of draft

September 2- September 6, 2007 Correction of the report

September 9, 2007 Submission of the report


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 5

2.0 Review of the Literature on Retail Credit


Today’s banking industry is experiencing renewed interest in retail credit as one of the

strategic key tools of risk diversification. Retail credit lending is one kind of services that banks

provide to individuals with a cluster of products through branches, internet and other channels

(Clark et al., 2007).

According to Gopinath (2005), retail credit is, however, quite broad in nature - it refers to the

different retail credit products that commercial banks provide to individual customers.

Retail credit is becoming an increasingly complex concept to define. The operation of providing

retail credit is called retail lending or retail credit financing. While” pure” retail credit is generally

conceived to be the provision of mass market lending services to private individuals, it has been

expanded over the years to include in many cases services provided to small- and medium sized

business people. Again, retail or consumer credit refers to the debts (credits) of consumers

involved in procuring consumer goods for the consumption of themselves and their families

(Westerfield, 1998).Stiroh (2004) has described retail lending as “hotter than Vindaloo”,

considering the fact that, “Vindaloo” the Indian-English innovative curry available in the

restaurants of London is very hot and spicy. It seems that, retail lending is perceived to be the in-

thing in today’s world of banking. He has also mentioned that today's retail lending sector is

characterized by three basic characteristics: multiple products (home loan, car loan, vacation loan,

travel loan etc), multiple channels of distribution (call centre, branch, internet and multiple

customer groups (consumer, small and corporate business people for daily needs).
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 6

3.0 A Brief Profile of Prime Bank Limited (PBL)

Prime Bank Limited, a scheduled bank, was incorporated under the Companies Act 1994,

and started its operation on April 17, 1995 with the target of playing the vital role in the socio-

economic development of the country as well as earning profit. It was registered as a banking

company under the Bank Company Act 1991 from the Bangladesh Bank on February 12, 1995.

The bank started making profit from the year of its inception. The first Managing Director, Mr.

Lutfar Rahman Sarkar, Ex-Governor, Bangladesh Bank, provided required leadership for a newly

established bank.

Prime Bank Limited is a second - generation private commercial bank has been working for

stimulating trade and commerce, accelerating the pace of industrialization, boosting up export,

creating employment opportunity, alleviating poverty, raising standard of living of the people etc

and thereby contributing to the sustainable development of the country. At present, the bank has a

network of 54 (fifty four) branches with around 1500 employees stationed in both rural and urban

areas of the country. Since inception, the Bank has been making significant profit every year and

positioning itself as second highest profit-making bank in the country for last five consecutive

years. This has been possible due to significant growth of the bank. This has also been possible

due to minimize the risks of the bank successfully.

The bank serves its customers with the following motto—


‘A Bank with a difference’.

3.1 Vision

To be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital

adequacy, asset quality, sound management and profitability having strong liquidity.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 7

3.2 Mission

I. To build Prime bank limited into an efficient, market driven, customer focused

institution with good corporate governance structure.

II. Continuous improvement in our business policies, procedure and efficiency

through integration of technology at all levels.

3.3 Strategic Priority

To have sustained growth, broaden and improved range of products and services in all areas

of banking activities with the aim to add increased value to shareholders investment and offer

highest possible benefits to the customers.

3.4 Core Values

For the customers

To become most caring Bank- by providing the most courteous and efficient service in every

area of business.

For the Employee

By promoting the well – being of the members of the staff

For the Shareholders

By ensuring fair return on their investment through generating stable profit.

For the Community

By assuming the role as a socially responsible corporate entity in a tangible manner through

close adherence to national policies and objectives.

3.5 Products and Services

The bank serves its huge clientele with a variety of services apart from the traditional ones. Its

continual improvement and introduction of new products and services has given it an edge over

the competitors.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 8

3.6 Depository Services

The bank provides the following depository services and collects a huge amount of its

deposits. The services are

Table 1: List of Depository services provided by PBL

1. Contributory Savings Scheme


2. Monthly Benefit Deposit Scheme
3. Special Deposit Scheme
4. Education Saving Scheme
5. Fixed Deposit Receipt
6. Savings Deposit Account
7. Short Term Deposit Account
8. PBL-Insured Fixed Deposit Scheme
9. Prime Bank Money Scheme
10. Multi Currency Account
11. Foreign Currency Deposit Account
12. Non Resident Taka Account
13. NFCD (Non Resident Foreign Currency) Account
14. Non Residents Investors Account

3.7 Loan Services

Loans and advances have primarily been divided into two major groups:

a) Fixed term loan:

These are the loans made by the Bank with fixed repayment schedules. Fixed term loans are

categorized into three based upon its tenure which is defined as follows:

Short term : up to 12 months

Medium term : More than 12 and up to 36 months

Long term : More than 36 months

b) Continuing Loans

These are the loans having no fixed repayment schedule but have an expiry date at which it is

renewable on satisfactory performance of the customer.


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 9

Furthermore all categories of loans are accommodated under the 7 prime sectors which are as

under:

1) Agriculture

2) Term Loan to Large & Medium Scale Industry

3) Term Loans to Small and Medium Enterprise(SME)

4) Working Capital

5) Export Credit

6) Commercial Lending

7) Others

3.8 Types of Credit Facilities:

Depending on the various nature of financing, all credit facilities have been brought under two

major groups: (a) Funded Credit and (b) Non-funded credit. Under non-funded credit, there is

basically two major products namely letter of Credit and Letter of Guarantee. Under Funded

Credit, The bank offers the following services to the client to meet the demand as well as making

a profit. The loan and advance products are:

Table 2: List of loan services provided by PBL

Name of the Products/services


1. Loan (General)
2. Housing Loan (Commercial)
3. Home Loan
4. House Building Loan (Staff)
5. Other Loans to staff
6. Cash Credit (Hypo)
7. Cash Credit (Pledge)
8. Hire Purchase
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 10

9. Lease Financing
10. Consumer Credit Scheme (CCS)
11. SOD (Financial Obligation)
12. SOD (General)
13. SOD (Work Order)
14. SOD (Export)
15. PAD
16. LIM
17. LTR
18. IBP
19. Export Cash Credit (ECC)
20. Packing Credit (P.C.)
21. FDBP
22. IDBP
23. FBP
24. Prime Bank Master and Visa Credit card

3.9 Other Services

The bank firmly believes that technology based product and services will play significant role in

the performance of the bank as people are getting more conscious about their service they receive

from a bank.For delivering faster service the bank has introduced online banking service. The

bank has introduced other products and services to serve the ever-changing market. These are—

I. SWIFT services

II. L/C Delivery Services

III. Locker Services

IV. Merchant Banking Services

V. ATM services
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 11

4.0 Retail Credit Practices in Prime Bank Limited (PBL)

The Prime Bank Limited started to provide retail credit informally from the year 1999 as a

part of its core business. It was then one of the negligible parts of total credit and advance and

was provided to few number of individuals under the name of “Others” sector. From 2005, PBL

started to expand its retail credit activities far more than the previous years as a part of risk

diversification strategy. Since then, retail credit has been targeted for significant further growth.

4.1 Credit Portfolio

Till 2004, retail or consumer credit was in a scattered position, though it had some portion

over the total credit disbursed. From the annual reports of PBL, some facts and figures are found

regarding retail credit. According to these annual reports, in 2004, the total amount of credit

disbursed was Tk. 2321.96Cr. in which consumer credit counted with a 2.91% of that amount.

Again in 2005, the growth rate of PBL consumer financing was 79.10% over the year 2004.

In 2005, the credit portfolio was maintained by PBL of Tk. 3193.38 Cr. in which, consumer

credit scheme (CCS) accounted for only 3.79% of total credit disbursed in different sectors.

The year 2005 grasped the highest investment in commercial purposes as 26.17% of total credit

went into this sector.

With the continuation of focusing further expansion, in 2006, PBL achieved 35.49% growth

in retail credit business over the year 2005.A number of products were developed and existing

products were re-launched with better pricing structure and repayment period.

In 2006, though only 3.65% of total credit was invested in terms of retail credit, PBL

continued its spotlight on retail credit. In view of the growth potentials, separate division was

created at the beginning of the year 2006 for managing the retail business following credit

portfolio was standing with PBL with different lending sectors.


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 12

Figure 1 shows a comparative scenario of the credit amount disbursed in different sectors

during 2004-2006 time periods. In figure 1, CCS indicated “Consumer Credit Scheme” or retail

credit.

Credit Portfolio of PBL


35.00%
30.00%
25.00% 2004
Figures in %

20.00% 2005
15.00% 2006
10.00%
5.00%
0.00%

L
e

S
l
M
i

s
ita
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nc

SM

er
L&

in

H
A

C
ap

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O
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ng

rt

al
po
ki

ci
or

Ex

er
W

m
om

Sectors
C

Sources of data: Annual reports of PBL

Figure 1

The growth trend of retail credit disbursed in the period 2004-2006 can be shown therefore by
the figure 2.Among these three years, the highest percentages of retail credit of total credit was
disbursed during 2005.

Retail Credit Growth of PBL

4.00%
3.50% 3.79%
3.65%
3.00%
Figures in %

2.50% 2.91%

2.00%
1.50%
1.00%
0.50%
0.00%
2004 2005 2006
Years

Figure 2
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 13

4.2 Income Generation by Retail Credit


As per the above percentages of retail credit or Consumer Credit Scheme (CCS) in total credit

portfolio, the main income that this sector generates it the interest income. In 2004, the total

interest revenue generated by different credit sectors was Tk 264.09 Cr. in which, CCS alone was

responsible for income of Tk. 11.09 Cr..Again, in 2005, the total interest revenue from different

sector was Tk. 344.55 Cr. wherein, Tk. 14.29 Cr. was gained by CCS.In the year 2006, total

interest revenue earned was Tk.519.88 Cr. and Tk. 21.94 Cr. was from CCS.

The following figure 3 shows the interest income growth as a percentage of total interest

income in 2004-2006 years period. According to figure 3, year 2006 generated higher interest

income as a percentage of total interest income. Though, in 2005, more percentage of total credit

was disbursed in retail, interest income was the lowest in percentage of total interest income

among theses three years.

Interes t Income Growth of PBL Retail


Credit

6.00%
5.50%
5.00% 4.22%
4.20% 4.15%
4.50%
Figuresin%

4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
2004 2005 2006
Ye ars

Sources of data: Annual reports of PBL

Figure 3
4.3 Target Clients
Any Bangladeshi individual who has the capacity to repay loan is allowed to apply for PBL

retail credit. In specific terms, the salaried executives of multinational companies, officials of

middle to large size local corporations, government officials, officials working in semi-
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 14

government, autonomous and reputed NGOs, international aid agencies and UN bodies, any tax

paying businessmen of repute and self-employed tax-paying individual having a reliable source

of income are eligible to apply for retail credit.

4.4 Typology of the products offered by Prime Bank Limited (PBL)

Prime Bank Limited is one of the fast growing banks in terms of satisfying individual clients’

need. For the clients’ convenience, Prime Bank has offered 11 types of retail credit products.

Those are following:

• Car loan

• Household Durable Loans

• Any purpose Loans

• Doctor’s Loan

• Marriage Loan

• Education Loan

• Loan against Salary

• Travel Loan

• Hospitalization Loan

• CNG conversion Loan

• Swapna Neer

Brief details of the above products are given below


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 15

4.4.1 Car Loan


For purchasing of non-commercial, new and reconditioned vehicles, this loan is given for

personal use of the individual.

Table 3: Features of Car Loan


Features Description
Loan Amount(Min) Tk. 4,00,000(For both new and reconditioned car)
Loan amount(Max) Tk 20, 00,000 or 90% of the vehicle price.
Rate of Interest 16%
Tenor 6 years (max) for brand new cars and 5 years (max) for
reconditioned car.
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Pay order directly issued in the name of respective car
company.
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 475
Early Settlement At any time with no penalty charge
Criteria for application(Age Any Bangladeshi citizen of 25-60 years at the time of
limit) maturity of loan.
Minimum Monthly Income Tk. 20,000 for salaried individuals
Tk. 40,000 for businessman
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 16

4.4.2 Household Durables Loan


For purchasing household durables like television, refrigerator, air-conditioner, washing

machine, computers and other household furniture for personal use, any individual can apply for

this loan.

Table 4: Features of Household Durables Loan


Features Description
Loan Amount(Min) Tk. 10,000
Loan amount(Max) Tk 5, 00,000 or 90% of the vehicle price.
Rate of Interest 15%
Tenor 4 years(max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Pay order directly issued in the name of respective
company of purchase.
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 470
Early Settlement At any time with no penalty charge
Criteria for application(Age Any Bangladeshi citizen of 21-60 years at the time of
limit) maturity of loan.
Minimum service length Minimum service length of 1 year and must be a confirmed
employee (For salaried individual)
A business record of minimum 3 years(For self-employed
person)
Minimum Monthly Income Tk. 10,000 for salaried individuals and
Tk. 15,000-25,000 for businessman
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 17

4.4.3 Any purpose Loan


For miscellaneous personal financial purposes such as, house renovation, marriage in the

family, rental payments, trips abroad, purchasing of different household items etc., any

individual can get this type of loan. The features of the loan are following:

Table 5: Features of any Purpose Loan


Features Description
Loan Amount(Min) Tk. 10,000
Loan amount(Max) Tk 3,00,000.
Rate of Interest 16%
Tenor 3 years(max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Savings account of clients or sometimes cash disbursement.
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for Any Bangladeshi citizen of 25-65 years at the time of maturity
application(Age limit) of loan.
Minimum service length Minimum service length of 2 year and must be a confirmed
employee(For salaried individual)
Minimum Monthly Tk. 10,000 for salaried individuals
Income Tk. 25,000 for businessmen
Guarantors Two persons
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 18

4.4.4 Doctors Loan


In case of purchasing small scale of different medical equipments, machineries, tools or other
relevant items to support professional needs, generally doctors are encouraged to apply for this
loan. Features of doctors’ loan are given below:
Table 6: Features of Doctors Loan
Features Description
Loan Amount(Min) Tk. 1,00,000
Loan amount(Max) Tk 5, 00,000 for general practitioners.
Tk. 10,00,000 for specialist doctors that is , holding post
graduation degree
Rate of Interest 16 %
Tenor 5 years (max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Clients’ savings account or sometimes cash disbursement
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 470
Early Settlement At any time with no penalty charge
Criteria for Any Bangladeshi citizen of 25-65 years at the time of maturity
application(Age limit) of loan.
Minimum service length For salaried individuals, must be confirmed of an established
organization.
For self employed person, a professional experience of
minimum 2 years is required.
Minimum Monthly Income Tk. 10,000 for salaried individuals and
Tk. 25,000 for self- employed
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 19

4.4.5 Marriage Loan


To meet the financial purposes of marriage, this loan is given. The features are given below:
Table 7: Features of Marriage Loan
Features Description
Loan Amount(Min) Tk. 10,000
Loan amount(Max) Tk 3,00,000.
Rate of Interest 16%
Tenor 3 years(max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Clients’ savings account or sometimes cash disbursement
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application(Age Any Bangladeshi citizen of 25-65 years at the time of
limit) maturity of loan.
Minimum service length Minimum service length of 1 year and must be a confirmed
employee(For salaried individual)
Minimum Monthly Income Tk. 10,000 for salaried individuals
Tk. 25,000 for businessmen(For rented people)
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 20

4.4.6 Education Loan


For educational purposes like study in abroad or within the country, this loan is given.
Table 8: Features of Education Loan
Features Description
Loan Amount(Min) Tk. 1,00,000
Loan amount(Max) Tk 5, 00,000.
Rate of Interest 16%
Tenor 4 years (max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Clients savings account or sometimes cash disbursement
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for Any Bangladeshi citizen of 25-65 years at the time of maturity
application(Age limit) of loan.
Minimum service length Minimum service length of 2 year and must be a confirmed
employee(For salaried individual)
Minimum Monthly Income Tk. 12,000 for salaried individuals and Tk. 25,000 for
businessmen (For rented people)
Tk. 10,000 for salaried individuals and
Tk. 15,000 for businessmen(for those who are residing in
his/her own or family residence)
Tk. 10,000 for Govt., Semi-Govt and autonomous bodies
employees.
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 21

4.4.7 Loan against salary


To meet the financial needs for any acceptable purpose, this loan can be given .
Table 9: Features of Loan Against Salary
Features Description
Loan Amount(Min) 8 times if gross salary where the organization of the
applicant would have Memorandum of Understanding
with PBL subject to highest Tk. 3, 00,000.
6 times of gross salary where the organization of the
applicant would have Memorandum of Understanding
with PBL subject to highest Tk. 3, 00,000.
Rate of Interest 16%
Tenor 3 years (max).
Down payment N/A
Repayment method Monthly equal installment
Disbursement mode Clients savings account or sometimes cash disbursement.
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund N/A
Penalty Charge N/A
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application (Age Any Bangladeshi citizen of 21-65 years at the time of
limit) maturity of loan.
Minimum service length Minimum service length of 1 year and must be a
confirmed employee (For salaried individual)
Minimum Monthly Income N/A
Guarantors N/A
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 22

4.4.8 Travel Loan


To meet the financial needs for travel purpose, this loan can be given. Features of this loan are
following:
Table 10: Features of Travel Loan
Features Description
Loan Amount(Min) Tk. 20,000
Loan amount(Max) Tk 2, 00,000.
Rate of Interest 16%
Tenor 3 years (max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Clients’ savings account or sometimes cash
disbursement.
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application(Age Any Bangladeshi citizen of 25-65 years at the time of
limit) maturity of loan.
Minimum service length Minimum service length of 2 year and must be a
confirmed employee(For salaried individual)
Minimum Monthly Income Tk. 12,000 for salaried individuals and Tk. 25,000 for
businessmen(For rented people)
Tk. 10,000 for salaried individuals and
Tk. 15,000 for businessmen( for those who are residing
in his/her own or family residence)
Tk. 10,000 for Govt., Semi-Govt and autonomous bodies
employees.
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 23

4.4.9 Hospitalization Loan


To meet the financial needs for treatment purposes in well-reputed hospitals/clinics of Dhaka

and Chittagong, any individual can get this loan under the following criteria:

Table 11: Features of Hospitalization Loan


Features Description
Loan Amount (Min) 90% of the total treatment cost
Loan Amount (Max) Tk 5,00,000.
Rate of Interest 16%
Tenor 2 years (max).
Down payment N/A
Repayment method Monthly equal installment
Disbursement mode Clients’ savings account .In case of salaried individuals,
sometimes cash disbursement may happen.
Other charges 1% on the loan amount or Tk. 1000 whichever is
higher+15%VAT
Risk fund 1% on loan amount.
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application(Age 25-65 years at the time of maturity of loan.
limit)
Minimum service length Minimum service length of 2 year and must be a confirmed
employee(For salaried individual)
Minimum Monthly Income Tk. 10,000 for salaried individuals
Tk. 25,000 for businessmen
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 24

4.4.10 CNG Conversion Loan


For converting vehicles from carbon based fuel to Compressed Natural Gas system, this loan

is offered to individuals.

Table 12: Features of CNG Conversion Loan


Features Description
Loan Amount(Min) N/A
Loan amount(Max) Tk 1, 00,000.
Rate of Interest 16%
Tenor 1.5 years (max).
Down payment 10% of the loan amount
Repayment method Monthly equal installment
Disbursement mode In the form of pay-order
Other charges 1% on the loan amount or Tk. 1000
whichever is higher+15%VAT
Risk fund N/A
Penalty Charge 2% of the installment overdue
Stamp Charge Tk. 320
Early Settlement At any time with no penalty charge
Criteria for application(Age limit) Any Bangladeshi citizen of 21-65 years at the
time of maturity of loan.
Minimum service length Minimum service length of 2 year and must
be a confirmed employee (For salaried
individual).
For self-employed individual, a business
record of minimum 4 years.
Minimum Monthly Income Tk. 10,000 for salaried individuals
Tk. 25,000 for businessmen
Guarantors Two persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 25

4.4.11 Swapna Neer


The purpose of giving this loan is to purchase apartment/house(if old, not older than 10

years), constructing new house and taking over of house-building loans from other banks/non

banking financial institutions.

Table 13: Features of Swapna Neer or Home Loan


Features Description
Loan Amount(Min) Tk. 10,00,000
Loan Amount(Max) Tk. 50,00,000
Loan to price ratio 40% of total cost for construction of home
30% of purchase price of new apartment
50% of purchase price of old apartments/home subject
to maximum Tk. 50, 00,000.
Rate of Interest 15%
Disbursement mode Issuing pay order to the name of respective company
Tenor 15 years (max).
Repayment method Monthly equal installment
Early Settlement At any time with no penalty charge
Other Charges 1% on loan amount
Risk fund 0.50% on loan amount
Criteria for application(Age limit) Any Bangladeshi citizen of up to 60 years (repayment
age)
Minimum Monthly Income The quantum of loan shall be such to ensure monthly
installment size would not exceed 40% of the gross
income or 80% of the residual income after deducting
all expenses except present rental expenses whichever
is lower.
Guarantors One person
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 26

For any retail loan application, Tk. 50 is taken as a fee.

To apply for any of the above retail loan of PBL, a client needs his/her photographs, copy of

passport/ID card, last one year’s bank statement, copy of TIN, trade license(for businessmen),

personal net worth statement etc.

One of the special criteria of retail credit or consumer credit is that, it is an unsecured loan as

there is no requirement for collateral except letter of guarantee.

Besides these, following legal documents are needed to get any retail credit from PBL.

• Duly filled in loan application form with terms and condition signed

• Demand Promissory Note

• Letter of Set-Off

• Irrevocable Letter of Authority to repossess the vehicle(for car loan)

• Ownership transfer form signed by customer(for car loan)

• Letter of Introduction(for salaried person) and

• Letter of offer with full terms and conditions stated therein and duly accepted.

4.5 Credit Assessment, Approval and Disbursement Procedure

4.5.1 Credit Assessment

The prior condition for any credit disbursement is to critically assess and approve the credit

proposal that is the client selection and assessment. In case of retail credit it should be done more

crucially as retail lending is one of the types of unsecured individual lending without collateral.

The primary factor determining the quality of the Bank’s credit portfolio is the ability of each

borrower to honor, on timely basis, all credit commitments made to the Bank that is, repayment

of loan installment on time.


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 27

In PBL, more emphasis is given on repayment potential of loans out of funds generated from

borrower’s business (cash flow) instead of realization potential of underlying securities while

assessing a retail credit proposal. Following are the steps that are maintained in PBL for assessing

any retail credit proposal.

4.5.1.1 Application

The first stage of retail credit assessment and approval process is a client application that

contains the following information:

• Telephone and address contact details

• Employment/business details

• Income Details

• Income and Expenditure Statement

• Personal Net worth Statement

• Residence details

• Credit references and guarantors details

Basically, branches receive the client application with other required papers necessary for

different retail loans.

4.5.1.2 Contact Point Verification (CPV)

Verification is a key part of application process. Contact point verification is done for all

applicants except for the High Net Worth individuals or the clients having good account

relationship with Bank. The objective of this process is to check the declared/undeclared

information of the applicants. CPV includes:

• Applicant’s Residence, business/office address, phone, status

• Guarantors Information Verification


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 28

• Bank statement and other income documents verification.

In most of the times, CPV is done by branch managers. CPV is done by third party agency

also to enable the client selection of better accounts for accelerated processing and quick rejection

of those having negative/inadequate information. Retail credit officers then verify data collected

by third part.

4.5.1.3 Guarantee

One of the fundamental perquisites for securing retail credit is to obtain guarantee acceptable

to the bank by way of social status and perceived creditworthiness. Retail credit officers at branch

level check the guarantors’ information very carefully. In case of guarantors, following are the

rules that are maintained:

• Existing guarantor of any other loan of the bank will not be accepted as other

guarantor for other loans.

• Any existing borrowers will not be taken into account as a guarantor for any other

loan.

• Guarantee from the Chairman, Managing Director and Directors of Corporate facility

clients and obtaining will be allowed after the prior approval of Head Office.

• All guarantors will be verified whether they have any relationship with banks earlier

with either positive or negative status.

4.5.1.4 De duplication check

All approved applicants are checked against Bank’s database to identify whether the applicant

is enjoying any other loan in other accounts part from the declared loans. Whether the client has

any other loan with any other bank is also important to know for client selection. In this case, CIB

(Credit Information Bureau) are sent in a specific form to Bangladesh Bank.


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 29

Within the time of the CIB returned back to the branch, the retail credit officers of the branch

make a credit proposal for further assessment and approval.CIB reports are requested for any

amount equivalent to Tk. 50,000 and above that. After returning the CIB information , the credit

proposal along with documents is sent to Retail Credit Head Office (RHO).Up to this point at

branch level, almost seven to ten days are required for processing.

4.5.1.5 Assessment Method


Assessment of credit proposal and credit approval are done in Head office of retail

The assessment method can be divided in two steps.

The first step is known as “Credit Scoring” which is done to predict the creditworthiness of

applications. A prior designed excel sheet is there to score in point values of some important

aspects of clients such as occupation, residence status, income details etc.The total of these point

values in 100 points represents the repayment probability of that particular client. The higher the

value, the probability of getting approval for credit is higher.

The second step is known as “Judgmental Decision”. Application meeting the minimum cut-

off score and meeting other criteria is further reviewed for judgmental decision. After credit-

scoring method is completed, all the credit proposals are presented in the board meeting for

approval. The judgmental approval involves the assessment of an applicant’s character, capacity

and collateral.

4.5.2 Credit Approval Process

There is a credit approval authority to finally decide whether the retail loan should be

sanctioned or not. The authority includes

• The Board of Directors

• The Executive Committee of the Board

• The Managing Director


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 30

• The Deputy Managing Director

• Retail Credit Committee

After presenting the credit proposals, the authority critically analyze the aspects and after that,

the authority finally decides about the retail credit sanction. The members of the authority have

some individual delegation power of retail credit, which is limited by Tk. amount. Up to this

point, three to four days are required for processing.

4.5.3 Credit Disbursement

After the credit proposal has been approved, the credit officers of Retail Head Office check

whether all the security components are collected properly. If all requirements are there,

documentation and arrangements are prepared for credit sanction. A sanction advice for every

particular retail credit is sent to the branches for final disbursement. This branch level

disbursement is called “Decentralized Disbursement System”

Branches, after getting the sanction advice, make a signing event with agreed terms and

conditions between bank and individual client. After that, credit is disbursed to the client’s

savings account. The total process requires fifteen, in special cases, twenty days from receiving

client’s application up to disbursement.

Without completion of any of these steps including credit assessment, approval and proper

documentation, no retail credit will be disbursed .The total process started from application

received at branch level up to credit disbursement can be shown in a diagram which is common

for all Private Commercial Banks who offer retail credit. This diagram along with the whole

process is approved by Bangladesh Bank in a guideline named” Prudential Regulations for

Consumer Financing, 2004”.


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 31

Process Flow Chart of Retail Loan Processing of Prime Bank Limited

Application Received from client at


branch level

Branch scrutinizes the application

Application filled
up with required No
papers correctly?

Yes
Branch send credit proposal with
application &papers to Head Office
of Retail (RHO)

RHO receives & assesses the credit


proposal with papers and sends to
credit committee for approval

Credit No
approved?

Yes
Application sent to credit dep. for
arrangement of credit sanction &
disbursement procedure.

Documents No
in order?

Yes

Credit disbursed by Sanction advice sent to branch for


branch to client disbursement
Figure 4
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 32

4.6 Number of Clients in Retail Credit


In the year 2004, 2005 and 2006, the total numbers of clients in different retail credit were

4829, 6461 and 5696 respectively. The growth trend of clients can be shown by the following

figure 5.

Figures in Numbers Clients Growth of PBL Retail Credit


7000
6000
5000 6461
5696
4000
4829
3000
2000
1000
0
2004 2005 2006

Years

Sources of data: Primary (Questionnaire)

Figure 5
According to the above figure 5, among these three years, the curve line shows the upper pick

point in 2005.From 2004 to 2005, the line shows positive trend wherein, from 2005 to 2006, the

line shows a negative trend. That is, in the period 2004-2006, highest number of clients was is

2005.

4.7 Promotional Activities

For promotional activities, PBL has recruited

• Around eighty number of Direct Sales Agents (DST) who reaches from door to door to

aware people about PBL retail credit.

• Paper advertisements are sometimes there

PBL sometimes arranges retail loan fair.


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 33

5.0 Retail Credit Practices in Eastern Bank Limited (EBL), Dhaka Bank Limited
(DBL) and National Credit and Commerce Bank Limited (NCCBL)
5.1 Retail Credit Practice in Eastern Bank Limited (EBL)

Eastern Bank Limited (EBL) is one of the second generation private commercial banks with

25 online branches across major cities in Bangladesh. It offers full range of commercial banking

products and services to the corporate, mid-market and retail segments. It started to provide retail

credit informally from the year 2001, but from the year 2004, EBL has its own separate retail

credit segments. EBL defines retail credit as any loan sanctioned to any individual which is based

on the individual’s credit worthiness.

5.1.1 Credit Portfolio of EBL

Eastern Bank has comprehensive range of financial products including corporate deposit

accounts, syndicated finance, export-import financing, working capital and other finance,

infrastructure finance, cash management services etc. In the year 2004, 2005 and 2006, the total

amounts of credit disbursed were Tk 149.69 Cr 54 Cr., and 259.74Cr. respectively. In these

amounts, Tk. 62.43 Cr., 170.82 Cr., 315.19 Cr were in retail credit sectors. The percentages of

retail credit in total credit disbursed were 4.17%, 9.62% and 12.13% respectively. As we can see

in the following graph, in the year 2004, commercial trading was the major focus as highest

percentages of credit was disbursed in that sector whereas retail credit, construction and

pharmaceuticals were less invested area.

With the time passes by, as according to the figure 6, the year 2005 and 2006 concurred

special focus on retail credit. In the following figure 6, the dark black area represents the portion

of retail credit disbursed.


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 34

Credit Portfolio of EBL


100%
Others
90%
Telecom
80%
Figures in %
70% Ship breaking
60% RMG
50%
Pharmaceuticals
40%
30%
Retail credit
20% Construction
10% Commodity Import
0%
2004 2005 2006 Commercial trading
Years

Sources of Data: Annual Reports of 2004, 2005 and 2006 of EBL

Figure 6

Therefore, the following figure 7 shows the growth trend in retail credit disbursement by

EBL.The percentages of retail credit disbursed in total credit in 2004, 2005 and 2006 were 4.67%,

9.62% and 12.13% respectively.

Growth of EBL Retail Credit

15.00%
Figures in %

10.00%
12.13%
9.62%
5.00% 4.17%

0.00%
2004 2005 2006

Years

Figure 7
Thus, it can be commented that, there was a positive growing trend in retail credit

disbursement in EBL.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 35

5.1.2 Income Generation by Retail Credit

In the year 2004, 2005 and 2006, the total interest revenue earned were Tk. 162.83 Cr.,

206.17Cr, and 282.93 Cr respectively among which retail credit sector counted for Tk. 11.86 Cr.,

32.45 Cr., and 59.8 Cr on those consecutive years.

Interest Income Growth of EBL


Retail Credit

25.00% 21.01%

20.00%
Figures in %

15.00%
15.73%
10.00%

5.00% 7.28%

0.00%
2004 2005 2006
Ye ars

Sources of data: Annual reports of EBL

Figure 8
As per the above figure 8, it can be seen that, retail credit generated almost 8% of total

interest revenue earned in 2004.With the continuation of a growing trend, the year 2005 and 2006

accounted for almost 15% and 21% of total interest revenue respectively on that two years earned

by retail credit.

5.1.3 Target Client


Any self-employed professionals like doctors, architects, chartered accountants, engineers

and consultants, salaries employees of Govt. or Semi-Govt. organizations and also well reputed

multinational companies, credit worth business person (sole proprietor, partner or directors) are

the target clients for EBL retail credit. Basically, lawyer, defense people and journalists are

discouraged for applying retail loan of EBL.


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 36

5.1.4 Typology of the Products by EBL

The products that are treated as retail credit in EBL are following

• EBL Jibandhara Loan or Any purpose Loan

• EBL Auto(Car) Loan

• EBL Executive Loan and

• EBL Utshab Loan or Vacation Loan

Brief details of the above products are given below:

5.1.4.1EBL Jibandhara Loan or Any Purpose Lifestyle Loan

For any individual purpose like house renovation, interior decoration, marriage and other

necessary purposes, EBL provides this type of loan.

Table 14: Features of Jibandhara or Any Purpose Lifestyle Loan


Features Description
Loan Amount(Min) Tk. 50,000 or 10-12 times of gross salary (the lower amount)
Loan amount(Max) Tk 10, 00,000
Rate of Interest 21%
Tenor 1-6 years(max)
Down payment 30% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Clients savings account or mostly cash disbursement
Other charges 1.5% on the loan amount
Penalty Charge 3% of installment overdue
Stamp Charge Tk. 600
Early Settlement 2% of the outstanding amount(before 12 months) and 1% of
the outstanding amount(12 months and above)
Criteria for application(Age ) 22-60 years at the time of maturity
Minimum Monthly Income Tk. 15,000(min) for salaried individuals and Tk. 20,000 for
businessmen and others.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 37

Guarantors One person.

5.1.4.2 EBL Auto (Car) Loan


Table 15: Features of Car Loan
Features Description
Loan Amount(Min) Tk. 3,50,000(for both brand new and
reconditioned car)
Loan amount(Max) 75% of car value or Tk. 20,00,000 for new car
and 70% of car value or Tk. 20,00,000
whichever is lower for reconditioned car.
Rate of Interest 18%
Tenor 1-4 year for reconditioned car and 1 – 5 years
for new car.
Down payment 30% of the loan amount
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving
account or most of the times cash
disbursement happens
Other charges 1.5% on the loan amount
Penalty Charge 3% of installment overdue
Stamp Charge Tk. 675
Early Settlement 2% of the outstanding amount(before 12
months) and 1% of the outstanding
amount(12 months and above)
Criteria for application(Age limit) Any Bangladeshi citizen of 22-60 years at the
time of maturity of loan.
Minimum Monthly Income Tk. 30,000for salaried individuals,
businessmen and others.
Guarantors One person.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 38

5.1.4.3 EBL Executive Loan


Only EBL employees, corporate clients and Government service holder without banker can
apply for this loan.
Table 16: Features of Executive Loan
Features Description
Loan Amount (Min) Tk. 50,000 or 10-12 times of gross salary
whichever is lower.
Loan Amount (Max) Tk 10,00,000
Rate of Interest 20%
Tenor 1-3 years (max)
Down payment No down payment.
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving
account or mist of the times cash
disbursement happens
Other charges 1.5% on the loan amount (up to Tk 3 lac )
1% of total loan amount (above Tk 3 lac)
Penalty Charge 3% of installment overdue
Stamp Charge Tk. 600
Early Settlement 2% of the outstanding amount(before 12
months) and 1% of the outstanding
amount(12 months and above)
Criteria for application(Age limit) 23-60 years at the time of maturity
Minimum service length At least five years for salaried individuals
Minimum Monthly Income Tk. 15,000(min) for private org.salaried
individuals and Tk. 12,000 for Govt.
employees.
Guarantors One person.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 39

5.1.4.4 EBL Utshab or Vacation Loan


For the credit worthy individuals who spent on the eve of Holy Eid and in other vacation

purposes can apply for this type of loan.

Table 17: Features of Utshab or Vacation Loan


Features Description
Loan Amount(Min) Tk. 50,000 or 10-12 times of gross salary
whichever is lower.
Loan amount(Max) Tk 1,50,000
Rate of Interest 20%
Tenor 1-3 years(max)
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving
account or most of the times cash
disbursement happens
Other charges 1.5% on the loan amount
Penalty Charge 3% of installment overdue
Down Payment 30% of the total loan amount
Stamp Charge Tk. 600
Early Settlement 2% of the outstanding amount(before 12
months) and 1% of the outstanding
amount(12 months and above)
Criteria for application(Age limit) Any Bangladeshi citizen of 22-60 years at the
time of maturity of loan.
Minimum Monthly Income Tk. 15,000(min) for salaried individuals and
Tk. 20,000 for businessmen and others.
Guarantors No. of one person.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 40

Same as Prime Bank, to apply for any of the above retail loan of EBL, a client needs his/her

photographs, copy of passport/ID card, last one year’s bank statement, copy of TIN, trade

license(for businessmen), personal net worth statement etc.

Besides these, following legal documents are needed to get any retail loan from EBL.

• Duly filled in loan application form with terms and condition signed

• Demand Promissory Note

• Letter of Guarantee

• Letter of Set-Off

• Irrevocable Letter of Authority to repossess the vehicle(for car loan)

• Ownership transfer form signed by customer(for car loan)

• Letter of Introduction(for salaried person) and

• Letter of offer with full terms and conditions stated therein and duly accepted.

5.1.5 Credit Assessment, Approval and Disbursement process

As all Private Commercial Banks are bound to follow the “Bangladesh Bank Prudential

Regulations for Consumer Financing 2004”, according to this manual, all retail credit offering

banks go through the processes started from client’s credit application receive up to the final

disbursement as described in above for Prime Bank Limited along with the diagram on page 31 of

this report.

In case of Eastern Bank Limited (EBL), the retail credit disbursement process is as same as

Prime Bank Limited for the above reason. But, instead of sending sanction advice to the

branches, EBL Retail Head Office, by its own, disburse all the retail credits after approval. This

type of disbursement is called “Centralized Disbursement” .Also, EBL has passed a circular in its

board meeting in which it is written that, in accordance with “EBL PDC Policy”, in case of ‘De
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 41

Duplication Checking” steps, CIB report will not be sought up to Tk 5.00 lac loan. With the

compliance of this circular, though the total retail credit disbursement process is centralized that

is controlled by EBL Retail Head Office; it takes only five to seven days to disburse most of the

retail loans less than an amount of five lac.

5.1.6 Number of Clients in Retail Credit

During the year 2004, 2005 and 2006, the numbers of clients in different retail credit were

4963, 9489 and 8960 respectively that are shown with the following graph including the growth

trend. Though there was a positive growth in 2005 over the year 2004, 2006 shows a less positive

growth. The growth trend can be shown by figure 9.

Clients Growth of EBL Retail Credit


8960
Figures in Numbers

10000
8000 9489
6000
4963
4000
2000
0
2004 2005 2006
Years

Sources of data: Primary (Questionnaire)

Figure 9
EBL has taken the following steps in promoting its retail credit products.

5.1.7 Promotional Activities


• Direct Sales Team are recruited who work in the field level to convince people

• Display media is used for advertisement

• Print media is also used for publishing different features of EBL Retail Loan

• Bill Boards are there in different places.

• EBL arranges loan fairs after a certain time interval


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 42

5.2 Retail Credit Practices in Dhaka Bank Limited (DBL)

As one of the second generation banks, established in the year 1995, Dhaka Bank Limited

(DBL) started its journey towards retail credit in the year 2001 but its activities on retail credit

has been focused in the year 2004 when many other similar banks started to invest in retail credit.

At the end of the year 2005, DBL has established its separate retail credit division.DBL defines

retail credit or mostly known as “Consumer financing” as any financing allowed to individuals for

meeting their personal, family of household need.

5.2.1 Credit Portfolio

During the year 2004, the total credit amount disbursed in different sectors was Tk. 1653.88

Cr. in which retail credit accounted for only 3.64% that is Tk.60.33 Cr. was disbursed on retail

credit.

Again, in the year 2005, Tk. 2337.25 Cr. was disbursed in different sector in which retail

credit investment was Tk. 91.75 Cr. that is, 3.92% of total credit disbursed. In this year “Others”

sector investment got large point.

With a little bit incremental amount, in 2006, retail credit counted for 4.97% of total

investment of total credit disbursed that is Tk. 3402.06 Cr.


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 43

Credit Portfolio of DBL


100% Others
90%
Retail
80%
Service
70%
Energy

Figures in %
60%

50% Construction
40% Transport
30%
Food
20%
RMG
10%

0%
Pharmaceuticals
2004 2005 2006
Agri
Years

Sources of Data: Annual Report of 2004, 2005, 2006 of DBL

Figure 10
In the above figure 10, dark black area is representing the portion of retail credit disbursed in

total amount in the year 2004, 2005 and 2006.As per the above figure 10, the retail credit has

been shown an incremental portion of the amount disbursed in theses three years.

Therefore, the following figure 11 shows the positive growth trend in retail credit

disbursement. In the figure 11,it can be observed that, there was more than one percent growth

in retail credit investment over the year 2005.

Retail Credit Growth of DBL


6.00% 4.97%
5.00% 3.92%
3.64%
Figures in %

4.00%

3.00%
2.00%

1.00%
0.00%
2004 2005 2006
Years

Figure 11
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 44

5.2.2 Income generation by Retail Credit


In the year 2004, the total interest revenue earned from different sector was Tk. 201.09 Cr in

which retail credit interest revenue was Tk. 6.82Cr. that is 3.39% of total interest income.

Similarly, in 2005, total interest revenue of DBL was Tk. 344.55 Cr. in which only Tk. 4.89 Cr

was earned by retail credit and in 2006 there was a bit acceleration in interest income earned by

retail credit which was 2.02% of total interest revenue of Tk. 434.17 Cr.

Interest Income Grow th of DBL


Retail Credit
4.00%

3.50% 3.39%
3.00%
Figuresin%

2.50%

2.00% 1.69%

1.50% 2.02%

1.00%

0.50%

0.00%
2004 2005 2006
Ye ar s

Sources of data: Annual reports of DBL

Figure 12
The above figure 12 shows the interest income growth trend with a curve line. According to

figure 12, it can be commented that, among these three years, year 2005 got lowest income by

retail credit in total interest income.

5.2.3 Target Clients

Salaried individuals of Govt. Semi-Govt. organization and also any other well reputed private

organizations, business people, self- employed personnel etc are the target clients of DBL.

5.2.4 Typology of the products offered by DBL

Dhaka Bank offers the following retail credit products

¾ Personal Loan or Any Purpose Loan

¾ Car Loan

¾ Home Loan and


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 45

¾ Vacation Loan

Brief details of these products are given below

5.2.4.1 Personal or Any Purpose Loan


To meet any legitimate personal financial requirements, this loan can be given.
Table 18: Features of Any Purpose Loan
Features Description
Loan Amount (Min) Tk. 25,000
Loan Amount (Max) Tk 5,00,000
Rate of Interest 18%
Tenor 1-4 years(max)
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving account
Other charges(Processing Fee) 1.5% on the loan amount + VAT(15%) on
Penalty Charge 4% of installment overdue
Down Payment N/A
Stamp Charge Tk. 740
Early Settlement 2.5% of the rest outstanding amount
Criteria for application(Age Any Bangladeshi citizen of 21-60 years at the time of
limit) maturity of loan.
Minimum Service Length Confirmed employee having at least one year service
length(for salaried person
At least three years length of business.
Minimum Monthly Income Tk. 15,000(min) for salaried individuals, businessmen
and others.
Guarantors Two persons, if married, spouse guarantee is must.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 46

5.2.4.2 Car Loan


For purchasing new or reconditioned car, DBL allows individuals for this type of loan.
Table 19: Features of car loan
Features Description
Loan Amount(Min) Tk. 3,50,000
Loan amount(Max) Tk 20,00,000
Rate of Interest 17%
Tenor 3 year for cars manufactured in India. 5 years for
reconditioned car and 7 years for brand new car.
Repayment method Monthly equal installment
Disbursement mode Through Pay Order/Demand Draft favoring the vendor
Other charges 1.5% on the loan amount +VAT (15%)
Penalty Charge 48% p.a. (4% p.m.) on the arrear installment amount or
BDT 200.00 (whichever is higher)
Down Payment 15% of the total loan amount(for salaried person)
25% for business person
Stamp Charge Tk. 740
Early Settlement Allowed but subject to a fee @ 0.50% on the settlement
amount (excluding VAT)
Application Criteria(Age) 22-60 years at the time of maturity of loan.
Minimum Monthly Income Tk. 15,000(min) for salaried individuals
Tk. 20,000 for businessmen and others.
Guarantors One person.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 47

5.2.4.3 Home Loan


For purchasing flat or constructions of houses, DBL offers this type of loan.
Table 20: Features of home loan
Features Description
Loan Amount (Min) Tk. 5,00,000
Loan Amount (Max) Tk 35,00,000
Rate of Interest 25%
Tenor 5-15 years(max) depends on loan amount
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving account or
most of the times cash disbursement happens
Other charges 1.5% on the loan amount
Penalty Charge 4% of installment overdue
Down Payment 40% of the total loan amount
Stamp Charge Tk. 740
Early Settlement As per other loan requirements of DBL
Criteria for application(Age 21-50 years (at the time of application).
limit)
Minimum Monthly Income Tk. 40,000.00.
Guarantors To persons.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 48

5.2.4.4 Vacation Loan


Table 21: Features of vacation loan
Features Description
Loan Amount(Min) Tk. 25,000
Loan amount(Max) Tk 5,00,000
Rate of Interest 12%
Tenor 1-4 years(max) depends on loan amount
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving
account or most of the times cash
disbursement happens
Other charges 1.5% on the loan amount
Penalty Charge 4% of installment overdue
Down Payment 40% of the total loan amount
Stamp Charge Tk. 740
Early Settlement As per other loan requirements of DBL
Criteria for application(Age limit) 21-50 years (at the time of application).
Minimum Monthly Income Tk 15,000
Guarantors To persons.

Besides other fees, CIB fee of Tk 100 for the loan amount of Tk 2lac and above and

application fee of Tk 500 is must for all kind of application.

To apply for any of the above retail loan of DBL, a client needs his/her photographs, copy of

passport/ID card, last one year’s bank statement, copy of TIN, trade license(for businessmen),

personal net worth statement etc.

Besides these, following legal documents are needed to get any retail loan from DBL.

• Duly filled in loan application form with terms and condition signed

• Demand Promissory Note


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 49

• Letter of Guarantee

• Letter of Set-Off

• Irrevocable Letter of Authority to repossess the vehicle (for car loan) etc.

5.2.5 Credit Assessment, Approval and Disbursement Process


Dhaka Bank Limited (DBL) follows the “Bangladesh Bank Prudential Regulations for

Consumer Financing 2004 for the process started from client’s credit application receive up to the

final disbursement as described in above for Prime Bank Limited along with the diagram on page

31 of this report. But, unlike PBL, retail credits are disbursed directly for the Head Office rather

than branch level that is DBL has “Centralized Disbursement Process”.

In addition, (DBL) has passed a circular in its board meeting in which it is written that, in

accordance with “DBL PDC Policy”, in case of ‘De Duplication Checking” steps, CIB report will

not be sought up to Tk 2.00 lac loan. The total retail credit disbursement process of DBL is

centralized that is controlled by DBL Retail Head Office; it takes 21 working days to disburse

most of the retail loans.

5.2.6 Number of Clients in Retail Credit

During the year 2004, 2005 and 2006, the numbers of clients in different retail credit were

4311, 4894 and 5443 respectively. The following figure 13 shows a positive growth trend in retail

credit in terms of clients. As per figure 13, the number of clients in the period 2004-2006 have

increased slowly.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 50

Clients Growth of DBL Retail Credit

6000

Figures in Numbers
5000
4000 5443
4311 4894
3000
2000
1000
0
2004 2005 2006

Years

Sources of data: Primary (Questionnaire)

Figure 13
5.2.7 Promotional Activities

For promotional activities DBL has recruited

• Direct Sales Agents(DSA)

• Display media

• Print Media

• Billboard
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 51

5.3 Retail Credit Practices in National Credit and Commerce Bank Limited (NCCBL)

National Credit and Commerce Bank (NCCBL) is another second generation private bank

established in the year 1993.It started financing retail credit formally from the year 2003 with a

very limited product portfolio. Financing individuals of mainly middle-class salaried employees

to enhance their lifestyle is the dictum of retail credit of NCCBL.

5.3.1 Credit Portfolio

The year 2004 got total amount of Tk.1521.12 Cr. as total credit disbursement. Within this

amount, Tk. 25.05 Cr. was in purpose of retail credit. The highest investment in 2004 was in

different types of business sector as we can see in the following graph. In figure 14, the dark

black area represents the amount of retail credit disbursement.As per figure 14,among these three

years of retail credit disbursement, year 2005 got highest amount. Construction sector got a

growing trend in investment.

Credit Portfolio of NCCBL


100% Others
90%
Business
80%

70% Retail
Figures in %

60% Transport
50%
Water Works
40%

30% Constructio
n
20% Industry
10%
Agri
0%
2004 2005 Years 2006

Sources of Data: Annual Report of 2004, 2005, 2006 of NCCBL

Figure 14
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 52

Therefore, figure 15 is showing the investment trend in retail credit. The curve in this graph

shows the highest percentage of investment in 2005.

Retail Credit Growth of NCCBL

4.50%
4.00%
3.50% 4.03%

Figures in %
3.00%
2.50% 3.30%
2.00%
1.50% 1.64%
1.00%
0.50%
0.00%
2004 2005 2006
Years

Figure 15
5.3.2 Income Generation by Retail Credit
The total interest income earned by different sectors during the year 2004, 2005 and 2006

were Tk. 160.14 Cr., 207.25 Cr., and 302.33 Cr. respectively. In these amounts, Tk. 1.72 Cr., 4.34

Cr., and 10.35 Cr., were generated by retail credit. The following graph shows the positive

growth trend in income earned by retail credit.

Interest Income Growth of NCCBL Retail Credit

4.00%
Figures in %

3.00%
3.42%
2.00%
2.09%
1.00%
1.07%
0.00%
2004 2005 2006

Years

Sources of data: Annual reports of NCCBL

Figure 16
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 53

5.3.3 Target Clients


Employees of govt. and Semi- Govt. organizations, autonomous bodies, Banks, Insurance

companies and other financial institutions, school, college, university teachers, owners of

house/flat, self-employed professionals are the target clients of NCCBL.

5.3.4 Typology of the products offered by NCCBL


National Credit and Commerce Bank offers only two types of product. They are

• Personal Loan or Any Purpose Loan

• House Renovation Loan

The features of these two types of product are given below:


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 54

5.3.4.1 Personal Loan or Any Purpose Loan


For the purpose of marriage, maternity, treatment and sometimes for educational purposes,
this loan can be given by NCCBL.
Table 22: Features of Personal or Any Purpose Loan
Features Description
Loan Amount(Min) Tk. 20,000
Loan amount(Max) Tk 1,00,000
Rate of Interest 17%
Tenor 6 months to 1year (max) depends on loan
amount
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving
account or most of the times cash
disbursement happens
Other charges 1% on the loan amount
Risk Fund 1% of the loan amount
Penalty Charge 1% of installment overdue or Tk. 100
whichever is lower.
Down Payment N/A
Stamp Charge Tk.400
Early Settlement Possible but no fee is required
Criteria for application(Age limit) 20-50 years (at the time of application).
Minimum Monthly Income Tk 15,000
Guarantors One person.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 55

5.3.4.2 House Renovation Loan


For the purpose of house renovation, NCCBL offers this type of loan.
Table 23: Features of House Renovation Loan
Features Description
Loan Amount(Min) Tk. 10,000
Loan amount(Max) Tk 5,00,000
Rate of Interest 17%
Tenor 1-5years (max) depends on loan amount
Repayment method Monthly equal installment
Disbursement mode Credit amount is disbursed to client’s saving
account or some times cash disbursement
happens
Other charges 1% on the loan amount
Risk Fund 1% of the loan amount
Penalty Charge 1% of installment overdue or Tk. 100
whichever is lower.
Down Payment N/A
Stamp Charge Tk.400
Early Settlement Possible but no fee is required
Criteria for application(Age limit) 30-50 years (at the time of application).
Minimum Monthly Income Tk 15,000
Guarantors One person

For any loan application, Tk. 500 is required as application fee.

To apply for any of the above retail loan of NCCBL, a client needs his/her photographs,

copy of passport/ID card, last one year’s bank statement, copy of TIN, trade license(for

businessmen), personal net worth statement etc.

Besides these, following legal documents are needed to get any retail loan from NCCBL.

• Duly filled in loan application form with terms and condition signed
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 56

• Demand Promissory Note

• Letter of Guarantee

• Letter of Set-Off etc.

5.3.5 Number of Clients in Retail Credit


In the year 2004, 2005 and 2006, the numbers of clients in different retail credit product were

1587, 2756 and 3561 respectively. The figure 17 shows an overall positive growth trend in terms

of client number in three years.

Clients Growth in Retail Credit of NCCBL


4000
3500
Figures in Numbers

3000 3561
2500
2756
2000
1500
1587
1000
500
0
2004 2005 2006
Years

Sources of data: Primary (Questionnaire)

Figure 17
5.3.6 Credit Assessment, Approval and Disbursement process
Similar to other private commercial banks offering retail credit, NCCBL also follows the

“Prudential Regulation of Consumer Financing by Bangladesh Bank, 2004” .Similar to Prime

Bank, the retail credit disbursement process of NCCBL is also decentralized that is, credit is

disbursed from branch level. The total days required from receiving client’s application to loan

disbursement is 10- 12 working days.

5.3.7 Promotional Activities

NCCBL conducts its promotional activities for retail credit through print media (paper

advertisement).
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 57

6.0 Comparative Analysis of Retail Credit Status of PBL with EBL, DBL
and NCCBL

6.1 Disbursed Amount of Retail Credit

The amount disbursed in retail credit in the three consecutive years in Prime Bank, Eastern

Bank Dhaka Bank and National Credit and Commerce Bank can be shown in table 24.

Table 24: Comparison of retail credit disbursed among four banks Figures in Cr.

Banks Years
2004 2005 Growth 2006 Growth over
over 2004 2005
PBL 67.65 121.16 79.09% 164.16 35.49%
EBL 62.43 170.82 173.62% 315.19 84.51%
DBL 60.33 91.75 52.08% 169.30 84.52%
NCCBL 25.05 82.86 230.77% 98.41 18.77%
Sources of Data: Annual Reports of PBL, EBL, DBL, and NCCBL

According to the above table, though PBL has highest amount disbursement in retail credit, EBL
had the highest amount in the next two consecutive years.

6.2 Interest Income generated by Retail Credit


In the year 2004, 2005 and 2006 the amounts of interest income generated by different

products of retail credit of four banks are given in the following table 25.

Table 25: Comparison of retail credit interest income among for banks Figures in Cr.

Banks Years
2004 2005 Growth 2006 Growth over
over 2004 2005
PBL 11.09 14.29 28.85% 21.94 53.53%
EBL 11.86 32.45 173.60% 59.80 84.28%
DBL 6.82 4.89 -28.30% 8.77 79.34%
NCCBL 1.72 4.34 152.33% 10.35 138.48%
Sources of Data: Annual Reports of PBL, EBL, DBL, NCCBL
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 58

According to the above table, it can be easily observed that, EBL has always highest amount
of interest income in the three consecutive years among these four banks. The second highest
bank was Prime Bank in terms of interest income.

6.3 Number of Clients in Retail Credit

Table 26: Comparison of number of clients in retail credit among four banks
Banks Years
2004 2005 2006
PBL 4829 6461 5696
EBL 4963 9489 8960
DBL 4311 4894 5443
NCCBL 1587 2756 3561
Sources of data: Primary (Questionnaire)

6.4 Types of Retail Credit Products Offered


The retail credit products offered by four banks shown in table 27 are following

Table 27: Comparison of retail credit products offered among four banks
Sl. PBL EBL DBL NCCBL
1. Car Loan Car Loan Car Loan House
Renovation
Loan
2. Any Purpose Loan Jibandhara or Personal or Any Personal or
Any Purpose Purpose Loan Any Purpose
Loan Loan
3. Household Durables Loan Executive Loan Vacation Loan
4. Doctor’s Loan Utshabs or Home Loan
Vacation Loan
5. Marriage Loan
6. Education Loan
7. Loan against Salary
8. Travel Loan
9. Hospitalization Loan
10. CNG Conversion Loan
11. Swapna Neer

6.5 Different Features of Similar Products Offered

There is only one type of product that is similar among PBL, EBL, DBL and NCCBL which

is “Personal Loan or Any Purpose Loan”. The comparative features of this loan among four

banks are shown in the following table 28.


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 59

Table 28: Comparative Features of Any Purpose Loan among four banks
Features Banks
PBL EBL DBL NCCBL
Loan amount(min) Tk. 10,000 Tk. 50,000 or Tk. 25,000 Tk. 20,000
10-12 times of
gross salary
Loan amount(max) Tk. 3,00,000 Tk. 10,00,000 Tk. 5,00,000 Tk. 1,00,000
Rate of Interest 16% 21% 18% 17%
Tenor 1-3 years 1-5 years 1-4 years 6 months -1
year
Criteria(Age limit) 25-65 years at the 22-60 years at 21-60 at the time 20-50 at the
time of maturity of the time of of maturity time of maturity
loan maturity
Down Payment 10% of total 30% of total N/A N/A
amount amount
Repayment Method Monthly equal Monthly equal Monthly equal Monthly equal
installment installment installment installment
Days needed for 15-20 days 5-7 days 21 days 10-12 days
disbursement
Disbursement Mood Clients’ savings Clients’ savings Clients’ savings Clients’ savings
account, sometimes account. In most account account,
cash for salaried of the times sometimes cash
person cash. for salaried
person
Disbursement Decentralized Centralized Centralized Decentralized
System
Other 1% on loan amount 1.5% on the loan 1.5% of the loan 1% on loan
Charges(Processing or Tk. 1000 amount amount amount
Fee) whichever is +15%VAT
higher+15%VAT
on that amount
Risk Fund 1% on loan amount N/A N/A 1% on loan
amount
Penalty 2% 3% 4% 1% or Tk 100
Charge(Amount on whichever is
installment lower
overdue)
Stamp Charge Tk. 320 Tk. 600 Tk. 740 Tk. 400
Early Settlement Any time at free of Any time, 2%( At any time with At any time at
with cost on total cost before 12 2.5% cost free of cost
outstanding amount months), 1% (12
months and
above)
No. of Guarantors Two persons One person Two persons One person
Mostly preferred Salaried Individuals Salaried Salaried Salaried
client Self-Employed Individuals Individuals individuals
person Self-employed Self-employed
person person
Businessmen. Businessmen
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 60

According to table 28, it can be commented that, EBL and DBL, two major competitors of

PBL have already targeted different classes of people in the society.EBL is already enjoying

larger market share in terms of both disbursed amount and interest income.DBL has targeted

greater segments and trying to come upfront with other attractive features and promotional

activities in retail credit.

6.6 Promotional activities

In the following table 29, the medium of promotional activities are shown for four banks.

Table 29: Comparison of promotional activities among four banks

PBL EBL DBL NCCBL


Direct Sales √ √ √
Agent(DSA)
Display media √ √
advertisement
Print media √ √ √ √
advertisement
Billboard √ √
Fair √ √
arrangement

According to the above table 29, EBL has a complete promotional activities compared with other

four banks.PBL has only three wings in promotional activities.


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 61

7.0 Problems of Prime Bank Limited (PBL) in Retail Credit Operation


From the above description and comparative analysis with three other banks, following

problems are found in Prime Bank Retail Credit, which is given below:

• Less diversified target client segments


PBL currently is allowing retail credit disbursement to a few individuals who are

businessmen. Again, salaried individuals are getting preference in terms of retail credit.

Though the numbers of fixed income earning people are increasing day by day, there is an

existing large segment of business people of different types in Bangladesh who needs

retail loan frequently rather than salaried individuals. Also, the self-professionals related

to the legal activities and media are not there in the target clients segment. This narrow

focus on target clients is reducing the market share of PBL in retail lending.

• Lengthy Assessment Procedure

For the compliance of prudential guidelines of Bangladesh Bank, 2004, PBL asks for CIB

report for an amount of TK. 50,000 and more. As it takes six to seven days for CIB to be

returned back to the branches, almost 15-20 working days are needed by PBL to disburse

retail credit.

Now days, people are too busy to spend longer time for having a smaller amount of

loan for their personal need. For this longer assessment process that is widening the time

interval between a loan application reception and loan disbursement has resulted less

number of clients and has also affected the interest income.

• Decentralized Disbursement System

The retail credit disbursement process of Prime Bank is decentralized which is also a

barrier for it to take steps for more expansion in retail credit. As the credits sanctioned are

disbursed from branch level, most of the employees of credit department in branches are
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 62

engaged with disbursement related activities in most of the times which hampers the

branch activities to attend more clients.

• Inadequate Promotional Activities

PBL has currently direct sales agent (DSA) and paper advertisement only this two

medium for frequent promotional activities in retail credit. Sometimes it arranges fair for

retail credit. In the present time perspective, multimedia activities have expanded in such

a way that, larger number of people watch television and listen in radios rather than

reading newspaper. People are also attracted by colorful billboards in the road.PBL has

taken no steps for promotional activities up to now in display media and so on which can

also be a cause for having lesser market share than the competitors.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 63

8.0 Prospects for Prime Bank in Retail Credit


From the above study and competitive analysis on Prime Bank, the prospects that are found

are following:

• Diversified Product Portfolio

PBL currently has diversified product portfolio. From the above comparison, it can be

easily observed that, the other immediate major competitors like Eastern Bank, Dhaka

Bank have only three to four types of product and with these products, they are trying to

capture middle-class, upper middle class and upper class people’s personal credit need.

But Prime Bank has separate cells for separate client segments which is one of the

important aspects of PBL.This is one of the crucial prospects for PBL to proceed with

retail credit further.

• Lower interest rate and related cost

It can be said confidently from the above comparison that, PBL has the lowest interest

rate in terms of all retail credit products among its competitors which is an opportunity for

it to attract new clients.

Again, in terms of processing fee, stamp charge and early settlement cost, wherein its

other competitors are taking higher amount and charges for early settlement, PBL charges

the lowest amount and allows its client for early settlement at free of cost, which is

convenient for clients.

• Lower credit amount and credit cycle

In some retail products, PBL offers different lowest amount and time interval as a

minimum which is also a convenience for the clients of a developing country like

Bangladesh. In Bangladesh, most of the fixed income earning people have income range

within Tk. 20,000-35,000.For them to avail an amount of retail credit for more than Tk.
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 64

10,000-12,000 to fulfill personal needs is almost impossible. Lower tenor of credit lessens

the burden from clients and inspires them to take more credit which is currently offered by

PBL.

• Protection against defaulter

As PBL asks for CIB for any amount of TK. 50,000 and above, it protects PBL of

holding default clients and secures the income generated by retail credit.

9.0 Recommendation
With the consideration of the above whole study especially the problems and prospects, I

suggest the PBL management to think about the following points:

• The defense people, lawyers and journalists are not in the current target clients’ list of

PBL, who if were in target segments of PBL, could add more wings in market share and

interest income also. As there are already more diversified retail credit products, PBL

should rethink about its target client segment and if possible, should include defense

people, lawyers and journalists that can easily fit with that products.PBL should consider

especially of businesspersons.

• PBL management should take care of its IT development. If there is an online system

between Retail Credit Head Office (RHO) and branches, the applications along with

necessary documents will be able to be transferred in short time and with less costs for

assessment into the RHO.It will also reduce the disbursement time interval and PBL will

be able to get more clients.

• PBL has currently decentralized retail credit disbursement system which is requiring more

time for even any small amount of loan. In this case, PBL should develop a central

database system which will enable the RHO of PBL to disburse any amount of retail

credit directly from Head Office. It will not only reduce the loan disbursement time
The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 65

interval but also helps branches of PBL to be more retail client oriented. This central

database system will also enable RHO to identify any retail client of any branch at any

time, which will ensure highest level of monitoring and quality control.

• PBL management should take more steps to promotional activities. Television

advertisement, creating billboard, recruiting more sales agents and arranging retail loan

fair can add a large opportunity in achieving more market segments.

10.0 Conclusion
Retail lending has been a spectacular innovation in the private commercial banking sector in

recent years. The growth of retail lending, especially, in a developing country’s economy, is

attributable to the rapid advances in information technology, the evolving macroeconomic

environment, financial market reform, and several micro-level demand and supply side factors.

In today’s Bangladesh, banks, especially, the private commercial banks consistently point to

the stability of revenue and profit as the most important feature of retail lending and a key

motivation for the recent interest. In particular, retail stability is seen as valuable for commercial

banks seeking to offset the volatility of riskier business lines, such as trading and other capital-

market activities. While retail lending offers phenomenal opportunities for growth, the challenges

are equally daunting. How far the PBL retail banking will be able to exist in retail banking

industry in future will depend upon the capacity building of the banks to meet the challenges and

make use of the opportunities profitably.

From the above analysis and comparison, it has been proved that, Prime Bank though has

some problems, yet it has lots of opportunities to carry on its retail lending business. Diversified

product portfolio, lower rate of charges etc is the favorable features of PBL for clients. If, Prime

Bank follows the above recommendations, to cope up its problem, Prime Bank will be able to

continue to chart in this traded path.


The Problems and Prospects of Retail Credit in context of Prime Bank limited in Bangladesh 66

ABBREVIATED TERMS

Cr. =Crore

RHO=Retail Credit Head Office

PBL=Prime Bank Limited

EBL=Eastern Bank Limited

DBL=Dhaka Bank Limited

NCCBL=National Credit and Commerce Bank Limited

CPV=Contact Point Verification

CCS=Consumer Credit Scheme

DSA=Direct Sales Agent


APPENDIX
REFERENCES
Bangladesh Bank (2004).Prudential Regulations for Consumer Financing.

Clark, T., Dick, A., Hirtle, B., Stiroh, K., & Williams, R.(2007).The Role of retail in U.S Banking

Industry.Journal of Econmic Policy Review, 1-18.

Dhaka Bank Limited (2004).Annual Report.

Dhaka Bank Limited (2005).Annual Report.

Dhaka Bank Limited (2006).Annual Report.

Eastern Bank Limited (2004).Annual Report.

Eastern Bank Limited (2005).Annual Report.

Eastern Bank Limited (2006).Annual Report.

Gopinath, S. (2005, May).Retail Banking-Opportunities and Challenges. Paper presented at the

IBA-banking Frontier International Conference, Mumbai, India.

Math, B. (2005, December).Future Growth Drivers-Retail versus Corporate. Papers presented at

a seminar at MDI, India.

Ministry of Finance. (2006).The Activities of Banks and Financial Institutions, 2005-

2006. Publication No. 329 EX-1400, Dhaka, Bangladesh Government Press.

National Credit and Commerce Bank Limited (2004).Annual Report.

National Credit and Commerce Bank Limited (2005).Annual Report.

National Credit and Commerce Bank Limited (2006).Annual Report.

Prime Bank Limited(2004).Annual Report.

Prime Bank Limited (2005).Annual Report.

Prime Bank Limited (2006).Annual Report.

Prime Bank Limited (2005).Retail Banking Credit Policy Manual.

Stiroh, J.(2004).Diversification in Banking. Journal of Money, Credit and Banking, 39(1), 49-81.
Westerfield, R.B. (1998) Effect of Consumer Credit on the Business Cycle. Journals of the

American Academy of Political and Social Science, 196, 99-110.


QUESTIONNAIRE

PROSPECT OF RETAIL CREDITS IN BANGLADESH


I am Kashfia Nehereen, a student of Bachelor of Business Administration, Independent University
Bangladesh (IUB). I am going to conduct a research report on Prospect of Retail Credits in Bangladesh.
This research is conducting for academic purpose only. Your kind cooperation in providing the
information required for the research purpose will be highly appreciated and will be kept secret.

General Information:
Name: _________________________________________
Title: _________________________________________
Organization: _________________________________________

Specific Information:
1. How does your Bank define retail/consumer credit?
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2. When your Bank formally started offering Retail Loan?
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3. Who are the target customers of your retail loan products?
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4. What are the retail loan products of your bank? (Please provide the brochures for having
the features of the products)
5. What is the eligibility to apply for the loans (product wise)?
Name of the Eligibility criteria
product

(Please use separate page if required)


6. What were the total numbers of clients in different retail credits?
Name of the Years
product
2004 2005 2006 % of growth

7. Please provide the Tk. amount of retail credit and the amount of total credit disbursed.
Year 2004 Year 2005 Year 2006
Retail Total Retail Credit Total Credit Retail Credit Total Credit
Credit Credit

8. What were the amounts of interest income generated by retail credit?


Name of the Years
product
2004 2005 2006 % of growth
9. Is/are there any special features in your retail product so that clients can be attracted?
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(Please use separate page if required)
10. What are the problems that you face regarding retail credit disbursement?
Problem 1.-----------------------------------------------------------------------------------------------
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Problem 2.-----------------------------------------------------------------------------------------------
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Problem 3.-----------------------------------------------------------------------------------------------
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Problem 4.-----------------------------------------------------------------------------------------------
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Problem 5.-----------------------------------------------------------------------------------------------
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Problem 6.-----------------------------------------------------------------------------------------------
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Problem 7.-----------------------------------------------------------------------------------------------
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Thank You