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Case Study on Loan portfolio of Southeast Bank Limited

INTRODUCTION: The principal reason banks are chartered by state and federal
authorities is to make loans to their customers. Banks are accepted to support their local
communities !ith an ade"uate supply of credit for all le#itimate business and consumer
acti$ities and to price that credit reasonably in line !ith competiti$ely determined interest
rates. Indeed% makin# loans is the principal economic function of banks&to fund
consumption and in$estment spendin# by businesses% indi$iduals and units of
#o$ernment. 'o! !ell a bank performs its lendin# function has a #reat deal to do the
economic health of its re#ion% because bank loans support the #ro!th of ne! businesses
and (obs !ithin the banks trade territory and promote economic $itality.
)or most banks% loans account for half or more of their total assets and about t!o&thirds
of their re$enues. *oreo$er% risk in bankin# tends to be concentrated in the loan portfolio.
+hen a bank #ets into serious financial trouble% its problems usually sprin#s from loans
that ha$e become uncollectible due to mismana#ement% ille#al manipulation of loans%
mis#uided lendin# policies or an une,pected economic do!nturn.
The main ob(ecti$e of this pro(ect is to analy0e the performance of the loan portfolio of
1outheast Bank 2imited and also its credit policies !hich !ould sho! ho! the pri$ate
commercial banks of Ban#ladesh lends to different kinds of clients. One of the other
ob(ecti$es of this report is to find out ho! effecti$e is the loan reco$ery system of
1outheast Bank 2imited.
Both primary and secondary sources of data !ere used to!ards the completion
of this pro(ect. The main primary source of data !as the inter$ie! !ith the
different le$el of employees in the credit department of the 'ead Office of
1outheast Bank 2imited. Rele$ant files study that !ere pro$ided by the
officers concerned !ith credit department !ere also used.
1econdary data !ere mainly used for the completion of this pro(ect. 1ome of the
secondary data that !ere used are
3nnual Report of 1outheast Bank 2imited
Credit 4olicy 5uide 61B27
Credit Operation *anual 61B27
Books, maa!ines, arti"les and et"# $ere also used#
This pro(ect is limited to only e,plainin# some of the ma(or parts of credit policies and
analy0in# the performance of some of the ma(or credits that are offered by the bank.
This pro(ect !ill allo! #ainin# kno!led#e about lendin# policies and procedures of
pri$ate commercial banks. It !ill also help to understand ho! the loan portfolio of
1outheast Bank 2imited is performin# in comparison !ith other banks.
This pro(ect !ill help 1B2 to understand if they ha$e any lackin# in the lendin# procedure
and !ill also help them to #et an idea of ho! the different kinds of credit that that are
offerin# id performin# and !ill help them to find out !ays of ho! those loans can perform
Credit is one of the most important parts of a bank. In order to #et $ast kno!led#e
re#ardin# this sector% time is needed. Three months internship pro#ram is not enou#h to
#ain enou#h information re#ardin# this topic.
+orkin# in the credit department !as not possible as the internship pro#ram !as done in
the 'uman Resources Department and it !as not possible to concentrate only on the
pro(ect because other duties in the 'RD had to be done.
Due to t!o pro(ect part% some lackin# may be there as concentration !as not #i$en to
both of them in the same manner.
1ome of the data are $ery confidential and as a result% those information !ere not
3ll data re#ardin# !ere not a$ailable and could not be collected due to the shorta#e of
CR.DIT D.43RT*.NT O) 1OUT'.31T B3N8 2I*IT.D% '.3D O))IC.
The credit department of any bankin# institution is one of the most important and busy
department that has to do a lot of !ork and the !ork that are done in this department are
$ery risky and importance. The risk is not in the sense of physical but tremendous mental
!orks ha$e to be done here.
1outheast Bank 2imited currently has appro,imately 9: people !orkin# in the credit
department of the head office% !hich is the head of all the branches and from !here all
the credit facilities #i$en to the clients are sanctioned and monitored. The credit di$ision is
headed by an .,ecuti$e /ice 4resident and t!o /ice 4residents under !hom all the other
staffs of the credit department holdin# different positions are !orkin#. .ach and e$ery
!ork in the credit di$ision is properly distributed to the subordinate staffs and it is possible
because the !ork in the credit di$ision is $ery systematic.
The Credit Di$ision of 1outheast Bank limited is di$ided in t!o parts. 6i7 5eneral Credit 6ii7
Corporate )inance.
General Credit
The functions of this di$ision are #i$en belo!:
%nalysis and appraisal & e'aluation of "redit proposals for appro'al of Credit
Committee( This means that !hen a client place a proposal for credit% that proposal is
first analy0ed in order to see if the client is credit !orthy or not and then appro$ed by the
committee that appraises the credit proposal.
)reparation of Board Memo( 3fter the credit committee has appro$ed the credit% a
memo is prepared in order to #et the appro$al of the Board.
Communi"ation of San"tion %d'i"e( This means that !hen a credit is placed in any
branch% the branch mana#er or the concerned officer !ho is handlin# the loan must
communicate !ith credit department of head office !here the loan !ill be re$ie!ed and
then if the loan is feasible they head office !ill #i$e sanction ad$ice to the concerned
officer of the branch to #i$e the credit to the client.
)reparation * Su+mission of periodi"al returns to Banladesh Bank( The credit
department has to submit all the returns that they #et from the loans and #i$e a brief
report on their proceedin#s on a periodical basis to the Ban#ladesh Bank.
Corporate ,inan"e
Under this di$ision all the corporate credit like industrial credit% lon#&term pro(ect credits
etc. are taken into account. 1B2 recently is tryin# to increase the amount of corporate
loan portfolio althou#h it has been seen that most of the other banks are concentratin#
mainly on consumer loans. The main functions of corporate credit di$ision are
%nalysis, appraisal & e'aluation of "redit proposals( 3ll the corporate loan like
industry% commercial and other bi# loans are analy0ed and e$aluated by this department.
)ro"essin Credit proposals for appro'al of Credit Committee( This is the same as
abo$e !here the credit proposal has to be processed in order to #et the appro$al of the
credit committee before the sanction of corporate loan.
)reparation of Credit -nformation Memo .C-M/ for Board( 1ame as abo$e e,pect the
fact that the credit for !hich the memo is placed before the board is of corporate nature.
Communi"ation of San"tion %d'i"e( 1ame as abo$e but the sanction ad$ice here is for
the corporate loan.
1outheast Bank 2imited offers different types of credit facilities to its clients comprisin# of
both #eneral and corporate credit. 5eneral credit comprises of facilities like consumer
scheme% !orkin# capital% demand loan and etc. The corporate credit portfolio comprises
of all the credit that are of lon# term.
3ll the credit facilities are actually brou#ht under t!o broad cate#ories:
)unded Credit )acility
Non&)unded Credit )acility
,12DED C0ED-T ,%C-L-TY(
3 funded credit facility that the bank offers to a customer result in actual disbursement of
cash to the client. In order to pro$ide funded credit facility to a customer the bank has to
incur real liability before hand% that is the bank has to arran#e for funds primarily throu#h
deposits that the bank takes form different other clients. )unded credit affects the balance
sheet of the bank both in terms of increase of liability and increase of assets. 1ome of the
types of funded credit are
2oans may be a demand loan% time loan or a term loan.
Demand loan is payable on demand !hich is allo!ed for a short period of time to meet
short&term !orkin# capital need. But 1B2 uses the demand loan for import finance. +hile
openin# the letter of credit 62;C7% the bank offers this loan to reduce the 2;C mar#in. 3fter
the 2;C document arri$es% the client is re"uested to ad(ust the loan and retire the 2;C
document. 3t the time of pro$idin# the demand loan% the 2;C stands as security.
Time 2oan is payable !ithin one year. This loan is #enerally pro$ided to the clients !here
finance is re"uired for a specific business deal. 2ike the bank may pro$ide time loan to a
client to procure a particular machinery. The loan is disbursed in one or toe installments
abd the same amount has to be ad(usted !ithin a year in lump sum or throu#h
installments as per specific repayment dates. Dependin# upon the purpose time loan is
#enerally secured by hypothecation of marketable #oods and mort#a#e of properties.
Term loan is allo!ed for one year to fi$e years% usually for capital e,penditure such as
construction of factory buildin#% purchase of ne! machinery% moderni0ation of plant and
other lon#&term pro(ects. This kind of loan is $ery selecti$e in 1B2. This type of loans
must be appro$ed throu#h the Board of Directors due to the fact that there is a hu#e
amount of finance related to this kind of loans.
O$erdraft is an arran#ement bet!een a credit officer and his customer by !hich the client
is allo!ed on the basis of prior arran#ement to o$erdra! his current account by dra!in#
che"ues for amount e,ceedin# the a$ailable balance up to an a#reed limit !ithin certain
period of time but not e,ceedin# one year a#ainst acceptable securities. This is a
temporary accommodation of fund to the client. This is operati$e credit facility e,tended to
the client as !orkin# capital finance for tradin# and manufacturin# business and also
finance a#ainst !ork orders.
1pecific limit co$erin# the sanctioned loan amount is #i$en on clients current account.
Client is allo!ed to o$erdra! and maintain re#ular transaction upto this limit in his current
account. The dra!in# po!er of the client depends on the sanctioned amount and mar#in
1pecific repayment dates are #i$en !ithin !hich client has to ad(ust his o$erdra!n
amount. 'ypothecation of stocks% assi#nment of bills and mort#a#e of properties
#enerally secure the o$erdraft facility.
O'erdraft aainst plede of oods .sto"ks/(
This facility may be e,tended to the borro!ers a#ainst pled#e ra! materials; finished
products a security sub(ect to credit and mar#in restrictions imposed by Ban#ladesh Bank
from time to time. In this case% the client si#nin# a duly stamped 2etter of 4led#e
surrenders the physical possession of #oods under the effecti$e control of the Bank. The
o!nership of the #oods still remains !ith the borro!er and the outstandin# liabilities are
to be ad(usted out of the sale proceeds.
O'erdraft aainst hypothe"ation of oods .sto"ks/(
This facility may be e,tended to the borro!ers sub(ect to credit and mar#in restrictions
imposed by Ban#ladesh Bank from time to time% on the client si#nin# a duly stamped
2etter of 'ypothecation creatin# a char#e a#ainst the ra! materials; finished #oods; plant
and machineries etc hypothecated to the Bank as primary security a#ainst the ad$ance.
In this case both the o!nership as !ell as the physical possession of the #oods
hypothecated remain !ith the borro!er !ho binds himself by an a#reement to surrender
the physical possession of the #oods to the Bank as and !hen called upon to do so. The
Bank only ac"uires a ri#ht o$er the #oods hypothecated. The Bank% therefore% #enerally
re"uest the borro!er to furnish collateral securities by !ay of le#al or e"uitable mort#a#e
of immo$able property and; or third party #uarantee !here it seems fit to the Bank.
Dis"ount( banks allo! ad$ances to the clients by discountin# bill of e,chan#e;promissory
note !hich matures after a fi,ed tenor. In this method% !hen the bills of e,chan#e is
submitted by the client% a mar#in 6co$erin# also the interest on the loan7 amount is
deducted from the face $alue of the bill and the rest is pro$ided to the client. 3t maturity of
the bill% the same has to be presented to the dra!er for full proceeds of the bill throu#h
!hich loan is ad(usted. 1eparate bill discountin# account is created. The bill of e,chan#e
itself is held as the primary security collaterali0ed by the e"uitable mort#a#e of property.
)ur"hase of Bill( Banks also make ad$ances by purchasin# bills% instead of discountin#%
!hich are accompanied by documents of title of #oods such as bill of landin# or rail!ay
receipts etc. In this case% the Bank becomes the purchaser;o!ner of such bill !hich are
treated as security for the ad$ance. This is allo!ed primarily relyin# on the credit
!orthiness of the client.
Other ,unded ,a"ilities(
Bills under L&C .BLC/( 3d$ances a#ainst bills under letter of credit are ori#inated from
the lod#ment of shippin# documents recei$ed from forei#n banks a#ainst letter of credit
established by the Bank.
Loan aainst -mported Mer"handise .L-M/( Under this type of credit facility% the Bank
releases the imported #oods throu#h the nominated clearin# a#ent of the Bank. In this
case% Bank holds the possession if the #oods. Importer takes deli$ery of the #oods from
the Banks !arehouse a#ainst payment. It is one type of forced loan.
The imported merchandise pled#ed to the Bank pro$ides the primary security that is
sometimes collaterali0ed by e"uitable mort#a#e of property.
The follo!in# points are taken into account !hile allo!in# ad$ance a#ainst the security of
imported #oods.
1tora#e of imported #oods under 2I* facility may be allo!ed for specified time as
prescribed by Ban#ladesh Bank; 'ead office of the Bank !ithin !hich period the importer
should take deli$ery of the #oods a#ainst payment.
5enerally% part deli$ery is not allo!ed from 2I* account. This may ho!e$er be allo!ed
only on special terms and conditions.
+hile creatin# forced 2I*% mana#er should satisfy that forced sales $alue !ill co$er the
outstandin# 2I*% if not% arran#ement should be made to reco$er the liabilities throu#h sale
of #oods. 4rior appro$al of the 'ead office is to be made for creatin# forced 2I*.
Trust 0e"eipt .T0/( 3d$ance a#ainst trust receipt to the client is to release shippin#
documents for takin# deli$ery of merchandise that is hypothecated to the Bank. This kind
of loan is only pro$ided to $ery selecti$e clients only.
1ometimes as per earlier arran#ement or under compellin# situation% Bank allo!s $alued
clients to retire the 2;C documents !ithout ad(ustin# the demand loan or outstandin#
B2C. The documents are pro$ided to the client after transferrin# the outstandin# liabilities
to TR account.
)a"kin Credit( It is one type of e,port finance. 4ackin# credit is a short&term credit
#ranted by the Bank to an e,porter to facilitate purchase of ra! materials for the purpose
of manufacturin# processin#% packin# and e,portin# the finished #oods. The credit is
#ranted after the e$idence of a letter of credit or a firm contract in fa$or of the borro!er
and a#ainst the security of in$entory purchased by the borro!er.
This loan is pro$ided at lo! interest rate as per instruction of the Ban#ladesh Bank. The
packin# credit is ad(usted throu#h the e,port proceeds. The e,port 2;C becomes primary
security for the loan. The loan is sometimes collaterali0ed by e"uitable mort#a#e of
Non&funded credit facility to a customer refers to a banks commitment to a third party on
behalf of the customer. The commitment itself constitutes facility but does not in$ol$e
cash outflo! from the Bank. The banks commitment essentially states that in the e$ent of
occurrence ; non&occurrence of a particular e$ent% !ithin a particular date% due to a
particular reason% a specific sum of money shall be paid by the Bank to the third party
upon claim in a particular manner. Thou#h this type of credit facilities is #enerally non&
funded in nature but at times it may turn into the funded type. 3s such% liabilities a#ainst
this type of credit facilities are termed contin#ent credit facilities and do not affect the
balance sheet of the Bank at the time of commitment but it holds the possibility of
affectin# it. The non&funded credit facilities are
Letter of Credit .L&C/( 3 2etter of Credit is a commitment taken by the Bank to pay an
a#reed sum to the seller of #oods on behalf of the buyer 6client7 under specific defined
condition. This is a non funded facility pro$ided to the client for import of #oods from
abroad or in some cases to produce them locally.
Once the Bank recei$es the 2;C documents as per specified terms and condition of the
2;C% the amount is transferred to the bills under letter of credit 6B2C7 account. 3s per
commitment% Bank pay the seller of #oods throu#h the sellers bank and settles the
outstandin# B2C amount from the client before handlin# o$er the 2;C documents to him.
Bank Guarantee( Bank #uarantee is also a non funded credit facility pro$ided to the
client. The Bank on be half of the client undertakes to pay a#reed amount of money at
certain time if client fails in due performance.
)0OCED10E ,O0 G-3-2G %D3%2CE(
The credit policy of any bankin# institution is a combination of certain accepted% time
tested standards and other dynamic factors dictated by the realities of chan#in# situations
in different market places.
The accepted standards relate to safety% li"uidity and profitability of the ad$ance !hereas
the dynamic factors relate to aspects such as the nature and e,tent of risk% interest on
mar#in% credit spread and credit dispersal. 5eneral #uidelines about the conduct of
ad$ances are issued by 'ead Office. In all business dealin#s% officers and employees
must be #uided by the principles of honesty% inte#rity and safe#uard the interest of the
depositors and shareholders of the Bank. They should strictly adhere to the Bankin#
2a!s% Rules and Re#ulations of the 5o$ernment of Ban#ladesh% the instructions issued
by Ban#ladesh Bank;'ead Office from time to time !hich affect the business practices of
the Bank. 'o!e$er% the key to safe% li"uid% healthy and profitable credit operation lies in
the "uality of (ud#ement used by the officers makin# lendin# decisions and their
kno!led#e of the borro!ers and the market place.
)or the sake of sound lendin#% it is necessary to de$elop a sound policy and modern
lendin# techni"ues ha$e to be adopted to ensure that loans;ad$ances are safe and the
money !ill come back !ithin the time set for repayment. )or this purpose% proper and
prior analysis of credit proposals is re"uired to assess the risk. 2endin# itself is risky and
the $ery purpose of analy0in# the risk is to locate ;identify the risk obtainin# possible
precaution. +hile decidin# a loan proposal one is to (ud#e the de#ree of risk in a #i$en
situation. Bankers ability in takin# prior measures to minimi0e the risk in$ol$ed is $ery
important. To do this a Bank must follo! the 4rinciples of 1ound 2endin#.
2ational -nterest
In formulatin# a credit (ud#ement and makin# =uality credit decisions the lendin# officer
must be e"uipped !ith all information needed to e$aluate a borro!ers character%
mana#ement competence% capacity% capital% ability to pro$ide collaterals and e,ternal
conditions !hich may affect his ability in meetin# financial obli#ations.
Credit and Marketin ,undamentals(
>. To place a hi#h priority on the =U32IT< of credit e,posure% ne! proposals must meet
Banks credit criteria and e,istin# portfolio should be under constant re$ie! for impro$in#
risk positions.
?. *a,imi0ation of profit is the basic aim of the Bank% as such e$ery profit opportunity
should be e,plored and professional skills employed in this direction.
9. 5ro!th to!ards the si0e of customer base throu#h constant alertness to!ards profitable
business opportunity.
@. To a$oid unnecessary !asta#e of time and ener#y% clear% concise and summary type
communication should be used.
A. To be thorou#hly familiar !ith the Banks policies and functions.
B. To put e$ery effort in reducin# and containin# the si0e of classified ad$ance portfolio.
C. To keep the e,pense burden on credit operations to the barest minimum and endea$or to
impro$e the cost efficiency of credit operations.
C. To contribute ones best in all matters !here his appro$al% concurrence or other actions is
D. To a$oid all temptations !hich may (eopardi0e or compromise the Banks risk assets.
Risk *ana#ement&2endin# Decision
To safe#uard Banks interest o$er the entire period of the ad$ance% a comprehensi$e
$ie! of the capital% capacity% inte#rity of the borro!er% ade"uacy% nature of security%
compliance !ith all le#al formalities% completion of all documentation and finally a
constant !atch on the account are called for. +here ad$ances are #ranted a#ainst the
#uarantee of a third party% that #uarantor must be sub(ected to the same credit
assessment as made for the principal borro!er. The basic security $aluations !ill be
e,pert third party assessments% current market price and forced sale $alue.
+hile makin# lendin# decisions% particular attention should be #i$en to the analysis of
credit proposals recei$ed from hea$ily le$era#ed companies and those dealin#s in non&
essential consumer #oods% takin# special care about their debt ser$icin# abilities.
.mphasis should be #i$en on the follo!in# sound credit principles:
I. 4resent and future business potentiality for optimum deployment of Banks
fund to increase return on assets.
II. 4reference for self&li"uidatin# =uality business.
III. 3$oidin# mar#inal performers.
I/. Risk dispersion is basic to sound credit principles and policies. Bank should be
careful about lar#e and undue concentration of credit to industry% one obli#ors and
common product line etc.
/. *ana#in# the amount% si0e% nature and soundness of one obli#or e,posures
relati$e to the si0e of the borro!er and Banks position amon# his other lenders.
/I. 4ersonal #uarantees of the principal partners or the Directors of the companies
and !here necessary% subordination a#reement should be obtained.
/II. Reco#ni0e impact of fee income throu#h Remittances% 2etter of Credit% 2etter of
5uarantee% )orei#n .,chan#e business in enhancin# return on assets.
/III. The asset&con$ersion or transaction flo! cycle and the net&tradin# cycle of the
customer i.e. the terms on !hich they conduct the business.
Credit risk e'aluation(
3n accurate appraisal of risk in any credit e,posure is hi#hly sub(ecti$e matter in$ol$in#
"uantitati$e and "ualitati$e (ud#ements. The financial statements of the borro!er do not
al!ays pro$ide a complete picture. Bank must use all financial data a$ailable and
combine this !ith "ualitati$e factors in analy0in# the borro!ers financial position. In
e$aluatin# any credit proposal% the analyst must follo! T'R.. distinct and lo#ical steps
to conclude on and make appropriate recommendations. These are:
STE) 5( Histori"al %nalysis .-dentify nature of risk/
.$aluate the past performance of the borro!er. Determine the ma(or risk factors and ho!
they ha$e been miti#ated in the past. Identify factors in the borro!ers present condition
and past performances !hich may foreshado! difficulties or indicate likelihood of success
in his ability to repay the loan at a future time.
STE) 6( ,ore"ast .7udin future deree of risk/
'a$in# identified the nature of risk in$ol$ed and ho! these can be miti#ated% make a
reasonable forecast of the probable future condition of the borro!er and conclude on his
ability to ser$ice the proposed le$el of debt.
STE) 8( De+t Stru"ture and )rote"tion
3ssess the borro!ers credit !orthiness and prepare a proposal for structurin# a credit
facility that can be repaid or amorti0ed #i$en the borro!ers assets or his pro(ected Cash
flo! and the facility offerin# ade"uate protection a#ainst loss and control of the lendin#
Modern Con"ept of Lendin )rin"iples %pplied +y
Southeast Bank Limited
*odern concept of lendin# pre&supposes a !ell&de$eloped loan proposal. It !ill co$er as
many as si, pertinent factors like *ana#ement% Or#ani0ational% Technical% *arketin#%
)inancial and .conomical. These are technically kno!n as feasibility or $iability study of a
loan proposal. By studyin# all these factors if a credit officer is satisfied about the $iability
of a loan proposal% then he;she can finance it i.e. #rant for lendin# other!ise not.
Te"hni4ues for )ro9e"t %ppraisal
E4ro(ect 3ppraisalF means pre&in$estment analysis of an in$estment pro(ect !ith a $ie! to
determine its commercial and socio&economic feasibility. It is an essential tool for
(udicious in$estment decision and pro(ect selection. It is the prime step in the process of
decision makin# in respect of sanctionin# any loan by financial institutions.
The under mentioned appraisals are conducted by the branches of 1B2 !hile e$aluatin#
an in$estment proposal:
5# Manaement %ppraisal
6# Market %ppraisal
8# Te"hni"al %ppraisal
:# ,inan"ial %ppraisal
;# E"onomi" %ppraisal
Manaement %ppraisal( 3 #ood pro(ect may fail if the *ana#ement is incomplete. It is
necessary to e$aluate the follo!in# mana#erial aspects:
O$erall back#round of the promoters
3cademic "ualifications
Business and industrial e,perience
4ast performance and market reputation
Market %ppraisal( *arket appraisal is concerned primary !ith t!o main issues
>. The a##re#ate demand of the proposed product;ser$ice in the future
?. The market share of the pro(ect under appraisal
To ans!er the abo$e issues% it re"uires a !ide $ariety of information and appropriate
forecastin# methods. The re"uired information are:
Consumption trends in the past and the present consumption le$el
4ast and present supply position
4roduction possibilities and constraints
Imports and e,ports position
1tructure of competition
Cost structure
.lasticity of demand
Distribution channels and marketin# policies in use.
Te"hni"al %ppraisal( The importance of technical appraisal in pro(ect e$aluation is
beyond any "uestion. Technical appraisal of a pro(ect broadly in$ol$es a critical study of
the follo!in#:
2ocation and site
Ra! material supplies
Transportation facilities
4o!er and fuel supply
3de"uacy and suitability of the plant and machine
4lant layout
Balancin# of different sections of the plant
Buildin# and layout
,inan"ial %ppraisal( )inancial appraisal seeks to ascertain !hether the pro(ect !ill be
financially $iable in the sense of bein# able to meet the burden of ser$icin# debt and
!hether the proposed pro(ect !ill satisfy the return e,pectations of those !ho pro$ide
capital. The aspects looked into !hile conductin# financial appraisal are:
In$estment outlay and cost of the pro(ect
*eans of financin#
Cost of capital
4ro(ected profitability
Break&e$en point
Cash flo!s of the pro(ect
2e$el of risk
E"onomi" %ppraisal( .conomic appraisal also referred to as social cost benefit analysis%
is concerned !ith (ud#in# a pro(ect from the lar#er social point of $ie!. In case of certain
rural pro(ects like irri#ation pro(ects% po!er pro(ects% transportation pro(ects or other
infrastructural pro(ects&social cost benefit consideration is as important as and sometimes
more important than commercial profitability considerations.
The follo!in# factors should be considered so as to ensure a successful econimic
appraisal of the pro(ect:
5eneration of employment
Income distribution
De$elopment of small scale and ancillary industries
De$elopment of infrastructure
Impro$ement of li$in# standard
The procedure follo!ed by 1outheast Bank 2imited in order to #i$e credit facility to its
client is $ery len#thy and "uiet complicated.
)irst of all the potential borro!er !ill submit application to 1outheast Bank 2imited for
credit facility by fillin# a particular application form. The application form contains the
Name of the borro!er
3ccount Number
Business address% Residential 3ddress and permanent address !ith phone number
Introducers name% 3ccount number and address !ith phone number
Date of establishment;incorporation
Trade license number% date of issue and e,piry date
Income ta, payment history for last three years
Type of business 61ole proprietorship;4artnership;4ri$ate 2imited;4ublic 2imited
company etc7
4articulars of indi$idual;partner;directors 6Name% 3ddress% Desi#nation% )athers name%
'usbands name% 1hares held7
.,perience and back#round of indi$idual;director;proprietorship;partner
)ull particulars of the asset held by the indi$idual;partner;director;G.. !ith $aluation
Nature and detail of business;products 6for !hich the credit facility is re"uested for7
.stimated sales for ne,t one year
Credit facilities re"uired 6Type% amount% period% purpose and mode of ad(ustment7
Details of securities offered !ith estimated $alue 64rimary security% Collateral security%
market $alue of the security7
Detail of liabilities in the name of the client or in the name of any other partner;director or
subsidiaries;affiliates !ith 1outheast Bank 2imited or !ith any other bank if any 6name of
the bank% account number% nature of ad$ance% amount% security and $alidity of limit7
Balance sheet% Income statement or statement of account usually of the last three years
1ome important ratio
Other rele$ant information
4roposed debt;e"uity ratio
1i#nature of the 3pplicant
3fter recei$in# the loan application form% 1outheast Bank 2imited send a letter to
Ban#ladesh Bank for obtainin# a report from them. This report is called CIB 6Credit
Information Bureau7 report. This report is important if the loan amount e,ceeds Tk. A
million. But 1B2 usually collects this report if the loan amount e,ceeds Tk. > million. The
purpose of this report is to inform that !hether the borro!er has taken loan from any
other bank and if yes then !hether these loans are classified or not.
Then after recei$in# CIB report from Ban#ladesh Bank% if the Bank thinks that the
prospecti$e borro!er !ill be a #ood borro!er% then the Bank !ill scrutini0e the
documents. In this sta#e% the bank !ill check !hether the documents are properly filled
up and si#ned.
3fter this comes the processin# sta#e. In this sta#e% the Bank !ill prepare a 4roposal. 3
proposal contains the follo!in# rele$ant information:
Name of the borro!er
Nature of limit
4urpose of limit
.,tent of limit
Rate of interest
.ach and e$ery branch of the Bank has certain discretionary po!er to sanction a
specified limit a#ainst financial obli#ation by informin# the 'ead Office. But for this the
branch must see t!o basic thin#s
>. The interest rate must not be less than AH
?. The borro!er must maintain a mar#in of >:H
.,cept this% the branch has to send the proposal to the 'ead Office !here a minute !ill
be prepared and submitted before the .,ecuti$e Committee 6.C7 and there that minute
ha$e to be passed.
3fter passin# of the minute by the .C% it !ill be send to Ban#ladesh Bank for appro$al in
case of the follo!in# :
>. If the proposal limit e,ceeds >AH of Banks e"uity
?. If the proposal limit a#ainst cash collateral securities e,ceeds ?AH of Banks e"uity
3fter #ettin# the appro$al of Ban#ladesh Bank it !ill a#ain come to the 'ead office !here
after the sanction ad$ice% the Bank !ill collect the necessary documents. The documents
that are collected are #i$en belo!:
-oint 4romissory Note
1in#le 4romissory Note
2etter of Undertakin#
2oan Disbursement 2etter
Debit )i#ure Conformation 1heet
2etter of Continuity
2etter of 3uthority
2etter of Re$i$al
2etter of 5uarantee
2etter of Indemnity
Trust Receipt
'ypothecation of 5oods
'ypothecation of /ehicles
Counter 5uarantee
2etter of 2ien
2etter of 2ien in case of ad$ance a#ainst )DR
2etter of 3uthority to encash )DR
2etter of 3#reement for 4ackin# Credit
2etter of 5uarantee for openin# of 2;C
*emorandum of Deposit of Title deeds
'ypothecation of #oods to secure Demand Cash Credit or O$erdraft;2oan amount
5uarantee by third party
)or !ithdra!in# the loan amount% the customer creates a C;D account and the loan is
transferred to the C;D account from !here the customer can !ithdra! the money.
DOC1ME2T%T-O2S %G%-2ST B%2< C0ED-T
Documentation is one of the ma(or aspects of credit functions of 1outheast Bank 2imited.
The main income #eneratin# acti$ity of a Bank in Ban#ladesh is pro$idin# credit ser$ices
to customers preferably in a secured manner. The char#e in securities a#ainst credit
facilities is created throu#h e,ecution of rele$ant documents formalities and as such% the
Bank can lar#ely at a future date fall back the securities held for reco$ery of the dues.
Besides% documents are the physical embodiment of liability. It is to be ensured that
documents should be prepared and e,ecuted accordin# to the la! and should not
confront !ith the rules and practice of Bankin#. Conse"uently% documents should be
drafted and e,ecuted under the super$ision of professional la!yer;le#al ad$iser.
Documentation is the !ritten statement of facts or e$idence in re#ard to a particular
transaction% !hich on placement may bind the parties ans!erable and liable to the court
of la!. The characteristics of documentation are as follo!s:
It should be !ritten statement of facts
The facts should co$er all the le#al aspects
It must be an e$idence of certain transaction
The person ha$in# authority and le#al po!er should si#n it
There mi#ht be some !itnesses
It should be stamped as per re"uired accordin# to the type of document
-mportan"e of Do"umentation(
Documentation formalities a#ainst loans and ad$ances should be properly completed
prior to e,tension of the facility to safe#uard the Banks interest. Complete and correct
documentation enables the credit officer of 1B2 to take le#al resource a#ainst the
borro!er in case of non&reali0ation of dues.
Types of do"umentations
Documents related to securin# loans and ad$ances are classified into the follo!in# ?
>. Char#e documents are preformatted and printed re"uired to create char#e on
securities a#ainst loans and ad$ances and the documents are pro$ided by the Bank to the
client for e,ecution.
?. 2e#al documents are le#al papers pro$ided by the client% certifyin# the le#al status of
the borro!er% borro!in# po!er% tile to #oods and property% le#al deeds and po!er of
attorney related to creation of char#e on securities.
Steps of Do"umentation
The follo!in# steps of documentation should be follo!ed in se"uence:
5# O+tainin of the instruments
6# Stampin
8# E=e"ution
:# >itnessin
;# 0eistration
?# )reser'ation
O+tainin of instruments&do"uments
The documents to be obtained depends upon 9 factors
>. 2e#al status of the borro!er
?. Type of facility
9. Nature of security
Common type of do"uments(
The documents ate are common to all type of loans and ad$ances are specified belo!:
Demand promissory note( Demand promissory note is an unconditional !ritten promise
made by the borro!er to the Bank to repay the amount of loans;ad$ances at a fi,ed or
determinable future date alon# !ith interest at a stated rate.
Letter of arranement( The borro!er ackno!led#es the Banks ri#ht to cancel the facility
allo!ed at any time !ithout assi#nin# any reason and !ith or !ithout prior notice.
Letter of "ontinuity( The borro!er undertakes to remain liable on the demand
promissory note and other loan documentation e$en if the liabilities are fully or partially
ad(usted durin# the tenure of the credit facility and e$en thou#h the account may sho!
credit balance from time to time.
Letter of re'i'al( The document refers to the la! of limitation !hereby documents
become time barred after 9 years from the date of e,ecution. The period of limitation
!ithin !hich a suit for reco$ery of the o$erdue loans;ad$ances to be filed is the ordinary
period of 9 years from the date on !hich the facility !as e,tended. The limitation period
for mort#a#e is >? years be#innin# on the date of the mort#a#e deed.
Stampin of Do"uments
3ccordin# to the pro$isions of stamp 3ct >IDD% all documents char#eable !ith duty shall
ha$e to be stamped ade"uately and properly before or at the time of e,ecution. 3n
unstamped and insufficiently stamped document cannot be admitted in e$idence or
cannot form the basis of a re#al suit.
The types of stamps are described belo!:
7udi"ial( -udicial stamps are used in the court for filin# suits and for (udicial notin# and
are not re"uired for loan documentation.
2on@9udi"ial( Non&(udicial stamps are used for deeds% a#reements% undertakin#s and
po!er of attorney.
%dhesi'e( 3dhesi$e stamps consolin# re$enue stamps and special adhesi$e stamps are
affi,ed on $arious char#e documents;forms.
Em+ossed( These types of stamps are used as seal of notary public and or#ani0ational
E=e"ution of Do"uments(
Documents must be e,ecuted 6si#ned7 by the person6s7 concerned competent to do so
either in official capacity or in personal capacity as the case may be. In other !ords% the
borro!er authori0ed representati$e must do e,ecution of documents.
Documents to be filled in !ith permanent ink or be typed.
The e,ecutants should si#n in full accordin# to the specimen si#natures kept !ith the
The documents must be e,ecuted in the presence of the *ana#er or authori0ed officer
of the Bank. The *ana#er;Officer must $erify the si#nature.
If the document comprises of more than one pa#e% the e,ecutant should si#n all the
It is a must to mention date and pace of e,ecution. No documents and no column in a
document should remain blank.
There should not be% a far as possible% any cuttin#% o$er!ritin#% alteration% insertion or
cancellation in any documents. 3ny alteration under competin# situation% ho!e$er% must
be authenticated under full si#nature by the e,ecutants.
The date on the promissory note must be the same as on other rele$ant documents.
The follo!in# documents are re"uired to be must attested by at least ? !itnesses.
*ort#a#e deed
1ale deed
5ift deed
3ssi#nment of life insurance policy
0eistration of do"umentation
Re#istration is not applicable for all the documents. In the follo!in# fe! cases%
re#istration of documents is necessary to #i$e le#al effect to the instruments.
>. The assi#nment of an insurance policy to be re#istered !ith the respecti$e insurance
?. The mort#a#e deed $etted by the le#al retainer to be re#istered !ith the office of the
9. )i,ed and floatin# char#es on the assets of a limited company to be re#istered !ith the
Re#istrar of -oint 1tock Company.

)reser'ation of Do"uments(
Upon completion of all the documentation formalities% documentation checklist to be
prepared consistin# of the list of the re"uired documents.
The checklist should be e,amined and si#ned by an authori0ed officer.
Documents should be kept in safe custody #enerally in the $ault.
1eparate files to be maintained for different customers.
Documents mo$ement Re#ister should be maintained under the super$ision and
si#nature of an authori0ed officer.
Do"uments re4uired for different kinds of Loan(
-n "ase of Loan(
2etter of disbursement
2etter of 3uthority
2etter of 'ypothecation 6!hen #oods are hypothecated as security7
Insurance 4olicy 6If re"uired7
3ny other documents as stated in sanction ad$ice.
-n "ase of O'erdraft(
2etter of continuity
2etter of authority
2etter of 'ypothecation 6!hen #oods are hypothecated as security7
Insurance 4olicy 6If re"uired7
3ny other documents as stated in sanction ad$ice.
-n "ase of "ash "redit(
2etter of continuity
2etter of authority
2etter of pled#e;hypothecation
Insurance policy under Banks mort#a#e clause
2etter of disbursement in case of rene!ed !arehouse
3ny other documents as stated in sanction ad$ice
-n "ase of Transport Loan(
2etter of 'ypothecation of $ehicles 6in separate form7
4hotocopy of blue book
4hotocopy of route permit
Insurance policy under Banks mort#a#e clause
3ny other documents as stated in sanction ad$ice
-n "ase of Leal Mortae(
*ort#a#e deed
Ori#inal re#istration receipt
Chain of documents for title
Up to date rent receipt
4o!er of attorney
2e#al opinion
/aluation certificate
2ocation plan;site plan
-n "ase of E4uita+le Mortae(
Chain of documents for title
Ori#inal title deed
Up to date rent receipt
*emorandum of deposit of title deed
Re#istered po!er of attorney
2e#al opinion
/aluation certificate
4.R)OR*3NC. 3N32<1I1 O) T'. CR.DIT 4ORT)O2IO
1outheast Bank 2imited offers a number if loans in $arious forms to its customers like
demand loans% time loans% term loans% consumer credit scheme% B2C% 2I* and etc. These
loans are the main source of income !hich enables 1B2 to operate so efficiently and
effecti$ely. The performance of each type of loan are discussed in this part.
Demand Loan( Durin# the year >DDD and ?:::% there !as no demand loan present in the
loan portfolio of 1outheast Bank 2imited. 'o!e$er% in the year ?::>% demand loan stood
nearly >.AH of the total loan but it dropped a#ain to nearly :.?CH durin# ?::?. It can be
seen that 1B2 doesnt #i$e much importance in this type of loan.
The performance of this loan is not up to the standard because the *ana#ement doesnt
#i$e much preference to demand loan.
Time Loan( Time loan is one of the most important parts of the credit portfolio of any
Bank that contributes "uiet a lot to the Bank. 1outheast Bank 2imited also has a pretty
healthy term loan position. Durin# the year >DDD and ?:::% the position of this loan !as
pretty stable but from ?:::% it is risin# at a #ood rate. The a$era#e #ro!th rate from the
year ?::: !as appro,imately >:AH !hich is really hi#h. It occupies nearly >?.A H of the
total credit portfolio of 1outheast Bank 2imited.
Term Loan( Term loan is the second most important and hi#hest percenta#e of the total
loan portfolio of 1outheast Bank 2imited. It nearly holds ?@.AH of the total credit portfolio
of 1B2. It is risin# e$ery year in a stable manner and the #ro!th rate of this loan is
appro,imately @BH. It is e,pected that durin# the year ?::9% this loan !ill increase to
appro,imately Taka. @:: crore !hich is "uiet a lot compared to other loans that are
offered by 1B2.
Consumer Credit S"heme( This type of loan is #radually increasin# in Ban#ladesh and
more and more people are takin# this loan for $arious kinds of purpose. .$ery Bank in
Ban#ladesh is concentratin# more and more in this type of loan as it is $ery much
secured. 1B2 like any other Banks is also no!adays focusin# on this loan. Durin# the
year >DDD% ?::: and ?::> the #ro!th !as pretty stable but after that it took a sharp rise.
It is found out that 1B2 is #i$in# more and more Consumer Credit in the recent times and
tryin# to attract customers by introducin# ne! schemes. 3lthou#h its contribution to the
loan portfolio of 1B2 is $ery nominal that is only about :.?AH but it is #ro!in# slo!ly and
it is one of the most safest credit that is #i$en to the people.
Bills aainst letter of "redit .BLC/( Bills a#ainst letter of credit is one of most important
part of a ban and e$ery bank use to ha$e this in its credit portfolio. 1outheast Bank
2imited also ha$e "uiet a #ood position in this loan. 3lthou#h it !as hi#her durin# the year
>DDD and ?:::% the loan fall durin# the ne,t year and the reason behind this !as that 1B2
!as due to some default in this loan. But the Bank kno!s that this is an important
business and it had to #i$e this type of loan as the business is hu#e. But currently
1outheast Bank is takin# #reat care in sanctionin# B2C. The B2C occupies nearly B.IH
of the total credit of 1B2.

Loans aainst trust re"eipt .LT0/( This type of loan !as $ery nominal before the year
?::>. Durin# the year >DDD and ?:::% this loan !as only :.>?H of the total loan portfolio.
But in the year ?::>% it (umped to nearly ?>H of the total loan portfolio and last year it
contributed appro,imately >CH of the total portfolio. This seems that the 2TR is #ro!in#
$ery fast and it is forecasted that it !ill continue to contribute nearly >:&?:H of the loan
portfolio for another 9&@ years.
)a"kin Loan( 1B2 doesnt #i$e a!ay this type of loan $ery much. Durin# >DDD and
?::?% this loan !as #i$en but that !as $ery nominal.
Loan aainst imported mer"handise .L-M/( 2I* is "uiet a common credit #i$en a!ay
by nearly all the Banks that are operation in Ban#ladesh. 1B2 also #i$e this type of loan
but the si#nificant side is that this loan is continuin# to fall sharply. This loan !as hu#e
durin# the year >DDD and ?:::. But in the year ?::>% it fell sharply and is continuin# to fall
Loan aainst forein +ills( This type of credit is also $ery much limited and it only
consists of only around :.:CH of the total credit portfolio of 1B2.
Other Loans( The other loans contains Car loan&staff% 'ouse buildin# loan&staff and etc.
!hich is also not $ery hi#h because it is #i$en only to the employees of the Bank and only
to the hi#h ranked officers. 1o ultimately% the clients of this type of loan are the
employees of the Bank !ho are $ery limited in number. But e$en then% it is much hi#her
than some other. 3lthou#h it is usual that due to the e,pansion of business% branches and
employees the amount of this loan is suppose to increase but it sho!s that it is
decreasin# #radually. The reason behind this is that 1B2 accordin# to its ne! rules has
lo!er the amount of loan that the employees can #et from the Bank re#ardin# car and
house financin#.
Cash Credit .CC/ and o'erdraft( The most important part of the loan portfolio is the
cash credit and o$erdraft. This co$ers nearly 9AH of the total loan portfolio of 1B2. )rom
this it can be seen that ho! important is this loan to the Bank as ma(ority of the money
are #i$en a!ay in the form of CC and o$erdraft. This loan does $ary from one year to
another but this loan is performin# "uiet !ell and is increasin# $ery #radually for the last
fe! years.
1.CTOR +I1. 4.R)OR*3NC. O) 2O3N
3lthou#h the type of loans are defied in this report% but the brad cate#ory of loan that is
submitted to the Ban#ladesh Bank for re$ie! and report is #i$en belo!:
Lare and medium s"ale industrial loan( This loan consists of the entire loan that
comprises of the lon#&term pro(ect loan like infrastructure% buildin#% factory etc. This is the
type of loan that 1B2 has not #i$en in lar#e "uantity because of the default nature of this
type of loan and the problem of reco$ery. But e$en then the amount of money that has
been #i$en in this loan is "uiet lar#e as each in$estment carries hu#e amount of
in$estment. On an a$era#e the percenta#e of term loan #i$en a!ay is appro,imately >>H
of the total loan portfolio. Other 4ri$ate commercial Bank 64CB7 percenta#e of term loan
is appro,imately >AH of the total portfolio !hich sho!s that 1B2 is in the lo!er side and
this is one reason !hy its classified loan is lo!.
>orkin Capital Loan .>CL/( 1B2 has been encoura#in# in #i$in# +orkin# Capital
2oan in recent times as it is #enerally of short nature and the default nature is lo! in this
case. It can be seen that the percenta#e of +C2 of the total credit portfolio is increasin#
#radually. One reason for this must be also that the demand for +C2 in recent times is
$ery hi#h and e$ery bank is tryin# to pro$ide +C2. The a$era#e percenta#e of +C2 for
the last fe! years is appro,imately @.AH of the total credit #i$en a!ay by 1B2.
E=port Credit( .,port credit has al!ays been the priority of some of the nationali0ed
banks in Ban#ladesh alon# !ith some first #eneration banks. But recent trends sho! that
e,port credit has been #oin# do!n for some times and the reason may be that the !orld
business en$ironment is not $ery stable. 1B2 has been offerin# e,port credit from the
be#innin# and it didnt $ary much durin# from the start of its business. On an a$era#e% it
has been #i$in# appro,imately >.AH of the total credit in e,port finance.
Commer"ial Credit( The credit that e$ery bank pro$ides the most and !hich brin#s the
hi#hest income is the commercial credit. This is the most because the demand for
commercial credit is the hi#hest amon# the entire loans. 1B2s hi#hest percenta#e of loan
amount all the credits is commercial loan !hich on an a$era#e is appro,imately B9H of
the total loan. It comprises of more than half of the total portfolio. The industry also has
appro,imately A:&BAH of its loan concentrated to!ards different types of commercial
Small and Cottae -ndustry( This sector in Ban#ladesh is not $ery prominent and still in
the #ro!in# phase. 4CBs dont concentrate much in this sector as a result the industry on
an a$era#e has appro,imately >&?H of the total loan in small and cotta#e industry. 1B2 in
comparison !ith the industry has only :.:9H of the loan concentrated to this sector !hich
is the lo!est amon# all the credit offered.

)rom the trend analysis o$er the last four years% it can be seen that the amount of each
loan is increasin# #radually but commercial loan and other loan is increasin# is a $ery
#ood pace. This is a #ood si#n for 1B2 in the sense that #ro!th rate of most of the loan is
#ood !hich means that 1B2 is #ettin# more and more clients !hich !ill help it to #enerate
hi#her operatin# income.
Classified Loans(
3 classified loan or commitment is one !hich is classified as substandard% doubtful and
loss as per policy of loan classification set by Ban#ladesh Bank or 'ead Office of the
Su+standard( 3 !ell&defined !eakness is present in loans of this cate#ory !hich could
affect the ability of the borro!er to repay. This is clearly a troubled situation for one
reason or another that re"uires immediate and intensi$e effort to correct and reduce the
possibility of loss.
1ubstandard loan position !as increasin# durin# the year >DDD% then it fell in ?::: after
that it a#ain increased in ?::> and then in the last year it fell sharply a#ain and it is
pro(ected that it !ill continue to be in the lo!er end !hich is $ery #ood for the Bank.
Dou+tful( 3 serious doubt must e,ist that full repayment !ill not be forthcomin# but the
e,act amount of the loss cannot be ascertained at the time of classification.
The last four years trend sho!s that the amount of doubtful loan is fallin# #radually and in
a uniform manner !hich is a $ery #ood si#n for the Bank. The a$era#e doubtful loan o$er
the four years period is appro,imately :.@: H of the total loan portfolio !hich is $ery
Loss( 3d$ances or portions of ad$ances !hich are determined to be uncollectible based
on presently kno!n situation;factors.
3lthou#h the amount of bad loan is in a $ery #radual increasin# trend% it is balanced !ith
the other t!o type of classified loan. It can be further seen that the percenta#e of bad
loan of the total loan portfolio is decreasin# #radually !hich is "uiet #ood.
3lthou#h the amount of total loan has been slo!ly increasin#% it is seen that the
percenta#e of classified loan o$er the past @ years has been #radually decreasin#. The
industry on an a$era#e has a classified loan of nearly >:&?: H. 3mon# these the pri$ate
commercial banks classified loan position stands nearly about B&>:H !hile the position of
the nationali0ed banks has a classified loan position of about 9A&@:H !hich sometimes
before increased to nearly B:H. This sho!s classified loan position in the industry is "uiet
hi#h but in comparison to the industry and other 4CBs% the position of 1B2 is on the
better side of the spectrum.
It can further seen that the percenta#e of unclassified loan is #radually increasin# !hile it
!as already found out that the percenta#e of classified loan is decreasin#. It does creates
a balance bet!een the t!o and as a result it can be concluded that 1B2 is doin# "uiet
from the $ie! point of Classified loan.

1.CTOR +I1. R.CO/.R< O) 2O3N
Term Loan( 3lthou#h the reco$ery of term loan is $ery slo! but it is #radually increasin#
due to #ood loan reco$ery mana#ement present in 1outheast bank 2imited. )or the last
four the reco$ery is takin# place in a stable manner !ith uniform #ro!th !hich is a #ood
si#n as reco$ery of term loan is not $ery easy and default is $ery much in this sector. But
it is the characteristics of lon#&term loan that reco$ery !ill be a $ery slo! process. On an
a$era#e the total reco$ery of term loan in each year is about Tk. B9A million. This
reco$ery is "uiet #ood if compared !ith the industry. The reco$ery of lar#e and medium
industry credit is about @A: million e$ery year.
>orkin Capital Loan( 3ccordin# to the information% 1B2 durin# the year >DDD and ?:::
did not reco$ered any +C2. But from the year ?::>% it be#an to reco$er the loan #i$en in
this sector !hich is increasin#. But if compared !ith the industry% its reco$ery is slo!
because the industry has an a$era#e reco$ery of almost Tk.?:: million each year
!hereas 1B2 has a yearly reco$ery of only Tk.>@C million. This is a concerned for the
*ana#ement but as the amount of loan #i$en in this sector is not $ery lar#e% they are not
in a hurry.
E=port Loan( The reco$ery of e,port loan in the year >DDD and ?::: !as "uiet stable
and #ro!in# but from ?::> the reco$ery (umped sharply !hich is a #ood si#n for 1B2.
The e,port loan reco$ery e$ery year is appro,imately Tk.>:I9 million !hich is pretty #ood
and it is "uiet the same as the industry !hose a$era#e reco$ery e$ery year is about
Tk.>>:: million. 1B2 is predictin# that its e,port loan #ro!th !ill increase and as a result%
the reco$ery of loan has to be $ery effecti$e in order to sur$i$e in the industry.
Commer"ial Credit( 3s the commercial credit comprises of the ma(ority amount of loan
in the total loan portfolio and is most important as it #i$es the hi#hest earnin#s so its
reco$ery is also $ery important because classified loan is most in this sector in 1B2. The
commercial loan reco$ery is increasin# in a #ood speed althou#h there are defaults. On
an a$era#e the reco$ery of commercial loan e$ery year is close to Tk.?AA: million%
!hereas the industry has a reco$ery of appro,imately Tk.??::&?I:: million on an
a$era#e. 1o 1B2 is !ithin the industry line.
Small and Cottae Credit( The small and cotta#e industry sector is pretty lo! in
Ban#ladesh and loans pro$ided in this sector are also in the lo!er end. 3s the
percenta#e of loan allocated in this sector is $ery nominal% the reco$ery is also $ery small
and another reason behind the little reco$ery is that 1B2 doesnt concentrate much is this
sector. The a$era#e reco$ery of loan in this sector is about Tk.:.ID million per year.
Others Loans( The second most lar#e loan portfolio that makes up the portfolio of 1B2 is
rest of the loans e,cept the abo$e and so its reco$ery is as much as important as the loan
is. The reco$ery e,actly represents the #ro!th of loan of this sector. Durin# >DDD and
?:::% the loan !as not so hu#e but then from the ne,t year it climbed sharply. The loan
reco$ery of this sector is also beha$in# in the same manner as the loan #ro!th. On an
a$era#e% the reco$ery of this loan is close to Tk.>BA@? million.
The comparison bet!een the loan sho!s that the hi#hest reco$ery loan sector is the
Commercial sector after !hich is the other loans. 3lthou#h the reco$ery of the other loan
sector is fallin#% the rest almost ha$e the same kind of reco$ery but the most important
point is that all the reco$ery is in the increasin# phase !hich is a #ood positi$e si#n for
the Bank.

The loan reco$ery trend in the last four years sho! that reco$ery is "uiet #ood. 3lthou#h
the best reco$ery !as in the year ?::>% last year the reco$ery !as also #ood but it !as in
the lo!er side and #ro!in# slo!ly.
This is one of the most important and crucial sections of the Bank !here it has to !ork in
order to reco$er the loan that it has disbursed to its clients and are still outstandin#.
+hile doin# this pro(ect% some of the dra!backs re#ardin# the credit di$ision% head office
of 1B2 and credit performance itself are as follo!s:
$ Too many people in the credit department of head office !hile there is a need of people
in the branches.
$ 3bsence of some "uality people in the (unior le$el of the credit department.
$ 2ack of interaction and communication !ith some of the other departments in the head
$ 4rocess of #i$in# credit is $ery much complicated and len#thy makin# !aste of time.
$ 4olicies re#ardin# some of the credit that are offered to the clients are not present in
the credit policy #uide of 1B2.
$ )le,ibility and not follo!in# the e,act policy in sanctionin# loan to some special clients
by some of the Top&le$el .,ecuti$es.
$ /ery much emphasis on commercial loan !hich has the hi#hest default rate.
$ Not concentratin# on consumer credit scheme% one of the safest credits.
$ 3bsence of credit card.
$ 3bsence of leasin# !hich is $ery common in recent times.
$ Reco$ery of some of the loan is $ery slo! and inefficient.
$ 2ack of ad$ance soft!are for "uick in$esti#ation of a loan proposal i.e. measurement of
the ratios and other financial performance needed to sanction a loan to a client.
Dra!back is a !ork that is linked !ith e$ery or#ani0ation and e$ery department no matter
ho! efficient and effecti$e the or#ani0ation is. 4roblems !ill continue to come as time
passes and only those or#ani0ation !ill be able to sur$i$e and dominate the industry that
are able to find the cure and #et on !ith those problems.
1outheast Bank 2imited in order to make its credit di$ision effecti$e must do the follo!in#
to cope !ith the problems that it is facin# these days:
.,cess people in the credit di$ision should be remo$ed and placed to those branches
that are in shorta#e of people in their credit di$ision and chan#e those people !ho are not
!ell for the (ob.
Recruitment of some #ood (unior le$el e,ecuti$es for the credit department as this
department needs the best people because of the kind of !ork pressure and mental (ob.
*ore and more interaction must be done !ith other departments in the head office in
order to share $ie!s about different issues and problems !hich mi#ht help in the !ork of
the credit department.
Re$ised policies re#ardin# the #i$in# of loan must be made in order to make the process
of lendin# easy% efficient and effecti$e.
4olicies re#ardin# all the credits that are offered to the clients must be !ritten in the
credit policy #uide of 1B2 in full details.
Biasness and fle,ibility to!ards sanctionin# loan to some of the clients must be stopped
and strict policy should be follo!ed in order to reduce default.
*ore emphasis must be #i$en in the Consumer Credit 2oan as the #ro!th of this kind of
loan in the industry is $ery hi#h and #ainin# more and more popularity day by day !hile
sanctionin# of loan to!ards the commercial sector should be $ery selecti$e and strict due
to the nature of default.
Credit Card should be introduced immediately as the demand for credit card in the
market is pretty hi#h and people like to buy on credit rather than cash.
The Bank must introduce leasin# facilities to its clients as most of the banks are offerin#
this ser$ice to the customers and as it still ha$e demand in the market.
5ood and capable personnel should be placed in the loan di$ision so that the reco$ery
is more effecti$e and faster.
Credit is one of the most $ital and important parts of a bankin# institution. It is the prime
source of income for a bank. The interest that a bank earns by #i$in# credit co$ers almost
CA&I:H of the total earnin#s of a bank. 1o it is $ery important for a bank to concentrate
and focus on its credit mi, and monitor the credit portfolio all the time to #et the best
1outheast Bank 2imited has a "uiet a #ood credit portfolio mi, but still ha$e some lackin#
!hich mi#ht cause problems for the bank in the future because the competition is #ettin#
intense day by day.