You are on page 1of 72

Part- One

Introduction

Page 1

1.1. Background of the Study


It has become indispensable for every person to have some thought on the bank and banking course
of action. As our educational system predominantly text based, inclusion of practical orientation
program is an exception to the norm. From practical knowledge, we will be able to know real life
situations and start a career with some practical experience. Bachelor of Business Administration
(BBA) is a professional course. The course is designed with an excellent combination of practical and
theoretical aspects. After completing BBA, certain times are preserved for internship. As a student of
BBA with the requirement of my course I was assigned to National Credit and Commerce Bank
limited (NCCBL), Mirpur Branch for my internship. In such state of affairs the present aiming at
analyzing the experience of practical orientation related to an appraisal of NCC Bank Limited and my
report topic has been selected as Loan Disbursement & Recovery System of NCCBL.
Banking constitutes an important segment of the financial infrastructure of any company. Generally,
banking means deposit mobilization and development of those deposits into advances or investments
in different sectors. It means bank collect deposit at lowest possible interest rate and provides loan at
highest interest rate. Between the two interests is the profit for bank and known as Spread. There are
two types of banking that was commercial banking and another is investment banking. Commercial
banks raise their fund by collecting deposits from individuals and business that provides as loan to
customer at high interest to maximize profit. NCC bank is one of the most popular and profitable
commercial bank in Bangladesh.
Basically, this report is highlighted on overview of NCC Bank Ltd, Structure, Analysis, Present
status, Experience, Recommendation and conclusion.

1.2. Significance
This internship report is an important partial requirement of four years BBA graduation program. This
is because knowledge and learning become perfect when it is associated with theory and practice. By
this internship program students can establish contacts and networking. Contacts may help to get a
job in practical life. That is, student can train and prepare themselves for the job market. A poor
country like Bangladesh has an overwhelming number of unemployed educated graduates. As they
have no internship experience they have not been able to gain normal professional experience of

Page 2

establish networking system, which is important in getting a job. Therefore, it is obvious that the
significance of internship is clearly justified as the crucial requirement of four years BBA graduation.
1.3. Scope of the Report
As I was assigned to the National Credit & Commerce Bank Ltd, Mirpur Branch, there is enough
scope of the study. The report covers the topic Loan Disbursement & Recovery System of NCC
Bank Ltd. To conduct a study, Loan Disbursement & Recovery of NCC bank, I have gathered
valuable information from NCC Bank, Mirpur Branch and its wealthy library I have also got some
information from website of NCC Bank.
This report is only done for gathering information about loan sanctioning procedure and recovery
system as well as the performance of sanctioning loan and recovery position while ignoring any other
department of the bank.
1.4. Objectives of the Study

1.4.1.

General objective

The prime objective of this report is to analyze the Loan Disbursement & Recovery System of
National Credit & Commerce Bank Ltd.

1.4.2. Specific objectives


The study was conducted to achieve the following secondary objectives To know the lending procedure of NCC Bank Limited.
To know the trend of loan and advances over the year.
To know the sector wise loan and advances.
To know the recovery performance.
To know the ability to utilize the deposit as loan and advances.
To compare the loan disbursement and recovery performance with Southeast bank &
Mercantile Bank Limited.
To make some recommendations for the successful Loan disbursement and recovery system

Page 3

1.5. Methodology of the study


Methods followed to perform a job or conducting activities to complete a task is called methodology.
In conducting this study the following methodology was adopted in collecting data & information,
preparation of reports etc. The methodology of report is given below:
1.5.1.

Type of Research

In this report we will describe the Loan Disbursement & Recovery process of National Credit &
Commerce Bank Ltd, by Time series analysis, Ratio Analysis and Comparative Analysis etc. So,
according to the base of objective this research is called descriptive research.

1.5.2. Data collection


Primary sources
Secondary sources
1.5.2.1. Primary sources of data include the following:
Practical deskwork.
Informal discussion with the clients and officers of the bank.
1.5.2.2. Secondary sources of data including the following:
Annual report of NCC Bank limited (2006 to 2010).
Annual report of Southeast Bank limited (2009-2010).
Annual report of Mercantile Bank limited (2009-2010).
Unpublished data from the branch.
Bankers training book.
Study of different files of different section of the bank.
NCC Bank web address www.nccbank-bd.com

Page 4

1.5.3.1. Data collection procedure and instruments


For the Loan Disbursement & Recovery System of National Credit & Commerce Bank Ltd I
mainly used Secondary data. Besides this I also collect some information by taking expert opinion
from the officers and direct observation while I doing the internship program at the bank.
1.5.3.2. Collection of Secondary Data
In order to collect the secondary data different related printed materials like NCC Bank Annual
Report, monthly statement of the bank, NCC bank website, bankers training guide has been used.
Moreover, various library sources and textbooks also have been used as secondary sources of
collecting early mentioned data and information.
1.5.4 Data Analysis & reporting
After collecting all the data, they will be coded and data will be processed, Loan disbursement &
recovery analysis, graphically represented using MS Excel and MS Word.

1.6. Limitations of the study


There are some limitations of the report and therefore it may lack some crucial data. In preparing the
report I faced some problems, which are as follows:
The main constrain of the study was insufficiency of information, which was
required for the study. There are various information the bank employee cant
provide due to security and other corporate obligations.
Due to time limitation many of the aspects could not be discussed in the present
report. Learning all the functions within just 90 days is really tough.
Since the bank personnel were very busy, they could not provide enough time to
me. Lack of opportunity to visit more than one branch.
Data and information used in this study are mostly from secondary sources.
Large scale research was not possible due to constraints and restrictions posed
by the organization.
For Strategic and Competitive position of the company, it refuses to disclose
sophisticated information which might make the report more worthy.

Page 5

Page 6

Part-02

An Overview of NCC Bank Ltd.

2.1. Company Profile

Page 7

Name
Year of Establishment

National Credit & Commerce Bank Ltd.


It was Started as an investment company in 1985 and
converted to a fully fledged private commercial bank in 17

Corporate Office
Authorize Capital
Paid Up Capital
Type of Company
Scope Of Business

May 1993.
7-8, Motijheel C/A, Dhaka-1000.
2500 million
4501.25 million
Public limited
Banking, capital market operations.

2.2. Background
National Credit and Commerce Bank Ltd. started its journey in the financial sector of the country as
an investment company back in 1985. The aim of the company was to mobilize resources from within
and invest them in such way so as to develop country's Industrial and Trade Sector and playing a
catalyst role in the formation of capital market as well. The company operated up to 1992 with 16
branches and thereafter with the permission of the Central Bank converted into a fully fledged private
commercial Bank in 1993 with paid up capital of Tk. 39 core. Since its inception NCC Bank Ltd. has
acquired commendable reputation by providing sincere personalized service to its customers in a
technology based environment. The initial authorized capital of the Bank was Tk. 75.00 crore and,
paidup capital Tk. 39 core at the time of conversion which is now raised, to Tk. 4501.25 million
paidup and Tk.2500 million authorized capital.
The Bank has set up a new standard in financing in the Industrial, Trade and Foreign exchange
business. Its various deposit & credit products have also attracted the clients-both corporate and
individuals who feel comfort in doing business with the Bank. In recent years the bank has given
much importance on financing small businesses through SME loan to reach its credit offering to wide
range of customer.

Page 8

2.3. Direction & Management


A 23-member board of directors, including the chairman and a vice-chairman oversees the affairs of
the bank. The managing director is its chief executive. The functions of branches are carried out under
direction and surveillance of General Manager and his Deputy. In 2001, the bank had 38 branches
and 502 employees. But now it has about 81 branches with about 2000 employees. The registered
head office of the bank is at Dhaka. The bank conducts traditional commercial banking functions as
well as foreign exchange business and provision of other financial services.

2.4. Corporate Mission


To mobilize financial resources from within and abroad to contribute in agricultures, industry &
socio-economic development of the country and to play a catalytic role in the formation of capital
market. It also includes the following:
Anticipating business solutions required by all our customers everywhere and innovatively
supplying them beyond expectation.
Setting industry benchmarks of world class standard in delivering customer value through our
comprehensive product range, customer service and all our activities
Building an exciting team-based working environment that will attract, develop and retain
employees of exceptional ability who help celebrate the success of our business, of our
customers and of national development
Maintaining the highest ethical standards and a community responsibility worthy of a leading
corporate citizen
Continuously improving productivity and profitability, and thereby enhancing shareholders
value

2.5. Corporate Vision


To become the Bank of choice in serving the Nation as a progressive and Socially Responsible
financial institution by bringing credit & commerce together for profit and sustainable growth.

2.6. Business Objectives


Make sound investments.
Meet capital adequacy requirement at all the time.
Ensure 95% recovery of all advances.

Page 9

Ensure a satisfied work force.


Focus on fee-based income.
Adopt an appropriate management technology.
Install a scientific MIS to monitor Banks activities.

2.7. Corporate Culture


NCC Bank is one of the most disciplined Banks with a distinctive corporate culture. In this bank, it
believes in shared meaning, shared understanding and shared sense making. The people of bank can
see and understand events, activities, objects and situation in a distinctive way. They mould their
manners and etiquette, character individually to suit the purpose of the Bank and the needs of the
customers who are of paramount importance to them. The people in the Bank see themselves as a
tight knit team/family that believes in working together for growth. The corporate culture they belong
has not been imposed; it has rather been achieved through their corporate culture.

2.8. Capital Structures


The bank has a strong capital base. Its authorized capital is TK. 2500.00 million while its paid up
capital is Tk. 4501.25 million. The share price of the bank is par value Tk.100.00. to meet the overall
requirement the bank borrow from Bangladesh Bank and other banks and financial institutions. So far
the bank has been able to meet its capital adequacy requirement successfully.

Page 10

2.9. Organizational Structure (Figure: 2.1)

Chairman
Vice Chairman
Board of Director
Managing Director

Deputy Managing Director


Senior Executive Vice President
Executive Vice President
Senior Vice President
Vice President
Senior Assistant Vice President
Assistant Vice President
Senior Principal Officer
Principal Officer
Senior Officer
Officer
Junior Officer
Assistant Officer

2.10. Financial Highlights of NCCBL from FY2006 to FY2010 (Figure: 2.2)

Page 11

Source: Annual Report of NCC Bank Ltd. (2006-2010)


The deposit mix of 2010 is appended in the chart below:

Page 12

Source: Monthly Statement of Deposit (2010)


Figure- 2.3: Deposit Mix of NCCBL

Page 13

Part- Three

Theoretical Background

Page 14

Secured Overdraft-SOD (FO): Advance is granted to a client against financial obligations


that is deposited in the bank. A client can get up to 80% loan of the total deposited value.

Secured Overdraft-SOD (G): Granted against the work order of government departments,
corporations autonomous bodies and reported multinational private organization. To arrive at
logical decision, the clients managerial capability, equity strength, nature of scheduled work
is to be judged.

Cash Credit-CC (Hypothecation): The mortgage of movable property for securing loan is
called hypothecation. Hypothecation is a legal transaction whereby goods are made available
to the lending banker as security for a debt without transferring either the property in the
goods or either possessing.

Cash Credit-CC (Pledge): Transfer of possession in the judicial sense of essential in the
valid pledge. In case of pledge, the bank acquire the possession of the goods or a right to hold
goods until the repayment for credit with a special right to sell after due notice to the
borrower in the event of non-repayment.

Loan against Imported Merchandise (LIM): Advances allowed for retirement of shipping
documents and release of goods imported through L/C taking effective control over the goods
by pledge fall under this type of advance. When the importer failed to pay the amount
payable to the exporter against import L/C, then NCCBL gives loan against imported
merchandise to the importer.

Loan against Trust Receipt (LTR): Trust Receipt is a document which creates the bankers
lien over the goods and practically amounts to hypothecation of the proceeds of sale in
discharge of the lien. Loans against Trust Receipt to the clients are allowed when the
documents covering an import shipment are given without payment. However, prior
permission of Head Office must be obtained for such advances.

Page 15

Local Documentary Bill Purchase (LDBP): Payment made against documents representing
sell of goods to local export oriented industries, which are deemed as exports, and which are
dominated in local currency/foreign currency falls under this head.

Inland Bill Purchase (IBP): Payment made through purchase of inland bills/cheques to meet
urgent requirement of the customer falls under this type of investment facility.

Foreign Bill Purchase (FBP): Payment that is made to customer through Purchase of
Foreign Currency Cheques/Drafts is known as Foreign Bill Purchase.

Working capital loan: Loans allowed to the manufacturing unit to meet their working
capital requirement, irrespective of their size.

House Repairing/Renovation Loan: This loan is offered for renovation and modernization
of the house/building/flat. The genuine residential owners can avail this kind of loan.

NCC Bank Visa Credit Card: NCC Bank has launched its Visa Credit Card Service on
August 22, 2005 and offering three types of cards which are Visa Classic, Visa Gold (Local)
and Visa Dual Currency Card (Globally and locally). Since then were able to reach 5000
cards, both corporate and general.

The characteristics of credit card are as follows:


Lowest interest rate in the country (2% per month)
Dual Currency Visa Credit Card
One supplementary card free of cost for lifetime (Spouse only)
Treasure point facilities including foreign part
Shortest process for Dual Currency card, only 24 hours
Roaming Mobile Phone bill payment facilities
Use of additional 142 ATMs Booth and 600 POS of Dutch-Bangla Bank

Non-performing Loan: A non-performing loan is a loan that is in default or close to being in


default. Many loans become non-performing after being in default for 3 months, but this can
depend on the contract terms.

Page 16

Part- Four

Loan Disbursement
&
Recovery System

Page 17

4.1. General procedure of sanctioning loan


The following procedure is applicable for giving advance to the customer. These are:
a) Partys application
b) Filling form-A
c) Collecting CIB report from Bangladesh Bank
d) Processing loan proposal
e) Project appraisal
f) Head office approval
g) Sanction letter
h) Documentation
i)

Disbursement

A. Partys application
At first borrower has to submit an application to the respective branch for loan, where he/she has to
clearly specify the reason for loan. After receiving the application from the borrower Bank officer
verifies all the information carefully. He also checks the account maintained by the borrower with the
Bank. If the official becomes satisfied then he gives form-A (prescribed application form of Bank) to
the prospective borrower.
B. Filling Form -A
After satisfying with partys application the applicant need to fill Form-A. It is the prescribed form
provides by the respective branch that contains information of the borrower. It contains- Name with
its factory location, Official address and telephone number, details of past and present business, its
achievement and failures, type of loan needed etc.
C. Collecting CIB Report from Bangladesh Bank
After receiving the application for advance, NCC Bank sends a letter to Bangladesh Bank for
obtaining a report from there. This report is called CIB (Credit Information Bureau) report. NCC
Bank generally seeks this report from the head office for all kinds of Investment. The purpose of this
report is to being informed that whether the borrower has taken loan from any other Bank; if yes
then whether the party has any overdue amount or not.

Page 18

D. Processing loan Proposal


After receiving CIB report from Bangladesh Bank, then respective branch prepare an Investment
proposal, which contains terms and conditions of Investment for approval of Head Office. Documents
those are necessary for sending Investment proposal are Loan application, photograph of the borrower
duly attested, personal information of borrower, CIB report, legal opinion, trade license, stock report,
net worth calculation of business & individual, working capital assessment, financial statement, SME
information and CRG. NCC Bank prepares the proposal in a specific form that contains following
relevant information

Borrower,

capital structure,

Address,

Account opening date,

Introduced by type of business,

Particulars of previous sanctions,

Security (existing and proposed),

Components on the conduct of the account,

Details of deposit,

Liabilities with other Banks,

CIB report,

Rated capacity of the project (item wise),

Production/purchase during the period,

Sales during the period,

Earning received for the period.

Credit Risk Grading (CRG) System


Credit Risk Grading (CRG) system is an important tool of CRM to understand dimensions of risk in
credit transactions. Aggregation of grading across the borrowers, activities and line of business
reflects the quality of credit. Bangladesh Bank introduced an integrated CRG model which is simple
and user friendly and hence, followed by all financial institutions. Usually there includes five steps
for CRG. This are

Page 19

Step-1: Identify all the principal risk components


Step-2: Distribute weight to risk components

Step-3: Identify the key parameters of principal risk

Step-4: Assigning weight to key parameters

Step-5: Input data to arrive at score.


1. Identify all the principal risk components
At the first step all the principal risk such as financial risk, business risk, management risk, security
risk and relationship risk are identified. These principal risks cover all possible uncertainty that may
occur.
2. Distribute weight to risk components
In this step, weight is distributed to the risk components. Risk factors have to be evaluated and
weighted on the basis of updated & reliable data and complete objectivity.
Principal risk components

Weight

Financial risk

50%

Business risk

18%

Management risk

12%

Security risk

10%

Relationship risk

10%

Source: NCC Bank Training Guide

Page 20

3. Identify the key parameters of principal risk


In this step, key parameters of principal risk are identified. The parameters are shown on table below:
Risk components

Key parameters

Financial risk

Leverage, liquidity, profitability,& coverage ratio

Business risk

Size & age of business, business outlook, industry growth,

Management risk
Security risk
Relationship risk

competition & barriers to business


Experience, Succession & team work
Security coverage, collateral coverage & support
Account conduct, utilization of limit, compliance of
covenants & personal deposit
Source: NCC Bank Training Guide

4. Assigning weight to key parameters


After identifying key parameters, weight is given to each parameter of principal risk components. In
this case, high weight is given to the risky parameters. For examples, in financial risk greater weight
is assign to leverage, liquidity & profitability ratio and lower weight to coverage ratio.
5. Input data to arrive at score
Finally, data is put on Excel based CRG matrix for getting the score.
Number
1

Grading
Superior

Short
SUP

Score
Fully cash

GD
ACCPT
MG/WL
SM
SS

guarantee/international bank guarantee


85+
75-84
65-74
55-64
45-54

2
3
4
5
6

Good
Acceptable
Marginal/Watch list
Special Mention
Substandard

7
8

Doubtful
DF
35-44
Bad/Loss
BL
<35
Source: NCC Bank Training Guide

secured,

secured

by

govt.

CRG System Review


CRG system should be reviewed by the respective loan officer regularly. Frequencies of review of
CRG are mentioned below;

Page 21

Risk grading
Superior
Good
Acceptable
Marginal/Watch

Frequency (at least)


Annually
Annually
Annually
Half yearly

list
Special Mention Quarterly
Substandard
Quarterly
Doubtful
Quarterly
Bad/Loss
Quarterly
Source: NCC Bank Training Guide
Early Warning Signals (EWS)
EWS indicate risks or potential weaknesses of an exposure requiring monitoring, supervision or close
attention by management. If these weaknesses are left uncorrected, they may result in deterioration of
repayment prospects of banks assets in future. No delay should be made in referring EWS accounts
or any problem accounts to the CRM department for their early involvement and assistance in
recovery.
EWS has two risk symptoms. This are
a. Marginal/Watch list: When loan is overdue for 60 days or more and frequent drop in
security values then it fall in this category.
b. Special Mention: When loan is overdue for 90 days or more and major deficiency prevails
in document then it fall under this category.

E. Project Appraisal
It is the pre-investment analysis. Project appraisal in the Banking sector is important for the following
reasons:
To achieve organizational goals.
To recommend if the project is not designed properly.

Page 22

To justify the soundness of an investment.


To ensure repayment of Bank finance.
Techniques of Project Appraisal
An appraisal is a systematic exercise to establish that the proposed project is a viable preposition.
Appraising officer checks the various information submitted by the promoter in first information
sheet, application for Investment and Investment proposal.
NCC Bank considers the following aspects in appraising a proposal.

Technical viability
Commercial viability
Financial viability
Economic viability
The Head Office (HO) mainly checks the technical, commercial and financial viability of the project.
For others HO is dependent on branchs information. But when the investment size is big, then the
HO verifies the authenticity of information physically.
F. Head Office Approval
When Head office receive appraisal from the branch then, Head Office again appraises the project. If
it seems to be a viable one, the HO sends it to the Board of Directors for the approval of the
Investment. The Board of Directors (BOD) considers the proposal and takes decision whether to
approve the Investment or not. If the BOD approves the Investment, the HO sends the approval to the
concerned branch.
The respective officer of Head Office appraises the project by preparing a summary named Top
Sheet or Executive Summary and then he sends it to the Head Office Credit Division for the
approval of the Loan. The Head Office Credit Division considers the proposal and takes decision
whether to approve the Investment or not. If the committee approves the Investment; the HO sends
the approval to the concerned branch.
G. Sanction Letter

Page 23

After getting the approval of the HO the branch issues sanction letter to the borrower. A sanction
letter contains:
Name of borrower,
Facility allowed,
Purpose,
Rate of interest,
Period of the Investment and mode of adjustment,
Security and Other terms and condition.
H. Documentation
If the borrower accepts the sanction letter, the Documentation starts. Documentation is a written
statement of fact evidencing certain transactions covering the legal aspects duly signed by the
authorized persons having the legal status. The most common documents used by the NCC Bank for
sanctioning different kinds of Investment are:
Joint Promissory Note,
Letter of Arrangement,
Letter of Disbursement,
Letter of Installment,
Letter of Continuity,
Trust Receipt,
Counter Guarantee,
Stock Report,
Letter of Lien,
Status Report,
Letter of Hypothecation,
Letter of Guarantee
Documents Relating to Mortgage.
I. Disbursement
After sanction and completion of all formalities the respective officer disburses the loan. The officer
writes cheque and provides it to the borrower. For this borrower has to open an account thorough
which he/she can withdraw the money.

Page 24

4.2. Recovery Procedures


It is the duty of the Bank to recover the landed fund within the stipulated time and if the borrower
fails to repay the money within the pointed period Bank will declare him as a defaulter and recover
the fund by selling the securities given by the borrower or by freezing his account or make a suit
against him.
4.2.1. Strategies for recovery
Recovery of loan can be made in the following 3 methods.
1) Persuasive
2) Voluntarily
3) Legally
1) Persuasive recovery
If the borrower didnt paid the due amount of loan in time then the first step of bank is private
communication with him. It creates a mental pressure on borrower to repay the loan amount. In this
case bank can provide some advice to the borrower for repaying the loan.
2) Voluntarily recovery
In this method, some steps are followed for recovering loan. This areBuilding Task Force
Arranging seminar
Loan rescheduling policy
Waiver of interest rate

3) Legal recovery
If the above procedures fail to keep an account regular and the borrower does not pay the
installments, then bank take necessary legal action against the borrower. In this case Bank sues in
Artha Rin Adalat Law-2003 that plays a vital role for collecting the loan.

Page 25

Recovery procedure of NCC Bank follows four procedural steps to recover the lending amount,
which is joint effort of Bank, society and legal institutions, which are shown below:

Reminder to the Court


Creating Social Pressure for the Payment of loans

and advances

Providing legal notice


Execution of legal rules by the help of court
Fig-4.1: Recovery Procedure
Sources: NCC Bank Training Guide

4.3. Credit Analysis: What makes a Good loan?


Credit analysis is the analysis of financial statement of business customers for the purpose of lending.
It is conducted to determine whether the customer is creditworthy and whether the customer has
sufficient cash flows and backup assets to repay the loan. The following major issues should examine
in credit analysis:
Is the borrower creditworthy?
Whether purpose of the loan is consistent with banks credit policy and government
regulations?
Whether customer/or his business have the ability to generate enough cash repay the
loan.
Whether sufficient security has been offered. So that in the event of default banks
fund can be recovered.
Fixing amount of loan, terms and conditions, documentations, etc. meet the needs of
the borrower and to protect the interest of the bank.

4.4. Is the borrower Creditworthy?

Page 26

A) Character:
-To determine whether the borrower has a responsible attitude towards borrowed funds and
whether he will have every effort to repay what is owed.
-Responsibility, truthfulness, serious purpose, and serious intention to repay loans make up
the characters of the borrower.
B) Capacity:
-Whether customer requesting loan has the authority to request loan and have the legal
standing to sign loan agreement and documents.
C) Economic Condition/ Assets:
-Whether borrower has sufficient assets to repay the loan.
-Other loans and liabilities of the borrower.
D) Credit history/Credit habit:
-Whether loans borrowed by the customers previously & how those earlier loans were
handled.
-Whether there is any loan default earlier.
-Whether legal action has ever been taken against him for recovery of default loan.
E) Credit Rating:
-Credit Ratings of the borrower by credit rating agencies
F) Purpose of the loan:
-Customer must have a well-defined purpose for requesting the loan.
-The purpose of the loan must be consistent with the banks existing credit policy.
-The purpose of the loan also should have consistent with government regulations.

4.5. Discouraged Sectors of Investment


NCC Bank discourages some sectors to invest because these areas are more risky. Investment in
following sectors is discouraged by NCC Bank.

Tannery Finance.

Military equipment/Weapons Finance.

Lending to Holding Companies.

Page 27

HB- residential who has no other business with the Bank.

Highly Leveraged transactions.

Logging, Mineral Extraction/Mining, or other activity that is Ethically of Environmentally


Sensitive.

Lending to companies listed on CIB black list or known defaulters.

Finance of Speculative Investment.

Share Lending.

Taking an Equity Stake in borrowers.

Bridge Investments relying on equity/debt issuance as a source of repayment.

4.6. Principles of Sound Lending


A. Safety
Safety first should be guiding principle of a banker. NCC Bank exercises the lending function only
when it is safe and the risk factor is adequately mitigated and covered. Safety depends upon:

The repaying capacity and willingness of the borrower is to repay the advance.

The security offered by the borrower.

B. Liquidity
The liability of a Bank is repayable of demand or at a short notice. So the Bank has to maintain its
liquidity at a sufficient level. Investment on building, plant, machinery, land etc. cannot be recovered
quickly, so it is less liquid.

C. Profitability
Profitability is the pre condition for investment. Each individual and organization invests to get some
positive output. Profit is needed to pay interest to depositors, depreciation, and maintenance, declare
dividend to share holders, provide or reserve against bad and doubtful debts etc. So NCC Bank also
disburses advances when they see positive return from investment.

Page 28

D. Security
Security is first condition for sound lending. To ensure safety of advances, Banks takes different types
of securities like MTDR, Sanchay patra, land, work order etc. Banker should ensure that the securities
are adequate, marketable and free from encumbrances before disburse the loan.

4.7. Loan Monitoring


Loan monitoring is important to know whether the loan is disbursed correctly or not. If the
monitoring authority thinks that the loan is risky then they want to recover the loan as early as
possible. It includes a reporting system and communication arrangement between the borrower and
the lending institution. The following steps are followed by respective officer.
Regular communication with the defaulter customers and guarantors physically over
telephone.
Regular checking the balance of SB/CD/STD accounts of the borrower.
Issuance of appreciation or greeting letter to the regular customers.
Issuance of letter to customers immediately after dishonor of cheque.
Issuance of legal notice to the defaulter customers and guarantors prior to classification of the
loans.
Periodical visit with the customers to maintain relationship and supervision of supplied
articles.
Legal action to be taken after failings all possible efforts to recover the banks due.

4.8. Handling of Non-Performing Loans


If a borrower cannot repay installment or interest on a loan after it has become due then it is called
default loan or non-performing loan. It is known as non-performing because the loan cant perform
or generate income for the bank.

4.9. Implications
The implication of non-performing loans are not only depriving of interest but also stoppage of
creating new loans for blockage of the fund and erosion of banks profitability, liquidity and solvency,
which might sometimes lead towards collapse of a bank. So, it is become essential for policy makers
of a bank to study the loan default scenario on a routine basis for estimating classified loan, making

Page 29

appropriate provisioning, adopting effective recovery strategy and thus ensuring soundness and
efficiency of the bank.

4.10. Classification & provisioning of non-performing loans


Classify loan under various head such as, unclassified, sub-standard, doubtful or bad/loss through
verification of borrowers repayment is needed to know the status of loan. It is essential to determine
the financial health and efficiency of a bank. In order to get rid of default loans, Bangladesh Bank
introduced a circular (BCD circular no. 34) on 1989 for classification & provision of loan thereof.
The circular states the banks themselves will carry out the classifications of their loans at least once in
a year on the basis of the position existing on December 31 in accordance with the guidelines given in
the circular. In 1994, Bangladesh Bank revised policy on classification and provisioning on quarterly
basis. The rules for classification and to maintain provisions as per overdue criteria are shown in the
table below:

Page 30

4.11. Lending and investment Products


National Credit and Commerce Bank Limited is a new generation Bank. It is committed to provide
high quality financial services products to contribute in GDP of the country through stimulating trade
and commerce, accelerating the pace of industrialization, boosting up export, creating employment
opportunity for the educated youth, poverty alleviation, raising standard of living of limited income
group and overall sustainable socio-economic development of the country.
Like other business activity Banks are profit oriented and profit is the central point on which the
entire business activity rotates. A Bank invests its funds in many ways to earn income. The bulk of its
income is derived from investment. Since major part of Banks income is derived from credit and
since the money credited by Bank is customers fund, Banks should follow a cautious policy and
sound lending principles in the matter of lending.
The word credit derived from Latin word CREDO means Believe or faith. We can say, it stands for
trust & relationship between banker and customers. Each & every bank has got their own credit
policy which generally formulated on the basis of prevailing countries socio economic condition,
political & other aspects from time to time and as per guidelines of Central bank. NCC Bank also
comply their credit policy as per BRPD circular no. 17 dated on 07.10.2003.
A Bank invests its funds in many ways to earn income. The bulk of its income is derived from loan.
In 2010, total advance stood at Tk. 63,230.14 million against Tk. 50,387 million in 2009. It is a good
indication that interest income getting greater and greater every year from this source.

4.12. Sector wise distribution of loan


National Credit & Commerce Bank Ltd. Distribute the loan on the basis of their credit policy. NCC
Bank provides loan to the following area:
Agriculture & agro based ventures
Trade & commerce
Consumer financing
Real estate & civil construction
Industry

Page 31

Business
Lease financing
Housing Loan scheme

Agricultural & Agro based ventures

Agriculture is the mainstay of Bangladesh economy being major contributor to the GDP. NCC bank
keen to contribute towards the growth of economy in financing the agro based firm, specially poultry,
fishery & hatchery. Financing also provided to export oriented shrimp culture and fish processing
industries. As the sector is being looked after adequately by financial institutions and nationalized
commercial bank still NCC bank provides a small amount of loan to this sector.

Consumer Financing

NCC bank keeping in mind the economic development helps the fixed income group in fulfilling their
demand to upgrade the standard of living. Consumer financing scheme covers:
-Home appliances
-Furniture & fixture
-Air conditioner, Fax machine
-Motor Cycle/Car etc.

Real estate & civil construction

In our society a reasonable number of small/big businessmen are related to the real estate and civil
construction. NCC bank provides loan to this sector carefully only on selective basis.

Industry

Industry loan basically covers the following area.


-

Working capital financing

Capital financing in the form of term loans; and

Financing of small & cottage industries.

The term loan financing for establishment of new industries is a specialized banking function. Bank
follow a selective approach for term loan financing to small scale industries and export oriented or
import substitute industries which will enjoy high degree of national economic priority. The bank for

Page 32

financing in this sector would prefer syndication with other banks to keep a balanced portfolio.
NCCBL set aside a large amount of money from budgetary allocation to finance in industry loan. In
every year, bank provides the highest percentage of loan to this sector. In 2010, it sanctions 45.40%
loan to this sector.

Business

A large section of our business community consists of small & medium business owners who are
conducting their business with their own resources without availing much support from financial
institutions. Such businessmen are generally sincere, honest and hard working but are often short of
working capital not to mention the capital finance for expansion. NCC banks major concentration
shall be under this sector under following categories:
- Small Business Loan
- Festival Small Business Loan
- Earnest Money Financing Scheme
- Financing of service concerns
- Financing of trading concerns
- Financing of manufacturing concerns

Lease financing

NCC bank to keep its contribution to the growth of national GDP, accelerate the total economic
development by infusing the fund in productive sector in more efficient and effective way; diversify
its portfolio and satisfy the customers needs would go for lease finance for:
- Setting up of small and cottage industries/projects
- Transports (both road & marine)
- Medical equipments/ Lab equipment/ X-Ray machine etc.
- Construction equipment
- Other fixed assets of productive & service oriented ventures

Housing loan scheme

Construction of buildings is not progressing as expected because of scarcity of housing loans. Many
people can purchase flat or construct house if they are facilitated with the sanction of institutional

Page 33

loan. With a view to creating financial capability of the prospective clients in purchasing flats / hoses
and in constructing houses and with the objective of exploring a profitable investment area NCC
Bank Housing Loan scheme has been introduced. The purposes of this scheme are:

To motivate service holders, businessmen & professionals who have the capability to repay
the loan for purchase of flats/houses/construct buildings and thereby improve their life style.

To increase profitability of the bank by interest income.

To strengthen the banks lending base.

To contribute towards improvement of socio economic condition etc.

Trade & Commerce

This broad category encompasses large business houses dealing with imported consumer items,
medium and small import business houses trading in similar lines and finally, shopkeepers,
distributors, whole sellers scattered throughout the country.

4.13. Lending Products (on the basis of time)


NCC Bank is one of the esteemed Banking Institutions in Bangladesh. It has been serving the people
proudly with its different products since 1993 when it entered into the Banking Arena first. Different
credit products offered by this Bank are very lucrative to its client. There are two types of credit
products available in the Branch: I) Loans & II) Advance. Loans are of two types, I) Long Term
Loans II) Short Term Loans. Again, there are several types of lending products offered by NCC Bank
to its valued clients just as bellow: Loans have primarily been divided into four major groups:
1) Continuous loan
2) Term loan
3) Demand loan
4) Loan under SME
1) Continuous Loan :
a) Secured overdraft against Financial obligation
b) Secured overdraft against Work Order/Real Estate
c) Cash credit Hypothecation
d) Cash credit pledge
e) Export Cash credit

Page 34

2) Term Loan
a) Project Loan
b) Transport Loan
c) House Building Loan
d) Lease Finance
e) Loan under Syndication
3) Demand Loan
a) Loan General
b) Demand Loan against Ship-breaking (LAS)
c) Payment against Documents (PAD)
d) Loan against imported merchandise (LIM)
e) Loan against Trust Receipt ( LTR)
f) Forced Loan
g) Packing Credit
h) Secured overdraft against Cash Incentive
i)

Foreign Documentary Bill Purchased (FDBP)

j)

Local Documentary Bill Purchased (LDBP)

k) Inland Bill Purchased (IBP)


l)

Foreign Bill Purchased (FBP)

4) Loan under SME


a) Small Business Loan
b) Consumer Finance Loan
c) Lease Finance
d) Personal Loan
e) House Repairing & Renovation Loan
f) Working Capital Loan
g) Festival Business Loan
h) Festival Personal Loan

Page 35

i)

Car Loan Scheme

5) Agro Credit
a) Agro-based Industrial Credit
b) Crop Loan
6) Special Credit Product
a) Credit Card
b) Earnest Money Financing Scheme
c) NCC Bank Housing Loan Scheme
d) Overseas Employment Loan Scheme
7) Loan Products for Wage-Earners
a) Land Mortgage Loan
b) Special House Building Loan
c) Advance Against Remittance
d) Wage Earners Rehabilitation Loan
1) Continuous loan

Secured Overdraft-SOD (FO)

Loan repayment period is maximum 1 year. If client cant repay the loan in this stated period then it is
again renewed for 1 year more. The interest rate is determined by the instrument rate plus three (3%)
percent. It can be issue against, DPS, FDR; etc. Interest rate is 15% to 17%.

Secured Overdraft-SOD (G)

Disbursement is made after completion of documentation formalities, besides usual charge,


documents like a notarized irrevocable power of attorney to collect the bills from the concerned
authority and a letter from the concerned authority confirming direct payment to the bank is also
obtained. The work is strictly monitored to review the progress at each interval. Interest rate is 16% to
17%.

Page 36

Cash Credit-CC (Hypothecation)

The banker has only equitable charge on stocks, which practically means nothing. Since the goods
always remain in the physical possession of the borrower, there is much risk to the bank. So, it is
granted to parties of undoubted means with highest integrity. The Interest rate of this loan is 13%.
Loan repayment period is maximum 1 year.

Cash Credit-CC (Pledge)

Interest rate of this loan is 13%. Now NCC bank stops this loan because it needs extra warehouse that
2) Term loan

House Building Loan

This loan is provided against 100% cash collateral, besides; the land & building are also mortgaged
with the bank. Interest rate is 13% p.a. overdue installment of this loan is obliged to pay very shortly.
The loan is under Unclassified Loan. The range of house building loan is 6 lac 40 lac.

Lease Finance

This type of financing are usually provided to transportation sector. Now a day this Lease Financing
is one of the popular financing projects. The Interest Rate of interest is 15%-16%. This loan is
providing for 3 5 years and maximum amount is tk.15 lac.
3) Demand loan

Loan (General)

NCCBL considers the loans, which are sanctioned for more than one year as loan (g). Under this
facility, an enterprise is financed from the starting to its finishing, i.e. from installment to its
production. NCCBL offers this facility only to big firms. The rate is 13%.

Loan against Imported Merchandise (LIM)

The importer will bear all the expenses i.e. the warehouse charge, insurance fees, etc. and the
ownership of the goods is retaining to the bank. This is also a temporary advance connected with
import, which is known as post import finance. Interest rate is 16%.

Page 37

Loan against Trust Receipt (LTR)

Trust Receipt is fully paid off. This is also a temporary investment connected with import and knows
as post-import finance and falls under the category "Commercial Lending". Interest rate is 16%.

Loan Documentary Bill Purchase (LDBP)

The bill of exchange is held as the primary security. The client submits the usually bill and the bank
discounts it. This temporarily liability is adjustable from the proceeds off the bill. Interest rate is 16%.

Inland Bill Purchase (IBP)

This temporary investment is adjustable from the proceeds of bills/cheques purchased for collection.
It falls under the category "Commercial Landing.

Foreign Bill Purchase (FBP)

This temporary investment is adjustable from the proceeds of the cheque/draft.


4) Loan under SME

Consumer Credit Scheme

This scheme is aimed to attract consumers from the middle and upper middle class population with
limited income. The borrower should have saving or current deposit account with the bank. Minimum
25% of the purchase cost of the product is to be deposited be the borrower with the bank is equity
before the disbursement of the loan. The rest 75% is to be kept as cash collateral (FDR, Shanchay
Patra etc.) with the bank.
The purchased items are hypothecated with the bank. The disbursement of the loan is effected by
debiting loan (general) account to the opened in the same of the borrower. Loan amount is disbursed
through a/c payee pay order/demand draft directly to the seller after submission of the indent, deposit
of client equity and completion of documentation formalities. The interest rate is 13%-16%.

Page 38

Working capital loan

Loans allowed to the manufacturing unit to meet their working capital requirement, irrespective of
their size big, medium or large fall under the category. The range of working capital loan is tk.1 lac to
tk.5 lac and the interest rate is 16%.

House Repairing/Renovation Loan

This loan is offered for renovation and modernization of the house/building/flat. The genuine
residential owners can avail this kind of loan. The range of loan amount is tk.1 lac to tk.5 lac. Loan
can be repaid by monthly equal installments including interst within maximum 5 years. The Interest
rate of House Repairing/ Renovation loan is 16%.

Small Business Loan

This loan is offered to the small and promising entrepreneurs to meet their capital requirement and
enable them to operate and expand the business purposely. It is apporved against collateral and
estimation of the revenue generation of the project for which the loan is sanctioned. The range of this
type of loan is one to five lac taka. The interest rate of Small business loan is 16%.

SME Loan for Women

NCC Bank provides a new type of SME Loan for Women named Oporajita. It encourages the women
to start new venture. It provides loan at the rate of 10%, which is lowest rate among all other types of
loan.

Personal Loan

This loan is provided to salaried persons in various organizations to meet any emergency cash needs.
Interest rate is 15% p.a. and maximum credit ceiling is Tk.1, 00,000.

Page 39

Part- Five

Analysis

Page 40

5.1 Time series analysis


5.1.1. Year wise Loan and Advances

Fig-5.1.1: Year wise loan and advances (in million)


Sources: Annual Report (2006-2010)
Year wise loan and advances of NCC Bank increasing year by year. In 2006 the total loan and
advances was TK. 24,670.36 million. It was increased to Tk. 63,230.14 million. That means loan and
advances increased more than 2.5 times from 2006 to 2010. From the graph it is seen that average
growth rate per year for loan & advances is 31.24%.

Page 41

5.1.2. Year wise Continuous loan


e

Fig-5.1.2: Continuous Loan (in million)


Sources: Annual Report (2006-2010)
The above figure depicted by time series analysis it can be seen that year wise continuous loan is
increasing respectively year by year. In 2006 continuous loan was Tk. 953.14 million; in 2010 it was
increased near Tk. 1868.29 million. Thats mean it was double in 2010 than the amount in 2006. So,
the above graph it has been seen that the average growth rate per year of continuous loan is about
19.20%.

Page 42

5.1.3. Year wise Term loan

Fig-5.1.3: Term Loan (in million)


Sources: Annual Report (2006-2010)
The graph depicted above shows that the term loan was in increasing mode from the 2006 -2010.
Within 5 years (2005-2010) the term loan amount was double in 2010 as much as the amount in
2006.So from the above graph it can be said that average growth rate per year of term loan was
18.56%.

Page 43

5.1.4. Demand Loan

Fig-5.1.4: Demand Loan (Tk. in million)


Sources: Annual Report (2006-2010)
From the graph it can be seen that Demand loan is increasing in mode. In 2006 the demand loan was
Tk. 7489.25 million within 5 years it was reached to double amount and in 2010 it was increased to
Tk. 15197.26 million. So from the graph it can be seen that the average growth rate of demand loan
per year is 20.58%.

Page 44

5.1.5. SME Loan

Tk in million

Figure-5.1.5: SME loan (Tk. in million)


Sources: Annual Report (2006-2010)
The NCC Bank does not interest to provide loan in SME sector. From the graph we can see that in
2006 the SME loan was only Tk. 163.88 Million which is too much lower than continuous, Term loan
and demand loan. In 2010 it was increased to Tk. 249.16 million. Amount in 2010 the amount is 1.5
times greater than amount in 2006. It is found from the time series analysis that the average growth
rate of SME loan per year is about 10.48%.

Page 45

5.1.6. Sector wise Distribution of Loan and advances

Figure-5.1.6: sector wise advances


Sources: Annual Report 2010
From the figure it can easily be said that NCC provides more loan in industry sector in 2010 it was
40.87% of total loan and advances, which is productive sector. But in agriculture sector they
discourage to sanction loan because they think this sector is risky, in 2010 it was 0.83%. In Business
sector it was 17.48%

Page 46

5.1.7. Year wise investment

Figure-5.1.7: year wise investment (Tk. in million)


Sources: Annual Report 2010
In 2006 the investment mad by the bank was Tk. 3552.08 million. It was increasing mode & was
triple in 2010 than to 2006 resulted the figure was Tk.3552.08 million to Tk. 10980.81 million. From
the above figure it is seen that average growth rate per year is 41.82%.

Page 47

5.1.8. Investment portfolio

Figure-5.1.8: Investment Portfolio in 2010


Sources: Annual Report (2010)
In 2010 investment made in Government Treasury Bonds sector was 92.18% and 4.5% was made in
share investment. Government Treasury Bonds is a non-risky sector to investment so they invested
their 92.18% in that sector.
5.1.9. Year wise disbursement & Recovery
National Credit and Commerce bank Ltd. Provides loan in various sector every year. The amount of
disbursement increases day by day. It is the duty of bank to recover the disbursed loan from the
borrower. In 2006 the bank provides loan of Tk. 24678.36 million and the recovery amount was Tk.
23466.1 million. In 2007 the disbursement was Tk. 32687.75 million and recovery amount was
Tk.31334.44 million. The disbursement in the year 2008 hugely increased than 2006 because the
interest rate was higher in that year. The disbursement amount was Tk. 46332.69 million and the
recovery amount was Tk. 44430.11 million. On the other hand the amount of disbursement Tk.
50387.68 million in 2009 the recovery amount was Tk. 48967.11 million and the disbursed amount
was Tk. 63230.14 million in 2010, the recovery amount was Tk. 61804.86 million. From the graph we

Page 48

see, the disbursement of loan gradually increase year by year. In 2006 the loan amount was too low
because of economic recession.

Figure-5.1.9: Yearwise disbursement & Recovery of NCCBL.


Sources: Annual Report (2006-2010)
From the graph we can see that loan and advance increases gradually year by year. The recovery
amount also increases year by year from 2006 2010.From the graph it is found that, the
disbursement amount is maximum in 2010 and minimum in 2006.On the other hand the recovery
amount is maximum in 2010 & minimum in 2006 as well.

Page 49

5.1.10. Recovery in Percent


NCC Bank Ltd. set a target for recovery the loan that is about 95% of disbursed loan. The recovery
rate of NCCBL is shown below:
Year

Disbursement (million)

Recovery

Recovery

2006
2007
2008
2009
2010

24678.36
32687.75
46332.69
50387.68
63230.14

23466.1
31334.44
44430.11
48967.11
61804.86

percent
95.05%
95.83%
95.86%
97.16%
97.73%

Figure-5.1.10: Year wise Recovery (in Percentage)


Sources: Annual Report (2006-2010)
From the figure we see, in 2006 the recovery was 95.05%8%, 95.83% in 2007, 95.86% in 2008,
97.16% in 2009 and 97.73% in 2010. We can say NCC bank achieves more than their target. In year
2006 the bank has lowest recovery rate because a large portion of loan goes default. On the other
hand more than expectation in recovery rate has been achieved which was 97.73%. But it is clear that
recovery rate is more than satisfactory level.
5.1.11. Credit to Deposit

Page 50

Figure-5.1.11: Yearwise Credit to Deposit of NCCBL.


Sources: Annual Report (2006-2010)
The above figure shows that the credit to deposit increases year by year from 2006 to 2010. So, it can
be said that the bank efficiently collect their deposit and convert the deposit into the loan & advances
resulted a positive trend.

5.1.12. Non Performing Loan Analysis

Page 51

A loan is nonperforming when payments of interest and principal are past due by 90 days or more, or
at least 90 days of interest payments have been capitalized, refinanced or delayed by agreement, or
payments are less than 90 days overdue, but there are other good reasons to doubt that payments will
be made in full. (IMF)
Year
2006
2007
2008
2009
2010

Non- Performing Loan (%)


4.95
4.17
4.14
2.84
2.27

Figure-5.1.12: Non Performing Analysis.


Source: Annual Report (2006-2010)
From the graph we can say that, the non-performing loan of NCC bank is continuously decreasing
and is comparatively low than the industry. The industry average of non-performing loan in the year
2010 was 9.25% where NCC bank limiteds non performing loan was 2.27%.The comparative low
percentage of non-performing loan of NCC bank limited than the industry indicates is a positive sign
for the bank. Only the non-performing loan of NCC bank was high in the year 2006 than any other
year.

5.2. Ratio Analysis


5.2.1. Credit to Deposit Ratio

Page 52

Credit to Deposit Ratio measures the portion of Deposit is in the form of loan and advances. The
greater the ratio the better for the organization.

Figure-5.2.1:- Credit to Deposit Ratio (Tk. in million)


Source: Annual Report (2006-2010)
From the figure it can be said that the collection of deposit in increasing year by year that form into
loan & advances increasing year by year subsequently. So, the credit to deposit ratio therefore
increasing with a continuous form indicates that the bank can successfully utilize its deposit collected
from the people by the lowest interest rate into in the form of loan and advances which is main source
of Banks income. It is seen that the ratio is greater in 2007 which was 98.66%. Sometimes the
greater this ratio leads to liquidity risk.

Page 53

5.2.2. Investment to Deposit Ratio


Investment deposit ratio measures the portion of deposit used for investment in loan products. The
more the ratio the more the bank is using its deposit as investment.

Figure-5.2.2:- Investment to Deposit Ratio


Source: Annual Report (2006-2010)
From the above graph it is seen that The Investment deposit ratio of NCC Bank is increasing at a
fluctuating rate. By considering the above graph it can be said that the bank is capable to utilize its
deposit into investment that indicates a good sign for the bank.

Page 54

5.3. Comparative Analysis

Southeast Bank Limited (SEBL)


Mercantile Bank Limited (MBL)
In our country local private commercial bank play an effective role in the countrys banking sector.
Southeast Bank Limited is well recognized private commercial bank in Bangladesh. This bank is
modern in their nature and activity. Like other banks these bank is much concern about their credit
policy and follows Bangladesh Banks credit grading policies and rules in case of credit management.
On the other hand, Mercantile Bank Limited is well recognized private commercial bank in
Bangladesh. This bank is modern in their nature and activity. Like other banks this bank is much
concern about their credit policy and follows Bangladesh Banks credit grading policies and rules in
case of credit management.

Page 55

Compare with SEBL & MBL


Particulars

NCCBL

Particulars

Loans

MBL

2010

2009

2010

2009

67,961.24

53,900.14

107,729.58

96,669.05

75,629.14 58,033.47

& 63,230.14

50,387.68

92452.62

77497.57

66,377.70 48,295.55

Total Deposits
Total

SEBL
2010

2009

Advances
Total Investment

10,980.81

9,671.53

18327.65

21350.23

10,937.20 9,664.72

Classified Loans

1,425.28

1420.57

2,264.28

2,320.31

1187.81

1252.05

2.84%

4.26%

3.73%

1.78%

2.59%

720.22

1862.75

1130.74

617.52

629.70

Deposit 93.04%

93.48%

85.82%

80.17%

87.77%

83.22%

Asset 2.84%

2.61%

2.26%

1.66%

1.64%

1.22%

13.55%

11.25%

11.72%

9.13%

10.48%

65

76

56

65

53

Classified

Loans 2.27%

Percentage

(Total

Loans & Advances)


Provision
kept 742.80
against

Classified

Loans
Credit
Ratio
Return

on

(ROA)
Capital

Adequacy 10.91%

Ratio
Number

of 79

Branches

Page 56

Source: Annual Report 2009- 2010 (NCC Bank, Southeast Bank & Mercantile Bank)

Fig: 5.3.1: - Comparison between NCCBL, SEBL & MBL (2009-2010)


From the view point of total deposit
In the comparative analysis among National Credit & Commerce Bank Limited, Southeast
Bank Limited and Mercantile Bank Limited, it has been seen that, both the year 2009 and
2010, NCCBL deposits are lower than SEBL & MBL. By considering the number of
branches, the average deposit for NCCBL was Tk. 829.23million in 2009 and Tk.860.27 in
2010. SEBL average deposit in 2009 & 2010 was Tk.1726.23 million & TK. 1417.49 million
respectively and MBL average deposit was Tk. 1094.97million in 2009 and Tk. 1163.53
million in 2010. So, the average deposit growth rate considering the number of branches for
NCC bank is 3.74%, SEBs growth rate is 11.44% and MBLs growth rate is 6.26% indicates
NCCBL doesnt collect their deposit as efficient as other two banks.

Page 57

Fig: 5.3.2: - Comparison between NCCBL, SEBL & MBL (2009-2010)


From the view point of Total Loan & Advances
The graph depicted above compares the loan and advances among NCCBL, SEBL and MBL
from 2009 to 2010. It is seen that the amount of loan and advances for NCCBL was less than
the SEBL both in 2009 and 2010.On the other hand, the disbursement of loan for NCCBL is
comparatively greater than the MBL in 2009 but lower in 2010.However; the average loan
disbursed by NCC bank in 2009 & 2010 was 637.82 million & 800.38 million respectively.
On the other hand, SEBL disbursed about 1019.70 million in 2009 & 1216.48 million in
2010 and MBL disbursed Tk. 911.24 million & Tk. 1021.20 million in 2009 & 2010
respectively. So, by considering the number of branches the average growth rate in loan &
advances for NCCBL, SEBL & MBL was 25.48%, 19.30% & 12.07% respectively indicates
NCCBL was in better position.

Page 58

Fig: 5.3.3: - Comparison between NCCBL, SEBL & MBL (2009-2010)


From the view point of Total Investment
The graph pointed out above, it is seen that total investment of NCCBL was greater than the
MBL but lower than the SEBL both in 2009 & 2010. However, the investment of NCCBL
was increasing mode and SEBL was decreasing mode compared to 2009 to 2010.Considering
the number of branches the average investment of NCCBL was 148.79 million in 2009 &
139.00 million in 2010.On the other hand, the average investment for SEBL in 2009 & 2010
was 381.25 million & 241.15 million and MBL was Tk.182.35 million & Tk. 168.26 in 2009
& 2010 respectively. So, all three banks average investment was in decreasing mode resulted
negative average growth rate. It is out looked that NCCBL shows lower average growth rate
(-6.58%) compared to SEBL (-3.67%) & higher than to MBL (-7.73%).

Page 59

Fig: 5.3.4: - Comparison between NCCBL, SEBL & MBL (2009-2010)


From the view point of Credit to Deposit Ratio
In the comparative analysis among National Credit & Commerce Bank Limited, Southeast
Bank Limited and Mercantile Bank Limited, it has been seen that, both the year 2009 and
2010, NCCBLs credit to deposit ratios are greater than SEBL & MBL. In 2009, The CDR for
NCCBL was 93.48% where as SEBL & MBL were 80.17% & 83.22%. On the other hand, in
2010, NCC banks credit to deposit ratio was decreasing mode (93.04%) where SEBL
(85.82%) & MBL (87.77%) shows increasing mode. However, NCCBL was more efficient to
recover their loans than to SEBL & MBL.

Page 60

Fig: 5.3.5: - Comparison between NCCBL, SEBL & MBL (2009-2010)


From the view point of Capital Adequacy Ratio
The graph depicted above compares the capital adequacy ratios among NCCBL, SEBL and
MBL from 2009 to 2010. It is seen that the capital adequacy ratios for NCCBL was 13.55%
in 2009 & 10.91% in 2010.On the other hand, Southeast banks Capital Adequacy was
11.72% & 11.25% and MBL was 10.48% & 9.13% in 2009 & 2010 respectively. The
decreasing capital adequacy ratios for all banks indicate the capacity of both banks in terms
of meeting the liabilities and other risk such as credit risk, operational risk etc. decreased in
2010 than to in 2009.

Page 61

Fig: 5.3.6: - Comparison between NCCBL, SEBL & MBL (2009-2010)


From the view point of Total Classified Loan & Advances
The graph pointed out above, it is seen that total classified loans and advances of NCCBL
were greater than the MBL but lower than the SEBL both in 2009 & 2010. By considering
the number of branches, the average classified loans and advances of NCCBL was Tk. 21.85
million in 2009 & Tk. 18.04 million in 2010.On the other hand, the average classified loans
and advances for SEBL in 2009 & 2010 was 51.66 million & 51.82 million and MBL was
Tk. 23.62 million& Tk. 18.27 million in 2009 & 2010 respectively. So, the average classified
loans and advances of NCCBL & MBL were decreasing but SEBs average classified loans
and advances was increasing resulted average growth rate for NCCBL, MBL, SEBL was (17.44%), (0.308%) & (-22.65%) respectively indicates NCCBL limited was in better
position.

Page 62

Fig: 5.3.7:- Comparison between NCCBL, SEBL & MBL (2009-2010)


From the view point of Classified Loan Percentage
In the comparative analysis among National Credit & Commerce Bank Limited, Southeast
Bank Limited and Mercantile Bank Limited, it has been seen that, both the year 2009 and
2010, NCCBLs classified loan in percentage was greater than MBL but lower than MBL. In
2009, The Classified loan in percentage for NCCBL was 2.84% where as SEBL & MBL were
3.73% & 2.59%. On the other hand, in 2010, NCCBL (2.27%) & MBL (1.78%) classified
loan in percentage were decreasing mode where SEBL (4.26%) shows increasing mode.
However, NCCBL was in better position than other two banks.

Page 63

Part- Six

Findings, Conclusion and


Recommendation

Page 64

6.1 Major Findings

NCC bank is in the midst of an intense competitive environment of financing industry. Bank and nonbank solution to finance businesses are being introduced regularly. From the report i get some
positive and negative findings about National Credit and Commerce Bank Ltd. The findings are
necessary for bank to take corrective measure. So we disclose the findings below:
Year wise loan and advances of NCC Bank increasing year by year. The Loan and advances
increased more than 2.5 times from 2006 to 2010 results the average growth rate per year is
31.24%.
Continuous Loan, Term Loan, Demand Loan and SME Loan are increasing year by year. The
average growth rate is 20% but in the SME sector they have lowest investment.
In industry sector in 2010, 40.87% of total loan and advances was provided in industry sector.
But in the agriculture sector they discourage to sanction loan because they think this sector is
risky. Therefore, in 2010 it was only 0.83% of total loan & advances.
In 2006 the investment made by the bank was Tk. 3,552.08 million which was triple in 2010
and the figure was Tk. 10,980.81 million. The average growth rate is 41.82% per year.
Government Treasury Bonds is a non-risky sector to investment so they invested their
92.18% of total loan & advances in that sector in 2010.
Recovery is increasing year by year. In 2010 the total advances was Tk 63,230.14 million and
recovery amount was Tk 61804.86 million, which was 97.73% of total advances.
Non-performing loan is decreasing. The Banks non-performing loan, in 2010, was 2.27%, in
2006 which was 4.95%. So it is a good sign for the Bank.
Credit to deposit ratio is increasing year by year. It was increased from 87.68% in 2006 to
93.04% in 2010.
Investment to deposit ratio is also increasing year by year. It was increased from 12.62% in
2006 to 16.16% in 2010.
Capital adequacy ratio for NCC Bank is satisfactory and it is increasing year by year, it was
increased from 9.78 in 2006 to 10.91 in 2010.

Page 65

The average deposit growth rate considering the number of branches for NCC bank is 3.74%,
SEBs growth rate is 11.44% and MBLs growth rate is 6.26% indicates NCCBL doesnt
collect their deposit as efficient as other two banks.
The disbursement of loan & advances for NCCBL is lower than the both SEBL and
MBL.However, the average growth rate of disbursement of loan for NCCBL is comparatively
higher than the both bank indicates NCCBL limited is in better position.
The total investment of NCCBL shows lower average growth rate (-6.58%) compared to
SEBL (-3.67%) & higher than to MBL (-7.73%).
NCC banks credit to deposit ratio was decreasing mode (93.04%) where SEBL (85.82%) &
MBL (87.77%) shows increasing mode. However, NCCBL was more efficient to recover
their loans than to SEBL & MBL.
The decreasing capital adequacy ratios for all banks indicate the capacity of both banks in
terms of meeting the liabilities and other risk such as credit risk, operational risk etc.
decreased in 2010 than to in 2009.
NCCBL & MBL classified loan in percentage were decreasing mode where SEBL shows
increasing mode. However, NCCBL was in better position than other two banks.

5.2. Conclusions

NCC bank is in the midst of an intense competitive environment of financing industry. Bank and nonbank solution to finance businesses are being introduced regularly. So to gain a major share in the
market, NCC bank might increase its customer base through effective solution to their investment and
financing. Product diversification might help the bank to keep pace with the competitive world.
The bank is currently doing average. By analyzing its performance it is observed that a potential
growth might be accelerated through effective implications of competitive strategies. Being an old
generation bank it has an advantage compared to newly established bank in the form of wide range of
activities. However strategy implication needs to be as fast as possible to grab the early mover
advantage. The bank through years has been able to spread operation in mass banking rather than
concentrating in niches. It can hedge poor performance of one sector by some other sector for its wide
range of offering. Capital market operation has become a great potential for the bank to increase its

Page 66

profitability. NCC bank brokerage house is concentrating to establish new workstations in order to
facilitate investor of remote places.
The bank has been able to create a multi component loan portfolio. However non-performing loan are
a real challenge to the sound credit management. Default is increasing for lack of monitoring. The
bank is trying to increase its loan quality by accelerating its recovery policy. The bank can
concentrate on the loan sector where default risk is low and its investments are profitable. The loan
procedure has been made more calculative, logical to keep the credit sound.

Page 67

5.3. Recommendations

Banking sector is now a more competitive. Each bank wants to capture maximum market share and to
become a market leader. Like others NCC Bank also wants to be market leader. I think they have
capability to be market leader. The private commercial banks that are currently operating in
Bangladesh offering different products but there are few basic differences among them in terms of
structure and performance. Thus, the competitions among them increase day by day. So, based on
findings it can be recommended to progress in future, NCC bank should adopt some policy which
will help the bank to capture a larger market share. The recommendations can be disclose below:
From the graph of SME loan, it is found that they provide less amount of loan than any other
sector of loan. But this sector, they should give more emphasized to encourage their
entrepreneur.
In our country more than 70% people are surviving by producing and selling agricultural
products. But NCC Bank does not provide enough loans to this sector that we found in
sector wise disbursement of Loan graph. In 2010 they provide loan 0.83% of total loan and
advances in this sector. But they should give more concentration in this sector for developing
our economy.
The customer should be analyzed properly. It can be done by collecting information from
Credit Information Bureau or past behavior of the customer so that their recovery rate
increases.
Proper and effective monitoring system should be developed in order to minimize the amount
of non-performing loan.
Credit to deposit ratio of NCC Bank shows that their ability to provide loan is strong. This
ratio, in 2010, was 93.04%. So, they should collect more deposit to making more loans.

Page 68

Bibliography:

Dr. Mizanur Rahman (2008), NCC Bank Training Guide

Lawrence, J Gitman (2003), Principle of Managerial Finance, 10th edition, Pearson


Education Pte. Ltd, Singapore.

Bedi, H.L. Practical Banking Advances UBS Publishers Distributions Ltd. New Delhi.

C.R Kotheri, Research Methodology Second Edition, 2003-2004, Wishwa Prakashan,


Calcutta, India.

Chowdhury, L.R., A Text Book on Foreign Exchange Fair Corporation, Dhaka, 2000

Frederic S. Miskhin, The Economics of Money Banking & Financial Market Sixth Edition,
2003, Boston

Hai, M. Enamul (January 1996), Bank Management Jane Publishers.

Prospectors:

NCC Bank Ltd., Annual report 2006-2010, NCC Bank Ltd, Dhaka, BD.

Southeast Bank Limited, Annual Report 2009-2010

Mercantile Bank Limited, Annual Report 2009-2010

Websites:

www.nccbank-bd.com

www.bangladesh-bank.org.bd

Page 69

Annexure
Financial Highlights of NCCBL from FY2004 to FY2008

Page 70

Sources: Annual Report (2006-20010)

Page 71

Sources: Annual Report of MBL (2006-20010)

Page 72