“Non-Performing Loans of Commercial Banks in

Bangladesh:
A study on Janata Bank Limited”

By
Rubel Shaikh

A research report submitted in Partial fulfillment of the requirement for the

degree of

Bachelor of Business Administration (BBA)

At

Department of ………….

Faculty of Business Studies

University of ………..

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Letter of Transmittal
March 20, 2015

……………

Department of………
Faculty of Business Studies
University of ………..
Subject: Submission of Internship Report on “Non-performing Loans of Commercial
Banks in Bangladesh: A study on Janata Bank Limited”.

Sir,
Here is the internship report on “Non-performing Loans of Commercial Banks in
Bangladesh: A study on Janata Bank Limited” that you asked me to submit on 20
March 2015.
This report reveals the credit risk management and NPL management of Janata Bank
Limited and makes comparison with the overall banking industry in Bangladesh. In the
NPL part, I found some significant shortcomings and provide recommendation where
necessary. However, still I conclude that Janata Bank Limited has less NPL compare to
the other state owned commercial banks in Bangladesh.

I have tried my best within my limitations to make this report presentable, information
worthy. I really enjoyed working on this topic, and I hope that you will consider all of my
faults generously. If any question arises regarding this report, I will be available for
clarification.

Yours Sincerely

Rubel Shaikh

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Supervisor’s Certificate
This is to certify that the internship report on Non-performing Loans of Commercial
Banks in Bangladesh: A study on Janata Bank Limited in the bona fide record at the
report is done by Rubel Shaikh as a partial fulfillment of the requirement of Bachelor of
Business Administration (BBA) degree from the Department of Banking and Insurance,
University of Dhaka.

The report has been prepared under my guidance and is a record of the bona fide work
carried out successfully.

__________________________
Signature of the Supervisor

__________________________
Date

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Declaration
I do hereby solemnly declare that the work presented in this Internship Report has been
carried out by me and has not been submitted to any other University for an academic
qualification.

The work I have presented does not breach any existing copyright and no portion of this
report has been copied from any work done earlier for a degree or otherwise.

I further undertake to indemnity the Department against any loss or damage arising
from breach of the foregoing obligation.

__________________________
Signature of the Student

___________________________
Date

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Acknowledgement
It’s a great pleasure for me to work with the report based on the topic “ Non-performing
Loans of Commercial Banks in Bangladesh: A study on Janata Bank Limited”
which is very much significant for economy. I hope working on this topic will help me to
gather various exposures of practical field. So, at the very beginning, I would like to
express my gratitude to almighty Allah for whose kindness I am sound mentally and
physically enough to prepare this report.

I would like to thank my faculty supervisor, …….., Lecturer, Department of …………..,

Faculty of Business Studies, University of ……… for his valuable direction and
guidelines for which I have been able to go through the in depth of the topic.

Finally, I would like to thank all the staffs and employees of Janata Bank Limited, who
was always helpful to me and their views and ideas enriched my knowledge and
inspired me a lot in presenting this report.

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Executive Summery
Smooth and efficient flow of saving-investment process is a prerequisite for
the economic development of a country. Bangladesh, being a developing country and
with an underdeveloped capital market, mainly depends on the intermediary role of
commercial banks for mobilizing internal saving and providing capital to the investor.
Thus, it matters greatly how well our financial sector is functioning. Looking at the
performance of our financial sector for the last decade or so, I observe that our banking
sector is heavily burdened with a high percentage of non-performing loans (NPLs). 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 90 days, but this can depend on the
contract terms (Bangladesh-bank.org, 2015).

NPLs started at the early stage of banking history of Bangladesh. During 1980s and
1990s, Privatization and liberalization of banking sector could not control NPLs. NPLs
rate was 41.1% in 1999. The latest data reveal that 10.80 % of total loans is classified in
our banking sector. Although, the ratio was as high as 41.1% in 1999 and it came down
gradually to the present level of 10.80 %, still it is much higher than the internationally
accepted tolerable range and, thus, is a threat to our banking sector. The amount of
NPLs increased to taka 73.3 billion in 2012 from taka 47.3 billion in 2003. There are
many reasons behind the NPLs in Bangladesh. The gross non-performing loans (GNPL)
ratio of the financial sector increased to 10.5 percent in the first quarter of the current
year but that of state-owned banks rose 21.9 percent (The Daily Star, 2015).The
problem of non-repayment could have been minimized if there were sound and effective
legal recovery mechanism. However, at least, until very recently the enforcement status
of lender is recourse related (Money Loan Court Act, Bankruptcy Act, and PDR Act)
laws were weak. However, legal recovery got momentum after a major revision in the
Money Loan Court Act, 2003. As on December 30, 2007, a total of Tk.34.27 billion was
recovered against the claimed amount of Tk.66.65 billion under the Money Loan Court.

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Table of Contents
Letter of Transmittal...........................................................................................................ii

Supervisor’s Certificate.....................................................................................................iii

Declaration........................................................................................................................iv

Acknowledgement..............................................................................................................v

Executive Summery..........................................................................................................vi

List of Figures....................................................................................................................ix

List of Tables.....................................................................................................................ix

Chapter-One: Introduction...............................................................................................10

1.0 Background............................................................................................................11

1.1 Problem Statement................................................................................................11

1.2 Literature review.....................................................................................................12

1.3 Objectives of the study...........................................................................................13

1.4 Methodology...........................................................................................................14

1.4.1 Research Type................................................................................................14

1.4.2 Types of Data..................................................................................................14

1.4.3 Data Processing and Analysis........................................................................14

Chapter-Two: Overview of JBL........................................................................................15

2.0 Overview of Janata Bank Limited..........................................................................16

Chapter-Three: Conceptual Framework of NPL..............................................................17

3.0 Non-Performing Loans (NPLs)...............................................................................18

3.1 Categories of Loans and Advances...................................................................19

3.2 Basis for Loan Classification..............................................................................19

3.3 Objective Criteria................................................................................................21

3.4 Maintenance of Provision...................................................................................24

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Chapter-Four: Analysis of NPLs (Janata Bank Limited)..................................................25

4.0 Credit Facilities of Janata Bank Limited.................................................................26

4.1 Rural Banking & Credit Program of Janata Bank limited...................................26

4.2 Principals and guidelines regarding NPL followed by Janata Bank Limited......28

Chapter-Five: Ratio Analysis of Janata Bank Limited.....................................................33

5.0 Ratio Analysis........................................................................................................34

5.1 Solvency Ratios..................................................................................................35

5.2 Profitability Ratios...............................................................................................38

5.3 Market valuation ratios.......................................................................................42

Chapter-Six: Regression Analysis of Janata Bank Limited.............................................44

6.0 Regression Analysis..............................................................................................45

6.1 Regression Analysis for Janata Bank Limited....................................................45

Chapter-Seven: Findings, Recommendations & Conclusion..........................................50

7.0 Findings, Recommendations & Conclusion...........................................................51

7.1.1 Issues and Observations.................................................................................51

7.1.2 Findings of Regression analysis and ratios analysis......................................52

7.2.0 Recommendation............................................................................................52

7.3.0 Conclusion.......................................................................................................54

Chapter-Eight: References and Appendix.......................................................................55

8.0 References.............................................................................................................56

9.0 Appendix................................................................................................................59

List of Figures
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Figure 1: Rural Banking & Micro Credit...........................................................................27
Figure 2: NPLs of Janata Bank Ltd. from 2007-2013......................................................31
Figure 4: Current Ratio of Janata Bank Limited for 2012-2013......................................35
Figure 5: Cash Position Indicator Ratio of Janata Bank Limited for 2012-2013.............36
Figure 6: Capacity Ratio of Janata Bank Limited for 2012-2013....................................37
Figure 7: Gross profit margin of Janata Bank Limited for 2012-2013.............................38
Figure 8: Net profit margin of Janata Bank Limited for 2012-2013.................................39
Figure 9: Return on Assets (ROA) of Janata Bank Limited for 2012-2013.....................40
Figure 10: Return on Equity (ROE) of Janata Bank Limited for 2012-2013....................41
Figure 11: EPS of Janata Bank Limited for 2012-2013...................................................42
Figure 12: Different Ratios of Janata Bank limited for Year 2012 & 2013......................43

List of Tables
Table 1: Status of NPL for Different types of Loans........................................................20
Table 2: Types of Credit provided by JBL.......................................................................27
Table 3: Policies & Guidelines followed By Janata Bank limited....................................28
Table 4: Total gross credit risk exposure broken down by major types of credit exposure
Up to Dec 2013................................................................................................................30
Table 5: Current scenario of NPLs of Janata Bank Limited............................................30
Table 6: Trend of NPLs of Janata Bank Limited..............................................................31
Table 7: NPLs and Net profit after tax from 2007-2013..................................................46
Table 8: Constant Effect Model Estimates......................................................................47

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 Chapter-One: Introduction

1.0 Background
As the students of Bachelor of Business Administration (B.B.A) study the subject’s
related to business including Banking, Accounting, Management, Finance, Marketing,

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Mathematics, Social and cultural status and little about science and technology. The
schools of business at home and abroad try to familiarize each student as they move
comfortably in the business environment. Only the theoretical study in the classrooms is
not enough rather a practical experience and the only means of practical experience is
internship program. In the business environment, at home & abroad there are lots of
financial institution, business firms, and industries, which provide this facility towards us.
If we could not get this facility of internship then a wide gaps will take place between our
study and experience. I think this is an extremely valuable asset for us.

As the students of Banking & Insurance do this usually for three months. In our country,
there are many banks particularly the esteemed private and public sector banks, and
elite business firms provide this. I will conduct my study under supervision of my
Honorable Academic Supervisor (…………., professor, Department of …………, and
University of ……….). In this respect, I have will do my internship at Janata Bank
Limited.

This study will help to determine the actual amount of non-performing loans (NPLs) of
banking sector in Bangladesh. This study also determines the causes and
consequences of non-performing loans (NPLs) in our banking sector. By proper
analysis and documentation, this study will find out the way to rescue from this bad
practice of our banking sector. For conducting this research, I will collect the secondary
data relating to financial position and policies from Janata Bank Limited.

1.1 Problem Statement

The main purpose of commercial banks is make profit by collecting deposits from
surplus units and lending loans to the deficit units of the financial sectors of a country.
The aim of our Banking sector is also do so. However, the commercial banks of our
country (especially the state owned banks) are failing to do their regular business
activities due to non-performing loans. The banking industry especially the commercial
banks have to maintain some rules and regulations of Bank Company Act 1991 and
time-to-time guidelines of Bangladesh Bank (Central Bank of Bangladesh). The most
alarming issue of banking sector of our country is the NPLs and it is increasing. The
Bangladesh Bank is very much concern about this matter. However, the amount of

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NPLs is not controlled by the commercial banks. My research proposal is to determine
the actual amount, cause of non-performing loans in our commercial banks, and find the
ways to eliminate the amount of NPLs (Sai.uni-heidelberg.de, 2015).

1.2 Literature review

Nonperforming loans (“NPLs”) refers to those financial assets from which banks no
longer receive interest and/or installment payments as scheduled. They are known as
non-performing because the loan ceases to “perform” or generate income for the bank.
Choudhury and Adhikary (2002) stated that the nonperforming loan is not a “uniclass”
but rather a “multiclass” concept, which means that NPLs can be classified into different
varieties usually based on the “length of overdue” of the said loans. NPLs are viewed as
a typical byproduct of financial crisis: they are not a main product of the lending function
but rather an accidental occurrence of the lending process, one that has enormous
potential to deepen the severity and duration of financial crisis and to complicate
macroeconomic management (Podderand Al Mamun, 2004). This is because NPLs
can bring down investors’ confidence in the banking system, piling up unproductive
economic resources even though depreciations are taken care of, and impeding the
resource allocation process.

In addition, NPLs, if created by the borrowers willingly and left unresolved, might act as
a contagious financial malaise by driving good borrowers out of the financial market.
Reddy (2004)argues that a bank with high level of NPLs is forced to incur carrying costs
on non-income yielding assets that not only strike at portability but also at the capital
adequacy of a bank, and in consequence, the bank faces difficulties in augmenting
capital resources. Mohanty (2006) also state that the probability of banking crises
increases if financial risk is not eliminated quickly. Such crises not only lower living
standards but can also eliminate many of the achievements of economic reform
overnight. 

Desai and Farmer (2001) argued that the expansion of credit policy during the early
stage of liberation, which was directed to disbursement of credit on relatively easier
terms, did actually expand credit in the economy on nominal terms. However, it also
generated a large number of willful defaulters in the background who, later on,

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diminished the financial health of banks through the “sick industry syndrome”. In the
1990s, however, a broad based financial measure was undertaken in the name of
FSRP, enlisting the help of World Bank to restore financial discipline to the country.
Since then, the banking sector has adopted “prudential norms” for loan classification
and provisioning (Bangladesh Bank, 2014). Other laws, regulations and instruments
such as loan ledger account, lending risk analysis manual, performance planning
system, interest rate deregulation, the Money Loan Court Act 1990 has also been
enacted to promote sound, robust and resilient banking practice. Surprisingly, even after
so many measures, the banking system of Bangladesh is yet to free itself from the grip
of the NPL debacle. The question thus arises, what are the reasons behind such a large
proportion of nonperforming loans in the economy of Bangladesh? Is it because of
“flexibility in defining NPLs” or lack of effective “recovery strategies” on the part of the
banks? Alternatively, is it due to poor enforcement status of laws related to
nonperforming loans? The present study has concentrated on the above issues mainly
with a view to assisting policymakers to formulate concrete measures regarding sound
management of NPLs in Bangladesh (Boi.gov.bd, 2015).

1.3 Objectives of the study

The main objectives of this paper are:

1. To assess the present situation of non-performing loans in our banking sector

2. To show the trend of the “loan default problem’’ in Bangladesh
3. To examine the loan default status of commercial banks
4. To discuss legal aspect to recover loans from the defaulters
5. To identify the causes and remedies of non-performing loans and
6. To raise some issues and observations which need to be looked upon quickly for
ensuring a financially sound banking sector?

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1.4 Methodology

1.4.1 Research Type

This is a descriptive type research will help to reveal information about performance of
commercial banks of Bangladesh. This research showed how loans become non-
performing loans and why so happened.

1.4.2 Types of Data

To conduct this research project, I have collected data from secondary sources. The
secondary data are collected from the below sources-

 Bangladesh Bank’s reports

 Journal of different institutions
 Different publications
 Reading materials, books, library sources
 Research works of individuals
 Websites of Banks and
 The national dailies

1.4.3 Data Processing and Analysis

For conducting this research, I have used different statistical approaches or techniques
to compare the current and previous situation of non-performing loans of commercial
banks in our country. I have focused on the trend analysis of several years. In this
report, I also focused on the ratios analysis and regression analysis of Janata bank
limited. The financial analysis has also done for looking forward to observing the
financial health of commercial banks of Bangladesh.

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 Chapter-Two: Overview of JBL

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2.0 Overview of Janata Bank Limited
Janata Bank Limited, one of the state owned commercial banks in Bangladesh, has an
authorized capital of BDT. 20000.00 million (Approx. US$ 250 million), paid up capital of
Tk. 19140.00 million, reserve of Tk.17976.20 million. The Bank has a total asset of Tk.
586082.98 million as on 31 December 2013. Immediately after the emergence of
Bangladesh in 1971, the erstwhile United Bank Limited and Union Bank Limited were
marged and renamed as Janata Bank. On 15  November2007, the bank has been
corporatized and renamed as Janata Bank Limited (Janatabank-bd.com, 2015).    

 Janata Bank Limited currently operates through 902 branches including four

overseas branches in United Arab Emirates. It is linked with 1239 foreign
correspondents all over the world.
 The Bank employs more than 14(fourteen) thousand personnel’s.
 The mission of the bank is to participate actively in the socio- economic
development of the nation by operating a commercially sound banking
organization, providing credits to viable borrowers, efficiently delivered and
competitively priced, simultaneously protecting depositor’s funds and providing a
satisfactory return on equity to the owners.
 The Board of Directors is composed of 13 (thirteen) members headed by a
Chairman. The Directors are representatives from both public and private
sectors.
 The Chief Executive Officer & Managing Director, who is a reputed banker,
heads the Bank.
 The corporate head office of the Bank is located in the capital city Dhaka with 10
(ten) Divisions comprising of 44 Departments

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 Chapter-Three: Conceptual Framework of NPL

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3.0 Non-Performing Loans (NPLs)
Non-performing loans (NPLs) have been widely used as a measure of the asset quality
among lending institutions and are often associated with failures and financial crises in
both the developed and developing world. All banks need a loan classification or
grading system to facilitate the monitoring and management of credit risk in their loan
portfolios. A bank’s loan portfolio can be classified into five major categories namely, in
order of deteriorating status, pass, special mention, substandard, doubtful and loss.
Empirical studies have identified a mixture of macro-economic and institutional factors
that affect NPLs. GDP growth, inflation and interest rates are common macro-economic
factors, while size and lending policy are micro-economic variables (Greenidge and
Grosvenor, 2010). These variables are by no means exhaustive, but they provide a
useful framework for monitoring the development of NPLs. On the other hand, Herring
and Wachter (1999) had focused on the degree of loan concentration in various
sectors, and proposed that vulnerabilities within sectors of high loan concentration tend
to exacerbate the NPL ratio.

“Nonperforming loans (“NPLs”) refer to those financial assets from

which banks no longer receive interest and/or installment payments

as scheduled. They are known as non-performing because the loan

ceases to “perform” or generate income for the bank”.

--David Woo
NPLs are viewed as a typical byproduct of financial crisis; they are not a main product of
the lending function but rather an accidental occurrence of the lending process. One
that has enormous potential to deepen the severity and duration of financial crisis and to
complicate macroeconomic management this is because NPLs can bring down
investors ‘confidence in the banking system, piling up unproductive economic resources
even though depreciations are taken care of, and impeding the resource allocation
process.

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3.1 Categories of Loans and Advances
According to the master Circular: Loan classification and provisioning (BRPD Circular
No. 14) loans and advances of commercial banks in Bangladesh are grouped into four
(4) categories for the purpose of classification these are(Bangladesh Bank, 2012), -

a) Continuous Loan: The loan accounts in which transactions may be made within
certain limit and have an expiry date for full adjustment will be treated as Continuous
Loan. Examples are- Cash Credit, Overdraft, etc.

b) Demand Loan: The loans that become repayable on demand by the bank will be
treated as Demand Loan. Such as Forced Loan against Imported Merchandise,
Payment against Document, Foreign Bill Purchased, and Inland Bill Purchased, etc.

c) Fixed Term Loan: The loans, which are repayable within a specific period under a
specific repayment schedule, will be treated as Fixed Term Loan.

d) Short-term Agricultural & Micro-Credit: Short-term Agricultural Credit will include

the short-term credits as listed under the Annual Credit Program issued by the
Agricultural Credit and Financial Inclusion Department (ACFID) of Bangladesh Bank.
Short-term Micro-Credit will include any micro-credits not exceeding an amount
determined by the ACFID of Bangladesh Bank from time to time and repayable within
12 (twelve) months, be those termed in any names such as Non-agricultural credit, Self-
reliant Credit, Weaver's Credit or Bank's individual project credit.

3.2 Basis for Loan Classification

Bangladesh Bank determined the loan classification criteria through the master Circular:
Loan classification, provisioning (BRPD Circular No. 14), loans, and advances of
commercial banks in Bangladesh are to be classified into the following(Bangladesh
Bank, 2012), -

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Table 1: Status of NPL for Different types of Loans

Type of Loan Period Overdue Status of Rate of Provision

Classification
Continuous Loan -Less than 6 months Unclassified 1% (except SE&CF)
(OD/CC, PC, LIM, 2% (for SE&CF)
LTR etc.).
-3 months or more SMA 5%
Overdue period will
but less than 6
be counted from the
months
day following the
date of expiry of
such loan. -6 months or more Sub-standard 20%
but less than 9
months

-9 months or more Doubtful 50%

but less than 12
months

-More than 12 Bad/Loss 100%

months

Demand Loan -Less than 6 months Unclassified 1% (except SE&CF)

(Forced LIM, BLC/
PAD, IBP,
FBP etc.). Overdue
period will be -3 months or more SMA 2% (for SE&CF)5%
counted from the but less than 6
day following the months
date of expiry of
such loan. -6 months or more Sub-standard 20%
but less than 9
Months

-9 months or more Doubtful 50%

but less than 12
Months

-More than 12 Bad/Loss 100%

months

Term Loan -Less than 6 months Unclassified 1% (except SE&CF)

Overdue period will
be counted from the -More than 3 SMA 2% (for SE&CF)5%
day following the months 20%

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expiry of the due -More than 6 Sub-standard 50%
date of payment of months
installment of such
loan. -More than 9 Doubtful/Bad/Loss 100%
months

STAC / Micro -Less than 12 Unclassified 5%

Credit months
Overdue period will
be counted -12 months or more Sub-standard 5%
from six (6) months but less than
following 36 months
the expiry of the due
date of -36 months or more Doubtful 5%
payment of the but less than
installment of
such loan -60 months Bad/Loss 100%
More than 60
months

Source: Banking Regulation & Policy Department, circular no. 14,(Master Circular:
Loan Classification and Provisioning), September 23, 2012, Bangladesh Bank.

3.3 Objective Criteria

(1) Past Due/Over Due:

 Any Continuous Loan if not repaid/renewed within the fixed expiry date for
repayment or after the demand by the bank will be treated as past due/overdue
from the following day of the expiry date.
 Any Demand Loan if not repaid within the fixed expiry date for repayment or after
the demand by the bank will be treated as past due/overdue from the following
day of the expiry date.
 In case of any installment(s) or part of installment(s) of a Fixed Term Loan is not
repaid within the fixed expiry date, the amount of unpaid installment(s) will be
treated as past due/overdue from the following day of the expiry date.
 The Short-term Agricultural and Micro-Credit if not repaid within the fixed expiry
date for repayment will be considered past due/overdue after 6 months of the
expiry date.

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(2) All unclassified loans other than Special Mention Account (SMA) will be treated as
Standard.

(3) A Continuous loan, Demand loan or a Term Loan which will remain overdue for a
period of 02 (two) months or more, will be put into the "Special Mention Account
(SMA)". Loans in the "Special Mention Account (SMA)" will have to be reported to the
Credit Information Bureau (CIB) of Bangladesh Bank.

(4) Loans except Short-term Agricultural & Micro-Credit in the "Special Mention
Account" and “Sub-Standard” will not be treated as defaulted loan for the purpose of
section 27KaKa(3) [read with section 5(GaGa)] of the Banking Companies Act, 1991.

(5) Any continuous loan will be classified as:

 ‘Sub-standard’ if it is past due/overdue for 03 (three) months or beyond but less

than 06 (six) months.
 ‘Doubtful’ if it is past due/overdue for 06 (six) months or beyond but less than
09(nine) months
 ‘Bad/Loss’ if it is past due/overdue for 09 (nine) months or beyond.

(6) Any Demand Loan will be classified as:

 ‘Sub-standard’ if it remains past due/overdue for 03 (three) months or beyond but

not over 06 (six) months from the date of expiry or claim by the bank or from the
date of creation of forced loan.
 ‘Doubtful’ if it remains past due/overdue for 06 (six) months or beyond but not
over 09 (nine) months from the date of expiry or claim by the bank or from the
date of creation of forced loan.
 ‘Bad/Loss’ if it remains past due/overdue for 09 (nine) months or beyond from the
date of expiry or claim by the bank or from the date of creation of forced loan.

(7) In case of any installment(s) or part of installment(s) of a Fixed Term Loan is not
repaid within the due date, the amount of unpaid installment(s) will be termed as ‘past
due or overdue installment’ (Islam and Moral, 1999). In case of Fixed Term Loans: -

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  If the amount of past due installment is equal to or more than the amount of
installment(s) due within 03 (three) months, the entire loan will be classified as
''Sub-standard''.
 If the amount of past due installment is equal to or more than the amount of
installment(s) due within 06 (six) months, the entire loan will be classified as
‘Doubtful".
 If the amount of 'past due installment is equal to or more than the amount of
installment(s) due within 09 (nine) months, the entire loan will be classified as
''Bad/Loss''.

(8) The Short-term Agricultural and Micro-Credit will be considered irregular if not repaid
within the due date as stipulated in the loan agreement. If the said irregular status
continues, the credit will be classified as 'Substandard ' after a period of 12 months, as
'Doubtful' after a period of 36 months and as 'Bad/Loss' after a period of 60 months from
the stipulated due date as per the loan agreement.

If any loan or part of it or accrued interest thereon to any person/organization of his/its

own or related concern remains ''Overdue'' for more than 06(six) months, the borrower
availing of such loan facility will be treated as Defaulted Borrower as per Section
5(GaGa) of the Banking Companies Act, 1991.

3.4 Maintenance of Provision

a) General Provision: Banks will be required to maintain General Provision in the
following way (Bb.org.bd, (2012) :

 @ 0.25% against all unclassified loans of Small and Medium Enterprise (SME)
as defined by Bangladesh Bank from time to time and @ 1% against all

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 unclassified loans (other than loans under Consumer Financing, Loans to
Brokerage House, Merchant Banks, Stock dealers etc., Special Mention Account
as well as SME Financing.)
 @ 5% on the unclassified amount for Consumer financing whereas it has to be
maintained @ 2% on the unclassified amount for (i) Housing Finance and (ii)
Loans for Professionals to set up business under Consumer Financing Scheme.
 @ 2% on the unclassified amount for Loans to Brokerage House, Merchant
Banks, Stock dealers, etc.
 @ 5% on the outstanding amount of loans kept in the 'Special Mention Account'.
 @1% on the off-balance sheet exposures. (Provision will be on the total
exposure and amount of cash margin or value of eligible collateral will not be
deducted while computing off balance sheet exposure.)

b) Specific Provision: Banks will maintain provision at the following rates in respect of
classified Continuous, Demand and Fixed Term Loans:

 Sub-standard: 20%
 Doubtful: 50%
 Bad/Loss: 100%

c) Provision for Short-term Agricultural and Micro-Credits:

(1) All credits except 'Bad/Loss' (i.e. 'Doubtful', 'Sub-standard', irregular and regular
credit accounts): 5%

(2) 'Bad/Loss’: 100%

5. Provisions to Cover All Expected Losses.

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 Chapter-Four: Analysis of NPLs (Janata Bank
Limited)

4.0 Credit Facilities of Janata Bank Limited

 The focus of Janata Bank Limited Credit Line/Program is financing business,

trade and industrial activities through an effective delivery system.
 Janata Bank Limited offers credit to almost all sectors of commercial activities
having productive purpose.

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  The loan portfolio of the Bank encompasses a wide range of credit programs
covering about 200 items. 
 Credit is also offered to 15 (fifteen) thrust sectors, as earmarked by the
Government. at a reduced interest rate to develop frontier industries.
 Credit facilities are offered to individuals, businesspersons, small and big
business houses, traders, manufactures, corporate bodies, etc.
 Loan is provided to the rural people for agricultural production and other off-farm
activities.
 Loan pricing system is customer friendly.
 Prime customers enjoy prime rate in lending and other services.
 Quick appreciation, appraisal, decision and disbursement are ensured.
 Credit facilities are extended as per guidelines of Bangladesh Bank (Central
Bank of Bangladesh) and operational procedures of the Bank (Janatabank-
bd.com, 2015).

4.1 Rural Banking & Credit Program of Janata Bank limited

Vast majorities of the Bangladeshis live in the rural areas and their main source of
income is agriculture and agro-business. Janata Bank Limited has opened branches in
rural areas to cater to the banking needs of rural people. Apart from accepting deposits
from the rich and moderately well off villagers, Janata Bank Limited encourages the
poor people to make small savings through different mechanisms (Janatabank-
bd.com, 2015).

So far lending in rural areas is concerned; Janata Bank Limited has been
financing agricultural production and poverty alleviation programs since 1977. It also
lends to the poor landless so that they can make a living. The average loan size is
about Taka 20,000.00 (around US$ 285). 

Table 2: Types of Credit provided by JBL

1. Special Agricultural Credit program/ short term crop production

loan
2. Horticulture development (cultivation of banana, betel leaf, pineapple
etc.)
3. Fish/ Shrimp production:-

xxvi | P a g e
  (a Fishery loan program
)
(b Credit program for fish cultivator selected by Directorate of Fisheries
)
(c Shrimp culture credit program
)
4. Irrigation and agricultural equipment

Source: Janatabank-bd.com, (2015)

Figure 1: Rural Banking & Micro Credit

Source: www.janatabank-bd.com

The Micro Enterprise & Special Program Division (MESPD) is responsible for
implementing of  (I) Micro Credit Programs related with the poverty reduction, (ii)
Special credit programs  related with employment generation and (iii) Financing of agro-
based industries.  Bank has different micro-credit programs of its own & in collaboration
with other agencies. For successful implementation of these credit programs, especially
poverty reduction credit programs it requires close supervision and monitoring.
Considering Bank's manpower/field staff, it is not always possible to ensure intensive
supervision at the grass root level. To make the micro credit programs time & cost
effective bank has initiated linkage program using intermediaries/collaborating agencies
(GOs & NGOs). Collaborating agencies are responsible for organizing the target groups

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(conducting survey, formation of groups, providing training etc.) including supervision
and recovery of credit.

4.2 Principals and guidelines regarding NPL followed by Janata Bank Limited
Credit risk is defined as the probability of failure of counterparty to meet its obligation as
per agreed terms. Banks are very much prone to credit risk due to its core activities i.e.
lending to corporate, SME, individual, another bank/FI or to another country. The main
objective of credit risk management is to minimize the negative impact through adopting
proper mitigates and limiting credit risk exposures within acceptable limit (Janatabank-
bd.com, 2013).

Table 3: Policies & Guidelines followed By Janata Bank limited

Classification Types of Loans Classification Period for

SL Status classification
(past due)
a)(i) JBL 1 Continuous SMA 2 Months
follows Loan SMA 2 SS 3M
Banglades Months DF 6M
h Bank’s (Overdraft, Cash BL 9M
BRPD credit-Hypo, SS
Circular 3M
No.14 Cash credit-
Dated 23 pledge etc)
September 2 Demand Loan SMA 2 Months
2012 for SMA 2M SS 3M
classificatio (Forced Loan, DF 6M
n PAD, LIM, SS 3M BL 9M
of loans & FBP, IBP etc.)
advances 3 Fixed Term Loan SMA 2 Months
SMA 2M SS 3M
(Which are DF 6M
repayable under a BL 9M
specific SS 3M
Repayment
schedule.)

4 Fixed Term Loan SMA 2 Months

SMA 2M SS 6M
(loan amount DF 9M
below Tk 0.10 BL 12M
crore)
5 Short term SMA -
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 Agriculture & SS 12M
Micro credit DF 36M
BL 60M
(ii) Particulars Short Consumer SME BHs/ All
Provisionin Term Financing F MBs other
g Agricultur Othe HF LP /SDs Credi
depending e r t
on & Micro than
the group: Credit HF,L
P
UC Standar 5% 5% 2% 2% 0.25 2% 1%
d %
SMA - 5% 2% 2% 0.25 2% 1%
%
Classifie SS 5% 20% 20% 20% 20% 20% 20%
d
DF 5% 50% 50% 50% 50% 50% 50%
BL 100% 100% 100 100 100% 100 100%
% % %
HF=Housing Finance, LP=Loans to professionals to setup business,
SMEF=Small & Medium Enterprise Financing, BHs= Loans to Brokerage
House, MBs= Loans to Merchant Bank, SDs = Loans to Stock Dealers.

Source: Annual Reports of Janata Bank Ltd, web: www.janatabank-bd.com

Table 4: Total gross credit risk exposure broken down by major types of credit
exposure Up to Dec 2013

Types Taka in Million

Rural Credit 16955.67
Transport Loan 213.93
General house building 1073.78
Loan against Import Merchandise (LIM) 533.87
Payment Against Document 28677.83
Loan Against Trust Receipt 32370.10
Demand Loan 7700.58
Cash Credit 72820.66
Overdrafts 5763.28
Other Loans 100361.53
Bills Purchased and Discounted 19276.42
Total= 285747.65

Source: Annual Reports of Janata Bank Ltd, web: www.janatabank-bd.com

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Table 5: Current scenario of NPLs of Janata Bank Limited

Classification wise Loan- Advances & Provisions

Summary Outstanding Provision kept
Standard 247850.75 2656.04
SMA 6130.04 290.41
Sub Total= 253980.79 2946.45
Classified
Substandard 7076.52 1222.00
Doubtful 4296.11 902.20
Bad & Loss 20394.23 17221.13
Sub Total= 31766.86 19345.33
Grand Total= 285747.65 22291.78

Source: Annual Reports of Janata Bank Ltd, web: www.janatabank-bd.com

Table 6: Trend of NPLs of Janata Bank Limited

Classified 2007 2008 2009 2010 2011 2012 2013

loans
Substandar 3,003 1,995 2,046 2,437 2,323 12,958 7,077
d
Doubtful 1,082 1,352 1,128 1,675 1,825 8,081 4,296
Bad /Loss 15,772 13,797 10,863 11,042 10,892 32,163 20,394
Sub Total= 19,875 17,144 14,037 15,154 15040 53,202 31,767

Source: Annual Reports of Janata Bank Ltd, web: www.janatabank-bd.com

Figure 2: NPLs of Janata Bank Ltd. from 2007-2013

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 35,000

30,000

25,000

20,000
Substandard
Doubtful
15,000 Bad/Loss

10,000

5,000

0
2007 2008 2009 2010 2011 2012 2013

Source: Drown from the data of Table 6

The above figures and charts show that the status of non-performing loans of Janata
Bank Limited follows an unusual trend from time to time. From figure 3 (NPLs of Janata
Bank Ltd. from 2007-2013) it can be seen that the non-performing loans of Janata Bank
Limited is increasing day by day from 2007 to 2013. In 2007 NPLs of Janata bank
Limited was 19,875 millions. On the other hand, in 2013 it was 31,767. Janata Bank
Limited suffers huge non-performing loans in 2012 and that was 53,202. Figure four
shows that the non-performing loans of Janata Bank limited was below 20 thousands
millions from 2007-2011. Nevertheless, in 2013 it has increased to 53 thousands
millions that was very alarming. After 2012, the Janata Bank Limited tried to control its
NPLs and took different measures. As a results in 2013 it decreased to near 31
thousands millions. The present scenario of non-performing loans of Janata bank
limited is not satisfactory. Because after 2013 the NPLs is increasing with a high rate
and the authority does not take proper steps to control this curse. Several factors are
responsible for NPLs of state owned commercial banks in Bangladesh. Among them
political influence in terms of lending is mostly responsible for NPLs of Janata Bank
Limited.

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 Chapter-Five: Ratio Analysis of Janata Bank
Limited
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5.0 Ratio Analysis
Ratio analysis is among the most popular and widely used tools of financial analysis.
Yet its role is often misunderstood and, consequently, its importance often overrated.
Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick
indication of a firm's financial performance in several key areas. A ratio expresses a
mathematical relation between two quantities. A ration of 200 to 100 is expressed as 2:1
or simply two.

xxxiii | P a g e
Ratio Analysis as a tool possesses several important features. The data, which are
provided by financial statements, are readily available. The computation of ratios
facilitates the comparison of firms that differ in size. Ratios can be used to compare a
firm's financial performance with industry averages. In addition, ratios can be used in a
form of trend analysis to identify areas where performance has improved or deteriorated
over time.

Because Ratio Analysis is based upon accounting information, its effectiveness is

limited by the distortions, which arise in financial statements due to such things as
Historical Cost Accounting and inflation. Therefore, Ratio Analysis should only be used
as a first step in financial analysis, to obtain a quick indication of a firm's performance
and to identify areas, which need to be investigated further.

The ratios are categorized as Short-term Solvency Ratios, Debt Management Ratios,
Asset Management Ratios, Profitability Ratios, and Market Value Ratios. To analysis
the financial position of Janata Bank Limited, I used several selected ratios that express
the position clearly. The following ratios are calculated for year 2012 and 2013. After
calculation, a comparison between the two years is drawn and shows which map the
real scenario of the financial position of Janata Bank limited.

5.1 Solvency Ratios

5.1.1 Current ratio: The Current Ratio is calculated by dividing Current Assets by
Current Liabilities. Current Assets are the assets that the firm expects to convert into
cash in the coming year and Current Liabilities represent the liabilities, which have to be
paid in cash in the coming year. The appropriate value for this ratio depends on the
characteristics of the firm's industry and the composition of its Current Assets. However,
at a minimum, the Current Ratio should be greater than one.

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 Current ratio: Current Assets/ Current liabilities

Particulars(Figure in Millions) Resul Year

Current Ratio t
2010
2011
=161,061/421,170 0.39 2012

=243,387/487,219 0.50 2013

2014

Source: Annual Reports of Janata Bank Ltd, web: www.janatabank-bd.com

Figure 3: Current Ratio of Janata Bank Limited for 2012-2013

0.7
0.65

0.6

0.5 0.5
0.5

0.4 0.39 2010

2011
2012
0.3 2013
0.25
2014
0.2

0.1

0
Current Ratio

Source: Drawn from the above data

5.1.2 Cash Position Indicator: This ratio, which is expressed as a percentage, compares
a company's operating cash flow to its net sales or revenues, which gives investors an
idea of the company's ability to turn sales into cash.

Cash Position Indicator: Cash and Deposits due from depository institutions/ total
assets

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 Particulars(Figure in Millions) Resul Year
Cash Position Indicator t
=161,061/511,396 0.32 2012
=243,387/586,974 0.42 2013

Source: Annual Reports of Janata Bank Ltd, web: www.janatabank-bd.com

Figure 4: Cash Position Indicator Ratio of Janata Bank Limited for 2012-2013.

0.42
0.45
0.4
0.32
0.35
0.3 2012
0.25 2013

0.2
0.15
0.1
0.05
0
Cash Position Indicator

Source: Drawn from the above data

5.1.3 Capacity Ratio: Capacity utilization rates can also be used to determine the level
at which unit costs will raise. A metric used to measure the rate at which potential
output levels are being met or used. Displayed as a percentage, capacity
utilization levels give insight into the overall slack that is in the economy or a firm at a
given point in time.

xxxvi | P a g e
 Capacity Ratio: Net Loans and lease/Total Assets

Particulars(Figure in Millions) Resul Year

Capacity Ratio t
=305,807/511,396 0.60 2012

=286,543/586,974 0.49 2013

Source: Annual Reports of Janata Bank Ltd, web: www.janatabank-bd.com

Figure 5: Capacity Ratio of Janata Bank Limited for 2012-2013.

0.6

0.6
0.49

0.5

0.4 2012
2013
0.3

0.2

0.1

0
Capacity Ratio

Source: Drawn from the above data

5.2 Profitability Ratios

5.2.1 Gross profit margin: The Profit Margin indicates the dollars in income that the firm
earns on each dollar of sales. This ratio is calculated by dividing Net Income by Sales.

Gross profit margin: Total operating income-total operating expenses/ Net revenue

Gross profit margin Particulars Resul Year

t
=(22,264-7,572)/22,264 0.65 2012

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 =(21,118-8,871)/ 21,118 0.58 2013

Source: Annual Reports of Janata Bank Ltd, web: www.janatabank-bd.com

Figure 6: Gross profit margin of Janata Bank Limited for 2012-2013.

0.65
0.66

0.64

0.62 2012
2013
0.6 0.58

0.58

0.56

0.54
Gross profit margin

Source: Drawn from the above data

5.2.2 Net profit margin: The Profit Margin indicates the dollars in income that the firm
earns on each dollar of sales. This ratio is calculated by dividing Net Income by Sales.

Net profit margin: Net Income after tax/Net Revenue

Net profit margin Particulars Resul Year

t
=(15,221)/ 22,264 (0.68) 2012
=9,608/21,118 0.45 2013

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 Source: Annual Reports of Janata Bank Ltd, web: www.janatabank-bd.com

Figure 7: Net profit margin of Janata Bank Limited for 2012-2013.

0.45
0.6

0.4

0.2
2012
0 2013
Net profit margin
-0.2

-0.4

-0.6
-0.68
-0.8

Source: Drawn from the above data

5.2.3 Return on Assets (ROA): The Return on Assets Ratio indicates the dollars in
income earned by the firm on its assets. It is important to remember that these ratios
are based on accounting book values and not on market values.

Return on Assets (ROA): Net Income after tax/ Total Assets

Return on Assets Particulars(Figure in Millions) Resul Year

(ROA) t
=(15,221)/ 511,396 (0.03) 2012

=9,608/586,974 0.02 2013

Source: Annual Reports of Janata Bank Ltd, web: www.janatabank-bd.com

xxxix | P a g e
Figure 8: Return on Assets (ROA) of Janata Bank Limited for 2012-2013.

4.3
4.5
4
3.5
3 2.4
2012
2.5 2013

2
1.5
1
0.5
0
Return on Assets (ROA)

Source: Drawn from the above data

5.2.4 Return on Equity (ROE): The Return on Equity Ratio indicates the dollars of
income earned by the firm on its shareholders' equity. It is not appropriate to compare
these ratios with market rates of return such as the interest rate on Treasury bonds or
the return earned on an investment in a stock.

Return on Equity (ROE): Net income after Tax/ Shareholders’ equity

Return on Equity (ROE) Particulars(Figure in Millions) Resul Year

t
=(15,221)/ 16,768 (0.91) 2012

=9,608/37,016 0.26 2013

Source: Annual Reports of Janata Bank Ltd, web: www.janatabank-bd.com

xl | P a g e
Figure 9: Return on Equity (ROE) of Janata Bank Limited for 2012-2013.

0.26
0.4

0.2

0
Return on Equity (ROE) 2012
-0.2 2013

-0.4

-0.6

-0.8
-0.91
-1

Source: Drawn from the above data

5.3 Market valuation ratios

5.3.1 EPS: The Price-Earnings Ratio is calculated by dividing the current market price
per share of the stock by earnings per share (EPS). (Earnings per share are calculated
by dividing net income by the number of shares outstanding.)

EPS: Net Income-Dividend on preferred shares/ Outstanding Shares

EPS Year Result

2012 (138.37)

2013 86.82

Source: Annual Reports of Janata Bank Ltd, web: www.janatabank-bd.com

Figure 10: EPS of Janata Bank Limited for 2012-2013.

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 86.82
100

50

2012
0 2013
EPS

-50

-100

-138.37
-150

Source: Drawn from the above data

Figure 11: Different Ratios of Janata Bank limited for Year 2012 & 2013

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 1.5
0.58
0.49
1 0.5
0.42
0.65
0.5 0.6
0.39 0.32
0.02
-0.03
0
Current Cash Capacity Gross profit Net0.45
profit Return on Return on EPS 2013
Ratio Position Ratio margin margin Assets Equity 2012
Indicator 0.86
-0.5 -0.68 0.26

-1 -0.91

-1.5 -1.38

-2

Source: Drown From the above data, Website:www.janatabank-bd.com

Figure 12 shows that in 2012 current ratio of Janata Bank Limited is 0.39 that is
satisfactory. On the other hand, in 2013 current ratio increased to 0.50 that indicates
that the position of JBL in terms of current assets and liabilities is acceptable. Most of
the ratios of JBL show that it performs well. Net profit margin was negative (-0.68) in
2012 while net profit margin increased to positive (0.45). Earnings per share (EPS) were
negative in 2012 and become positive in 2013. It can be said that the overall
performance of Janata Bank is satisfactory.

xliii | P a g e
 Chapter-Six: Regression Analysis of Janata Bank
Limited

xliv | P a g e
6.0 Regression Analysis
Regression analysis is a statistical process for estimating the relationships among
variables. It includes many techniques for modeling and analyzing several variables,
when the focus is on the relationship between a dependent variable and one or
more independent variables. Regression analysis is widely used
for prediction and forecasting, where its use has substantial overlap with the field
of machine learning. Regression analysis is also used to understand which among the
independent variables are related to the dependent variable, and to explore the forms of
these relationships. In restricted circumstances, regression analysis can be used to
infer causal relationships between the independent and dependent variables.

g
To conduct regression analysis for Janata Bank Limited, it has to determine the
dependent variable and the independent variable. Here, Net Profit after Tax (NPAT) is
the dependent variable and Non-performing Loans (NPLs) is the independent variable.
In this part, I tried to show the relationship between the increase or decrease of NPLs
and NPAT of Janata Bank Limited.

Dependent Net Profit after Tax (NPAT)

Variable

Non-Performing Loans
Independent
Variable
Provision for Loans &
Advances

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Table 7: NPLs and Net profit after tax from 2007-2013

Variable 2007 2008 2009 2010 2011 2012 2013

NPAT 15 3145 2981 4911 4214 -15211 9608
NPLs 19,875 17,144 14,037 15,154 15040 53,202 31,767
Provisio 11,698 9,050 8,748 8975 11173 34,012 25,239
n

6.1.1 Constant Effective Model

Linear Regression Equation,

Where,

Y= Net Profit after Tax (Dependent Variable)

=  the estimated regression coefficient that quantifies the association between the
potential confounder and the outcome.

X1= Non-performing Loans (Independent Variable)

X2= Provision (Independent Variable)

i = Estimated Standard Deviation

6.1.2 Empirical Result

The major assumption under this model is that all coefficients are constant across time
period and individual bank. By interpretation, following the objective of this study, the
assumption can be summarized as follows:

1. The period time used by this study (2007-2013) is the period of Janata Bank Limited”.
The constant Effect Model thus assumes that all the coefficients in this model remain
unchanged across banks during this period.

xlvi | P a g e
2. The time (meltdown) effect is also constant. That is, all the determinants of Janata
Bank performance used in our model (NPAT, NPL, and Provision) are not affected by
economic meltdown.

Table 8: Constant Effect Model Estimates

Variables Entered/Removeda
Model Variables Entered Variables Removed Method
1 Provision for Loans & Advances,
. Enter
Non-performing Loansb

a. Dependent Variable: Net Profit After Tax

b. All requested variables entered.

xlvii | P a g e
 Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1
.933a .870 .805 3468.57190

a. Predictors: (Constant), Provision for Loans & Advances, Non-performing Loans

In the model summery, R represents the coefficient of correlation where R Square for
coefficient of determination. Coefficient of correlation measures the strength of the
linear relationship between two variables. On the other hand, coefficient of
determination refers to the proportion of the total variation in the dependent variable Y
that is explained by the variation in the independent variable X.

Here, R=0.933 which indicates that there is a negative of direct relationship between
NPAT and NPLs and Provision. That means if NPLs and provision increase then Net
Profit after Tax will decrease. On the other hand, R square=0.870 which also indicates
that there is a strong relationship between the dependent variable (NPAT) and the
independent variables (NPLs, Provision).

ANOVAa

Model Sum of Squares df Mean Square F Sig.

1 Regression 322878467.652 2 161439233.826 13.419 .017b

Residual
48123964.062 4 12030991.016

Total 371002431.714 6

a. Dependent Variable: Net Profit After Tax

xlviii | P a g e
b. Predictors: (Constant), Provision for Loans & Advances, Non-performing Loans

Coefficientsa

Standardize
Unstandardized d
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 10661.766 2687.914 3.967 .017
Non-performing Loans -1.712 .424 -3.122 -4.034 .016
Provision for Loans &
Advances 1.971 .622 2.451 3.167 .034

a. Dependent Variable: Net Profit After Tax

From the above Tables,

a) The coefficient β1= -3.122 expresses that if the NPL increases by 1 percent,
NPAT will be decreased by 3.122 because of existing a negative relationship
between NPL and NPAT along with the condition that the other things especially
the other independent variables remain same.

b) The coefficient β2= 2.451 expresses that if the Customer Provision for Loans &
Advances increases by 1 percent, NPAT will be decreased by 2.451 because of
prevailing negative relationship between Customer Provision for Loans &
Advances and NPAT along with the condition that the other things especially the
other independent variables remain same.

xlix | P a g e
An examination of the results of the panel data in Table shows that all the coefficient are
individually statistically significant at both 1% and 5% level of significance and all the
slope coefficients have expected negative signs. 𝑅2 is considerably high (0.870), and
significant. The intercept value is positive by assumption the intercept value is the same
for the bank. In addition, the slope coefficients of the three variables are assumed
identical for bank. Obviously, these are highly restricted assumptions.

This result obviously distorts the true picture of the relationship between bank
performance and all the independent variables across. Even though these suggests that
87.0 percent of the total variation in return on asset of the bank is explained by joint
variations in the three variables.

l|Page
Chapter-Seven: Findings, Recommendations &
Conclusion
7.0 Findings, Recommendations & Conclusion

7.1.1 Issues and Observations

The foregoing discussion regarding NPLs in Bangladesh reveals that the banking sector
of Bangladesh is yet to get out of its NPL mess. Although substantial improvement has
been noticed recently, in terms of adoption of the international loan classification and
provisioning system, Bangladesh follows the international standard largely, but lags far
behind with regard to the management of NPLs.

At present, the Janata Bank limited exhibits a very high proportion of NPLs when
compared to other private commercial banks in Bangladesh. The most dissatisfactory
performance is seen in the management of “Bad Loan” which consistently accounts for
more that 80% of total NPLs. This situation clearly demonstrates the inefficacy of the
credit management to tackle the “flow problem of bad loans”. Therefore, the first

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challenge facing the Janata Bank limited is how to constitute sufficient measures to
address the flow problem of bad loans effectively.

It is observed that among the different clusters of banks in Bangladesh, like Janata
Bank limited other stated owned commercial banks (Sonali, Agrani, Rupali) continue to
have an alarming amount of NPLs since the adoption of prudential norms in 1990.
Although it is not clear which sectors contain major NPLs, but it is observed that the
highest ratio of NPLs are in the category of micro and agricultural loans of NCBs
followed by terms loans having a maturity of more than 5 years. The NPL ratio of term
loans given by JBL is observed to be very high (Table 4.5). Another important
observation is the gradual reduction of capital in Janata Bank Limited due to
maintenance of poor loan loss provisions against default loans. These aspects clearly
call for ending the operation of the bank. Hence, the challenge before the Janata Bank
is to stop the operations through unethical means or political influences.

7.1.2 Findings of Regression analysis and ratios analysis

Regression analysis was done based on some crucial factor related to credit risk
management such as Non Performing Loan, Classified Loan, and Return on Assets,
Loan Loss Provision, Total deposit and Loans and Advances. The model showed that
𝑅2is considerably high (0.870), and significant the estimated regression statistics is
relatively high, suggesting that there is no problem of autocorrelation in the data. It
suggests that 93.3 percent of the total variation in net profit after tax of the bank is
explained by joint variations in the non-performing loans and provision for loans and
advances. From the table presented earlier indicates that, an increase in non-performing
loan reduces profitability (NPAT), on the other hand an increase in loan loss provision also
reduces profitability.

7.2.0 Recommendation
1. No compromise with due diligence in the sanctioning process. Keeping in mind
"prevention is better than cure."Janata Bank Limited like any other commercial

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 Banks (especially private commercial banks) should take high collateral. If a
borrower defaults on a loan, the bank can sell the collateral and use the
proceeds to make up for the loss.
2. The security or collateral provided must be valued by proper agency or put up on
a regular ‘mark to market’ valuation process.
3. Action plan for potential NPLs. The Janata Bank Limited should have some step
to collect the NPLs loan.
4. Identification of highly risk sensitive borrowers in the credit portfolio. JBL should
take information about the clients before giving loans. It could go Bangladesh
Bank to collect the information and verify the financial statement carefully from
reliable sources (CIB) to identify the risky borrowers.
5. Identification of geographical area-wise risk sensitivity. JBL should identify the
clients according area wise that is mean in Bangladesh, there is some places
where growth rate is low or rate of repay rate is low.
6. Targeting high value end NPL accounts (having exposure of Tk. 5.00 crore and
above).
7. Prompt action on credit reports
8. JBL should take proper steps to building capacity of officers and executives in
the recovery department to recover the defaulted loans.
9. It should give proper training to employee. Therefore, they can handle loans
properly. If there is short of experience employee, bank should recruit experience
employee for recovery department.
10. A robust risk management culture, with a ‘well articulated’ risk management
policy can help the institutions to avoid such loan default.

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7.3.0 Conclusion
Banking sector of Bangladesh is characterized by low profitability and inadequate
capital base because lacking of adequate controlling and there are many banks in
Bangladesh. Banks revenue comes from spread (Lending rate – borrowing
rate).However, there is huge competition among banks. The crux of the problem lies in
the accumulation of high percentage of non-performing loans over a long period. The
problem is most severe for NCBs and DFIs. However, starting from a very high rate of
41.1% in 1999 it came down gradually to 11.90% in 2013 according to latest published
data. Still, it is very high by any standard. Unless it can be lowered substantially we will
lose competitive edge in the wave of globalization of the banking service that is taking
place throughout the world. We have had a two-decade long experience in dealing with
the NPLs problem and much is known about the causes and remedies of the problem.
Unfortunately, the banking system is still burdened with an alarming amount of NPLs
and lags far behind the neighboring countries of India and Sri Lanka. Although
Bangladesh has to a large degree adopted international standards of loan classification

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and provisioning, the management of NPLs is found ineffective, as the system has
failed to arrest fresh NPLs significantly.

Janata Bank Limited is the second largest banks in Bangladesh. That is why it has to
provide huge loans and advances rather others. It is expected that the bank generates
much profit relative to others commercial banks. Nevertheless, due to NPLs Janata
Bank limited has been experiencing a loss from the very beginning.

The study reveals the dissatisfactory performance of Janata Bank Limited. This
happens because of the unusual practice of the courts (Money loanCourt, Bankruptcy
Court and PDR Court) in terms of rate of settlement of NPL disputes as well as rate of
recovery of loans over the years in review. The main problem related to very low
recovery lies in the very slow execution of the decrees.

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 Chapter-Eight: References and Appendix

8.0 References
1. Bangladesh Bank, (2012), Master Circular: Loan Classification and Provisioning,
Dhaka: Bangladesh Bank, pp.1-10
2. Bangladesh Bank. (2014), “Monthly Economic Trend, November 2014”,
Bangladesh Bank, Dhaka, Bangladesh
3. Bangladesh-bank.org, (2015), “BB Circulars”, [online] Available at:
http://www.bangladesh-bank.org/mediaroom/circulars/circulars.php [Last
Accessed 11 Jan. 2015]
4. Bank Company Act, (1991), Definition of Defaulted Borrower, Section 5(GaGa),
Bangladesh, Dhaka

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 5. Bb.org.bd, (2012), BB Circulars, [online] Available
at:http://www.bb.org.bd/mediaroom/circulars/circulars.php, [Accessed 17 Jan
2015]
6. Boi.gov.bd, (2015), “The Money Loan Court Rules, 1990: Board of Investment
Bangladesh”, [online] Available at:
http://boi.gov.bd/index.php/component/businesslaws/?
view=legislationdetails&legislation_id=2937&task=law [Last Accessed 11 Jan.
2015].
7. Choudhury, T. A. and Adhikary, B. K. (2002),“Loan Classification, Provisioning
Requirement and Recovery Strategies: A comparative Study on Bangladesh and
India, Seminar Paper, Bangladesh Institute of Bank Management, January: 21
54.Mohanty, B. K. (2006), Role of Loan Classification Norms and Legal
measures in NPA Management of Banks, “The Management Accountant”, Vol.
41(1), pp. 7-12.
8. Desai, B. H. and Farmer, M. J. (2001), Taxonomic evaluation of banks’
profitability performance, “ICWAI-The Management Accountant”, Vol. 36(12), pp.
885-891
9. Greenidge, K. and Grosvenor, T. (2010), Forecasting non-performing loans in
Barbados, Journal of Business, Finance and Economics in Emerging Economies,
Vol. 5, pp. 80-107
10. Herring, R. and Wacher, S. (1999), Real Estate Booms and Banking Busts – An
International Perspective, Group of Thirty Occasional Papers No. 58.
11. Islam, M. and Moral, L. (1999), “Bank Loan Default Problem in Bangladesh: A
dialogue Between Borrowers and Lenders”, Keynote paper (seminar paper)
presented at Bangladesh Institute of Bank Management, published in Bank
Parikrama, Vol. 22(31), pp. 35-37.
12. Janatabank-bd.com, (2010), “Financial Statements of Janata Bank Limited”,
[online] Available at: http://www.janatabank-bd.com/finance2010.htm [Accessed
1 Feb. 2015].

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 13. Janatabank-bd.com, (2013), Financial_Statements_2013, [online] Available at:
http://www.janatabank-bd.com/JBL_Financial_Statements_2013_Final.pdf
[Accessed 1 Feb. 2015].
14. Janatabank-bd.com, (2013), Financial_Statements_2013, [online] Available at:
http://www.janatabank-bd.com/JBL_Financial_Statements_2013_Final.pdf
[Accessed 1 Feb. 2015].
15. Janatabank-bd.com, (2015), “Credit Facilities”, [online] Available at:
http://www.janatabank-bd.com/jb2.htm [Accessed 1 Feb. 2015].
16. Janatabank-bd.com, (2015),“Recruitment Page”, [online] Available at:
http://www.janatabank-bd.com/Financial-2010.htm [Accessed 1 Feb. 2015].
17. Janatabank-bd.com, (2015), “Rural Banking”, [online] Available at:
http://www.janatabank-bd.com/jb4.htm [Accessed 1 Feb. 2015].
18. Janatabank-bd.com, (2015), Overview of the Bank, [online] Available
at:http://www.janatabank-bd.com/jb1.htm[Accessed 16 Jan. 2015]
19. Podder, J. and Al Mamun, A. (2004), Loan loss-provisioning system in
Bangladesh banking, “Managerial Auditing Journal”, Vol. 19(6), pp. 729-740.
20. Prenhall.com, (2015), “Ratio Analysis”,[online] Available at:
http://www.prenhall.com/divisions/bp/app/cfl/RA/RatioAnalysis.html[Last
Accessed 5 Feb. 2015].
21. Reddy, G. S. (2004), Management of Non-Performing Assets (NPA’s) in Public
Sector Banks, “Journal of Banking and Finance”, Vol. 17(3), pp. 17-21.
22. Sai.uni-heidelberg.de, (2015), “The Bank Company Act, 1991”, [online] Available
at: http://www.sai.uni-heidelberg.de/workgroups/bdlaw/1991-a14.htm [Last
Accessed 11 Jan. 2015]
23. The Daily Star, (2015), “Non-performing loans: macro and micro realities”,
[online] Available at: http://www.thedailystar.net/non-performing-loans-macro-
and-micro-realities-45241 [Last Accessed 10 Jan. 2015].
24. Woo, D. (2000), “Two Approaches to Resolving Nonperforming Assets during
Financial Crisis”, IMF working paper, Vol. 33, pp. 2-5.

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9.0 Appendix
Table: Regression Model Output
Variables Entered/Removeda
Model Variables Entered Variables Removed Method
1 Provision for Loans & Advances,
. Enter
Non-performing Loansb

a. Dependent Variable: Net Profit After Tax

b. All requested variables entered.
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 Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1
.933a .870 .805 3468.57190

a. Predictors: (Constant), Provision for Loans & Advances, Non-performing Loans

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 322878467.652 2 161439233.826 13.419 .017b

Residual 48123964.062 4 12030991.016

371002431.714 6
Total

a. Dependent Variable: Net Profit After Tax

b. Predictors: (Constant), Provision for Loans & Advances, Non-performing Loans

Coefficientsa
Standardize
Unstandardized d
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 10661.766 2687.914 3.967 .017
Non-performing Loans -1.712 .424 -3.122 -4.034 .016
Provision for Loans &
1.971 .622 2.451 3.167 .034
Advances

a. Dependent Variable: Net Profit After Tax

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