Business Credit Performance and Management
Subject: Banking | Topics:

Statement of the project issue on research problem

This paper has done on the credit performance of Bank Asia, Uttara branch. Mainly here the research problem defined as the appraisal of the credit performance and its management procedure. How a bank conduct its business loans and how it operate its total credit segment. This paper has critically explored the whole procedure and it shows the performance of the business credit of Bank Asia.

 Significance and rationale of the study

It is an essential step that I proceed for preparing this research paper on the credit performance of the Uttara branch of bank Asia. It helps to find out the overall credit performance of the bank and the current status of its clients. It also useful for finding the defaulter clients and who the actual profitable clients for the bank are are. It also helps to build the correlation between its various credit and its interest income and interest expenses.

 Objectives of the study

The main objectives of this job rotation program and the report are as follows:

To familiarize with overall banking activities.

To understand the functions and mechanisms of banking activities.

To be introduced with the professional banking environment.

To know about the manner and style of doing practical jobs.

 Scope of the research paper

This study is limited to our job rotation program which will not cover all the banking activities in detail.


As this is a program of one and a half month, it has been difficult for one to learn such a huge thing like banking activities and focus that learning accurately on the report. The limitations in brief are:

Time constraints for preparing the report.

Shortage of time of the officials to arrange time for conversation.

Shortage of time to learn all the activities of each department.

Personnel are too busy with their client and related tasks so that they can not give enough time to the internee for providing overall knowledge about their tasks.

 Literature review

As most of the studies on bank performance are conducted in the US and emerging markets,we will divide our presentation in two parts: US evidence and emerging market studies.The empirical evidence in the US is due to Berger (1995), Neeley and Wheelock (1997) and Angbazo (1997). Berger (1995) examines the relationship between the return on equity and the capital asset ratio for a sample of US banks for the 1983-1992 time period. Using the Granger causality model, he shows that the return of equity and capital to asset ratio tend to be positively related. Neeley and Wheelock (1997) explore the profitability of a sample of insured commercial banks in the US for the 1980-1995 period. They find that bank performance is positively related to the annual percentage changes in the state’s per capital income. Anghazo (1997) investigates the determinants of bank net interest margins for a sample of US banks for 1989-2003 period. The results for the pooled sample documents that default risk, the opportunity cost of non-interest bearing reserves, leverage and management efficiency are all positively associated with bank interest spread. The main Studies on the determinants of bank’s performance in emerging countries were carried out in Colombia (Barajas et al.,1999), Brasil (Afanasieff et al., 2002), Malaysia (Guru et al., 2002) and Tunisia (Ben Naceur and Goaied, 2001). Barajas et al. (1999) document significant effects of financial liberalization on bank’s interest margins for the Colombian case. Although the overall spread has not declined after financial reform, the relevance of the different factors behind the bank spreads were affected by such measures. Another change linked with the liberalization process was the increase of the coefficient of loan quality after the liberalization. Afanasieff et al. (2002) make use of panel data techniques to uncover the main determinants of the bank interest spreads in Brazil. A two-step approach due to Ho and Saunders (1981) is used o measure the relative impact of the micro and macro factors. The results suggest that macroeconomic variables are the most relevant elements to explain bank interest spread in Brazil. Ben Naceur and Goaied (2001) investigate the determinants of the Tunisian bank’s performances during the period 1980-1995. They indicates that the best performing banks are those who have struggled to improve labour and capital productivity, those who have maintained a high level of deposit accounts relative to their assets and finally, those who have been able to reinforce their equity. Guru et al. (2002) attempt to identify the determinants of successful deposit banks in order to provide practical guides for improved profitability performance of these institutions. The study is based on a sample of seventeen Malaysian commercial banks over the 1986-1995 period. The profitability determinants were divided in two main categories, namely the internal determinants (liquidity, capital adequacy and expenses management) and the external determinants (ownership, firm size and external economic conditions). The findings of this study revealed that efficient expenses management was one of the most significant in explaining high bank profitability. Among the macro indicators, high interest ratio was associated with low bank profitability and inflation was found to have a positive effect on bank performance. 

Population parameter

According to Bangladesh bank there are 48 banks as on 30 june,2008. These are

Agranee bank ltd, janata bank ltd., rupali bank ltd., sonali bank ltd.,Bangladesh krishi bank, Bangladesh shilpo bank etc.

Profit compares with  main bank of the other following branch in the business credit aspects

 Sl no.Name of the bankProfit achieved in 2010Principal branch profit
1Islami bank353.00213.00
2Prime bank533.0067.00
3Exim bank241.0044.00
4Mercantile bank ltd.307.0053.93
5Southeast bank ltd.320.0062.00
6The city bank ltd.310.0071.83
7Dutch banal bank ltd.193.0082.00
8Dhaka bank ltd.215.0093.00
9One bank ltd.220.0056.00
11Bank Asia ltd.450.0085.62
12Al-Arafat bank231.0074.12
13The trust bank ltd.324.0054.00
14Premier bank ltd254.0056.33
15AB bank256.0045.12
16Brac bank ltd260.0086.00
17BASIC bank ltd204.0093.45
18Shahajalal islami bank ltd218.00126.00
19Mutual trust bank ltd185.00120.00
20Standard bank ltd201.0069.00
21National bank ltd185.0056.42
23Jamuna bank Ltd.227.0024.47
24First security bank ltd180.0042.00

 Sampling design

I have chosen Bank Asia ,Uttara branch for researching the credit performance and its management.

 Methods of data collection:

 This paper This paper has been prepared with the help of practical working experience in the rotation program along with information collected through interviewing the senior officials, observing the activities of other employees and information collected through reading various files, manuals and documents of the bank. In brief the methods of collecting information are:

Practical working experience

  • Primary source of the data
  • Oral conversation with the officials
  • Secondary sources
  • Documents, credit manuals and files
  • An Overview on Bank Asia Ltd.

Bank Asia Limited is one of the third generation private commercial banks (PCBs), incorporated in Bangladesh on September 28, 1999 as a public limited company under the Companies Act 1994 and governed by the Banking Companies Act 1991. The Band went for public issue of its shares on September 23, 2003 and their shares are listed with Dhaka Stock Exchange Ltd. And Chittagong Stock Exchange Ltd.

Bank Asia Limited acquired the business of Bank of Nova Scotia (incorporated in Canada), Dhaka, in the year 2001 and at the beginning of the year 2002, the Bank also acquired the Bangladesh operations of Muslim Commercial Bank Limited (MCBL), a bank incorporated in Pakistan, having two branches at Dhaka and Chittagong and one booth at Dhaka. In taking over the Bangladesh operations, all assets and certain specific liabilities of MCBL were taken over/assumed by Bank Asia Limited at book values.

The vision of the Bank is to have a poverty free Bangladesh in course of a generation in the new millennium, reflecting the national dream and to build a society where human rights receive the highest consideration along with reduction of poverty.

The authorized capital of the Bank is being raised to Tk. 4,450 million as approved by the regulatory authority, compared to Tk. 1,200 million at present, the paid up capital from Tk. 930 million in 2005 to Tk. 1,116 million in 2006. The Bank ended the year 2006 with a total Shareholder’s Equity of Tk. 1,949.74 million compared to Tk. 1,566.98 million in the year 2005. The bank attained capital adequacy of 11.23% compared to the current regulatory requirement of 9.00%.

The objective of the Bank is to provide efficient and personalized banking services to corporate, institutional and private clients to help them realize their short-term goals and long-term aspiration. The range of services includes import/export finance, short-term credit, retail banking, tele banking, and home banking. These services will be supplemented by a strong project division to manned by a dedicated team of technical experts, economists and financial analysts.

Bank Asia has on offer a broad array of innovative financial services specially designed to match the specific requirement of the clientele ranging from large corporate houses, small and medium enterprises, to private individuals. The team of professional assists the clients in finding the most appropriate financing package making use of the Bank’s own resources and/or organizing loan syndications, to help the clients realize their short-term goals and long-term aspirations.

Bank Asia Ltd. currently has a total of 28 Branches inside and outside the DhakaCity. All Branches of the Bank Provides all the services of a Commercial Bank.

Besides normal services Bank Asia have the following distinctive services :

Special Features:

  • Any Branch Banking
  • Fully Computerized on line
  • Mobile-Banking
  • Customer Oriented Flexi Credit
  • Corporate Banking
  • Retail Banking
  • Investment Banking
  • SME Banking
  • International Trade Financing
  • Remittance

Special Services:

  • Credit Card
  • ATM Service
  • Locker Facilities
  • Priority Banking
  • Custodial Service
  • Leasing
  • Syndicated Loan

A special contribution of Bank Asia towards society:

Bank Asia makes socially responsible activities an important part of its culture, identity and business practice. In the year 2005 the Bank started a program in collaboration with Bangladesh Eye Hospital to help the handicapped and the underprivileged by providing necessary financial support for performing ophthtamological operation of all born blind children of Bangladesh. Bank Asia also arranged a program with the Islamiya Eye Hospital to provide free eye examination to school children in Munshiganj and Kishorganj. The poverty alleviation scheme “Palli Shawnirvor” and “Kormoshangsthan Prokolpo” of the Bank operating through the rural branches are financially benefiting the poor.  The Bank is also indirectly extending their support to the disadvantaged by financing several large NGOs which provide micro credit and work with the underprivileged for social empowerment. In collaboration with D.Net-Development Research Network, Bank Asia has established Computer Learning Centers (CLC) at several sub-urban areas outside Dhaka

 Management procedure of business credit. Bank Asia, uttara branch

 Performance at a glance of business loans & advances : Bank Asia ltd. Uttara branch as on 16.03.2011

Outstanding position of loans advances:

  • Loan against trust receipt     = Tk. 2,16,77,265.50/=
  • Loan against packing credit  = Tk. 1,05,64,051.13/=
  • Secured overdraft (SOD)      = Tk  5,89,17,661.60/=
  • Overdraft (OD)                     = Tk  21,21,60,875.16/=
  • Term loan (industrial)          = Tk  11,63,79,769.80/=
  • Term loan (others)               = Tk  16,39,13,092.97/=
  • Demand loan                        = Tk  10,00,000.00/=
  • Cash credit (cc Hypo)          = Tk  94,72,412.81/=
  • Time loan                             = Tk  15,00,000.00/=
  • PAD  (cash)                          = Tk  12,45,237.30/=

Local bills purchased (LBP-DOC)              = Tk 5,34,28,753.26/=

  • Foreign bills purchased (DOC) FC-USD   = Tk97,39,501.01/=

Total loans and advance sanctioned   = Tk. 1,05,65,92,854/=

Total loans and advance outstanding  =Tk. 81,73,29,852/=

Cumulative profit as on 29.12.2010  Tk. 6,19,47,955/=

 Definition of credit:

Lending/credit is the main asset of the bank but lending business is risky as well. If we apply the principles of sound lending before any advance then risk of default will be minimized. The credit department should apply those principles before extending credit to a borrower. The constituents of sound lending are as follows:

The constituents of sound lending:

Safety: The most important thing in making advances is whether the money would definitely come back. The credit officer must ensure that the money they advance to the right borrower, and will be utilized in such a way that it will not only safe at the time of lending but will remain so throughout the serving purpose.

Liquidity: The borrower must be in a position to repay within a reasonable time on demand or as per arrangement. The source of repayment must be definite. The business or the project for which advances are extended must be self liquidating to ensure repayment.

Purpose: The purpose of borrowing should be productive so that the money not only remains safe but also provides a definite source of repayment. Purpose should ensure generation of adequate cash repayment of advances.

Profitability: The bank is in a business and so profit is needed for long term survival and growth. Lending rate must reflect bank’s costs, earning and long term goals of the bank.

Security:  For advances, purpose is important which should be productive to ensure repayment. But even then security is necessary to ensure safety-to provide against such contingencies such as unexpected changes in circumstances which may affect safety and liquidity of the advance.

Diversification:  Diversifying the risks to a large number of borrowers and different business is a means of reducing risks. Large number of borrowers, many types of businesses, different types of securities reduces lending risks to some extent.

 Types of loans & advances

a)    Overdraft

b)    Cash credit

Term loan

When an advance is made in a lump sum repayable either in fixed monthly installments or in lump sum and no subsequent debit are ordinary allowed except by way of interest, incidental charges etc. it is called a term loan. Term loans are normally allowed to those parties who have either fixed source of income or who desire to pay it in lump sum.

  1.   Important finance:

a)       Letter of credit: this is a short of non-found credit in which bank does not give direct money. After shipment of imported goods when documents are negotiated and negotiating bank claims reimbursement from the Nostro account then it becomes funded credit

b)       Payment against documents (PAD): When a L/C is opened by the bank in favor of his client the bank is bound to honor its commitment to pay for import bills after shipping documents are presented. Consequently the issuing bank settles the said claim by creating a loan account as a payment against documents. The importer is compelled to pay the stipulated amount of money before he gets the shipping documents. Shipping bill is acted here as a security against PAD loan.

c)       Loans against trust receipt (LTR): LTR is a document duly stamped and signed in bank prescribed format by the importer before getting the particular shipping documents for releasing the goods from the customs. In the trust receipt the importer specifies the goods and agrees that he is holding the goods not as an Agent for the Bank until the goods are used for expressed purpose. Generally the duration of LTR facility is 180days.

d)       Bank guarantee: Bank guarantee is an undertaking given by the bank to settle a debt if the debtor fail to do so. This type of facility is normally given to a client when imported goods already arrived at the port but shipping documents got some discrepancy.

  1. Export finance :

a)       Packing cash credit: These types of credit are extended to the exporter to facilitate export of goods.

  1. Consumer credit

The consumer credits are a kind of term loan. There are several types of consumer credit lunched by Bank Asia. They are:

  1. House Finance
  2. Auto loan
  3. Loans for professionals
  4. Consumer durable loan
  5. Unsecured personal loan
  6. Education support
  7. Marriage support
  8. Motor bike loan
  9. Medical support
  10. Senior citizen support

Bills purchased and discounted: Apart from sanctioning loans and advances in various forms and on the security of various types of goods and documents etc. Purchase and discounting of bills of exchange is another way of employing the bank funds. Such bills of exchange arise out of commercial transactions both inland trade and foreign trade.

 Security of credit :

Security means things deposited as guarantee of an undertaking or loan, to be forfeited in case of default. Also means document as evidence of loan, certificate of stock, bonds etc. It is also meant to be an insurance against an emergency.

a)    Types of security

Securities can be classified into following different categories based on the nature and individual characteristics:

1)       Direct security and third party security:

Direct securities deposited by the debtor to secure his own account. Third party securities are those securities deposited by a third party to secure the customer’s debt.

2)       Primary security and collateral security:

Primary securities are those securities or assets which are created with the help of finance made available by the bank. For instance, the machinery purchased out of loan available for purchase of machinery by the bank is a form of primary security.

Collateral security is the security against which the finance is not available. Rather it is additional security. The banks need such securities in the event of the value of primary security being insufficient/in security and collateral security adequate at the time of realization. For example, In addition to the machinery in the above case, if the borrower also mortgages his would be considered as collateral security.

3)       Personal security and impersonal; security:

Personal security provides legal remedy to the bank against the borrower by providing a right of action against the borrower personally. Security such as of a promissory note or bill of exchange or a security bond is such securities.

Tangible securities such as land, building, machinery etc. are the form of impersonal security. To recover the loans given, the banks have to get such securities enforced or sold through the intervention of court.

4)       Specific security or continuing security:

Specific securities are those securities which cover only those loans which are given against those securities. These can not be utilized in respect of loans other than the one given there against. For instance, if a demand loan is given against security of national saving certificate and the agreement does not provide for covering other loans as well, the recovery of other loan shall not be possible by sale of that security.

On the other hand, the continuing securities are those which can be utilized to recover any kind of loan granted provided these are charged as such, by way of some agreement etc. Accounts such a cash credit are covered by continuing securities which are charged to the bank and are in the form of float.

Attributes to a good security:

i)        Legal aspects:

(1)     Ascertainment of title.

(2)     Validity of title

ii)      Economic aspects:

(1)     Marketability

(2)     Easy ascertainment of value

(3)     Stability of price

(4)     Easy storability

(5)     Durability

(6)     Transportability

(7)     Cost consideration

(8)     Absence of contingent liability

(9)     Yield.


Charge means “Where in a transaction for value both parties evidence an intention that property existing or future shall be made available, there is a charge, even though the present legal right which is contemplated can only be enforced at some future date, and though the creditor gets no legal rights to property, either absolute or special or any legal right to possess ional but only gets the right to have the security made by an order of the court.

Classification of charge

A charge may be classified as fixed charge and floating charge. The description is as follows:

 Fixed charge: A charge is said to be fixed if it is made specially to cover definite and ascertained assets of permanent nature or assets capable of being ascertained and defined, e.g. charge on land and building or heavy machinery. It prevents the leader from dealing with the property charged without consent of the charge holder.

 Floating charge: It is charge on property which is constantly changing, e.g., stock. A company can deal with such property in normal course of its business until it becomes fixed on the happening of an event. Thus it is a charge on the assets of a company in general.

The other classification of charge is:

Pair passé charge: Pair passé charge is created in favor of several creditors, with the condition that they have equal priority. It is generally created in case of consortium accounts.

Second charge: A creditor holding a second charge by way of mortgage, is entitled to the proceeds after the first charge is met. He must inform the prior mortgagee of his charge because the first mortgage can not part with the proceeds of his charge because the first mortgage cannot part with the proceeds or title of the property if he has n0otice of the second charge.

Charging of security:

Charging of security means making it available as a cover for an advance. The manner by which some articles or commodities or properties are made available is known as charging of securities.

The method of charging on securities depends upon the followings:

  • The type of property to be charged.
  • The nature of the advance
  • The degree of control over the debtor’s property required by the banker

The common methods of charging securities are:

a. pledge

b. Hypothecation

c. Mortgage

d. Lien.

e. Assignment

f. Set-off

a. Pledge: Pledge is the bailment of goods as security for payment of a debt or performance of a promise. Bailment is the delivery of goods by one person to another for some purpose, under a contract that the goods shall, when the purpose is according, be returned or otherwise disposed of according to the directions of the person delivering them.

b. Hypothecation: Hypothecation is a charge against property for an amount of debt where neither ownership nor possession is passed to the creditor. Though the borrower is an actual physical possession but the constructive possession remains with the bank as per the deed of hypothecation. The borrower holds the possession not in his own right as the owner of  the goods but as the agent of the bank.

Features of hypothecation:

  • Charge against a property for an amount of debt.
  • Goods remain in the possession of the borrower.
  • Equitable charge to the bank under document letter of credit.
  • Borrower binds himself to give possession of the hypothecated goods to the bank when called upon to do so.
  • It is a floating charge.

Mortgage: Mortgage is transfer of interest in specific immovable property for the purpose of securing the payment of money advanced b way of loan, an existing or future debt or the performance of an engagement which may give rise to pecuniary liability. The mortgage only parts with the interest in the property and not the ownership.

Documents to be obtained for mortgage:

  1. Chain document (if available)
  2. Original title deed/ certified copy along with original money receipt
  3. C.A., R.S Parcha
  4. Mutation, separation, order sheet (in case of new purchase)
  5. Up to date rent receipt.
  6. Non encumbrance certificate.
  7. Power of attorney
  8. Legal opinion
  9. Valuation certificate
  10. Location map
  11. No objection from any development authority

Features of mortgages:

Mortgage can be created to cover general balances, existing payment as well as future loans and advances.

There must be creditor and debt relationship between the bank and the mortgagor at the time of deposit

Actual existence of the debit is necessary but even an application for the debt and its acceptance establishes this relationship.

A partner can not mortgage the property of the firm without other partners joining him in doing so.

 Lien: A lien is the right of a creditor in possession of goods, securities or any other assets belonging to the debtor to retain them until the debt is repaid.

Banks generally extends loan facility to its customers against the lien of

  • Fixed deposit receipt
  • Sanchayaptra (savings certificate)
  • Wage earner’s development bond
  • Share certificate
  • Unit certificate of investment corporation of Bangladesh
  • Credit balance D.P.S. & S.P.S. A/c’s

Set off: The right of set off is the right of a creditor to the total or partial merging of a claim against the counter claim of the debtor. In the other words, a set off  is  a right which enable a creditor to adjust wholly or partially a debit balance in the debtors account with any credit balance lying in his (debtors) favor.

Notice of set off: Banker should give reasonable notice to the customer of its intention to exercise its right of set off otherwise it may face troubles. So, it is better for a banker to obtain a letter of set off signed by the customer before disbursement of loan so that he can exercise his right of set off without notice.

f. Assignment: An assignment means a transfer of right property or debt (existing or future) by one person to another person. In banking the usual subject of assignment is actionable claim. Actionable claim is an unsecured claim to money which is actionable e.g. for recovery of which an action may be brought into the court of law. In baking practice it is done through a registered irrevocable power of attorney where transfer of actionable claim is clear and absolute.

 classifications of loans:

Loan classification attempts to categorize the debt information in a systematic manner. Loan classification is defined in terms of degree of risk associated with loans. Classification of loans mean and include only such assets of the balance sheet of a bank which do not yield interest income and which have remained past due for some quarters. The enormity of the loan classification status of Bangladesh can be gauged from the figures of total classified loan in the country. Loans are generally categorized in Bangladesh as either classified or unclassified. Loans are classified which are judged to have a reduced chance of repayment. Loans are classified as:

Substandard, Doubtful, Bad/loss as per classification guidelines by the Bangladesh bank.

1) Classification of loans to be reported to Bangladesh bank

For application of classification criteria, loans are divided into the following types:

Sl no.Types of loansDefinitionTo be reported in
a.ContinuousThese are those advances, which do not have any set scheduled for drawing or disbursement but usually have aterminal date of full adjustment or repayment. Example- OD,CC, etcCL-2
b.DemandThe loans which have a specific term for repayment as specified in the loan agreements. For example- project finance, industrial finance etc.
c.TermThese are loans which have a specific term for repayment as specified in the loan agreements. For example- Project finance, industrial finance etc.
d.Short term/agricultural/microThe credit disbursed in agricultural sector having repayment due upto & including 12 months from thedate of first disbursement will also be included in the loan category of short term agricultural credit (STAC).Short term micro-credit means loan up TK. 10,000.00 & having repayment due up to & including 12 months.

2)       Basis for loan classification

According to BBRD circular No. 16, 1998 all loans & advances are classified on the basis of twp criteria viz. : A. objective judgment criteria


A. Objective Criteria
Sl No .StatusTypes of loansDefinition
1.Unclassified(U.C)AllCurrent loans with required/adequate eligible securities.
2.Sub-standard(SS)continuousOverdue for more than 3 months but less than 6 months
DemandOverdue for more than 3 months but less than 6 months from the date of serving notice/creation of forced loans.
Term (Less than 5 years)If the defaulted amount of installments payable in 6 months.
Term (more than 5 years)If the defaulted amount of installments payable in 12 months.
Short-termAgricultural/MicroOverdue for more than 12 months but less than 36 months.
3.DoubtfulContinuousOverdue for more than 6 months but less than 12 months
DemandOverdue for more than 6 months but less than 12 months from the date of serving notice/creation of forced loans
Term (Less than 5 years)If the defaulted amount of installment is equal to installments payable in 18 months
Term (more than 5 years)If the defaulted amount of installment is equal to installments payable in 24 months
Short-termAgricultural/MicroOverdue for more than 36 months but less than60 months
4.Bad/LossContinuousOverdue for more than 12 months
DemandOverdue for more than 12 months from the date of serving notice/ creation of forced loans
Term (Less than 5 years)If the defaulted amount of installment is equal to installments payable in 18 months
Term (more than 5 years)If the defaulted amount of installment is equal to installments payable in 24 months
Short-termAgricultural/MicroOverdue for more than 60 months.


B. Qualitative judgment criteria
Sl NoStatusTypes of loansDefinition
Sub standard(SS)AllA loan is considered ‘sub standard when the degree of risk of non-payable is so high & there is reasonable prospect that the loan condition can be improved.
DoubtfulAllChance of recovery is uncertain.
Bad/LossAllNo security held. Borrower not traceable. Time barred loan cases. No hope of recovery

 Credit Investigation and selection borrower

Bank performs various functions. Lending money to different kinds of borrower is one of the most important functions of commercial bank. Not only this, it is the most profitable business of the commercial bank and the major source of income. But lending is a risky business. The borrowers of a bank range from individuals to partnership, companies, institutions, societies, corporations etc. engaged in such activities, the location of business, financial stability, earning and repayment capacity, purpose of advance, securities all differ and their degree of risks also differ. Although all lending involve risks yet a bank has to go with it for earning profit and Upliftment as well. But the fact is this while going on lending; a bank should be careful in selecting borrower and must give paramount importance to it. This may ensure safety of the lending of a bank. Credit investigation helps ensuring selection of right type of loan proposals/projects/ventures/enterprise or right type of borrowers.

“Credit is a promise of future payment in kind or in money given in exchange for present money, goods or services” or “ In general credit means the granting of period of time bya creditor to a debtor at the expiration of which the latter must pay the debt due.” Credit investigation refers to the assessment of a loan proposal/venture/project/enterprise from different angles with a view to justifying soundness of the same.

Borrower’s status and credit report

The study of a borrower is a study of-

5 c’s                    i.e    C=Character/conduct


C=Capital/credit worthiness

C=Condition (economic)

C=Collateral security


5 P’s                   i.e     P= Person

P= Purpose

P= Product (s)


P= Profit


5 M’s                 i.e    M= Man

M= Money

M= Materials


M= Management


5 R’s                   i.e    R= Responsibility

R= Reliability

R= Respectability


R= Returns

 Problems faced by the Branch Credit Authority while selecting borrowers:

First, the major problems of selecting borrowers are to find all the qualities in an individual Person. It can be distinctly clarified the problems related to the aI1 Cs’ Ps, Ms, & Rs. The problems Are discussed details in below:

Scrutinized discussion of the problems of 5c’s:

(C) Character: While capacity of the customer is able to payback, then if the customer has the Tendencies to payback the installments its means his character is good. But lenders often face a great problem that, from where they collect information about the


That information may be wrong. They provide wrong information to the lender about the borrower’s character. It can be often seen that borrowers are not regular to payback their installments.

(C) Capacity: Capacity refers the capacity or capability of the borrowers to payback his ful1 installments of his loan amount. Nevertheless, the problems occur while it seems that the information provided. By the customers are false & fake. It is often found that the information given by the customers are may be fake, and they are trying to hide their actual capacities’

(C) Capital: While selecting borrowers, the lenders trying to find out the actual amount of capital of the borrowers, but the problem arise while this information trends to be wrong. It is often happened to the lenders that the borrowers give them a wrong estimation of their capital’ they can cheat with lenders and the lenders became fault in big problem. It also may be happened that their capital actually not have the credit worthiness.

(C) Condition (economic): Condition refers the economic condition of the client. Lenders must be assured about the customers’ economical conditions, whether s/he financially solvent or not

(C) Collateral security: the problems occurred when the security have lost its distress value’ If in the future, the collateral security’s present market value is less than what was its actual market value. For that, reason bank cannot get the market value of the security if the customer became defaulter.

Scrutinized discussion of the problems of 5p’s

(p) Person: the borrower can give the wrong information about his character. He can be addicted by any kind of bad habit. Therefore, if these important hide then lenders can fall a big problem.

(p) Purpose: The purpose for taking loan can be illogical or invalid, but the borrowers can hide the actual purpose, In that case, bank can fall a big problem.

(p) Product: The product or product materials can be banned item or low quality, which had hidden by the borrowers to the lenders, in that case bank face a great problem.

(P) Place: place may be stated in a bad location which is not profitable so it creates problem to the lenders.

(p) Profit: if the profit of the business is not so high then it becomes risk to the lenders.

Scrutinized discussion of the problems of 5m’s:

(M) Man: if the client select became wrong then lenders suffer a great problem for collecting the Ioan amount with interest

(M) Money: money can also make problem in case of if the money are invalid

(M) Materials: materials are should be good qualities. Neither bank may have to face problem in case of pay back the money

(M) Market: Market value of the business and collateral security should have good value. Neither bank gets in problem by providing loans

(M) Management: in case of managing the credit bank should maintain the whole procedure carefully other-wise they gets in problem.

Scrutinized discussion of the problems of 5m’s:

(R) Responsibility: the borrowers may be irresponsible for repaying the installments because often it seems that borrowers became irregular to payback installments, though they have reputation in the market.

(R) Reliability: often it seems that borrowers are not so reliable that lenders can rely on their promises.

(R) Resources: The customer’s resources may be inadequate to pay back the loan but the

Customer might conceal the fact.

(R) Returns: The customer’s commitment to return the installment/interest may be incompliant with the commitment.

Sources of Credit Information

Broadly, a banker collects the required information about a prospective borrower from the

following sources :

a) Loan application

When a loan proposal has to be processed a banker first studies the loan application made by the borrower. A loan application usually contains information pertaining to the name of the concern, constitution, nature and place of business, year of establishment, borrower’s experience in the Iine, particulars of assets and liabilities, purpose of advance, amount required, the period of advance applied for, nature of security offered, sources of repayment etc.

b) Market Reports

Reports can bee obtained from the various markets, particularly, from businessmen carrying on the same trade as the borrower does, some of whom may be his,& her friends, others his/her rivals or enemies. Some may give exaggerated figures of his/her means which others may try to run him/her down. Al1 such reports are sometimes contradictory to each other’ It is for the lending banker to analysis these reports and form a balanced opinion about the sincerity, honesty, integrity, capacity and financial position of the borrower.

c) Study of Account

If the borrower is the customer of the bank, a study of the borrower’s account and his,4rer past dealings will throw light on the aspect of keeping up commitments, borrowing else where etc. which will assist a banker in judging about creditworthiness of the borrower. If the account shows a good turnover, and the cheques were never returned for want of funds that will give an impression about the volume of business of the borrower as well as his/her honest dealings.

d) Financial statements

The borrower should be requested to supply the latest statement in regard to his/her assets and liabilities. It is always preferable to have audited statements for the last 3 (three) years. In addition, the bank must arrange to obtain a copy of the latest income tax statement of the borrower from which it will be possible to estimate his/her income. Similarly, his/her sales tax return will give an idea about the sales, In case of limited companies, the audited balance sheet and profit and loss account for the last 3 (three) years must be obtained to assess the financial position of the company and various financial aspects of the borrower’s business’

e) Other Sources

Other sources of information about the borrower include press reports regarding purchase and sales of property, auctions and decrees. Registration, revenue and municipal records can also be referred to with advantage to verify the properties owned by the borrower and charges thereon, if any. If the borrower happens to be a limited company, a search of the records of the Registrar of Joint Stock Companies should be made for finding our if there are any prior charges or mortgages on the company’s assets, VAT Registration and Return, report form CIB, confidential report from other fellow banks.

f) Personal Interview

After having collected all the information from outside sources, it is advisable to arrange for a personal interview with the borrower. The interview should be conducted I a free and pleasant atmosphere. The questions must be suggestive and helpful to put him/her employing the funds prudently, his/her capacity to repay and the suitability of the security offered, if any. It is not necessary for the banker to make any commitments in a case which requires further analysis.

 Business loan:

The loans are disbursed for the purpose of business it can be considered as business 1oan. Business loans are given for encouraging entrepreneurs & small businessman. It also helps industrialists.

Business loans also encouraging so many new comers & helping new sectors to extend their business widely by investing on those sectors. So that they can improve the current position of economic, condition much better than before’

Types of business loan:

  1. Overdraft
  2. Term loan

Overdrafts are also divided into two categories’ these are:

a. Overdraft

b. Secured overdraft

a. Overdraft:

This is an arrangement between a banker and his customer by which the later is allowed to withdraw over and above his credit balance in his/their current account.

This is a temporary accommodation of fund to the client. Overdraft facility to the borrower may be allowed generally in following ways:

  • Overdraft-clean
  • Overdraft-against guarantee
  • Overdraft-against FDR in the name of the borrower
  • Overdraft-against FDR in the name of the 3’d party
  • Overdraft against saving certificate
  • Overdraft against wage earners Dev. Bond
  • Overdraft against DPS
  • Overdraft against assignment of book debts/bills receivables/life insurance policy etc.
  • Overdraft against hypothecation of stock/raw materials etc.

b. Secured overdraft:

This kind of overdraft loans is given to the client on their fixed deposit account. So if the clients have no fixed deposit a/c then they will not be qualified for this kind of overdraft loans. If the clients have fixed deposit a/c on the bank where s/he applied for sanctioning the loan, then he will be permitted for taking this kind of loans’ This loan in the Bank Asia, uttara branch are allowed up to 90o/o of their fixed deposit’ This loan amount client can withdraw within I year. Here the interest rate will be charged quarterly.

For the purpose of loan classification, loans and advances have been grouped into four categories. These are:

a) Continuous loans:

The loan which is sanctioned without specific repayment schedule but there is a specific expiry date for repayment and credit limit can be treated as continuous loan’ For example O/D’ CC’ PC’ LIM’ LTR’ etc’

b) Demand loans:

When loan is sanctioned on the basis of repayment depends upon the demand of bank can be treated as demand loan. Contingent or other liabilities that are converted into forced loan (for which there is no previous formal approval as regular credit) are also to be treated as demand loan. For example forced LIM, PAD, FBP, IBP etc’

c) Term loans:

Term loans are disbursed to the client within a time limit’ It may be I year or more than 1 year. And the client has to repayment the installments within the time limit. In this type of loans client can take the whole amount of the loans for once. It means if any client can take loan of Tk’5, 00,000’00/= ‘he can draw the all0tments within the time limits for once, if he draw whole amount of money before the ending of the time period of his time limits, then he cannot be allowed to draw again this money’

d) Short-term agriculture credit and micro credit:

Short-term agricultural credit means the credit which is enlisted as short term credit under the annual credit program announced by agricultural credit department of Bangladesh bank’ credit in agricultural sector repayable within 12 months is also included in this category. On the other hand, short-term micro credit means the credit which has 10an limit less than Tk. 25,000.00 and repayable within 12 months’ Micro credit may be even non-firm credit, self-employment credit, loom-loan or any forms of credit under the own Program of the banks.

Procedures of operating Overdraft

Overdrafts mainly disbursed on the fixed deposit account or land, property etc’ In the case of fixed account the client can withdraw money as a loan up to 90olo of their fixed deposits’Andtheinterestratewillbechargedasquarterly.ThesemonthsintheBank Asia are March, June, September, and December’ In this procedures when client withdraw a few amount of his, sanctioned money for loan, then the interest rate will be charged on that amount up to march. And the account will be closed on March for that amount.

 Management of credit department of the branch:

Credit department are managed by some guidelines, policy, rules & regulations, terms& Conditions. The total procedure can be considered as management of credit department. The management authority determines guidelines, rules, regulations, policies, schemes, They make these decisions in the board meetings for managing credit department.

 Credit Approval Authority Y:

The Credit approval authority of Bank Asia Ltd. has three levels: i) Branch ii) Zonal Office

iii) Corporate Office

The Zonal Office has authority to approve credit facility up to Tk’ 1’00 million’ anything more than Tk. 1.00 million the approval of the corporate office is a must’ For a credit facility over Tk. 10.00 million the approval of the Board of Directors is required’


approval levels are: i) Branch Manager ii) Zonal Head iii) President & Managing Director

iv) Board of Directors of the Bank’

 Loan Approval Procedures:

The person/party applying for a loan must have an account with the Bank’ For personal

Loan there must be a savings account of the applicant and a link account of loan

repayment.Whileforanlndustrialloan,theremustbeacurrentaccountofthe concerned party and a link account opened after loan approval’ The Banker – customer relationship would be established first through opening of CD/STD/SB accounts’ Proper introduction, photographs of the account holders / signatories, Passport, Trade License’ Memorandum and Articles of the Company, List of Directors, resolution, etc., all the registered papers as per Bank’s policy and regulatory requirements are to be obtained at the time of opening of the account. Bank receives an undertaking from the person/party applying for a loan. Then CIB (Credit information Bureau) Inquiry form is sent to the

Bangladesh Bank. There are three types of ClB forms for different applicants

For individual/institution                                                : only CIB 1A

For institution                                                                   : CIB 1A & CIB 2A

If there are other business concerns of the institution  s: CIB 1A, CIB 2A & CIB 3A

Credit Information Bureau of Bangladesh Bank sends a report to the corporate office, which shows the previous loan record of the party including loan amount, loan outstanding, security etc. Corporate office sends the report to the concerned Branch.

The applicant then has to apply by filling up the application form which includes the information about the Loan type, amount, duration, Purpose, source of repayment etc’ He also has to submit a proposal for which the Loan is required’

A thorough Credit Investigation and Risk Assessment is conducted for all types of credit proposals. The results of this assessment are presented in the approved credit Appraisal

Form that originates from the credit officer and is to be approved by the Management’

The Credit officer is the owner of the customer relationship and must be held responsible to ensure the accuracy of the entire credit application / proposal submitted for approval’

A comprehensive and accurate appraisal of the risk in every credit proposal of the Bank is mandatory. No proposal can put on place before approving authority unless there has been a complete analysis.

Credit Appraisal should summarize the results of Credit Officer risks assessment and includes as a minimum, the following details:

  • Amount and type of loan proposed
  • Purpose of Loan
  • Results of Financial analysis
  • Loan agreement, repayment schedule,
  • Security Arrangements

Functions followed by the credit management at branch level:

  • Supervision of CIB related jobs of a1l loan customers
  • Preparation of credit proposal
  • Visit report of credit customer premises, credit risk grading
  • Preparation of monthly, quarterly & half yearly statements of credit
  • Preparation of credit line proposal
  • Correspondence with corporate office queries about proposals’
  • Communicating credit customers for various requirements for documentation and other purposes
  • Processing of secured overdraft loans (SOD)
  • Maintenance of FDRs & charge documents of SOD customers
  • Bank guarantee proposal
  • Procedures related to bank guarantee issuance
  • Administration of loans & advances
  • Checking of documentation of loans, monitoring of overdrafts customers.
  • Visiting of credit customers’ Project/ business premises, proposed security properties etc.
  • checking of original property documents and vetting documents
  • Ensuring of mortgage formalities
  • Preparation of sanction letters
  • Issuance of sanction advice against loans & advances after obtaining approval from zonal office/ corporate office
  • Make documentation formalities and keeping the security documents in the iron safe and holding the keys of the iron safe
  • Maintaining safe-in-safe out register
  • Communicating business loan customers over phone and by physical visit for recovery
  • Approval of cheque related to overdraft accounts
  • Monitoring loans & advances of all types
  • Ensuring compliance of all regulatory and corporate office guidelines related to credit
  • Assisting branch manager for booking quality assets for the bank
  • Maintenance of stamps
  • Preservation and maintenance of property documents related to credit department
  • Maintaining liaison with major credit customers
  • Monitoring & supervising credit recovery

 Procedures of managing credit department:

Managing credit department is a big deal. The employees of the branch have to manage the whole procedure. This long procedure for managing credit department are refers the whole procedure before disbursing the loans and after disbursing the loans. Therefore, the whole management of the credit department are divided into two categories’ Credit department are managed by two ways. These are given bellow:

1. Credit risk management

2. Credit administration

 Credit risk management:

The steps that lenders follow before disbursing the loans to the borrowers are known as credit risk management. The bank officials maintain a continuous process for disbursing the 1oans.

Computation of Credit Risk Grading

credit risk for counterparty arises from an aggregation of the following :

  • Financial Risk
  • Business/Industry Risk
  • Management Risk Security Risk
  • Relationship Risk

Each of the above mentioned key risk areas are required to be evaluated and aggregated to arrive at an overall grading measure.

a) Evaluation of Financial Risk: Risk that counterparties will fail to meet obligation due to financial distress. This typically entails analysis of financials i.e. analysis of leverage, liquidity, profitability & interest coverage ratios.

b) Evaluation of Business/Industry Risk: Risk that adverse industry situation or unfavorable business condition will impact borrowers’ capacity to meet obligation. The evaluation of this category of risk looks at parameters such as business outlook, size of business, industry growth, market competition & barriers to entry/exit.

c) Evaluation of Management Risk: Risk that counterparties may default as a result of poor managerial ability including experience of the management, its succession plan and team work.

d) Evaluation of Security Risk : Risk that the bank might be exposed due to poor quality or strength of the security in case of default. This may entail strength of security & collateral, location of collateral and support.

e) Evaluation of Relationship Risk : These risk areas cover evaluation of limits utilization, account performance, conditions/covenants compliance by the borrower and deposit relationship.


Steps following by credit risk management:

  • Collecting CIB report of the customer from Bangladesh bankl
  • Visiting business premises of customers
  • Visiting factory premise of customers(f any)
  • Visiting office premises of customers
  • Visiting &surveying of collateral security of the customer valuation of collateral security after surveying
  • Interviewing with the customers
  • Assessment of financial information of the borrower’s company  of previous years
  • Analysis of business performance
  • Analysis of bank statement
  • Analysis of future prospect
  • Collecting information from market
  • Assessment of borrower’s selecting standards
  • Working capital assessment (for overdraft loan
  • Preparation pf proposal

 Credit administration

After disbursing the loan the bank follow another step by step process for administrating

the loan disbursement, These process are following for managing the after disbursement


Functions of credit administration department:

  • Vetting of security documents through 1egal advisor
  • Execution of all formalities related to sanctioning of loan. i.e, registered mortgage, insurance, hypothecation, undertaking etc.
  • Execution of formalities related to charge documents’
  • Disbursement of loan
  • Fo11ow up of loan already disbursed, i.e. proper utilization of fund, repayment of installment/ interest, regular transaction of overdraft a/c etc.
  • Recovery of over dues over phone, through reminder later physical visit
  • etc,
  • Compliance of all the rules & regulations of central bank) related to loans & advances
  • Reporting of statements & returns to Bangladesh bank (Bangladesh as & when required

Some problems often faced for credit management:

  • Problems occur to understand a customer’s/borrowers character /mentality.
  • Lack of accurate information from market
  • Customers ignorance about working capital requirements
  • Fraud documents of security properties
  • Too much work load
  • Maintaining proper service to all customers for work pressure
  • Overdue payment or interest payment from some borrowers

 Performance analysis of the business loans of Bank Asia Ltd. , Uttara branch, Dhaka based on facts of last 5 years

   Performance analysis of the business loans of bank asia ltd., Uttara branch, Dhaka based on facts of last 5 years :

Here this paper have discussed about the business loan of bank asia, Uttara branch. This is an comparison on the current position of bank Asia uttara branch with previous 5 years. Consecutively 2006, 2007, 2008, 2009 & as on 31.12.2010. The bank Asia ,uttara branch provides twelve different types of loans. First I like to show the present outstanding at recent year of the branch. So the present outstanding of the business loans & advances as on 31.12.2010 of the uttara branch are given bellow :

Sl NoName of the business loans and advancesAmount
01.Loans against packing credit1,05,64,051.13
02.Loans against trust receipt (LTR)2,16,77,265.50
03.Demand loan10,00,000.00
04.Secured overdraft5,89,17,661.60
05.Cash credit (CC HYPO)94,72,412.81
06.Overdraft (OD)21,21,60,875.16
07.Term loan (industrial)11,63,79,769.80
08.Term, loan (others)16,39,13,092.97
09.Time loan15,00,000.00
10.PAD (cash)12,45,237.30
11.Local bills purchased (LBP)5,34,28,753.26
12.Foreign bill purchased (FBP)9,739,501.01

Table: present condition of business loans &advances of current year 2009

Bank Asia, uttara branch recently charged interest rate on their business loans mostly at 13%. In addition, They charged interest rate at quarterly basis. And the selected months of the banks are march, June, September, and December. In the case of secured overdraft, the loans provide to the customer on their fixed deposits. Here interests are charged differently. The rate which customer get as interest on their fixed deposits, above 2% of that rate are charged when the secured overdraft loan are provided to the customer. The branch mainly provides 12 different types of business loan recently. The most profitable source of the business loan for income is overdraft & term loans. On the current year the branch have earned profit widely on this sector.

The branch’s growth gradually going to improve, if I compared the current position of the branch with the previous 5 years & recent years. The following chart will be showing the position of these years:


From the given chart, it is obvious that the improvements have gradually occurred year to year At the beginning of the year 2006 the branch were provided only 6 types of business loans and advances. In the year, 2007 they augmented one types of business loan criteria

This is payment against documents It is a short term loan It uses only for 1 or 2 days. Then in the year 2008, the branch increased another kind of business loans sector. This is foreign bill purchased finally, in the year 2009 the branch started to provide business loan on many sectors. In addition, gradually their outstanding positions of the loan increaseds year to year.

The gradual changes of the position of these business loans of each segment in each year can also be started by a diagrammatically representation. It will be clear if show the data by a bar diagram. It will clearly show the gradual changes of the condition of the branch from year to year. So here, I have given a diagrammatically representation of the gradual improvement position of the loans outstanding position.

From the above diagram it clearly shows that the outstanding positions of the loans are highest in the year 2009. Moreover, in year 2006 it was lowest, and day by day the position going to improve.

The growth of the outstanding loans & advances improved year to year. Critically it can be discussed that in 2006 the volume of the general loans including LTR,SOD,Overdraft, term loans etc. were leass than 2007.and then 2008 it increased more than 2007. Here continuously increasing growth of the loans outstanding position can be showed by the following table:

Loans & advances2006-20072007-20082008-2009
General loans and advances2,12,89,779.8130,846,593.42,12,89,779.8
Bills purchase & discount1,40,28,275.272,08,06,093.245,95,32,229.0
Total growth=6,62,77,472.77151,652,686.608,08,22,008.8

Table: Growth of the outstanding position of loans and advances

So from the above chart and discussion the consequence exposed that the growth from 2006-2007 was going slow, which is less than the 2007-2008, the growth was so high than 2008-2009. The whole circumstances of the branch shows that from the year 2007-2008 was good going and the position of outstanding loans was the best. The following showing the growth scale of the outstanding position of the loans is 13%. Therefore, this can be a reason of increasing or decreasing income from the interest. However, the main reason is increasing volume of disbursing loans & advances which increases in every year for the efficiency of the bankig functions & employees.

The interest rate charged on the loans and advances are also increased as their sectors of providing loans & advances increased and volume of the loan amount increased. Interest incomes from each segment from year to year are stated in the following:

The growth scale of the outstanding position of the business loans in percentage can be showed. From that, it will be clarified that what the actual position of the growth scale of the year in percentage rate. So the following table represents the percentage rate of the growth of outstanding position of business loan:

Loans & advances2006-20072007-20082008-2009
General loans & advances13.31%29.42%3.7%
Bills purchase & discount90.18%57.22%73.73%
Total growth=16.82%32.95%7.86%

Table: The growth of the loans outstanding position in percentage

Interest income

Interest income refers those incomes which bank earns. They earn interest income by charging on loans& advances, it can be charged also on bills purchased & discounts. So these interest incomes also increasing year to year As the outstanding position of the loans augmented. Present interest rate of the branch is 13%. Which business loans & advances bank has to pay as interest on their fixed deposits to the customer, above 2% of that rate. In the previous year, the rate of interest was too high. It was then 16%, but today the rate

is 13%. Therefore, this can be a reason of increasing or decreasing income from ike interest. However, the main reason is increasing volume of disbursing loans & tt\i •rn which increases in every year for the efficiency of the banking functions & employees.

The interest rate charged on the loans and advances are also increased as their sectors of providing loans & advances increased and volume of the loan amount increased. Interest incomes from each segment from year to year are stated in the following:

Name of the interest income

Year 2006

Year 2007

Year 2008

Year 2009

Interest on general loans & advances





Interest on bills purchase Si discount










(Source: financial performance of the year to year from the balance sheet of Bank Asia)

Table: Interest incomes from each segment of year to year

Interest income from each year clearly shows that, it is continuously improved year to year. As the outstanding position of loans increased in each year, so interest income increased as volume of the outstanding position of loans increasing. In year 2006 the income from the interest was 3, 90, 99, 865.25 as it given to the chart, but in that year interest was high than today of the branch. Then the volume of disbursing loans and sanctioned loan was less than today. Then the segment of disbursing loans was not so wide like today. In the next year this volume of income from interest was increased than the previous year and it earned 5, 67, 88,297.11 taka. Next year it is more increasing than the before. Finally, it reached at highest position. They earned 7,81,58,386.22 taka So if I look at continuous basis it seems to be trend to be high. In addition, it can be said that, if this trends sustaining then the improving of the branch will be stable and this trends of improvement will also be increasing in every year.

The growth of the interest income are clearly stated the improvement of the branch. So here I have constructed a table for showing the improvements and gradual changes of the position of the interest income. The following table shows the growth of the interest income:

Source of the interest income

Year 2006-2007

Year 2007-2008

Year 2008-2009

Interest on general loans & advances




Interest on bills purchase & discount




Total growth=




Table: Growth of the interest income of 2006-2007 to 2008-2009

From the above table it is assumed that, from the year 2006-2007 the position of the interest income from general loans was highest growth than the next 2 years. But the growth of income of this segment in the year 2007-2008 was decrease than the previous year. Finally, in the year 2008-2009 the growth goes to downwards. And the growth shows the negative position. Which refers in the year 2009 was not profitable than the previous year 2008. 2008 was the better position than the year 2009 in the case of general loans & advances. In the case of interest income on bills purchase & discount, in the year 2006-2007 the growth was slow than next year 2007-2008. Finally in 2008-2009 this scale was highest than the previous 2 years. If I look into the overall growth trend of the income of interest then it can be said according to the that on the overall performance the total growth trend to high and it goes to the upwards. That actually indicates the total growths of the income from the interest increased in the year 2007-2008 than the previous year 2006-2007 but finally in the last year 2008-2009, the growth was not as much higher as it was in the year 2007-2008. Therefore, from the overall analysis of growth trend is stated that the growth trend was highest from the year 2007-2008.

This trend of the growth can be represented by diagram that will show the growth trend clearly. It will be clarified of the growth position by diagrammatical representation. Therefore, the following diagram will show the growth trend of the interest income:

Here the diagram shows growth trends of the interest income on general loans & advances & bills purchased & discount in the year 2006-2007 to 2008-2009. If I look at the diagram,. the line, which indicates the general loans & advances start from the upwards in the year 2006-2007 and then it trends to move to downwards. In the year 2007-2008, the slop trends move to downwards slowly. Finally in the year 2008-2009 the line absolutely move to downwards and the growth trend of this year was totally not satisfactory, because in this year the growth of the interest income implies negative condition. In the case of bills purchase and discount the line, that represents the bills purchase and discount it starts from the downwards and move towards the upwards. In the year 2006-2007 the growth of the income from the bills and purchase was low than the next year 2007-2008. In 2007-2008, the growth trends to be high and finally in the year 2008-2009 growth is goes highest position.

The total growth can show by a diagram, which clearly exposed the position

of growth of total income from interest on business loans. So here, I have given a diagram in the following to show the total growth trends of the interest income from the business loans:

The chart represents the total growth of interest income from the business loans. It clearly expressed that the growth trends from the year 2006-2007 to 2008-2009. In the initial position, the chart shows in year 2006-2007 the growth was good but it was lower than the next year. In the year 2006-2007 the growth was bellow 1,80,00,000 taka so the chart shows the actual position on the horizontal axis. The next year, this growth trend was higher than the last year’s, so the line move to the upwards. Finally the growth turn to the downwards. It refers the growth was not increasing according to the last years.

The growths of the interest income are also given in percentage. The following table shows the growth trend in percentage:

Growth of Interest income from the business loans in percentage (%)Year 2006-2007Year 2007-2008Year 2008-2009
Total growth of interest income from the business loans in percentage45.24%31.88%4.41%

Table: Total growth of interest income from the business loans in percentage from year 2006-2007 to 2008-2009

  Cause and effects of increasing & decreasing interest income from the loan:

Reasons for increasing

When interest rate charged low on the business loans, then tendency of the borrower’s applying for the loans increased, that why income from the interest are also increased.

While the bank disbursed the loans on the various types of sectors, then numbers of the borrowers increased for applying for the loan in different sectors, as they are  required to.  Therefore,  in that case the  income from the  interest rate increased.

Sometimes bank offering some extra facilities in the case of applying for the loan and provide some services by which the borrowers can be benefited, in that cases the numbers of loan increased and for that reason income from interest are also increased.

Sometimes bank increased the duration of the payback period of installments for

any kind of the loan. Therefore, in that case borrowers are interested to apply for the loans and in this way the income from the interest are also increased.

When the branch disbursed the loans among so many sectors and so many clients then the income from the interest increased.

When government or Bangladesh bank prescribed for higher interest rate and imposed it on some specific sector then branch charged higher interest rate and from here, the bank can increase their interest income.

Reasons for decreasing

When the interest rate charged high on the business loans, then tendency of the borrower’s applying for the loans decreased, that why income from the interest also decreased

If there are few sectors for providing loans then disbursement of the loans are getting restricted and income from the interest are also become restricted because of the limitation of broadly dispersed sectors of business loans and advances. So in this case the interest income was short.

Some time the branch charged higher interest rate on loans and sometime this rate are low, so for this reason the interest income increased and decreased.

Sometime the branch provides the loans on a few sectors in a large amount. Therefore, whenever the client became defaulter, then the branch falls in a big problem, And the income from the interest are decrease.

Client often shows irresponsibility for payback the installments, so for this reason the income from the interest of the year became reduce.

There are so many lengthy procedures for getting loan. So sometimes client became fed up for maintaining as much as long procedure.

 Relationship between the interest income and interest expense

Interest income:

Interest income refers those incomes that charged for providing loans. In this report, I have already discussed about the interest income position of the branch in details.

Now it required to discuss about the interest expense position of the branch. So here, I have discussed about the current position of the branch in regard to interest expense. I also bring the comparison of the current position of interest expense with the last 3 years of the.

Interest expense:

Interest expense indicates those expenses that bank give to the customer on their deposits or any other account which opened by the customer to the bank. Mostly the branch gives interest to the customers on their fixed deposits and saving accounts. Bank has to pay a large amount on this purpose. In the case of fixed deposit the current rate of interest on FDR are 8.00%.-8.50% The branch also pays interest on deposit scheme, which have many stages. Bank has to pay interest quarterly or monthly or yearly. It depends up on varieties of accounts or different types of deposit customer possess.

Interest expense are relate to the general banking. Here the total amounts of interest expense are given to the different sectors are stated by the following chart:

Sectors of the interest expenseYear 2006Year 2007Year 2008Year 2009
Interest paid on savings deposit40,42,550.1161,40,931.7673,34.025.1766,28,233.18
Interest   paid   on   short   term deposit4,29,140.762,11,910.004,49,350.535,07.280.59
Interest paid on fixed deposit6,97,78.835.297,34,15,598.9610,03,03.444.6711,39.39.637.32
Interest     paid     on     MB+     ( monthly benefit)1,16,271.3518,676.275,76,421.1510.00.535.99
Interest paid on DB+ ( double benefit)23,280.5923,259.612,60,560.498,30.191.04
Interest paid on DPS+/ DG+1,65,977.693,80,818.347,22,850.0712,41,526.63
Total expense=7,45,56,055.798,01,91,194.94109,646,65212,41,47,404.7

                    Table: interest expenses of the Bank Asia, uttara branch from the year 2006-2009

So here, the above table shows the total interest expenses that the branch had to bear in every year. It is stated that the branch paying interest to the customer in various sectors. In here, the interest rates change in case of various types of accounts & sources. They provide interests within various duration it can be short-term or it can be long-term. Moreover, this period can be monthly, quarterly, yearly. Here I want to show how much interest expense increases in every year in this branch. Therefore, from the following table it will be clarified:

ParticularsYear 2006-2007Year 2007-2008Year 2008-2009
Total   interest   expense growth5635139.1529455457.0614500752.7

(Source: financial performance of the year to year from the balance sheet of Bank Asia)

 Table: growth of the interest expense of the branch from year 2006-2007 to 2008-2009

Here from the table, it is obvious that the growths of the interest expense are tending to increase in each year. This growth trend can clearly show by a chart that will expose the growth tendency clearly. So here, I have given a diagram in the following to show the total growth trends of the interest expenses:

Chart : growth trend of the interest expense from year 2006-2007 to 2008-2009

From the above chart, it shows that the straight line start from the down and then it move towards the upwards and then it again move towards down so, it clearly indicates that the interest expense was low at the initial stage then the growth trend goes towards high and then again it turn into downwards.

 Correlation between the interest expense & interest income:

Now I can construct a correlation between the interest expense & interest income it will help in determining the degree of relationship between these two important part of the banking on which the profit or loss position depends.

We know,

Correlation= r

So, r =

The correlations of the total growth of interest expense and interest income given bellow in the following table:


Total     growth     of interest income

Total     growth     of interest expense










Correlation ( r )=


Table: determination of the correlation of interest expense & interest income according to the year 2006-2007 to 2008-2009


The full interpretation depends upon the circumstances. Here the value of ( r ) is in the (+)1 to (-) 1, which is not equal to 0 so it interprets that there is a closer relation slop exists between the interest income & interest expense. All that can really be said that Business loan customers of the branch of Bank Asia:

In the initial stage the uttara branch, start banking with limited customers. However, in every year the number of the customer gradually increased. So many customers individually or many groups, companies, firms are now involved with this branch of Bank Asia. So many renowned companies and people are the honorable customer of the Bank Asia, uttara branch. The current positions of the customers are huge. At present, the total numbers of the business clients are 181. Overall loans have disbursed on so many sources & sectors. Here include so many individual customers and so many company and organizations too.

  Major business loan customers of the branch:

However, total client of the business loans are 181 but a few of them are the major clients of the branch. Branch is not interested to involve with so many major sectors with a large amount of sanctioned loans, because bank believes that so many major risks involved with the major loans. In this major sectors branch invests and sanctioned loans & advances. In these major sectors, bank invests huge amount of money. Bank provides such huge amount of loans to the 11 major clients. These clients borrow huge amounts of loans from the bank. These amount is up to 6 crore. Their outstanding balance have given into the following lists. This statement shows the current outstanding position of these major borrowers.



Name of the borrowers

Amount        of        the outstanding loans

Interest rates


Mascot knits LTD.




J.H.K properties LTD.




City CNG refueling station




Syed grand center




Arnob shipper’s




Five      star      woven      bag industries ltd




M/S khokon auto bricks




Rafia textile mills




Brothers                automobile engineers




Mushaka chemical ind. Ltd.




Mazeda febrics ltd.



Total outstanding position of the major      business loans=143,619,388.6

(Source: list of the clients credit monitoring and administration)

Table: list of the major business loans of the branch with the current outstanding position

So from the table, the outstanding balances of the major business loans have clearly expressed. All of these sectors are most profitable source of income, because these sectors contain loans of huge amount with a high interest rate. The branch acquire huge amount of money and profit with these interests. However, not all of these sectors are profitable. Some are big defaulter for the branch and for this reason bank get trouble on those sectors. The borrowers of these segments didn’t payback their installments as on the date. They are irregular. Therefore, they are the big risks for the bank.

Major defaulter clients of the branch

The major business loans that involved with some major sectors sometimes causes big problem to the branch. Some of these major sectors are become defaulter. Recently there are 3 defaulter or classified account have in the branch. The account names of these defaulters are given bellow:

•     Top tailors & fabrics

•     Mukta foam corner & Bedding house

•     M/S master ovijat share bhander

Merits of the major business loans:

When the branch provides the loans to these major borrowers, it must be assumed that it will be most profitable.

Lenders of the branch provide loans because they think that the income will be huge from these sectors.

These major source obviously large profitable sources for the branch because they charged high interest rate on this sectors and the net income from this interest rates are enough. They became most profitable for allowing these loans.

Besides these factors, they also think it is better than disbursing loan to the so many small sectors, to disburse loan on few major sectors. The uncertainty exist more to provide loans on small sectors.

The process of sanctioning loans and then administrate of these loans are too much complicated and lengthy. So employees of the branch feel comfortable to deal with these major business loans with such limited borrowers.

Demerits of the major business loans:

When bank provide loans on such major sectors at the same time they have to undertake the major risks for the loan. It may become too much risky.

When these loans became default then bank falls in a great trouble, they have to contain huge loss of huge amount of money.

The borrowers can be fraud sometime, they can show the false documents for sanctioning the loan, in this case bank get problem.

The clients can be irregular to payback their installments, in that case the pratk for the year decrease with a large amount.

The risks exist for a long-term period, so the lenders became uncertain for a long time.

As they have to contain huge risks individually, that’s why it makes too much load and pressure for the branch.

 Classified loans of the branch:

Classified loans indicate those loans and advances according to their status like unclassified, substandard, and doubtful and bad/loss based on given criteria. Provisioning means setting aside certain fund from current year profit against possible loan losses. In Bangladesh, Bangladesh bank prescribes the loan classification and provisioning crieteria through BRPD.

Loan classification makes two pronged attacks on the activities of banks. First interests applied on loans are not taken into account because such interests are to be taken into account only on its realization. Second, banks have to make provisions on classified loans as per guidelines provided by the Bangladesh Bank from out of the income earned by them on performing loans.

In every year, some loans are realized as classified loans in the branch. According to the overall performance analysis, it can be said that the numbers of the classified loans are too small. According to the analysis on the branch from the year 2006-2009, it can be determined that the outstanding balances of the classified loans are not more than 1 crore.

In 2006, there were no classified loans of the branch. In 2007, there were classified which realized as doubtful classified loans. In addition, the total outstanding balance was 1,321,000 taka. In the year 2008 was also realized classified loans as bad/loss. These types of classified loans are the worst types of loans that relate with quite uncertainty. In this year the outstanding balance of the classified loans are 4,98,000 taka. However, in the recent years the total classified loans have not realized yet. In the current year the classified loans are realized into two categories. Doubtful and bad/loss. But at the end the bad/loss are reduced but doubtful classified loans has still exist. The outstanding balance of this doubtful loans is in total 1,98,026.47 taka


Findings of the study:

The following problems I have been identified during the period of my internship at Bank Asia Ltd., Uttara branch:

Although the growth trend of profit of the branch gradually increases but it can assume that, the growth trend was not consistent as it was at the previous years.

The procedure of lending is too complicated and lengthy so it is tuff to handle business loans and advances.

In this branch, there are only 3 employees for operating business loans. So became hard to maintain the whole process by the employees.

When any two of the employee going outside for the site visit or recovery then it creates problem to deal with the people by one employee.

Borrowers sometimes intentionally or for any other reason have skipped repayment of the installments, and then employees have to remind them to payback the installments. So its make an extra problem to the employee.

When the clients hide the important information to the lenders then it creats a big problem to them.

Most of the people in our country don’t have proper knowledge of policies of Bangladesh Bank and other authority concerned on credit.

The working procedure of the banking could be more organized.

The investment, loans & advance procedure takes long time to process loans

Interest rate is high which discourage people to take loans.

The entire employee’s back ground was not business related, some of them was political science or any other subjects, so they have no proper knowledge about this field of banking.

Employees face big problems when they going for recovery, they have be rough with the customers. It causes to be upset.

The branch are involved with some major sectors for providing loans which is too much risky.

 Opportunities of the branch in case of business loans

There are so many opportunities in this branch. These are giving in the following:

The practical knowledge about the business loans & advances can acquire properly because the employees are very co-operative.

The branch continuously increases the area and sectors of the business loans and they are providing loans on this sector to help any kind of business man & industrialists. Therefore, the branch is benefiting clients.

The employees always ready to provide any kind of service in favors to the business loans so borrowers are happy by getting this kind of service.

There are so many experienced and brilliant employees’ deals with the business loans, so they can handle the overall operation with a great skill.

Some of the employees have the outstanding performance so; so many things I have been learnt from those employees.

The branch provides so  many facilities to the employee,  that’s why they are getting

encouraged and they give their best to the banking activities.

Customer can get any kind of facilities in the area of business loan so they became the permanent customer of the branch.

Employees continuously reminding the borrowers for repayment of their installments, so borrowers not get in a big problem and timely they can payback the installments.Comment on overall performance of the business loans of the branch

On the overall performance analysis, I can say that the overall performance of the branch on business loan is quite satisfactory. The performance is good. The branch maintains a systematic and constructive way. This helps them to attain their objectives and goals. All the employee of the branch in the business sector are industrious and friendly. They are devoted towards their organizations so the branch improving their position day by day. If I look at the profit and income of the year from business, loans it is clearly expressed their gradual improvements in each year. This branch starts their journey by a very short time but within this little duration, they have reached a better position. The branch start journey for 6 years And their defaulters are too little in amount. So it clearly indicates their gradual improvements.

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