Loan Portfolio Management of Mercantile Bank Limited
Subject: Finance | Topics:

Main purpose of this report is to analysis Loan Portfolio Management of Mercantile Bank Limited. Other objectives are present overall concept about General banking service and Loan management activities. Report also focus on about the Loan Scheme and about the general banking service provided by the bankers. Finally identify problems of Loan Portfolio management and identify problem of general banking Service of Mercantile Bank.

 

Overall objective:

  • To present General banking Service and Loan Portfolio management of Mercantile bank Ltd.
  • To have an overall concept about General banking service and Loan management activities.

Specific Objective:

  • To identify problems of Loan Portfolio management of Mercantile bank Ltd
  • To identify problem of general banking Service of “Mercantile Bank Ltd”.
  • To learn about the Loan Scheme
  • To learn about the general banking service provided by the bankers.

Sources of Data:

Mercantile Bank Ltd is leading private commercial bank in Bangladesh. For that reason I got sufficient data to prepare my report. The report has been prepared by using primary and secondary sources of data.

Primary sources of Data:

This report has prepared through extensive use of primary data. The primary data has been collected from groups of people who are related with this Bank. The sources are as follows:

  • Face to face conversation with the respective officers and stuff of the branch.
  • Information conversation with the clients (Creditors & Depositors).
  • Study relevant files and document that are provided by the Bank with the help of concerned executives.

Secondary Sources of Data:

The data have been collected from various books, articles journals, and annual reports, bulletin website and other organizational profile as secondary data.

Data collection Method and procedure:

The report has been prepared through following data collection methods.

  1. Questionnaire Method
  2. Personal communication
  3. Working experience

Questionnaire Method:

At first a questionnaires has been prepared for collecting field level data. Data have been collected from loan and other section of the bank.

Personal Communication:

The data have been collected through personal discussion with the officers of the Branch. They provide information about Loan Portfolio Management and other banking operations. Other information has been collected through personal discussion with the administrative officer, accounts officer and divisional in-charge of the bank.

 

Company Profile

Historical Background of Mercantile Bank Limited:

Mercantile Bank Limited emerged as a new commercial bank to provide efficient banking services and to contribute socio-economic development of the country. The Bank commenced its operation on June 2, 1999.

The bank has 45 Branches spared all over the country. The special objective of bank was to exploring a new horizontal of banking and provides wide range of quality products and service comparable with those available with any modern bank in the world. Its authorized capital was TK.800 million and a capital of Tk.245 million contributed by sponsors. 100 percent private sponsors own the total share of capital.

The Bank provides a broad range of financial services to its customers and corporate clients. The Board of Directors consists of eminent personalities from the realm of commerce and industries of the country.

 

Vision & Mission of Mercantile Bank:

Vision

Would make finest corporate citizen.

Mission

Will become most caring, focused for equitable growth based on diversified deployment of resources, and nevertheless would remain healthy and gainfully profitable Bank.

Objectives

A) Strategic objectives

  • To achieve positive Economic Value Added (EVA) each year.
  • To be market leader in product innovation.
  • To be one of the top three Financial Institutions in Bangladesh in terms of cost efficiency.
  • To be one of the top five Financial Institutions in Bangladesh in terms of market share in all significant market segments we serve.

B) Financial objectives

  • To achieve 20% return on shareholders’ equity or more, on average.

 

Core values

A) For the customers: providing with caring services by being innovative in the development of new banking products and services.

B) For the shareholders: maximizing wealth of the Bank.

C) For the employees
respecting worth and dignity of individual employees devoting their energies for the progress of the Bank.

D) For the community
strengthening the corporate values and taking environment and social risks and reward into account.

New technology

Adopting the state-of-the art technology in banking operations.

 

Function of Mercantile Bank Ltd.

Dhanmondi Branch

Facilities Provided by the Branch

Deposits Schemes:

A) Monthly saving Scheme (MSS):

The prime objective of this scheme is to encourage the people to develop their habit of saving. Under this scheme, one can save a fixed amount of return every month and get a lucrative amount of return after five, eight or ten years.

PeriodMonthly Installment
2505001,000
Benefits
5 Years19,12538,25076,500
8 Years35,75071,5001,43,500
10 Years50,0001,00,0002,00,000
PeriodMonthly Installment
150025005,000
Benefits
5 Years1,14,7501,91,2503,82,500
8 Years2,14,5003,57,5007,15,000
10 Years3,00,0005,00,00010,00,000

B) Family Maintenance Deposit (FMD):

Under this scheme, one Deposit a certain amount of money for five years and in returns customer will receive benefits on monthly basis. Benefit start from the first month opening an account under the scheme and continue up to five years. On maturity the principal amount will be paid back.

C) Double Benefit Deposit Scheme (DBDS):

Under this scheme, one can deposit certain amount of money for a six-year period. After six years, the deposit amount will be doubled.

D) Quarterly Benefit Deposit Scheme:

Under the ‘Quarterly Benefit Deposit Scheme one can deposit for a period of 3 (three) years and in return depositor will receive benefit on quarterly basis. Benefits starts right from the first quarter of opening an account under the scheme and continue unto three years. On maturity the principal amount will be paid back.

E) 1.5 Time Benefit Deposit scheme:

Under the ‘1.5 Times Benefit Deposit Scheme’ one can deposit of minimum BDT 50,000.00 (fifty thousand) or its multiples will be received for a period of 4.2 years. On maturity, the depositor will receive 1.5 times of the deposited amount.

F) Advance Benefit Deposit Scheme (ABDS):

Under this scheme, one can deposit a certain amount of money for two years. The depositor will receive the benefit on yearly basis. The benefit amount of first year will received in advance at the time of deposit. On maturity, the depositor will get back the principal amount with the benefit amount of second year.

 

Loan products

Consumer credit scheme: is one of the popular areas of collateral-free finance of the bank. People with limited income can avail of credit facility to buy household goods including computer and other consumer durables.

Small Loan scheme:

This loan has been designed especially for the businessman who need credit facility for their business and can’t provide tangible securities.

Lease Finance:

This scheme has been designed to assist and encourage the genuine and capable entrepreneurs and professionals for acquiring capital machineries, medical equipments, vehicle and other items. Flexibility and easier terms and conditions of this scheme have attracted the potential entrepreneurs to acquire equipment of production and service and repay gradually from earnings on the basis of “Pay as you earn”.

Doctors credit Scheme:

Doctor Credit scheme is designed to facilitate financing to fresh medical graduates and established physicians to acquire medical equipment and ser up clinics & Hospitals.

Rural development Scheme:

Rural development Scheme targeted for the rural people of the country to make them self-employed through financing various income-generating projects. This scheme is operated on group basis.

 

Woman Entrepreneurs Development Scheme:

Woman Entrepreneurs Development Scheme has been introduced to encourage women in doing business. Under this scheme, the bank finances the small and cottage industry projects sponsored by women.

SME Loan Scheme:

Small and medium enterprise (SME) loan scheme has been introduced to provide finance assistance to new or experienced entrepreneurs to invest in small and medium scale industries with a comparatively low rate of interest as the same is assisted by the Bangladesh bank with refinancing facilities.

Personal loan scheme:

Personal loan scheme has been introduced to extend credit facilities to cater the needs of low and middle-income group for any purpose. Government and semi-government officials, employee of autonomous bodies, banks and other financial organizations, multinational companies, reputed private organizations and teachers of recognized public and private schools, colleges and universities are eligible for this loan.

Car loan Scheme:

Car loan Scheme has been introduced to enable middle-income people to purchase cars/SUVs/Jeeps. Government and semi-government officials, employees of autonomous bodies, banks and other financial organizations, multinational companies, reputed private organizations, teachers of recognized public and private Universities and businessmen are eligible for this loan.

Home loan scheme:

To meet the growing need of housing for middle and lower middle income people, MBL has introduced home loan scheme. We also support Bangladesh banks home loan refinance scheme. The scheme boosts up the growth of housing sector. Such loan shall be available for purchase or construction of new apartments for self-residing purpose.

Overseas employment loan scheme:

Overseas employment loan scheme is designed to facilitate the Bangladeshi youths seeking employment aboard but who are unable to meet the expenses to reach the workplace from their own sources. The ultimate objectives of the scheme are to promote skilled/ semi skilled manpower to different countries across the world as well as to provide support to government policy considering priority of this sector. By availing loan under this scheme, the active youth middle and lower middle class can get overseas employment by avoiding borrowing from the illustrious class or village ‘mohajon’ at a very high cost or selling their paternal properties. The scheme helps fetching foreign currency for the country as well as fulfills bank commitment to encourage micro lending for poverty alleviation, improve the quality of life and thereby contribute to socio-economic development of the country.

 

Different section of Dhanmondi Branch:

Dhanmondi is one of the busy places in Dhaka city. Some years ago it was a residential area but now it’s a commercial are. For this reason all the banking activities are available in thus brunch. The major sections are given below-

  1. Administrative section
  2. General banking
  3. Deposit
  4. Cash
  5. Cheque
  6. Clearing
  7. Credit/ Loan/ Advance
  8. Foreign exchange
  9. Export
  10. Import
  11. Letter of credit (LC)

 

Different kinds of Deposit Scheme

Current Account

Saving Account

Short Term Deposit (STD)

  • Double benefit Deposit Scheme (DBDS)
  • Family maintenance Deposit (FMD)
  • Monthly Savings Scheme (MSS) or Mashik Sanchaya Prokalpa (MSK)
  • Quarterly Benefit Deposit Scheme
  • 1.5 Time Benefit Deposit scheme

Advance Benefit Deposit Scheme (ABDS)

  • Current Account: current account is most suitable for private individuals, traders’ merchant, importer and exporters mill and factory owners etc. For opening of a current account minimum deposit of Tk.1000 is required along with introductory reference. No interest is given the current account deposited money. One can enjoy maximum flexibility and convenience when she/he opens current account with MBL.

This account offer:

  • Any Number of Transactions in a day
  • Free Chequebook
  • Statement of account at any desired frequency
  • Phone banking

Saving account: The saving account is primarily for small – scale savers the main objective of this account promotion of thrift. Hence there is restriction on with drawls in a month. Heavy withdrawals are permitted only against prior. Minimum amount of tk. 500 is required as initial deposit. Frequent withdrawal not allowed. The role of interest is 6.5 percent.

STD Account (Short Term Deposit) This kind of account is opened normally various big companies, organizations government department etc. this account is opened like current account. If 7 days written notice is placed before the bank is gives interest at the rate 6.00 percent per minimum.

 

Time Deposit:

Deposits are lifeblood of a commercial bank. Since commercial bank deals with other people’s money, without deposits there is no business for the commercial bank. Accepting deposits one of the main functions of MBL.

Fixed Deposit Receipt:

Fixed Deposit is the deposit in which an amount of cash in deposited in bank for fixed period specified in advance. This deposit is time deposits. Normally the money on a fixed deposit is not repayable before the maturity date of a fixed period. At the time of opening the deposit account, the banker issues a receipt acknowledging the receipt money on deposit account. It is popular known as FDR.

FDR interest Rate:

                   Time                         Bellow 1cr.                              Above 1cr

 1 (One) Month                           7.00%                                         7.00%

3 (Three) Month                        8.25%                                          8.50%

6 (Six) Month                             8.50%                                           9.00%

1 (One) Year                               9.25%                                          10.00%

If any depositor wishes to withdraw his/ her money before maturity date he / she will be allowed to do. But the condition must be fulfilled according to the prescribed conditions. This instrument is also accepted as primary security or collateral security against any advance according to head office guideline.

 

Description of Different types of Deposit Scheme

Double Benefit Deposit Scheme (DBDS)

Objectives Mode
  • Give maximum benefit.
  • Help in meeting specific needs like education, marriage etc.
  • Deposit becomes double in seven and half years.
  • Tenure of the deposit is 7.5 years.
Amount of DepositPeriodAmount Payable
1,00,0007.5 Years2,00,000

 

  • The Minimum amount of deposit is BDT 50,000.00(Fifty thousand) or its multiples.
  • All taxes/duty/levy and /or any other surcharges presently in force or that may be imposed by the Government of Bangladesh (GOB) from time to time will be deducted/ recovered from the deposit account under this scheme.
  • In case of premature encashment interest will be paid on Saving A/C Rate.
  • Loan may be granted up to maximum 80% of the deposited amount but minimum principle amount must be BDT 20,000.00.
  • Loan processing fee be realized BDT 50.00 only and usual stamp costs also be realized.

 

Quarterly Benefit Deposit Scheme

The ‘Quarterly Benefit Deposit Scheme’ will be maintained for a period of 3 (three) years and the minimum amount of deposit is BDT 50,000.00 (fifty thousand) or its multiples. Interest will be paid on quarterly basis as per example given below. On maturity the principal amount will be paid back.

Example

Initial Deposit (BDT)TermQuarterly Benefit Payable (BDT)
50,0003 Years1,200
100,0003 Years2,400
200,0003 Years3,600

 Other Features:

  • All taxes/duty/levy and /or any other surcharges presently in force or that may be imposed by the Government of Bangladesh (GOB) from time to time will be deducted/ recovered from the deposit account under this scheme.
  • Loan may be granted up to maximum 80% of the forced encashment value on the date of loan processing. During the period of continuation of loan, quarterly benefits will be credited only to loan account.
  • Loan processing fee be realized BDT 50.00 only and usual stamp costs also be realized.

Times Benefit Deposit Scheme

Under the ‘1.5 Times Benefit Deposit Scheme’ a deposit of minimum BDT 50,000.00 (fifty thousand) or its multiples will be received for a period of 4.2 years. On maturity, 1.5 times of the deposited amount will be paid back to the account holder as per example given below:

Example

Initial Deposit (BDT)50,000.001,00,000.005,00,000.00
Return after 4.2 years (BDT) with benefits75,000.001,50,000.007,50,000.00

Other Features:

  • All taxes/duty/levy and /or any other surcharges presently in force or that may be imposed by the Government of Bangladesh (GOB) from time to time will be deducted/ recovered from the deposit account under this scheme.
  • In case of premature encashment interest will be paid on Saving A/C Rate. However, no interest shall be paid if premature encashment take place before expiry of 1 (one) year.
  • In the event of death of the depositor before the maturity, the deposit account may be encased (premature) as per rule or may be continued up to maturity on written approach by the nominee(s).
  • Loan may be granted up to maximum 80% of the deposited amount but minimum principle amount must be BDT 20,000.00.
  • Loan processing fee be realized BDT 50.00 only and usual stamp costs also be realized.

 

Advance Benefit Deposit Scheme (ABDS)

Objectives Mode
 

  • Get Extra benefit from Minimum Deposit.
  • Maintained for a period of 2 (Two) years.
  • Minimum deposit amount 1, 00,000(One Lac) only.
Interest Rate Per BDT One Lac
BDT 1 Lac (One Lac)Tk. 9,500.00 for first  yearTk. 1,09,250.00 for second year

Other Features

All taxes/duty/levy and/or any other surcharges presently in force or that may be imposed by the government of Bangladesh from time to time in Deposit Accounts will also be applicable for the account for the account opened under this scheme and such taxes/duty/levy and/or any other surcharges shall be deducted/ recovered from the deposit account under this schemes.

Loan may be granted up to maximum 70% of deposit.

Interest rate on Different kinds of Deposits:

Mercantile bank provides various interests on the different types of deposits to the depositors that are shown bellow in tabular form.

                Types of Deposit               Percentage
   Current A/C             0
   Saving A/C             6
   Short Term A/C             5
Fixed Deposit Receipt              0
One Month             6.5
Three Month             9.25
Six Month             9.5
One year              9.5
Two year and above              10
Mashice Sanchai Scheme             12.5
Agrim Sanchai Scheme             12.5
Digun Munafa Scheme             12
Mashice Munafa Scheme             12
Beshas Sanchai Scheme             12.5
Agibon Pension Scheme             12

 

Transfer of Accounts:

Account holders can transfer their account from one branch to another branch to another branch of Mercantile bank Ltd. If any 0account holder wants to transfer his or her account, he / she must apply with proper way to manage of the branch. In this case the necessary documents must be included with the application. After getting approval of application the account holder must submit original copy of Account Opening form, and “Specimen signature card and photocopy” of application for transferring the account with balance remained in account.

Closing of Accounts:

However the account maybe closed by the account holder and the bank. Closing of an account may happen for the following reason.

  • Customer desires to close the account
  • Customers’ insolvency
  • Death of customer or insanity of the customer
  • If the bank finds that the account is inoperative for a long period
  • If there is any instruction provided by the government for closing any specific account.

When account is closed, the chequebook must be returned to branch.

 

Bills and Remittance:

Collection of Remittance is one of the most important tasks of a commercial private bank. Among various services provided by a commercial bank to its customers, remittance facility is very well known and popular. The world remittance means sending of money from one place to another through proper communication like telegraph. Bank expands this facility to its customers by receiving money from one branch to another branch within the country. In general there are two types of bank remittance

  • In ward remittance
  • Out ward remittance
  • Bank takes the risk and ensures payment to the beneficiary by charging the commission. Mercantile Bank Dhanmondi branch gives the opportunity to the customer by the servicing the both remittance. For this kind of service the bank uses some instrumentals which are, DD, TT, and pay order, etc, that are discussed bellow.

Demand Draft (DD):

Demand draft is a negotiable instrument issued by a particular branch of a bank containing in order to another branch of the same bank. It is an order to pay a fixed sum of money to a certain person or order on demand. A customer from a particular banks branch can purchase this instrument for himself or for beneficiary party. The bank issues drafts to charge a nominal commission. The commission depends upon the amount to be transmitted. Mercantile bank charges the commission on DD 0.1 percent and minimum charge is TK.15.

Telegraphic Transfer (TT):

Telegraphic transfer is faster than transfer of amount by DD. TT is the most rapid and convincing but an expensive method. TT can be made through telephone, telex, fax etc. If any customer wants to forward the amount urgently to a geographical area from another geographical area then the he / she can be transferred money by TT. The branch generally included the telex charge in addition to usual service charges.

Security Deposit Recite (SDR):

SDR is one kind of bills that are used by the governmental tender; From SDR bank earns a big amount. Mercantile bank Dhanmondi branch gives credit facility against SDR.

Service provided for Depositors:

Dhanmondi branch provides the following services:

  • Collection of out Cheques / bills
  • Collection of local Cheque
  • Bills of Exchange and promissory notes

Credit Policy of Mercantile Bank:

The individuals and private institution that are strongly motivated by sponsor members and board of directors to increase profitability sponsor Mercantile Bank, like other private sector banks. So being a private sector bank Mercantile Bank has set its credit policy and management functions for achieving the objectives of sponsors. In spite of these acts, it has the objectives to operate as a partner of development project by extending credit facilities to the borrowers in the field of trade, commerce and industry.

Mercantile Bank is functioning mainly in the city area of the country. The rural people are almost outside the credit network of Mercantile Bank. Its credit operations are dominated to short team cash credit; secured overdraft, and short terms trade financing. The long-term credit operation of this bank is not significant. The bank is eager to expand short term rather than long-term risky investment. It is important to mention that    Mercantile Bank has no prescribed and written credit policy. It sanctions loans and advances within the scope of instructions and guidelines of Bangladesh bank. It can sanction loans and advances up to their loan able fund. Loan able fund indicates 80 percent of their total efficiency is our strength deposits (20 percent is the statutory requirement). Statutory requirement consists of:

  • 5 percent case (minimum) with Bangladesh bank
  • 15 percent in the form of:
  • Case in hand
  • Balance with Mercantile Bank
  • Treasury bill and
  • Other approved securities.

 

Foreign Exchange Transactions:

Foreign trade financing is an internal part of banking business. With the globalization of economics internal trade has become quite competitive. Timely payment for exports and quicker delivery of goods are the prerequisites for the success if international trade operation.

The MBL, Dhanmondi branch works as an “Authorized Dealer” for the financing of foreign and dealing with foreign currency. This branch has a good reputation with the importers and exporters. In MBL, Dhanmondi branch “Foreign Exchange Department” is active export, import and L/C.

Import Section:

Import of merchandise involves two things bring of goods physically into the country and remittance of foreign exchange towards the cost of merchandise and services. In case of import the importers are asked by their exporters to open a letter of credit. So, that their payment against goods is ensured. Documentary credit has emerged as a vital system of trade payment. It is a key player of foreign trade. MBL has been playing a vital role in case of import goods by its foreign exchange department.

Letter of Credit (L/C):

Letter of Credit of credit is a payment guarantee to seller by the buyer’s bank. It’s a credits contract whereby the buyer’s bank on behalf of the buyer is committed to pay and agreed amount of money to the seller under some contracted conditions. If the conditions of the credit do not require for presentation of specified documents, it is called “Clean Credit”. On the other hand, if the presentation of specified document is obligatory, the credit is called a “Documentary credit”. Documentary credit is an assurance of payment by the bank. It is an arrangement that provides to make the payment by the bank. It is an arrangement that provides to make the payment to the seller. Buyer and seller enter into contracts for buying and selling of goods / services and the buyer instruct his bank to issue L/C in favor of the seller. Here the bank plays a role for maintaining the transaction between the buyer and seller.

Import Procedure:

An important is required to fulfill some conditions/ criteria as per import policy order and guidelines for foreign exchange transaction. In this case the officer (banker) must follow the rules and guidelines that are provided by Bangladesh bank. An importer is required to submit the following document along with L/C application to get a license to import goods through MBL.

  • An account with MBL, Dhanmondi Branch
  • Import registration Certificate
  • Performa invoice/ Indent
  • Tax paying identification number
  • Membership certificate from recognized chamber of commerce and Industry.

 

Loan portfolio management Of Mercantile bank Ltd. Dhanmondi Branch

  • Concept of Loan:

Lending loan is the important function of a bank. There are two main function of a bank. One is deposit money or collects money and another is lending loan or advance.

When banking grants an advance in lump sum, which is drown by the borrower at one time and is to be repaid like wise or pre arranged installments is called a loan. Bank deposits money from the depositors and lending the money to the interested party as loan. The parties who take loan called creditor.

Bank provides less interest on the deposit amount than lending amount. The difference between the two interests is the profit of a bank.

  • Concept of Portfolio Management:

Portfolio management is very much related to the banking activities. Generally portfolio management means the allocation of resources in a way that brings better safety of resources including cash and other resources.

Loan portfolio management of a bank is the process of allocation or distribution of loan or advance in a way that provides extra safety and profitability. In a bank there are many resources but cash is the main resources. Bank invests money to the customer as loan. There are many kinds of loan. If the different kind of loans may able to minimize the risk and maximize the profitability then it will be better loan portfolio management.

  • Allocation of loans/ various kinds of Loan

There are many types of loan or credit scheme provided by the branch that are given bellow.

Major Credit Scheme:

  • Consumer Credit Scheme (CCS)
  • Car Loan
  • Doctors Credit Scheme
  • Rural Development Scheme
  • Lease Financing
  • Cash Credit/ loan
  • Agriculture raw jute
  • Project loan
  • Working capital Loan
  • Export loan
  • Commercial Loan (Cash Credit, Higher put chase)
  • Employee house building loan
  • Small and cottage industry loan
  • SOD (Secured over Draft) against bidden (Tender Purchase).

SOD – Against various schemes

SOD – Against F.D.R.

SOD – Against work Order

SOD – Against PSR

SOD – Against Expert

SOD – Against Quota

SOD – Against General

SOD – Against Earnest money

SOD – Against Expected bills.

 

Doctors’ Credit Scheme

Objectives

  • It Help new F.C.P.S. or post-graduate doctors for setting up chambers and buying medical equipment.
  • It helps experienced doctors for refurbishing chambers and buying medical equipment.
  • Assist private clinics for acquiring modern medical equipment.
  • Interest rate will be charged at quarterly rest.

Terms & Conditions

Equity

  • For new doctor 10%
  • For experienced doctor 15%
  • For Hospital, Clinic and Diagnostic Center 20%

Interest Rate 16.00%: Risk Fund Tk. 1.00%

Repayment period 5 years

Credit Limit

  • For new doctor 5.00 Lac.
  • For experienced doctor 15.00 Lac.
  • For Hospital, Clinic and Diagnostic Center 50.00 Lac.
  • Application Fee BDT 200.00
  • Service Charge / Ledger Fee 0.25% per year on outstanding balances.

 

Rural Development Scheme

                                  Rural Development Scheme
ObjectivesTerms & Conditions
  • Raise the standard of living of rural people.
  • Initiative to break the vicious cycle of poverty.
  • Enhance the purchasing power of rural people.
  • Group Formation
    » 30 person in a group
    » 1 group leader
    » 6 sub-groups consisting 5 person each in a group
    » 1 sub-group leader in each sub-group
  • Credit Limit
    » Maximum Tk. 5,000 per person.
    » Gradually enhance able up to Tk. 10,000.
  • Interest Rate 14.00%.
  • Risk Fund 1.00.
  • Service Charge 0.25% per year on outstanding balances.
  • Repayment period 1 year.
  • Security: Group guarantee, no collateral

Personal Loan Scheme:

                              Personal Loan Scheme
ObjectivesMode
  • Help fixed-income people for buying house hold Durable
  • For the amount up to Tk. 3,00,000 the period is 03 (Three) years.
  • Interest rate will be charged quarterly res
  • Interest Rate    16.00%
  • Risk Fund    1.00%
  • Supervision Charge
    (per year on outstanding balances) 1.00%
  • Application Fee    BDT 200

Special Feature

  • The loan amount is directly credited to the customer’s account.
  • Loans limit BDT 3.00 Lac or 8 times of monthly-evidenced income, whichever is lower.
  • Repayment period Maximum 3 years that is 36 monthly installments.

 Small Loan:

                                    Small Loan
ObjectivesMode
  • Extend credit facility to small shopkeepers.
  • Give collateral-free credit
  • Maximum amount of loan Tk. 2,00,000.
  • Interest Rate 16.00%
  • Risk Fund 1.00%
  • Service Charge 0.25% per year on outstanding balances
  • Application Fee BDT 200.00
  • Loan Limit BDT 2.50 Lac
  • Repayment period 3 years
  • Interest rate will be charged at quarterly rest

 

A study on Dhanmondi Branch

Procedure of loan sanctioning:

Loan sanctioning does not depend on particular credit committee, rather being empowered of head offices at different level. Loan sanctioning procedure includes process of application, sending proposal by proper authority and getting approval from the proper authority. In case of loan the customer and the authorized officer must follow sanctioning the procedure. Any officer has no power to sanction loan without making proposal and getting approval of the proposal.

Discretionary power of Loan Sanctioning:

Branch manager can sanction loans and advances against financial obligations like Bangladesh Sanchay patra, FDR etc. but in case of other loan scheme such as personal loan, Doctors loan scheme, lease financing etc, the manager may has no power to sanction loan. It is also mentioned that sanctioning power of loans and advances varies sector to sector for the official regulation of mercantile bank.

Branches receive loan application and then forward a proposal to the head office for permitting the loan. If the head office gives permission then the branch sanction the loan.

Process of application:

The report writer has practiced some function in loan section. Then it is seen that if a client want to take loan, at first must be submit a application from that is given by the bank. This application includes some parts which name is:

Banking Arrangement letter

Its includes the following option

  1. Name of the Applicant
  2. Account number
  3. Interest rate
  4. Repayment condition
  5. Number of installment
  6. Installment starting date
  7. Personal information
  8. Professional information
  9. Guarantor information
  10. Financial information
  11. Monthly income
  12. Monthly Expenses
  13. Monthly saving
  14. Gross Salary
  15. Provident fund
  16. Income Tax

Other letters

In this case the client must be included the following letters:

  1. Loan Assessment Letter
  2. Letter of Authority
  3. Letter of Disbursement
  4. Letter of Undertaking
  5. Letter of Revival
  6. Letter of Guarantee

 

Consideration factors:

In case of sectioning loan, there must be considered some important factors. It includes volume, security and goodwill etc. if it is a renewal case, last one year performance is obtained and strongly considered. For a new loan sanctioning, the applicant for borrowing should have an account with the bank of the branch for minimum six month. This six-month cash flow in addition to the consideration must be strongly monitored for sectioning new loan. Here it also mentioned that the consideration factors may varies on the basis of types of loan.

Loan proposal for one core or above the authorized officer must be considered risk analysis (LRA) as directed by Bangladesh bank. But banks may go for LRA for loan proposal of any amount at their discretion provided by head office.

If the loan proposal is accepted i.e. loan is sanctioned then a sanction advice is forward to the borrowers thought branch points. In this case the following factors must be considered.

  • Amount at limit
  • Purpose of loan
  • Margin equity
  • Rate of interest
  • Disbursement schedule
  • Repayment schedule
  • Repayment starting date
  • Expiry date of the limit
  • Security details with value
  • Repayment ending date
  • Repayment schedule missing charge
  • Recovery conditions
  • Sufficient value of security for the amount of loan
  • Loan taking from other bank or financial institutions by the borrowers
  • Information about occupation sectors
  • Other terms & conditions

 

Size of portfolio in various credit schemes:

In Dhaka city Dhanmondi is an important spot in respect of commercial residential and government institutions. As a result all kinds of loan are lending the branch to the customer. It is also mentioned that all kinds of customers are coming here like upper class, middle class, lower class, individuals and institutions

A tabular presentation of various loans (Previous 5 Years)

Table:

Name of credit Scheme20082007200620052004
Consumers Credit Scheme30.50 lack28.30 lack26.35 lack25.25 lack23.29 lack
Car loan Scheme2.5 core2.25 core2.15 core2.05 core1.99 core
Doctor loan Scheme70 lack62 lack50 lack48 lack45 lack
Rural Development Scheme10 lack8 lack7.50 lack6.75 lack6.52 lack
Lease financing loan2 core1.99 core1.55 core1.25 core1.12 core
Personal loan60 lack57 lack55 lack53 lack52 lack
Small loan37.5 lack35 lack33.25 lack33.35 lack30 lack

 

Graphical Presentation of Different Scheme

Consumer Credit Scheme:

Under mentionable that we can understand what was the condition of consumer credit scheme of the branch in previous 5 years.

 

The banks total consumer credit was Tk. 2329000, and collected Tk.1932000 in 2004, consumer credit was Tk. 2525000 and collected Tk.23552000 in 2005, consumer credit was Tk. 2635000 and collected Tk. 2528000 in 2006, consumer credit was Tk.2830000 and collected Tk. 2722000 in 2007 and consumer credit was Tk. 3050000 and collected Tk.2925000 in 2008. From the graphical presentation we can see that maximum increase in 2008 by Tk.220000.

Car loan Scheme:

Under mentionable that, we can understand what was the condition of car loan scheme of the branch in previous 5 years.

The banks total car loan was Tk. 1.99 core, and collected Tk. 1.80 core in 2004, loan was Tk. 2.05 core and collected Tk. 1.98 core in 2005, and loan was Tk. 2.15 and collected Tk. 2.05 core in 2006, loan was Tk. 2.25 core and collected Tk. 2.15 core in 2007 and loan was Tk. 2.5 core and collected Tk. 2.20 core in 2008.

Doctors loan Scheme:

Under mentionable that, we can understand what was the condition of Doctors loan of the branch in previous 5 years.

The banks total Doctors loan was Tk. 45 lack, and collected Tk. 43.5 lack in 2004, loan was Tk. 48 lack, and collected Tk. 46 lack in 2005, and loan was Tk. 50 lack and collected Tk. 48 lack in 2006, loan was Tk. 62 lack and collected Tk. 52 lack in 2007 and loan was Tk. 70 lack and collected Tk.63 lack in 2008.

Small loan:

Under mentionable that, we can understand what was the condition of small loan scheme of the branch in previous five years.

The banks total small loan was Tk. 30 lack, and collected Tk. 27.5 lack in 2004, loan was TK. 32.35 lack and collected TK. 3.30 lack in 2006, and loan was Tk. 35 lack and collected Tk. 33.20 lack in 2007 and loan was Tk. 37 lack and collected Tk. 35 lack in 2008.

 

Causes of increasing Loan:

  1. Introducing new loan disbursement policy
  2. Applying Interest
  3. Changing price level
  4. Increasing Inflation rate
  5. Increasing Social life expenses
  6. Increasing government expenses
  7. Increasing Investment sector
  8. Flexible process of loan sanctioning
  9. Simple condition of loan
  10. Increasing the services
  11. Increasing payment capacity of the customer
  12. Quickly permission
  13. Increasing Competition in banking sector
  14. Flexible interest rate
  15. Decreasing the value of the money
  16. Decreasing Bank rate

Causes of Decreasing Loan:

  1. Increasing Bank rate
  2. Do not apply Interest
  3. Complex loan processing system
  4. High Interest rate
  5. Lengthy process of loan sanctioning
  6. Increasing value of the money
  7. Decreasing investment sector
  8. Decreasing the quality of the service
  9. Unavailability of Sufficient product
  10. Decreasing Deposit of money of the bank
  11. Unavailability of new investment sector
  12. Lack of political Instability
  13. Increasing Tax rate
  14. Lack of Specialized Credit Scheme
  15. Lack of safety all over the country.

My Opinion:

The following opinion is based on my questionnaires which I asked to the clients of this bank. According to my questionnaire most of the clients are satisfied for their loan Scheme. But they also have some dissatisfaction in terms of rules and the rate of interest.

Now a day Car loan is very popular for everybody. Maximum people are interested for taking this loan. This loan has high priority in MBL. Clients are getting this loan very easily with short interest rate and flexible period of time. Besides it Doctor Loan, personal loan or any purpose loan is also very demanding for the clients. These kinds of loan clients are getting easily and they get up to 80%. For that reason customer are happy with this loan in this bank.

On the other hand lease financing, small loan, rural development loan, consumer credit scheme these kinds of loan are also very popular but most of the loan taken for the different purposes.

In MBL they charge minimum interest rate then other bank for a loan. For that reason clients become satisfied. Besides it MBL takes very short time for sanctioning a loan if they found a strong grantor of that client. After taking a loan a client has opportunity to settle a loan before their closing or maturity date. For that reason clients get high priority and become satisfied which other bank don’t get it for their clients.

Some clients are dissatisfied for some reason. A bank never sanctions a loan with out 2 or stronger grantor for that reason client cannot take the loan easily. Some of loans interest rate is very high. For that reason some clients are dissatisfied.

Overall clients are taking their loan for the basis of their need and they are getting it with the banks rules and regulations.

 

Findings

Bangladesh is a developing country. There are many private and government banks in our country. Some are earning profit day by day and some are not able to maintaining profitability. Loan portfolio management is the main tool for earning profit. Ideal money is not favorable for any commercial bank. On the other hand the bank must maintain liquidity. For this reason there is an interaction between liquidity and profitability. But if the bank may not be able to allocate loan in a proper way, the bank cannot maximize its earnings and minimize its risk. As a result, without proper loan portfolio management the targets cannot be achieved, the sponsor members will be dissatisfied. From the study it has been found that Mercantile bank Ltd brings some threats and opportunity in their loan section.

Threats

The following threats have been found through the observation.

Bank

Gove bank has many branches all over the country. General people of our country want to make relation with such kind of bank. But MBL services only city area. In this regards MBL brings a threat for future.

Other private bank

There are many banks in our country and the banks are services through more branches then mercantile bank ltd. It is also mentioned that most of the private banks are available in Dhanmondi in Dhaka. So it is very difficult to motivate the customer by the various loan Schemes that are provided by the MBL, Dhanmondi Branch.

Rules and regulation Of Bangladesh bank

Although it is correct that MBL provides some opportunity for the customer in loan section and the process of loan sanction is so much flexible than govt. bank and some private bank, but the bank must be maintained some rules and regulations that are provided by the Bangladesh bank. This rules and regulations may create a problem in case of sanctioning loan.

Sanction process

In case of sanctioning loan the process is not so flexible. Because in case of loan sanctioning, it is controlled by the head office but it is not favorable for loan sanctioning. But all cases it should not desirable and not to bring good result.

Terms & Conditions

It has been seen that sometimes that customers cannot able to loan for some terms and conditions. Although it brings more safety of money and minimizes the risk but it may create a problems to the middle and lower level customer. But it should be mind that the middle class customers are the main customers in loan section. Because, upper levels customers need not loan and lower level customers have no ability to take loan.

Education Loan Scheme

Most of the banks both public and private are provide a loan scheme as education loan. But MBL has no this kind of loan.

Opportunity

The report writer thinks that the following opportunities have been found through the research

 Suitable place

MBL is situated at Dhanmondi 27. Now it is a commercial area and also a residential area. So both businessmen and service holder both parties are come here. As a result it will be a model branch of MBL in future.

 Different Types Of loan

MBL provides various kind of credit scheme, such as personal loan, lease financing, car loan etc. As a result all types of customer like service holder, businessmen are come here for getting loan. So it is a great opportunity for this bank.

Mentality of the Employee

It has been found that most of the employees of the branch are helpful to customer. They are interested to solve any problem of the customer. As a result, the customers are interest to come to the branch.

Flexible sanctioning process than government

The process of loan sanctioning is so much flexible than government bank. For this the customers want to get loan from the private bank. It’s a great opportunity for MBL.

Sufficient Security

In case of some loans the bank takes security against loan. It has been found that, although it creates a problem to the customers but it gives extra safety of money (Loan).

Collection of Loan

It has been found through the working experience that the collection of loan is satisfactory.

From the above findings it can be said that, although there are some threats but these are comparatively valueless to the opportunity. So MBL may occupy market in loan section.

 

Recommendation

From the above discussion, and findings it has been realized that if Mercantile would take some steps then this unit would be successful and a profitable concern in banking sector.

  • Dhanmondi Branch should have to be rearrange their decoration for the employee & customer satisfaction
  • Cash section should be transferred in large space and necessary steps should be taken to put money in a safety place, where the customers are not able to see the money when they are in counter.
  • In case of fixing the interest rate for FDR, MBL should consider about other banks interest rate
  • They should improve their IT section so that they can transfer data easily.
  • The condition of TIN for opening SB A/C should be changed to ensure banking service for all.
  • MBL should open new branches in different area.
  • More ATM both should be established, to providing better service
  • General recommendation to HR department, that HR should be more aware of employees’ satisfaction & dissatisfaction.

 

Introduce new Loan Scheme:

It has been recommended that the bank should be introduced some new loan scheme, like Education Loan Scheme, that can fulfill the demand of the customer.

Open New Branch:

Mercantile bank serve only city area and there are only forty-seven branches all over the country. But it is not sufficient. So MBL should open new branch.

To give loan sanctioning power to the branch Manager:

It has been found that there is no loan sanctioning power of branch manager. For this reason it needs more time to sanction loan. So it has been recommended that the head office should give sanctioning power to the branch manager.

Flexible Rules and regulations:

The process of loan sanctioning is so much flexible than government bank. For this the customers want to get loan from the private bank. It’s a great opportunity for MBL.

Risk Analysis

Portfolio management means to allocate the loan in a way that minimize the risk and maximize the profit. So in this case the authorized officers should analyze the risk properly.

 

Conclusion

Mercantile bank Limited is one of the best private commercial bank in Bangladesh. Goodwill of MBL is increasing day by day through the modern services that are provided by the bank. In this whole study was observed that some interesting results bring the research program. It has been found that there are some threats in loan sanction. There are some recommendations to solve the problem that will help increase the efficiency in loan portfolio management. MBL provides so many services but the bank should provide some extra facilities to the customer of the bank. There are many products and services provided by MBL that carry out good opportunity for the customer all over the world. Besides MBL has increasing their services for general public. MBL also maintains some social responsibility. It has been informed that the in coming January the bank will open some new branches.

Now a day’s private bank provides high quality of service for the customers. MBL is also provides high customer service in loan and other section. It has been expected that the bank will increase customer service in loan section and other section with introducing new credit scheme, as if the customer will come to the bank for taking loan and for other services. It is also expected that in near future Mercantile Bank will be a most popular bank in our country.

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