Southeast Bank Ltd.

CHAPTER-I

Introduction

An Introduction:

This report represents the outcome of the study during internship in - Southeast Bank

Limited, a commercial bank operating in Bangladesh. The study concentrates mainly on the

impact that different characteristic of individual & corporate borrowers have on default rates

of loans. Moreover, the study is related to the findings of improving loan & loan portfolio

management in banks.

In this section, details of the report will not be discussed. Rather focus would be on some

prerequisite issues relevant to the paper such as origin and objectives of the report, sources of

data, methodology of analysis, limitations and finally overview of the report.

Origin of the Report:

To fulfill the Masters Degree requirement under Southeast University (SEU) this report has

been done. This is an individual assignment, which has been prepared on the basis of three

months practical working experience in an organization as an intern.

Objectives of the Report:

Every report has its objective. Likewise, this report is done according to its mission. There

are many objectives of this report; some of the objectives are given below:

to know the banking environment in Bangladesh

to demonstrate the operations (internal banking activities) of the bank;

to identify the different characteristics of individual borrowers and

corporate borrowers in the bank;

to analyze the impact that certain characteristics of individual

borrowers have on default rates of loans.

> to recommend the way of improving the quality of loan & loan

portfolio in banks;

to identify the strengths, weakness, opportunities and threats of the

bank;

to gain real life practical experience in banking system.

Sources of data:

The data required for the analysis were collected from various sources. It used information of

more than one hundred-borrower of Southeast Bank; also quantitative information was

collected from the annual report of the bank. Beside this, data were also collected from

various journals, manuals, circulars, government gazettes, Economic Trends, Scheduled Bank

Statistics, Credit Guidelines of Southeast Bank Limited etc. Internal bank policies and

practices were collected through conversation while working with the bank officials. The

formulae, concepts and related information were accumulated from different textbooks

related to finance, marketing & management.

Limitations of the report:

At the very beginning, it should be mentioned that the paper accompanies the limitation of

lack of knowledge about the subject matters in some cases. It is very difficult to

determine/define the characteristics of individual & corporate borrowers perfectly as no

research has been done on this topic before. But as an inquisitive learner the job was done

with great vigor. Beside this lack of knowledge, the paper has some other limitations like

confidentiality of borrower's information & not enough corporate borrowers to balance my

sample size (60 individual & 50 corporate borrower). The feet is realized that if those could

be incorporated, it would be a perfect approach. Further more, lack of time and lack of

sufficient information interrupt my analysis.

Overview of the report:

Entire work has been constructed within a number of chapters. The chapters are organized in

a systemic order to get a meaningful concept.

Chapter 1 starts with an introductory overview of current banking system of Bangladesh &

talks about the history of banking services. It also contains objective of the thesis; &

methodology used to serve this purpose.

Chapter 2 - Information regarding the organization (i.e Southeast Bank) is presented here.

Chapter 3 discusses topics such as the industry analysis, industry key success factors,

SWOT Analysis of Southeast Bank.

Chapter 4 includes some core functions offered by banks. It covers banking functions i.e.

operations undertaken by the different division's of bank. Through out the discussion, lot of

banking terminologies has been briefly explored. Then detailed discussions on three vital

banking sectors (i.e. credit department and foreign exchange & general banking) has been

done.

Chapter 5, the project, analyses the impact that characteristics of individual & corporate

borrowers have on default rates of loan. The chapter starts with an introductory overview of

different types of loans and discusses the summary of loan portfolio of Southeast Bank, New

Elephant Road Branch Branch. Then it (the study) contains a discussion on loan classification

in Bangladesh and presents the classification scenario of the loan portfolio of this (New

Elephant Road Branch Branch) branch. Definition of different characteristics of individual as

well as corporate borrowers is explained after that.

Chapter 6 is dedicated for the conclusion and recommendation arising out of the study.

General Banking Functions (in broader sense)

• Receiving money (from depositors)

• Lending money (to borrowers)

Basically all functions performed by a bank fall into any of the above two fundamentals

functions. More precisely a bank typically carries out the following functions/services

I] Normal Transactions: It includes cash deposit and cash withdrawal.

II] Lending: Bank lends money in different forms such as -CC, OD, loan, LTR, Lease

Finance, Hire Purchase etc. These terms deserve further explanations that I have described

elaborately in later chapters. Standard Deposit - Advance Ratio

Banking is a business organization. So it must find out adequate scopes and effectively utilize

the scopes to run the organization maintaining a healthy figure of benefit. It is intuitively

known that profit is always inversely proportional to risk factor. Hence, the global banking

community imposes a standard that defines the precise margin between the investment and

the deposit for a bank. Globally accepted ratio for deposit and advance for a bank is 20:80.

Deposit ............... 20% 16%+4%]

Advance ..............80%

Total ...................100%

CHAPTER-II

Organization Part

Introduction:

The emergence of Southeast Bank Limited was at the juncture of liberalization of global

economic activities. The experience of the prosperous economies of the Asian countries and

in particular of South Asia has been the driving force and the strategic operational policy

option of the Bank. The company philosophy - "A Bank with Vision" has been precisely an

essence of the legend of success in the Asian countries. Southeast Bank Limited is a

scheduled commercial bank in the private sector, which is focused on the established and

emerging markets of Bangladesh. In Dhaka, the first branch was launched in 1995 and the

bank has been growing ever since. Southeast Bank Limited has 30 branches throughout

Bangladesh and its aim is to be the leading bank in the country's principal markets. The bank

by concentrating on the activities in its area of specialization has achieved good market

reputation with efficient customer service. The Bank is committed to providing continuous

training to its staff to keep them up to date with modern practices in their respective fields of

work. The Bank also tries to fulfill its share in community responsibilities. By such measures

the Bank intends to grow and increase shareholders' earning per share. Southeast Bank

Limited pledges to maximize customer satisfaction through services and build a trusting

relationship with customers, which has stood the test of time for the last ten years.

Historical Background of Southeast Bank Limited (SEBL):

The liberalization of trade and investment and prudent management of macro economic

fundamentals led to the highest rate of growth of around 7.5% in Asia in the 1995.

The foreign direct investment (FDI) increased as a result of the movement of capital to the

Asian economies which in turn provided opportunity for investment and growth of the

economy. But unfortunately, Bangladesh being a low-income country has a failed to attract

significant FDI.

In 1995, the overall economic situation of Bangladesh showed a mixed trend because of the

combined effect of financial sector and tax reforms and trade liberalization. The political

instability in the country in 1995, led to substantial reduction in domestic production and

sales of goods and services. The liberalization of trade exposed the local manufacturing

industries to unfair and unlimited competition from foreign goods and suppliers. All this led

to a destabilization of the macro economic stability, which had been achieved during the

early nineties.

Despite these inherent weaknesses in the economy, the country registered a growth rate of

around 4.4% in 1995. Inflation was also moderate but marked a steady increase due to

monetary policy of government that lead to an unplanned credit expansion in the economy by

the NCBs and private commercial banks. At the same time, the financial sector of the

economy was going through rapid structural changes under the World Bank sponsored FSRP,

exchange control restrictions were relaxed and 'taka' was made fully convertible on the

current account.

The financial sector introduced market oriented policies such as flexible deposit and lending

policies, introduction of capital adequacy approach and establishment of CIB for providing

financial records of various customers to the banks.

Southeast Bank has launched its operations in 1995, a very crucial time, when the economy

and the financial sector were passing through structural changes and being exposed to fierce

completions. Also, it has emergence at the stage of liberalization of global economic

activities. Since its inception in 1995, SEBL has been fighting aggressively to become

dominant in its market against the entry of both foreign and local competitors. The

experience of the prosperous economies of the Asian countries and in particular of South-

Asia, has been the driving force and the strategic operational policy option of the Bank. The

company philosophy - "A Bank with Vision" has been precisely an essence of the legend of

success in the Asian countries.

An Overview of the Organization:

Southeast Bank Limited is a scheduled commercial bank in the private sector

established under the ambit of Bank Company Act, 1991 and incorporated as a Public

Limited Company under Companies Act, 1994 on March 12, 1995. The Bank started

commercial banking operations on May 25, 1995. During this short span of time the Bank has

been successful in positioning itself as a progressive and dynamic financial institution in the

country. The bank has been widely acclaimed by the business community, from small

entrepreneurs to large traders and industrial conglomerates, including the top-rated corporate

borrowers for its forward - looking business outlook and innovative financial solutions. Thus

within this very short period of time it has been able to create animated and significant

reputation in the country's banking sector as a Bank with Vision'.

The first branch was launched in Dhaka, 1995 and the bank has been growing ever since.

Presently, Southeast Bank Limited has 41 branches throughout Bangladesh and its aim is to

be the leading bank in the country's principal markets. The bank by concentrating on the

activities in its area of specialization has achieved good market reputation with efficient

customer service. The Bank is committed to providing continuous training to its staff to keep

them up to date with modem practices in their respective fields of work. The Bank also tries

to fulfill its share in community responsibilities. By such measures the Bank intends to grow

and increase shareholders' earning per share. Southeast Bank Limited pledges to maximize

customer satisfaction through services and build a trusting relationship with customers, which

has stood the test of time for the last ten years.

The founder members/ the Board of Directors of Southeast Bank Limited elected Mr.

Alamgir Kabir (FCA) in their 198th Board Meeting, as Chairman and Mr. Abdul Hye as the

Vice Chairman. Mr. Abdul Hye, a professional senior Chartered Accountant, has wide

experience and profound knowledge in Auditing, Accounting, Bank, Insurance and Financial

Institutions both at home and abroad.

The Authorized capital of the Bank is Tk. 3500 million and paid up Capital is Tk. 2281.76

million into 5 and 2 million shares respectively of Tk 100.00 each

Southeast Bank's (SEBL's) Vision:

To stand out as a pioneer banking institution in Bangladesh and contribute significantly to the

national economy.

SEBL's Missions:

High quality financial services with the help of latest technology.

Fast & accurate customer service.

Balanced growth strategy.

High standard business ethics.

Steady return on shareholders' equity.

Innovative banking at a competitive price.

Deep commitment to the society and the growth of national economy.

Attract and retain quality human resource.

SEBL's Core Values:

Integrity

Fairness

Harmony

Courtesy

Commitment

Insight and Spirit

Enthusiasm for Work

Business Ethics

SEBL's Core Strengths:

Transparent and quick decision making

Efficient team of performers

Satisfied customers

Internal control

Skilled risk management

Diversification

Organization's Commitments to Clients:

Dispatch of work with high degree of

professionalism and use of most suitable banking technology.

Founding life-long relationship based on mutual

trust and respect.

Response to customer needs with quickness and

accuracy.

Sharing (heir values and beliefs.

Mutual growth.

First-rated solutions of their banking problems

and issues.

Competitive pricing of products and services.

Safety and security of their money in trust with

us.

The Bank had set up a network of 31 branches in Dhaka Division, Chittgong Division,

Khulna Division and Sylhet Division. A brief profile of these branches are-

SEBL's Company Profile at a Glance:

Legal name - Southeast Bank Ltd.

Address - Corporate Headquarters

l, Dilkusha C/A, 3rd Floor

Dhaka-1000, Phone : 9550093

E-mail: seastbk@citechco.net

Type of Business - Commercial Banking

I Date of Incorporation - March 12, 1995

I Date of Commencement of Operations- May 25,1995

Address of all Facilities - Principal, 1 Dilkusha C/A

Aganagar Branch

Agargaon Branch

Bangshal

Banani Branch

Corporate Branch

Dhanmondi Branch

Gulshan

Imamganj

Karwan Bazar Branch

Motijheel (Islami Banking)

New Elephant Road Branch

New Eskaton Branch

Uttara Branch

Kakrail Branch

Chittagong - Agrabad

Chhagalnaiya Branch

(Islami Banking)

CDA Avenue Branch

(Islami Banking)

Jubilee Road Cox's Bazar

Branch (Islami Banking)

Feni Branch Halishahar

Branch Khatunganj

Hetimgonj Branch

Aganagar Branch

Pathantula Branch

Khulna - Khulna

Sylhet - Laldighirpar

Moulvibazaar Hetimgonj

Branch Kulaura Branch

BandarBazar Branch

(Islami Banking)

Shahjalal Uposhahar Branch

Chouhatta Branch

Authorized capital - Tk. 3500.00 million

Paid-up capital - Tk.2281.76 million

Total Income - Tk.8670.47 million

Net Profit after Tax - TK. 1222.97 million

Number of Employees - 1012

Fixed Assets - 1708.11 million

Dividend Offered in 2005 - 20%

Number of Branches - 40

Global Correspondents - 350 as on 31/12/2006

Listing of Shares - DSE &CSE

President & Managing Director - Mr. Neaz Ahmed

Deputy Managing Director -1 - Mr. M. A. Muhith

Deputy Managing Director—II - Syed Imtiaz Hasib

Executive Vice President & - Mr. Muhammad Shahjahan

Company Secretary

Legal advisor - Lee Khan & Partners

City heart, Suit- 5/8

67, Naya Paltan, Dhaka.

The Law Syndicate

DLCI Building (6th Floor)

65-66, Motijheel, Dhaka.

Auditors - Rahman & Rahmen Haq

Chartered Accountants

99, Mitijheel C/A, (11th floor)

Dhaka.

Organizational Structure of Southeast Bank Limited (SEBL):

The corporate officer/Head Office1 of SEBL consisting of nine divisions; each of the division

comprises of various wings. The nine divisions are:

Credit Services Division

Credit Administration

Financial control and Electronic Data processing Division

Marketing Division

General Services Division

Human resources Division

Research and Development

Branches Control Division

International Division

Company Strategies Wing

Branches of SEBL Comprises of:

Credit

Foreign Trade

Retail or General Banking

This is the office of the top executive of a branch. The HOB is the chief officer of the branch

and is responsible for the whole activities of the branch.

The activities of nine divisions of the Head Office are described below:

Financial Control and Accounts Division (FCAD):

Financial planning, budget preparation and monitoring

Payment of salary

Controlling inter-branch transaction

Disbursement of bills

Preparation of financial reports and annual reports

Preparation/Review of returns and statements

Maintenance of Provident Fund, Gratuity, Superannuating Fund

Reconciliation

International Division (ID):

Agency arrangement and credit line with correspondent banks;

Compile and circulate the foreign exchange circulars (daily

exchange rates, special instruction etc) to the branches;

Reconciliation of Nostro Accounts;

Foreign remittance;

Controlling Test Key and Authorized Signature;

Issuance of power of attorney;

Credit and Loan Administration Division:

Loan administration

Loan disbursement

Project evaluation

Processing and approving credit proposals of the

branches

Documentation, CIB (Credit Information

Bureau) report etc

Arranging different credit facilities

Providing related statements to the Bangladesh

Bank and other departments

Human Resource Division (HRD):

Recruiting

Training and development

Compensation, employee benefit, leaves and service rules program and up gradation

Placement and performance appraisal of employees

Preparing related reports

Reporting to the Executive Committee/ Board on related matters

Promotional campaign and press release

Information Technology (IT) Department:

Software development

Network management and expansion

Software and Hardware management

Member banks reconciliation

Data entry and processing

Procurement of hardware and maintenance

Branches Control & Inspection Division:

Controlling different functions of the branches and search for location for

expansion;

Conducting internal audit and inspection both regularly and suddenly;

Ensuring compliance with Bangladesh Bank (BB), monitoring BB's

inspection and external audit reports;

Board Division:

Maintenance of different Board affairs

Preparation of extracts and minutes

Forwarding different memos to the Board of Directors/

Executive Committee

Administration of company's' share related affairs like issuance,

settlement, providing coupons, right share issuance etc.

Card Division:

ATM card and system operation and

maintenance

SWIFT operation

Credit Card Operation (Proposed)

Customer and vendor relationship

Marketing & Outreach Division:

New product development and marketing analysis on financial services

Mass media, event management and protocol

Liability marketing

Improvement of policies and strategies

Management Information System (MIS)

Branches of SEBL comprises of three divisions. The activities of these divisions are

described below in short. Later in operation part of this report, I have described each of the

division elaborately.

General Banking:

This department is the retail department of the bank; it provides personal services to the retail

customers. Major services provided in this department are deposits and withdrawals,

remittance of foreign and local currencies, new account openings, purchase of foreign

currencies, and purchase of various types of savings scheme such as Deposit Pension

Scheme, Paribareek Shanchay Patra and selling of other Government savings bonds or

certificates. The head of the general banking division is the operations manager who looks

after the whole department as well as the bank. The cash wing, which is headed by a head

teller, is also under the jurisdiction of the general banking department.

Credit Department:

Credit department provides all sorts of credit facilities to the customers of the bank. As

already mentioned earlier, services are only provided to the account holders of SEBL. The

major services of the credit department includes providing overdraft facilities, work order

contract loans, time loan, term loan, syndicated loan, consumer credit scheme, bank

guarantee and other services. The head of this wing is the Credit In-charge, who is

responsible for the functioning of this department. He is in turn assisted by staff officers,

executive officers (EO) and probationary officers.

Foreign Exchange:

Though the name sounds like buying and selling of foreign currencies, but actually it is the

trade finance department of the branch. This department provides services regarding

financing of international trade to its customers. Major types of services include financing of

Letter of Credit, (non funded), Bills against Letter of Credit (BLC), Loan against Trust

Receipt (LTR), Loan against imported Good (LIM) and other services. This is another major

department that earns a lot of revenue for a bank. The trade finance department is headed by

the Foreign Exchange in-charge who is responsible for the proper functioning of the bank. He

is in turn assisted by other officials of the department.

Human Resource and Organogrant of Southeast Bank:

Deputy Managing Director (DM D)

Senior Executive Vice President (SEVP)

Executive Vice President (EVP)

Senior Vice President (SVP)

Vice President (VP)

First Vice President (FVP)

Senior Assistant Vice President (SAVP)

Assistant Vice President (AVP)

Senior Principal Officer (SPO)

Principal Officer (PO)

Executive Officer (EO)

Probationary Officer/Management Trainee (MT)

Senior Officer (O)

Junior Officer (JO)

Figure : Management hierarchy of Southeast Bank Limited

As I told mentioned earlier, Head Office is not a department but this is the office of the top

executive of a branch. The HOB is the chief officer of the branch and is responsible for the

whole activities of the branch. Here, a number of top executives work under the DMD; they

are - 5 Senior Executive Vice Presidents, 5 Executive Vice Presidents, 4 Senior Vice

Presidents, and 8 Vice Presidents. The proposals are initiated by the mid level managers and

then forwarded to the Managing Director through the Head of Branches or the head of the

divisions. The Bank has also a legal advisor (an advisor firm) to solve the legal problems and

issues faced by the bank.

Organogram of SEBL's Branches:

From the diagram (figure) given below, it can be seen that every branch has one manager,

who is responsible for the whole activities of the branch; under the Manager, there is an

operation manager, who is second command in chief of the branch. Then, under the operation

manager, there are five 'in charges' of three different division (like credit in-charge, Foreign

Exchange in-charge, accounts in-charge etc.). Operation manager is directly responsible for

monitoring each department's/division's activity & giving solutions to their problems. If he

fails to resolve any matter, then the manager will take care of that & take appropriate actions.

So, operation manager is directly responsible for each departmental activity. In-charges of

each department directly report to him (operation Manager).

Each division comprises of junior officers, officers & principal officers. All of them report

directly to their respectively department's in-charge. Every department in charge is

responsible for the whole activities of their division. He/she has to monitor every thing in

his/her division. If they (division in-charges) face any problem, they will seek solution from

operation manager and then manager.

\

Facts:

Above Figure 2 and 3 (organogram of HO & branch) shows that SEBL has a typical

functional organization structure. Each of the rectangles represents a different functional

specialization- general banking, credit, foreign exchange and so on-and each function

concentrates on its own specialized task.

Figure 1, organizational hierarchy, shows that SEBL has a tall organization structure

because it has many hierarchical levels relative to size (like 16 levels & total number of

employees are around thousand). However, by observing the diagram of a branch, it can be

said that branches has flat organization structure because these has few hierarchical levels.

Observations:

While working there, I have observed the following organizational troubles:

Lack of supervisors' support & guidance: Some departments/divisions in-

charges do not want to transmit their knowledge to their subordinates because they

think it will undermine his competency. Furthermore, they do not give any guidance to

their subordinates (like how to perform a task more efficiently); as a result, executives

are confused about their assignments & they make mistakes frequently.

Works are not properly distributed among the employees.

Insufficient human resource/manpower in every department.

Supervisors are busy with their personal promotion.

Lack of equipment in this branch like computers.

Supervisors do not take any consent from their sub-ordinates before making

any decision like- bill settlement; therefore the subordinates, executives, are

becoming demotivated.

Sometimes they do not listen to their work problems & don't even try to

resolve it.

Subordinates do not get proper feedback of their performance.

Job rotation is almost absent.

List of Officers with Designations:

SEBL has a total of 701 employees in its 30 existing branches. It includes both executives

and staffs. The following shows the chain of command.

Name of the Designation No. of persons designated

President & Managing Director 1

Deputy Managing Director-I 1

Deputy Managing Director-II 1

Company Secretary 1

Senior Executive Vice President 5

Executive Vice President (EVP) 5

Senior Vice President (SVP) 4

Vice President (VP) 7

First Vice President (FVP) 1

Senior Asst. Vice president (SAVP) 11

Asst, Vice president (AVP) 6

Senior Principal Officer (SPO) 17

Principal Officer (PO) 24

Executive Officer 10

> Probationary Officer/Management Trainee 18

Officer 15

Junior Officer 8

Asst. Officer 35

> Trainee Asst. Officer 20

Support Management Staffs:

Assistant

Apprentice Assistant

System Operator

Computer Operator

Telex Operator

Receptionist

Organizational Support Staff (Messenger)

Security guard

Cash Department

Head teller

Teller. Grade 1,2,3.

Teller Apprentice

Products & Services Offered by SEBL:

Southeast Bank is one of the fastest growing banks among the new generation banks in the

private sector. It offers wide ranges of products and services to meet the demand of its

emergent customer groups. A brief description of its products and services are given below:

DEPOSIT SCHEMES

LOAN SCHEMES

Products OTHER BANKING

SERVICES

Deposit Schemes:

Southeast Bank has a number of well thought out & tailor made deposit schemes to suit the

needs of different people. It provides the facilities of opening current deposit, savings deposit,

short-term deposit, fixed deposit and other saving & Investment deposit scheme. These

attractive schemes are described below:

Deposits

CURRENT ACCOUNT

SAVING ACCOUNT

SAVING & INVESTING

Current Account:

Current Deposit plan is ideal for professionals and it provides flexibility through overdraft

facility. It is the most basic and useful deposit option for those whose transactions take the

form of an everyday exercise. Southeast Bank's current deposits are the backbone of all

trading activities.

Features:

The minimum balance of Tk. 5000 is to be maintained in the various current accounts.

Liberal withdrawal facilities;

There is some charge involve in this account;

No interest is calculated on the existing balance.

Key Benefits:

Ideal for businessmen & professionals in need of a flexible deposit with an overdraft

facility.

Absolute liquidity for smooth functioning of transactions, helping to meet all kinds of

payment obligations.

Instructions can be issued and carried out at moment's notice.

Provision for collection of third party cheques.

Saving Account: Savings Account is a secure, rewarding and accessible way to manage

routine money matters effectively. SEBL's savings account allows customers to complete

transactions without charge, penalties or a reduction in credit interest. However, customers

are not allowed to withdraw money more than two to three times in a week.

Features:

Best suited for all classes of persons.

Running account;

Interest is calculated on daily balance and credited every 6 months;

No Income Tax deduction at source on interest;

Minors above 10 years can open and operate the account;

Cheques, Drafts, Interest Warrants, Dividend warrants etc.., and foreign currencies in

the personal names of the depositors can be collected and credited to these accounts;

Nomination facility is available;

Money can be deposited for any quantum of time; there are no minimum or maximum

deposit periods for this offering;

No charge involved on number of transactions;

No Ledger Fees ;

Minimum balance of Tk. 2000 is to be maintained in the various SB account.

Key Benefits:

Simplest deposit option available to the depositor;

It offers easy liquidity, security and good interest rates on deposits;

Easy to operate. Terms and conditions kept lucid to facilitate a layman's

understanding;

An ideal option to cultivate the habit of banking and saving amongst the younger

generation, without any complications.

Monthly Interest Bearing Time Deposit/Short Term Deposit (STD):

This scheme gives double benefit to depositor. Under this scheme, the maturity yield on

deposit is increased as the interest on deposit also earns interest.

Features:

Short-term deposit for a period of 30 days initially and automatically renewed for

similar periods six times, each renewal being a fresh contract and subject to changes

in interest rates.

At the option of the depositor interest on the deposit is payable at the end of every 30

days or it is reinvested together with the principal amount for the next 30 days.

Avoids too many and too frequent visits to the Bank for the renewals.

Earn interest on a monthly basis with the security of a fixed deposit account.

Benefits:

Monthly interest earned can be transferred to another nominated account.

Better rates than normal savings account

Term Deposit/ Fixed Deposit:

Term Deposit/ Fixed deposit is the most popular saving scheme among customers. Because,

it is endow with attractive rates, security, convenience and flexibility. Also, it is a simple,

safe and convenient way of making money.

Features:

Flexible deposit periods to suit customer's needs:

Customer's can place term Deposits with SEBL, for varying periods of time, 1,3, 6 or 12

months.

High interest with customer's deposits:

Customer's can earn higher interest on their term deposits with SEBL's attractive rates.

Interest is calculated from the date of the deposit until maturity, at the rate applicable when

the deposit is first placed or renewed, and is paid when the deposit matures. Larger amounts

attract extra interest, so customer's can earn more by depositing more money.

Renewal, transfer or withdrawal facilities:

On maturity of Term Deposit, the bank will automatically renew it with the interest earned.

Alternatively, customers can transfer it to any of their accounts with the bank, or withdraw

the Term Deposit and interest

Table provides a brief description of these saving schemes offered by Southeast

Bank:1 Deposit Schemes Interest Rates on Deposits

Fixed Deposit Below

Tk. 10.00

Crore

Tk. 10.00 Crore and above

but below Tk. 50.00 Crore

Tk. 50.00

Crore and

above

a. 1 (One) Month 8.50% 8.50% 8.50%

b. 2 (Two) Months 8.75% 8.75% 8.75%

11.00%c. 3 (Three) Month 10.50% 10.75%

d. 6 (Six) Months 10.75% 10.75% 11.00%

e. 1 (One) Year and above 11.00% 11.00% 11.00%

Source: Web site of Southeast Bank Limited

Monthly Income

Scheme:Southeast Bank have introduced "Monthly income Scheme" for customers which will

generate a regular monthly income to meet their (customers) various needs.

Features of Monthly Income Scheme (MIS): Any amount of Tk. 1,00,0007- or its multiple may be deposited under this scheme.

The duration of the Scheme is 3(three) years or 5 years.

Monthly interest will be given to the depositor against the deposited amount

according to the following schedule.

Monthly Income

Deposited Amount 3 Years 5 years

Tk.1, 00,000 Tk. 7607 Tk.800/

Benefits:

1) An attractive monthly fixed income.

2) The scheme helps in the family budgetary process.

3) It is flexible and will suit people of various income brackets.

4) Will help parents with monthly education & other expenses.

5) Will help trusts and Foundation, which award monthly scholarships/stipends to

students.

6) Retirement benefit of service holders will yield regular monthly income.

7) Wage earners can invest their money with comfort

Monthly Saving Scheme:

Southeast Bank offers "Monthly Savings Scheme" to Customers with an attractive savings

plan. With this scheme customer's can save on a monthly basis and this will ultimately grow

into a large amount of money. The scheme helps them to plan their future in a better way.

The gradual growth in the deposit assures increased benefits and peace on mind.

Features of Monthly Saving Scheme (MSS):

The monthly installments of Tk. 5007 or multiple upto Tk. 50000A may be deposited every

month during the entire period of the scheme.

The duration of the scheme is 5 years or 7 years.

The depositors will be paid a specified amount as per the following table:

Table: Payment Maturity

monthly installment]

Tk 5007 or multiple up to

Tk. 50,000/)

MATURED AMOUNT

3 Years 7 Years

500/ 20.700/ 38,135/

1,000/ 41,400/ 76,270/

5,000/ 2,07,000/ 3,81,350/

10,000/ 4,14,000/ 7,62,700/

50,000/ 20,70,000/ 38,13,5007

Source: Web site of SEBL

Mudaraba Monthly Saving Scheme:

Southeast Bank offers "Mudaraba Monthly Savings” to customers with an attractive savings

plan. With this scheme customers can save on a monthly basis that turns into a large amount

of money. The scheme helps people to plan their future in a better way as per Mudaraba

Principles of Islamic Shariah.

Features:

• The Scheme will be conducted on Mudaraba Principles of Islamic Shariah.

• The account holders under the scheme shall get profit derived from the investment of

Mudaraba fund according to their proportion in the total

Investment.

• Installment size: Tk 500/ or multiple up to Tk. 50,000.

• Deposit of Monthly Installment. Monthly installments to be deposited within first 10

days of each month.

• Installment term: 3 years or 5 years

Table: Payment Maturity

MONTHLY INSTALMENT MATURED AMOUNT

(Tk 5007 or multiple up to

Tk. 50,0007)

3 Years 1 5 Years

500/ [20,7007 38,135/

l,000/ 41,400/ 76,270/

5,000/ |2,07,000/ 3,81,350/

10,000/ |4,14,000/ 7,62,700/

50,000/ |i20,70,000/ 38,13,500/

Source: Website of Southeast Bank limited

Mudaraba Monthly Income Scheme:

Like 'Monthly Income Scheme', this scheme includes the following features for the

convenience of the clients.

Features:

Any amount of Tk. 1,00,0007- or its multiple may be deposited under this scheme.

The duration of the Scheme is 3(three) years or 5 years.

Monthly interest will be given to the depositor against the deposited amount

according to the following schedule.

Benefits:

An attractive monthly fixed income.

The scheme helps in the family budgetary process.

It is flexible and will suit people of various income brackets.

It helps parents with monthly education & other expenses.

It assists trusts and Foundation that award monthly scholarships/stipends to students.

Retirement benefit of service holders will yield regular monthly income.

Wage earners can invest their money with comfort.

Loan Schemes:

Southeast Bank provides a large basket of lending products to all sectors of the economy. It

gives term loan, time loan & working capital finance to Agriculture sector, trade and service

sector, Large/Medium and Small Scale Industries sector, Infrastructure sector etc. Also, it

takes care of Export/Import and non-fund based needs (like Letter of Credit, Bank Guarantee)

of these sectors. Salient features of SEBL's Loan Schemes are described below.

Table : Loan Scheme Information

s Loan Scheme Lending Rates (L.R)

1 Agriculture Loan

a) Loan to Primary Producers b) Loan to agricultural input traders & fertilizer distributors

8.50% 8.50%

2 Working Capital:

a) Loan for Jute Mills 3) Loan for other industries

11.50% 12.00%

3 Commercial Lending:

a) Jute Trading, b) Other Commercial Loans.

11.50 % 12%

4 Small & Cottage Industry

Term Loan 11. 50% P. A.

5 Large Scale & Medium Scale Industry

Term Loans 12.00%

6 Demand Loan (House Building/ Apartment Loan)

a) Real Estate Developers (HBL Commercial)b) Individual/Housing (HBL General)

12% 11.50%

7 Loan against Export a) All Export Jute Goods b)Ready-made Garments & Others

7% (Fixed) 7% (Fixed)

8 Other Lending a) Finance to NBFIs b) Consumer Credit Scheme c) Others

11.50% 12.00% 11.50%

Other Services:

ATM Card & Locker Services:

With SEBL's ATM cards, customers can access and carry out most of their personal banking

transactions 24-hours a day, 365 days a year. Using the ATM Card, customers can withdraw

or deposit cash in their accounts, at any time of the day and night.

Locker services are also available at some of the branches of Southeast Bank. Table 2.8

provides a brief details of locker services: Table 2.8: A brief details of Locker Services

Service Services Yearly Charge Security Deposit Available at

Small Tk. 750/= Tk.2,500/=( efundable) for Gulshan Branch

all types of lockers.

Medium

Large

Tk. l,250/= Dhanmondi

Branch

Tk. 2,000/= Uttara Branch

Source: web sites of SEBL

Credit Card:

Southeast Bank has launched Credit Card of VISA brand in August 2005, with access in local

market. The card is accepted at shops, restaurants, hotels, airlines and travel agents,

departmental stores, hospitals and diagnostic centers. Card for international market will be

issued soon. The details are as under.

Eligibility:

Age Limit: Between 21 and 65 years of age

Minimum Monthly Income: Tk 10000 for Classic card and Tk 30000 for Gold Card.

Features:

a) Lower Interest rate

b) Lower fees and charges

c) Free supplementary card (first one) for spouse only

d) Cash advance facility through ATM

e) Card holders can enjoy between 20 to 50 days of interest free credit from the date of each

transaction;

f) Interest is 2.5% per month and will be calculated on a daily basis;

g) Credit limit range from BDT 50,000 to BDT 200, 000; i) Annual fee is BDT 2,000;

Payments & Cash Collection:

Again, SEBL provide the following benefits to its Customers:

Collection of cheques, drafts, bills, hundies and other instruments for their depositors.

Issuing of performance and financial guarantees Provision of remittance facilities by issue of drafts, MTs, TTs. Purchase and sale of securities for their constituents.

An Overview of the Services Offered by Southeast Bank General: Acceptance of money on deposit (current, saving and time) from different economic

entities. Issuance of credit to all sectors of the economy (loans and advances) Collection of cheques, draft, bills, hundies and other instruments for their depositors; Issuing of performance and financial guarantees; Provision of remittance facilities by issue of drafts, MTS, TTs; Provision of facilities of safe custody of deeds and securities and safe deposit values; Purchase and sale of securities for their constituents.

Trade Services: To exporter: • Short -term facilities such as pre-shipment and post-shipment finance; L/C advising, L/C confirmation, L/C negotiations Outward collection, bills for collection Negotiations on export bills; advances of up to 100% of the value of shipment may be

granted on receipt of export documents; Pre-shipment loans, secured by current assets such as exportable commodities. These

facilities provide by current assets such as exportable commodities. These facilities provide exporters with working capital to purchase raw materials, process goods and package and export them.

Post-shipment loans, consisting of operations such as discounting of bills.

To Importers:

L/C issuance

L/C amendment

Inward collections

Shipping guarantees, awaiting arrival of documents;

Year wise Performance of Southeast Bank Limited:

Table : Year wise Performance of SEBL

Taka in million

Basic Indicator 2002 2003 2004 2005 2006 2007

Authorized Capital 2500 2500 2500 2500 3500 3500

Paid Up Capital 399.30 677.16 880.31 1056.37 2112.74 2281.76

Reserve 571.66 622.98 769.13 1180.47 2828.18 418.60

Deposit & other Accounts

15343.45 19618.82 27930.84 38258.15 46056.18 55474.05

Loans & Advances (Net)

13,027.13 15541.50 22001.70 32551.09 41147.28 48164.60

Export 2263.45 3033.79 6761.93 13511.1 25874.61 28771.36

Import 3,033.79 2,263.45 2,675.05 1,319.51 35125.12 38470.34

Guarantee Business 2,502.48 3391.19 4717.82 7975.00 5656.80 9008.32

Operating Income 1936.54 2772.52 3043.49 4689.55 6766.11 8670.47

Operating Expenses 1443.98 2107.36 2234.83 3216.11 4703.45 5754.27

Net Profit/(loss) 253.56 256.06 294.69 374.20 909.88 1222.97

Total Asset 18882.48 23135.74 33744.9 6 43294.8 1 54824.83 64370.69

Number of Branches 19 23 27 31 31 40

Number of Employees 488 586 685 759 845 1012

Source: Annual Report of SEBL, 2007

CHAPTER-IIIIndustry Analysis

Introduction:

The banking sector in Bangladesh comprises of four types of scheduled banks, namely;

nationalized commercial banks (NCBs), government owned development finance institutions

(DFls), private commercial banks (PCBs), and foreign commercial banks (FCBs). There

were 49 banks with 6,236 branches in operation in the banking sector of Bangladesh in 2003.

In 2003 market share of the NCB's on the asset side was 45.6%, PCB's was 36.2% and the

Foreign Commercial Banks was 6.8%. Total deposits of the industry were Tk.1023.5 billion

in 2003. Out of this, the NCBs share in total deposits was 50.3%, PCBs share was 36.8% and

FCBs share was only 7.0%. The DFIs shares in deposit was 5.8% only in 2003. Aggregate

liabilities of the industry accounted for Tk.1453,84 billion, which was 152.05% of the

aggregate deposits in 2003. Capital and reserves of the banks was Tk.62.6 billion or 4.3% of

the aggregate liabilities in 2003. Table: 3.1 below shows the banking system structure:

Bank System Structure during the year 2003 (in billion Taka)

Bank

Type

No. of

Banks

No. of

branches

Total

Assets

%

Industry

Assets

Total

Deposits

% of Total

Deposits

NCBs 4 3,496 662.1 45.6 515.1 50.3

DFIs 5 1,311 166.6 11.5 59.5 5.8

PCBs 30 1,398 525.5 36.2 377.00 36.8

FCBs 10 31 98.9 6.8 71.9 7.00

Total 49 6,236 1,453.1 100.00 1023.5 100.0

Table : Bank System Structure

PORTER’S DIAMOND MODEL

Introduction:

The banking sector in Bangladesh will be analyzed through porter's diamond model. This

model integrates five-factors described below. The model identifies five keys structural

features that determine the strength of the competitive forces within an industry and hence

industry profitability. The five key factors have been described for banking industry in

Bangladesh.

Application

1) Threat of entry from new entrants: As shown in the diagram 3.1(i.e pg. 70) that the

degree of rivalry among different firms is a function of the number of competitors. The threat

of new entrants in the industry is likely to enhance competition. Several barriers, however,

make it difficult to enter an industry. These factors are:

Access to distribution

Switching cost

Government regulation

Brand loyalty

Economies of scale

Absolute cost advantages

These above mentioned factors can influence potential entrants according to the following direction:

Access to Distribution Rivalry

Switching Cost Rivalry

Government Regulations Rivalry

Brand Identity Rivalry

Economies of Scale Rivalry

i) Access to Distribution:Distribution process of a firm starts from acquiring raw materials for production to supplying

it to the end users. Distribution is a complex process because it involves lot of steps like-

acquiring raw materials, transporting it into the firm for production, delivering it to

wholesalers then retailers and at last to final consumers. The more easify a firm can get

access to the distribution system, which is the supply chain, the more intense will be the

rivalry in that industry. If there are obstacles in the way to enter the distribution system, than

that industry will have less intense rivalry. Obstacles can come in the form of- less

availability of raw materials, problems in dealing with wholesaling and retailing firms etc.

The raw material for banking industry is deposits that the bank receives from depositors.

Because a bank sanctions loans and advances (which is supplying finaloutput to the end-

users) via the money they receive from depositors. Also, it earns interest, commissions &

service charges based on these deposits. From the above situation, it can be seen that banking

industry has the favorable access to raw material, (i.e. it can easily collect different types of

deposits from the clients), production technology (i.e.- inspection or collection of

information from the corporate/individual borrowers before sanctioning any loan) and

distribution channels (i.e. a bank can set up branches at different location). This makes it

easy for the new firms to enter into the industry; hence the threat of potential entrants is high.

ii) Switching Cost:

If the switching cost is high than rivalry of that industry is high. When a firm enters into an

industry, it has to invest a lot of money. Switching cost is the cost, which is incurred when

firms get out of a particular industry. If a firm wants to get out of its particular industry, it

will have to sell off it's machineries or utilize it for other purposes. Switching cost become

high for two reasons: - a) if firms invest a lot of money to enter into the industry and *b) if

firms want to get out of the industry but doesn't have the scope to utilize it's machineries in

any other industry.

When the switching cost is high, firms can not get out of the business so easily. So, they

remain in the industry for quite a long time and compete for survival. Although the bank does

not use any heavy machinery to run the business, its switching cost is high. Because the

sector itself is one of the important sectors in the country and that huge commitment is

involved in this sector especially to customers as most of its assets are based on customer

loans and advances, deposits, etc. So, it is very difficult for the firms in this industry to switch

from one business to another which takes a longer period of time and involves huge risk. Due

to this, rivalry among the firms is very high within the industry.

iii) Government Regulations:

If the government regulations are strict then the competition is low because when government

regulations are high, firms do not want to get into that industry. As for the banking industry,

there is no special restriction from the government's perspective. For these reasons, threats of

new entrants are very high.

iv) Brand Identity:

When in an industry there is high brand identity, it is very tough to get into that industry and

survive. Because the consumers are already satisfied with the existing brands of services

available in the market, they are not really very eager to switch to a new and different brand

of product and hence low rivalry. For banking service, a very high and well-built brand

identity exists in the customers' mind. The consumers prefer to keep their money in a well-

known, aged and solvent bank. As a result, it is not very easy for every firm to gain market

share in this industry. Hence this factor has reduced the number of new entrances and slowed

down the rivalry within the industry.

Analyzing the above situation, it can be concluded that threat of new entrants are very high

because many other foreign commercial banks and private commercial banks are likely to

operate in this sector as this sector is a growing sector currently. Moreover, there is no

special restriction from government perspective Again, there are many opportunities for

any new entrant to be distinctive from the other competitors through launching new products

and services through new technological progress. Furthermore, favorable access to raw

materials & low switching cost has made the industry attractive for new firms to enter into

the industry. Lastly, new entrants are not only limited to new banks it may be in the form of

new branches expansion of the existing banks nationwide. So, the threat of potential entrants

is high for banking industry.

2) Bargain Power of buyers:

Bargain Power of buyers refers to the ability of the industry's customers to force the industry

to reduce the prices or increase features of its products, thus binding away the profits. When

bargain power of buyers is high then rivalry is also high. Bargain power of buyers depend on

the following iactors:

Buyers concentration

Numbers of suppliers

Switching cost of one product to another

Substitution product

Threat of backward integration

The above mentioned factors can influence buyers bargain power according to the following direction:

Buyers Concentration Buyers bargain power Rivalry

Number of suppliers Buyers bargain power Rivalry

Switching cost of one product to another

Buyers bargain power Rivalry

Substitute Product Buyers bargain power Rivalry

Threat Of backward integration

Buyers bargain power Rivalry

Buyers:

Bargaining power of buyers is very high, as there are 49 banks with 6236 branches around

the country. On the other hand, there are many other Non Bank Financial Institutions

(NBFIs), who are operating as banks. So, buyers do have a wide variety of choices

(availability of substitute) in this sector. Also switching cost of customers is very low so they

can switch from one bank to another bank whenever they wish to according to their

convenience.

3) Bargain Power of Suppliers:

Suppliers in this industry are landlords, or renters of premises or the leasing companies. Also,

suppliers in this industry are those who provide with other raw materials (for e.g. vouchers,

pads, registers, etc.) to the firms. Bargain power of suppliers is moderate. This is because

there are many landlords who are willing to provide space for these firms. Moreover, not all

buildings or premises are suitable for banking space since location is also important.

Therefore, those landlords, property owners and/or leasing companies, who have the perfect

space and location are very few in number and have the bargaining power over their

customers. On the other hand, the raw materials that are required by banks (for e.g. voucher s,

pads, registers, etc.) can be purchased from any stationery manufacturer, which are huge in

number. Therefore, in this case the firms in this industry do have the bargaining power over

their suppliers. However, Switching cost in case of property as inputs is very high. On the

other hand, switching cost of raw materials is very low. Therefore, together switching cost is

also moderate as the bargaining power of suppliers.

4) Substitutes:

If the substitute products or services are available for industry's product, the degree of rivalry

is high. There are many co-operative societies in the country, which are providing several

products and services similar to banks. Also, there are many non-bank financial institutions,

insurance companies, and etc. that may operate as substitute and/ or to some extent as

complements to the banking industry. However, as they are not huge in number and/or not

highly concentrated the buyer propensity to substitute is very low. This is also due to

relative price performance of substitute and higher switching costs to the customers.

Therefore, for banking sector, availability of substitute products exists, which may sound that

there is high rivalry within the industry. But buyers propensity to substitutes is low that

reduces the rivalry.

5) The Industry: The degree of rivalry among different firms is a function of competitors in

the industry, industry growth rate, asset intensity, and product differentiation and exit

barriers. Among these variables, the number of competitors and industry growth are the most

influential.

Number of competitors

Industry Growth

Asset Intensity

Product Differential

Exit Barrier

Number of Competitors (high) Rivalry (high)

Industry Growth (high) Rivalry (high)

Asset Intensity (high) Rivalry(high)

Product Differential (high) Rivalry (high)

Exist Barrier (high) Rivalry (high)

i) Number of competitors: Intensity of Rivalry is quite high because mere are many

(i.e 48) competitors in the industry comprising of different forms: NCBs, DFIs, PCBs and

FCBs. These are competing all the time in terms of branch expansions, customer satisfaction,

more products and services, etc. That is product differential is high.

ii) Industry growth: Industry growth rate is very high, as it is a rapidly growing sector.

According to "Bangladesh Bank Statistics", 2005, the growth

rate of banking service in Bangladesh has increased from 10.5% to 15% in 2000 and 2005.

Due to high growth rate, intensity of rivalry is high.

iii) Asset Intensity: For banking industry, asset intensity is high which led to high

rivalry.

iv) Exist Barriers: When exist barriers are high, rivalry is high. For banking industry,

exist barriers are high. This is because the sector itself is one of the important sectors in the

country and a huge commitment is involved in this sector especially to customers as most of

its assets are based on customer loans and advances, deposits, etc. So, it is very difficult for

the firms in this industry to switch from one business to another that takes a longer period of

time and involves huge risk.

Because of high growth rate, high exist barriers and big number of competitors; we can

conclude that degree of rivalry is very high for banking industry.

Conclusion: Analyzing the following factor, we have developed the following diagram that

can be viewed as a genera! summary of the industry's competitiveness. The degree of rivalry

of banking industry is very high as the threat of new entrants & bargain power of buyers are

high; also availability of substitute products & moderate bargain power of suppliers.

SWOT ANALYSIS

SWOT Analysis Strengths:

Strong Customers base;

Strong and experienced top level Management;

Strong image and reputation;

Strong CAMEL Rating according to Bangladesh Bank in 2003.

Weaknesses:

Limited network due to less number of branches (i.e.25 till 2003);

Very insignificant market share (i.e. only 1.6% in terms of total industry

assets) and only 4.04% in terms of PCBs total assets held in 2003;

Unpleasant, discourteous employees in all customer contact positions ;

Own very few space or outlet;

Limited online banking facilities

Less allocation of resources towards marketing;

Operating in multi-market.

Opportunities:

Increase number of customers through excellent, courteous customer

Services;

Expand through increase in number of branches not only nationally but

internationally as it is a growing sector;

Providing complete online banking facilities;

Innovate and provide new products and services with right marketing

procedures to the right customers.

Threats:

Threats of new entrants in the industry;

High intensity of rivalry in the industry;

Unstable or changing government rules and regulations;

Unstable political and economic environment;

Inflation risk, crime risk, changes in interest rates, etc.

CHAPTER-IV

Operation

An Introduction:

An Internship Report generally prepared based on the experience gained during the period of

internship at the organization. An Internee is supposed to write in detail whatever s/he has

learnt during his/her period of internship. According to the supervisor's instruction, this part

of the report was prepared on the activities of different functional division's of Southeast

Bank Limited. I have tried to write in much detail about the experience gained. So, three of

the functional departments (i.e. General Banking Division, Foreign Exchange Division and

Credit Division) have discussed in details as much as possible and other two functional

departments are discussed in brief.

As an Internee, working experience was gained in the New Elephant Road Branch of

Southeast Bank Limited. First of all, the names of the functional departments in the New

Elephant Road Branch are mentioned and then how each of those operates is explained. The

New Elephant Road Branch has the following functional Divisions:

General Banking Division;

Advance Banking Division;

Foreign Exchange Division;

Accounts Division;

Cash Division.

During internship period none is generally assigned to work in a particular division but in

rotation in each of the divisions.

This experience has helped to understand the interdependency and linkages of the divisions.

At the same time, this has helped to match the concepts and theories, which were

taught and learnt in many of the courses during completion of the BBA program in the

classrooms.

What have I learnt in the General Banking Division?

General Banking is the starting point of all banking operations & it is the most important

divisions in the whole banking system. It provides day-to-day services to the customers. Main

functions of general banking department are the followings:

1. Account Opening section;

2. FOR Section

3. Local Remittance Section;

4. Collection & Clearing section

5. Cash Division

6. Accounts Division

7. Monthly Savings Scheme (MSS);

8. Online Transactions;

9. ATM Transactions;

10. Other Services (For e.g. Bankers to the Issue of IPO, Rights Issue, etc.)

General Banking Division

Account Opening Section:

Accepting Deposit :

Bank is a financial intermediary, which mobilizes fund from surplus unit and allocates it to

deficit unit. Surplus unit means the people who have surplus money and willingness to save.

Deficit unit means the people who need money for industry, trade, business, or for personal

use but don't have sufficient money of their own for such purposes. Bank mobilizes the fund

by accepting deposits from depositors and allocates the fund by providing loan to borrower.

So accepting deposits is one of the main functions of commercial banks.

Southeast Bank Limited provides two types of accounts opening facilities to its clients. These

are:

1. Saving Bank Deposit Account

2. Current Deposit Account

Savings Bank (SB) Deposit Account:

The name of the account itself implies the purpose of the account. That is, it is for those

clients who have an intention and/or tendency to save money for their future needs. There are

three types of savings accounts: i) Individual Savings Account; ii) Joint Savings Accounts

iii) Employee Savings Accounts. The clients of this account receive a fixed rate of interest on

its balance, which is 7.00% per annum. To earn this interest the clients must not withdraw

more than twice a week and must maintain a minimum balance of Tk.2, 000 every month and

are required to pay a annual service charge of Tk. 1,000 in two semi-annual installments.

The cheque books, which are issued, contain 10 leaves each. For each issue of chequebooks

Tk.5 is charged from each client. This charge is not received in cash but automatically

credited from the respective account holder's account when the cheque book serial nos. is

inserted into the computer.

General Characteristics:

a. Generally, banks require a 7-day prior notice if the total amount of one or more

withdrawals on any date exceeds 25% of the balance of the account unless is given.

b. But in SBL there is no restriction about drawing money from savings

account. Any time holders may draw money of any amount without prior notice.

c. The number of withdrawals over period of time is limited. Only two

withdrawals are permitted per week. If there are more than two withdrawals are made

in a week, no interest will be paid on rest amount for that month.

d. Generally householders, individuals and other small-scale savers are the

clients of this account.

e. Minimum Balance of Tk.2000 is to be maintained.

f. Interest will be counted on the minimum balance from the date 1-6 of a

month.

Current Deposit (CD) Account:

The Current Deposit Account is generally opened by those people who are involved in

various business and want to make instant transactions through the bank

Safely. The account does not earn any interest on its balance and does not have any

restriction on minimum balance maintenance. The depositor can withdraw money any time

during working days. The Current Account holders can enjoy Bank Over Draft (O/D)

facilities if they had a good and satisfactory transaction record during the previous six months

at least. In this case, a client is charged interest on a daily/weekly/monthly/yearly basis on the

amount overdrawn. This facility is generally given for expansion of business purpose and the

principal amount along with interest has to be repaid within a maximum of one year. The

amount of overdraft is allowed depending on the relationship with the client and the bank

through transactions.

Generally five types of Current Accounts are provided. They are:

I. Individual Current Account;

II. Joint Current Account;

III. Proprietorship Current Account;

IV. Partnership Current Account;

V. Limited Company Current Account,

General Characteristics:

a. CD accounts are unproductive in nature because in CD account sufficient fund has

to be kept in liquid form that tied up the loanable fund of banks.

b. Banks do not pay any interest to CD Accountholders as a huge portion of this fund

is non-performing.

c. There is no restriction on the number and the amount of withdrawals from a current

account.

d. Bank collect service and incidental charges from the depositors as the bank make

payments to depositor's client and collect bills, drafts & cheques from them.

e. Businessmen and companies are the main customers of this product.

f. The Bank through current accounts grant the loans and advances.

g. In SBL, a minimum balance of TK. 5000 has to be maintained in CD Account.

Account Opening Processes:

Step-1 Applicant first collect Account Opening Form (Saving/Current)

iii) Proprietorship Current

Accounts

iv) Partnership Current

Accounts

from the bank

Step 2 Then they Fill up the form and submit two copies of passport size

photographs along with the form. While submitting the form,

applicant must sign specimen signature sheet, provide Introducer's

account number & Signature.

Step 3 Authorized officer verifies everything and if ok, accepts the

application,

Step 4 After that, applicants are required to deposit minimum balance in

cash.

Step-5 At last, the Account is opened; a cheque book and pay-in-slip book

is given to the applicant.

Special Caution must be taken for the following customers:

In the name of

individual

The client has to fill up a light yellow account opening form.

Terms and conditions are printed on the back of the form. The

form contains the declaration clause, special instructions etc.

In Joint Name In this type, the formality is same as individual account.

Proprietorship The Client has to submit the valid Trade License and Tax Paying Identification Number (TIN) along with the application.

Partnership In partnership Account, the following documents are also submitted along with the application form:i. A copy of the partnership agreement (Partnershipdeed)ii. Resolutions of the partners regarding account opening.iii. Trade License.

Public LimitedCompany

1. Certificate of Incorporation2. Copy of Memorandum and Articles of Association3. Certificate of Commencement4. Copy of Resolution of the Board of Director

Private LimitedCompany

1. Certificate of Commencement is not necessary

2. Certificate of Incorporation

3. Copy of Memorandum and Articles of Association

Copy Of Resolution of the Board of Director.

Non trading

Concerns (Societies,

clubs, Association)

i. Registration Certificate under the Societies

Registration Act, 1962

ii. Certificate copy of By laws &

Regulations/Constitution.

iii. Certificate copy of Resolution for opening and

operation of account.

iv. Power of Attorney to borrow

Joint Account

in the name of

minor:

A minor cannot open an account in his own name due to

their incapability of entering into a contract. He/She can

open an joint account in SBL with a major.

FDR Section:

FDR is an important element for any bank because volume of it determines the investment

base of the bank. This section deals with Short Term Deposit (STD), Term Deposits Account

and Saving Certificate.

Short Term Deposit (STD) Account:

STD account is for those who have large sum of money and does not need the money for a

short period of time. The clients of these accounts may be Banks itself and/or other N on-

Banking Financial Institutions (NBFI), general customers of the bank. The clients of this

account if Banks and/or NBFIs' receive 4.50% interest and if customers receive 5.50% for

Deposit of below Tk.5 Crore and 6.00% for Deposit of Tk.5 Crore and above.

Minimum balance required to open an STD account is Tk.5 Lakh and minimum 7 days notice

is must for withdrawal.

General Characteristics:

a. Customers deposit money for a shorter period of time.

b. STD account can be treated as semi-term deposit

c. STD should be kept for at least seven days to get interest.

d. The interest offered for STD is less than that of savings deposit

e. In practice, SBL offers 5.5% rate of interest (half yearly compounding) for STD

account. It may increase to 6% or more depending on the fund.

f. Volume of STD A/C is generally high. In SBL, various big companies, organizations,

Government Departments keep money in STD accounts.

g. Frequent withdrawal is discouraged and requires prior notice.

Term Deposit/Fixed Deposit Receipt (FDR):

This product is provided by the bank for those who have the intention to save for a longer

period of time. In other words, it is for those customers who have a large sum of idle cash and

do not know where to invest and/or could not find out any other better way of investment.

The depositor can invest in FDR for different periods of time according to his/her wish. The

depositors earn a fixed rate of interest against these types of deposits depending on the

maturity of the deposit. Generally, the depositors cannot withdraw any amount of the deposit

until it matures. If the depositors do so, they are not eligible to receive any interest out of the

FDR. Sometimes it happens that depositors do not withdraw their FDR after it matures. In

this case, the bank automatically re-deposited it for the next period under the same condition

it was issued first. The recent different rates of interests regarding FDR are already

mentioned in the organization part.

General Characteristics:

a. Popularly, known as Fixed Deposit Receipt (FDR). Term deposits are made with the

bank for a fixed period of time.

b. The bank do not maintain cash reserves against these deposits; therefore, the bank

offers high rate of interest on such deposits.

c. In SBL, fixed deposit account is opened in two forms -Midterm (MTD), which is less

than one year, & the other is Term Deposit, which is more than one year.

Sanchay Patra/Savings Certificate:

These are similar to FDR; however the basic difference is that the depositor receives interests

in installment base out of the principal till the end of the maturity. Here, the interest is paid

quarterly, semi annually and annually. The minimum amount required to purchase a savings

certificate commences from Tk.50, 000. There are two types of Sanchay Patra i) Pratiraksha

Sanchay Patra (PSP) and ii) Bangladesh Sanchay Patra (BSP). These are generally issued

for three years, five years, eight and ten years.

However, the interest rates very low here compared to that of FDR.

Local remittance:

In banking language, money transmitted domestically is known as local remittance. There are

some instruments like Pay Order (PO), Demand Draft (DO), Telegraphic Transfer (TT) for

local remittance purpose. These instruments are describe below:

Payment Order (PO):

Payment Order or Pay Order is an instrument that is used to remit money within a city

through banking channel. It is one of the safest mode of payments that can be drawn only on

the issuing bank and transfer to the account of the payee. Five forms of Pay Orders are issued

at Southeast Bank. They are:

Cash: This type of Pay Order is prepared for any client, who may not be a regular client

and/or may not even have an account with the bank. The bank receives cash directly through

the Cash Division against the issued pay order (commission and VAT is included). To do

this, the applicant has to apply through an application form, which has two copies. One is left

with the bank and the other is given to the applicant with the Pay Order as proof of document.

Client's letter/ Fax: This type of Pay Order is issued for large companies who needs pay

orders urgently. In those cases, the companies generally send Fax requesting to issue pay

orders by debiting their respective accounts. The bank issues those pay orders and later on,

hand over those pay orders to the respective clients upon receipt of the original copy of the

letter on the respective companies Letter Pads.

Head Office Inter-Branch Credit Advice (IBCA):

Pay Orders are also issued against

Head Office Inter-Branch Credit Advice (IBCA) for specified amounts. In this case, neither

commission nor VAT is charged. In this case, the IBCA is debited and the Pay Order

Account is credited with the specified amounts in the IBCA.

Others: Other types of Pay Order include requests from different divisions within the

branch. For example, request from Accounts Division to pay off creditors and/or sundry

expenses, etc. In this case, neither commission nor VAT is charged because these are issued

on behalf of the bank itself.

Transfer of Pay Order Amount to Accounts: When a pay order is received, if the drawee

bank and payee's bank are the same, the amount of the pay order is directly transferred to the

payee's account. However, if drawee's bank and payee's bank are not same, the Pay Order has

to be cleared through the Bangladesh Bank-Clearing House and then transferred to the

respective payee's account.

Demand Draft (DD):

Demand Draft is a very popular instrument for remitting money from one corner of a country

to another. The instrument is basically used for transfer and payment. The basic difference

between pay order and demand draft is in terms of place only. That is, P.O. is used for

remitting money within the city whereas DO is used for remitting money within the country.

Telegraphic Transfer (TT):

The name itself signifies the mode of transaction. This is one of the fastest modes of

receiving and/or making payments, which is made through telephones and/or fax immediately

on request of the bank itself and/or on behalf of its very reliable clients. Confidential test

numbers are used in this type of transaction, which is only known to the banks who send and

receive the messages. However, in case of this type of remittances IBCAs and/or JBDAs are

sent later on for documentation of the transaction. Commission is charged in case of service

for clients. There are two forms of Telegraphic Transfers, i) Local Telegraphic Transfer and

ii) Foreign Telegraphic Transfer.

Foreign Remittance:

Remittance is generally sending and receiving money from one place to the other. Foreign

means not within the boundary of the country but beyond the boundary of the country.

Therefore, Foreign Remittance is sending and/or receiving money beyond the boundary of

the country. However, Southeast Bank, New Elephant Road Branch's Foreign Remittance

section does not remit any currency to abroad but receive foreign currency from other

countries and transfer it to the respective accountholders account with the bank or other banks

through issuance of Pay Orders in case of special instructions. Southeast Bank allows clients

to open Foreign Currency Accounts if clients wish their amounts remitted from overseas to

remain in the respective foreign currency. Also, Southeast Bank allows foreign clients to

open convertible Taka Account, which automatically converts the amounts remitted from

other countries into the local currency (i.e. Taka).

Collection & Clearing Section:

Customers receive different bank's bill/cheques from their counter party. They deposit those

cheques to their own bank. Suppose, a customer of SBL Bank has received a cheques of

Sonali Bank, Motijheel branch; he/She will deposit that cheque to his/her own bank, SBL

Bank, where he/she have an account. Now, SBL will collect that bills/cheques of Sonali Bank

on behalf of their customers. This is the main function of collection and clearing section.

Collection mechanisms in SBL are Outward Bill For Collection, Inward Bills for Collection

& clearing Cheques.

Clearing Cheques:

Daily many cheques are received from the clients to deposit it, other banks cheques, into their

accounts with Southeast Bank Limited. These cheques cannot be deposited or transferred into

their accounts directly; those cheques have to be cleared by the respective banks. So, to clear

the cheques every day, the cheques that are received on the previous day are placed in the

Bangladesh Bank-Clearing House1. There the respective banks receive their respective

cheques and clear it by debiting the respective account holders account with the respective

bank. If any of the cheques have any defects such as the date, signature of the account

holders, overwritten words, etc. then the cheque may not be cleared and are known as

dishonored. After clearing, the cheques are then brought back to Southeast Bank and the

amounts are credited to the account payee. Those, which are dishonored, are returned to the

respective depositor.

Outward Bills For Collection (OBC):

If the bill is beyond the clearing range, i.e. a customer of SBL New Elephant Road branch -

Dhaka is depositing a cheque of Sonali Bank Cox's Bazar, then it is collected by OBC

mechanism. OBC Mechanism is describe below:

Procedure:

1. Firstly, the client deposits the cheque along with deposit-slip.

2. Then the collecting bank, SBL New Elephant Road Branch, will cross the cheques.

3. Endorsement, 'Payee's A/C will be Credited on realization' is given.

4. Entries are given in the Outward Clearing Register Collecting bank can collect it either

by its branch in Cox's Bazar or by the drawers bank.

If they collect it through branch, the following procedures will take place:

What have I learnt about the Cash Division?

Cash Division

Cash Transactions:

All sorts of cash transactions related to the whole New Elephant Road Branch of Southeast

Bank Limited is undertaken here till three O' clock everyday except Thursdays only. On

Thursdays, cash transaction is undertaken till one O' clock. However, Southeast Bank has

introduced evening banking where cash transactions are undertaken till five 0' clock.

Vault: All cash, instruments (PO, DD, cheque) and other valuables are kept in the vault. New

Elephant Road branch's vault is incurred up to Tk. 2 crore with a local insurance company. If

cash stock goes beyond its limit of Tk. 2 crore, the excess money is transferred to Bangladesh

Bank. If there is shortage of cash during transaction period money is drawn from the central

bank. There are three keys of the vault which are given to three senior most officers. Daily,

an estimated amount of cash is brought out from the vault, for transaction purpose. No more

than Tk. 30 lac can be brought at once from the vault, on a single day.

What have I learnt about the Accounts Division?

Accounts Division

The accounts division records all the day-to-day running expenses an inflows of cash and

cash equivalents and other related information, which are needed to prepare the daily,

monthly, weekly and yearly reports with analysis. This division prepares all sorts of reports

that are required during the year for auditing and preparation of annual reports,

Online Transaction:

Southeast Bank provides Real Time Online Inter Branch Banking including Head Office

through modern VSAT, Satellite Based Communication System that is maintained by Square

Informatics Ltd. Due to the use of the modern VSAT customers can make any transaction

(Cash deposits and withdrawals, Electronic Fund Transfer, Balance Inquiry, Account

Statements, etc.) fester within any of the branches of Southeast Bank Limited around the

country. In this case, one important point to be noted is that customers can only transfer

online directly to other branch accounts of Southeast Bank through the cheques of itself (i.e.

online transfer is not possible in case of other banks cheques, which needs clearing).

ATM (DEBIT CARD) Transaction :

This is one of the services provided by Southeast "Bank Limited, where the clients can debit

their accounts and withdraw money from their accounts in case on emergency, payments, etc.

through Automated Teller Machines (ATM) from different localities where there is an ATM

Booth. The bills of the ATM (Automated Teller Machine) are also received by Southeast

Bank, Principal Branch, General Banking Division through IBCAs from different branches

and/or letters from Head Office, etc.

Credit Card Transaction:

Recently, Southeast Bank Limited has started providing credit card facilities to its customers

who have their accounts with the bank. The credit card bills are generally not received

through the general banking division but through the Credit Card Division, which is in the 4th

Floor of the Head Office. However, in some cases, the general banking division undertakes

this activity.

Others (For e.g. Bankers to the Issue (IPO & Rights Issue)):

Fortunately there was an opportunity for me to learn about transactions in the banking system

regarding the Initial Public Offerings (IPO) and Rights Issue of limited companies. Two

companies have issued shares i) Popular Life Insurance Company Limited - IPO and ii)

Midas Financing Ltd.- Rights Issue during the period of 25th - 30th of May 2005. Southeast

Bank was one of the Bankers to the Issue for those two companies. I maintained the

collection and disbursement of the share money. First of all, applications are received from

the applicants including application money through cash, cheques and account transfers. For

each of those separate records are maintained.

For Issuance of IPO:

While receiving cash and account transfers serial numbers are put on the application form and

the token, which is given away to the applicants immediately upon receipt of cash as proof

for claiming against dividend warrant, etc. On the other hand, the cheques, which are

received, are sent for clearing (if they are other banks cheques) and clients are requested to

come on a particular day in order to receive their tokens including serial numbers followed by

the final cash and transfer collection application serial number. After share money collection

period is over, the principal branch collects all other branches applications along with IBCAs

from respective branches, which are Bankers to the Issue credit the temporary current account

of the company with the principal branch and debit the IBCA amounts (which are amounts

after deduction of commission from the total share collection money) of the respective

branches through transfer via the Head Office General Account. After completion of

collection from each of the branches, which are bankers to the issue the principal branch

deducts its commission (which is 0.25%) out of the total amount of share collection money

only through itself and credit the total amount to the respective company account. Then the

total amount in the company account (i.e. client's account) is debited to nil to close it and the

Pay Order General Account is credited. After doing so, the company is given away the Pay

Order along with all the application forms and the records maintained during collection.

For Issuance of Right Share:

The same procedure is maintained for except that the serial numbers and tokens in, this case

are given away immediately to the applicants as document of proof for future claim purposes.

What have I learnt in the Foreign Exchange Division?

The Foreign Exchange Division of Southeast Bank Limited, New Elephant Road Branch,

mainly deals with the import and export of goods and services. This division is one of the

most challenging divisions in the whole banking system. This is because this division wholly

deals with foreign transactions in foreign currency, which involves huge risk. There are many

transactions involved in this section, which makes it too complex and does not allow me to

write each and everything regarding this division in details. This is because a single report

like mine cannot cover the explanation of the division. Many reports can be prepared out of

this division only. Therefore, J concentrate mainly on the import (especially LC) section of

this division; and then lightly pay attention to export section.

Foreign Exchange Division

Definition of Import:

Import means purchase of goods or services form abroad. Normally consumers, firms and

Government organizations import foreign goods or services to meet their various necessities.

So, in brief, we can say that import is the flow of goods and services purchased by an

economic agent staying in one country from economic agent staying in another country.

Regulation of Import:

Import of goods into Bangladesh is regulated by the Ministry of Commerce in terms of the

Import and Export (Control) Act, 1950 with Import Policy Order issued periodically and

public notices issued from time to time by the office of the Chief Controller of Import and

Export (CCI&E). At present, it is regulated by the Import Policy Order (1997-2092), which

has come into effect on June 14, 1998. And Import Policy directs certain Import Procedure,

which administers the whole activity in Import.

What is the import procedure followed by Southeast Bank Limited?

In Bangladesh, any bank may open LC if it is the Authorized Dealers (AD) of Bangladesh

Bank. Southeast Bank, an Authorized Dealer, is always committed to facilitate import of

different goods into Bangladesh from abroad. Import Section, which is under the Foreign

Exchange Division, is assigned to perform this activity. To fulfill its clients demands in

importing goods, it always maintains the necessary formal procedures and requirements

according to the Bangladesh Bank Requirements that are collectively termed as Tile Import

Procedure (TIP).

1. At first, the importer must obtain Import Registration Certificate (IRC) from the CCI&E

by applying & filling in a prescribed form, which is available in any fourteen branches of the

CCDE office. Then the applicant must pay a registration fee, which vary depending on the

value of import of goods annually. The applicant has to pay the fees through a Challan by

filling in the TR Form 6 to the account number (the account number is same for both the

banks) either at Bangladesh Bank or Sonali Bank.

The different registration fees and renewal fees including annual import ceiling is shown

below:

Table: 4.2

Value ceiling of Annual

Import

Initial Registration Fees Renewal Fees

Tk. 100,000 Tk. 1,000 Tk. 1,000

Tk. 500,000 Tk. 2,000 Tk. 2,000

Tk. 1,500,000 Tk. 3,000 Tk. 3,000

Tk. 5,000,000 Tk. 6,000 Tk. 5,000

Tk. 10,000,000 Tk. 10,000 Tk. 8,000

Above Tk. 10,000,000 Tk. 15,000 Tk. 10,000

Source: Ministry Of Commerce, SRO No. 160 dated 24 June 2002.

Furthermore, the following documents must accompany the application:

Certified copy of valid Trade License from the CCI&E Office.

I. Copy of Certificate of Membership of the Chamber of Commerce.

II. Certified Copy of registered partnership deed in case of partnership

III. business and Certified Copy of Certificate of Incorporation, Memorandum of

Association, and Articles of Association in case of Limited Company from the

Registrar of Joint Stock Company.

IV. VAT Registration Certificate from the Customs, Excise and VAT Office

V. Bank Solvency Certificate from the Bank of the Applicant.

VI. Nationality Certificate from the local government agencies.

VII. Tax Identification Number (TIN) Certificate from the National Board of Revenue

VIII. Original copy of Challan as evidence of payment of fees for IRC from

Bangladesh Bank or Sonali Bank.

After verification of each of the submitted documents, CCI&E issues an IRC to the applicant

(i.e. the importer).

2. Then the importer contacts with the seller of the respective country to obtain the Pro-

forma Invoice and/or Indentor for Indent. Usually an indentor, local agents of the seller or

foreign agents of the buyer, makes this communication easier. Also, the other useful sources

to obtain information and contact the sellers are:

Trade Fairs;

Chamber of Commerce of either of Bangladesh or the respective country from which

the importer decides to import.

Bangladesh High Commission Offices in the Exporting Countries.

Clearing and Forwarding (C&F) Agents,

Web sites, etc.

3. When the importer accepts the Pro-forma Invoice, s/he makes a purchase Contract with

the exporter with regard to the terms and conditions of the import.

4. After making the purchase contract, the buyer (importer) settles the means of payment with

the seller (exporter). The possible means are Cash in Advance, Open Account, Collection

Method and Documentary Letter of Credit. In most of the cases, in our country, import

payment is made through the Documentary Letter of Credits. The Purchase Contract contains

which payment procedure is to be followed. Generally, payment method depends on the

exporter requirement. Depending on the payment method, the exporter delivers the goods and

receives the payment first, then delivers the goods to the importer.

What are the methods of Payment used in case of Imports?

a) Cash in Advance: In this method of payment, importer pays in full, partially and/or

Progressively through a Foreign Demand Draft (FDD) or Foreign Telegraphic Transfer (FIT).

After receiving payment, the exporter sends the goods and the transport receipts to the

importer. Importer receives the goods delivered by the exporter from the Transport Company.

b) Open Account: Exporter ships the goods and sends transport receipt to the importer.

Importer receives the goods delivered and makes payment by Foreign Demand Draft (FDD)

or Foreign Telegraphic Transfer (FTT) at some specified date.

a

c) Collection Method: Collection methods are of Two Types, i) Clean Collection and ii)

Documentary Collection. Again, Documentary Collection may be divided into two parts i)

Document against Payment (DIP) and, ii) Document against Acceptance (D/A). This

Collection procedure is that where the exporter ships the goods and draws a draft/bill on the

buyer. The exporter submits the draft/bill (only and/or with documents) to the remitting bank

for collection and the bank acknowledges this. Then the remitting bank sends the draft/bill

(with or without documents) and a collection instruction letter to the collecting bank. Acting

as an agent of the remitting bank, the collecting bank notifies the importer upon receipt of the

draft. Then, upon full payment and acceptance of the draft/bill by the importer, the title of the

goods is released to the importer.

d) Letter of-Credit (LC): Letter of Credit is widely accepted and most commonly used

means of payment, in case of imports in Bangladesh. It is an undertaking for payment by the

issuing bank to the beneficiary (i.e. the exporter), upon submission of some stipulated

documents and fulfilling the terms and conditions mentioned in the letter of credit.

Facts: Among the four methods of payment discussed above, the most complex method of

payment is the fourth one i.e. Documentary Letter of Credit (LC). Southeast Bank Limited

mainly provides the Documentary Letter of Credit facility to its existing clients. It is an

undertaking/commitment of Southeast Bank to make payment of an agreed amount on some

agreed conditions to the exporter (i.e. seller) on behalf of the of importer (i.e. buyer) on

presentation of some specified documents. Therefore, the procedure from opening an LC till

the retirement of an LC is an important part of the bank in the Foreign Exchange Division.

This is because it is a long procedure, which is complex and involves greater risks than any

other methods of payment. However, I am going to write about the procedure that is followed

by Southeast Bank Limited in opening of an LC till the retirement of an LC in details.

Parties Involved in Operation of Letter of Credit:

The Buyer (Importer): is the one, who wishes to purchase goods and services from

abroad & requests the bank to open a letter of credit. The importer is also known as

the applicant of the letter of credit.

The Seller (Exporter): is the one, who delivers the requested goods and services to

the importer overseas. The importer opens the letter of credit favouring to exporter &

the exporter is also known as the beneficiary of the letter of credit.

The Opening Bank/The Issuing Bank: is the bank, which opens/issues a letter of

credit favouring the exporter on behalf of the importer and informs about the letter of

credit to the advising bank in the exporter's country. It undertakes the liability of the

importer and ensures the payment (in case the importer defaults) to the exporter.

The Advising Bank: is the bank, which is in the exporter's country. It informs the

exporter about the receipt of the letter of credit and delivers the letter of credit to the

exporter. In some cases, the bank is also called an agent of the exporter.

The Negotiating Bank: is the bank, in which the exporter submits all the documents

for negotiation after the goods are on board. The negotiating bank checks the

documents and forwards those to the issuing bank in the importers country for

negotiation of payment. The negotiating bank in the exporter's country may be the

same advising bank.

The Reimbursing Bank: is the bank, which receives all the documents forwarded by

the negotiating bank of the exporter's country. It informs the importer about the

receipt of the documents and delivers them to the importer as soon as the importer

makes the payment to the bank. After the bank receives the payment from the

importer, it reimburses the negotiating bank in the exporter's country. The

reimbursing bank is the bank in which the issuing bank maintains a Nostro Account,

through which all foreign currency payments are made to the exporters. In some

cases, this is also known as the negotiating bank in the importer's country. The

reimbursing bank may be the same opening/issuing bank.

How to open a letter of Credit?

To open a Letter of Credit in Southeast Bank the importer must have a current account with

the bank and a good record of transactions to enjoy the facility of opening a Letter of Credit.

Prior to this, the importer must also have an Import Registration Certificate (IRC). The

procedures are given bellow:

A. Application For L/C limit:

Before opening L/C, importer applies for L/C limit. To have an import L/C limit, an importer

submits an application to the Department of SBL furnishing the following information,-

i. Full particulars of bank account maintained with SBL principal branch;

ii. ii Nature of business

iii. Required amount of limit

iv. Payment terms and conditions

v. Goods to be imported

vi. Offered security

vii. Repayment schedule

A credit officer scrutinizes this application and accordingly prepares a proposal (CLP) and

forwards it to the Head Office Credit Committee (HOCC). The Committee, if satisfied,

sanctions the limit and returns back to the branch. Thus the importer is entitled for the limit.

B. The L/C Application:

Then, the importer needs to apply to Southeast Bank Limited through a prescribed

application form, which is commonly known as the LC application form duly signed by the

importer. All imports transacted through a bank require a Letter of Credit Authorization

(LCA) Form. Importers must submit the following documents along with sk copies of LCA

Application Form in Lieu of Import License, to his/her nominated banks to open the LC:

i LC Application Form with submission of a stamp duty ofTk. 150;

ii. Pro forma Invoice: Copy of Import Registration Certificate if importing for the

first time;

iii. Valid Membership Certificate;

iv. Indents for goods issued by indentor or a pro-forma invoice (It states

description of the goods including quantity, unit price etc.)

v. TIN and VAT certificate;

vi. Insurance cover note;

vii. Certificate of credit worthiness of exporter if the import value exceeds

Tk.200,000 when imported through pro-forma invoice;

viii. Forwarding for Pre-shipment Inspection (PSI)- Importer sends forwarding letter to

exporter for pre-shipment inspection. ix. Any other documents if required by the

import policy order.

C. Scrutinization of L/C Application :

The SBL Official scrutinizes the application in the following manner,-

a. The terms and conditions of the L/C must be complied with UCPDC 500 and

Exchange Control & Import Trade Regulation.

b. Eligibility of the goods to be imported.

C. The L/C must not be opened in favor of the importer.

d. Radioactivity report in case of food item.

e. Survey report or certificate in case of old machinery

f. Carrying vessel is not of Israel or Serbia-Montenegro

g. Certificate declaring that the item is in operation not more than 5 years in case of

car.

Facts: Although the submission of the LC Application Form with required documents are

supposed to be as mentioned above, I have found that applicants of Southeast Bank do not

submit any stamp duty of Tk. 150; it is all the time provided by the bank. The bank only

receives the LC application form and the other documents along with six copies of LCA

Form. I have also found that the importers do not fill up the LC Application Forms & LCA

Form completely. In some cases, they are submitted just by signing the forms. The respective

LC opening officer fills up the LC Application forms and the LCA forms. Southeast Bank

asks for TIN and VAT certificates for the first time. I found that Southeast Bank does not

receive and/or ask for certificates of credit worthiness of exporter if the import value exceeds

Tk. 200,000.

Currently, importers importing goods for commercial purpose are require to open a LC with a

50% margin and 30% margin only for industrial purpose. However, margin requirement

varies from goods to goods and bank to bank. I have found that Southeast Bank opens most

of its LC for its clients favoring their exporters with 10% margin, few with 5% margin and in

some cases 40% and/or 100% margin for new clients.

D. Transmission of L/C to beneficiary through Advising Bank :

After the importer opens the LC, Southeast Bank (i.e. opening/issuing bank) sends the LC to

the exporter (i.e beneficiary) through its correspondent bank (i.e. advising bank) in the

exporter's country. In some cases, where the advising bank of the exporter is not a

correspondent bank of Southeast Bank, Southeast Bank sends the LC through its

correspondent bank via the exporter's bank to the exporter.

The bank sends information regarding LCs through the Society for Worldwide Inter Bank

Financial Telecommunication (SWIFT), which conveys each, and every terms and

conditions regarding opening the LC by the issuing bank.

What are the forms of Letter of Credit?

Letter of Credit are basically classified in two forms:

* Revocable Letter of Credit: When a Letter of Credit is opened on the basis of flexible

terms and conditions, that is, amendments or changes of any clause can be made on the Letter

of Credit and cancellation of any clause can be made by consent of both the exporter and

importer, it is termed and/or known as Revocable Letter of Credit.

* Irrevocable Letter of Credit: When the terms and conditions of a Letter of Credit cannot

be amended or changed without the consent of all concerned parties -importer (applicant),

exporter (beneficiary), issuing bank, and confirming bank (in case of confirmed L/C), it is

known as Irrevocable Letter of Credit. This type of letter of credit gives a higher degree of

assurance to the exporter on behalf of the importer that the exporter will complies with the

terms and conditions of credit.

There are two types of documentary bills:

i) Deliver Documents Against Payment (DIP): In this case, the exporter issues a 'sight' bill

of exchange to the importer. The shipping documents are only delivered to the importer after

the latter makes payment to the collecting bank.

ii) Deliver Documents Against Acceptance (D/A): In this case, the exporter issues a 'term of

usance' bill of exchange to the importer. The collecting bank hands over the documents to the

importer after the importer accepts the bill of exchange. The importer accepts the bill of

exchange and agrees to pay the collecting bank on a specified date. The D/A facility is only

offered to very reliable and trustworthy importers.

Facts: Southeast bank provides both types of bill collection facilities to its clients (i.e.

importers), which are mentioned above (i.e, D/P and D/A). In this case, the acts as

issuing/opening bank, negotiating bank and/or collecting bank to its clients. When the

documents are collected, it is known as BLC (Bills against Letter of Credit).

The following accounting treatment takes place as Southeast Bank collects the Bills. After

Southeast Bank collects the bills, it stamps the shipping documents with PAD (Payment

against Document) number, enters in the PAD register and then informs the importers about

it, in order to retire it.

Exports:

Bangladesh exports a large quantity of goods and services to foreign households. They

include readymade textile garments (both knitted and woven), jute, jute-made products,

frozen shrimps, tea etc. Most of the exporters open L/Cs to export their goods, which they

open against the import L/Cs opened by their foreign importers.

Export L/C operation is just the reverse of the import L/C. For exporting goods by the local

exporter, bank may act as advising bank and collecting banks for the exporter.

As an advising bank: It receives documents from the foreign importer and hands it over to

the exporter. Sometimes it adds confirmation on the L/C on request from the Opening Bank.

By adding confirmation it holds the responsibility to make payment to the exporter.

As negotiating bank: It negotiates the bills and other shipping documents in favor of the

exporter. That is, it collects the proceeds of the export-bill from the drawee and credits the

exporter's account for the same. Collection proceed from the export bill is deposited in the

bank's NOSTRO account in the importer's country. Sometimes the bank purchases the bills at

discount and waits maturity of the bill is obtained. When the bill matures bank presents it to

the drawee to encash it.

Facts: Most of the exporters who export through SBL is readymade garment exporters. They

open L/Cs here to export their goods, which they open against the import L/Cs opened by

their foreign importers.

BACK-TO-BACK L/C:

Under this arrangement, the bank finances export by opening a letter of credit on behalf of

the exporter who has received a letter of credit from the overseas buyer. As he (the exporter)

is required to purchase raw materials for producing exportable, this new letter of credit is

opened in favor of the supplier of raw materials within or outside the country. Since the

second letter of credit is opened on strength of, and backed by, another letter of credit it is

called back-to-back credit. The need for a back-to-back credit arises because the beneficiary

of the original (export) letter of credit may have to procure the raw materials from the actual

producer or supplier, who may not supply the raw materials unless its payment is guarantee

by the bank in the form of letter of credit. On the contrary, Master Export L/C is known as

Selling L/C.

What have I learnt about the Credit Division?

Credit Division

The credit division is also one of the most important divisions in banking. This is because a

bank's performance may vary due to default risk, which is caused due to lending to clients.

This division is one of the divisions, which is directly or indirectly linked with all other

sections in banking. Credit operation is an important task for a commercial bank to make it

profitable. The success of credit operation depends on various factors, such as: where to

advance the loan; how to advance the loan; the creditworthiness and effectiveness of the

borrower; the soundness of the project, etc. which makes the activities of credit division very

complex. Therefore, the activities involved in the credit division are the most crucial of all

activities performed in a commercial bank. That's why, I am going to discuss about this

division as much as possible.

Basic Principles of Credit Policy

1. Aggregate loans and advances shall not exceed ten times the Bank's net worth or 65%

of customers' deposits whichever is lower.

2. Within the aggregate limit of loans and advances as mentioned in (1), 50% of lending

will be to small industry sector in accordance with prescribed forms of the Government

and the Central Bank in terms of the Bank's objectives with 50% to the commercial

sectors.

3. All lending will be adequately secured with acceptable security and margin

requirements as laid down by the Head Office Credit Committee.

4. The Bank shall not incur any uncovered foreign exchange risk (currency exposure) in

the lending of fiinds.

5. The Bank shall not incur any risk if exposure in respect of unmatched rated of interest

on funding of loans and advances beyond 15% of outstanding loans and advances.

6. End-use of working capital facilities will be closely monitored to ensure lending user

for the purpose, which they were advanced.

7. Country risk in loans and advances will be accurately identified and shall be within the

country limits if any approved for the bank.

8. Loans and advances shall be normally funded from customers' deposits of a permanent

nature, and not out of short-term temporary funds or borrowings from other banks or

through short-term money market operations.

Type Of Loan & Advances :

It is one of the core area of this study to highlight all sector of advances in details forms.

Generally banks provide two types of credit facilities to their clients. They are: & Funded

Credit Facility: This is one of two types of credit facility that a bank offers to a customer or

to any designated representative of the customer directly through actual disbursement of cash.

In order to provide such facility banks arrange funds primarily through accepting deposits

from the customers. Funded facility affects the balance sheet of the bank in terms of both

increases in liability and in assets.

Non-funded Credit Facility: This is the other type of credit facility where a bank

makes a commitment to a third party on behalf of the customer. The bank makes a

commitment that in case the customer fails to pay off the third party the bank will

reimburse the third party on behalf of the customer. This is a type of facility where there

Features:

1. Overdrafts are those drawings, which are allowed by the banker in excess of the balance in

the account up to a specific amount for definite period as, arranged for.

2. Generally it is given to the businessmen to accelerate business activities.

3. Any deposit in the OD account is treated as repayment of overdraft.

4. Generally provided against FDR, PSP or any primary security.

Loan against Trust Receipt (LTR):

This is another type of credit facility, which is provided by Southeast Bank to its clients for

financing import and export. There are two types of LTR facility, these are as follows:

LTR (for release of shipping documents): This facility is provided to the borrower

in order to realize the shipping documents for taking delivery of merchandise, which has

been imported, although in real sense the merchandise are not released by the bank until

the payment is made by the importer. In this case, the borrower takes delivery of the

merchandise and agrees that the bank remains owner of the goods and that the borrower

will be holding the goods on behalf of the bank as an agent or trustee until full payment is

made to the bank.

LTR (for pre-shipment financing): This facility is provided to finance the borrower

for availing pre-shipment finance by creating lien on the original letter of credit (L/C). In

this case, the borrower makes a commitment with the bank that the credit facilities will be

utilized for the purchase of merchandise for shipment as per the terms of the credit.

Term Loan:

When a bank sanctions a loan for a period of five years or more, it is termed as term loan

Features:

1. This type of loan is made to large well established business enterprise for financing capital

expenditure.

2. Under this facility, an enterprise is financed from starting it's production to

finishing i.e from installation of it's production.

Time Loan:

When a bank sanction a loan for a period of less than one year, It is termed as Time loan.

Consumer Credit Scheme (CCS):

The objective of this loan is to provide financial assistance to the service holders (i.e. middle

class people) in order to purchase consumer durable items and other essential household

items. Generally, Consumer credits are extended to clients for major items like automobile,

computer, television, etc. To be eligible for this special credit program customer must be an

official of any of the following organizations:

Government Organizations;

Semi Government or autonomous bodies;

Multinational organizations;

Banks and insurance companies;

Reputed commercial organizations;

Professionals

Under this scheme, the customer has to provide 25% as a source of equity for the purchase of

an item before the disbursement of loan. This is because according to the regulations, the

total credit facility provided under this scheme is maximum 75% of the quoted value of the

item to be purchased.

Method of disbursement of CCS :

The following are the methods of disbursement of a CCS loan:

Client will procure the specified items from the stores or against acceptable to

the bank

All the documents and the payment receipts have to be made in the name of

the bank ensuring ownership of the items to the bank. The ownership shall be

transferred to the customer after full repayment of the loan.

The customer will have to bear all the expenses of registration, license or

insurance of the items purchased and all other maintenance costs.

Repayment Procedure Under CCS:

The repayment procedure under the CCS program is unique. The procedure is as follows:

• Repayment of the loan is made in equal monthly installments

Monthly installment has to be paid by the first week (i.e. 7th) of each month

The employer of the borrower deducts the repayment amount from the

monthly salary of the client directly where applicable.

Packing Credit:

Packing credit is an advance granted by a bank to an exporter to meet the cost upto the

packing of goods for export to overseas buyer. This is done in preshipment stage. So it is also

called pre-shipment advance. The purpose of the loan is for purchase of raw materials or

finished goods or manufacturing, processing, packing, transporting upto warehousing/port of

shipment etc. for export.

Features:

1. It is provided to the client against confirmed export order (Export L/C);

2. It is provided to procure and process the raw materials for making finished goods to be

exported.

Inland Bill Purchase:

This type of advance is provided to the client by discounting bill of exchange favoring the

client. When an usance bill are submitted by the client, bank deduct a margin amount

(covering also the interest of the loan) from the face value of the bill and provide the rest to

the client. Separate bill discounted account is created for this reason. And at the maturity of

the bill, the temporary liability is adjusted from the proceeds of the bill.

Bill Against Letter Of Credit (BLC):

This type of advance is known as Post-Import finance that I have discuss in details in Foreign

Exchange Division under 'L/C operation of Import' section.

Advance against stocks (shares) :

This type of credit facility is extended to those who have already invested in shares of listed

limited companies, which are bought and sold in the DSE and CSE. The value of the shares

and margin are calculated according to the Cenlral Bank (i.e. Bangladesh Bank) Regulations.

For example, it must be ensured that legal provisions and requirements according to the

Bangladesh Bank is followed and that no banking companies are making the loans and

advances against the security of their own shares. This type of credit facility is also known as

'Investment Scheme against Shares'.

Loan against Savings Certificate/Sanchaypatra:

Southeast Bank provides this type of facility to those who have purchased Government

Savings Certificate and/or other savings schemes. The loans and advances in this case are

provided to the customer against the Savings Certificates.

Loan against deposit reserves:

Southeast bank also provides advances or loans against fixed deposit receipts (F. D. R.) or

bearer certificate of deposits (BCD) to its customers.

Industrial Loans and Project Loans:

Southeast Bank actively participated in providing industrial loans or project loans to the

corporate clients. As a second-generation bank, it has successfally participated in the

syndication or consortium loan. Industrial loan is provided to the corporate clients for the

purpose of capital investments to develop facilities to provide goods and services. Industrial

loans have a fixed maturity and relates to term investment.

Non Credit Facility:

Guarantee Business: (Non Funded Credit Facility):

This is a non-funded credit facility, which is provided by Southeast Bank to its clients. In this

case, Southeast Bank acts as a guarantor to a third party on behalf of a client/party of the

bank itself. This is the facility where the bank ensures the third party that if in any case the

client fails to pay for any financial damage or loss caused to the third party due to the client's

activities, the bank, on behalf of the client will reimburse the payment to the third party.

Southeast Bank provides this type of credit facility against security deposits from the

client/party. This facility is just a commitment made by the bank to the third party and does

not cause any instant cash outflow from the bank. It is a contingent liability for the bank.

Letter Of Credit:

It is also a non-funded facility provided to the client for import of goods from abroad or in

some cases to procure them locally.

General procedure for advance

1. Application- Applicant applies for the loan in the prescribed form of the bank stating the

type & purpose of loaa

2. Sanction

A] Collecting the credit information about the applicant to determine the credit

wordiness of the borrower. Sources of information to verify -

i. Personal investigation, Confidential Report from other bank, Head

office/branch/Chamber of Commerce,

ii. CIB (Central Information Bureau) report from Central Bank.

B] Evaluation of compliance with its lending policy.

C] Evaluation of proposed security.

D] If the loan amount exceeds certain amount ( say 50 lac) then bank goes for LRA

analysis.

E] LRA is mandatory if loan exceeds one crore - as ordered by central bank.

F] If everything is in accordance then the loan is sanctioned

3. Documentation

A] Bank prepares a loan proposal which contains terms and conditions of loan for approval

of manager.

B] Bank takes necessary papers and signatures from the borrower.

4. Disbursement - A loan account is opened Creation of charges for securing the loan

For the safety of loan, bank requires security from the leaner so that it can recover the loan by

selling security if borrowers fail to repay.

Security:

1. Primary security: Security deposited by the borrower himself to cover the loan-FDR,

Cash, PSP,PSS, easily cashable item.

2. Collateral security:

I] Narrow sense- security deposited by a third party to secure the advances for the borrower.

II] Wider sense- any type of security on which the creditor has a personal right of action on

the debtor in respect of advance.

Flow Chart Of Credit Disposal Process;

Application by the intending borrower (Borrower's Function)

Preparation of credit proposal & Approval for viability appraisal (Banker's function)

Approval Of Proposal by the Head Office Credit Committe & in special case by the Board

(Banker's function)

Sanction letter of the party (Banker's function)

Completion of security documentation (Function of Bank's lawyer)

Disbursement

Diagram 4.2 : Credit Disposal Process

Credit Administration:

The last part of credit process is the administration of credit. When the bank sanctions and

disburses a loan, it anticipates that the loan will be repaid in due time according to the terms

and conditions of the contract. However some of the borrowers will prove unable to meet the

repayment schedule due to sectors that are not predictable at the time of sanctioning. Credit

administration is done not only at branch level but also at the Head Office level. It is done on

the basis of (i) Monthly statement of Loans and advances, (ii) Frequent on the spot inspection

of Branches by the Head Office Credit Officials at irregular intervals, and (iii) Inspection of

Audit and Inspection Department. Remedial measures are to be taken immediately when an

irregularity is detected and to be continuously followed up till regularization. The credit

officers are the custodians of the risk assets; therefore it is quite usual that the personnel

responsible in managing the Risk Assets are properly trained. The object of credit

administration is to maintain the rating of credit at its best and to avoid classification as laid

down in the BCD circular No. 34/89 and subsequent amendment made thereof

Loan Classification

The loan classification procedure for all types of loan is governed by the guidelines contained

in BRPD Circular no 16 dated 6.12.98 issued by Bangladesh Bank and subsequently revised

partially through BRPD Circular No. 9 and 10 dated 14.4.2001. According to this circular if

any borrower fails to repay his amount or installment within the following time period then it

will fall under the following classification status.

Types of loanAgriculturAlShortterm loan

Continuous Loan(CC, OD)

DemandLoan(LIM, PAD,FBP, IBP)

Term loanUp to 5years

Term loan5 yearsAbove

Unclassified 12 monthsOr below

Less than6 months

Less than6Months

Less than6Months

Less than12Months

Substandar d More than 12monthsbutless than36months

6 months ormore butless than9months

6 months ormore butless than9months

6 months or more

12 monthsormore

Doubtful More than 36monthsbutless thanorequal to60months

9 months ormore butless than12months

9 months ormore butless than12months

12 monthsor more

18 monthsormore

Bad loan More than

60

Months

12 months

or

more

12 months

or

more

18

months

or more

24

months

or

more

Table : Loan classification

From the above table, it can be seen that if a Continuous Credit or a Demand Loan

remains non-performing for 6 months or more it is classified as Sub-standard. It is classified

as Doubtful if it remains non-performing for 9 months and classified as Loss if non-

performing for 12 months or more.

In the case of a Term Loan, which is repayable within a maximum period of 5 years, if any

installment is not repaid within the specified period and if the time-equivalent of such

unadjusted balance is 6 months, it is classified Sub-standard. A Term loan is classified

Doubtful and Loss if the time-equivalent of unadjusted balance is 12 months and 18 months

respectively.

Agricultural Loan and Micro-Credit is classified Sub-standard if non-performing for 12

months, Doubtful if non-performing for 36 months and Loss if non-performing for more than

60 months.

Under the existing system, scheduled banks are required to maintain provisions against

unclassified and substandard loans in addition to doubtful and loss loans. They are allowed to

book interest against classified loans only on cash basis. Whether a credit is classified or not

under the objective criteria, it is subjected to classification under qualitative judgment if any

doubt arises regarding repayment of loan.

CHAPTER-V

The Project

Characteristics of Individual BorrowersSoutheast Bank Limited (SEBL)

An Introduction:

Loan comprises the most important assets as well as the primary source of earnings for the

banking institutions. On the other hand, this (loan) is also the major source of risk for the

bank management. This is because the deterioration of loan quality will deprived the

depositors as well as the general shareholders of their money from the bank. Also, it will

affect the intermediate efficiency of the financial institutions and then the economic progress

of the country.

The degree of risk of a loan depends on the non-repayment by a particular loanee. Because an

unknown borrower might be fraught i.e. he /she can withhold repayment willingly or

unwillingly and the bank might not be able to predict this at the time of sanctioning advances.

For this reason, a prudent bank management should know the impact that characteristics of

individual & corporate borrower have on default rates.

They should always keep the "characteristics of its different borrowers picture" in mind while

judging the application for advances. It will help them to predict the non-performing lender

before taking loan decision. Consequently, the degree of risk will be minimized, defaults

rates will be less and potential return will be maximized.

Objectives of the Study:

The study on "characteristics of individual & corporate borrowers" has been

undertaken with the following objectives-

To analyze the impact that characteristics of individual borrowers have

on default rates of loans.

To trace the various types and categories of borrowers of SEBL.

To avoid credit facility to defaulters and justify the character of the

borrowers.

To evaluate the credit worthiness of the borrowers;

To recommend ways and means for improving the quality of loan

portfolio in banks.

Methodology of the Study:

As I discussed earlier, the study has been designed to determine the impact that

characteristics of individual & corporate borrowers have on defaults rates of loans.

Also, the study is related to the findings of improving the quality of loan & loan

portfolio management in banks.

For the purpose of the study, I have collected data from two sources-.

1) Primary Source,

2) Secondary Source

Data from secondary source were collected by consulting various journals, manuals,

circulars, Government Gazettes, Economic Trends, Scheduled Bank Statistics, Bangladesh

Bank Bulletin, Bank and Financial Institution's Activities, Credit Policy Guidelines

(Southeast Bank), Loan Listing of the branch, daily/monthly affairs of branch etc.

Then considering logical reason, data from primary sources were collected through

structural questionnaire from borrowers of Southeast Bank, New Elephant Road Branch.

For this purpose, I have selected 110 borrowers (50 of them are corporate & 60 of them are

individual) of New Elephant Road Branch of SEBL. I have chosen my sample size from this

branch because it is a popular branch and I have been place there for my internship.

Earlier, I have mentioned that primary data were collected through structured questionnaire

of from 100 borrowers of New Elephant Road Branch of SEBL. However, due to

unavoidable circumstances, I couldn't reach to 100 borrowers of this branch. So, I have filled

up my questionnaire of the borrowers from the loan input forms (it is a form that contains a

loanee's information regarding their financial, sociological status; a loanee has to fill up this

form while getting loan from the bank), application forms (the applicant/loanee has to fill up

the form while approaching in banks for loan; it contains the applicant's full details of asset &

liability position-net worth, educational background, professional experience, corporate

profile like balance sheet, nature of business) of the borrower, credit proposals (it is

prepared by the bank in favor of the borrower justifying that he/she deserve credit facility; the

bank send this proposal to it's Head Office for approval of credit facility), Loan Listing (a

computer sheet that provides the following information- 1) a loanee's credit limit, 2) type of

credit facility taken from the bank, 3) outstanding balance, 4) expiry date of the loan). Also I

have collected data by observing the borrowers' bank statement (to know the repayment

status in order to distinguish irregular clients from regular clients) and interviewing the credit

officer/in-charge. Since they (credit incharge/ officer) directly deal with the borrowers for

monitoring purpose, they have plenty of ideas about different borrowers' nature and

characteristics.

Plan of the study :

The study starts with an introductory overview of different types of loan and advances

discussing the summary of loan portfolio of this (New Elephant Road) branch. The second

part of this study contains a discussion on loan classification in Bangladesh and shows the

classification scenario of the loan portfolio in New Elephant Road branch, SEBL. Definition

of different characteristics of borrowers and shown after this. Based on this definition, a

questionnaire has been developed. Next part shows the data presentation, analysis and

interpretation. At last, the study has been warped up by showing a comparison picture of

regular/performing borrowers Vs irregular/non-performing of individual borrowers; finally

the study discusses conclusions and recommendation arising out of it.

An Overview Of Credit Facility Offered by Southeast Bank Limited:

Funded Credit facility;

I. Overdraft

II. Term Loan

III. Time loan

IV. Consumer Credit Scheme

V. Staff House Building

Import Financing (Funded)

VI. Loan against Trust Receipt

VII. Bill against Letter of Credit

Export Financing (Funded)

VIII. Packing Credit

I.. Inland Bill Purchase

Non Funded Credit Facility:

X Letter Of Credit

XL Bank Guarantee

OBSERVATION:

It is observed from loan and advance portfolio that major portion of the portfolio is engaged

in Term Loan, which symbolizes a very good sign. As profit earned form the term loan is

very significant. At the same time, term loan is repaid with principal which generates steady

fund flow and get a cushion to new finance. Amount involved in time loan is less, which is to

be increased. A big portion of amount is involved in overdraft which is to be monitored very

closely unless more fund will be involved with less earnings and bank will be in trouble if

these account is not regularized.

Loan Classification:

A classified loan or commitment is one which is classified as substandard, doubtful or

bad/loss as per policy of loan classification set by Bangladesh Bank or Head Office of the

bank. Loan Classification & provisionary standard in Bangladesh has been shown below in

details:

Classification Status Length Of Overdue

Unclassified Less than 3 months

Substandard 3 months or more but less than 6

months

Doubtful (non-performing) 6 months or more but less than 12

months

Bad/Loss (non-performing) 12 months or more

Table: Classification Status of the borrowers The following are the broad definition of the

classification categories:-

Substandard: If the loan payments remain past due for 90 days but less than 180

days, it is classified as substandard. This is clearly a trouble situation because a well

defined financial weakness is present in loans of this category, which could affect the

ability of the borrower to repay. So, immediate & intensive efforts are required or should

be taken to correct & reduce the possibility of loss.

Doubtful: If the loan payments remain past due for 180 days (6 months) but less than

365 days (12 months), it is classified as doubtful. A serious doubt exists here that full

repayment will not be forthcoming but the exact amount of the loss can not be ascertained

at the time of classification.

Bad/Loss : Credit/loan graded loss are long outstanding with no progress in obtaining

repayment (in excess of 360 days past due). This type of advances are uncollectable

and the realization of security is awaited.

For loan classification purpose, loans have been divided into the following four types:

1) Fixed term loans: These are loans with contractually fixed schedules for repayment of

principal.

2) Continuous Loans/Advances: These are loans and advances where a limit is

sanctioned and borrower may draw on funds upto that limit; for such loans and

advances, typically the borrower deposits and draws money according to the rhythm

of the enterprise's need.

3) Demand Loans : These are loans for fixed amounts which become due whenever the

bank so requires by issue of formal notice to the borrowers.

4) Agricultural Short Term Loans: These are production credits for which a fixed final

repayment date is contractually established.

Types of loan

AgriculturalShort termloan

ContinuousLoan (CC,OD)

Demandloan (LIM,PAD, FBP,IBP)

Term loanUp to 5years

Term loan5 yearsAbove

Unclassified 12 monthsOr below

Less than 6months

Less than 6Months

Less than 6Months

Less than 12Months

Substandard More than 12 months butless than 36months

6 months or more butless than 9months

6 months or more butless than 9months

6 months or more

12 months ormore

Doubtful More than 36 months butless than orequal to 60months

9 months or more butless than 12months

9 months or more butless than 12months

12 months or more

18 months ormore

Bad loan More than 60 Months

12 months or more

12 months or more

18 months or more

24 months ormore

Table 5.4: Loan Classification

From the above table, it can be seen that if a Continuous Credit or a Demand Loan remains

non-performing for 6 months or more it is classified as Sub-standard. It is classified as

doubtful if it remains non-performing for 9 months and classified as Loss if non-performing

for 12 months or more.

In the case of a Term Loan, which is repayable within a maximum period of 5 years, if any

installment is not repaid within the specified period and if the time-equivalent of such

unadjusted balance is 6 months, it is classified Sub-standard. A Term loan is classified

Doubtful and Loss if the time-equivalent of unadjusted balance is 12 months and 18 months

respectively.

Agricultural Loan and Micro-Credit is classified Sub-standard if non-performing for 12

months, Doubtful if non-performing for 36 months and Loss if non-performing for more than

60 months.

Defining the Characteristics of Individual Borrower

Characteristics of borrowers indicates his/her/it's intention, willingness and ability to repay

the loan at a future date.

Based on the above definition & some literature review, I have found some specific criteria/

determinants of individual and corporate borrowers' characteristics. It (determinants of

borrowers characteristics) might have an impact on default rate of loan and it could be used to

judge the credit worthiness of the borrower. It is important to mention here that the

characteristics of individual borrower are slightly different from those of corporate

borrowers.

Defining the Characteristics of Individual Borrowers :

Individual borrowers are those borrowers who take loan from the bank for their personal

need. This group of borrowers is mostly general public & professionals viz. doctor,

engineers, architects, charter accounts, lawyers, journalists, teachers etc. & most of them are

employed in an organization.

Following factors/categories of characteristics should be considered in order

judge/examine the impact of the characteristics of individual borrowers on default risk.

Data Analysis:

Survey:

I have conducted survey on individual borrowers of Southeast Bank, New Elephant Road

Branch. My sample populations are selected randomly.

Data Presentation & Analysis:

Financial Profile: Financial profile could be used to determine a borrowers financial

solvency. By looking at the borrower's monthly income, expenditure & savings we can figure

out their payment capability of the installments.

I have observed that most of the classified borrowers did not have sufficient savings to pay

out the installments & they do not have other sources of income. For instance, Mr. X,

Gunmen, have taken 2 years term loan of Tk. 3 5,000 from the bank. His monthly salary is

Tk. 5,000 & living expenditure is 3500, so saving Tk. 1500. But he needs to pay Tk.1700

each month as installment. So, we can see that this person does not have sufficient savings to

pay out the required installment amounts. In this way their over due accumulates and they fall

into the classification category. There are lot of cases like him.

Also, some borrowers do not have fixed source of income to pay out the installments

regularly. For instance, Miss Y, a model, has taken loan from the bank to buy a Toyota

Corona car. Unfortunately, she is a defaulter because she did not pay her installments

regularly. Through her conversation, I came to know that she did not get enough offer (from

the advertising company) that time to pay the installment. Furthermore, I have 2 housewives

as defaulters.

It is very difficult to determine why a particular borrower becomes defaulters. Some

borrowers could not pay out the loan due to their financial difficulty, however, some others

do not pay intentionally. So, it is hard to predict a borrowers' nature. In spite of these

difficulties, I have tried to predict borrowers' natures based on some factor like their

educational background, family background etc.

Based on the above discussion, we have got a clear distinctive picture between these two

types (irregular Vs Regular) of borrowers which has been given below:

Classified and irregular borrowers income range (Tk. 3,001 -Tk. 10,000), educational

background (S.S.C, H.S.C) and occupational status are lower than regular borrowers

income range, educational background and occupational status.

Most of the irregular borrowers social class (Middle lower/lower class) are lower than

regular borrowers social class (Middle upper class. Middle middle class).

A significant number of irregular borrowers (4) do not have any fixed income

sources; however most of the regular borrowers have fixed income sources.

Most of the irregular and classified borrowers monthly savings are lower than regular

borrowers' monthly savings.

Most of the irregular and classified borrowers do not have sufficient savings to pay

out their required installment amounts than regular borrowers.

GRAPHICAL PRESENTATION

Table1 ; Gender-wise distribution of respondents

Gender Count Cumulative Count Percent Cumulative Percent

Male 73 73 73 73

Female 27 100 27 100

100 100

Figure-1

From the above diagrams and table, it can be figure out that there were in total 100

respondents out of which 73 were male and 27 were female. So it is easily understood that

most of the borrowers are male.

Table 2: Age- Distribution of respondents

Age Count Cumulative Count Percent Cumulative Percent18-25 years 3 3.00 3 3.0026-30 7 10.00 7 10.0031-35 11 21.00 11 21.0036-40 50 71.00 50 71.0041-45 13 84.00 13 84.00

46-50 7 91.00 7 91.00above 50 9 100.00 9 100.00

100 100

Figure-2

From Table 2 and diagrams, I have found that Most of the borrowers are 36-40 years in age

group and their percentage are 50% among the 100 borrowers. Rest of the borrowers are 18-

25 years, 26-30 years,31-35 years,41-45 years, 46-50 years and above 50 and theirs

percentage among the 100 borrowers are 3%,7%, 11%, 13%, 7% and 9% respectively.

Table 3: Employment Details -Distribution of respondents

Employment

Details

Count Cumulative Count Percent Cumulative Percent

Employed 27 27.00 27 27.00

Self- Employed 56 83.00 6 83.00

Unemployed 5 8.00 5 88.00

Others 12 100.00 12 100.00

100 100

\

Figure-3

Here the table and diagram shows the employment details range of each respondent. There

were four different employment groups. Most of the respondents were self-employed

between the age group of 36-40 and their percentage is 56% of the total number of borrowers.

And 27% arc employed, 5 % are unemployed and others are 12%.

Table 4: Organization -Distribution of respondents

Organization Count Cumulative Count

Percent Cumulative Percent

Government 23 23.00 27 23.00

Private 64 87.00 56 87.00

Semi government/Autonomous

7 94.00 5 94.00

Multinational 5 99.00 12 99.00Others 1 100.00 100 100.00

100 100

Figure-4Most of the borrowers are from their own private firm and about 64% are engaged with their

own business and other are from government, semi-government. Multinational and others

organizations.

Table 5: Year of Service -Distribution of respondents

Year of Service Count Cumulative Count Percent Cumulative Percent

1-5 years 12 12.00 12 12.00

6-10 years 57 69.00 57 69.00

11-15 years 20 89.00 20 89.00

15-30 years 7 96.00 7 96.00

30+ 4 100.00 4 100.00

100 100

Figure-5

From table 4 we knew that most of the borrowers are from private organization and from this

table 5 it can be figure out that 57% of them are in 6-10 years engaged with their occupation

and they are highly experienced with their business and 12 % are 1-5 Years, 20% are in 11-15

years an rest of them 15-30 years and above 30+.

Table 6: Educational Background -Distribution of respondents

Educational Background Count Cumulative

Count

Percent Cumulative Percent

SSC 3 3.00 3 3.00

HSC 30 33.00 30 33.00

Graduate 52 85.00 52 85.00

Masters 10 95.00 10 95.00

Others 5 100.00 5 100.00

100 100

Figure-6It is very much important to figure out the educational background of the borrower because the borrower should have minimum knowledge about the loan policy and how the loan will invest in his/her business. Bank can easily make sense to the good qualified borrower about their loan. Among the individual borrowers most of them are graduate and they are in the significant number of 52 %. There are only 3% SSC, 30 % HSC, 10 % masters and only 5 % borrowers are other educational background.

Table 7: Residence- Distribution of respondents

Residence Count Cumulative Count

Percent Cumulative Percent

Dhanmondi 21 21.00 21 21.00Elephnat Road 32 53.00 32 53.00Mohammodpur 17 70.00 17 70.00Mirpur 5 75.00 5 75.00Gulshan 11 86.00 11 86.00Others 14 100.00 14 100.00

100 100

Figure-7

From table 7,1 can figure out that most of the borrowers are from Elephant road because the

branch is very near to them and they can easily come to make their transaction. So from the

table and diagrams it can stature that the borrowers are from Dhnamondi, Elephant Road,

Mohammodpur, Mirpur., Gulshan and other areas and their percentage are 21 %, 32 %, 17%,

5 % ,11% and 14 % respectively.

Table 8: Social Status-Distribution of respondents

Social Status Count Cumulative Count

Percent Cumulative Percent

Middle Class 57 • 57.00 57 57.00

Upper Middle Class 28 85.00 28 85.00

Upper Class 10 95.00 10 95.00

Others 5 100.00 5 100.00

100 100

Figure-8

This question was about the social of the respondents. There were four choices given as up to

Middleclass, Upper Middle Class, Upper Class and others. Most of the respondents were

from middle class which is 57 percent of the total respondents. 28 percent of the people were

upper middle class and 10 percent were categorized as upper class and only 5 percent are

from others.

Table 9: First Transaction- Distribution of respondents

Knowing About Bank Count Cumulative Count

Percent Cumulative Percent

Account Opening 26 26.PO 26.00 26.00FDR 34 60.00 34.00 60.00DPS 13 73.00 13.00 73.00Credit Card 11 84.00 11.00 84.00Loan 11 95.00 11.00 95.00Other 5 100.00 5.00 100.00

100 100.00

Figure-9

From this part the main survey started about the characteristics of the borrowers. From the

table and diagrams it can be told that the borrowers started their transaction in different way

and 34 percent of them have started by issuing FDR( Fixed deposit Receipt). 26 percent by

issuing Account opening, 13 % by DPS, 11% by Credit Card and 16% are related with other

activities.

Table 10: Reason For Choosing The Bank- Distribution of respondents

Reason For Choosing The Bank

Count Cumulative Count

Percent Cumulative Percent

Better Service 20 20.00 20 20.00Low Interest Rate 35 55.00 35 55.00Easy Transaction 14 69.00 14 69.00Lower Monthly Installment

6 75.00 6 75.00

Location 25 100.00 25 100.00Other 0 100.00 0 100.00

100 100.00

Figure-10

It is very much important for a borrower why they have chosen this bank for their loan and

other banking activities. From the table and diagrams it can be figured out that 35 %

borrowers came here for low interest rate and 25 % came here for the location and these two

reasons is highly significant for the bank and others reasons are better service, easy

transaction and others.

Table 11: Loan Type -Distribution of respondents

Loan Type Count Cumulative

Count

Percent Cumulative Percent

OD 72 72.00 72 72.00

CCS 24 96.00 24 96.00

Term Loan 2 98.00 2 98.00

Time Loan 2 100.00 2 100.00

100 100

Figure-11

The Bank Mainly offer the OD loan and most of borrowers take this loan for their business

purpose and they are in significant numbers of 72 percent and 24 % have taken the CCS loan

and others are categorized as term loan and time loan of 2% and 2% respectively.

Table 12: Income Range- Distribution of respondents

Income Range Count Cumulative Count

Percent Cumulative Percent

Tk. 5001-10000 9 9.00 9 9.00Tk. 10001-15000 6 15.00 6 15.00Tk. 15001-20000 11 26.00 11 26.00Tk. 26000-30000 13 39.00 13 39.00TK.30000CH- 61 100.00 61 100.00

100 100

Figure-12

It is very important for a borrower about his/her income because based on income the

borrower can repay the loan. My question was what their income level according to their

occupation and the table and also the diagrams show the income range of each respondent.

Most of their income level was above 30000 and the significant percentage was 61% and

other borrower income was 13% between the range of 26000-30000 and they are in 13% in

the total borrowers.

Table 13: Monthly Expenditure- Distribution of respondents

Monthly Expenditure Count Cumulative Count

Percent Cumulative Percent

Tk. 5001-10000 27 27.00 27 27.00Tk. 10001-15000 18 45.00 18 45.00Tk. 15001-20000 49 94.00 49 94.00Tk. 26000-30000 1 95.00 1 95.00TK.300(NKH 5 100.00 5 100.00

100 100

Here the table shows the monthly expenditure of each respondent. There were five different

monthly expenditures level among me borrowers. Monthly expenditure is very much related

with the monthly income of the borrower. Because based on their income the borrower can

control their spending and repay the installment of the loan and Most of the respondents were

monthly expenditure of 15001-20000. The others expenditure range of the borrower 5001-

10000 and their significant numbers are 27% and others expenditures level are 10001-

15000,26000-30000 and 30000+ and their percentages are 18%, 1% and 5% respectively

Figure-13

From the above chart it is clear mat most of the borrower's monthly expenditures of 15001-

20000 and the second significant borrower's monthly expenditures are 5001-10000.

Table 14: Monthly Savings- Distribution of respondents

Monthly Savings Count Cumulative Count

Percent Cumulative Percent

Tk. 5001 -10000 38 38.00 38 38.00Tk. 10001-15000 32 70.00 32 70.00Tk. 15001-20000 3 73.00 3 73.00Tk. 26000-30000 1 74.00 1 74.00TK.30000CR 1 75.00 1 75.00Others 25 100.00 25 100.00

100 100.00

The next question of the survey was about the monthly savings of the respondents. Among

the borrowers they are able to save money after them making some expenses. About 38 %

borrowers can save money between the range of 5001-10000 and 32 % are the range of

10001-15000. So from the above table it can figure out that 38% and 32 % are significant

numbers for the borrower about saving their money.

Figure-14

Savings are tk. 5001-10000 and 32% monthly savings are tk. 10001-15000 and others

monthly expenditures are 25% among the borrowers.

Table 15: Purpose of the Loan -Distribution of respondents

Purpose Of The Loan Count Cumulative Count

Percent Cumulative Percent

For Purchasing Car 3 3.00 3 3.00For Purchasing Apartment

6 9.00 6 9.00

For Business Purpose 69 78.00 69 78.00For Purchasing Computer 2 80.00 2 80.00

For Education 4 84.00 4 84.00Others 16 100.00 16 100.00

100 100.00

Figure-15

Before sanction and giving the loan to the borrower the Bank must know why the person is

taking the loan. From the above table it can figure out that about 69 people has taken their

loan for their business purpose and they are in significant numbers. The second significant

number is 16 and they are categorized as others only few peoples used the loan for the other

purpose like purchasing car, purchasing apartments and some of the categorized as others.

Table 16: Amount of Loan- Distribution of respondents

Amount OF Loan Count Cumulative

Count

Percent Cumulative Percent

Tk.300000-500000 29 29.00 29 29.00

Tk. 500001 -800000 60 89.00 60 89.00

tk.800001-1 110000 0 89,00 0 89.00

Tk.1 100001-150000 5 94.00 5 94.00

M 500000+ 6 100.00 6 100.00

100 100

From the previous table we know that most of the borrowers are using the loan for their own

business purpose and the approximate loan amount is 500001-800000. Among the borrowers

60 numbers of people has taken this amount of loan and 29 people has taken the loan between

the ranges of 300000-50000.

Figure-16

According to the bar chart it can figure out that about 60% borrowers have taken the loan

between the range of tk.500000-80000 and 29 % borrowers has taken the tk.300000-50000

among the all borrowers. Very few have taken the loan amount between the range of 110000-

150000 and above 150000.

Table 17: Monthly Installment -Distribution of respondents

Monthly Installment Count Cumulative Count

Percent Cumulative Percent

Tk350(MOOO) 13 13.00 13 13.00Tk. 4500-5000 47 60.00 47 60.00Tk. 5500-6500 34 94.00 34 94.00Tk.10000-15000 0 94.00 0 94.00Tk.l5000(H- 6 100.00 6 100.00

100 100

According to the amount of loan and interest rate the monthly installment has been fixed up

by the bank for the borrower. It should be mentioned borrowers and bank fixes the monthly

installment sometimes on negotiation. From the above table it is very clear to find out that

about 47 numbers of people repay their installment between the range of 4500-5000 among

the total respondents and 34 peoples make their installment in the range of 5500-6500.

Figure-17

From this pie chart it can figure out that about 47% borrowers repay their installment in the

range of tk.4500-5000 and on the other hand 34% are paying the installment in the range of

5500-6500.

Table 18: Source of Repayment -Distribution of respondents

Source of Repayment Count Cumulative

Count

Percent Cumulative Percent

From Business 69 69.00 69 69.00

From Service 4 73.00 4 73.00

Others 27 100.00 27 100.00

100 100

Since among the all borrowers have taken their loan for business purpose and their source of

repayment also will be from their business and about 69 people repay their loan from their

business and 27 people repay their loan other source.

Figure-18

From the above chart it can figure out that all borrowers have taken their loan for business

purpose and their source of repayment also will be from their business and about 69 % repay

their loan from their business and 27 % repay their loan other source.

Table 19: Classification Status -Distribution of respondents

Classification Status Count Cumulative Count

Percent Cumulative Percent

Regular 86 86.00 86 86.00Irregular 6 92.00 6 92.00Sub-Standard 7 99.00 7 99.00Doubtful 0 0.00 0 0.00Bad/Loss 1 100.00 1 100.00

100 100

A classified loan or commitment is one which is classified as substandard, doubtful or

bad/loss as per policy of loan classification set by Bangladesh Bank or Head Office of the

bank. According to the table most of the borrowers are regular and about 86 peoples are in

the regular group and very few of them are in irregular, sub standard and bad/loss category.

From this table it can be explained that most of the borrowers are much machined regular

about repaying their loan.

Figure-19According to this bar chart the borrowers are regular and about

86 peoples are in the regular group and very few of them are in irregular, sub standard and

bad/loss category.

Table 20: Reason for Classification - Distribution of respondentsReason For Classification

Count Cumulative Count

Percent Cumulative Percent

Business Loss 3 3.00 3 3.00Death of The Borrower 1 4.00 1 4.00Wrong Investment 1 5.00 1 5.00Others 11 16.00 11 16.00Intentionally 1 17.00 1 17.00Others 83 100.00 86 100.00

100 100.00

According to the previous table some of the borrowers are irregular and the reason for these

classifications are business loss, death of the borrowers and some of me borrowers don't pay

the installment intentionally. So from the above table it can figure out that 3 people are

irregular for the reason of business loss, one person is for his death and 11 people s are

categorized as other. Here 83 mean those people who are very much regular to pay the

installment.

Figure-20

It can figure out that out that 3% people are irregular for the reason of business loss; one

person is for his death and 11% people s are categorized as other. Here 83% means (hose

people who are very much regular to pay the installment.

Table 21: Repayment started Distribution of respondents

Repayment Started Count Cumulative Count

Percent Cumulative Percent

After One Month 0 0.00 0 0.00After Two Months 22 22.00 22 22.00After Three Months 38 60.00 38 60.00Others 40 100.00 40 100.00

100 100

After taking the loan the borrowers have to pay the installment of the loan and the installment

payment started after one, two or three months. So from the table it can be told that most of

the loan repayment has started after three months and others are categorized as four months

or five months.

Figure-21

From the pie chart it is figured out very easily that about 38% borrower started their

installment after three months and 40% borrower repay their installment after five or six

months

Table 22: Reason For Switching to another Bank Distribution of respondents

Reason For Switching To another Bank

Count Cumulative Count

Percent Cumulative Percent

Higher Interest Rate 0 0.00 0 0.00Poor Service 5 5.00 5 5.00Unsecured 3 8.00 3 8.00Lower Benefits 6 14.00 6 14.00no switching 86 100.00 86 100.00

100 100

The borrowers who are irregular and identified as classified borrowers they try to define it in

different way and they stand reason as poor service, unsecured and lower benefits. The table

shows that among the borrower 5 people switched to another bank for the poor service, 3

people told that the bank is not secured for the loan purpose and the 6 people told that they

are not so benefited from this loan and last thing 86 peoples are regular among the all

borrower and they did not switch to another bank.

Figure-22

From the figure it can figure out that the irregular borrowers are changed to the another bank

for the poor service and their percentage is 5% and people told that the bank is not secured

for the loan purpose and the 6 people told that they are not so benefited from this

Table 23: Knowledge of Terms and Condition-Distribution of respondents

Knowledge about the Credit Policy of The Bank

Count Cumulative Count

Percent Cumulative Percent

Yes 83 83.00 83 83.00

No 17 100.00 17 100.00

100 100

The question was to the borrowers about the knowledge of terms and condition of the credit

policy. Every bank has its own some terms and condition for the credit policy and the

respondents are very much significant in positive answer. From the previous result most of

the borrowers are graduate and they are very much regular for paying the loan installment

and 83 people know the terms and condition of the credit policy of the bank and only 17

people does not know the policy and if we see the previous result then we can identify that 17

people are from irregular group.

Figure-23

From the above chart it can be figured out very simply that about 83% borrowers have the

knowledge of the credit policy of the bank and only 17% borrowers do not know the policy

of the bank.

Table 24: Loan Use for the Actual purpose -Distribution of respondents

Loan Use For the Actual

Purpose

Count Cumulative

Count

Percent Cumulative Percent

Yes 91 91.00 91 91.00

No 9 100.00 9 100.00

100 100

Sometimes the borrowers take the loan and don't apply the loan for their actual purpose but

from the above table it is very much clear that 91 borrowers use their loan for their actual

purpose and only 9 numbers of people did not use the loan for me main purpose and it should

be mentioned that they are in irregular group. If they don't use the loan for the actual purpose

then it is very obvious to switch the bank and there is another reason the lack of knowledge of

the terms and condition of the credit policy.

Figure-24

From the above chart, we can tell that 91% borrowers are in the group who are using the loan

for the definite purpose and only 9 percent borrower are not using the loan for the actual

purpose.

Table 25: -Action against Borrower - Distribution of respondents

Action against Borrower Count Cumulative Count

Percent Cumulative Percent

Yes 14 14.00 14 14.00

No 86 100.00 86 100.00

100 100

From this table we can notify that the bank take the action against the borrower who are

irregular and who do not know the policy of the bank and 14 people are under classified

borrowers and the action has been taken by the bank and 86 people are free from the action

policy of the bank.

Figure-25

According to the charts bank has taken their action on 14% people and bank did not need to

take any action on 86 % people who are regular in loan repayment.

Table 26: Relationship With The Bank Distribution of respondentsRelationship with the bank

Count Cumulative Count

Percent Cumulative Percent

Below 1 Year 6 6.00 6 6.002-3 Years 8 14.00 8 14.003-4 Years 12 26.00 12 26.004-5 Years 17 43.00 17 43.00Above 5 years 44 87.00 44Others 13 100.00 13 100.00

100 100.00

Relationship is very important between the bank and client because many things are related with this. Some clients have started their transaction with bank by issuing DPS, account opening and other banking features. From The above table we can figure out that about 44 people made the relation with the bank for above five years and 17 peoples are engaged with the bank for 4-5 years and others are categorized as below 1 year , 2-3 Years, 3-4 Years and others and the peoples are made 6, 8 12,13 respectively.

Figure-26

From the above chart it cane be told that 44% borrowers made the relation with the bank for above five years and 17 % borrowers are engaged with the bank for 4-5 years and others are categorized as below 1 year, 2-3 Years, 3-4 Years and others and the peoples are made 6%, 8% 12%, 13% respectively.Results & Findings of the study

The higher the educational attainments, monthly income & occupational status of

individual borrowers, the lower the probability of default rates of loans.

The higher the social class of the individual borrowers, the lower the probability of

default rates of loans.

The higher the financial solvency of the individual borrowers, the lower the

probability of default rates of loans.

The higher the reputation of the corporate borrowers, the lower the probability of

default rates of loans.

The higher the performance of the individual borrower, the lower the default rates of

loans.

The higher the financial solvency of the individual borrowers, the lower the

probability of default rates of loans.

Recommendations:

The findings in this study support the following recommendations

1. Expand branch network not only in urban areas but also in metropolitan areas of the

different zone of the country.

2. Train employees to work more efficiently and confidently with better knowledge and

skills.

3. Needs to increase the number of ATM booths

4. Needs to provide other loans such as education loan, marriage loan, travel loan,

doctors loan etc.

5. Loan should be provided in the agricultural sector.

6. A negative relationship has been found between the educational level, income level

and occupational status of the individual borrowers and default rates of loans. So,

banks should try to sanction loans to those borrowers whose educational background,

income level & occupational status are higher than others.

7. Again, negative relationship has been found between social class of the borrowers and

default rates of loans. In order to avoid losses, banks should try to grant advances to

higher social class borrowers than lower.

8. Avoid sanctioning loan to those individual borrowers who do not have any fixed

income source and who do not have sufficient monthly savings to repay the

installment regularly.

9. Avoid sanctioning loans to those corporate borrowers who have just entered in to the

market with no previous business experiences.

10. Avoid sanctioning loans to those firms who have no reputation in the market, no

customer base and no assets in their own name.

11. Avoid sanctioning loans to those borrowers who have classified liability with other

banks.

12. Avoid sanctioning loans to those borrowers whose account turnover is insignificant.

13. Increase required provision for loan losses to protect deposits. SEBL is highly

exposed to commercial credits, which consist of 71.58% of the total loans and

advances. The remaining 28.42% consist of other forms of loans and advances like

consumer credit scheme, term loan, and time loan. There should be a balance between

the commercial credits and other forms of loans in order to reduce credit risk.

14. Increase sanctioning loans to individual borrowers than corporate borrowers because

corporate borrowers tie up a large amount of loan for a longer period of time. As a

result, bank's assets tie up for a long period of time.

Conclusion:

The banks of today are performing a wonderful task in the development of our people, our

country and our nation. The smooth, fast and systematic services of the private banks have

made people’s life easier. The different loan facilities have motivated people in investing in

business and thus creating employment opportunities. This employment generation is

increasing the standard of living among our people helping them to lead a better life. This as

a whole is improving the condition of our country as a result the foreign investors are

motivated to invest in our country. This will eventually help in the betterment of the

economic condition of our country.

Bibliography Employees of Southeast Bank Limited, New Elephant Road Branch.

www.southeastbank-bangladesh.com

Annual Report of Southeast Bank Limited. (2000- 2007)