AN ANALYSIS ON CREDIT DISBURSEMENT AND RECOVERYOF JANATA BANK
CHAPTER-1 INTRODUCTION 1.1 THE BANKING SYSTEM OF BANGLADESH The financial system of Bangladesh consists of the Bangladesh Bank as the central bank, 4 nationalized commercial banks (NC'B), 5 government owned specialized banks, ,30 domestic private banks, 9 foreign banks and 28 non-banking financial institutions, and In addition, it embraces insurance companies, stock exchanges and co-operative banks. The Bangladesh Bank, as the central bank, has legal authority to supervise and regulate all the banks. It performs the traditional central banking roles of note issuance and of being banker to the government and other banks of different categories. It formulates and implements monetary policy manages foreign exchange reserves and supervises banks and non-banking financial institutions. Its prudential regulations include minimum capital requirements, limits on credit concentration and insider borrowing and guidelines for asset classification and income recognition. The Bangladesh Bank has the power to impose penalties for non-compliance. Further, it intervenes in the management of a bank if serious problems do arise. Last but not the least; it also has the delegated authority of issuing policy directives regarding the foreign exchange regime.
The Bangladesh Bank introduced new accounting policies with respect to credit classification, provisioning and interest suspense in 1989 with a view to attaining international standards over a period of time. Moreover, a revised policy for credit classification and provisioning was introduced from 1st January, l999 that calls for an independent assessment of each credit on the basis of qualitative factors and objective criteria. If a Continuous Credit or a Demand Loan remains non-performing for 6 months or more it is classified as Sub-standard. If either of it remains non-performing, for 9 months it is classified as Doubtful and while nonperforming for 12 months or more it is classified as Bad and Loss. 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 as sub-standard. Again, it is classified as Doubtful and loss if the time-equivalent of unadjusted balance is 12 months and I8 months respectively. Nationalized Commercial Ranks function primarily as deposit takers and lenders lo trade and commerce. They accept deposits withdrawable on demand by cheques or draft. They also extend credit to the borrowers in various forms and conduct foreign exchange business. In addition, they provide various ancillary services to the clients. However, now-a-days these banks are also engaged in long, medium and short-term industrial lending,
agriculture
financing
including
financing
multifarious
developmental activities. Twenty-eight financial institutions are now operating in Bangladesh. Of these institutions one is government-owned, fifteen are local/private and
the other twelve are established under joint venture with foreign participation. The BB has introduced a policy for loan and lease classification and provisioning for financial institutions from December 2000 on half-yearly basis. To enable financial institutions to mobilize medium and long-term resources, the Government of Bangladesh singed a project loan with International Development Agency(IDA) which is known as "Financial Institutions Development project (FIDP) " The project has stalled its operation from February 2000 and it is administered by the BH It has established “ Credit, Bridge and Standby Facility (CBSF)” to implement the financing program with a cost of US$ 57.00 million.
1.2 OBJECTIVES OF THE STUDY The main objective of the study is to assess the performance dynamics of the Janata Bank, in materializing (lie prime objective of the study, the present research focuses on the following specific objectives: • To identify the performance indicators, • To examine the trends of performance. • To identify (actors influencing performance. • To examine the relationship between performance and its determinants. • To identify constraints to operational effectiveness. • To identify organizational strength, weaknesses, opportunities and threats. • To suggest remedial measures for the development of Janata Bank.
1.3 RATIONALE OF THE STUDY:
There is a far gap between theoretical knowledge and practical field. So, only theoretical knowledge is not enough for a business student. Our Internship program has been mainly launched to bridge this gap. Janata bank (JB) is mainly established to develop economic condition of the country. The topic, that I selected, is very important regarding this objective. So I believe that my study will help readers to understand the Credit disbursement and recovery Practices of JB and will help to justify whether their system is effective of not. 1.4 LIMITATION OF THE STUDY Credit disbursement and recovery in the NCBs are. classified in nature. Data and related information’s were not accessible because of banking business secrecy. Therefore, collection of data for my report was limited to the annual reports of JB , bulletins of BB , journals of BIBM, and reports published in the National Dailies. Because of secrecy of Banking business, some information’s on the operations of JB were not allowed to be included in the report. Formal interviews with the Management were excluded, as permission was not available from the concerned Authority.
CHAPTER-2 METHODOLOGY 2.1 STATEMENT OF THE RESEARCH PROBLEM After liberation of Bangladesh many NCBs came into existence and with the passes of time some of these banks dad lost there existence, bill among'. them Janata Bank strongly holds its position. Now-a-days Janata Bank is the second largest nationalized commercial Bank in Bangladesh. The aim of the Bank is to actively participate in the socioeconomic development of the nation by operating a commercially sound Banking system; ft provides credit to deserving borrowers and at the same time protests depositor's interest. The operations of the Janata
Bank arc being conducted based on the rules and regulations in the light of the Bank Nationalized Order of 1972. The success stain of the Janata Bank is determined by effective operations of all the tasks under general business: export, import, foreign remittance, rural financing, loan and advances etc. Review of operational data of the bank indicates that there remains a wide gap between the amount of loan due and the amount recovered. On the other hand interest rates of deposits, interest rates of loan and advances of JB increase day by day, but profit of the JB does not increase comparatively. Moreover, available data show that (here has been a declining trend of manpower of JB but employee productivity is still in low level. All these problems appeared lo he I he complex set of functions or actors influencing each of the operations. Until now there has not been any comprehensive study on the cause and effect relations between performance in terms of basic indicators and their determinants. The present study is a modest attempt to address the performance dynamics of the, Janata Bank and lo figure out the factors that are influencing the banks performance.
2.2 DATA COLLECTION In order to make the report more meaningful and presentable, the following data and information have been used widely. The report is based on both primary and secondary data. The Primary sources of data are : •
Face to face conversation with the respective officer of the branch
• Face to face conversation with the clients •
Relevant file study as provided by the officers concerned
• Observation
The Secondary sources of data are: •
Annual report
•
Periodical report of Janata Bank
• Different Books articles etc.
2.3 SEGREGATION OF DATA. Related data on JB were segregated from the source material for the purpose of making this report.
2.4 COMPILATION OF DATA Concerned data were analyzed and verified while working in JB.
2.5 PRESENTATION OF DATA Necessary data were compiled in charts & table etc and presented as annexes to this report.
2.6 SAMPLE SIZE Sample size was limited to the data of JB & other NCBs. Formal interviews with top and middle management and classified material were excluded from the study because of banking business secrecy. Therefore, the sample size reduced to expressible reports of the banks.
2.7 VARIABLES COVERED To evaluate the performance of Janata Bank, variables used in this study have been divided
into three major groups. These are the
following : •
Variables related to profitability
• Variables related to general business. •
Variables related to productivity.
2.7.1 VARIABLES RELATED TO PROFITABILITY: The variables under this group are the following:
•
Income
• Net profit • Rate of return • Net profit unit of capital employed •
Income per unit of capital employed
• Net profit per unit of deposit
2.7.2 VARIABLES RELATED TO GENERAL BUSINESS. •
Total business
• Total borrowing • Total investment •
Total Credit
• Deposits • Exports • Imports • Foreign Remittance • Amount of Total Credit disbursed • Credit Recovery • Amount of bad credit • Constraints of credit recovery
2.7.3VARIABLES RELATED TO PRODUCTIVITY The variables under this group are the following: •
Income per employee.
• Net profit per employee. •
Deposit per employee.
• Income pre branch. •
Net profit per branch.
2.8 ANALYTICAL TOOLS USED: To analyze the performance of variables from time to time, the tools used in this study are mainly arithmetic mean, standard deviation and growth rate and trend estimation. The arithmetic mean has been used to compare each year’s value of the variable to its mean value whether it is more of less than its mean value. The measure of standard deviation permits us to know the role of individual values of a variable. The formulas used in the calculation are the following: Formula 1. Arithmetic Mean =
x=
∑x n
Where, x = Mean
of the Sample
∑x = Sum of values of all observations n= Number of elements in the sample Formula 2. ( x − x) Standard Deviation = S = ∑
2
n −1
Where, S = Standard Deviation x = Value of each of the observations x = Mean
of the Sample
n-1 = Number of observations in the sample minus one Formula 3. Growth rate = Pn = P 0 e r n Where, P0 = Previous total amount Pn = Present total amount n= No. Of year
r= growth rate r = loge X X = 2, 3,.......... Formula 4 Trend estimation = Y= a+bx Here, a= b=
y −b x
∑xy −n xy ∑x −n x 2
2
Where, y = Estimated value of the dependent variable x = value of the independent variable ( Time in trend analysis) a = Y – intercept (The value of Y when X =0 b = Slope of the trend line y
= Mean of the values of the dependent variable.
x
= Mean of all the values of the independent variables
n = Number of data points in the time series Formula 5 In calculating the impact of Change in the Employee Productivity and Number of Employees on total Business and net profit the following formula is used. TB = E. No + Eo. Ne+ E. Ne Where, TB = The amount of change in the volume of variables in the current year in the current year in relation to the volume of total business in the base year. E = The mount of change in the employees productivity of the current year in relation to that of the base year.
ď ˛Ne = The change in the number of employees of the current year in relation to that of the base year. Eo = Employee productivity level in the base year. No = Number of the employees in the base year.
CHAPTER-3 PROFILE OF JANATA BANK 3.1 BRIEF HISTORY OF JANATA BANK The bank was initially emerged in the banking scenario of the then Last Pakistan as "The United Bank Limited" and "The Union Bank Limited" at the initiative of some Bangalee entrepreneurs in the year 1959 under Bank Companies Act 1913.Aftrcr the independence of Bangladesh this Bank was nationalized as per policy of the 'Bangladesh Banks (Nationalization) Order- 1972 and renamed as Janata Bank Limited. Janata Bank Limited is a 100% Government owned commercial bank in Bangladesh. Janata Bank initially started with a paid-up-capital of TK. l5 million only along with 249 branches and 3408 employees. Since then, JB maintained a steady growth rate by expanding its branches to the urban and rural areas of the country. Presently, its paid up capital and reserves have increased to Tk. 2594 million and TK.1296 million respectively as at the year end, 2005.Total assets of the bank is TK. 188166 million and it has a deposit of TK. 168897 million as on end 2005. The aim of the Bank is to actively participate in the socioeconomic development of the nation by operating a commercially sound Banking system. It provides credit to deserving borrowers and at the same time protects depositor's interest. Janata Bank operates through 847 branches including 4 overseas branches at Abu Dhabi, Dubai, Sharjah, and Al-Ain in the UAL. It is linked with 1221
foreign
correspondents all over the world. The bank presently employs more than 15000 persons. 3.2 THE ROLE OF JANATA BANK IN ECONOMIC DEVELOPMENT Bangladesh started life as an independent state in 1971 with an inheritance of long standing economic problems. Since inception, the banking scene in Bangladesh has been very eventful. In the recent past, many new developments have taken place in the banking sector. In order to achieve the institutional objective: "to consolidate and strengthen the banking system, to provide banking service door to door of public and to promote money market� Janta Bank as a Government bank, is playing a great role in the economy of Bangladesh. It is playing a significant role towards socio-economic development of the country by operating commercially sound banking system and by financing NonBanking financial Institutions, dealing with Home Loan, Corporate Finance and Syndicate Loan. Table 1: Contribution of .IB to Bangladesh Economy Particulars
2003-2004
2004-2005
GDI* growth Agro based growth Export
5.50% 2.70% US $7500 million
5,40% 0.3% US $8600 million
Import
US $9800 million
US$ 11900 million
Deposit growth
TK. 1212100 million
TK. 1426100 million
Credit growth
TK. 974500 million
TK. 1197700 million
It is clear from the above table that contribution of JB to Bangladesh Economy has increased year after year. Moreover Janata Bank offers credit to almost all sectors of commercial activities having, productive purpose. Credit facilities are offered lo individuals, businessmen, small
and big business houses, traders manufactures; corporate bodies etc. It has opened branches in rural areas to cater to the banking needs of rural people. Janata Bank has been financing agricultural production and poverty alleviation programs since 1977. Under rural credit programme, the Bank is extending credit facilities for crop cultivation fish and shrimp culture, irrigation equipment and agricultural implements, development of poultry, hatcheries, horticulture, seasonal fruits etc. Bank has implemented different types of productive and income generating microcredit programmes sponsored by the bank on its own initiative. Under diversification
programme,
Bank
has
Launched
Women
entrepreneurship credit programme since 2001. IB is providing fixed and working capital finance to the Women entrepreneurs. The loan is being provided without collateral to the tune of TK. 5.00 lac. Deposit mobilization and investment of funds with due emphasis on priority sector of the economy. To augment national income at higher rate & to create more employment opportunities, extensive industrialization is of great importance. Taking this consideration the bank has extended its credit facilities to large, medium, small & cottage industries. For the purposes of development of Inrgc Industries, small and cottage. Industries, financial assistance in the form of long and medium term loan for acquisition of fixed assets of the project and short-term loan for acquisition of fixed assets of the project and short-term loan for working capital are being provided out of Banks own resources. JB in order to meet the need of the time has extended its portfolio to the most deserving Information Technology sector. The bank has earned excellent business reputation in handling and funding international trade, particularly in boosting-up of export & import of the country. Major export items were readymade garments, shrimps, tea and non-traditional items.
Import remained confined mainly to consumer's goods, old vessels for scrapping capital machineries & industrial raw materials.
3.3 ORGANOGRAM OF JB Chairman Board of Director
Managing Director Deputy Managing Director General Manager Deputy General Manager Assistant General Manager Senior Principal Officer
Principal Officer
Senior Officer Officer/ Officer( Cash)
Senior Clerk Junior Clerk
DIVISIONS OF JANATA BANK • MD’s Squad •
Board Secretariat
• Public Relation Division • Engineering Division • General Services Division • Administration & Human Resources Division • International Trade Division (Export) • International Trade Division (Import) • Overseas Banking Division • Law Division • General Credit Division-1 • General Credit Division-2 • Rural Credit • Micro Enterprise & Special Program Division • SME Division • Welfare and Disciplinary Division • Appeal Division • Accounts Division • Budget & Expenditure Division • Industrial Credit Division • Development & Marketing Division • General Banking Division • Enduse Division ( General) • Enduse Division (Foreign Trade & Industrial Credit) • Recovery Division-1 • Recovery Division-2
• MIS, Planning & Research Division • Information Technology Division • Audit & Inspections Division-1 • Audit & Inspections Division-2 • Reconciliation Division • Audit & Inspection Implementation Division-1 • Audit & Inspection Implementation Division-2 • Janata Bank Training Institute • Fund Management Division • Human Resource Policy Division 3.4 MAJOR FUNCTIONS OF THE DEPARTMENTS AS OBSERVED In the light of the objectives of JB, it has to perform several activities. All the activities have been classified into five major groups. Each group of activities has been assigned to a department headed by a departmental manager. The functions of the departments are mentioned below: 3.4.1 GENERAL CREDIT DEPARTMENT The major functions of this department are given below: • To sanction and monitor loans and advances for working capital to Jute and Tannery business throughout the country. • To sanction and monitor general house building loans, staff house building loans, motor cycle and bi-cycle loans etc. • To issue credit circular and formulate policies about the discretionary power of business. Sanction, monitor, and review all types commercial loans for transport, food grains, and fertilizer etc industries and provide working capital for those industries located in
• Dhaka, Chittagong, and Sylhet divisions. • To sanction, monitor, renew commercial loans, providing working capital to the industries of salt, sugar etc for Rajshahi, Khulna and Barisal divisions. • Deal with all types of loan recovery functions. 'r
Monitor large
scale loans. •
Seek necessary information from CIB against the borrowers before issuing loans.
• Prepare and submit all types of statements and returns of the above-said credits to the competent authorities such as BB and Ministry of Finance (MOF). • Approve loan and advances for SME from 10 crore • Provide cash incentives for exporting garments, textile, and leather vegetables and also provide facilities for opening L/C. • Provide facilities to the importers for importing raw materials or other production related items like opening L/C, payment against documents (PAD), loan against import merchandise (LEVI). 3.4.2 HUMAN RESOURCE AND ADMINISTRATION DEPARTMENT The major functions of this department are given below: • Formulate personnel policies relating to recruitment, promotion, service rules et and to prepare seniority list and preserve them for record purposes. • Control administrative activities of manpower • Provide service rule for the workers' officers. Review and expand improving service rule and notifying also.
• Communicate and negotiate with the worker's union and assessing their demand discussing issues to improve relation with the administration. • Define opportunities and advantages or retirement and preretirement preparation. • Look into the case of increment, deputation, resignation, and also to deal with the formalities of passport etc. • Ensure medical facilities for the worker and officers. • Combine the activities of branch and divisional office and assessment. • Arrange seminar for the heads of the divisional and branch officers. • Implement duties and responsibilities assigned by the head of the department. 3.4.3 MIS AND PLANNING DEPARTMENT The major functions of this department are given below: •
Develop ideas and planning for the manpower training, and sources of recruitment.
•
Collect, classify, present and store information regarding JB's business and management from several branches, departments through statement.
•
Prepare and send various statements to the management of the JB, various ministries, Bangladesh Bank, according to their demand.
•
Collect information through on-line in the Head Office from various departments.
•
Maintain all types data/information about the training and skills of the employees. V- Plan for the development of the bank business
•
Compile and publish reports, journals, brochures, booklets etc on the different banking activities.
•
Innovate new ideas and business opportunities.
•
Information is stored in database management system.
3.4.4 LAW DEPARTMENT According to the Artho Rin Adalat 2003 Act. this department conducts its function. The major functions of this department are given below: • Issue legal notice to executive for further lawful action as against the loan defaulters. • Take all the arrangements to putting case against all the loan defaulters as per the rule of banking act. • Monitor cases done by the branches, projects petition to the high court and Supreme Court and carrying them till end. • Operate cases by the clients as against the bank and proper steps to settle the problem. • Call auction of the properties declared by the court to do so and monitor it successfully. • Advise bank to the interest of bank lawfully. • Execute duties and responsibilities assigned by the head of the department time to time. • Rectify present law/policies to recover the loaned amount from the loan defaulter if so needed. 3.4.5 INFORMATION TECHNOLOGY DEPARTMENT The major functions of this department are given below:
• With a view to accelerating the activities of the bank and modernizing the entire system, the computer System Division computerized 139 important branches. • In order to support smooth transition to the use of new technology in the bank, Computer Training Centers have been set up at Dhaka and Comilla. These centers have trained a large number of its employees on information Technology. • With the introduction of one stop service system the activities of the token, scroll and ledger keeper are reduced considerably. • IT Department develops more than 20 software at Head office and Controlling Offices. Moreover, Training Management System and Secured Salary System, these two newly developed software have been implemented by 2005. • Uses successfully the Banking application software named "JB soft Banking and other software's developed by Bank's owned programmers. • Introduces Internet Banking, SWEPT, ATM, POS, EFT facilities. • Establishes 4 computer labs to develop computer skilled person. • Out of 41 ATM booths, JB has its own ATM'S at 4 branches. JB is going to introduce Credit Card very soon.
3.5 CAPITAL STRUCTURE OF JANATA BANK Structure of Janata Bank has changed from year to year. The components of the capital structure are Authorized capital, paid up capital, statutory reserve, and other reserves, Total. Figures of different components of the capital structure for the year 2001, 2002, 2003, 2004 & 2005 are shown below.*
Table 2: Components of the capital structure (Figures in million taka) Component of capital structure Authorized capital Paid up
2001
2002
2003
2004
2005
Growth rate
8000
8000
8000 (71.
8000
8000
0%
63%) 2504
(07.30%) 250-1
(67.28%) ?50-l
0%
(71 .80%) (71.73%) 2594 2504
capital Statutory
(23.28%) 176.53
(23.26%) 187.14
(23.23%) 202.85
(21.82%) 203.32
(21.82%) 206.39
3.17%
reserve Other
(1.58%) 371.52
(1.68%) 371.5?
(1.82%) 371.52.
(1.71%) 1080.70
(1.74%) 1089
7.4.01 %
reserve Total
(3.33%) 11142.05
(3.33%) 1152.66
(3.33%) 1168.37
(0.17%) 11887.02
(9.16%) 11890.09
1.31%
(100%)
(100%)
(100%)
(100%)
(100%)
* Annual Report 2001-2005 From the table in the fast page authorized capital was the largest component of the bank capital structure for each year. Though contribution of this component in the capital structure was declining gradually and it has 0% growth rate. Second largest component of the capital structure was paid up capital and its contribution also declining gradually. It has also 0% growth rate. The contribution of statutory reserve was rising up to the year 2003.But after 2003 they were in the declining stage and its growth rate was only 3.17%.Incase of the contribution of other reserves, it remained constant up to the year 2003 and then highly rising in the year 2004 and 2005. It has highest growth rate that was 24.01%. Total growth rate of the capital structure was not so high, it was only 1.31%. The above figures are showing the comparison between different components of capital structure of the base year 2001 and the year 2005. In the figures authorized capital and paid up capital in the base
year 2001 are higher than in the year 2005. On the other hand statutory reserve and other reserves are higher in the year 2005 than in the base year 2001. 3.6 Mission and Vision of the JB The mission of the bank is to actively participate in the socio-economic development of the nation by operating a commercially sound banking organization, providing credit to viable borrowers, efficiently delivered and competitively priced, simultaneously protecting depositors' funds and providing a satisfactory return on equity to the owners. The main mission of the JB is to be the Largest, Strongest, Innovative and Service Engineering Commercial Bank. And the vision of the bank is to be the financial giant in Bangladesh.
CHAPTER-4 4.2 PRINCIPLE OF SOUND LENDING The principle function of a bank is to lend. Lending is a dynamic activity. Lending brings banking into a more meaningful and purposeful contract with public and, therefore, has the greatest impact upon them. Bankers make advances to customers in reliance on his promise to repay, rather than the security held by the banker. Security is a protection against unexpected default in repayment by the customer. Banker must ensure the employment of bank's fund in a profitable manner without undue risk of loss of the capital. Since, there involve some degree of risk in all lending, each bank has to develop sound/good and safe lending policies and some new lending techniques in order to keep the risk to a minimum. There are a few general principles of sound/ good lending which every banker follows
when appraising an advance proposal. These are-Safety, Liquidity, Purpose, Profitability, Security, Dispersal/Spread and National Interest SAFETY: "Safety First" is the most important principle of sound lending. When a banker lends, he must feel certain that the advance is safe; i.e. the money will definitely come back in the normal course, i.e. the bank may not have to resort legal action or to sell the securities to liquidate the advance. Bankers mainly use depositor's fund as a means of its earnings. The money of the depositors being repayable on demand or, after a short notice, determines the capacity of a bank as to the period for which he can safely lend it out without an uncalculated risk. Safety should never be sacrificed for profitability. Once the confidence of the depositors is shaken, the banker cannot carry on the banking business. The repayment of loan/advance depends upon the borrower's "capacity to repay" and "willingness to repay". The banker should take utmost care in ensuring that the enterprise or business for which loan/advance is sought is sound and the borrower is capable of carrying it out successfully. The willingness to repay depends upon the honesty, Character, integrity and reputation of the borrower. If for example, the borrower invests the money in an unproductive or speculative venture, or if the borrower himself is dishonest, the advance would be in jeopardy. Similarly, if the borrower suffers losses in his business due to his incompetence, the recovery of the money may become difficult. The banker ensures that the money advanced by him goes to the right type of borrower. The borrower should, therefore, be chosen carefully for the safety of the advance.
LIQUIDITY: Liquidity is the availability of bank funds on short notice. It is not enough that the money will come back, it is also necessary that the money will come back on demand or in accordance with agreed terms of repayment. The borrower must be in a position to repay within a reasonable time after a demand for repayment is made; otherwise, the liquidity position of the bank is endangered. Liquidity also signifies that the assets (securities) should be saleable without any loss. But it must be ensured that the advance will be repaid from the resource other than the securities pledged. A banker would be failing in his duty to safeguard the interest of the depositors and shareholders if his credit policy doesn’t provide a method of gradual repayment and final recovery of the money advanced. Thus, the banker regards liquidity as important as safety of the fund. PROFITABILITY : Commercial bank has to distribute its resources in a manner that they meet the twin requirements of liquidity and profitability. A banker has, therefore, to see that major portion of the assets owned by it are not only liquid but also aim at earning a good profit. The working funds of a bank are collected mainly by means of deposits from the public and interest has to be paid on these deposits. Banks also have to meet their establishment charge and other expenses. They have to make provision for depreciation of their fixed assets and also for any possible bad or doubtful debts. Interest earned by a bank on its advances is the main source of its income. The difference between the interest received on advances and the interest paid on deposits
constitutes a major portion of the banker's income. Banks will not enter into a transaction unless a fair return is assured. So, there is little point in a banker granting facilities, which do not bring directly or indirectly some returns. A banker would not through away money for any purpose for which the borrower wants. The purpose should be productive so that the money not only remains safe but also provides a definite source of repayment. The purpose for which the loan is required and the resources wherefrom the borrower so expected to repay have also an important bearing not only on its liquidity but its desirability too. If has ban is required for a nonproductive and speculative purpose, the banker should think twice before entertaining the proposition. Even though the proposition may appear to be otherwise a good business it may have to be declined for being contrary to the national interests. SECURITY: Now-a-days banks do not lend money without any security. The security offered for an advance is insurance or a cushion to fall back upon in case of need. The security offered against the advance may consist of a large variety—it may vary from a piece of land or a building to a commercial paper or bullion. There may be cases where there is no security except the personal security of the debtor. Whatever be the security, a banker must realize that it is only a cushion to fall back upon in case of need and its adequacy alone should not form the sole consideration for judging the suitability of an advance. Of course, the security, if accepted, must be adequate, readily marketable, easy to handle and free from encumbrance.
It is not correct that an advance proposal is considered only from the point of view of security alone. An advance is granted by a good banker on its own merits, that is to say, with due regard to its safety, likely purpose etc., and after looking into the character, capacity and capital of the borrower and not only because the security is good. DISPERSAL/SPREAD: It is necessary to remember that a prudent banker must avoid lending the major portion of his funds in meeting the needs of any one industry or any one group of industries for considerations of self-interest as well as the larger public good The imprudence of putting one's all eggs into one basket cannot be too often reiterated. Again, advances must not be granted in one area alone. There should be spread of advances against different securities, industries as well as areas. Thus, by a diversification of the advance a banker will be able to spread his risks and considerably improve the safety of advances. NATIONAL INTEREST: Even when an advance satisfies all the aforesaid principles, it may still not be suitable. It may run counter to national interest. The banker would lend if the purpose of the advance is for overall national development plans necessitating flow of credit to priority sector in the larger national interest. Sometimes the need of the borrower may be considered so essential for the benefit of the national economy that despite heavy risks involved the advance may be granted. In the changing concept of bank, national interest for financing in some areas, specially in advances to agriculture, small industries, small borrowers, and export oriented industries, are assuming great importance.
CREDITS: Following the guidelines of Bangladesh Bank, credit facilities have been extended to productive and priority sectors. The Outstanding advance of the Bank is Tk.124467.3 million on 31st December 2005. In extending credit facilities, the Bank has given due importance to sectoral needs and requirements of both public and private sectors. Sector wise Advances are shown below :Taka in million S Name of Sector
Public
Private
Total
%
l 1 2 3
Jute Sector 4872.0 Textile Ind. & trade 775.5 Steel & 654.5
3801.8 4181.0 397.5
8673.8 4956.5 1052.0
7% 4% 1%
4 5 6 7 8
Engineering Food & Allied Export Credit Import credit Industrial Credit Rural, ME & SP
83.0 16433.7 65.0
1164.2 11256.0 10870.9 14372.4 9663.6
1247.2 11256.0 27304.6 14372.4 9728.6
1% 9% 22% 12% 8%
9 1
Financing Housing Others
15.0 1577.4
7999.2 36284.6
8014.2 37862.0
6% 30%
Grand total:
24476.1
99991.2
124467.3 100
0 % RURAL CREDIT, MICRO ENT. & SP. PROGRAM FINANCING: As a nationalized Bank it has a social responsibility to improve the financial condition of the poor/unemployed people. With a view to perform that social responsibility, Bank has initiated rural credit programme since 1974. Now under this rural portfolio there are 33 products. Information related to important products under this programme are shown below:
Taka in Million SI 1 2
Name of Products Cyber-Cafe Loan Credit For
No of Loanees Outstanding % Amount 2005 36 8.6 .15% 754 19.7 .25%
Forestry/Horticulture 3
Nursery Credit Programme
46312
1002.0
10%
4
For Employees Financing "Women
225
44.5
.50%
5
Entrepreneurship Financing Goat
21109
131.8
1.00%
6 7 8 9
& Sheep Farming Gharoa Project Crop Loan Programme Doctors Loan Small Business
2321 335075 55 93
35.3 5073.8 20.8 18.0
.40% 52% .35% .35%
Dev. Loan Others % Total
159335 565315
3374.0 9728.6
35% 100%
10
4.4 Risk Management Like any other business, risks are also inherent in banking business. The risks are complex and multi-dimension Bangladesh Bank has identified 5 (five) core risk areas relating to banking operations and issued necessary guidelines in five areas viz. 1. Credit Risk 2. Asset and liability/Balance Sheet Risk 3. Foreign Exchange Risk 4. Money Laundering Risk and 5. Internal Control and Compliance Risks. Based on supplied guidelines, Janata Bank has developed suitable guidelines for managing its own Core Risks in banking on the abovementioned areas.
a) Credit risk management Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Concentration of credit risk arises when a number of counter parties are engaged in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected due to changes in economic, political or other conditions. b) Concentration of credit risk To manage credit risk, the Bank applies credit limits to its customers and obtains adequate collaterals. Loans and advances amounting to Tk. 32,672.20 milliion against Government Guarantee amounting to Tk. 26,916.70 million were given to (i) Bangladesh Petroleum Corporation (BPC) (ii) Bangladesh Jute Mills Corporation (BJMC) (iii) Bangladesh Steel and Engineering Corporation (BSEC) (iv) Bangladesh Sugar and Food
Corporation
(BSFC).
Investments
in
Public
Sector
and
Corporations amounting to Tk. 612.90 million was made against Government Guarantee amounting to Tk. 1,252.40 million. Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Credit risk in the Janata Bank's portfolio is monitored, reviewed and analyzed by the Credit Risk Management (CRM). CRM determines the quality of the credit portfolio and assists in minimizing potential losses. To achieve this objective, CRM formulates appropriate credit policies and procedures for the Bank to ensure building and maintaining quality credits and an efficient credit process.
Janata Bank has established Asset Liabilities Committee (ALCo) to screen out the banks/financial institutions and determine the maximum risk exposure on each of them. ALCO also assesses, recommends and controls cross border/country risk. To manage the Non-Performing Loans (NPL), Janata Bank has in place comprehensive
remedial
management
policy,
which
includes
a
framework of controls to identify weak credits and monitoring of these accounts. C) Interest rate risk management Interest risk is the risk that the value of a financial instrument will fluctuate due to changes in the market interest rates. The risks are inherent on deposits, liabilities, loans/advances and investments of the Bank. The Assets and Liabilities Committee of Janata Bank regularly reviews the total portfolio of the Bank to ensure that risks are minimized and remain within acceptable limits/capacity. Most of the loans and advances comprise of Working Capital/Agriculture Loan/Loan Under Janata Bank Industrial Credit Scheme, Overdrafts which are reprised on a periodical basis, whereas the majority of deposits are reprised retrospectively on a six monthly basis. D) Liquidity risk management Liquidity risk is defined as the potential loss arising from the Bank's inability to meet its contractual obligations when due. Liquidity risk arises in the general funding of the Bank's activities and in the management of its assets. Bank maintains sufficient liquidity to fund its day to day operations, meet customers' deposit withdrawals either on demand or at
contractual maturity, meet customer demand for new loans participate in new investments when opportunities arise and repay the borrowings on time. Hence liquidity to be managed to meet known as well as unanticipated cash funding needs. Important factors in assuring liquidity is funded on the Bank's good reputation, the strength of its earning and its strong financial position and credit rating. Liquidity risk is managed in accordance with a framework of liquidity policies, contracts and limits approved by ALCO. These policies controls and limits to ensure that Bank maintains well diversified sources of unding as well sufficient liquidity to meet all its contractual obligations when due. The bank can meet the liquidity crisis by taking call loan, short term deposit from other bank & financial institutions and sale of securities on repurchase agreement (REPO). 4.5 Prospects of Credit Product in Janata Bank 4.6 Limitation of the Credit recovery in Janata Bank. Although there is a positive credit recovery during FY 2005-2006,there are some constrains to credit recovery some of which are mentioned below. Government Policy: Government policy may changes regarding import – export duties.Because of the policy changes the price of raw materials may increase and this may decrease the cash flow in the project and when there is any problem in the cash flow the bank faces problems in credit recovery. Management Problem: Management Problem is one of the most vital problems in Janata Bank. Sometimes top level management sanction credit without maintaining legal procedure or they sanction credit under
political pressure. Even they do not monitor that whether their sanctioned credit recovered or not. In this way the top-level management misuses their power and this leads to credit recovery problem. Wrong Project Appraisal Process: Major problem of credit recovery is related to the project appraisal which is financed by the bank.The appraisal procedure is faulty and based on mostly fictitious figures. Lack of seriousness in credit recovery: In some cases the bank complaints its duty by issuing letter one after another to warn the borrowers to make prompt and immediate repayment of due and another credit. Timely guidance and counseling are not provided to the borrowers. Lack Of Supervision: Another problem of credit recovery is the diversion of borrowed money due to lack of supervision. The supervision of the bankers is not sufficient and effective to recover the credit. Willful Defaulter: Some borrowers are found to be defaulter without any reasonable cause. These entrepreneurs run their projects by producing profitable output but artificially manipulate the profit figure of the enterprise low are not repaying the credit installments for long time. In the most cases these willful defaulters have political connection and Janata Bank can not take any legal action against them. Problems of credit recovery arise because of the basic problems of project appraisal and monitoring. Most of the time Janata Bank employees are not experienced enough to appraise the projects properly and political pressure sometimes makes unviable project viable.
CHAPTER-5
5.1 Total Business Total business of the JB represents summation of import, export, investment, deposits and credit and advances. On an average its total business per year is TK. 248584.14 million during the period 1990-2005.
There are, however, variations in the amount of total business from year to year. The extent of variation in the amount of total business is measured in term of standard deviation was TK. 108558.89 million. The growth rate of total business was 8.73%. IN estimating the trend value of total business the following equation was computed: Y = - 44440135.64+22372.33t ................................(1) Where, Y = amount of total business (in million TK.) t = time Sig. Level = 0.00 The coefficient of determination reflecting the explanatory power of the variable time was estimated .9627 i.e. 96.27% of the variances in the dependent variable was explained by the equation. Analysis of the total business during the last 15-year period indicates that total business of the JB remained at not so low level til 1992s. Since then there has been a rising trend of total business. The overall trend of total business has been given in the chart. 5.2 Total Borrowing One of (he sources of the JB fund is borrowing from government and the other institution. On an average the JB borrowed TK. 2075.42 million per year during the period 1990-2005. There are, however, variations in amount of borrowing by JB from year to year. The extent of variation in the amount of borrowing measured in term of standard deviation was TK. 1030.04 million. The growth rate of total borrowing was -5.53%. In estimating the trend value of total borrowing the following equation was computed: Y= -33964.9+18.043t —————————— (2) Where, Y= amount of total borrowing (in million TK.) t = time Sig. Level = 0.75 (Statistically not significant)
The coefficient of determination reflecting the explanatory power of the variable time was estimated .0069 i.e. .69% of the variances in the dependent variable was explained by the equation. Analysis of the borrowing during the last 15-year period indicates that borrowing sharply fallen in very low level in 1996s. Since then there has been a rising trend of borrowing until 2002s and after that it again fall in low level in 2005s.The overall trend of borrowing has been given in chart 5000 4000 3000 Index of change in borrowings of JB
2000 1000 0 1990
1993
1996
1999
2002
2005
5.3 Total Investment Investment portfolio JB mainly comprised investment in Government Securities,
Treasury
Bills,
Debentures,
Shares
of
Joint
Stock
Companies. On an average the JB invested TK. 18535.57 million per year during the period 1990-2005. There are, however, variations in amount of investment by JB from year to year. The extent of variation in the amount of investment measured in term of standard deviation was TK. 6637.97million. The growth rate of total investment was 8.15%. In estimating the trend value of total investment the following equation was computed: Y= -2639007+1330.43t —————————— ( 3 ) Where, Y= amount of total investment (in million TK.) 25000 t = time Sig. Level = 0.00 20000
The coefficient of determination reflecting the explanatory power of the 15000
variable time was estimated .9105 i.e. 91.05% of the variances in the Trend of total investment 10000
5000 0 1990 1992 1994 1996 1998 2000 2002 2004
dependent variable was explained by the equation. Analysis of the total investment during the last 15-year period indicates that investment remained at low level till 1992s. Since then there has been a rising trend of investment. The overall trend of investment has been given in chart
5.4 Total Credit and Advancement Giving loans and advances is one of the main functions of the JB. . On an average the JB gave loans and advances TK. 65007.49 million per year during the period 1990-2005. There are, however, variations in amount of loans and advances by JB from year to year. The extent of variation in the amount of loans and advances measured in term of standard deviation was estimated at TK. 32354.79 million. The growth rate of loans and advances is 10.24%. In estimating the trend value of total loan and advances the following equation was computed: Y= -13246753.75+6664.2It —————————— ( 4 ) Where, Y= amount of total loan and advances (in million TK.) t = time Sig. Level = 0.00 The coefficient of determination reflecting the explanatory power of the variable time was estimated .9616 i.e. 96.16% of the variances in the dependent variable was explained by the equation. Analysis of the loan and advances during the last 15-year period indicates that the .IB loan and advances remained at very low level till 1993s. Since then there has
been a rising (rend of loan and advances. The line diagram of loan and advances has been given in chart below: 140000 120000 100000 80000
Index of change in Credits
60000 40000 20000 0 1990
1993
1996
2002
2005
5.5 Deposits One of the important sources of funds is deposit mobilization. Given the organization and external environment, the bank could enhance its lending capability had it given much attention to mobilize its own resources. Review of the equity structure indicates that the bank reached to enhance its equity position through its banking operations. The average of the JB deposit during reference period (1990-2005) was TK.93155.83 million and standard deviation was estimated at TK. 40753.11 million. The growth rate of deposit was 9.54%. In estimating the trend value of deposits the following equation was computed: Y= -16741223.39+8427.72t——————-————( 5 ) Where, Y= amount of deposits (in million TK.) t = time Sig. Level = 0.00 The coefficient of determination reflecting the explanatory power of the variable time was estimated .9694 i.e. 96.94% of the variances in the dependent variable was explained by the equation. The overall trend in change in deposits has been given in chart:
180000 160000 140000 120000 100000 80000 60000 40000 20000 0
Trend in charge in deposits
1990 1993 1996 1999 2002 2005
5.6 Exports The Janata Bank has earned excellent business reputation in handling and funding International trade, particularly in boosting-up of export of the country. On an average the JB exported TK.27125.12 million per year during the period 1990-2005. There are, however, variations in amount of export by JB from year to year. The extent of variation in the amount of export measured in term of standard deviation was estimated at TK. 14195.73 million. The growth rate of exports is 9.51%. In estimating the trend value of exports the following equation was computed: Y= -5422666+2728.3U———————————( 6 ) Where, Y= amount of exports (in million TK.) t = time Sig. Level = 0.00 The coefficient of determination reflecting the explanatory power of the variable time was estimated .8373 i.e. 83.73% of the variances in the dependent variable was explained by the equation. Analysis of the exports during the last 15-year period indicates that the JB exports remained at low level in 1992s. Since then there has been a rising trend of exports. The overall trend of exports has been given in chart: 140000 120000 100000 80000
Index of change in credit and advence of JB
60000 40000 20000 0 1990
1993
1996
1999
2002
2005
5.7 Imports The Janata Bank has also earned excellent business reputation in handling and funding imports. On an average the JB imported TK.44760.13 million per year during the period 1990-2005. There are, however, variations in amount of imports by JB from year to year. The extent of variation in the amount of import measured in term of standard deviation was estimated at TK. 16267.03 million. The growth rate of imports is 5.39%. In estimating the Y= -6390486+3221.65t Where, Y= amount of imports (in million TK.) t = time Sig. Level = 0.00 The coefficient of determination reflecting the explanatory power of the variable time was estimated ^8890i.e. 88.90% of the variances in the dependent variable was explained by the equation. Analysis of the imports during the last 1 5-year period indicates that the JB imports remained at low level in 1992s. Since then there has been a rising trend of imports. The overall trend of imports has been given in chart: 80000 80000 70000 70000 60000 60000
50000
50000
40000
Trend of total import Tremd of total import
40000
30000
30000
20000
20000
10000 10000 0
0
1990 19951994 2001 1998 2005
2002
5.8 Foreign Remittance JB's earning of foreign remittance plays significant role in our economic development. JB has recorded the amount of foreign remittance from 1998s. On an average the JB earned foreign remittance TK. 17025 million per year during the period 1998-2005. There are, however, variations in amount of foreign remittance by JB from year to year. The extent of variation in ihe amoiinl of foreign remittance measured in term of standard deviation was estimated at TK. 7211.31 million. The growth rate of foreign remittance is 13.21%. In estimating the trend value of foreign remittance the following equation was computed: Y= -5566641+2789.74t—-————---————( 8 ) Where, Y= amount of foreign remittance (in million TK.) t = time Sig. Level = 0.00 The coefficient of determination reflecting the explanatory power of the variable time was estimated .8979 i.e. 89.79% of the variances in the dependent variable was explained by the equation. Analysis of the foreign remittance during the last 8-year period indicates that the earning of foreign remittance of JB remained not at very low level. It remained more or less constant till 2000s. Since then there has been a rising trend of foreign remittance. The overall trend of foreign remittance has been given in chart: 70 60 50 40
Trend of foreign remittance
30 20 10 0
1998 1999 2000 2001 2002 2003 2004 2005
5.9 Amount of Total Credit Disbursed JB has started to record the amount total credit disbursement from 1995s. In estimating the trend value of credit disbursed the following equation was computed. Y = -8851375.47+4454.52..........................(9) Where, Y = amount of credit disbursed ( in million TK) t = time Sig. Level = 0.00 The organization experienced positive trend in terms of credit disbursement. On an average the amount of increase in the term loan disbursement was estimated at 4454.52. The coefficient of determination reflecting the explanatory power of the variable time was estimated . 7256 that is, 72.56 % of the variance in the dependent variable was explained by the equation. 5.10 Loan Recovery Recovery of loans is of utmost importance for any banking institution for the sound functioning of the country's banking system. It is very important to recover the funds already disbursed to the borrowers so that they can recycle the same loanable fund for future prospective borrowers. Loan recovery is a crucial indent to measure the success of banking organization. During the FY 2005 & 2006 JB has achieved its target in loan recovery. The current picture of loan recovery of JB is given here: (Figures in million taka) Particulars Targeted loan & advances
2005 406.06
2006 407.36
Recovered Loan & advances
701.29
382.63
Percent (%) of recover
172.7%
93.92%
Sector-wise Loan Outstanding Position, 2005 (Major sectors) Name of Sector Jute
Total 8673.8
Percentages 7%
Textile Ind. & Trade
4956.5
4%
Steel &Engineering
1052
1%
Food & Allied
1247.2
1%
Export Credit
11256
9%
Import Credit
27304.6
22%
Industrial Credit
14372.4
12%
Rural, ME&SPFinancing
9728.6
8%
Housing
8014.2
6%
Others
37862
30%
Total
124467.3
100%
Jute Textile Ind. & Trade Steel &Engineering 7% 30%
1%
9%
6% 8%
4%1%
12%
22%
Food & Allied Export Credit Import Credit Industrial Credit Rural, ME&SPFinancing Housing Others
5.11 Amount of Bad Loans The organization has been characterized by the rising trend of bad loans. This has been shown in the following chart. On an average the amount of bad /oan per year was estimated at TK. 1221.09 million. This however varied from year to year. The extent of variation from one year to another measured in terms of standard deviation was estimated at TK. 758.69 mi/lion. The growth rate of bad loan is 10.97%.During FY 2005 the percentage of bad loan of total loan is 10.96%. In estimating the trend value of bad loans of the bank the following 2500 2000 1500 Trend of bad Credit of JB
1000 500 0
1
3
5
7
9
11
13
15
equation was computed Y= -255007.13+ 128.27t. —————-—————( 10) Where, Y= amount of bad loans (in million TK.) t = time Sig. Level = 0.00 Analysis of the trend equation indicates that the amount of bad loan increases by TK. 128.27 million per year. The coefficient of determination reflecting the explanatory power of the variable time was estimated .6479 i.e.64.79% of the variances in the dependent variable was explained by the equation.
5.5 Amount of Bad Loans The organization has been characterized by the rising trend of bad loans. This has been shown in the following chart. On an average the amount of bad loan per year was estimated at TK. 1221.09 million. This
however varied from year to year. The extent of variation from one year to another measured in terms of standard deviation was estimated at TK. 758.69 million. The growth rate of bad loan is 10.97%.During FY 2005 the percentage of bad loan of total loan is 10.96%. In estimating the trend value of bad loans of the bank the following equation was computed Y= -255007.1 3+ 128.27t. ————-——————( 10 ) Where, Y= amount of bad loans (in million TK.) Sig. Level = 0.00 Analysis of the trend equation indicates that the amount of bad loan increases by TK. 128.27 million per year. The coefficient of determination reflecting the explanatory power of the variable time was estimated .6479 i.e. 64. 79% of the variances in the dependent variable was explained by the equation. 5.16 Variables Related to Productivity Productivity is an important measure of management's performances in every organization. Thus, the success status of an organization may be construed to be the function of effective productivity management. Productivity management is concerned with growth in output in relation to labor and capital input devoted to various functional areas of an enterprise. In assessing the performance dynamics in respect of profitability as many as five indicators such as income per employee, net profit per employee, deposit per employee, income per branch and net profit per branch. Below is discussed each of the indicators. 5.17 Income per Employee Average and standard deviation of income is Tk. .4523 million and Tk..2018 million respectively. The growth rate of income per employee is 7.78%. Trend of income per employee can be expressed by the equation Y = a + bt. The coefficient of determination reflecting the
explanatory power of the variable time was estimated .8988 that is 89.88 %of the variance in the dependent variable was explained by the equation. The organization experienced positive trend in income. On an average the amount of increase in the income per employee was estimated at .0402.This is shown in the following equation Y= -79.83+.0402t. ——-————————( 15 ) Where, Y= income per employee (in million TK.) t = time Sig. Level - 0.00 5.18 Net Profit per Employee Average and standard deviation of net profit is Tk. .00084 million and Tk. .00072 million respectively. Trend of net profit per employee can be expressed by the equation Y = a + bt. This is shown in the following Y- -.0088+4.8062t. -——————————( J6 ) Where, Y= net profit per employee (in million TK.) t = time Sig. Level = 0.92 (Statistically not significant) The coefficient of determination reflecting the explanatory power of the variable time was estimated .00078 that is .078% of the variance in the dependent variable was explained by the equation. The growth rate of net profit per employee was -5.32%. The organization experienced positive trend in net profit. On an average the amount of increase in the net profit per employee was estimated at 4.8062 5.19 Deposit per Employee Average and standard deviation of deposit is Tk. 5.5790 million and Tk. 2.7405 million respectively. Trend of deposit per employee can be expressed by the equation Y = a + bt. This is shown in the following Y- -1115.29+.561 It. ———————-———( 17 ) Where, Y= deposit per employee (in million TK.)
t = time Sig. Level = 0.00 The coefficient of determination reflecting the explanatory power of the variable time was estimated .9503 that is 95.03% of the variance in the dependent variable was explained by the equation. The growth rate of deposit per employee was 10.40%. The organization experienced positive trend in deposit per employee. On an average the amount of increase in the deposit per employee was estimated at .5611 and the standard deviation was estimated at TK. 2.7404 million. 5.20 Income per Branch On an average the amount of increase in the income per branch was estimated at TK. 8.6108 million. The extent of variation in the amount of income productivity is measured in term of standard deviation was TK 3.5699.million. The growth rate of income per branch is 7.28%. Trend of income per branch can be expressed by the equation Y= a + bt. This is shown in the following equation Y= -1409.98+.710181. —-—————————( 18 ) Where, Y= income per branch (in million TK.) t = time Sig. Level = 0.00 The coefficient of determination reflecting the explanatory power of the variable time was estimated .8970 that is 89.70% of the variance in the dependent variable was explained by the equation. The organization experienced positive trend in income per branch. 5.21 Net profit per Branch On an average the amount of increase in the net profit per branch was estimated at TK. 0.0162 million. The extent of variation in the amount of net profit productivity is measured in term of standard deviation was TK.
0.0139 million. The growth rate of net profit per branch is -5.53%. Trend of net profit per branch can be expressed by the equation Y = a + bt. This is shown in the following equation:
;
Y= -.03202+2.4148t. -——————————( 19 ) Where, Y= net profit per branch (in million TK.) t = time Sig. Level = 0.98 (Statistically not significant) The coefficient of determination reflecting the explanatory power of the variable time was estimated 5.2099 that is 520.99% of the variance in the dependent variable was explained by the equation. The organization experienced positive trend in net profit per branch. On an average the amount of increases sustained by the bank per year was estimated as TK. 2.4148 million. Impact of Change in the Employee Productivity and Number of Employees on Total Business Assuming the change in the volume of total business either due to change in the employee productivity on total business, or due to change in number of business and due to change in both, the magnitude of influence of these elements or factors on the total business of a given period in relation to that of another period as the base year may be ascertained as below: ATB = AE. No + Eo. ANe + AE.ANe Where, ATB = The amount of change in the volume of total business in the current year in relation to the volume of total business in the base year AE =
The
amount of change in the employees productivity of the current year in relation to that of the base year. ANe = The change in the number of employees of the current year in relation to that of the base year.
Eo - Employee productivity level in the base year. No = Number of the employees in the base year. Table 4: Impact of changes in the employee productivity, number of employees and combined effects of both of these factors on the change in total business. (Base year 2002). 2003
2004
2005
total
4517.1
55036.4 (100)
92135.6
total
(100) -7464.55
-13843.75
(100) -22349.35
business due to change
(-165.25)
(-25.15)
(-24.26)
total
12247.5
71688.7
121985.1
business due to change
(271.14)
(130.26)
(132.40)
total
-252.75
-2743.75
-7537.23
business due to change
(-5.59)
(-4.99)
(-8.18)
1
.Change
business 2. Change in
the
in in
number
of
employee.
3. in
Change the
in
employee
productivity.
4. in
Change the
in
employee
productivity and number of employees *(Amount in million taka) It is evident from the above table that in every year, the impact of change in the empfoyee piihliictn'ity was llie largest contributor to change in total business and the combined impact of change in empCoyee productivity and number ofemployeeswas the second largest contributor.
'Noie: Influences of different factors on the totaC change in total business are shown in the parenthesis in Percentage. Impact of Change in the Employee Productivity and number of Employees on Net Profit. Assuming the change in the volume of net profit either due to change to change in the employee productivity on net profit, or due to change in number of profit and due to change in both, the magnitude of influence of these elements or factors on the best of a give period in relation to that of another period as the year may by ascertained as below: TB = E. No +Eo. Ne + e. Ne Where, TB = The amount of change in the volume of net profit in the current year in the current year in relation to the volume of net profit in the base year. E = The amount
of change in the employees productivity of the
current year in relation to that of the base year. Ne= The change in the number of employees of the current year in relation to that of the base year. Eo= Employee productivity level in the base year. No= Number of the employees in the base year. Impact of change in the employee productivity, number of employees and combined effects of both of these factors on the change in net profit. (Base year 2002) 1. Change in net profit
2001 0
2002 3.6
2003 9.7
2. Change in net profit
(100) -.153
(10) -.3702
(100) -.5724
(-10.28)
(-5.90)
due to change in the
number of employee. 3. Change net profit due
0
to change in the employee productivity. 4. Change in net profit due to
change
in
0
the
4 .16
10.94
(115.56)
(112.78)
-.185
-.667
(-5.28)
(-6.88)
employee productivity and number of employees * (Amount in million taka) It is evident from the above table in even year, there is a negative impact in the employee productivity, number of employees on net profit, the imp[act of change in the employee productivity was the largest contributor to change in net profit and the combined impact of change in employee productivity and number of employees was the second was the second largest contributor. Note : Influences of different factors on the total change in net profit are shown in the parenthesis in percentage.
Credit Sanction, Disburse Market Recovery : An Analysis (a)
Interest on advances
(i) Interest is calculated on a daily Product basis. No interest is charged on bad and loss loans and advances. (ii) Interest is calculated on a classified loans and advances as per Bangladesh Bank BRPD Circular # 16/98 & 09/05 and kept in interest suspense account and credited to income on realization. b) Provision for bad and doubtful debts 2 Provision for loans and advances are made in the books of the Bank's Head Office on the basis of information furnished by the branches and as per instruction contained in BRPD Circular #16 dated 6 December
1998 and BRPD Circular # 09/05 dated 20 August 2005 stating the follwing rates: General provision on unclassified Loans and advances
1%
Provision on Special Mention Loans and Advances 5% Provision on Substandard Loans and advances
20%
Provision on Doubtful Loans and Advances
50%
Provision on bad/Loss Loans and Advance
100%
(c)
Interest and discount income
Interest on loans and advances, investment and other assets and discount income are stated at gross amount as per requirement of BRPD Circular # 14 dated 25 June 2003. Chapter-6 SWOT Analysis Each and every organization should be aware of its strengths, weakness, opportunities and threats. This analysis is known as SWOT analysis. A SWOT analysis is made on Janata Bank which is furnished below. 6.1 Strengths Manpower: JB has qualified, professional and experienced manpower. Three categories of people get chance to join here as analyst; they are MBAs, Economists, Engineers (civil, mechanical & chemical). Strong Financial Condition: Now there is no fund crisis in JB. This is a great strength for JB as availability of fund is one of the important factors for the success of JB. High Operating Profit: Trend of operating profit of JB increasing day by day which will strengthen the economic base of the bank. Strong Foreign Correspondents: As a Nationalized Commercial JB has already established a worldwide network and relationship with
International Banking through its 4 overseas branches in U.A.E. Special attention is given by the Bank to expand such relationship in countries where there is concentration of Bangladeshi Nationals and where prospect of International Business appears to be encouraging. Good Infrastructural Support: JB has sufficient office space, own office building and own assets that act as strength for JB. Govt. Support: As JB is a govt. organization it always gets govt. support in all of its operations and new projects if it is viable Effective Training Facilities: In order to cope with new technologies and provide a more efficient customer service, JB has set up one residential training institute and two residential training centers. These training institute and centers institute and two residential training centers. These training institute and centers provide not only conventional banking principles and procedures, but also emphasis managerial development and motivation. Good relationship: JB maintains good relationship with foreign loan giving agencies so that it helps JB to run successfully and get helps in need. 6.2 Weakness Lack of commitment: The employees are used to feel themselves as typical govt. employees who feel bother in the daily task of JB. They treat it as govt. loss and not a matter of their concern. Poor performance evaluation system: The performance evaluation system in JB is faulty. Many times performance is evaluated in the light of political preference and the real talent is destroyed by this practice. Lack of qualified manpower in project management: The persons who are employed in JB do not have proper training in project management, which led to poor project management. As a result JB is not a profit making concern.
Lack of transparency and accountability: JB is govt. owned concern and there is a lack of accountability and transparency in revealing the true facts regarding all the matters of JB. Poor project appraisal system: The performance appraisal system is also a faulty one. The persons carrying this duty are not trained in this regard. Lack of autonomy in decision-making: As JB is a govt. concern each and every decision taken by JB has to be passed by the Ministry of Finance, which is a barrier in taking good decision pertinently. Interruption
of
Trade
Union: Unfortunately
interruption
of
collective bargaining agent (CBA) creates hinders for smoothly operational performance. Poor
Website:
Though
Janata
Bank
has
its
website
named
www.janatabank-bd.com but it contains very poor information which is not also updated. Poor library facility: Janata Bank’s library facility is really poor. No recent journals, reports are available there. Everything is manually performed and unfortunately poorly performed. 6.3 Opportunities Wide scope of expansion: JB has great opportunity in expanding business such as large and medium scale business, gas based and agro-chemical industries, Enhancing business through cooperation: JD may enhance business through international cooperation. Advisory services: JB may give advisory services to the investors regarding the things about where to invest and where to not. Expansion of support services: JB may expand their support services by counseling the investors.
Investment opportunity: There is great opportunity for new investments. There are many sectors where JB gives special privileges. In those sectors JB has opportunity to have investments. Product diversification: JB is diversifying its product Now it is concentrating on lease financing as well on long term financing. Government help: In case of fund crisis JB gets govt. support, as it is a govt. owned concern. Thus it is a great opportunity for JB for finding out new ways to develop themselves with the help of government support. Scope for automation: There is a process of computerizing all the day-today record keeping procedures. If it is done successfully it will open a big door of opportunity for JB.
6.4 Threats Increasing
number
oflocal
and
foreign
competitors.
In
today's
competitive age, mushroom growth of local and foreign private commercial
banks
and
financial
institutions
create
threats
for
nationalized commercial bank (NCBs).Because their banking operations are more modernized than the NCBs. Thus JB is facing a great competition in this regard. Non performing Advances: As because of deficiency of provision against bad loan, the banking operation can be stake up. From the SWOT analysis it is easy for us to identify the loopholes of JB and give some recommendations in this regard. JB should properly utilize its strengths for its future development, also should try to overcome its weakness, be aware of the threats it has to face in the coming future and exploit the opportunities in a proper way.
CHAPTER-7 Conclusion Janata Bank is the second largest Nationalized commercial Bank of Bangladesh having a network of 848 branches including 4 overseas branches operating in UAE and one wholly owned Exchange Company in Italy. It is playing a significant role towards socio-economic development of the country by operating a commercially sound Banking system and by financing Non-Banking Financial Institutions, dealing with Home Loan, Corporate Finance and Syndicate Loan. JB could make remarkable progress in the recent past. The Bank has been able to earn an operating profit of TK. 2313.00 million during the year 2004, the highest profit ever made in the history of the Bank and also among the NCBs. Specific improvement is marked as regards performance in most of the important indicators like Return on Assets (ROA), Cost-income Ration, Import, Export, Capital and Cost of Fund. Review of the selected indicators reflecting performance of the Bank indicates that the key variables like total investment, total loan and advances, deposits, exports etc. showed positive trend. But profit and profitability indicators showed negative trend. This has been construed primarily due to the problems associated with loan sanctioning and loan recovery. Although employee productivity has been found to have positive impact on total business and net profit, could not demonstrate remarkable change in profitability. This might be attributable to the increasing trend of nonperforming loans. Besides, adequate emphasis has not been laid on diversifying banking operations that could have positive impact on profit. Moreover the bank could not enhance competitive edge over others due to lack of emphasis on online banking.
CHAPTER-8 Recommendation From
my
point
of
view
I
am
suggesting
the
following
recommendations for loan management of Janata Bank. • Selection of borrower should be made efficiently. • Proper supervision and control should be implemented in the credit department. • Extensive recovery program should be introduced. • Project should be evaluated in a professional and very efficient manner. • New technology should be introduced for the growth of the bank • Existing quota system of recruitment should be withdrawal so that the bank may get better manpower to serve the bank. • More training and development programs should be conducted for the existing employees of the bank so that they can serve the organization in a better way. • Many of the banks in our country are practicing online banking. In this way they are serving their customer better than manual banking. So JB should introduce online banking to preserve the present customers and grasp new ones. • In the competitive market the bank should respond quickly and carefully to keep pace in the volatile business environment. • Like other private bank JB should try to develop public faith to bank with them. • Legal action should be taken against the defaulting borrower. • Proper steps should be taken to raise ethical values, honesty, and sincerity among the officials of Janata Bank.
• Incentives have to be offered to the loaners to encourage them to repay loan in due time. • Bank should arrange credit fairs in different regions of country and outside country. It enhances public awareness about credit and other banking activities. • Bank should decentralize its credit facilities. To maximize the loan recovery performance Janata Bank should take the following programs should be taken: • To establish credit supervision and monitoring cell in the bank. • To re-structure the loan sanctioning and distributing policy of the bank. • To sanction loans and advances against sufficient securities as best possible. • To give more posers to the branch manger in credit management decisions making process. • To offer a package of incentives to the sound borrowers. • To give more emphasis on short-term loans an advances. • To impose restrictions on loans and advances for trading business. • To take legal actions quickly against un-sound borrowers as best as
possible within the period specified by the Law of Limitations.
The branch manager should be more careful sanctioning loans
CHAPTER-9 Bibliography 1. Ahmed, F. and Jamsheduzzaman, K.M. “ Movilization of Savings by Nationalized Commercial Banks In Bangladesh”, Journal of the Institute of Bankers, Vol-7 (June) 1978.
2. Alam, J. and Riyadh, A.N. “ Measurin Competitiveness of Banks in Bangladesh” Journal of Institute of Bankers Bangladesh, Volume50, NO-1, Januray-June,2003. 3. Swamy, M.R and Vasudevan, S.V., A Text Book of Banking, S. Chand and Company, New Delhi, 1985. 4. Sohrab Uddin, M.S. Saha, B. And Choudhury, T.A., “ Growth and Structure of the Banking Sector in Bangladesh” Bank Parikrama, Vol-X. Nos. 1,2,3 &4, 1985. 5. Debanath, R.M. “ Bangalir Bank Babysha”, Nabajug Prakashani, February 2003. 6. Bhattacharjee, D. and Islam, S. “ Profit and Profitability of NCBs in Bangladesh: An Analysis of dynamic and causal relations”, Journal of Institute of Bankers, Volume 27, June-1988. 7. Bhattacharjee, D. “ The Measurement of Labour Productivity: Trends and Their Effects on Output in Bangladesh”, The Dhaka University Studies, Part-C, Volume-V, No-21. December-1984.
APPENDIX Table 1 : Trends of selected indicators of JB since 2001 (Figures in million taka *) Particulars Authorised
2001 8000
2002 8000
2003 8000
2004 8000
2005 8000
capital Paid up capital Reserve Fund Deposits Advance Investment Revenue Operating Profit Provision for
2594 548 125066.4 93293.9 20455.8 9703.3 402.5 391.3
2594 558.60 138892.6 99748.7 29718.6 10990 1239.8 1225
2594 574.37 138597 101461.9 22821.8 11518.4 2120.9 2100
2594 1293 151036 107786 28375 10934.5 2312.9 2180.4
2594 1296 168897 124467 29168 13143 3301 3123
Credit/Assets Net Profit
11.2
14.8
20.9
-132.5
-178.0
Export Import Total no.
32387.7 16692
34454.6 16330
42865 15993
54623.3 58395 15705 15321
of employees No. of foreign
1274
1062
1100
1120
1125
847
847
Correspondent 870 847 No. of Branches 900 (including 4 overseas Br.) * Source : Annual Reports 2001-2005
Table 2: Trends of selected General business related variables since 1990 Year 1 990 1991 1992 1993 1 994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Average
Total business Total loan and advances 118898 26163.3 115563.6 27813.1 132367.7 30800.8 146128.1 35650.7 166992.5 37580.2 188879.7 41960.8 198745.7 48754.6 218794 52946.1 230633.3 57329.9 250994.7 73409.9 284975.3 80952.9 325870.1 93293.9 361703.6 99748.7 366220.7 101461.9 416740 107786 453839.2 124467 248584.14 65007.49
Standard 108558.89 Deviation Coefficient of 96.27% determinatio n rate 8.73% Growth
Deposits
Exports
Bad Loans
39314.2 44891.4 50620.2 5458 1 .2 62809.8 66562.7 75704.2 87031.7 88488.9 93322 104678 125066.4 138892.6 138597 151036 168897 93155.83
13656.5 12206.5 15266.1 15550.2 18192.5 19140.3 20569.8 22968.7 21349.7 21596 30780 32387.7 34454.6 42865 54623.3 58395 27125.12
237.64 265.69 386.54 429.2 595.04 735.8 781.47 986.61 1650.68 2348.79 2132.42 2122.13 2205.91 1810.26 1592.86 1256.53 1221.09
32354.79
40753.11
14195.73
758.69
96.16%
96.94%
83.73%
64.79%
10.24%
9.54%
9.51%
*Source : Amount in million taka Table 3 : Trends of Selected Profitability related Variables since 1990
10.97%
Year
Income
Net Profit
Rate of Return
NP per unit of capital employed
Income per unit of capital employed
1 990
4496.3
48.8
62.70011737 0.057276995
5.277347418
1991
4897.9
1.5
20.31236967 0.0007109
2.321279621
1992
5103.5
1.7
19.64020817 0.000655359
1 .967424827
1993
4798.6
6.8
21.54826523 0.002621434
1.849884348
1994
4418.5
2.5
25.67559753 0.000963763
1.703353894
1995
4570.5
12.6
30.97771781 0.004857363
1.761950655
1996 1 997
5359.5 6576.7
11.1 20.4
28.63797224 0.004279106 10.40717039 07007864302
2.066114109 2.53535081
1998
7304
27.5
32.6964148
0.010601388
2.815728604
1999
8112.5
10.3
32.48373169 0.003970702
3.127409406
2000
9207
11.2
38.29776407 0.004317656
3.549344641
2001
9703.3
11.2
41.44556669 0.004317656
3.740670779
2002
10990
14.8
47.44113338 0.005705474
4.236700077
2003
1 1518.4
20.9
48.63600617 0.008057055
4.440400925
2004
10934.5
-
60.87818042 -
4.215304549
2005
13143
-
61.86399383 -
5.066692367
Average Standard Deviation Coefficient of determination Growth rate
7570.89 297 1.13
14.38 12.440
37.73 14.70
.0083 .0144
3.167 1.22
90.47%
275.35%
34.18%
-
31.12%
6.93%
-5.88%
-0.0838%
-13.07%.
-0.25%
*Amount in million taka Table 4 : Trends of Selected Productivity related Variables since 1990 Year 1990 1991
Income per employee 0.258720295 0.270184245
NP per employee 0.002807987 8.274496905
1992
0.279996708 9.326825805
Deposits per employee 2.262166983 2.476357017
Income per branch 5.040695067 5.472513966
NP per branch 0.05470852 0.001675978
2.777209634 5.702234637 0.001899441
1993
0.264371109 0.000374635
3.007062972 5.34960981
1994
0.247410269 0.000139985
3.516983034 4.936871508 0.002793296
1 995
0.259392736 0.000715096
3.777678774 5.095317726 0.014046823
1996
0.308887096 0.000639733
4.363102991 5.974916388 0.012374582
1997
0.384310174 0.001192076
5.085706773 7.331884058 0.022742475
1998
0.41854335
5.07070655
1999
0.473363286 0.000601004
5.445326176 9.033964365 0.011469933
2000
0.543281997 0.000660884
6.176786452 10.25278396 0.01247216
2001
0.581314402 0.00067098
7.492595255 10.78144444 0.012444444
2002
0.672994489 0.000906307
8.50536436
12.63218391 0.01701 1494
2003
0.720215094 0.001306822
8.66610392
13.59905549 0.024675325
2004
0.696243235 -
9.617064629 12.90968123 -
2005
0.857842177 -
11.02388878 15.51711924 -
Average
.4523
.00084
5.5790
8.6108
0.0162
Standard Deviation Coefficient of determination Growth rate
.2018
.00072
2.7405
3.5699
0.0139
89.88 %
.078%
95.03%
89.70%
520.99%
7.78%
-5.32%
10.40%
7.28%
5.53%
*Amount in million taka
0.001575841
0.007580825
8.142697882 0.030657748