loan disbusrsement by syed habib anwar pasha
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Chapter- 01
NCC BANK LTD.Where Credit and Commerce Integrates
Loan Disbursement and Recovery System of NCC BankLimited
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INTRODUCTION PART
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1.1 TITLE OF THE REPORT:
The title of the report is Loan Disbursement and Recovery system of NCC Bank Limited - A
study on Shyamoli Branch.
1.2 BACKGROUND OF THE REPORT:
For any business school student only curriculum activity is not enough for handling the real business
situation, therefore it is an opportunity for the students to know about the field of business through
the internship program. Internship program is a perfect blend of the theoretical and practical
knowledge. This report is originated to fulfill the requirement of the assign project internship report
on Loan Disbursement and Recovery System of NCCBL has been assigned to me by Human
Resource Division (HRD) of NCCBL, Head Office, Dhaka. In this regard, I have worked as an
internee in National Credit and Commerce Bank Ltd. (NCCBL), Shyamoli Branch from 15th
October 2010 to 15th January 2011.
During this period I learned how the host organization works with the help of the internal supervisor.
On the basis of working experience in this period I have prepared this report and I have tried my
level best to relate the theoretical knowledge with the practical work situation. And during my
internship, I had to prepare a report under the supervision of Md. Masum Iqbal, Assistant Professor
and Head of the Department, Bachelor of Business Administration (BBA), Daffodil International
University.
1.3 RATIONALE OF THE STUDY:
This report is a part of my academic program. The BBA program having 120 credits in total containssix (6) credit hours on the internship program. The period of internship program has set for three
months. I believe this study will be beside me in future, especially if I have got involve myself in
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banks or other financial institutions. This program helped me a lot to understand the working
environment and behavior.
1.4 OBJECTIVES OF THE STUDY:
The study has been carried out with the following objectives:
To understand the activities of loan & advance department of NCCBL.
To know about all the products offered by the loans & advance department of NCCBL.
To know the terms and conditions of loans & advance department of NCCBL
To identify the loan disbursement & recovery process.
To measure the quality of loan disbursement & recovery process of NCCBL using
SERVQUALmodel.
To identify the problems related to loans and advance department.
To make some recommendations to solve the problems.
1.5 SCOPE OF THE STUDY
Since, working at NCC Bank Ltd. Shyamoli Branch, get the opportunity to gain knowledge of Loan
Disbursement and Recovery system. My decisions and analyses are done based on the practices
applied at this branch. The report covers with the status of functional and operational area of loan
disbursement and recovery. The report provides a clear view of:
NCC Bank Ltd, its loan products, classifications, pricing, lending operations and
disbursement pattern.
Recovery status, recovery pattern based on type of loan and tenure of client.
1.6 METHODOLOGY OF THE STUDY:
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Type of the study: Exploratory research has been used for the study.
Sources of Data: The data used to furnish this report have been collected from the
primary sources and secondary sources. Among primary and secondary sources most of the
data have been collected from the secondary sources. Primary Sources:
Officers of the bank
Clients of the Bank
Secondary Sources:
Company Confidential files.
Bankers Foundation Training Course Book-2009.
Annual Reports of NCC Bank Ltd.-2009.
Office circular and other published papers, documents and reports.
Published specifications of different products in websites.
Choice of Methodology: For analysis part I prepared questionnaire on
Customers Perceptions towards Service Quality of NCCBL: Specially Focused on LoanServices for collecting primary information from the customers and the officers and use SPSS
software for Data processing.
Sample size: Sample size was 30 as data was collected where 10 from the officers and other
20 from the customers of NCCBL, Shyamoli Branch.
Sampling method:Non probability sampling method was used as I collected data from the
30 respondents from NCCBL, Shyamoli Branch.
Method of contact: I used interview method to contact with the respondents.
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Data Analysis: I analyzed data by SPSS software with descriptive analysis.
A quantitative research was carried out to identify the Customers Perceptions towards Service
Quality of NCCBL: Specially Focused on Loan Services. This research is based on primary data
which was collected from the clients and officers of NCC Bank Limited.
Methods of Data collection :
For data collection I used Interview method. I had interview with the officers and clients of
NCCBL, Shyamoli branch through questionnaire.
Sampling Method: Convenience sampling method has been performed for
selecting samples.
Target population
All officers and clients of Shyamoli Branch, NCC Bank Ltd.
Sample size: There are 30 respondents.
Types of Sample Geographical Area Sample Size
Officers Shyamoli Branch, NCCBL 10
Clients Shyamoli Branch, NCCBL 20
Total 30
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1.7 LIMITATIONS OF THE STUDY:
I have faced the following obstacles while preparing this report.
Loan and Advance department of NCC Bank Ltd. Is highly confidential for the
employee.
Sufficient records, publications or website regarding customer services were not
available for Loan and Advance department of NCCBL.
The information of Loan and Advance department of NCCBL not found in a
structured way.
There were some restrictions to have access to the information confidential by
concern authority.
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Chapter- 02
NCC BANK LTD.Where Credit and Commerce Integrates
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ORGANIZATION PART
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2.1. BANKING HISTORY:
The English word Bank is originated from Italian word banco. The Latin bancus and French
word banque which means a bench. They are of the opinion that the medieval European bankers (i.e.
money changers and money lenders) transacted their banking activities on the benches in market
place. This money changing and money lending business is known as Banking business.
Banks have to compete with local financial institution as well as foreign financial institution in the
market place, banks has to develop appropriate financial structure and should periodically review
and compare their performance with its competitor to build a sound banking institution.
Banks are financial intermediary institutions. The core is to mobilize the financial surplus of saver in
the form of deposits & allocate these savings to the credit worthy borrowers of different sector of
economy in the form of loans & advances. The advance of the intermediary functions between the
savers & investors would certainly in the lower level of savings & investment & thus lower the
economic growth. That development of the financial intermediaries & instrument (both in case of
deposit & advance) will lead to the development of the economy of a country.
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2.2. BANKING IN BANGLADESH:
Economy of Bangladesh is in the group of words most underdeveloped economics. One of the
reasons may be its underdeveloped banking system. Modern banking system has been plays a vital
role for a nations economic development. Over the last few years the banking world has been
undergoing a lot of change due to deregulation, technological innovations, globalization etc. These
changes also made revolutionary changes of a countrys economy. It is well recognized that there is
an urgent need for better qualified management & better-trained staff in the dynamic global financial
market. Bangladesh is no excepting in that trend. Banking sector in Bangladesh is facing challenges
from different angles though its prospect is bright in the future. Money & Banking is the center
around which all-economic science clusters. So this report is carried on to find out the problems
faced by NCC Bank & recommend some measures to overcome these problems for economicdevelopment of Bangladesh.
NCC Bank is one of the fast growing commercial bank with having well reputation & goodwill for
its commitment & service it provides towards the consumers & the nation. With day by day function
the bank also provides some services & facilities which are most equal to an international banking
system. It helps the banks to get closer towards the consumers. ATM, Credit card, worldwide
correspondence etc are the most recent products of this bank which has world wide demand as well
as into the countrys.
For my internship I choose this bank because of its potentiality & fast growing attitudes which make
it popular & well acceptable to all within a short period of time.
2.3. HISTORICAL BACKGROUND OF NCC BANK LTD.:
National Credit and Commerce Bank Ltd. is a scheduled commercial bank in Bangladesh. It started
its journey in the financial sector of the country as an investment company back in 1985. The aim of
the company was to mobilize resources from within and invest them in such way so as to develop
country's Industrial and Trade Sector and playing a catalyst role in the formation of capital market as
well. The company operated up to 1992 with 16 branches and thereafter with the permission of the
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2.6. CORPORATE VISION:
To become the Bank of choice in serving the nation as a progressive and socially responsible
financial institution by bringing credit & commerce together for profit and sustainable growth.
2.7. CORPORATE CULTURE:
NCC Bank is one of the most disciplined Banks with a distinctive corporate culture. In this bank, it
believes in shared meaning, shared understanding and shared sense making. The people of bank can
see and understand events, activities, objects and situation in a distinctive way. They mould their
manners and etiquette, character individually to suit the purpose of the Bank and the needs of the
customers who are of paramount importance to them. The people in the Bank see themselves as a
tight knit team/family that believes in working together for growth. The corporate culture they
belong has not been imposed; it has rather been achieved through their corporate culture.
2.8. OWNERSHIP PATTERN:
Presently the bank is primarily owned by the Army Welfare Trust of the country. It holds 60% shares
and the rest (i.e. 40%) is held by the Financial Institutions, Non-resident Bangladeshi and general
public.
Particulars Taka
Sponsor 700,000,000
Financial Institution 163,557,000
Non-resident Bangladeshi 15,105,000
general public 288,008,000
Table: Ownership Pattern of NCCBL
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Figure: Percentage of Shareholdings of NCCBL.
2.9. CAPITAL STRUCTURE:
The bank has a strong capital base. Its authorized capital is TK. 2500.00 million while its paid up
capital is Tk. 1352.01 million. The share price of the bank is par value Tk.100.00. to meet the overall
requirement the bank borrow from Bangladesh Bank and other banks and financial institutions. So
far the bank has been able to meet its capital adequacy requirement successfully.
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2.10. PERFORMANCE OF NCCBL AT A GLANCE:
Five years Financial Highlights
Taka in Million (Where applicable)
2005 2006 2007 2008 2009
Authorised Capital 2,500.00 2,500.00 2,500.00 2,500.00 5,000.00
Paid up Capital 975.04 1,201.79 1,352.01 1,757.62 2,284.90
Reserve fund and other Reserve 884.90 1,215.58 1,995.36 2,863.63 4,371.62
Equity fund 1,859.94 2,417.37 3,326.52 4,621.25 6,656.52
Deposits 21,478.22 28,147.34 34,901.77 46,904.66 53,900.15
Loans and Advances 20,533.13 24,678.36 32,687.75 46,332.69 50,387.68
Investment 3,010.45 3,552.08 6,266.62 6,526.82 9,671.53
Import Business 16,296.30 17,646.80 28,779.21 38,796.88 33,078.44
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Export Business 7,776.30 8,557.00 9,577.92 12,522.04 11,903.72
Operating Income 2,932.00 3,913.19 5,269.03 7,417.64 9,333.03
Operating Expenses 1,913.66 2,645.62 3,488.78 5,054.15 6,195.33
Operating Profit 1,018.34 1,267.57 1,780.25 2,363.49 3,137.70
Profit before Tax 687.60 1,056.51 1,356.32 1,788.96 2,686.49
Profit after Tax 352.08 479.22 677.18 882.28 1,719.50
Retained Profit 10.31 7.83 8.13 5.34 46.47
Total Assets (excluding contra) 26,114.13 32,615.01 42,522.85 57,365.52 65,937.49
Fixed Assets 308.14 353.71 522.00 775.31 849.10
Number of Branches 41 48 53 57 65
Number of Employees 1,000 1,118 1,230 1,400 1,496
Earning per Share 36.11 39.88 50.09 50.20 75.26
Dividend: Cash (%) 10.00 10.00 - - -
Bonus (%) 10.00 12.50 30.00 30.00 47.00
Return on Equity (ROE) (%) 18.93 19.82 20.23 21.76 28.49
Return on Assets (ROA) (%) 1.35 1.63 1.59 1.54 2.61
Capital Adequacy Ratio 9.02 9.78 10.61 10.61 13.55
Non performing Loans as % ofTotal Advances
4.82 4.95 4.17 4.14 2.84
Volume of Non-performing
Loans 981.54 1,212.26 1,353.31 1,902.58 1,420.57
Amount of provision againstClassified Loans 405.75 523.58 644.11 912.90 720.22
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Amount of provision againstUnclassified Loans
202.14 282.09 388.78 456.07 509.67
Amount of provision against Off-balance sheet exposures
- - 51.69 109.41 111.93
Advance/Deposit Ratio (%) 95.60% 87.68% 93.66% 98.78% 93.48%
2.11. BRANCHES OF NCCBL:
The bank now continues its operation with 92 branches across the country, mainly in Dhaka,
Chittagong, Noakhali, Comilla, Sylhet, Jessore, Rajshahi and Khulna. The district wise pictorial
presentation of the branches appears as follows:
= Branches Location
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2.12. MANAGEMENT TEAM OF NCC BANK LTD:
There are 25 members of Board of Directors manages National Credit and Commerce Bank Limited.
For efficient operation of the bank the Board of directors forms an Executive Committee of 19
members. Besides, a management Committee looks after the affairs of the bank. The Bank maintains
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transparency in its entire works. All decisions of the management come through discussions in
appropriate forum and required follow-ups are also made to see their effectiveness. Here are the
management team given in a chart and he hierarchy of the NCCBL is given in next page-
Fig: Management Team of NCCBL
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Chairman
Vice Chairman
Directors
Managing Director &
CEO
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Chairman
Vice Chairman
Deputy Managing
Director
Executive Vice
President
Senior Executive Vice
President
Senior Vice President
Managing Director
Board of Directors
Principal OfficerSenior Principal Officer
Assistant Vice
President
Senior Assistant Vice
President
Vice President
Senior Officer
Officer Gr-1
Management Trainee Officer
Assistant Officer
Junior Officer
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Fig: The Hierarchy of NCCBL
2.13. ORGANIZATIONAL HIERARCHY OF SHYAMOLI BRANCH:
There are 25 employees in NCC Bank, Shyamoli Branch. The organizational structure of NCCBL,
Shyamoli Branch is given below:
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Officer Grade-1
Management Trainee
Junior Officer
Senior Officer
Principal Officer)
Deputy Manager (Senior
Princi al Officer
Manager (Senior Assistant Vice
Assistant Officer
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Fig: The Hierarchy of NCCBL, Shyamoli Branch
2.10. PRESENT PROGRAMS OF THE ORGANIZATION:
The present programs run by NCCBL, Shyamoli Branch are shown below in a chart:
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NCCBL:Shyamoli
Branch
GeneralBanking
Department
Loan &Advance
Department
CashSection
RemittanceSection
ClearingSection
AccountOpeningSection
LocalRemittance
ForeignRemittanc
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Chapter- 03
NCC BANK LTD.Where Credit and Commerce Integrates
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LEARNING PART
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3.1. LOANS and ADVANCES:
In the general sense, the loan means document- any written record which serves as an evidence in
respect of a transaction and be described as anything obtained for recording a transaction.
Documentation may be described as the process or technique of obtaining the relevant documents. A
banker must obtain proper documents executed from the borrower to protect himself against willful
defaults. Moreover, when money is lent against security of some assets, the documents must be got
executed in order to give to the banker a legal and binding charge against those assets.
NCCBL has its own policy formulated in the light of directives and guidelines issued by Bangladesh
Bank from time to time. The main focus of this policy is to maximize profit through feasible
investment ensuring sustainable growth. The bank always tries to extend credit facility to
unconventional sectors along with conventional ones. Various Agri-Projects, IPFF membership, etc.
helped largely to achieve fruitful results. During 2009, the Bank disbursed Tk.50987.68 million.
Advance Deposits ratio was 0.93:1 in 2009.
Loans & Advances (2005-2009)
Figures in Million
20092008200720062005
20533
32688
50388
24678
46333
0
10000
20000
30000
40000
50000
60000
1 2 3 4 5
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Fig: Loans and Advances of past 5 years
3.2. LOAN PRODUCTS:
1. Continuous Loan:
a. Secured Over Draft Against Financial Obligation [SOD(FO)]
b. Secured Over Draft Against Work Order [SOD(G)]
c. Cash Credit (Hypothecation)
d. Cash Credit (Pledge)
e. Export Cash Credit (ECC)
2. Demand Loan:
a. Loan general
b. Demand loan against ship breaking
c. Payment against documents (pad)
d. Loan against import merchandise (LIM)
e. Loan against trust receipt (LTR)
f. Forced loan
g. Packing credit
h. Secured over draft against cash incentives
i. Foreign documentary bills purchased (FDBP)
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j. Local documentary bills purchased (LDBP)
k. Festival business loan
3. Term Loan
a. Project loan
b. Transport loan
c. House building loan
d. Small business loan
e. Consumer finance loan
f. Lease finance
g. Personal loan
3.3. CREDIT ANALYSIS: What makes a good loan?
Credit analysis is the analysis of financial statement of business/customers for the purpose of
lending. Credit analysis are conducted to determine whether the customer is creditworthy and
whether the customer has sufficient cash flow and back up assets to repay the loan. The main
purpose of credit analysis is to ascertain whether the loan can be serviced by the customer and
whether the bank is well protected to realize the loan in the event of default by the borrower to repay
the loan.
The quality of credit analysis in our country is very poor. Many of the credit officers even do not
know how to analyze credit proposal or what is its importance in credit making process.
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3.4. MAJOR ISSUES ANALYZED IN CREDIT ANALYSIS:
Is the borrower creditworthy?
Whether purpose of the loan is consistent with banks credit policies
and Government regulations.
Whether the customer or his business has the ability to generate
enough cash to repay the loan.
Whether sufficient security has been offered, so that in the event of
default banks fund can be recovered.
Whether bank claims on the security can be established without risk
or with low risk.
Fixing of amount of loan, loan terms and conditions, documentations,etc. meet the needs of the borrower and to protect the interest of the
bank.
3.5. PURPOSE OF LOANS:
Customer must have a well defined purpose for requesting the loan.
The purpose of the loan must be consistent with the banks existing credit policy. The purpose of the loan also should be consistent with the government policy and
regulation.
NCCBL outline industries or lending activities that are discouraged. NCCBL has segregated sectors
to be discouraged based on the following:
Government Specified Best Practice Company Specific
Military
Equipment/WeaponsFinance.
Lending to companies
listed on CIB black list or
known defaulters.
Highly Leveraged
Transactions. Logging, Mineral
Extraction/Mining, or
other activity that is
ethically orenvironmentally
Finance of Speculative
Investments. Share Lending
Taking an Equity Stake in
Borrowers.
Lending to HoldingCompanies.
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sensitive.
Counter parties in
countries subject to UNsanctions.
Bridge Loans relying on
equity/debt issuance as a
source of repayment.
Table: Discouraged Business Types for lending
3.6. BUSINESS POSITION:
1. Cash Flow:
Three source to repay loan:
i. Cash flow generated form sales or income,
ii. The sale or liquidation of assets or
iii. Funds raised by issuing debt or equity securities.Bank prefers cash flow as the principal source of loan payment because assets sale
can weaken borrowing customers and make the banks position as creditor less
secured.
Cash flow= Net profit ( revenue less expenses) + Non cash expenses ( depreciation)
Cash flow= Net profit + Non-cash expenses + addition to account payable- addition
to inventories and accounts receivable.
History of earning and sales: Whether there is history of steady growth in earning or
sales and whether there is high probability that such growth will continue.
2. Condition:
Analyze recent trends in the borrowers business and industry and whether changing
economic condition might affect business or loan.
3. Control:
Whether there are chances of change in government policy or law which adversely
affect borrowers business.
3.7. SECURITY OF LOAN:
There are three securities of loan
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The most preferred is businesss income or cash flow from which the customer will pay the
loan
Second security consists of customers balance sheet his assets that can be liquidated for
adjust of loan and
Guarantees from owners or from a third party.
Collateral Security: Collateral Security serves two purposes for a lender. First, if the borrower
cannot pay, the collateral gives the lender the authority to seize or sell those properties to cover the
amount of loan default. Secondly, Collateral Security gives the lender a psychological advantage
over the borrower. Borrower on this situation feel more obligated and works hard to repay the loan to
avoid losing valuable assets.
3.8. TYPES OF LOAN:
Loans are the largest asset item, which generally account for half to almost three quarters of the total
value of all banks assets. A banks loan account typically is broken down into several groups of
similar type loans. The Loan and Advances made by the NCCBL can broadly be classified by
following categories-
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Fig: Four types of Loans
3.8.1. Continuous Loan
There are different types of continuous loan are discussed below:
Secured Overdraft (FO)
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Other
Special
Scheme
Term
Loan
Demand
Loan
Continuou
s Loan
Loans &
Advanc
es
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Advance is granted to a client against financial obligations that is deposited in the bank. A client can
get up to 80% loan of the total deposited value. Loan repayment period is maximum 1 year. If client
can not repay the loan in this stated period then it is again renewed for 1 year more.
Interest rate is 14% to 16%.
Secured Overdraft (G)
This loan is granted against the work order of government departments, corporations autonomous
bodies and reputed multinational private organization. To arrive at logical decision, the clients
managerial capability, equity strength, nature of scheduled work is to be judged.Disbursement is
made after completion of documentation formalities, besides usual charge documents like a
notarized irrevocable power of attorney to collect the bills from the concerned authority and a letter
from the concerned authority confirming direct payment to the bank. The work is strictly monitored
to review the progress at each interval.
Interest rate is 14% to 16%. Only renowned clients get this loan.
Cash Credit (Hypothecation)
The mortgage of movable property for securing loan is called hypothecation. Hypothecation is a
legal transaction where goods are made available to the lending banker as security for a debt without
transferring or possession of the property. The banker has only equitable charge on stocks, which
practically means nothing. Since the goods always remain in the physical possession of the borrower,
there is much risk. So, it is granted to parties of undoubted means with highest integrity.
Interest rate is 16%. Loan repayment period is maximum 1 year.
Cash Credit (Pledge)In case of CC (pledge), the bank acquires the possession of the goods or a right to hold goods until
the repayment of credit. If loan is not repaid in due time then bank sells the goods to collect money.
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But at present, bank didnt give this loan because it has to maintain warehouse which creates extra
burden on officers.
Interest rate is 16%.
Continuous loan for the last 5 years shown in a chart below:
Continuous Loan
20092008200720062005
1144.71
647.89
953.14
884.11014.98
0
500
1000
1500
2000
2500
1 2 3 4 5
Fig: Continuous loan (Tk. in million)
3.9.1. Continuous Loan3.9.1.
3.8.2. Term Loan
House Building Loan
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House Building Loan facility starts from Tk. 6 lac to 40 lac. Maximum loan repayment period is 15
year including a grace period of 3 years and repayment is done through equal monthly installment.
Registered mortgage of land and building is required. This scheme covers three aspects for
sanctioning loan to clients which includes- purchase of flat, purchase of building & self construction.
Interest rate is 16% p.a.
Lease finance
This type of financing are usually provided for machinery, transport etc. Now a day this Lease
Financing is one of the popular financing projects. Loan period is 3 to 5 year. Maximum loan facility
is tk. 15 lac.
Rate of interest is 15%. For lease financing, registered mortgage of land & building as
collateral is required.
Term loan for the last 5 years shown on chart below
Term Loan
454.56
4212.98
5562.38
2005 2006 2007 2008 2009
2330.22
8101.6
0
1000
2000
3000
4000
50006000
7000
8000
9000
1 2 3 4 5
Fig: Term loan (Tk. in million)
3.8.3. Demand Loan
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Loan (general)
The loan which is sanctioned for more than one year is considered as loan (general). Under this
facility, an enterprise can get loan from setting up of the business to final production of goods or
services. NCCBL offers this facility only to big industries.
Loan against Imported Merchandise (LIM)
LIM is allowed for retirement of shipping documents and release of goods imported through L/C
taking. When the importer failed to pay the amount payable to the exporter against import L/C, than
NCCBL gives loan against imported merchandise to the importer. The importer will bear all the
expenses i.e. the warehouse charge, insurance fees, etc. and the ownership of the goods is retaining
with the bank. This is also a temporary advance connected with import, which is known as post
import finance.
Interest rate is 16%.
Loan against Trust Receipt (LTR)
Trust Receipt is a document which creates the bankers lien over the goods and practically amounts
to hypothecation of the proceeds of sale in discharge of the lien. Loans against Trust Receipt to the
clients are allowed when the documents covering an import shipment are given without payment.However, prior permission of Head Office must be obtained for such advances. The clients hold the
goods or their sales proceeds until the loan allowed against the Trust Receipt is fully paid off. This is
also a temporary investment connected with import and known as post-import finance and falls
under the category "Commercial Lending".
Interest rate is 16%.
Loan documentary Bill Purchase (LDBP)
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The loan is made against documents representing sell of goods to local export oriented industries,
which are deemed as exports and which are dominated in local currency/foreign currency. The bill of
exchange is held as the primary security. The client submits the bill and the bank discounts it. This
temporarily liability is adjustable from the proceeds off the bill.
Current interest rate is 16%.
Inland Bill Purchase (IBP)
Payment that is made through purchase of inland bills/cheques to meet urgent requirement of the
customer falls under this type of investment facility. This temporary investment is adjustable from
the proceeds of bills/cheques purchased for collection. It falls under the category of "Commercial
Lending".
Foreign Bill Purchase (FBP)
Payment that is made to customer through Purchase of Foreign Currency Cheques /Drafts falls under
this head. This temporary investment is adjustable from the proceeds of the cheque/draft.
Demand loan for the last 5 years shown on chart below:
Demand Loan
20092008200720062005
6280.52
5394.66
6577.85
7489.25
10054.29
0
2000
4000
6000
8000
10000
12000
Fig: Demand loan (Tk. in million)
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3.8.4.Loan under SME
Consumer Credit Scheme
This scheme is aimed to attract consumers from the middle and upper middle class population with
limited income. The borrower should have saving or current deposit account with the bank.
Minimum 25% of the purchase cost of the product is to be deposited by the borrower with the bank
i.e. equity before disbursement of the loan. The rest 75% is to be kept as cash collateral (FDR,
Shanchay Patra etc.) with the bank. The purchased items are hypothecated with the bank. Loan
amount is disbursed through pay order/demand draft directly to the seller after submission of the
indent, deposit of client equity and completion of documentation formalities. The bank obtains post
dated a/c payee cheque drawn in favor of the bank for the monthly installments covering the lending
period from the borrower and the loan amount is adjusted on the due date of installments.
Working capital loan
Loans allowed to the manufacturing businesses to meet their working capital requirement. Loan
facility starts from Tk. 1 lac up to Tk. 5 lac.
Interest rate is 16%.
House Repairing/Renovation Loan
This loan is offered for renovation and modernization of the house/building/flat. Thegenuine
residential owners can avail this kind of loan. Loan facility starts from Tk. 1 lac upto Tk 5 lac. Loan
can be repaid by monthly equal installments including interst within maximum 5 years.
Interest rate is 16%.
Small Business LoanThis loan is offered to the small and promising entrepreneurs to meet their capital requirement and
enable them to operate and expand the business purposely. It is apporved against collateral and
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estimation of the revenue generation of the project for which the loan is sanctioned. The range of this
type of loan is one to five lac taka. Loan repayment period is maximum 5 years.
Personal Loan
This loan is provided to salaried persons in various organizations to meet any emergency cash needs.
The loan facility starts from Tk 20000 and maximum credit ceiling is Tk 1 lac. Loan repayment
period is maximum 3 years.
Interest rate is 15% p.a.
SME loan for the last 5 years shown on chart below:
SME Loan
20092008200720062005
182.22163.88147.63198.55274.83
0
500
1000
1500
2000
2500
Fig: SME loan (Tk. in million)
From the above chart it is shown that, bank has invests a greater amount in demand loan. Second
highest loan is given to term loan category. Sanction of SME loan has fallen in comparison of
financial year 2005. Because bank now focus on term loan and demand loan as these sector earns a
higher interest rate than SME loan. Also, default risk is low in these two categories.
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3.9.GENERAL PROCEDURES of SANCTIONING LOAN:
Approval Process
The approval process reinforces the segregation of Relationship Management/Marketing (RM) from
the approving authority. The responsibility of preparing the credit application is rest on the
Relationship Management. Credit Applications are recommended for approval by the RM team and
forwarded to CRM for their review and assessment. The credit subsequently approved by proper
approval committee.
NCCBL has established various thresholds, above which, the recommendation of the Head of
business unit is required prior to onward recommendation to CRM and subsequent appropriate
authority for approval.
The procedure for all the business units is as shown in the next page:
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Application forwarded to Zonal Office or Head Office for review by the ZCRO or HCRO.
Advise the review to recommending branches.
ZCRO/HCRO supports & forwarded to Head of Business Units (HOBU) within their
delegated authority and to Head of Credit Risk (HOCR) for onward recommendation.
HOCR advises the review to ZCRO.
HOCR & HOBU supports & forwarded to Credit Committee.
Credit Committee advises the decision as per delegated authority to HOCR & HOBU.
Credit Committee forwards the proposal to EC/Board for their approval within their
respective authority.
EC/Board advises the decision to HOCR & HOBU.
The approval process may vary in NCCBL depending on the types of products and exposure. For
example, lending to Corporate and SMEs is mostly unstructured due to diverse nature of risk
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Executive Committee/Board
Credit Committee
Head of Credit Risk (HOCR) &
Head of Business Units (HOBU)
Zonal/HO Credit Risk Officer
(ZCRO/HCRO)
Credit Application
Recommended By RM
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exposure. On the other hand, consumer lending is mostly structured by standardizing the product and
risk aspects of individuals. As such applications for consumer lending may be done within the head
of consumer unit subject to delegation of authority to do so.
Lending ProcessThe main function of commercial bank is to take deposit and invest this fund. But in the process of
lending it has to safeguard the depositors money as well as business of the bank. Therefore proper
management supervision and follow-up is very important in the lending and recovery process.
NCCBL follows a three step process firmly to supervise and follow-up the lending and recovery
process.
Pre-sanction Stage
The very supervision of loans starts during pre-sanction stage. At this stage credit investigation is
very important as it involves selection of right and qualitative borrower. To select the borrower
NCCBL personnel at first interview the person to judge their capability to manage the finance or to
run the project effectively. The following steps are conducted to make sure that the loans areauthorized to the right persons.
Information collection
Credit information bureau of Bangladesh Bank
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Declaration of the party with regard to liability with other banks, financial institutions.
Account performance, reputation, track record, repayment capacity through NCCBL internal
sources.
Feasibility study:Following aspect are mainly noticed by NCCBL
1. Management Aspect:
a. Managerial ability
b. Honesty and integrity
2. Technical Aspect:
a. Whether the technology is outdated or modern to handle by the firm
b. Cross-check of the pricing as stipulated in the pro-forma invoice.
c. Productivity of the proposed plant and machinery matching with the firms goal.3. Financial Aspect:
a. Operating performance and future earnings prospects.
b. Current financial condition.
c. Demand- supply gap keeping in view the other similar industries.
d. Net worth
e. Lending risk analysis.
Post-sanction/Pre-disbursement
Proper documentation and securitization is very important at this stage for safety of the credit facility
to be extended and enabling NCCBL to liquidate the loan liability in the event of the borrowers
default.
Proper documentation serves three basic purposes to NCCBL:
1. Borrowers unqualified assets of availing credit facility.2. Banks legal right created to securities offered as loan.
3. In case of default, the documents can be placed before court for a decree to realize the dues.
Direct and indirect securitization is also done in this stage.
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Post disbursement stage:
At this stage NCCBL considered the following points:
The transaction in the loan account is being done satisfactorily.
Balance in the loan account remains within limit.
Fund disbursed has been used for the purpose the loan has been sanction for.
Stock reports are obtained and stocks are being inspected at a regular basis.
Stock and drawing power register and delivery order properly maintained.
Personal contact with the borrower at a regular basis.
Keen watch in irregularity of any form on the loan account.
Closely watch and supervise the financial and management position of the borrower.
Taking steps so that the loan does not turn time-barred.
Finally respective officer disburses the loan after sanction and completion of all formalities. The
officer writes cheque and provides it to the borrower. For this borrower has to open an account
thorough which he/she can withdraw the money.
3.10. LOAN RECOVERY PROCEDURES:
It is the duty of the Bank to recover the landed fund within the stipulated time and if the borrower
fails to repay the money within the said period Bank will declare him as a defaulter and recover the
fund by selling the securities given by the borrower or by freezing his account or make a suit against
him.
Strategies for recovery
Recovery of loan can be made in the following 3 methods.
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1) Persuasive
2) Voluntarily
3) Legally
1) Persuasive recovery:
If the borrower didnt paid the due amount of loan in time then the first step of bank is private
communication with him. It creates a mental pressure on borrower to repay the loan amount. In this
case bank can provide some advice to the borrower for repaying the loan.
2) Voluntarily recovery:
In this method, some steps are followed for recovering loan. This are-
Building Task Force
Arranging seminar
Loan rescheduling policy
Waiver of interest rate
3) Legal recovery:
When all steps fails to keep an account regular and the borrower does not pay the installments and
interests then bank take necessary legal steps against the borrower for realization of its dues. In this
case Artha Rin Adalat Ain-2003 plays an important role for collecting the loan.
Recovery procedure of NCC Bank is the ultimate combination of time, effort of money. It follows
four procedural steps to recover the lending amount, which is joint effort of Bank, society and legal
institutions, which are shown below:
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3.11. PRINCIPLES of SOUND LENDING:
A. Safety
NCC Bank exercises the lending function only when it is safe and the risk factor is adequatelymitigated and covered. Safety depends upon:
The security offered by the borrower.
The repaying capacity and willingness of the borrower is to repay the advance.
B. Liquidity
The liability of a Bank is repayable of demand or at a short notice. So the Bank has to maintain its
liquidity at a sufficient level. Investment on building, plant, machinery, land etc. cannot be recovered
quickly, so it is less liquid.
C. Profitability
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Reminder to the Court
Creating Social Pressure for the
Payment ofloans and advances
Execution of legal rules by the helpof court
Providing legal notice
Fig: Recovery Procedure
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Profit is needed to pay interest to depositors, depreciation, and maintenance, declare dividend to
share holders, provide or reserve against bad and doubtful debts etc. so like all other Banks NCC
Bank also disburse advances to earn profit.
D. SecurityTo ensure safety of advances, Banks takes different types of securities like MTDR, Sanchaypatra,
land, work order etc. Banker should ensure that the securities are adequate, marketable and free from
encumbrances.
3.12. DIVERSIFICATION of RISKS:
It is very risky for a bank to invest all its assets into a particular sector or a single borrower or to one
particular region. If somehow the business of that sector or area or borrower collapses, the bank may
fall in a critical situation. So it is better to invest in different sectors/borrowers and spread over the
country. Thats why NCC Bank invests its fund in various sectors.
3.13. DISCOURAGED SECTORS of INVESTMENT:
Investment in following sectors is discouraged by NCC Bank.
Military equipment/Weapons Finance
Highly Leveraged transactions.
Finance of Speculative Investment.
Logging, Mineral Extraction/Mining, or other activity that is Ethically of Environmentally
Sensitive.
Lending to companies listed on CIB blacklist or known defaulters,
Counter parties in countries subject to UN sanctions.
Share Lending.
Taking an Equity Stake in borrowers.
Lending to Holding Companies.
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Bridge Investments relying on equity/debt issuance as a source of repayment.
Tannery Finance.
HB- residential who has no other business with the Bank.
3.14. LOAN MONITORING:
Loan monitoring implies that the checking of the pattern of use of the disbursed fund to ensure
whether it is used for the right purpose or not. It includes a reporting system and communication
arrangement between the borrower and the lending institution. The following steps are followed by
respective officer.
Regular checking the balance of SB/CD/STD accounts of the borrower.
Regular communication with the defaulter customers and guarantors physically over
telephone.
Issuance of letter to customers immediately after dishonor of cheque.
Issuance of legal notice to the defaulter customers and guarantors prior to classification of the
loans.
Issuance of appreciation or greeting letter to the regular customers.
Periodical visit with the customers to maintain relationship and supervision of supplied
articles.
Legal action to be taken after failings all possible efforts to recover the banks due.
3.15. HANDLING of NON-PERFORMIG LOANS:
When a borrower cannot repay interest and/or installment on a loan after it has become due then it is
qualified as default loan or non-performing loan. It is known as non-performing because the loan
ceases to perform or generate income for the bank.
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3.15.1. Implications
The very implication of non-performing loans are not only depriving of interest but also stoppage of
creating new loans for blockage of the fund and erosion of banks profitability, liquidity and
solvency, which might sometimes lead towards collapse of a bank. So, it is become essential for
policy makers of a bank to study the loan default scenario on a routine basis for estimating classified
loan, making appropriate provisioning, adopting effective recovery strategy and thus ensuring
soundness and efficiency of the bank.
3.15.2. Classification & provisioning of non-performing loans
Loan classification means giving each and every loan a status like unclassified, sub-standard,
doubtful or bad/loss through verification of borrowers repayment performance while provisioning
means setting aside funds from the profit against possible loan losses. This is essential for determine
the financial health and efficiency of a bank.
In order to get rid of default loans, Bangladesh Bank introduced a circular (BCD circular no. 34) on
1989 for classification & provision of loan thereof. The circular states the banks themselves will
carry out the classifications of their loans at least once in a year on the basis of the position existing
on December 31 in accordance with the guidelines given in the circular. In 1994, Bangladesh Bank
revised policy on classification and provisioning on quarterly basis.
The rules for classification and to maintain provisions as per overdue criteria are shown in the table
shown in next page:
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Status and types of classification
Length of overdue Status of
classificatio
n
Rate of
provision
Frequency
of
classification
All current loans overdue for
less than 6 months.
Unclassified 1%
Quarterly
Loans overdue for 6 months
but less than 9 months.
(When degree of risk for non- payment is high but there is
reasonable prospect that the
loan condition can be
improved)
Sub-standard (SS) 20%
Loans overdue for more than
9 months but less than 12
months. ( When chance of
repayment is uncertain but
there is little hope of recovery)
Doubtful (DF) 50%
Loans overdue for 12 months
or more. (When chance of
recovery is remote)
Bad/loss (B/L) 100%
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Chapter- 04
NCC BANK LTD.Where Credit and Commerce Integrates
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ANALYSIS & FINDINGS
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4.1. QUESTIONNAIRE DESIGN & MEASURES:
In the questionnaire there are 12 statements. These statements are based on SERVQUAL Model
where the questionnaires divided in to five dimensions- Reliability, Responsiveness, Assurance,
Empathy, Tangibles. I designed 5 points Likert scale for answering. These questionnaires based on
the 5 point Likert scale. There are five answering options and I put marks for each option and the
marks are:
Strongly agree =5
Agree = 4
Neither agree or Disagree = 3
Disagree = 2
Strongly Disagree = 1
Reliability Dimension:
Descriptive Statistics
Statements N Minimum Maximum Mean Std.
Deviation
1. Keeps promises 30 2.00 5.00 4.3667 .76489
2. Maintains error free
records
30 2.00 5.00 4.2000 .71438
3. Reliable for
documents submitted
30 3.00 5.00 4.6667 .54667
Valid N (list wise) 30
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4 .3 64 .
4 .6 6
3 . 8
4
4 . 2
4 . 4
4 . 6
4 . 8
M e a
K e e p s
p ro m is e s
M a in ta in s
e r r o r f r ee
re c o r d s
R e lia b le fo r
d o c u m e n ts
s u b m itte d
S t a t e m e
R e lia b il it y D im M e a
In reliability dimension there are three statements, where I calculate mean value of those statements
through SPSS software.
On the basis of the first statement it is found that NCCBL keeps promises to the customer.
Since the mean value is 4.3667.
From the second statement, it is found that NCCBL maintains customers error free records.
Hence, the mean value is 4.20.
On the basis of third statement, it is found that the documents and papers submitted by the
customers to NCCBL are very much reliable. Since the mean value is 4.6667.
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Responsiveness Dimension:
Descriptive Statistics
Statements N Minimum Maximum Mean Std.
Deviation
4. Willing to help
customers
30 3.00 5.00 4.6000 .56324
5. Informed
customers about
services
30 3.00 5.00 4.1000 .54772
6. Satisfaction with
the loan products
30 2.00 5.00 3.5333 .81931
Valid N (list wise) 30
4.6 4.13.533
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Mean
Willing to
help
customers
Informed
customers
about
services
Satisfaction
with the
loan
products
Statements
Responsiveness Dimension Mean
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In responsiveness dimension there are also three statements, are-
On the basis of fourth statement of the questionnaire, it is understood that employees of
NCCBL are always willing to help the customers. Hence, the mean value is 4.60.
From the fifth statement of the questionnaire, it is found that the customers of NCCBL are
informed when services or loan services will be performed. Since the mean value is 4.10.
On the basis of sixth statement of the questionnaire, it is assumed that the customers of
NCCBL are not very much satisfied with the present loan products. While, the mean value is
3.533.
Assurance Dimension:
Descriptive Statistics
Statements N Minimum Maximum Mean Std.
Deviation
7. Safe transactions 30 3.00 5.00 4.7333 .52083
8. Ability of
Relationship Officer30 3.00 5.00 4.6333 .61495
Valid N (list wise) 30
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4.733
4.633
4.58
4.6
4.62
4.64
4.66
4.68
4.7
4.72
4.74
Mean
Safe Transactions Ability of
Relationship
Officer
Statements
Assuarance Dimension
In assurance dimension there are two statements, are-
From the seventh statement of the questionnaire, it is found that the customers are feeling
very much safe in transactions with NCCBL. Hence, the mean value is 4.733.
On the basis of eight no. statement of the questionnaire, it is understood that the relationship
officer of NCCBL has the ability to answer the questions regarding loan to the customer.
Since, the mean value is 4.633.
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Empathy Dimension:
Descriptive Statistics
Statements N Minimum Maximum Mean Std.
Deviation
9. Satisfied with loan
interest30 2.00 5.00 3.2000 .84690
10. Gives individual
attention30 3.00 5.00 4.4000 .67466
Valid N (list wise) 30
3.2
4.4
0
1
2
3
4
5
Mean
Satisfied with
loan interest
Gives individual
attention
Statements
Empathy Dimension
In empathy dimension there are two statements, are-
From the nine no. of statement of the questionnaire, it is assumed that the customers of
NCCBL are not very satisfied with the present loan interest rate. Since, the mean value is 3.2.
On the basis of ten no. statement of the questionnaire, it is found that maximum customers
feel individual attention from employees of NCCBL. Hence, the mean value is 4.40.
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Tangibles Dimension:
Descriptive Statistics
Statements N Minimum Maximum MeanStd.
Deviation
11. Feel any loan
charges and fees30 2.00 5.00 3.4667 .73030
12. Modern
looking
equipments
30 3.00 5.00 4.2333 .67891
Valid N (list wise) 30
3.466
4.233
0
0.5
11.5
2
2.5
3
3.5
4
4.5
Mean
Feel any loan
charges and
fees
Modern looking
equipments
Statements
Tangible Dimension
The last dimension of the questionnaire is tangible dimension. There are two statements-
From the eleven no. of statement of the questionnaire, it is understood that the customers feel
low charges and fees face from NCCBL regarding loan. While, the mean value is 3.46.
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On the basis of last statement of the questionnaire, it is found that the NCCBL has some
modern looking equipments but it needs more to give better service to the customers. Since,
the mean value is 4.233.
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4.2. FINDINGS:
During my internship period I had worked mainly in Loan and Advances Section as well as in
General Banking Section in NCCBL, Shyamoli Branch. Throughout this three months the major
findings of the study are:
The risk is concentrated in loan products as the total loan outstanding is highly dominated by
a few products.
Small range of loan products offered by NCCBL, Shyamoli Branch is another problem in
diversifying its loan risk. In most of the cases loan disbursement is centrally controlled from the Head Office,
sometimes which creates problem in choosing the right client for the bank.
Before sanctioning loan some times CIB report is not obtained from Bangladesh Bank.
Foreign Exchange related loan or LC loans are not transacted in this branch.
The credit proposal evaluation process is lengthy. Therefore sometimes valuable clients are
lost.
Monitoring of loan is not sufficient Branches of NCC Bank are not sufficient to compared with other private banks.
Innovation of new financial products is a rare case in NCC Bank rather they hardly upgrade
their offerings on the basis on some changes in interest rate and maturity.
The website does not contain information about loan and other sections.
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Chapter- 05
NCC BANK LTD.Where Credit and Commerce Integrates
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RECOMMENDATIONS &
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5.1. RECOMMENDATIONS:
On the basis of the findings the following recommendations are made for the NCCBL, Shyamoli
Branch:
At first NCCBL should find out the way to reduce its bad loan amount further as improve its
loan quality.
NCCBL should increase their loan products to compete in the market.
The loan policy and loan sanction procedure should be made flexible and easy.
NCCBL can give attention to the foreign exchange and remittance services to maximize
profit.
NCC Bank could give more attention to advertisement and promotion of products, which is
helpful to collect more deposits and increase investments scope. Bank could use various
media for advertisement like TV, News Paper, Internet and Billboard.
Strict supervision must be adopted in case of high-risk borrowers. Time to time visit to the
projects should be done by the bank officers.
NCCBL should introduce more ATM booth instead of manual banking system. It will save
huge amount of establishment and other cost.
The website of the bank should be more informative that customers get the all information
about the different activities and facilities of the bank.
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5.2. CONCLUSION:
Banks always contribute towards the economic development of a country. Compared with other
Banks NCC Bank is also playing leading role in socio-economic development of the country. The
bank is currently doing average. By analyzing its performance it is observed that a potential growthmight be accelerated through effective implications of some policy. Being an old generation bank it
has an advantage compared to newly established bank in the form of wide range of activities.
However policy implication needs to be as fast as possible to grab the early mover advantage.
The bank through years has been able to spread operation in mass banking rather than concentrating
in niches. It can hedge poor performance of one sector by some other sector for its wide range of
offering. Capital market operation has become a great potential for the bank to increase its
profitability. NCC bank brokerage house is concentrating to establish new work stations in order to
facilitate investor of remote places.
The bank has been able to create a multi component loan portfolio. However non performing loan
are a real challenge to the sound credit management. Default is increasing for lack of monitoring.
The bank is trying to increase its loan quality by accelerating its recovery policy. The bank can
concentrate on the loan sector where default risk is low and its investments are profitable. The loan
procedure has been made more calculative, logical to keep the credit sound.
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BIBLIOGRAPHY
Annual report (2009),National Credit and Commerce Bank Limited.
Annual report (2008),National Credit and Commerce Bank Limited.
Foundation Training Course Book-2009, NCC Bank Ltd.
Office circular and other published papers, documents and reports.
Brochures of NCC Bank Ltd.
Service Marketing by Zeithaml -4th edition, 2010, SERVQUAL Model (pg:
116-155).
Websites:
www.NCCbank-bd.com
www.bangladesh-bank.org.bd
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Chapter- 06
NCC BANK LTD.Where Credit and Commerce Integrates
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APEENDIX
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Questionnaire on
Customers Perceptions towards Service Quality of NCCBL: Specially Focused onLoan Services
(Only for Internship Report Purpose)
Name :
Age : 18 to 24 25 to 30 31 to 40 41 to 50 50 to 60
Type of A/C : Current Savings SND /SSS/ FDR/MDDP Loan A/C
Occupation : Service Business Student Other
Contact No :
[Please rate () your opinion about the following statements range from Strongly Disagree toStrongly Agree]
Sl.
No
Statements Strongly
Disagree
(1)
Disagree
(2)
NeitherAgree norDisagree
(3)
Agree
(4)
StronglAgree
(5)
Perceptions Statements in the Reliability Dimension
1 When NCC Bank Ltd. promises to dosomething by a certain time, it does so-
2 NCCBL insists on error-free records-
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3 For loan transaction submission ofdocuments and papers in NCCBL is
reliable for you-
Perceptions Statements in the Responsiveness Dimension
4 Employees in NCC Bank Ltd. are alwayswilling to help you-
5 NCCBL keeps customers informed aboutwhen services/ loan services will be
performed -
6 Are you satisfied with the loan products ofNCCBL-
Perceptions Statements in the Assurance Dimension
7 You feel safe in your transactions withNCCBL-
8 The Relationship Officer of NCCBL havethe ability to answer your all questions
regarding loan-
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Perceptions Statements in the Empathy Dimension
9 As a customer are you satisfied with the loaninterest rate of NCC Bank -
10 NCC Bank Ltd. gives you individualattention-
Perceptions Statements in the Tangibles Dimension
11 Do you feel any charges and fees for loanfrom NCCBL-
12 NCCBL has modern looking equipments-
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Thank You
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