loan and advance

Loan and Advances of SEBL

CHAPTER -1

INTRODUCTION OF THE RRPORT

ORIGIN OF THE STUDY

BACKGROUND

OBJECTIVE OF THE STUDY

SCOPE OF THE STUDY

SOURCES OF INFORMATION

METHODOLOGY

LIMITATION

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1.1 ORIGIN OF THE STUDY

The Applied Research Work program exercise a significant importance as it is

undertaken after completion of a vast theoretical course, Organized by the Department of

Business Administration, the students study thoroughly about the institutions. At the end

of the program, the students are required to place the accomplishment and findings of the

work through the writing of report covering the topic assigned to them. During the

program each student is supervised and guided by a teacher of the department. It enables

the students to develop their analytical skills and scholastic aptitudes.

I have conducted a study on “Sanctioning and Recovery System of Loan and Advances”

of Southeast Bank Limited’. My supervisor Mr. Md. ShahanShah Molla, Lecturer

Department of Business Administration, Leading University, Sylhet, also approved the

topic and authorized me to prepare this report as part of the fulfillment of internship

requirement.

1.2 BACKGROUND

Loan comprises the most important asset as well as the primary source of earning for the

financial institutions. On the other hand this loan is also the major source of risk for the

bank management. A prudent bank management should always try to make an

appropriate balance between its return and risk involved with the loan portfolio. An

unregulated banking financial institution might be fraught with unmanageable risk for the

purpose of managing its potential return. In such situation, the banking financial

institution might find itself in serious financial distress instead of improving its financial

health. Consequently, not only the depositors but also the general shareholders will be

deprived of their money from the bank. The determination of loan quality will also affect

the intermediation efficiency of the institutions and thus the economic growth process of

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the country. This establishes the fact that bank should provide increasing emphasis on

various analytical tools and techniques for screening proposal and loan decision taking.

1.3 OBJECTIVE OF THE STUDY

The basic objective of this paper is to acquaint with how a banking financial list evaluate

individual potential borrower- based on which sanction different credit limit to different

customer and charges different interest to different borrower that is what factors

determinates decisions.

The specific objective are

1. To know more about the credit sanctioning policy of SEBL.

2. To have an adequate knowledge about which factors mostly affects the loan

sanctioning decisions, what amount of loan should be sanctioned to a particular

loan applicant depending on his credit worthiness.

3. To furnish the possibilities that the commercial bancs can extend their expertise

consultation service to control risk exposures of a loan.

4. To identify and suggest scopes of improvement in loan and advance portfolio of

SEBL

.1.4 SCOPE OF THE STUDY

The study would focus on the following areas of Southeast Bank Limited.

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Credit evaluation system of Southeast Bank Limited.

Procedure for different loan facilities.

Credit portfolio management of Southeast Bank Limited.

Organization structures and responsibilities of management.

Each of the above areas would be critically analyzed in order to determine the

efficiency of SEBL’s Credit appraisal and Management system.

1.5 SOURCES OF INFORMATION

Information collected to furnish this report is both from primary and secondary in nature.

This study is mainly based on the information extracted from various published annual

reports, books, documents, study reports and articles. Interviews and discussion with the

senior executives of the Bank gave some insights into the problems and issues of the

study. The methods of collecting data followed throughout the study may be detailed as

under:

SEBL credit policy and guidelines

Practical Banking experience of the bank’s officers.

Discussion with the officers / executives of the Bank.

Annual Reports

Journals of existing literature

Publications of Bangladesh Bank

Different websites.

1.6 METHODOLOGY

The following methodology will be followed for the study:

Both primary and secondary data sources will be used to generate this report. Primary

data sources are scheduled survey, and informal discussion with professionals. The

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secondary data sources are annual reports, manuals, and brochures of Southeast Bank

limited and different publications of Bangladesh Bank.

To identify the implementation, supervision, monitoring and repayment practice,

interview with the employee and extensive study of the existing file was done.

1.7 LIMITATION OF THE REPORT

1. This paper has focused on the most sensitive part of the organization i.e. loan

and advance. So the bank authority hesitated to disclose important information

to maintain business secrecy.

2. Only three month time is not enough to complete such a study in a lucid

manner.

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CHAPTER -2

ORGANIGATIONAL OVERVIEW OF SOUTHEAST BANK

STATUS OF THE BANK

VISION OF THE BANK

MISSION OF THE BANK

CORE VALUES OF THE BANK

CLIENT COMITMENT OF THE BANK

NATURE OF BUSINESS

DEPOSIT SCHEME

LOAN SCHEME

INTERNATIONAL BUSINESS

OTHER PRODUT/SERVICES

CORE OBJECTIVE

MANAGEMENT STRUCTURE OF SEBL

SPECIAL FEATURE OF THE BANK

SOUTHEAST BANK AT A GLANCE

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2.0 STATUS OF THE BANK

Southeast Bank Limited, a second generation private Bank, emerged in 1995 amid

liberalization of global economics. Currently its Authorized Capital TK.3,500 million and

its Capital and Reserve reached TK. 2678.87 million as of June 30, 2006. The Bank has

a diverse arrangement of carefully adapted products and services to satisfy client needs.

The Southeast Bank Limited is pledge-bound to convert the bank into a global modern

banking institution dynamic in actions, progressive in ideas, honest in dealings, correct in

judgment, futuristic in attitude, fair in approach, polite in behavior and devoted to high

quality services to clients. Its aims are for boosting modern management, advanced

technology, good profitability, solid growth and excellent image of the bank. Today,

Southeast Bank Limited in a responsive organization which promotes innovations,

encourages improvements, values sense of urgency and develops people who accept

challenges and turned them in to opportunities.

"A Bank with Vision" has been precisely an essence of the legend of success in the Asian

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

which is focused on the established and emerging markets of Bangladesh. Southeast

Bank Limited has 46 branches throughout Bangladesh and its aim is to be the leading

bank in the country's principal markets. The bank by concentrating on the activities in its

area of specialization has achieved good market reputation with efficient client service.

The Bank is committed to providing continuous training to its staff to keep them up to

date with modern practices in their respective fields of work. The Bank also tries to fulfill

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

increase shareholders' earning per share. Southeast Bank Limited has been licensed by

the Government of Bangladesh as a Scheduled commercial bank in the private sector in

pursuance of the policy of liberalization of banking and financial services and facilities in

Bangladesh. In view of the above, the Bank within a period of 10 years of its operation

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achieved a remarkable success and met up capital adequacy requirement of Bangladesh

Bank.

2.1 VISION OF THE BANK

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

to the national economy.’

2.2 MISSION OF THE BANK

High quality financial services with the help of latest technology.

Fast & accurate customer service.

Balanced growth strategy.

High standard business ethics.

Steady return on shareholders' equity.

Innovative banking at a competitive price.

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

Attract and retain quality human resource.

2.3. CORE VALUES OF THE BANK

Integrity

Respect

Fairness

Harmony

Team spirit

Courtesy

Commitment

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Service Excellence

2.4 CLIENT COMITMENT OF THE BANK

Dispatch of work with high degree of professionalism and use of most suitable

banking technology.

Founding life-long relationship based on mutual trust and respect.

Response to customer needs with quickness and accuracy.

Sharing their values and beliefs.

Mutual growth.

First-rated solutions of the banking problems and issues.

Competitive pricing of products and services.

Safety and security of their money in trust with Bank.

2.5 NATURE OF BUSINESS

As a commercial bank, Southeast Bank does all traditional banking business including

the wide range of savings and credit scheme products, retail banking and ancillary

services with the support of modern technology and professional excellence. The bank

has launched a number of financial products and services since its inception. The types of

deposits, loans & advances and international business are as under:

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2.6. DEPOSIT SCHEME

Besides Fixed Deposits, Savings Bank Deposits and Current Account Deposits, the Bank

has introduced the following customer friendly deposit schemes:

a) Pension Savings Scheme (PSS)

b) Education Savings Scheme (ESS)

c) Monthly Savings Scheme (MSS)

d) Savers Benefit Deposit Scheme (SBDS)

e) Fixed Deposits ( 1, 2, 3, 6 & 12 months and 2, 3 years)

f) Double Benefit Scheme (DBS)

2.7. LOAN SCHEME

The loan portfolio of the Bank is well diversified and covers funding to a wide spectrum

of business and industries including readymade garments, textile, edible oil, ship

scrapping, steel & engineering, chemical, pharmaceuticals, cement, construction, health-

care, real-estate and loans under consumer’s credit schemes allowed to the middle-class

people of the country for acquiring various household items.

a) Agricultural Scheme

b) Commercial Lending

c) Working Capital

d) House Building Loan

e) Consumer Credit Scheme

f) Finance to NBFIs

g) SME Finance

h) Large/Medium Scale Industry

i) Loan against Export & Import

2.8. INTERNATIONAL BUSINESS

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The international business of the bank includes the following:

- Import Business

- Export Business

- Foreign Remittances

2.9. OTHER PRODUT/SERVICES

The other product / services offered by the bank are as under:

- ATM Operation

- Real Time On-line any Branch Banking Service

- Dual Currency Visa Credit Card

- Islamic Banking Services

- Merchant Banking Services

2.10 CORE OBJECTIVE

The bank's overall objective is to have a higher profitability than that of the weighted

average of other banks. As such the main focus of the Bank is on highly profitable

business with convincing growth potential. Vision for the future is the characteristic that

differentiates Southeast Bank from other competitors.

2.11 MANAGEMENT STRUCTURE OF SEBL

Southeast Bank is blessed with a well-designed management structure with clearly

defined responsibilities, delegation of authority and proper accountability. Resultantly,

there is transparency in decision-making and management activities. The bank has

appropriate organizational structure manned with qualified professionals for proper

planning, executing, controlling and monitoring functions.

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Chart-1: Hierarchy of Southeast Bank Ltd.

Chowhatta Branch

Managing Director

Deputy Managing Director

Senior Executive Vice President

Executive Vice President

Senior Vice President

Vice President

First Vice President

ENTRY LEVELSenior Asstt. Vice President

ENTRY LEVELAsstt. Vice President

Senior Principal Officer

Management Trainee Principal Officer

Management Trainee Executive Officer

Senior Officer Probationary

Officer

Officer

Junior Officer

Trainee Asstt. Officer Assistant Officer

Computer Trainee Computer Operator

Cashier Trainee Cashier

12


2.12 SPECIAL FEATURE OF THE BANK

g) Southeast Bank Limited is engaged in conventional commercial banking.

h) It is the pioneer to introducing and launching different customer friendly

deposit scheme to tap saving of the people for channeling the same to the

productive sector of the economy.

i) The bank is committed to continuous research and development so as to

keep phase with modern banking.

j) The operation of the bank is computerized to ensure prompt and efficient

service to the customers.

k) The bank has introduced camera surveillance system to strengthen the

security service inside the bank premises.

l) The bank introduced customer relation management to asses the need of

the customers and resolves any problem on the spot.

Now I would like to show a feature as the improvement of last five years as bellow:

At a Glance improvement of five years

TABLE 1:SOUTHEAST BANK AT A GLANCE

Particulars

2009

Taka in

Million

2008

Taka in

Million

2007

Taka in

Million

2006

Taka in

Million

2005

Taka in

Million

Authorized Capital 10000.00 3500.00

3500.00 2500.00 2500.00

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Paid-up Capital 3422.64 2852.20

22810.76 21120.74 1056.37

Reserve Fund 6504.52 4804.81

4186.60 2828.18 1180.47

Equity Fund (Capital and

Reserve) 9927.16 7657.016468.36 4940.92 2236.84

Deposit96669.05 68714.67

55474.05 46056.18 38258.15

Advance77497.57 60281.26

4816406

0 41147.28 32551.09

Investment21350.23 12299.61

8462.86 6265.55 5113.14

Import Business 69582.92 58019.77

38470.34 35125.12 29079.30

Export Business 46724.47 42178.60

28771.36 25874.61 13511.10

Guarantee Business 11916.74 15078.99

9008.32 8656.80 7975.00

Total Income 13704.45 10250.13

8670.47 6766.11 4689.55

Total Expenditure 9087.79 7237.55

5754.27 4706.45 3216.11

Operating Profit 4614.66 3012.58

2916.20 2062.66 1473.44

Net Profit after-Tax and

Provision 1870.19 887.24 1222.97 909.88 374.20

Fixed Assets 4338.85 2685.56

1708.11 1300.39 790.62

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Total Assets 112676.92 81181.53

64370 53706.1243294.81

Earning per Share (Taka) 54.6431.11

40.88 59.71 35.42

Dividend Cash (%)15%

15% 20%

Bonus Shares 35%(20:7

) 20%(5:1) 25%(4:1) 8% (12.5:1) 20%(5:1)

Return on Equity (ROE) 16.51%12.06%

19.90% 17.98% 17.64%

Return on Assets (ROA) 1.66%1.09%

1.90 % 1.66% 0.86%

Non performing Loans as %

of Total Loans3.73%

4.12% 3.77% 3.97% 4.37%

Capital Adequacy Ratio 11.72%11.12%

13.00% 11.50% 6.90%

Number of Correspondent

Banks146

145140 138 130

Number of Foreign

Correspondents589

587598 536 507

Number Of Shareholders 2215212536

9636 8855 5750

Number of Employees 1254 1080

964 845 759

Number of Branches 56 46

38 31 31

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At the time of incorporation in 1995, the Authorized Capital of the Bank was Tk.500.00

Million. At the end of 2009, the Authorized Capital and of the Bank stood at Tk.10,

000.00 million. The Authorized Capital since inception of SEBL have been increased by

1,900% respectively to maintain sound capital adequacy of the Bank and to make the

Bank financially stronger. The growth of Authorized Capital and Shareholders equity of

the Bank is shown below:

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0 5000 10000

Amount

2005

2006

2007

2008

2009

Ye

ar

Authorized Capital

Fig 1: Authorized Capital

Fig 2: Shareholders Equity

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0100020003000400050006000700080009000

10000

Amount

2005 2006 2007 2008 2009

Year

Shareholders Equity

17


The Bank mobilized total deposits of Tk.96669.05 million as of December, 2009 as

compared to Tk.68714.67 million in 2008.Competitive interest rates, attractive deposit

products, deposit mobilization efforts of the employees and confidence reposed by the

customers in the Bank are the factors that contributed to the notable growth in deposits.

Fig 3: Total Deposit

At the end of the year 2009, the number of outstanding shares of our Bank stood at

3, 42, 26,373 shares. We had 30, 00,000 shares at the time of listing with Dhaka Stock

Exchange and Chittagong Exchange in 2000. We have issued 3, 12, 26,373 shares in the

Form of Bonus Shares and Rights Shares after listing with stock exchanges, showing

1040.88% increase in number of Bank’s outstanding shares. As we have been making

Substantial profits for five consecutive years, the harmony between increased numbers of

Issued Shares and Earning per Share is being maintained. The Bank’s positive Earning

per Share for the last five years is shown below:

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0

10000

20000

30000

40000

50000

60000

70000

Taka In Million

2005 2006 2007 2008 2009

Year

Deposit (2005-2009) At a Glance

18


Fig 4: Earning Per Share

At the end of the year 2009, the number of outstanding shares of SEBL Bank stood at

34226373 shares. SEBL had 3000000 shares at the time of listing with Dhaka Stock

Exchange and Chittagong Exchange in 2000. It have issued 31226373 shares in the form

of Bonus Shares and Rights Shares after listing with stock exchanges, showing1040.88%

increase in number of Bank’s outstanding shares. As it has been making Substantial

profits for five consecutive years, the harmony between increased numbers of Issued

Shares and Earning per Share is being maintained. The Bank’s positive Earning per Share

for the last five years is shown at above& cash dividend and bonus share are shown

below.

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Earning Per Share

35.42

59.71

42.88

31.11

54.64

0

10

20

30

40

50

60

70

2005 2006 2007 2008 2009

Year

Am

ou

nt

19


Fig 4: Bonus Share

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Bonus Share

8.00%

35.00%

20.00%

25.00%

20.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

2005 2006 2007 2008 2009

Year

%

20


Fig 5: Cash Dividend

During the year 2009, Return on Equity (ROE) of the Bank was 16.51 percent as against

12.06 percent of the previous year. The percentages of Return of Equity for the last five

years are given below:

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Cash Dividend

0.00%

15.00%15.00%

20.00%

0.00%0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2005 2006 2007 2008 2009

Year

%

21


Fig 6: ROE

Chowhatta Branch

Return on Equity

12.06%

16.51%

19.90%

17.98%

17.64%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2005 2006 2007 2008 2009

Year

%

22


CHAPTER -3

LITERATURE VIEW OF LOAN AND ADVANCES OF SEBL

LOAN

TYPES OF LOANS

LOAN CLASSIFICATION ---AN OVERVIEW

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3.0 LOAN

A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of

financial assets over time, between the lender and the borrower. Or loan is an

arrangement in which a lender gives money or property to a borrower, and the borrower

agrees to return the property or repay the money, usually along with interest, at some

future point(s) in time. Usually, there is a predetermined time for repaying a loan, and

generally the lender has to bear the risk that the borrower may not repay a loan (though

modern capital markets have developed many ways of managing this risk).

According to oxford dictionary of business “a specified sum of money but by bank to

a customer, usually for a specified rate of interest is called bank loan or bank advance”1

“Banker’s credit means the credit granted by a banker to his customer’s”

Prof. Henchmen” when a bank makes an advance to a customer whether by overdraft or

loan account is called banker’s credit”

From above definition we can say that credit or advance is main function of a commercial

bank, which means banker grant credit to his customer for his profit. Bank lends money

in different forms.

In a loan, the borrower initially receives or borrows an amount of money, called the

principal, from the lender, and is obligated to pay back or repay an equal amount of

money to the lender at a later time. Typically, the money is paid back in regular

installments, or partial repayments; in an annuity, each installment is the same amount.

The loan is generally provided at a cost, referred to as interest on the debt, which

provides an incentive for the lender to engage in the loan. In a legal loan, each of these

obligations and restrictions is enforced by contract, which can also place the borrower

under additional restrictions known as loan covenants. Although this article focuses on

monetary loans, in practice any material object might be lent.1

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http://www.investorwords.com/4292/risk.html

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http://www.businessdictionary.com/definition/arrangement.html


Acting as a provider of loans is one of the principal tasks for financial institutions. For

other institutions, issuing of debt contracts such as bonds is a typical source of funding.

3.2 TYPES OF LOANS

3.2.1 Secured

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property)

as collateral for the loan.

A mortgage loan is a very common type of debt instrument, used by many individuals to

purchase housing. In this arrangement, the money is used to purchase the property. The

financial institution, however, is given security a lien on the title to the house until the

mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the

legal right to repossess the house and sell it, to recover sums owing to it.

In some instances, a loan taken out to purchase a new or used car may be secured by the

car; in much the same way as a mortgage is secured by housing. The duration of the loan

period is considerably shorter often corresponding to the useful life of the car. There are

two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the

loan directly to a consumer. An indirect auto loan is where a car dealership acts as an

intermediary between the bank or financial institution and the consumer.

3.2.2 Unsecured

Unsecured loans are monetary loans that are not secured against the borrower's assets.

These may be available from financial institutions under many different guises or

marketing packages:

credit card debt

personal loans

bank overdrafts

credit facilities or lines of credit

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corporate bonds

The interest rates applicable to these different forms may vary depending on the lender

and the borrower. These may or may not be regulated by law..

3.2.3 Demand

Demand loans are short term loans that are atypical in that they do not have fixed dates

for repayment and carry a floating interest rate which varies according to the prime rate.

They can be "called" for repayment by the lending institution at any time. Demand loans

may be unsecured or secured.]

3.3 LOAN CLASSIFICATION ---AN OVERVIEW

Loan classification attempts to categorize the debt information in a systematic manner.

Loan classification is defined in terms of degree of risk associated with loans.

Classification of loans include only such assets of the balance sheet of a bank which did

not yield interest income and have remained past due for some quarters. The vastness of

the loan classification status of Bangladesh can be measured from the figures of total

classified loans in the country. Loans are generally categorized in Bangladesh as either

unclassified or classified. Loans are classified as substandard, doubtful and bad/loss as

per classification guidelines by the Bangladesh Bank.

Objectives of Loan Classification:

To find out Net Worth or Adjusted Capital of a bank.

To help for assessing financial soundness of a bank.

To calculate the required provision and the amount of interest suspense.

To put the bank on sound footing in order to develop sound banking

practice in Bangladesh.

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Importance of Loan Classification:

Strengthen credit discipline

Improve loan recovery positions

Make planning for future course of loan.

Table 3:Type of loans to be reported in CLS.

Sl

No.

Type of loansDefinition

1. Continuous These are those advances which do not have any set

schedule for drawing or disbursement but usually have a

terminal date of full adjustment or repayment, as for

example OD, CC.

2. Demand The loans which become payable after serving demand

notice by the bank concerned are termed as Demand

Loan. For Example- Forced LIM. PAD, FBP, IBBP

ETC.

3 Term These are loans, which is payable on specific repayment

schedule and specific period is to treated as term loan.

For example- Project Finance, Industrial Finance etc.

4 Short Term

Agricultural /

Micro

Short term agriculture loan include the short-term credit

mentioned in the circular issued by Annual Agricultural

Credit Department (ACD) of Bangladesh Bank under

annual credit program. Loan disbursed in agri-sector

repayable within 12 months will also be treated under

this head. Short term small loan means loan up to Tk.1

lac and micro credit repayable within 12 months.

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CHAPTER-4

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LOAN AND ADVANCES AT SOUTHEAST BANK LTD

OVERVIEW

TYPES OF LOAN IN SEBL

RATE OF INTERAST ON LOAN

DOCUMANTATION OF LOAN

PROCESS OF DISBURSMENT

APPROVAL AUTHORITY

PROCEDURE OF RECOVERY

4.0 OVERVIEW

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Bank credit means bank loans and advances. A bank keeps a certain proportion of its

deposits as minimum reserve for meeting the demand of the depositors and lends out the

remaining excess reserve to earn income. The bank loan is not paid directly to the

borrower but is only credited in his account. Every bank loan creates an equivalent

deposit in the bank. Thus, credit creation means multiple expansions of bank deposits.

The whole structure of banking is based on credit. Credit means getting the purchasing

power (i.e., money) now by a promise to pay at some time in future. The making of loans

and advances has always been prominent and most profitable function of a bank.

Sanctioning advances to clients and others out of the funds at its disposal is one of the

principal services of a modern bank. Commercial Banks deal with the money from the

depositors repayable on demand. So, they cannot afford to lock up their fund for long

periods. They usually grant short term advances which are utilized to meet the working

capital requirements of the borrower. Only a small portion of a bank’s demand and time

liabilities is advanced on long term basis where the banker usually insists on a regular

repayment by the borrower in installments. While lending fund a banker, therefore,

follows a very cautious policy and conducts his business on the basis of well-known

principles of sound lending in order to minimize the risk.

Loans and advances are the most profitable and the least liquid assets of the bank. Banks

provide loans and advances to the businessmen either through overdraft or by discounting

of bills of exchange. The difference between loans and advances is that the advances are

for short period and loans are for relatively longer period. Loans and advances earn high

rate of interest, carry greater risk and are generally non-shiftable. Thus, while and

advances are mostly preferred by the banks because of their high yields, they are not

popular from the consideration of liquidity and safety of the bank.

4.1. TYPES OF LOAN IN SEBL

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There are different types of loans are offered by the Southeast Bank Limited these are

given below –

1. Term Loans

a. Consumer Credit Scheme

b. House Building Loan

c. Staff Loan

2. Over Draft

3. Time loan

4. Industrial loan

(1) Term Loans:

The term loan is determined on the basis of conception period of a project and generation

of income by use of the loan. Such loans are provided for agricultural activities, farm,

machinery, dairy, and poultry; transport facilities, extension of tea gardens and

development of horticulture, fishing etc. Mainly loan has a time period of 3-5 years.

a. Consumer Credit Scheme (CCS): This is a special credit scheme provided by

Southeast Bank Ltd. to the service holders to buy car, furniture, computer, air-

conditioner, TV, DVD etc. the interest rate is 13% the customer must have an account

is the bank. The customer needs two guarantors. The customer needs a verification

certificate form his employer. Mostly this loan has a time period of 2 years to 3 years.

b. House building Loan: It is a long term Loan. This Loan is sanctioned for house

building purpose & interest rate is 16%. The following documents are required for this

type of loan -

o Valuation certificate of the Bank

o Estimated cost for construction of house by the engineer

o A copy of permission from DIT

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c. Staff Loan: This type of loan is only given to the employees or staffs of bank. This

type of loan gives some facilities to the staffs of the bank. The interest rate of the loan is

8.00%. The maturity period is 180 months to 15 years.

(2) Over Draft:

Advance in the form of overdrafts is allowed on a current account. The customers may

be sanctioned a certain limit within which he can withdraw his loan amount for several

times within a stipulated period. Here interest will be charged on the withdrawal loan

amount, overdraft facility is normally given to the party for the expansion of business

and this facility is given for maximum one year.

(3) Time loan:

It is a short term loan. It is sanctioned for less than a year. Normally this type of loan is

sanctioned for 3, 6 or 9 months.

(4) Industrial Loan:

The bank provides industrial loan to it clients. It is sanctioned for 5 years or above. In

order to get loan form the bank, the clients are obliged to fulfill certain requirements

provided by the bank.

4.1.1 BANK GUARANTEE:

Bank gives guarantee to his valued client on the basis of work order by tender. The client

should be deposited his margin amount which is refundable. For the bank guarantee client

needs to bear Stamp, Commission, and Vat etc charges. When client will like to close his

bank guarantee the bank maintain some procedure.

Cancellation of Bank Grantee B/G: The amount deposited for margin on B/G bank

created liability account.

Margin A/C: DR.

Part A/C: CR.

Chowhatta Branch 32


Than

Liability A/C: DR.

Asset A/C: CR.

4.1.2 LOAN SYNDICATION

A Syndication of loan is a loan given to a party by some banks. There is a leading bank

and others are participants. Southeast Bank Limited is involved in this process with many

parties. Recent two loan syndication of Southeast Bank Limited is given below:

[1] Meer Cement- Loan amount Tk.15.00 crores

Lead arranger:

Southeast Bank Limited

Participants:

Arab Bangladesh Bank Limited

Exim Bank Limited

[2] H.P Chemicals- Loan amount Tk.33.00 crores

Lead arranger:

Prime Bank Limited

Co-arranger:

Southeast Bank Limited

Participants:

Exim Bank Limited

Jamuna Bank Limited

Chowhatta Branch 33


4.2 RATE OF INTERAST ON LOAN

The Bank from time to time circulate the interest rates/pricing of loans, charges ,

commissions etc. to its Branches with the approval of the competent authority and as per

guidance of Bangladesh Bank. As on date the Bank fixes a mid rate for lending based on

the Average Cost of fund.

Table-4: Interest Rates of Loan

LENDING CATEGORIESLENDING

RATE

1. AGRICULTURE.

Loan to primary producers

Loan to Agricultural input Traders and Fertilizer

Dealer/ /distributors

9.00%

10.00%

2. LARGE AND MEDIUM SCALE INDUSTRIES (TERM

LOAN) 16.00%

3. SMALL & COTTAGE INDUSTRIES (TERM LOAN) 16.00%

4. WORKING CAPITAL (Industrial)

o Jute

o Other than jute

13.50%

13.50%

5. EXPORT

o Jute Goods Export

o Other Export

11.00% Fixed

11.00% Fixed

6. COMMERCIAL, LENDING

Jute Trading

Commercial Lending(Others)

14.50%

14.50%

7. HOUSE BUILDING FINANCE

Real Estate Developers

Individual/Housing Finance Comp.

16 .00%

16.00 %

8. CONSUMER CREDIT SCHEME 16.00%

9. CREDIT CARD 2.50% per

Chowhatta Branch 34


month

(Fixed)

10. FINANCE TO NBFIs 13.50%

11. OTHER LOANS

SME

Others

16 .00%

16 .00%

4.3 DOCUMANTATION OF LOAN

Documentation is obtaining such agreement where all the terms and condition and

securities are written and signed by the borrower. It specifies rights and liabilities of both

the banker and the borrower. In documentation each type of advances requires a different

set of documents. It also differs with the nature of securities. The documents should be

stamped according to the stamp Act. There are no hard and fast rules of documentation

and it varies from bank to bank. Generally, the documents are taken in the case of a

secured advance by SEBL:

i. Demand promissory note: Here the borrower promises to pay the loan as and

when demand by bank to repay the loan.

ii. Letter of arrangement.

iii. Letter of continuity.

iv. Letter of hypothecation of goods and capital machinery.

v. Stock report: This report is used for OD and CC. In this report, information

about the quality and quantity of goods hypothecated is furnished.

vi. Memorandum of deposit of title deed of property duly signed by the owners of

the property with resolution of Board of Directors of the company owning the

landed.

vii. Personal guarantee of the owners of the property.

viii. Guarantee of all the directors of the company.

Chowhatta Branch 35


ix. Resolution of the board of directors to borrow fund to execute documents and

completes other formalities

x. Form no. XVII/XIX for filling charges with the register of joint stock

companies under relevant section.

xi. Letter of Revival.

xii. Letter of lien for advance against FDR

4.4 PROCESS OF DISBURSMENT

4.4.1Pre-disbursement Compliance:

When the credit proposal are approved the credit officer must have to be ensured that the

disbursement of the credit facilities must comply with the directions written in the credit

policy and circular made by time to time along with checking all the following terms and

conditions.

The officer of Loan Administration must collect the acceptance of the customer’s

of the terms and conditions on the duplicate copy of the sanctioned advice.

They will thoroughly examine and ensure that the subject credit facility does not

contradict to any law, rules and regulation of the country, Bangladesh Bank and

deed of the Mortgage and power of the Attorney to be drafted and executed under

the Supervision of the Bank’s Legal Advisor.

Lawyers certificate to the effect that all the legal formalities (Equitable/

Registered Mortgaged) has been properly created on the land and building in

favor of the bank and bank has acquired the effective title of the property.

Registered power of attorney has been collected from the borrower (contractor)

assigning the work order favoring the bank and the power of attorney has been

registered with the work order given agency and they have agreed that they will

issue all the cheques favoring bank.

The legal documents of the vehicle have been obtained.

Chowhatta Branch 36


Collection of the satisfaction certificate in respect of all the documents both legal

and banking from the lawyer.

After being satisfied all the above terms and conditions the credit in-charge will

disburse the loan amount to the client.

4.4.2 Mode of Disbursement:

After sanctioning of loan under the Scheme, Branch will disburse the loan amounts only

when all security documentation is in place, CIB report is obtained, as appropriate, and

clean, the loan amount will be disbursed and credited (against Quotation(s) to be

produced/submitted by the customers) directly to the respective account of the customers

to be maintained with the Branch and payment thereof (sanctioned amount plus client’s

equity) as per quotation(s) shall be made directly to suppliers/ shopkeepers through Pay

order or Demand Draft. Disbursement will be made in all cases after having

acknowledgement of receipt of the goods.

However for minor purposes disbursement may be made by clients’ choice at the

discretion of banking authority.

4.4.3 Mode of Repayment:

Maximum 60 (sixty) Equal Monthly Installments depending on loan amount and items.

Residue if any shall be paid along with last installment.

4.4.3.1 Early Repayment

The borrower may repay the loan in full before the end of the loan term. In such cases,

outstanding principal & accumulated interest as on the date of payment has to be paid.

In case of early payment Tk.1000/- will be charged. No partial payment allowed.

4.4.3.2Security /collateral & Documentation:

1) Duly filled in Loan Application Form Terms and conditions signed

2) Demand Promissory Note

Chowhatta Branch 37


3) Letter of Continuation

4) Irrevocable Letter of Authority for undated cheque

5) Letter of Introduction from the employer or referee (where applicable)

6) Personal guarantee of two guarantors acceptable to the bank and qualified to

borrow under the scheme.

7) Undated cheques for 1.5 times to the loan amount.

8) Post dated cheques as per repayment schedule.

9) Tin Certificates (if any)

10) Personal Net-worth statement

11) Salary Certificate / Pay slip / Bank Statement of 3-12 months

12) Proof of Professional Certificate (when required)

13) Quotations of Items to be purchased

14) Copy of recent Utility bill paid in the name of borrower (for address

verification)/ Copy of Passport/Copy of Valid Trade license

15) Letter of Hypothecation

16) Letter of Lien

17) Trust Receipt

18) Cash and/ or collaterals, immovable property, assignment of interest may he

accepted if offered by the client.

19) Other (if any)

For Car Other Security/ Collateral

a) Hypothecation over the car (lien mark- Hire Purchase raised in the BRTA and

blue-book of the car).

b) First party comprehensive insurance of the car (Policy must be renewed every

year and copy of the policy must be submitted to the bank)

For Cur Other Legal Documents

Chowhatta Branch 38


a) Letter of Set-Off

b) Irrevocable Letter of Authority to repossess the vehicle

c) Ownership transfer form signed by customer

d) Letter of Offer with full terms and conditions stated therein and duly accepted.

4.4.3.3 Other Terms & Condition

Prepayment

Prepayment penalty will be charged on the outstanding amount and when decided by the

bank.

Loan Renewal

Successive loans depend on track record of previous loan; usually repayment behavior of

the borrower is the main considerations for renewal and enhancement of the loan amount.

Recovery System

If the borrower fails to adjust the loan within validity period or to repay his monthly

installment then the responsible loan-monitoring officer of the concerned branch will

arrange for adjustment of the overdue installments from the borrower’s savings account if

there adequate balance. The Officer shall regularly follow up for recovery and necessary

measure for recovery.

Collection Steps

The goal of the collection process is to obtain payments promptly while minimizing

collection expense and write-off costs as well as maintaining the customer’s goodwill by

a high standard of service. Collection also protects the assets of the bank. This call be

achieved by identifying early signals of delinquency and thus minimizing losses.

To identify and manage arrears, the following aging classification is adopted:

Chowhatta Branch 39


Past Due

(DPD) Collection Action

1-14Letter, Follow up & Persuasion over phone

15-291st Reminder letter

30-44 2nd reminder letter + Single visit

45-59

3rd reminder letter

Group visit by team member

Follow up over phone

Letters to Guarantor, Employer, Reference all above effort follows

Warning on legal action by next 15 days

60-89

Call up loan

Final Reminder & Serve legal notice

Legal proceedings begin

Repossession starts

90 and

above

Telephone calls/Legal proceedings continue

Collection effort continues by officer & agent

Letter to different banks/Association

4.5. APPROVAL AUTHORITY

The Bank’s existing policy is to centralize the delegated power to be vested to

Committees. This policy is adopted with the view to minimize the risk by screening the

proposal at the approval stage. The sharing of knowledge and experience for taking

Chowhatta Branch 40


decisions enables the management to avoid the unnecessary risk. The following

guidelines are to be applied in the approval/sanctioning of Loans.

The credit approval authority must be delegated in writing from the MD and

Board (as appropriate) and records of all delegation to be retained in CRM.

Before approving any facility the authority must be ensured that the borrowers

CIB report as obtained is updated and clean.

Delegated approval authorities should be reviewed annually by MD/CEO/Board.

The credit approval function should be separated from the marketing/relationship

management (RM) function.

Approvals must be evidenced in writing, or by electronic signature. Approval

records must be kept on file with the Credit Applications.

All credit risks must be authorized by Committee within the authority limit

delegated to them by the MD/CEO/Board. The “pooling” or combining of

authority limits should not be permitted.

Credit approval should be centralized within the CRM function. Regional credit

centers may be established; however, all large loans must be approved by the

Head of Credit and Risk Management or Managing Director/CEO/Board or

delegated Head Office Credit Executives.

The aggregate exposure to any borrower or borrowing group must be used to

determine the approval authority required.

Any credit proposal that does not comply with Lending Guidelines, regardless of

amount, should be referred to Head Office for Approval.

MD/Head Office Credit Committee / Head of Credit Risk Management must

approve and monitor any cross-border exposure risk.

Any breaches of lending authority should be reported to MD/CEO, Head of

Internal Control, and Head of CRM.

It is essential that executives/members of the Committee charged with approving

loans have relevant training and experience to carry out their responsibilities

effectively

Chowhatta Branch 41


4.5.1Credit Approval Process

Southeast Bank conducts its banking operation under branch banking system. For

administrative control and smoothening its day-to-day operation and extension of

appropriate and quick services, quick credit delivery, all branches have been placed under

centralized Credit Operation Department of Head Office. For mitigating the credit risk

due to lack assessment or refrain sanction of any credit facility without fulfilling the total

requirement for sanctioning a credit by the Head of Branch, Southeast Bank Limited has

introduced centralized system of sanctioning any type of credit except credit facility

backed by cash collateral.

Credit proposals are generally originated at branch. However proposals may also be

received at Head Office for syndication and also from big clients, Financial Institutions.

At the branch level the officers and executives of credit department must possess full

knowledge of the policy & procedures of credit operations. The credit officers and

executives after obtaining credit applications through Branch Manager along with all

required papers and documents ensures sufficiency and consistency of the papers and

documents. They originate credit proposals, prepare detailed credit memorandum after

undertaking a thorough credit check and conducting credit risk assessment of the client in

light of credit policy Guidelines of the Bank. The fully documented Credit Memorandum

(CM) is placed to the Branch Credit Committee by the In-charge credit. Credit committee

after thoroughly & critically examining the proposal recommend it to the Branch

Manager who approve credit under his delegated authority. When the proposal falls

beyond the power of the Head of Branch, it is sent to Head Office, Credit Division.

Divisional Head, Credit gets credit and risk assessed by Credit officials. The proposal

being found acceptable is placed to Head Office credit committee if the proposal falls

under the delegated authority of the Management. When the proposal is under the

approval authority of the Executive Committee, the proposal, having been assessed by the

credit Officers/Executives is placed to the EC, through Divisional Head, Credit, DMD

Chowhatta Branch 42


(credit) and the Managing Director, where the approval are accorded. If a proposal does

not meet the basic lending criteria as per Credit guidelines and banking norms, it is

declined and Credit Division inform the decision to the branch accordingly. Head office

Credit Division keeps credit files under proper control number and its use is restricted to

the authorized officials only

Flow chart for approval Process of Loans & Overdrafts

Fig: Flowchart for approval process of loans and advances

Chowhatta Branch 43

Credit Application processed by credit officers and recommended by Credit In charge/ Head of Branch of the branch.

Branch Credit Committee

Head of Branch (HOB)

Head Office, Credit Division

Head Office Credit Committee

Managing Director

Executive Committee/Board of Director

Sanction/Decline


4.5.2Mandatory Checking

Proposed Credit facilities are compliant of the existing banking regulations.

CRG has been done.

Other analysis and assessment has been done properly.

Competent authority as per Bank's policy approves facilities in writing.

Credit approvals are given on a one-obligor basis.

Limit is approved as per authority delegated in the rule book.

Standard facilities are described using standard language.

Large loans are approved within the ceiling advised by Bangladesh Bank.

Fresh approvals, renewal, rescheduling, compromise agreement for large loan

accounts are placed for approval by the Board as per Bangladesh Bank

Guidelines.

Proposal incorporates that facilities are subject to banking regulation, which

shall be mentioned in the sanction letter also.

Approval authorities check that pricing of the facilities are within the Bank's

declared band.

4.5.3Appeal Process

Any declined credit will be represented to the next higher authority for re-assessment/

approval.

4.5.4 Segregation of Duties

The following lending functions should be segregated:

1. Credit Approval/Risk Management.

2. Relationship Management/Marketing.

3. Credit Administration.

Chowhatta Branch 44


The purpose of the segregation is to improve the knowledge levels and expertise in each

department, to impose controls over the disbursement of authorized loan facilities and

obtain an objective and independent judgment of credit proposals.

4.5.5 Preferred organizational structure & responsibilities

The appropriate organizational structure must be in place to support the adoption of the

policies detailed in Section 1 of these guidelines. The key feature is the segregation of the

Marketing/Relationship Management function from Approval / Risk Management /

Administration functions. Credit approval should be centralized within the CRM

function. Regional credit centers may be established, however, all applications must be

approved by the Head of Credit and Risk Management or Managing Director /CEO

/Board or delegated Head Office credit executive.

4.5.5.1 Preferred Organizational Structure

The following chart represents the preferred management structure:

Fig 7: Organizational Structure Branch

Chowhatta Branch 45

Head of Branch

Credit Department Credit Administration


Fig 8: Organizational Structure (Head Office)

4.5.2.2 Key Responsibilities

The key responsibilities of the above functions are as follows.

Credit Risk Management (CRM)

Oversight of the bank’s credit policies, procedures and controls relating to all

credit risks arising from corporate/commercial/institutional banking, personal

banking, & treasury operations.

Oversight of the bank’s asset quality.

Directly manage all Substandard, Doubtful& Bad and Loss accounts to

maximize recovery and ensure that appropriate and timely loan loss provisions

have been made.

Chowhatta Branch 46

Deputy Managing Director

CEO/Managing Director

Credit DivisionCredit Administration Deapartment

Law & Recovery Unit


To approve (or decline), withindelegated authority, Credit Applications

recommended by RM. Where aggregate borrower exposure is in excess of

approval limits, to provide recommendation to MD/CEO for approval.

To provide advice/assistance regarding all creditmatters to line management/

RMs.

To ensure that lending executives haveadequate experience and/or training in

order to carry out job duties effectively.

Credit Administration:

To ensure that all security documentation complies with the terms of approval

and is enforceable.

To monitor insurance coverage to ensureappropriate coverage is in place over

assets pledged as collateral, and is properly assigned to the bank.

To control loan disbursements only afterall terms and conditions of approval

have been met, and all security documentation is in place.

To maintain control over all security documentation

To monitor borrower’s compliance with covenants andagreed terms and

conditions, and general monitoring of account conduct/performance.

Relationship Management/Marketing (RM)

To act as the primary bank contact with borrowers.

To maintainthorough knowledge of borrower’s business and industry through

regular contact, factory/warehouse inspections, etc. RMs should proactively

monitor the financial performance and account conduct of borrowers.

To be responsible for thetimely and accurate submission of Credit Applications

for new proposals and annual reviews, taking into account the credit assessment

requirements outlined in Section 4. 1.2.1 of these guidelines.

To highlight any deteriorationin borrower’s financial standing and amend the

borrower’s Risk Grade in a timely manner. Changes in Risk Grades should be

advised to and approved by CRM.

Chowhatta Branch 47


To seek assistance/advice at the earliest from CRM regarding the structuring of

facilities, potential deterioration in accounts or for any credit related issues.

Internal Audit/Control

Conducts independent inspections annually to ensure compliance with Lending

Guidelines, operating procedures, bank policies and Bangladesh Bank directives.

Reports directly to MD/CEO or Audit committee of the Board.

4.6 PROCEDURE OF RECOVERY:

In whatever form bank advances are, granted, they are repay-able on demand or at the

expiry of some fixed period. Sills of exchange discounted are repayable on demand,

although the bank seldom exercises the right except in circumstances mentioned below.

Loans are repayable on the expiry of the periods for which they are granted. In case the

loan is repayable in installments and default occurs in the payment of any installment, the

entire loan usually becomes immediately recoverable at the option of the bank.

4.6.1 Recalling of advances

Banks conduct a regular scrutiny of all advances and ensure that timely action is taken in

each case either for the continuance of the facility on the existing terms, or with such

modifications as may be considered necessary, or for the recovery of the amount if it is

decided not to continue the facility. Advances are usually recalled under the following

circumstances:

1. Death of the borrower or the guarantor.

2. Insolvency of the borrower or the guarantor, or liquidation of the borrowing

company.

3. Dissolution of the partnership.

Chowhatta Branch 48


4. Failure to renew the documents sufficiently before the expiry of the period of

limitation. The bank cannot afford to wait till the last day when the period of

limitation expires.

5. Want of satisfactory turnover, or deterioration of the security.

6. Failure to adhere to the terms and conditions of the sanction in spite of the bank’s

repeated requests.

7. Deterioration of the financial position of the party. If it comes to the notice of the

bank that the party has committed a fraud or has heavily speculated, it will be an

adverse factor and the bank may consider recalling the advance.

8. Failure to maintain adequate margin in spite of reminders to the borrower.

9. Change in the bank’s policy regarding certain types of advances. The bank may at

any time decide advances against certain commodities because of their over

production or the fear of an expected slump.

There may also be other reasons for withdrawing the facility e.g. the law and order

situation at a certain place is such that it may be risky to continue the advance there.

In the cases stated above, the bank endeavors to revokes the advance by making a formal

demand, and thereafter, if necessary, by putting pressure on the borrower or his legal

representatives, as the case may be, with a threat of legal action. If there is a guarantor, he

is also called upon to adjust the account or have it adjusted by the principal. The party

may come round and make a proposal for repayment—may be by installments—and

request for time to implement it. He may agree to offer additional security or a

respectable guarantor of means. The banker should carefully scrutinize the proposal and

if he considers that the debt could be recovered without resorting to litigation, he may

agree. Much will, however, depend on the honesty of purpose of the borrower and his

financial position at that time. If he is already heading towards insolvency, any

indulgence shown to him may further complicate matters for the bank. If the threat of

litigation does not have the desired effect, the bank may consider filing a Suit. It must,

however, be known that legal proceedings entail a good deal of delay and expense and

the results in the long run may not generally be satisfactory.

Chowhatta Branch 49


4.6.2 Notice

In case, the borrower does not adjust the account as desired, the only course left open to

the bank would be to send a registered, acknowledgement due, notice to him and to the

guarantor, if any, preferably through a lawyer. This should normally be done after

obtaining the approval of the authorities concerned, unless the case is urgent and there is

no time to seek their instructions. If the advance is on a pledge basis, the notice should

state that in case the advance is not fully and finally adjusted within, say, a fortnight, the

pledged goods would be sold by private sale or public auction at the discretion of the

bank and the net sale proceeds would be applied in repayment of the advance with

interest. The notice should also state that the borrower as well as the guarantor, if any,

would be liable for any balance that might remain due, after the security has been sold. If

it is an unsecured advance, the borrower and the guarantor, if any, should be threatened

with a suit after the period mentioned in the notice has expired.

The Post Office receipt/s for sending the registered letter/s and the acknowledgement/s by

the addressee should be carefully preserved, as it/these may have to be tendered in the

court as documentary evidence.

In case the borrower or guarantor refuses to accept the registered notice, the Post Office

would return it to the bank in due course with the remark ‘Refused’. This is sufficient

service in law. It would not be necessary, as such, to tender the evidence of the postman

in whose hand the word “refused” was written. The cover with the remarks of the post

office should be kept intact with the other relative documents.

The bank should carefully scrutinize the documents before serving legal notice or filing a

suit. Any discrepancies in the documents, if noticed, should be tactfully got corrected by

the borrower. After the notice has been served, it would be difficult to secure the

cooperation of the party. The documents must be kept safely in proper custody,

preferably under dual control.

Chowhatta Branch 50


4.6.3 Goods under pledge

If the account is by way of pledge and the pledgor makes default in payment of the debt,

the bank as a pledgee has two alternatives. It may bring a suit 4 in the sale of the pledged

goods is the debtor himself, whose business is to deal in them. Care should, however, be

taken that the borrower does not enter into collusive transactions for his, own benefit.

4.6.4 Stocks under hypothecation

If the charge is by way of hypothecation, the bank, under the relative documents, has a

right to take possession of the security and thereafter treat it as a pledge. The bank may

take over possession of goods and start selling them after giving reasonable notice to the

borrower. There may, however, be practical difficulties in obtaining possession of the

hypothecated goods from an un-cooperative borrower, when the bank requires the

possession thereof.

4.6.5 Mortgages

In both types of mortgage- simple and equitable- a suit will have to be filed against the

mortgagor to enforce recovery and sell the mortgaged property. A preliminary decree is

passed by the court against the mortgagor in the first instance giving him time to redeem

mortgaged property. If the mortgagor (judgment debtor) fails to pay dues to the

mortgagee (decree-holder) within the stipulated time, a final decree is passed against him

ordering the sale of the mortgaged property through the court.

4.6.6 Life policies

If the debtor fails to redeem his indebtedness and the bank holds as security a life policy

or life policies which have been assigned by the debtor, the bank will have to consider the

action it should take in the circumstances; whether to pay the future premiums to the

debit of the borrower’s account and maintain the policies in force until they mature, or to

surrender them.

Chowhatta Branch 51


When an endowment assurance does have a long period to run to maturity, the amount

expected on maturity may exceed the cost of maintaining the policy, in which case, if the

debt is not fully covered and repayment from some other source is not likely it will

obviously be worthwhile to continue payment of the premiums both from the point of

view of the gain to be realized eventually and the death-risk cover. If the bank decides

that it would not be advantageous to maintain the policy, it may surrender the policy and

obtain from the insurance company payment of the surrender value.

4.6.7 Unsecured advances

It is possible that the security, if any, may not be sufficient to liquidate the entire

advance. In certain cases no security may be available. Attempts should, in such cases, be

made to secure the advance. If that is not possible and the party does not repay the

amount after the period specified in the notice, a suit may have to be filed, after carefully

assessing the chance of recovery of the debt.

4.6.8 Compounding with the borrower

The borrower may sometimes offer a proposal to the bank to compound the debt, in taka

full and final settlement of the debt. In this case, it will have to be considered whether it

would be in the interest of the bank to arrive at a compromise with the borrower or to

proceed legally against him and get a decree for the amount due from him. The position

of the party and the guarantor, if any, and the chances of recovery through Court process

will have to be carefully assessed before compounding the debt. It should, however, be

noted that if there is a guarantor, the settlement cannot be arrived at without his consent

unless there is an express clause to that effect in the agreement of guarantee.

4.6.9 Death

1. Borrower’s Death: After a borrower’s death (in the case of an individual soul

proprietor of a concern), no further withdrawals or debits in his advance account

should be permitted. If the borrower’s successors and heirs approach the bank for

the continuance of the facility, the case, will have to be examined from all angles.

In case the bank agrees to the request, the debit balance in the account of the

Chowhatta Branch 52


deceased may be transferred to a new account in the name of his heirs or

successors along with the securities held in the account. Legal opinion may have

to be taken before this is done. If the desired facility is refused or no application is

made by the heirs or successors in this behalf, the securities, if any, may have to

be sold and the guarantee, if there is one, invoked. For the balance, if any, a suit

may have to be filed and a decree obtained, if adjustment is not possible out of

court. It should be noted that the heirs of the deceased borrower are responsible to

pay the debt only to the extent of the assets of the deceased, which come to their

hands. They are not personally liable.

2. Death of partner: Unless there is an agreement to the contrary between the

partners, a partnership is dissolved by the death of any partner. If the firm’s

account is overdrawn and the banker desires to retain his clime against the estate

of the deceased, or if securities belonging to the deceased partner are held for the

firm’s account, the account should be stopped and a new one opened for the

future transactions. In case where a guarantee is held from a thud party, the

account should also be broken on the death of a partner, until fresh arrangements

are made with the firm and with the guarantor.

3. Death of joint customer: In such an eventuality, steps similar to those stated in

the previous paragraph will be necessary with suitable modification depending

upon the circumstances of the case.

4. Death of guarantor: Similar steps, as stated above, are necessary in this case too.

4.6.10 Insolvency

Insolvency of a borrower, whether he is an individual or a partner of a firm, or that of a

firm or one or more of the borrowers in a joint account, creates problems of its own and it

would be necessary to explain what is insolvency and the steps to be taken in such a

contingency.

Chowhatta Branch 53


Meanings of insolvency, insolvent: When a person is unable to pay his debts in full and

upon his adjudication as an insolvent, his property, in certain circumstances, is taken

possession of by the Official Receiver or the Official Assignee, under orders of the Court.

He realizes the debtor’s property and ratably distributes the proceeds among his creditors.

Such a proceeding is called ‘insolvency’, and the debtor is known as the ‘insolvent’.

The petition to declare a person or a firm insolvent is made by a creditor or the debtor

himself, to a court of competent jurisdiction, which appoints an officer, usually the

official Assignee or the Official Receiver, to take immediate possession of the assets of

the person or the firm concerned. He realizes the assets and makes a ratable distribution

of the proceeds (called dividend) amongst the insolvent’s creditors. Any person or firm

capable of entering into a contract can be adjudged an insolvent if he/it is a debtor and

has committed an act of insolvency. No insolvency petition can be presented against any

corporation, association or company registered under any enactment for the time being in

force.’ They can be wound up in accordance with the procedure laid down by the relative

Act.

When an order of adjudication has been made, all persons claiming to be creditors of the

insolvent in respect of debts provable against him have to tender proof of their respective

debts by producing evidence of the amount and particulars thereof, and the Court

determines the persons who have proved themselves to be creditors of the insolvent in

respect of such debts, and the amount of such debts, respectively, and frames a schedule

of such persons and debts. If, in the opinion of the Court, the value of any debt is

incapable of being fairly estimated, the Court may make an order to that effect, and

thereupon the debt is no included in the schedule. The debt may be proved by delivering,

or sending by post in a registered letter, to the Court an affidavit verifying the debt. The

affidavit shall contain or refer to a statement of account showing the particulars of the

debt, and shall specify the vouchers (if any) by which the same can be substantiated. The

Court-may at any time call for the production of the vouchers.

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In the case of third party security, the banker may for the time being ignore the security

and make a claim on the estate of the insolvent for the full amount of the debt. If the

dividend or dividends that the banker receives from the estate of the insolvent are not

sufficient to clear off the debt, the banker can thereafter fall back on the said security for

the balance due to him.

4.6.11 Discharge

A debtor may, at any time after the order of adjudication but within the period specified

by the Court, apply to Court for an order of discharge. The Court may grant or refuse an

absolute order of discharge, or suspend the operation of the order for a specified time or

grant an order of discharge subject to certain conditions. A person once adjudicated an

insolvent continues to remain an undercharged insolvent until he receives his discharge.

4.6.12 Stopping of account

On the insolvency of one of the borrowers in a joint account, or of a principal or a

guarantor in case of a guaranteed account, the account should be broken and any future

payments will reduce the liability of the insolvent to the bank.

It would always be advisable to take competent legal advice as

soon as it is known that a petition of insolvency is pending in court or the-borrower has

been adjudged as an insolvent.

4.6.13 Suit and decree

While recommending institution of legal proceedings in any case, branches are generally

required by Head Office to indicate the chances of recovery of the amount involved, the

estimated cost of the litigation (court fees, counsel’s fees and miscellaneous expenses)

and the approximate time that would be required for getting a decree. On the basis of the

information supplied, Head Office decides whether it would be worthwhile to take legal

action or to write off the amount.

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If it is decided, ultimately to file a suit it has to be done against all parties, the principal or

his heirs, successors or assigns and the guarantor or his heirs, etc., if any, a the case may

be. After a decree is obtained, it has to be executed through court process by attachment

and sale of the judgment debtor’s property.

Chapter -5

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ANALYSIS AND FINDINGS

FINANCIAL PERFORMANCE OF SEBL

DEPOSIT OF SEBL

ANALYSIS OF GROWTH IN LOAN AND ADVANCES

PROBLEMS OF SOUTHEAST BANK

5.0 FINANCIAL PERFORMANCE OF SEBL

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Southeast Bank's policy was to expand the loan portfolio moderately in consideration of

economic and socio-political scenario of the country. The Bank's loans and advances

increased by 25.10% in 2008 to Tk.60281.26 million as against Tk. 48,164.60 million in

2007.The Bank emphasized on disbursement of agriculture credit for the farmers in

fulfillment of government's socio-economic policy. The Bank extended a considerable

amount of agri-credit directly or indirectly via NGOs through rural branches.

The credit portfolio of the Bank is now very well diversified having a balanced mix

covering a wide spectrum of business and industries including readymade garments,

textiles and spinning, telecommunication, pharmaceuticals, steel and engineering, ship

scraping, cement, edible oil, real estate, education and transport etc. The Bank also

expanded its financing to the Small Enterprises and Consumers under SME Credit

Scheme and Consumers Credit Scheme. Moreover, in order to help the poor segment of

people of the society, the Bank extended its financial assistance to NGOs for onward

financing to the poor people.

The Bank also got involved in extending facilities in the CNG dedicated buses and CNG

filling stations under Dhaka Clean Fuel Project against refinance program of Asian

Development Bank (ADB) through Rupantarita Prakritik Gas Co. Ltd. (RPGCL). The

Bank has separate units at Credit Division of Head Office working for handling

Garments Industry, Syndication Loans, Project Financing, Loans to Small Enterprises

and Consumers etc. to ensure due diligence and to expedite the decision making process.

Recently, the Bank also introduced House Building Finance Scheme under Refinance

Scheme of Bangladesh Bank.

The Bank has already given continued efforts to maintain high quality of assets. Besides

giving emphasis on the satisfactory business performance of the clients and collateral

support, we have geared up loan monitoring and follow up activities to arrest the loans

from becoming non-performing. The non-performing loans of the Bank increased to

4.12% as on December 31, 2008 from 3.77% of the year 2007.

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5.1 DEPOSIT OF SEBL

The bank mobilized total deposits of TK. 68714.67 million as of December 2008 as

compared to TK. 55474.05 million in 2007. Competitive interest rate, attractive deposit

products, deposit mobilization efforts of the bank employees and confidence reposed by

the customers in the bank contributed to the notable growth in deposits. The deposit mix

of the bank as on December 31, 2008 was as follows:

Growth in deposit (Taka in Million)

Fig 9: Growth in Deposit

5.1.1Guarantee Business

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The bank issued guarantees amounting to Tk.15,078.99 million during the year 2008

compared to Tk. 9008.32 recorded in the previous year registering a growth of 67.39

percent. The guarantees were issued in favor of different Govt. authorities, Ministries,

autonomous bodies, corporations, private companies, individuals and

multinational companies, etc. on behalf of the valued clients of the bank.

Fig 10: Growth in Guarantee Business

5.1.2Corporate Finance

Corporate Finance is the broad term given to different facilities that large companies,

governments, or other big institutions need in order to meet their long term and short-

term financial requirement. Southeast bank’s business is focused to a considerable extent

on the corporate clients by maintaining the relationship and extending financial assistance

based on a deep understanding on the client’s business environments, financial needs and

internal strategies for growth.

5.1.3 SME Financing

The bank introduced SME financing scheme in 2004. Because of mounting, special

emphasis, the bank could extend facilities to 2848 small and medium enterprises

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amounting to Tk.6, 595.21 million as on 31.12.2008 which was Tk,3,023.05 million to

1,513 customers in 2007 registering 118.16 percent growth.

5.1.4 Syndicated Finance

Southeast Bank Limited, the pioneer amongst the local private commercial banks, started

participation in the syndicated facility since 1996. the has an independent unit for

such finance which is enriched with qualified and experienced bank officers. Since then

the bank participated in 46 syndications of Tk.25,581.40 million of which

Southeast Bank's participation was Tk. 5,048.00 million. Out of total syndication of

Tk.25,581.40 million, the bank acted as arranger/agent of 13 syndications for Tk.4,500.00

million and the projects have been successfully running as profitable concerns.

Fig 11: Growth in Investment

5.2 ANALYSIS OF GROWTH IN LOAN AND ADVANCES

The total loans & advances of the bank increased from Tk.3402.21 million in 1999 to

Tk.60281.26 million in 2009. The growth rate in loans & advances over the previous year

and over the base year (1999) has been analyzed as under:

Table: 3 Analysis of Growth in Loans & Advances

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Year Loans & Advances Growth rate over

the previous year

1999 3402.21 ---

2000 5051.88 48.49%

2001 7061.87 39.78%

2002 9178.03 29.96%

2003 13027.13 41.93%

2004 15548.11 19.35%

2005 22001.70 41.50%

2006 32551.09 47.95%

2007 41147.28 26.41%

2008 48164.60 17.05%

2009 60281.26 25.16%

The highest growth in loans and advances was in the year 2000 i.e. 48.49%. In the year

2009 growth rate in loans and advances was 25.16% over that of the year 2008. Loans &

advances of Southeast Bank over the previous year witnessed a positive growth rate. The

growth in loan and advances of Southeast Bank over the past ten years are showed below

in a diagram

Southeast Bank, on an average, provided loans & advances of Tk.23401.38 million per

year. Like deposit there has been rising trend in loans & advances during the period from

1999 to 2009. This indicates that the average rate of increase of total loans & advances

was Tk.23401.38 million per year. This indicates that bank could sustain positive trend of

business during the period 1999 - 2009.

Classified Loans (Last 5 Years):

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Table: 4 Last 5 years classified loan of this branch

Figure in “000”

Year Total Amount

2005 33903

2006 33835

2007 24015

2008 26237

2009 29953

Figure 12: Last 5 years classified loan of this branch

The amount of classified loan is increasing in the year 2006.From the graph, it has been

seen that classified loan was decreased from the period of 2007 to 2008.But in 2009 it

was increased. In 2008, the total amount of classified loan was 2 crore 62 lac and in 2009,

this amount has been increased which is 2 crore 99 lac.

Total Loan and Advances (5 Years):

Table: 5 Last 5 years loan and advance:

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Figure in “000”

Year Total Amount

2005 797726

2006 845877

2007 678400

2008 617333

2009 960027

Figure 12: Last 5 years loan and advance:

Total loan and advances of this branch was not satisfactory before 2009. In 2008, the

total amount of loan and advances was only 61 crore 73 lac. After that the amount of loan

and advances was grow which was 96 crore.

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Amount of Various kinds of Loan & advances :

Table- 6 Amount of Various kinds of Loan & advances( Last 5 years)

Figure in “000”

Year Time

loan

Term

loan

CCS Overdraft Advances

(BLC)

Advances

(LTR)

Staff

House

Building

2005 5,18,92 40,34,32 8,12,3 32,64,08 32,64,08 32,32 32,82

2006 4,12,21 41,11,85 26,97 37,97,31 69,41 10,27 30,72

2007 3,69,32 36,27,72 15,57 27,21,94 14,56 7,60 27,24

2008 6,00,08 32,27,99 32,14 22,49,24 34,27 5,80 23,77

2009 6,123,12 33,12,05 34,23 24,54,12 36,82 7,20 22,10

The most popular modes of disbursement of this branch are term loan and overdraft.

These two modes of disbursement contribute more than 85% of total disbursement for

each financial year. Though the time loan and CCS has the great influence on this

specified area. The highest disbursement on term-loan has been occurred in 2006. In that

period more than TK. 41.11 Crore has been financed to various economic sectors. Term

loan is mainly given for real estate business and other industrial areas. Overdraft is a mid

term loan which is mainly financed for the requirement of working capital. Again, in the

year 2006, the amount of disbursement on overdraft was highest when more than TK.

37.97 crore has been financed to the professionals. Consumer credit scheme is a type of

loan which is mainly given to the professionals or public/private employee. The amount

of CCS is decreasing in each year. Advances (BLC) and Advances (LTR) are two modes

of disbursement which is issued against the letter of credit. These are the short term loans

and the amounts of these two modes are negligible. Staff house building loan is a loan

which is issued only to the staffs of the branch at a lower interest rate for the purpose of

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house building for the staff. The volume of this mode of finance is also very much

negligible.

Percentage of Classified Loans:

Table: 7 Percentages of Classified Loans:

Year Percentage of classified loan (%)

2005 4.25

2006 4.00

2007 3.54

2008 4.25

2009 3.12

In 2008 the percentage of classified loan was very high which was 4.25%. But in 2009,

the percentage of classified loan was decreased which was 3.12%.

Perchantage of Classified Loan

2005

2006

2007

2008

2009

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Fig 13: Classified Loan of SEBL

Position of Loan and Advances of the branch:

Table: 8 Position of Loan and Advances of the branch

Year Loan(In 000) Classified Loan(In

000)

% of Non

performing Loan

2005 797726 33903 4.25

2006 845877 33835 4.00

2007 678400 24015 3.54

2008 617333 26237 4.25

2009 960027 29953 3.12

In the year 2008, non-performing loan was 4.25% and in one year period of time, it

reduced to 3.12%. It happened due to intensive disbursement of Fresh Loan in the year

2009 rather recovery of classified loan. In the year 2009 additional TK.34.26 crore loan

was disbursed. Apparently it seems that % of classified loan reduced in 2009. But

actually, from the year 2008 to 2009 classified loan was increased by TK37.16 lac. On

the other hand we see that in 2006 non-performing loan was 4% and 2007, it was 3.54%.

This improvement in 2007 was because of recovery of classified loan. In 2008, classified

loan was 2.6 crore and in 2007, classified loan was 2.4 crore which is less than in

2008.So in 2007, non-performing is also improved.

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Loan Recovery (Last 5 years):

Table: 9 Loan Recovery (Last 5 years)

Figure in “000”

Year Amount

2005 23,60,33

2006 28,00,67

2007 58,47,53

2008 17,10,43

2009 50,33,13

The recovery of loan of this branch was not in a satisfactory level before the period 2007.

In 2005, the amount of total recovery loan was only TK.23.60 crore. After that the

amount of recovery was increasing in each financial year though the trend was very slow

before 2007. In the year 2007, the total recovery of this branch was more than TK. 58.47

crore. In 2008 the amount of total recovery has stood above TK17 crore.In 2009 the

amount of recovery is TK 50 crore.

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Loan Recovery

0100000200000300000

400000500000600000700000

2005 2006 2007 2008 2009

Year

Am

ou

nt

Fig 14: Loan Recovery

Disbursement and Recovery ratio:

Table-10 Disbursement and Recovery Ratio

Year Total Loan Recovery Ratio

2005 797726 23,60,33 29.59%

2006 845877 28,00,67 33.11%

2007 678400 58,47,53 86.19%

2008 617333 17,10,43 27.71%

2009 960027 50,33,13 52.43%

From the table, we see that the ratio for disbursement and recovery is in an increasing

trend. In 2005, the ratio was only 29.59%, but this ratio comes to 86.19%. in 2007. In

2008, the ratio for disbursement and recovery becomes to 27.71%.

[Ratio :( Recovery of Loan/Total Loan)*100]

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Fig 15: Disbursement and Recovery

Area of Disbursement

Table: 11 Disbursement n different sectors of this branch

Figure in “000”

Year Business/

Industrial

Real

Estate

Consumer

Loan

Working

Capital

Export Import Miscellaneous

2005 2,27,05 34,23,35 1,27,19 25,26,93 21,57 41,67 33,54

2006 5,18,92 40,34,32 81,23 32,64,08 32,32 13,54 32,82

2007 4,12,21 41,11,85 26,97 37,97,31 69,41 10,27 30,72

2008 3,69,32 36,27,72 15,57 27,21,94 14,56 7,60 27,24

2009 6,07,91 35,77,11 33,00 21,44,01 40,65 7,60 25,79

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Disbursement n different sectors of this branch in 2009

business/industrial real state

consumerloanworkingcapital export

import

Miscellaneous

Fig 16: Disbursement

The SEBL, LDP is financing most of its disbursement on the real estate and working

Capital for the business sectors. In these two sectors this branch investing more than 85%

of its total loans and advances. In business/ industrial sectors, this branch is also investing

which has an influence on its total disbursements. Consumer loan is another important

segment where this branch is also keeping a significant role on the total economy. This

branch is also financing on export/import sectors though the amount insignificant

compare with the others sectors.

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5.3 PROBLEMS OF SOUTHEAST BANK

Although Southeast Bank Limited (SEBL) has been profitable organization in

Bangladesh for the last ten years but it has also got some limitations. These limitations

exist in the operations, management and etc. of the Bank. Some identified problems are

as under:

Credit card service is also provided but for getting this card client must be

deposited security more than as how much he/she want. But security should not

deposited for credit card holder it should be give to their valued client those who

are maintain high transaction

The CC TV does not cover whole space into the bank it should be cover full

place.

Comparatively Southeast Bank takes high service charge from their client for

current account Tk.690 and saving account Tk.690 yearly.

Minimum balance required to maintain in account by the client is Tk.5000 for

both savings and current account.

Southeast Bank Limited was started consumer loan but right now it stopped for

defaulter. It should be again start and give consumer loan to well known client.

The management should implement “job rotation system” in the bank. This is

the system in which every officer is capable to work in every desk. This system

can build up Total Quality Management (TQM).

Credit officers does not properly monitor the loan disbursements

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No guideline for merchant banking.

While taking loan clients sometimes provides false securities, collaterals.

The process of loan proceeds takes more than a month which some times makes

the borrower helpless to get the loan on due time.

The head office should not centrally control all the decision; branch should have

some power to take decision.

Bank should more focus on agricultural and industrial credit and discourage

consumer durable finance.

Bank should make proper and exhaustive documentation before disbursement and

to ensure proper supervision, monitoring and follow up of each credit

Southeast Bank is facing shortage of employee in their branches.

There is a very few merchant location of ATM card booth. In facts the bank have

no its own ATM booth

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CHAPTER 6

SWOT ANALYSIS

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6.0 SWOT ANALYSIS OF SOUTHEAST BANK

SWOT analysis, is a strategic planning tool to evaluate he Strengths, Weaknesses,

Opportunities and Threats involved in a project or in a business venture. It involves

specifying the objective of the project or business venture and identifying the internal and

external factors that are favorable and unfavorable to achieve the objectives. The aim of

the SWOT analysis is to identify the key internal and external factors that are important

to achieve the objectives

6.1 Strengths

Well-built investment arrangement

Having a goodwill in the banking sector

Client loyalty is exceptionally high.

Improved working situation

Training and development facilities

Good interior decorations with central air-condition.

Minimum waiting time

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Good personal relationship with customers.

Southeast Bank has its well-trained employees.

Southeast Bank is providing online banking facility to its customers. All the

branches are computerized.

Good corporate image in the banking sector.

It’s a good profit making branch of SEBL.

Providing loan in corporate sector.

Amount of bed debt lower.

6.2 Weaknesses

Worker number is inadequate

More up to date banking facilities such as account checking by mobile, Credit

card is unavailable.

The workforces of the bank are not receiving appropriate validation regarding

different type of facilities.

Centralized management makes decision-making process more difficult and time

overriding

There is no 24 hours banking facilities.

Binding in rules and regulation.

Lack of communication between management.

6.3 Opportunities

As Chowhatta branch of SEBL is situated most commercial area it has a chance to

attract the more businessmen.

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It has the chance to capture students segment of the market by giving them customized

service for both saving and credit scheme.

The population of Bangladesh is continuously increasing at a rate of 7.3% per annum.

The country’s growing population is gradually and increasingly learning to adaptation

of consumer finance.

6.4 Threats

Current law and order situation is not positive for the investment part.

The percentage of credit defaulter is elevated

Pessimistic representation to the govt. and to Bangladesh Bank.

Some Banks offering more attractable rate on deposits than Southeast Bank.

Some foreign Banks are introducing many new, expensive and technological

services for customers.

Many foreign banks are occupying markets by various attractive advertising and

promotional activities but Southeast Bank is still behind them.

Number of potential competitors both foreign and domestic private banks is

increasing day by day. At present HSBC, Prime Bank, Dutch-Bangla Bank,

EXIM Bank, BRAC Bank, Mercantile Bank, Social investment, Islamic Bank are

also coming up with very competitive force

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CHAPTER -7

RECOMMENDATIONS

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7.0 RECOMMENDATIONS

The following important activities need to be performed by the bank to become more

efficient and effective in near future

SEBL should establish new/updated financial products to attract potential

depositors.

Customer’s credit scheme should ameliorate by various modern banking systems.

Current portfolio should be exaggerated. Not to give weight only in working

capital financing.

They should create other type of deposit to attract more customers.

The loan officer must determine that borrower for responsible attitude toward

using borrowed funds, is truthful in answering the bank’s question and will make

every effort to repay what is owed.

The loan officer must be reviewed all types of loan on a periodic basis

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CHAPTER: 8

CONCLUSION

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8.0 CONCLUSION

In his modern world like all other sectors banking sector is also changing. Southeast bank

is operating its’ business facing various barriers like deregulation, telecommunication and

globalization successfully. Southeast bank limited has been trying to operate its business

successfully since 1995. The bank has already developed good image and goodwill

among its clients by offering excellent services to its customers. Through SEBL is facing

both external and internal problems, it can achieve dynamic leadership by taking

implementing marketing strategies. Within a few years of its operation, the bank has

captured a position in the banking sector and it is looking forward.

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Reference:

1. A Text Book Foreign Exchange by L.R. Chowdhury.

2. A Journal of Banking Finance Volume XXVII Nos. 2 & 3, June & September 2003

3. Annual Report of the Southeast Bank, 2009

4. Credit Manual of the South East Bank Limited

5. Cooper, Donald R. and Schindler, Pamela S. (1999, 6th ed.), Business Research Methods, Tata McGraw-Hill Publishing Company Limited, New Delhi, India.

6. Chowdhury, L. R. (2002, 2nd ed.), A Text Book on Banker’s Advances, Dhaka, Bangladesh.

7. Circular:BCD Circular of Bangladesh Bank no. 20 date 27.12.1994

BRCD Circular of Bangladesh Bank no. 16 date 06.12.1998

BRPD Circular of Bangladesh Bank no. 09 date 14.05.2001

8. Bank Management & Financial Services, sixth edition (McGraw-Hill International Edition).

9. www.sebank.bd.com

10. Zikmund, William G (2003, 7th Ed.) Business Research Methods, South-Western, Ohio, the USA.

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http://www.sebank.bd.com/


Recruit more employees.

Southeast Bank may

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