meaning of banking- a case study on ncc bl
TRANSCRIPT
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 1 of 46
A bank is a financial institution, which works for profit. Banking means the business of this institution.
It may be defined as accepting of money on deposit for the purpose of lending or investment and dealing
in various agency and general utility services. One keeps his money as deposit in a bank because he has
confidence in the latter. The bank grants loans out of the money deposited to those in whom it has
confidence. So banking is nothing but dealing in credit, which means confidence.
Origin of the word "Bank" Opinion differs in regard to the origin of the word "Bank".
According to some authorities, the word "Bank" is derived from the words "Banco",
"Bancus", "Banque" or "Banc". All of these words mean a bench upon which the mediaeval
European bankers used to sit with their coins to transact banking business.
Early History of the Origin of Banking :
Banking is not anything new. It has a very old history, which dates from the days of Greece and
Rome. The present day banking has passed through different stages of development. The ancient
bankers performed many functions known to modern bankers. But persons who were not habitually
bankers conducted banking business in ancient society in unorganized way. They carried on banking
business as subsidiary to their main business. Gradually, banking functions were taken up by a separate
class of people know as 'bankers'. Now banking has got an organized existence. Money also links the
history of origin of banking. When money was introduced in place of barter, people faced a new
problem-"where to save surplus money in safe position?" Then money came to help trade commerce.
But borrowing and lending for trade and commerce could not be carried on without banking. Hence
money created a logical necessity of banks. The role of banking would be meaningless without money
and the role of money would be insignificant without banking. However, the birth of present day
banking is not sudden. It has come to its present stage through a process of development.
The modern banking has its origin in three ancestors, such as,
— The Goldsmiths,
— The Merchants and
— The Moneylenders.
Meaning of Banking
:
Origin and Development of Banking :
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 2 of 46
Importance of Modern Banks
Modern banks perform many services in relations to economic development, trade and
commerce, private dealings, etc. A good banking system is indispensable in a country for
various types of services. The following services indicate the importance of a bank in modern
societies:
Promotion and Mobilization of Savings
The bank keeps people's surplus money in safe custody. Sometimes, it allows interest at
different rates on people's deposits. This system encourages the habits of thrift and savings
among the people. The bank collects the scattered savings in this way, pools them together and
thus makes funds available for different purposes.
Supply of Finance
The bank accepts deposits for advancing loans. Loans are given to private people, industrialists,
traders and merchants against approved securities. The bank provides funds for financing plans
of economic development. Commercial banks generally grant short-term loans. The loans by
specialized banks are usually made available for longer periods. Thus, banks borrow money by
way of deposits from the public and supply the same to important institutions for investment
and other purpose.
The modern economy is characterized by large-scale production. But individual producers are
unable to provide big funds for production on large scale. The particular importance of banks
lies in financing production on such scale.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 3 of 46
Principle functions of which are:
1. To receive demand deposits and pay customers cheques drawn against them,
2. To receive time deposits and pay interest there on,
3. To discount notes, make loans and invest in govt. or other securities,
4. To collect cheques, drafts and notes etc.
5. To issue drafts and cashier's cheques,
6. To certify depositors cheques and
7. When authorized by a chartering govt. it may act in a fiduciary capacity. So, A
bank is an office or institution for the keeping lending and exchanging etc. of money.
Definitions of Banks provided by Encyclopedias.
1) "Establishment for custody of money, which it pays out on customers order"
-– The New Oxford Encyclopedic Dictionary.
2) "An establishment receiving money for the purpose of being lent out on interest or returned
by exchange or disposed of the profit of to be drawn out again as the owner require it"
--- The New Caxton Encyclopedia
" Banker includes a body of person, whether incorporated or not, who carry on the business of
banking."
--- English Bills of Exchange Act-1882
2) "Banker includes person, or a corporation, or a company acting as banker."
--- Negotiable Instrument Act, 1881
BANKING ORGANIZATION
FUNCTIONS BANKING
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 4 of 46
Definitions of Bank Accepted by Banking Institutions
" A bank performs an essentially distributive task, service or acts as an intermediary between
borrowers & lender sense, however, a bank can be considered the heart of a complex financial
structure."
--- American Institute of Banking.
Definitions of Bank Given by Authors
" Banks are the institutions whose debts are commonly accepted in settlement of the other
peoples debt."
--- Sayers
" A bank is an economic institution whose main aim is to earn profit through exchange of
money & credit instruments.
--- John Harry.
" A bank is an institution the principal function of which is to collect the unutilized money of
the people & to lend it to others."
--- R. P. Kent.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 5 of 46
DEVELOPMENT OF BANKING SECTOR IN BANGLADESH:
Bank system was practiced in the Indian subcontinent from
the ancient period. In Indian subcontinent merchant's goldsmith's moneylenders Ire the primary
bankers. During, the early period of nineteenth century in 1806 "Bank Of Bengal" and in 1840"
Bank Of Bombay" and in 1840 "Bank Of Madras was established. These banks Ire called as
Presidency Bank.
Then in 1920 these three banks merged to "Imperial Bank Of India". In 1971 Bangladesh
become independent. After liberation "Bangladesh Bank" was automated with the assets and
liabilities of former "State Bank Of Pakistan". It is the central bank of Bangladesh. During
Pakistan period in my there Ire 1090 branches of 12 commercial banks. Three foreign banks Ire
also active with 14 branch offices. Before Pakistan control liberation 80% of banking activities
of my country, consequently Bangladesh traders and industrialists didn't get notable help from.
The commercial banks. After liberation to reform the destroyed economy, on 26th March 1972,
the banking sector of Bangladesh was nationalized. After nationalization Government of
Bangladesh changed all the banks to six banks, which are Sonali Bank, Janata. Bank, Agrani
Bank, Pubali Bank and Uttara Bank. But the last two banks have been hand over to private
sector. fruitful. Then in 1983 several private banks are active in my country and playing their
role in the development of trade and commerce of Bangladesh as Ill as in the development of
economy.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 6 of 46
Growth of Private Sector Banks in Bangladesh
Bank and financial institutions play an important role in financial intermediation and thereby
contribute to the overall growth in the economy. At present, the financial system in Bangladesh
consists of the central bank , nationalized commercial/specialized banks, private banks, foreign
banks and other non-bank financial institutions. The main focus of this writing would be a
review in a general fashion on the gradual evaluation of private sector banks in Bangladesh
and evaluate their comparative position vis-a-vis other types of banks and their future roles in
years to come.
Before independence of Bangladesh on 16 December 1971 all the commercial banks operating
here excepting National Bank of Pakistan ( Now Sonali Bank) and Eastern Mercantile Bank (
Now Pubali Bank Limited) were privately owned. After independence, all the banks operating
in Bangladesh ( except
foreign banks) were nationalized and restructured into six banks. later on Uttara Bank and
Pubali Bank whose majority shares were held by the Bangladesh is were transferred to the
private sector in September 1983 & 1984 respectively.
In the banking system, Bangladesh Bank with the approval of the Government issued licenses
for opening new banks since early 80s. At present there are 30 private banks operating in
Bangladesh. These private Banks are popularly known to the public as First Generation Banks
( 09 banks opened during 1982-87) ,Second Generation Banks ( 08 banks opened during 1992-
1996) and Third Generation Banks ( 12 Banks opened during 1999-2001). For our purpose, we
will treat all banks together to represent the private sector banks.
Deposits of the private banks increased significantly during the period under study ( 1985-
2003) but growth rate came down in recent years as compared to earlier years. Deposits
increased by 207 percent during 1985-90 and further by 112 percent during 1990-95. The
growth rate showed down to 101 percent and 75 percent during 1995-2000 and 2000-03 and 65
Percent during 2003-2006 respectively. But in terms of market share of the private banks to
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 7 of 46
total deposits of the banking system, it showed an increasing trend over the years. The market
share in deposits of the private banks increased significantly from 17.58 percent in June 1985 to
24.78 percent in June 1990 and again to 27.46 and 30.30 percent in June 1995 and 2000
respectively. At the end of December 2003,it stood at 37.59 percent. In 2006 it was 42.45
percent.
Now, a question may arise where from these deposits came in to the private banks. One can
easily respond to this question by saying that substitution of deposits took place mostly from
nationalized commercial Banks (NCB‘s) to the private banks as is evident from the declining
share of deposits of the
NCB‘s. The shares of NCB‘s in total deposits of the banking system, which was 71 percent in
June 1985 and gradually declined to 63 percent in June 1990 and further to 56 percent in June
2000. By the end of December 2003 & 2006 it came down to 49 & 45 percent respectively.
This decline in deposits, may be attributed among others to the following factors:
Relatively better customer services provided by the private banks
Higher interest rate on deposits offered by these banks. The weighted average rate of interest on
deposits of the NCB‘s and the foreign banks was 6.31 percent and 4.39 percent at the end of
2003. Whereas it was 7.20 for the private sector banks
The relatively aggressive branch expansion program by the private banks. The total number of
private bank branches was only 932 (13 percent of total branches) in June 1985, which
increased to 1016 (18 percent of total branches in June 1995 and further to 1231 ( 20 percent)
in June 2000. It again increased to 1416 (23 percent of total branches) in 2003 and 1975 (27
percent of the total branches) in December 2006.
The shares of deposit, advances and branches of the private banks in the total banking system
are shown below:
In % of the total banking system Sources:
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 8 of 46
Statistics department, Bangladesh Bank:
If we look at the composition of deposits and branches of the private banks we see that most of
their deposits and branches are concentrated in urban areas. Urban deposits of the private
banks, which stood at 16 percent of total deposits in June 1985, increased to 25 percent. In June
1995 and further to 35 percent in June 2003. Again urban branches of the private banks which
was only 8 percent of total branches in June 1985 sharply increased to 12
percent in June 1995 and again to 15 percent and 17 percent in June 2000 and in June 2003
respectively. On the other hand, the share of rural branches remained at around 5 percent
throughout the period since 1985.
The general perceptions are that the private banks are a vehicle to this process. The share of
rural advances of the private sector banks was always lower than that of rural deposits of these
banks throughout the period. For example, rural advances were lower at 0.96 percent as against
1.39 percent of rural deposits in June 1985. The share of rural advances of these banks declined
sharply to 0.57 percent of total deposits in June 1995 whereas rural deposits were 2.52 percent.
The same phenomena also continued during the subsequent years. This situation suggests that
we have enough resources in the rural areas, but limited opportunities to use those resources
there.
Year
(End
June)
Deposits Advances Branches
Classifie
d loans
Urban Rural Total Urban Rural Total Urban Rural Total
1985 16.19 1.39 17.58 11.34 0.96 12.30 7.66 5.08 12.74 NA
1990 22.79 1.99 24.78 19.17 0.96 20.41 9.84 4.09 14.93 24.41
1995 24.94 2.52 27.46 24.43 0.57 25.00 11.99 5.49 17.48 39.43
2000 27.60 2.70 30.30 28.55 0.61 29.16 15.08 5.25 20.33 22.01
2003 34.92 2.67 37.59 37.73 0.80 38.53 16.86 5.88 22.74 17.44
2006 36.58 2.85 39.43 45.76 1.21 46.97 18.96 6.42 25.38 25.86
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 9 of 46
It was as high as 39.43 percent of private bank‘s advances in December 1995 which gradually
declined to 22.01 percent in December 2000 and further to 17.44 percent in June 2003. This has
been due to the improved management in the private banks as well as effective supervision and
prudential guidelines given by the central bank. Still the private sector banks in Bangladesh are
to go a long way and they need strong consolidation of their operations in all respects rather
than expansion.
BANKING STRUCTURE IN BANGLADESH
Classification on the
basis of ownership
Classification on the
basis of function
Classification on the
basis of organization
Classification on the
basis of scheduling
BANK
1. State ownership
bank
2. Private ownership
bank
3. Govt. and private joint ownership
bank
4. Autonomous bank
1. Central bank
2. Commercial bank
3. Co-Operative bank
4. Agricultural bank
5. Industrial bank 6. Exchange bank
7. Investment bank
8. Merchant bank
9. Saving bank
10. Import and Export bank
11. Consumer bank
12. Transportation bank
13. Small and Cottage Industries
bank
14. Mortgage bank
15. Mixed bank 16. Grameen bank
17. Indigenous bank
18. Regional bank
19. Community development bank
20. International bank
1. Unit bank/banking 2. Branch bank/
banking 3. Chain bank/ banking 4. Group bank/banking 5. Mixed bank/ banking
1. Scheduled bank
2. Non scheduled bank
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 10 of 46
Chapter-2
Company Profile
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 11 of 46
Profile of NCCBL
Mission of NCCBL:
Anticipating business solutions required by all customers everywhere and innovatively
supplying them beyond expectation.
Setting industry benchmarks of world class standard in delivering customer value
through our comprehensive product range, customer service and all our activities.
Building an exciting team-based working environment that will attract, develop and
retain employees of exceptional ability who help celebrate the success of our business,
of our customers and of national development
Maintaining the highest ethical standards and a community responsibility worthy of a
leading corporate citizen
Continuously improving productivity and profitability, and thereby enhancing
shareholder value
Vision of NCCBL:
To be in thee forefront of national development by providing all the customers inspirational
strength, dependable support and the most comprehensive range of business solutions, through
our team of professionals who work passionately to be outstanding in everything we do.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 12 of 46
Objectives & Goal of NCCBL
To share a significant portion of the banking sector by utilizing available manpower and
state of the art technology for maximizing the shareholders wealth.
To maximize shareholders wealth.
To earn satisfactory rate of return on investment by providing wide range of banking
services.
General Overview of NCCBL
In Bangladesh there are three types of banking service are available. Commercial bank is
one of them. Commercial banks are organized on a joint stock company or private company or
limited company system. Primarily for the purpose of earning of profit. They can be either of
the branches banking types, as we see in most of the countries, with a large network of
branches, or the unit banking type, as we see in the United States, Where a bank‘s operation are
confined to a single office or to a few branches with in a strictly limited area. Although the
commercial banks attract deposit of all kinds- current, savings and fixed their resources are
chiefly drawn from current deposits, which are repayable on demand. So they attach much
importance to the liquidity of their investments and as such they specialize in satisfying the
short-term credit needs of business other than the long-term.
The two essential functions of commercial banks may best be summarized as the borrowing
and lending of money. Commercial Bank borrows the money as current deposit, saving and
fixed deposit, i.e. they mobilizes the saving of the society. Then they provide this money to
those who are in need of it by granting overdrafts of fixed loans or by discounting bills of
exchange or promissory notes.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 13 of 46
2.3 Background of NCCBL
National Credit and Commerce Batik Limited hereinafter called NCCBL started its banking
operation as a scheduled bank under private sector on 17th May 1993 under the ambit of Bank
Company Act, However, it traces its origin to National Credit Limited (NCL), which was
incorporated on 25th November 1985 as a public limited company in order to operate as a
finance company. The NCL faced severe setback in 1992 in respect of business and came on
the verge of collapse. However, with the initiative of sponsors and the management, the NCL
was converted to a full-fledged private commercial bank with the permission of Bangladesh
Bank in 1993. Over the years, the bank has been expanding its service coverage through
introduction of new branches at different strategically important areas of the Country. It is
sponsored by a number of entrepreneurs representing various business groups with exposure in
Garments, Textile, Steel & Engineering, Financial, Insurance, Electronics, and Cement and
Construction Sectors. Mr Tofazzal Hossain is the present Chairman of the bank. The bank
went for IPO on December 1999 and raised Tk. 195.00 million from the offer. The NCCBL got
enlisted with Chittagong Stock Exchange on May 16th 2000 and with Dhaka Stock Exchange
on May 28th 2000. The bank increased its authorized capital to Tk. 2,500.00 million from Tk.
750.00 million on March 27, 2005. It provides a wide range of commercial banking services.
The bank has 53 branches, with staff strength of 1230 as on 31st December 2007
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 14 of 46
Management Hierarchy of NCCBL:
Assistant Vice President (AVP)
Senior Principal Officer (SPO)
Principal Officer (PO)
Senior Officer (SO)
Officer (O)
Probationary Officer (PO)
Junior Officer (JO)
Deputy Managing Director (DMD)
Executive Vice President (EVP)
Senior Vice President (SVP)
Vice President (VP)
Senior Assistant Vice President (SAVP)
Managing Director (MD)
Assistant Officer (AO)
Additional Managing Director (AMD)
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 15 of 46
Corporate Information
Date of Incorporation : 25th November 1985
Banking Operation Date : 17th May 1993
Brief View of NCCBL:
Taka in million NCC Bank Posted Satisfactory Growth
Particulars In 2008 In 2007 Increase in Tk. Growth 10%
Authorized capital 2500.00 2500.00 - -
Paid up Capital 1757.62 1352.01 405.61 68.63%
Deposit 46904.66 34901.77 12002.89 38.01%
Advance 46332.69 32687.75 13644.94 41.74%
Advance-Deposit ratio % 98.78% 93.66% - -
Import 3,8796.88 28779.21 1,0017.67 34.80%
Export 12522.04 9577.92 2944.12 30.73%
Gross Profit 2363.49 1780.25 583.24 32.77%
Net Profit 60.17 67.71 -7.00 -10.33%
Earning per Share (EPS) 50.20 38.53 11.67 30.28%
Return on asset (ROA) 1.23 1.59 -0.36 -22.64%
Return on equity (ROE) 21.63 20.23 1.40 6.92%
Capital adequacy ratio % 10.61 10.61 - -
Classified loan % 4.14 4.17 -0.03 -0.71%
Number of Branches 57 53 4 -
Number of Employees 1400 1230 170 -
The Paid up Capital of NCCBL was TK 1757.62 million in 2008 against TK 1352.01
million of 2007 the paid up capital of the bank increased by TK 405.61 million, registering
68.63% growth comparing to the same of previous year. The bank management has been able
to collect deposit of TK 46904.66 million in 2008 against TK 34901.77 million of 2007.
Deposit of the bank increased by TK 12002.89 million, registering 38.01% growth comparing
to the deposit of 2007. Of the deposit, NCCBL had made loans and advances of TK 46332.69
million in 2008 against TK 32687.75 million of 2007. The loans and advance of the bank have
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 16 of 46
increased by TK 13644.94 million, registering 41.74% growth. As a result, the credit-deposit
ratio of NCCBL stood at higher than the stipulated fixed 82% of total liquidity but within a
short period of account closing for 2008 on 31 December, NCCBL has been able to keep down
the ratio by gearing up its deposit collection drive, managing Director & CEO of the bank
Nurul Amin told The industry.
The import business handling by NCCBL in 2008 was TK 38796.88 million against TK
28779.21 million of 2007. Import business handling increased by TK 10017.67 million,
registering 34.80% growth comparing to the same of previous year. The export business
handling by the bank in 2008 was TK 12522.04 million against TK 9577.92 million of 2007,
registering 30.73% growth comparing to the same of 2007. Export business handling of the
bank has increased by TK 2944.12 million in 2008. The gross profit of the bank has stood at
TK 2363.49 million in 2008 against TK 1780.25 million of 2007, registering 32.775% growths.
The gross profit of NCCBL increased by TK 583.24 million within the year 2008, comparing
to the profit of 2007. Earning per share (EPS) of NCCBL in 2008 was TK50.20 against TK
38.53 of 2007. EPS increased by TK 11.67, registering 30.28% growth. Return on asset (ROA)
of the bank in 2008 was 1.23% against 1.59% of 2007.
The efficient management of the bank headed by its Managing Director & CEO Nurul
Amin has been able to reduce the non-performing loans by 0.71%, even in the global economic
meltdown wave.
Oparational profit(2004-2008)
720.49
1018.34
1267.57
1780.25
2363.49
0
500
1000
1500
2000
2500
2004 2005 2006 2007 2008
Year
Profit
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 17 of 46
Major Functions of NCCBL:
NCCBL is a service oriented Financial Institution. The main objective of NCCBL is to satisfy
the customer by serving various facilities they as possible. The bank offers different types of
quality services to its clients NCCBL performs the following functions, which are given below:
1. Deposit services:
The NCC Bank offers for its clients various deposit services. These services are as
follows:
Current Deposit (CD)
Saving Deposit (SD)
Fixed Deposit Receipt (FDR)
Short Term Deposit (STD)
Special Deposit Scheme.
Special Saving Scheme.
Premium Term Deposit.
Instrument Earning Deposit.
2. Credit Services:
Banking business essentially involves lending. Infect deposits are accepted for lending or
investment. It interests rate ranges from 12% to 16% NCCBL provides loans and advances in
the following sectors:
Staff Loan (House Building)
Staff Loan Car
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 18 of 46
Security Over Draft (SOD) Against FDR
SOD Export
SOD General
Loan against Trust Receipt (LTR)
Packing Credit
Lease Finance
Hire Purchase
Payment Against Document (PAD)
Cash Credit Hypothecation
Foreign Dollar Bill Purchase (FDBP) (DOCS)
FDBP (Clean)
Export Development Fund (EDF)
House Building (Res.)
Personal Loan
Small Business Loan
3. Customers Services:
NCCBL is always busy in serving to the customer in the best way. One of their
greatest assets is the trust of its customers. NCCBL has the following arrangement of
remittance with in the country.
Information providing by the Bank in every desk.
Account Opening
Online Banking Facilities
Pay-Order issue
Telephone Transfer (TT)
Demand Draft (DD) issue
Account Transfer Facilities
Solvency Certificate Issuing
Locker Service
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 19 of 46
Letter of Credit (L/C)
Credit Card Issue (with different limits for different types of customer).
Traveler Cheque Issue
Money Gram Service
Besides these, it also offers some specialized services to its customers. NCCBL has
launched following saving schemes:
NCC Bank special Saving Scheme (SSS).
Special fixed deposit scheme (FDR).
Consumer Financing (Small Loan).
Lease Financing
Islamic Banking Scheme
Non-Resident Foreign Currency Deposit Scheme.
NCCBL, Agrabad Branch, Ctg.-My Place of Posting
Establishment:
National Credit & Commerce Bank Limited (NCCBL) is one of the fastest growing banks
among all the private Commercial Banks in Bangladesh. The institution started its function
back n 18th
November 1985 as an Investment Company in the name & style of National Credit
Ltd. (NCL). As a branch of National Credit Ltd Agrabad Branch, Ctg. started its function in
1987 as an investment company.
As a branch and Commerce Bank Limited emerged full flagged Commercial Bank on 17th
May,
1993, after obtaining license from Bangladesh Bank. From that time, a branch of National
Credit Ltd Agrabad Branch, Ctg. carries out their banking activities. At that time their deposit
was Tk. 4 core and at present time the deposit position on branch is Tk. 259.29 core.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 20 of 46
Present position of the branch
Figure in crore
Particulars Year
2007 2008
Deposit 205.00 259.29
Advance 350.00 544.15
Profit 7.51 10.21
Letter of Credit (L/C) 120.28 158.25
Export 50.42 57.22
Operational profit (2002-2006)
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 21 of 46
The bank gains remarkable progress in case of operational profit. It is a great achievement of
the bank as profit is the ultimate target of any bank or any financial institution. The growth in
2006 is 15.28% higher than that of 2005.
In this connection we can conclude that the bank is performing extremely well in case of
maintaining the increasing trend of operating profit.
SWOT Analysis
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 22 of 46
SWOT stands for Strength, Weakness, Opportunity and Threat. The SWOT of NCCBL have
been shown below:
Internal factors
Strength
Existence of strict and standard credit management.
Harmonious lender (bank)- borrower (Client) relationship.
Experienced manpower in advance/loan department.
Decreasing trend of classified loan.
Existence of some new & attractive credit scheme.
Weaknesses
Lack of trained and highly educated officers.
Lack of modern equipment.
Lack of proper office space.
Lack of young, energetic and talented officers.
Absence of computerized system.
Absence of Islamic Banking System.
Lack of proper advertisement of the products and services of advance.
External factors
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 23 of 46
Opportunities:
Can introduce more new and attractive credit scheme.
Can set a competitive interest rate.
Can recruit young, energetic and talented officers.
Can take initiative for introducing Islamic Banking system.
Threats:
Govt. policies are not in favor of the private banks.
Competitors done the credit services to customers more effectively.
Competitors offer low interest rate on loan.
Entrance of highly equipped and modern banks.
Intense competition in the credit market.
Competitors have young and energetic work force.
Govt. has imposed high rate of taxes and VAT on interest received on advance.
Remarkable progress on Islamic Banks.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 24 of 46
14%
22%
35%
16%
7% 1% 5%
Current Deposits Savings Bank DepositsFixed Deposits Short Term DepositsDeposits Schemes Bills PayableOther Deposits
Advance is the most important parts of the bank. Actually, the main business of the bank is to
settle loans and advance or credit. Bank accepts deposits from individuals and makes loans.
Although all lending involve risks yet a bank has to go with it for earning profit and economic
enlistment as well. Better control on the risk of credit system represents the well reputation of
bank. A Bank has no sense without credit. It is treated as the investment of a bank. In this
connection. NCCBL has also no exception.
3.1: Concept of loan and advance
3.1.1: General concept:
Generally, Loan and advance refers to ―Money lent on condition that it is repaid, either in
installments or all at once, on agreed dates and usually that the borrower pays the lender an
agreed rate of interest.‖
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 25 of 46
Bank loan or bank advance is a from of finance. It indicates- a specified sum of money lent by
a bank to customer, usually for a specified rate of ordinary interest (calculated by taking 360
day as a year). Handling ‗load and advance‘ is he major function of bank.
3.1.2: Difference between loan and advance :
Loan: It refers to loan term credit ie money lent by a bank for more than one year (e.g.5 or 10
or 15 year etc)
Such as – Loan general, House building loan, Project loan etc.
Advance: it refers to short-term credit i.e. ‗Money lent by a bank for less than one year‘
Such as – Cash credit, overdraft, discount etc.
In comprehensive sense, loan is considered as a part of advance despite of the above difference.
NCC bank also classified loans and advances according to this comprehensive sense.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 26 of 46
3.2 Different Advances offered by NCCBL
Advances
Loans Overdrafts Cash credits Discounts
Loan General SOD (FO) Pledge Inland Bills Purchased
House Building SOD (G) Hypothecation Foreign Bills Purchased
Loan FDBP & Discounted
Loan against
Imported Merchandise
Payment against document
LDBP
Loan Against
Trust Receipt
Loan Against
Packing Credit
Transport Loan
Project loan
Demand Loan
Consumer Finance
Lease finance
Small Business Loan
House renovation loan
Personal Loan
Festival small business loan
Festival personal loan
Housing loan
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 27 of 46
3.3: Details of some major advances
3.3.1: Loans
Under the loan system, credit is given for a definite purpose and for a predetermined period.
Normally, these loans are repayable in installments. Some major loans of the bank are describes
as under:
a) Loan General
When an advance is made in lump sum repayable either in fixed monthly installments and no
subsequent debit is ordinarily allowed expect by way of interest, incidental charges etc called
general loan. it is usually for a single purpose where the entire amount may be required at a
time or in a number of installments within a short period of time. Generally, when the advance
can‘t be classified into any category, it is considered as ‗Loan General‘.
b) House Building loan
In order to solve financial incompatibility to make a house, the bank offer this loan to middle
class people. Period of loan is maximum 5 years. Limit of the amount of the loan depends on
the customer banker relationship.
c) Loan against imported merchandise (LIM)
LIM is a temporary loan and allowed against imported goods. LIM may be created at the
request of the importer while he is not in a position to take delivery of import bills by making
payment of entire bank dues. The importer has to keep the goods in bank‘s custody for getting
this loan.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 28 of 46
d) Loan against trust receipt (LTR)
LTR is also a temporary loan and allowed to the customer against their application on the basis
of only trust, which is generally built on good customer- banker relationship. After sanction of
LTR, import bills are handled over to the importer who will clear the goods from the custom
authorities by making payment duty, VAT and other charges.
e) Consumer Finance scheme
The Scheme aims at improving the standard of living of the fixed income group. Under the
scheme the clients may secure loan facilities at easy installments to procure household
amenities. It meets household needs of service holders: Furniture/ TV/ Refrigeration & others
household durables. Its Credit Ceiling is Up to tk. 1.00 lac and term is 2 years.
f) Lease Finance scheme
An entrepreneur, under this scheme, may avail of the lease facilities to procure industrial
machinery (without having to purchase it by down payment) with easy repayment schedule.
The clients also get special rebate in their income- tax payment under the scheme. Items leased
out to the new/ existing industries to procure machines for the industries.
g) Small business loan
This loan is introduced for smooth running/ expansion of business of small entrepreneurs who
are honest, sincere & promising. This type of loan diversifies bank‘s lending with the
requirement of the time. Its ‗Credit Ceiling‘ is Up to tk. 5.00 Lac and ‗term‘ is 2-5 years.
h) House renovation loan
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 29 of 46
The purpose of the loan is to help genuine house or flat owners (not developers) to undertake
repairing or renovation works for better living or increased rental income. ‗Credit ceiling‘ of
the loan is Up to tk. 5.00 Lac and ‗Term‘ is 5 year.
i) Personal loan
The loan serves the purpose of meeting emergency financial expenses of service holders such
as Medical treatment, Marriage, Maternity, Admission of Children, Purchase of banks, Exam
fees etc. Credit Ceiling of the loan is Up to tk. 1.00 Lac and Term is at least 6 month but not
more than 3 years.
3.3.2 Overdrafts
When a current account holder is permitted by the banker to draw more than what stands to his
credit, such an advance is called an overdraft. ‗ it is an automatic coverage by the bank of all
checks presented against the firm‘s account, regardless of the account balance‘. Interest is
calculated and charged only on the debit balances on daily product basis.
Generally two type of overdraft is exercised in the bank-
SOD (FO): It is allowed against financial obligation for promotion of economic and business
activities.
SOD (GE): It is allowed to the traders for business promotion and economic activities.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 30 of 46
3.3.3 Cash Credit
Cash Credit is a continuous type of short-term advance. ‗Under this system, the banker
specifies a limit, called the cash credit limit, for each customer, up to which the customer is
permitted to borrow against the security of tangible assets or guarantees.‘ Two types of cash
credit are exercised in NCCBL—
a) Cash Credit (Hypothecation) :
Hypothecation is a charge on company for a debt, but neither ownership nor possession passes
to the creditors. In hypothecation, both ownership and possession remain under debtor. This
type of credit is allowed to the traders and industrial borrowers for promoting trade and
commerce and industries. This type of advance depends mainly upon the trustworthy of the
party.
b) Cash Credit (Pledge) :
In this case, possession of goods passes to the creditor or bank. It is allowed for promoting
trade, commerce and industries of the country against pledge of stock in trade under Bank‘s
control.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 31 of 46
3.3.4 Discounts
Apart from the usual loans and advances, purchase and discounting of bills of exchange is
another way of employing bank funds. Such bill of exchange arises out of commercial
transactions both in 0inland trade and foreign trade. Although it has various types, PAD is a
major one that is discussed as under:
a) PAD (Payment Against Document):
PAD is the most common credit for foreign exchange business of the bank. On the receipt of
import bills against the L/C from the Negotiating Bank, the issuing bank scrutinizes the
documents with terms & conditions of the L/C and if it is found completely in order, PAD loan
is created in the name of the importer in order to reconcile the entries so debited by the
Reimbursing Bank. The maximum period of repayment of this loan is one month.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 32 of 46
3.4 Advance procedure followed by NCCBL
Procedure is an important factor for the success in any field. If an institution follows proper and
standard procedure for their operation, there will be a great chance of success. Better
performance is possible only when better guideline and procedure are followed.
For this reason, I would like to highlight the procedure of loans and advance department of
NCCBL before evaluating its performance in that area.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 33 of 46
3.4.1 Security for loans and advances
Security can be treated as ‗an insurance against emergency‘. Because it serves as the safety
valve for an unforeseen emergency. Simply it means things deposited as a guarantee of an
undertaking or loan to be forfeited in case of default. In order to sanction credit, the bank has to
keep security from the borrower for the assurance of the recovery of loans and advances.
3.4.1.1 Types of securities
Security offered against loan may be various. The securities may vary from gold and silver to
goods of various types, immovable properties, life insurance policies, stock exchange
securities, promissory notes etc. a prudent banker always tries to take tangible assets as
securities to safeguard his interests.
Generally, security has two types—
a) Primary security: This is the main cover for an advance. The borrower himself deposits this.
b) Collateral security: This is the additional or subsidiary or secondary security. This is resorted
to after exhausting all possibilities of recovery.
3.4.1.2 Methods of creating charges on security
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 34 of 46
The bank can create charges on the borrower‘s security by the following methods:
Pledge Hypothecation Mortgage Lien Assignment Set-off
a) Pledge: It is the ‗Bailment of goods as security for payment for a debt or performance of a
promise‘. The possession of security is passed to the bank.
b) Hypothecation: It is the charge against property for a amount of debt where neither
ownership nor actual possession is passed to the bank. But constructive possession
remains with the bank as per deed of hypothecation.
c) Mortgage: ‗When a customer offers immovable property like land and building as
security for a loan, charge thereon is created by means of mortgage‘. It is the transfer of
an interest in specific immovable property for the purpose of securing. There are mainly
two types of mortgages:
- Equitable mortgages
- Legal mortgages
d) Lien: It implies right of the creditor/ bank in possession of goods or securities belonging
to a debtor to retain them until a debt due from the latter are paid.
e) Assignment: It means a transfer by one person of a right, property or debt (existing or
future) to another person. Some examples are--
Contract money due from the government and semi government body
Supply bills
Book debt
Life insurance policy, etc.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 35 of 46
f) Set-off: It means the total or partial merging of a claim of one person against another in a
counter claim by the letter against the former. It is a right, which accrues to the banker as
result of the banker customer relationship.
3.4.2 Process of loan sanction followed by NCCBL
Process of sanction
Step-1: Loan interviewing/ Selection of borrower
Step-2: Loan application submitted by borrower
Step-3: Collecting & correlating the information about the borrower
Step-4: Preparation of credit report
Step-5: Manger‘s decision about the suitability of proposed loan/ advance
Step-6: Assessment
Step-7: Recommendations
Step-8: Sanction
Step-9: Sanction advice & other terms & conditions
Step-10: Repayment & Repayment schedules
Step-11: Interest rate, etc.
3.4.3 Documentation
Documents are the physical embodiment of the existence of loans & advances Documentation
is the execution of documents in right form &lawful manner. Documentation forms a
permanent record of the right responsibilities and obligations of the executants that the
borrower and guarantors towards the lender(bank).
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 36 of 46
Steps of Documentation
preparation of deed-Banks printed forms set as per term and condition and nature of
advances
legal opinion- As per latest circular form the panel advocate of bank .
Executants and Execution- signature capacity- Style stamp
Witnessing- Signature capacity –Style.
Stamping of Documents as per Stamp Act 1999, Amendment 1998 Stamp Schedule.
Registration as per Registration Act -1920
Safe Keeping / Preservation
Common charge documents for all types of advances:
Demand promissory note duly signed with revenue stamp
Letter of arrangement
Letter of acceptance
Additional charge documents required for the following types of advances:
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 37 of 46
Documents for the advances
Loan general
Letter of disbursement Letter of installment
Letter of authority
Overdraft
Letter of continuity Letter of installment
Cash credit (Hypo)
Letter of hypothecation Stock report signed by the borrower
Insurance cover note Letter of continuity
Letter of guarantee
Letter of third party guarantee
Cash credit (Pledge)
Letter of pledge Stock report signed by the borrower
Insurance cover note Letter of continuity
Letter of guarantee Letter of third party guarantee
Letter of disclaimer
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 38 of 46
3.4.4 Disbursement
Finally, the bank for which the following tasks should be followed does disbursement of
advances. These are—
Equity/ Margin should ensure
Term of stanchion should ensure
Charging of securities
End use verification
Strictly following the disbursement schedule
Others i,e proper monitoring, supervision etc.
3.4.5 Supervision, Monitoring & Follow up
Supervision, monitoring and follow up indicate the caring for the loan both at the pre-sanction
and post- sanction stages in order to ensure the safety of the money lent. It is substitute of
collateral.
‗Supervision‘ starts right after the selection of the borrower. ‗Monitoring‘ starts when the
project enters implementation phase. And ‗follow-up‘ starts just after disbursement of loan.
Supervision, monitoring and follow up of loans and advances helps the bank to prevent loan
classification, return flow of funds, compliance of terms and conditions, problem solving,
feedback and take timely corrective action.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 39 of 46
3.4.6 Loan pricing mechanism
Loan pricing is a crucial factor of advance; the price of loan is the ‗interest rate the borrower
must pay to the bank, in addition to the amount borrowed (principal)‘. The bank earns profit
through this loan price or interest rate, which is usually higher than deposit rate. The difference
between loan price and interest rate on deposit represents the profit/ spread for the bank. The
higher loan prices the higher the profit. But it must be charged under the boundaries fixed by
the Central bank.
Calculation of loan pricing:
Price of loan= True cost of the loan or Base rate + Profit or Risk premium
There components of true cost/ Base rate
I. Interest expense (Interest on deposits+ Interest on borrowing from central bank.
II. Administrative cost (Deposit and loan administrative cost.)
III. Cost of capital (Investors expected rate of return)‖
Risk premium: It represents the probability that a new loan to a borrower in that particular
category will not paid and will be written- off or lost.
Mathematically, risk premium = Historical loss rate for a particular type of loan.
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 40 of 46
3.4.7 Bank Guarantee
Bank guarantee is a part of advance. It is a common banking service rendered by a commercial
bank. It may be defined as an irrevocable obligation by a bank to pay a sum of money due to
non- performance of contractual obligation by a third party.
As per the contract Act- 1872 – A contract of guarantee is a contract to perform the promise, or
discharge the liability, of a third person in case of his default. The person who gives the
guarantee is called the ‗Surety‘; the person in respect of whose default the Guarantee is give is
called the ‗Principal Debtor‘; and the person to whom the guarantee is given is called the
‗Creditor‘.
There are four party involving bank guarantees:
Parties to a bank Guarantee
The Beneficiary (Creditor)
The Principal (Applicant)
The Guarantor (The Issuing Bank)
The Instructing Party (principal‘s bank who gives counter guarantee)
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 41 of 46
3.4.8 Principle of sound lending taken by NCCBL
Risk involvement with advance may be kept at minimum if sound lending principles are
followed.
A) Safety : To ensure the safety of lending NCCBL follows the following factors:
Factors needed
For Safety
Five Cs Five Ps Five Ms Five Rs
Character Person Man Reliability
Capacity Purpose Management Responsibility
Capital Product Money Resources
Condition Place Materials Respectability
Collateral security Profit Market Returns
B) Purpose : The purpose of lending is a crucial point to know for the Bank. It helps the
Banker to know the course of action of the borrower as regards landing. So, the banker
can have the idea whether the loan will be in productive purpose or not.
Sound lending principle
Safety
Purpose
Liquidity
Security
Profitability
Spread/ Diversification
National interest/ Social benefit
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 42 of 46
C) Liquidity: It means the availability of fund on short notice. The bank has to know
whether the bank can get back the loan amount in liquid from or not. Because majority
of bank liabilities are payable on demand or after short notice. So, the loan must have
fair chance of repayment according to repayment schedule.
D) Security : The security accepted by the bank from borrowers in order to cover loss if
borrowers become defaulted. It must be adequate, readily marketable, easy to handle
and free from any encumbrances.
E) Profitability: Banking is essentially a business, which aims at earning a good profit. The
bank will definitely invest its money if there is a strong possibility of fair return or
profit.
F) Spread/ Diversification : In this connection, the principle – ‗Do not pull all eggs in the
same basket‘ is followed. The advances should be as much broad based as possible and
must be in conformity with the deposit structure in order to minimize the risk of
lending.
G) National interest: A bank should keep in mind the national development plan to play a
significant role in the economic development of a country.
Beside the above principle, NCCBL follows two most important modern concept of good
lending:
Modern concept of good lending consists of the feasibility study of six aspects. These are –
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 43 of 46
Modern concept of principle of good lending
Managerial feasibility
Organizational feasibility
Technical side
Marketing side
Financial aspect
Economic aspect
Other new techniques for assessing soundness of a new loan proposal:
Financial spread sheet analysis (FSSA) Credit Risk Grading
Credit Risk Grading:
Credit risk:
Credit Risk is the possibility that a borrower or Counterparty will fail to meet
obligations
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 44 of 46
Credit risk arises form the bank s dealings with or lending to the corporate, individual
and other bank or financial institutions
To minimize losses banks should have comprehensive credit risk management policies
and procedures
Definition of CRG
Based on Pre-specified scale reflecting the credit risk for an exposure
Number/ Alphabet/ Symbol as Summary indicator of risk
Major credit risk :
Credit
Risk
Financial
Risk
Business/
Industry risk
Management risk Security
Risk
Relationship
Risk
Leverage Size of
Business
Experience
Security
coverage
Account Conduct
Liquidity Age of
Business
Succession Collateral
coverage
Utilization of limit
Profitability Business out
look
Team work support competition of
coverage /conduct
Coverage Industry
Growth
personal deposits
Market
Competition
Barrier to
Business
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 45 of 46
Assigning weight to key parameters
FR 50%
Lev 15%
Liq 15%
Prof 15%
Cov 5%
B/IR 18%
SB 5%
AB 3%
BO 3%
IG 3%
MC 2%
EB 2%
Arrive at CRG based on total Score
Number R/G Short Name Score
1 SUP 100%(Cash covered
Govt./int .Bank Guarantee
2 GD 85+
3 ACCPT 75-84
4 MG/WL 65-74
5 SM 55-64
6 SS 45-54
7 DF 35-44
8 BL <35
Loan and Advance of NCC Bank Limited, Agrabad Branch, Chittagong
Page 46 of 46