A Study On The Credit Division of Agrani Bank Limited, Farmgate Branch.

Prepared by Awadur Rahman Department of Finance University of Dhaka
This report is unedited and un official
A STUDY ON THE CREDIT DIVISION OF AGRANI BANK LIMITED, FARMGATE BRANCH
Literature Review
There are many studies carried out on Agrani Bank Limited about its various operation and performance over the last 20 years. Report and studies related to credit performance, foreign exchange activities, remmittances, financial performances, general banking activities etc can be found. There is a study carried out by Syeda Farzana Haque (2008) on the banking and credit systems of Agrani Bank Limited.It recommended the improvement of the efficiency of the general banking operation as well taking strict measures in reducing default loans and increasing profitability. It also focused on the expansion of the banking services and as well minimizing the influence of buearucracy in the credit division. It also recommends the effective advertisement and publicity of the products and services of the bank. The findings and recommendations of that study has been used in this report which was very useful in preparing the report on the credit division of the Farmgate Branch of Agrani Bank Limited. Another study(2010) and research paper was conducted on Agrani bank by a senior employee of the bank on the overall performance of the bank as well as on credit division. He presented a model in his research paper which identifies the base of banking practice by the management of the bank that are percieved significant in explaining organizational commitment.He identified some major problems and proposed IMPLEMENTATION TASK FORCE for each advisory area. The objective of each taskforce is to oversee and give direction to the implementation of the long term management plan (LTMP) which will be incorporated to set up a strategic planning and control unit in agrani bank limited to keep its growth in synch with national and industry growth, activate a data-based analytical accountability oriented performance planning and budgeting system, ensure that individual branch profit and loss is correctly assessed by setting up a fair and logical fund transfer price policy, set-up a good market planning and control system, regularize major strategic and policy issues and improve process efficiency in the short run by exploiting existing under utilized it resources. It also dicusses about the loan recovery problem especially the foreign loans and recommends the proper disbursement of the loan to viable projects and reducing the bad practice of rescheduling of loan by the bank. Farmgate Branch is one of those branches of Agrani Bank Limited which is much of a specialized branch and has limited banking services including loans and advances, foreign remmittance, various deposit scheme facilities, income schemes and other general banking services. Having being assigned to prepare a report on credit division of Farmgate Branch, Agrani Bank Limited, it was quite difficult to find a similar kind of a report or reference on Farmgate Branch which can help me in this regard. But there are similar report or study done on other branches especially on the credit performance or on credit division. A similar report (2011) was found on the credit performance of the national museum branch, Shahbag prepared by a student of faculty of business studies, University of Dhaka.It included datas related to the credit division and its analysis based on the data like percentage analysis,trend analysis and non data analysis like SWOT analysis. Although it lacks thorough analysis of
data, it includes some general recommendations and findings. It also focused on the improvement of the loan repayment process and customer service as well as the overall general banking services. Agrani Bank Limited is placed 2nd in the ranking of most profitable banks of the country with record net profit over 600 crore taka in the recent past year. But still there are concerns over efficiency of its operation and its alarming default rates of loans and advances.Farmgate branchs profitability is also experiencing ups and downs in recent years as the economy is facing downturn due to unstable political condition and cash crunch. Especially 2011-2012 fiscal year has seen unstable trend of profitability. It is also observed that interest income from loans and advances contributes to a smaller portion of the net profitability of the Branch. Its lion share of income comes from other general banking operations like commision and fees etc. So it has become the dire need of the bank to focus on loans and advance services and earn more income from that sector which is said to be the basic banking function.
Executive Summary
Agrani Bank is one of the largest nationalized commercial bank with 877 outlets strategically located in almost all the commercial areas throughout Bangladesh. The Bank provides all kinds of commercial banking services to its customers. Among them, the day-to-day services provided to the customers are known as General Banking Activities which include collection of deposits, honoring checks, keeping records and so on. As it is said deposits are life-blood of a commercial bank. Agrani Bank collects deposits through demand and time deposits. Demand deposits can be withdrawn without any prior notice and the Bank accepts demand deposits through the opening of current account, SB account & SND account. In contrast, a deposit which is payable at a fixed date or after a period of notice is called time deposit and the Bank accepts time deposits through FDR, DPS & ABPS. In addition, the Bank maintains sundry deposits for several purposes. An important function of a bank is to receive and make payment of cash. Every day, Agrani Bank receives cash from the customers and records the transaction appropriately. On the other hand, the Bank makes payment of cash by honoring checks and produces records of those transactions. Besides, Agrani Bank provides various facilities to its customers to avoid risk arising out of theft or loss in carrying cash from one place to another or making payment to someone in another place. The Bank takes the risk and ensures payment to the beneficiary through DD, MT, TT and PO. Here, DD, MT and TT are used to transfer cash outside the clearing house area. Among the three, TT is the fastest means of transferring cash. However, PO can be used only within the clearing house area.
Every day the Bank receives the thousands of checks and honors them. Before honoring check, the Bank considers several factors to avoid forgery. Besides, the accounts department keeps record of all the transactions of every department. This department verifies all financial amounts and contents of transactions. In every working day all the accounts are balanced and reconciled to remove any discrepancy. Agrani Bank has been performing well in the market. Collection of savings deposits, fixed deposits and current deposits has been increasing over the years.Agrani Bank in 2012 was ranked 2nd with record net profit of 668 crore taka.The operating profit as on 31st March 2012 stood at Tk. 204.13 crores against 201.68 crores in the same period of the last year, the increase being 1.22 per cent. The total deposit of the bank stood at Tk. 24334.26 crores compared with Tk. 22555.99 crores in the corresponding period of the last year, the rate of growth being 7.89 per cent. In 2011, deposit growth rate for Agrani Bank was 24.08% comparing to growth rate of 21.63% for other Banks. Moreover, operating profit of the Bank has been increasing every year. In addition, the credit rating of Agrani Bank in both long term and short term has been satisfactory over the years. In 2009, Agrani Bank achieved three awards for best published accounts & reports and corporate governance disclosure. However, a customer satisfaction survey on the general banking activities of Farmgate Branch of Agrani Bank was conducted. The survey shows that most of the customers get average level of satisfaction from the Branch services i.e. they are neither satisfied nor dissatisfied. Some customers are satisfied and a few customers are dissatisfied with the Branch services. It is quite true that Agrani Bank is facing some problems to meet up customer demands. Due to unattractive salary package, the Bank fails to recruit expert and skilled personnel. In addition, Agrani Bank is not well-equipped with the modern technology to provide high class customer service. It still has not been able to go full-fledged online banking system. Nevertheless, if the management takes effective measures to overcome the drawbacks and come-up with effective human resource and financial strategies, the Bank will soon turn into a strong opponent in the banking sector of Bangladesh. This report covers overall credit management system of Agrani Bank Limited and records of loans and advances. It also focuses on the credit division of Farmgate branch and its analysis based on numerical data. It also mentions some realistic recommendations and findings related to the branchs operation.
CREDIT MANAGEMENT SYSTEM OF AGRANI BANK LIMITED

4.1 CREDIT MANAGEMENT SYSTEM OF AGRANI BANK LIMITED The total process of credit management system of ABL contains Divination of Various credit scheme, the evaluation of credit proposal, procedure of credit appraisal, Selection of borrowers, Various Steps of sanction procedure, Documentation, valuation of securities, lending risk analysis, sanction-documentation and disbursement process of credit system, supervision and monitoring, early warning system of loan reviewing and monitoring, loan recovery early warning system in loan recovery, procedures of filling of suit in the court. The functions of credit system are monitored through four divisions as follows: 1. Credit Division 2. Consumers Credit Division 3. Credit Monitoring & Recovery Division 4. Law Division The credit management system of ABL is performed step by steps. The following extracts of this chapter will discuss the total credit system elaborately. 4.2 LOAN AND ADVANCES OF AGRANI BANK LIMITED The Major products of loans and advances of Agrani Bank Limited are briefly explained below: Cash Credit (CC): ABL provides it for higiest12 month for business purpose. They fix the maximum limit of amount can be borrowed for a certain period. Interest charged on the days the loan kept. It uses fixed asset as collateral. Normal interest rate is 14%. Demand Loan: Normally demand loan provides on DPS but it is not in work now thats why ABL providing this loan on PPS at 12%. Here the deposit of PPS works as collateral. Nowadays, ABL provides demand loan against PF, HBL General, HBL Staff, DPS (continuing), PPS and Other Securities. Over Draft (OD): ABL also provide overdraft loan against this account for maximum one week but it sometime requires close intimacy with the officials to be reliable. 4.3. CONSUMER LOAN SCHEME ABL provides CLS as Staff-loan, Non-staff loan, Car-loan, Household durable and for medical instrument. Loan Schemes:The bank has the following Loan Schemes under which it provides loans and advances to its customers: General Loan Scheme Lease Financing
Demand Loan ( House Building / Apartment Loan ) House Building General House Building Commercial House Building / Construction Apartment Project Loan Agricultural Loan ( Production ) Loan to Primary Procures Loan for tea crop production Term Loan Small Industries Medium Scale Industries Large Scale Industries Working Capital For Jute Mills For other Industries Export Financing Readymade garments / others Jute products and other export goods Commercial Loan Financing towards the agro based businessmen Loans to agricultural inputs traders Fertilizer dealers / distributors Jute trading Other commercial loans Other Loans Loan against FDR of Agrani Bank Limited Loan against FDR of other banks Loan against DPS account balance Loan against SanchayaPatra, Wage Earner Bond, Surrender Value of Life Insurance Policy etc.
Loan against Share Certificate Special Program and any other loans not covered in the loan categories 4.4 CREDIT APPRAISAL PROCEDURE Credit system is the most significant part of a commercial bank because it is risky and maximum of profit comes from this banking-part. This procedure needed to be maintained effectively and stepwise. Credit system includes pre-sanction; sanction & disbursement; monitoring of recovery activities; supervision and control over the borrower. Selection of Borrowers Selection of borrowers refers to the identification of suitable or appropriate borrowers whom loan can be sanctioned or credit can be provided. The borrowers range from individuals to partnership, companies, societies, corporations etc. A banker must be careful in selecting borrowers and their projects. Right type of borrowers and right type of projects can ensure safety lending. It is the most crucial task of credit system to have selection of borrowers. In the lending process, before sanction of credit the banker should get conformed that about 5 Cs which are as follows: 1. Collaterals: It needs to consider that the value of the collaterals and the maximum amount of loan can be given against this. The validity and legality of the collaterals are another concerning matter of selecting the borrower. 2. Character: In order to have select of the borrowers of loan, bank should judge the intension of the borrowers whether he will repay the loan. 3. Capacity: It refers to the borrowers capabilities of using the amount of loan perfectly thereby repay the loan with least cost. 4. Conditions: It refers general business conditions those are required to maintain while to borrow fund from the bank. So the bank needs to judge the ability and capacity of the borrower whether he could maintain the requirements. 5. Capital: The banker must require judging the financial strength of the individual or corporation that it can handle any uncertain situation as well as repaying lending. Or about 5 Ps needed to consider which are as follows: 1. Person: The banker needs to judge about the personal information about the borrowers businesses, capital, experience, etc. 2. Price: The considerable demanding amount of loan is refers as price here. 3. Products/Place: It refers the company, its location, product, marketing etc. information required for giving the advance against. 4. Purpose: Here the required matter is the issue for which the borrower is demanding loan. He could ask loan for expansion, install renewed technology, working capital etc. purpose. 5. Profit: The banker must judge the profit of the existing firm before extending any credit facilities to him.
Or about 5 Ms needed to consider which are as follows: 1. Man: The banker needs to judge about the personal information about the borrowers businesses, capital, experience, etc. 2. Money: The demanding amount of loan is refers as money here. 3. Materials: It refers the company, its product etc. information required for giving the advance. 4. Market: It refers the company, its location, marketing etc. information required for giving the advance. 5. Management: Management refers to the governing bodies of the company that are demanding advances. It refers the background of them also. Or about 5 Rs needed to consider which are as follows: 1. Responsibility: Generally the borrower has to perform the planning, organizing, staffing, motivating, controlling, marketing etc. responsibility. 2. Reliability: It refers the previous attitude of the borrower towards the bank or having any reliable guarantor. 3. Respectability: It refers the reputation of the borrower. 4. Resources: The banker must judge the resources or collateral offered by the borrower. 5. Returns: The banker must judge the profit or return of the existing firm before extending any credit facilities to him. By any of the above method a borrower can be selected. But effective selection refers the banker must see educational background, family background, past experience, training acquired, reputation in the society, integrity. These are the factors, which help to judge the borrowers ability to direct a business effectively. 4.5 SANCTION PROCEDURE It is observed that completion of credit sanction is a stepwise procedure and a matter of hazard. A lot of documents need to prepare for this. The steps of the credit procedure are describing below: Step 1: (Loan interviewing / Selection of borrower): In order to have the interviewing for loan it requires judgment of the following: Borrowers identity. Family background. Reputation in business circle. Friends Competitors Employees Qualification. Experience physical fitness
Earnings Security offered against the loan. Own stake in business Eagerness Expected term of repayment Other sources of income Normal expenditure of maintaining his family Knowledge / Experiences to run the business.
Beside these things a banker must know the following things related to business_ Whether the borrower is going to do any speculative business. When do he is going to start the business. Does he have any assumption about the popularity and marketability of the products? Estimation about the availability of raw materials. Whether the raw materials is produced in our state. If raw materials are imported then how friendly relationship exists between our and that states. Transport and communication costs. Liabilities and involvements in other businesses. Keeping these, fundamental points in mind the banker need to form a balanced opinion on the following issues like moral ethics which refers moral risk in respect of bank about borrowers reliability on character. And business ethics of the borrower so that as a social element any hazard is not creating. Lastly property risk, which refers borrowers capital and capabilities, needed to be judged. If the bankers opinion is favorable, banker will step in the starting point of lending that of giving an application form to the borrower. Step 2: (Borrower submits application form): This step starts when the clients submits formal loan application form to the bank along with the necessary formal documents.
Step 3: (Bank evaluate the loan case): In this step the banker scrutinizes the loan case, evaluate and correlate the collected information about the party. The sources from which the banker can get information has been described in the phase of Borrower judgment of Loan application, Financial statements, Study of account, Market reputation, Project proposal, Registration of Joint Stock Company, study from CIB, Revenue municipal, VAT return.
Step 4: (Preparation of credit study / Project proposal): This project proposal is mainly expresses for which the loan is demanding on side by side the overall position of the firm. All the elements that exist in a project proposal are as follows: Name Address. Date of compilation of study. Nature of the firm and date of establishment. Nature of business. Investment in the business. Allied or subsidiary concern, if any. Brief history regarding the proprietors or owners. Annual income. Sales. Market reputation. Means. Bank account in this bank and experience. Bank accounts in other banks and their experience. Preparation and signing of the credit study.
Revision of the credit study
Whenever the credit study or the project proposal will be ready it needs to submit to the bank manager.
Step 5: (Submit the project proposal): In this step the manager of the bank decides about the suitability of the proposed loan. If the manager found or decide the proposal suitable then the sanction procedure will get progressed to the next step.
Step 6: (Assessment): After the manager of the bank found that the proposal is suitable to make loan to it, now in the step 6 it need to check the feasibility of all aspect of the firm likes: Commercial feasibility: Whether the product has demand on the market and to what extent. Management / Organizational feasibility: Whether the firm has suitable managers who can manage the firm strongly. Technical /Production feasibility: This refers whether the firm can produce the expected production limit. Are the spare parts are available. And other technical problems are concerned here.
Financial feasibility: This is the most important aspect for the bank. Financial capability is evaluated here. Economic feasibility: This part describes whether the state will be benefited to the firm if the firm gets the loan. For example 100 Person can get job here thereby employment rate will be increased in this state. LRA: This refers lending risk analysis about the concerning business firm.
While assessing the credit the banker needs to keep in mind the following points: Borrowers own investment Actual valuation of land / building; cost of machineries, quality of machineries etc. Availability of raw materials, power, fuel, accessories. Marketing of product, present and future competitors thereby profit Will the advance be recovered? Has the knowledge, skill, tact and foresightness been applied sincerely? Is the advance goes against banks policy, government policy and central banks credit restriction policy? This assessment will confirm eventually about the prospect of the firm. If the firm is found satisfactory then the sanction process can progress further.
Step 7: (Recommendations): This assessment will confirm eventually about the prospect of the firm. If the firm is found satisfactory then the sanction process can progress further.
Step 8: (Sanction):If recommendation is positive then the bank sanction loans. Step 9: (Sanction advance and other terms and conditions):Here all the terms and condition are given.
Step 10: (Repayment and repayment schedule):Repayment and repayment Schedule are given here.
Step 11: (Interest rate):
Bank charges the specific interest rate to the firm against its loan. When the interest rate is fixed up and the firm agrees to pay then the company becomes ready to get loan from the bank. 4.6 DOCUMENTATION While making arrangements for the credit procedure, it is required to prepare some documents which are as follows:
Documents should be hand written with indelible ink Documents should be executed in the presence of branch manager or responsible officer. Documents should be signed with full signature. Any cutting, alteration and erasing is prohibited. Signature of loans in all pages of documents should uniform. Each and every page should be signed. Executors signature should be verified by the manager or authorized officer. No document or column of any documents should leave blank. All documents should be recorded in register or security register serially and properly. Manager himself must authenticate guarantors signature. Full address of the guarantor is recorded in the letter of guarantee forms. Lawyers opinion kept allows with original set of loan document. Proper and correct stamping is strongly recommended, which are: Judicial stamp Non-judicial stamp 4.7 SECURITY Security plays an important part for a bank because in case of any uncertainty of the borrower, the bank can withdrawal its loaned capital. So it has become a vital issue for the bank. And whenever the bank evaluates the security, it checks it very carefully. There are several procedures of calculating and value judgments of the securities. Here are all about securities: 4.7.1 Types of Securities Securities are basically two types, which are as follows: 1. Intangible securities: Borrowers liability (If the borrower itself a reputed person) Adhesive Special adhesive Embossed stamp Embossed stamp
Guarantee of a respectable third party 2. Tangible securities: Primary security Collateral security / Goods or properties Movable security Immovable security 4.7.2 Valuation of Securities The valuation of securities is an important aspect for the banker since the advance value or withdrawal limit is fixed on the basis of value of securities less specific stipulated margins. There are several methods of valuing securities depending upon the type of security offered. Valuation may be based on market value, invoice value or controlled value. 4.8 LENDING RISK ANALYSIS Bank lends money to ensure the proper investment of depositors money. The other objectives of lending are: To make good loans to protect depositors investments. To prevent good loans from becoming bad. To recover / collect / strengthen deteriorating / bad / classified loans. To earn a profit on loans made to ensure the ongoing viability of the bank. Here the banks follow the strategy like funding to the profitable enterprises to have growth. And thereby loss-making firms are refused funding to out of business. We all know that lending for future period involves a great deal of uncertainty. Here the bank considers the risk that it will not recover the lending capital totally. Bank analyzes the risk by the following way: 1. Business risk: It refers the risk of insufficient cash flow. That is, complete repayment will not occur and repayment will not be occurred in time. 2. Security risk: It refers the risk against the collateral. In case of any uncertainty bank needs to sell the collateral and recover its money. But it could happen that the value of the collateral has declined. Or the collateral that deposited is false. Here the risks that of the both business and security risks are described bellow with all its components chronologically: 4.9 DISBURSEMENT PROCESS OF CREDIT SYSTEM It is known that the common thing of banks operation of borrowing money from public and lending it to the people. But in the perspective of bank, it is a business enterprise and it
always tends to earn profit. Thereby the bank collects money by accepting deposits from the public at a rate of interest and this money is lent to the public for trade, commerce, industry and agriculture at a higher rate than it is collected. As the differences of two interest rates will be higher as higher would be the profit of bank. 4.9.1 Disbursement Before release of the sanctioned loan or advance, all terms and conditions as laid down in the sanction letter are to be compiled with. To that an effect the following are the basic requirements: Loan effectively terms conditions as to collateral security & equity of the borrower shall be fully met. Specified documentations must be completed(mortgage, hypothecation etc) Verification of encumbrances of security property Creation of charge on the collateral l security Insurance for security properties. Strictly following the disbursement schedule. End use verification
4.10 SUPERVISION AND MONITORING For both at the pre-sanction and post-sanction stages supervision is necessary in order to ensure the safety of money lent. It is as important as the collateral. It can be classified into 3 steps. Supervision: Supervision starts right after the selection of the borrower. Monitoring: Monitoring starts when the project / activity enter implementation phase. Follow-up: Follow-up starts just after disbursement of loan. These things are necessary for problem solving like loan to be doubtful; check regular return of fund; check about compliances of terms and conditions etc. And in case of any deviation, necessary correction can be taken to recover the problem. There methods to make supervise and monitor are: Desk supervision / off-site: This method operates through checking periodic study s, discussion, operating statements and cash flow statements. Field supervision / On-site: This method operates through visiting and based on nominee directors.
When to supervise, it needs to consider the following things Stock statements (Hypothecation and pledge) Operation of customers accounts Financial position of borrowers and guarantors Purpose of loan Confirmation letters of balance and securities Diary notes Other accounts Miscellaneous
4.11 EARLY WARNING SYSTEM OF LOAN REVIEWING AND MONITORING Early warning system is a loan monitoring and recovery system. The objectives of this system are as follows: Address problems while adequate alternative action exists. Prevent loan to be bad, interest revenue loss and loan provisions. 4.11.1 Warning signals:The warning signals are as follows: Material changes Industry pattern changes Management composition Economic trends (Local, intero) Client performance vs. budget Bank vs. client relationship Evidence of weakness in borrower.
4.11.2 Prevention: The prevention and control elements of early warning system are as follows: Understand clients business Analyze clients financials Frequent visits to client Perfected legal documentation 100% security cover for banks risk Investigate market rumors Use credit bureau cheekiness
4.11.3 Corrective measures: The elements of corrective measures are as follows: Legal review of documents and situation Workout strategy and action
Loss evaluation vs. security cover Stay or leave decision and reclassification Continuous visits to the client (Defaulter) Negotiation vs. court action Legal expenses multiplying
4.12 LOAN RECOVERY Recovery plan is one of the components of performance plan. It is a future intended action in respect of recovery. In other words, it is a conscious and deliberate effort to recover all current dues and overdue loans.
4.12.1 Steps for recovery

Loan recovery procedure is a stepwise procedure. The steps are as follows: Step 1: (Existing loans and advances): Make due dates of repayment Regular follow-up Periodical inspection Supervise visit Other necessary steps
Step 2: (Overdue loans and advance): Preparation of quarterly lists likes branch copy, controlling office copy and head office copy. Attempts are to be made for adjustment of loans before application of quarterly interest. Loans must be adjusted before classification. Target for recovery. Steps for declassification. Other necessary steps for recovery of overdue loans. Step 3: (Provision for classified loan): Un classified = 1% Substandard = 10 ~ 20% Doubtful = 50% Bad / Loss = 100% Step 4: (Interest exemption):
Finding out the legitimacy of interest exemption it needs to follow the instruction of Bangladesh Bank and head office. Step 5: (Write off): Finding out the legitimacy of writing off for a particular loan case it needs to follow the instruction of Bangladesh Bank and head office.
Step 6: (Others): In case of any other situation, recovery will be happened as the requirements of the Bangladesh Bank and as the requirements of this Agrani bank.
4.12.2 Early warning system in loan recovery This system can also be applied when reviewing a borrowers performance. The factors are more subjective than the quantitative criteria just described but generally considered to be more important in identifying problem loans at an early stage. Substandard: Loans would tend to reflect a borrower with the following things: Adverse tends in sales and earnings Labor problems Lack of management depthless Over reliance on a single product or customer Products subject to intense competition or technological obsolescence Unfavorable regulatory, political or market environment Balance sheet deterioration Inductee or outdated financial data Qualified auditors opinion Debt restructuring problems
Doubtful: Loans would have the foregoing characteristics but even more adverse conditions would exist: Uncertain collateral coverage Negative net worth and working capital Fill recovery dependent upon unlikely events Ineffective borrowers recovery allots Consistent failure of borrower to meet commitments
Bad / Loss: Loans would show that the possibility of the recovery is virtually nil. The banks actions would then be confided to filling suits against the borrower / guarantor and
quantifying the security and collateral shortfall vis--vis the borrowers outstanding and the banks costs. It is this shortfall, which will determine the ultimate loss to the bank.
4.13 PROCEDURES OF FILLING OF SUIT IN THE COURT Filling of suit is the final step for recovery of loans and advances. There are three types of acts usually on which suits can be filed like: P. D. R. act July 1, 1913 Money Loan court act, 2003 Bankruptcy act, 1997 The acts operated in banking sector are as follows: Contract act Sales of goods act Partnership act. Companies act. Transfer of property act. Negotiable instrument act 1881 Foreign exchange regulation act Banking company act Public demand recovery act, 1990 Bankruptcy act, 1997 etc. Through These act, the bank file sue against the defaulter client. The court decides how the defaulting client will be penalized. With the help of these laws Bank can recover the defaulting money. 4.14 LOANS AND ADVANCES PROVIDED BY AGRANI BANK LIMITED While discussing about the credit management of Agrani Bank Limited, let us look at the loans and advances provided by Agrani Bank Limited over the last 7 years. These are shown in the table below: Year 2005 2006 2007 2008 2009 2010 2011 Amount(taka) 99,400,000,000 105,870,000,000 118,490,000,000 113,360,000,000 122,236,085,269 163,256,184,445 194,085,656,173
Table 2: Source: Agrani Bank website Graphical presentation:

Millions 250,000.00 200,000.00 150,000.00 100,000.00 50,000.00 0.00 2005 2006 2007 2008 2009 2010 2011 years amount of loan and advances
Figure 2: Loans and Advances It is seen that the ability to provide loans and advances has been increasing over the last seven years keeping aside the hiccups of economy that had affected the ability of providing loans and Advances in the year 2008 and 2009. From the graph above we can observe the rate of increase/decrease of loans and advance provided by Agrani Bank Limited which is shown in the table below: Year Rate of Loans and Advances
2006 7% 2007 12% 2008 -4% 2009 8% 2010 34% 2011 19% Table 3: Rate of Loans and Advances Here if we observe the rate of loans and advance we see that in 2008 the rate was negative for Agrani Bank Limited due to economic downturn, political instability, inadequate fund and cash crunch as it provided too much credit to the government sector in the previous year. But it recovered soon in the later years.
Chapter 5 Data and Related Information of credit division, Farmgate Branch

5.1 FARMGATE BRANCH CREDIT DIVISION Farmgate Branch of Agrani Bank Limited like other branches provides various types of credit to different class of the society. They provide Cash Credit (CC) to the business class people. Loan against provident fund (PP) are for the service class people. And the lower income people get special loans recommended by the government. 5.2 CREDIT PROVIDED BY FARMGATE BRANCH Farmgate Branch, Agrani Bank provides CLS as Staff-loan, Non-staff loan, Car-loan, Household durable and for medical instrument.The bank has the following Loan Schemes under which it provides loans and advances to its customers: 5.2.1 General Loan Scheme Cash Credit (CC): Cash credit is provided against the current account of the account holders. Mainly the recurrent client who have a good dealing with the bank and have Business renowned will get the facility of cash credit. In cash credit the customer fix a limit within which any amount of money can be withdrawn. The limit is fixed for a certain time period (known as expired date) .The time period and the Limit can be renewable. Loan against Provident Fund (PF):Agrani Bank Limited provides loan against the provident fund. And this bank includes these types of load in the Demand loan Accounts. Agrani Pension Scheme (PPS): This loan is provided against the Pension fund. Flood Loan (FL):In any especial situation this bank provides loans to the people. Flood loan is one of these types of loan. 5.2.2 Lease Financing: Lease means a contractual relationship between the owner of the assets and its user for a specified period against mutually agreed upon rent. The owner of the assets is called the lesser and the user is called the lessee. Lease finance is one of the most convenience sources of financing of assets viz. machinery, equipment vehicle etc. The user of the assets i.e. lessee is benefited through tax advantages, conserving working capital and preserving debt capacity. Moreover lease financing is an off balance sheet item i.e. lease amount will not be shown in the balance sheet of the lessee and does not affect borrowing capacity.
Lease enables the lessee to avail the services of a plant and equipment without making the investment or incurring debt obligation. The lessee can use the assets by paying a series of periodic amounts called Lease payment or lease Rental to the owner of the assets at the predetermined rates and generally in advance. Payments may be made monthly or quarterly. Agrani Bank limited, the highly capitalized private commercial bank in Bangladesh has introduced lease finance to facilitate funding requirement of valued customers and growth of their business houses. Lease Items: Vehicles like luxury bus, Mini Bus, taxicab, Pick up CNG etc. Factory equipment Medical equipment Machinery for agro based industry Construction equipment Office equipment Generators, Lifts and Elevators for commercial places Sea or river transport Computer for IT education center. Lease Period: Sectors Vehicles like luxury bus, Mini Bus, taxicab, Pick up CNG etc. Factory equipment Medical equipment Machinery for agro based industry Construction equipment Office equipment Generators, Lifts and Elevators for commercial places Sea or river transport Computer for IT education center. Table 4: Lease Period Maximum Limit: 70% of acquisition cost. Security/ Collaterals: The following securities are referred acceptable: Ownership of lease assets i.e. the lease assets will remain in the name of the bank; in addition the following collaterals are acceptable to the bank. Years Up to 4 Up to 5 Up to 5 Up to 5 Up to 3 Up to 3 Up to 3-5 Up to 4 Up to 2-3
Collateral securities in the form the land and building, fixed deposits, other cash collateral, wage earners development bond having liquidation value covering at least covering 100% of the amount of finance. Deposits of listed A category share, o saving certificates, ICB unit certificates, assignment of life insurance policies; bank or insurance guarantee will also be acceptable as collateral securities. Creation of charge of the fixed assets of the existing industrial unit requiring BMRE. Charges Collectable from the Lessee 1. Tk. 50 for the application from 2. Service Charge at the rate of 0.15% on lease value (Nonrefundable and Compulsory) Minimum TK 3,000 and Maximum tk. 10,000 in the case of acquisition of machinery and equipment. (In the case of Automobile, a service charge of tk. 500 is payable if the acquisition cost is below tk. 10 lac and an amount of tk. 1000 is payable when the Acquisition cost is tk. 10 lac and above) 3. Documentation Charge: At the of 0.15% on the lease value (Nonrefundable and compulsory) 4. Project Examination Fee: At the 0.15% on the sanctioned amount. In the case of machinery/ equipment: Maximum Tk. 10,000 Minimum Tk. 3,000 In the case of Vehicle: Tk. 500(for Acquisition cost below tk. 10 lac) Tk. 1000 (for Acquisition cost of Tk. 10 lac and above) Lease Deposit: Before the disbursement of lease finance, the possible lessee shall have to deposit 3 months rentals non-interest bearing in advance, which will be adjusted at the end of the lease period. Grace Period: In case of capital machinery and equipment, maximum grace period of six month may be allowed. Payment Date: Rental payment shall be made every month and there shall be three payments date as detailed bellow:
If lease is executed: Between 1st to 10th payments date will be 5th of subsequent months. Between 11th to 20th payments date will be 15th of the subsequent months. After 20th payment date will be 25th of subsequent months. Insurance Coverage: The vehicle or equipment or lease assets shall have to cover by a comprehensive insurance policy throughout the whole lease term at lessees own cost in the name of Agrani Bank Limited. The premium shall be on account of the lessee. Repair and Maintenance of Lease items: The lessee is obliged to maintain the vehicle or equipment in good working order and is solely responsible for any loss or damage as long as it is her or his possession. The repair and Maintenance cost for taking care of normal wear and tear and keeping it in good running condition during the lease period shall be the responsibility of the lessee. Transfer Price or lease renewal Rental: On final adjustment of the lease finance, the lessee also has an option to purchase the equipment at the prescribed rate. Besides the above option, the lessee may renew the lease on year-to-year basis or return the equipment to the bank. 5.2.3 Demand Loan (House Building / Apartment Loan) Normally demand loan provides on DPS but it is not in work now thats why ABL providing this loan on PPS at 12%. Here the deposit of PPS works as collateral. Nowadays, ABL provides demand loan against PF, HBL General, HBL Staff, DPS (continuing), PPS and Other Securities. House Building General House Building Commercial House Building / Construction Apartment Project Loan 5.2.4 Term Loan Small Industries Medium Scale Industries Large Scale Industries 5.2.5 Working Capital For Jute Mills For other Industries
5.2.6 Export Financing Readymade garments / others Jute products and other export goods
5.2.7 Commercial Loan Financing towards the agro based businessmen Loans to agricultural inputs traders Fertilizer dealers / distributors Jute trading Other commercial loans 5.2.8 Other Loans Loan against FDR of Agrani Bank Limited Loan against FDR of other banks Loan against DPS account balance Loan against SanchayaPatra, Wage Earner Bond, Surrender Value of Life Insurance Policy etc. Loan against Share Certificate Special Program and any other loans not covered in the loan categories
5.3 AMOUNT OF LOAN PROVIDED BY FARMGATE BRANCH OVER THE LAST 5 YEAR
Year
Total Loan Advance(taka)
& Increase/ Decrease
N/A 2008 17243222.19 144% 2009 42010137 73% 2010 72603638.44 12% 2011 81343405.44 84524933.12 4% 2012 Table 5: Total amount of loan provided by Agrani bank of Farmgate branch (year wise) The above table shows that Agrani bank limited, Farmgate branch provided loan in the year 2009 tk. 42010137 and the loan and advance increased 144% from the year of 2008.In 2010 had increased at a slower rate of 12% .In 2011 the percentage was only 12% which shows that the loan providing has decreased from the previous three years. So we can say that the banks ability of providing loans and advance was not great compared to previous years.
In 2012 the percentage decreased to 4% which shows that the loan providing has decreased from the previous years by 8%. So we can say that the bank performance was satisfactory in that year. 5.4 SCHEDULE OF LOAN REPAYMENTS OF AGRANI BANK LIMITED Now let us look at the repayment schedule of Agrani Bank Limited Amounts Monthly Installment (In Case of 12 months) 25,000 50,000 75,000 100,000 150,000 200,000 250,000 300,000 2,292 4,584 6,876 9,168 13,752 18,336 22,920 27,504 Monthly Installment (In Case of 24 months) 1,248 2,496 3,744 4,992 7,489 9,985 12,481 14,977 Monthly Installment (In Case of 36 months) 2,711 3,615 5,423 6,7230 9,038 10,846
Table 6: Schedule of Loan repayments of ABL 5.5 ANNUAL LOAN REPAYMENT OF FARMGATE BRANCH Year 2008 2009 2010 2011 2012 Total Loan & Advance Disbursements 17243222.19 42010137 72603638.44 81343405.44 84524933.12 Loan Repayment 248000 100000 1168893 1278000 1400000
Table 7: Total amount of loan repayment during the years (2008-2012) The above figure shows that the loan disbursements, the loan repayment. Here, the loan repayments in 2010, 2011 and 2012 have increased compared to previous years because of the massive number of the default loan in the previous years. So we can say that credit performance is satisfactory in the recent years. So branchs performance can be said as satisfactory in recent years. 5.6 NUMBER OF LOANS & ADVANCES BY FARMGATE BRANCH Year Total Loan & Advance Number of Loans Disbursements
2008 2009 2010 2011 2012
17243222.19 42010137 72603638.44 81343405.44 84524933.12
110 231 395 400 420
Table 8: Number of loans and Advances 5.7 TOTAL INTEREST RECEIVED AGAINST LOANS & ADVANCES BY FARMGATE BRANCH Year 2008 2009 2010 2011 2012 Total Loan & Advance Total Interest Disbursements Received 17243222.19 42010137 72603638.44 81343405.44 84524933.12 1641416 2996491 6624863 6788576 7474611
Table 9: Total interest received during last 5 years 5.8 DETAILS OF LOANS AND ADVANCES BY FARMGATE BRANCH (2008-2012) 2008 Head Inside Bangladesh Details Rural Credit Weavers Credit Industrial Credit Jute Advances Leather Sector Staff Loan Loans(Others) Small And Micro Credit Overdraft Cash Credit Hypo Total Overseas Loan Total Loans (Taka) 0 0 0 0 0 6386847 8506969.5 0 92546.69 2256859 17243222.19 0 17243222.19 And Advances
Outside Bangladesh Table 10: 2008
Statement of loans and advances funded and non-funded is given below:
Serial A B C D E F Table 11: 2008 2009 Head
Particulars
Code No
Continuous Loan 3101 Demand Loan 3102 Term Loan Up to 5 Year 3103 Term Loan Over 5 Year 3104 Short Term Agro And Micro 3105 Credit Staff Loan 3106 Total
Funded(Tk) NonFunded(Tk) 5729237 2450555 2676586 6386847 17243222.19
Details Rural Credit Weavers Credit Industrial Credit Jute Advances Leather Sector Staff Loan Loans(Others) Small And Micro Credit Overdraft Cash Credit Hypo Total Overseas Loan Total
Loans (Taka) 0 0 0
And
Advances
Inside Bangladesh
0 0 14417217.25 26272818.5 0 100000.56 1227555 42010137.44 0 42010137.44
Statement of loans and advances funded and non-funded is given below: Serial A B C D E Particulars Continuous Loan Demand Loan Term Loan Up to 5 Year Term Loan Over 5 Year Short Term Agro And Micro Code No 3101 3102 3103 3104 3105 Funded(Tk) NonFunded(Tk) 4011695 21583419 1997806
F Table 12: 2009
Credit Staff Loan Total
3106
14417217 42010137.44
2010 Head Inside Bangladesh Details Rural Credit Weavers Credit Industrial Credit Jute Advances Leather Sector Staff Loan Loans(Others) Small And Micro Credit Overdraft Cash Credit Hypo Total Overseas Loan Total Loans (Taka) 0 0 0 0 0 14804839.72 56156971.26 0 95000 1591433 72603638.44 0 72603638.44 And Advances
Outside Bangladesh Table 13:2010
Statement of loans and advances funded and non-funded is given below: Serial A B C D E F Table 14: 2010 2011 Particulars Continuous Loan Demand Loan Term Loan Up to 5 Year Term Loan Over 5 Year Short Term Agro And Micro Credit Staff Loan Total Code No 3101 3102 3103 3104 3105 3106 Funded(Tk) NonFunded(Tk) 4681603 51167001 2706637 14048397 72603638.44
Head Inside Bangladesh
Details Rural Credit Weavers Credit Industrial Credit Jute Advances Leather Sector Staff Loan Loans(Others) Small And Micro Credit Overdraft Cash Credit Hypo Total Overseas Loan Total
Loans (Taka) 0 0 0
And
Advances
0 0 18045535.25 61638959 0 110000 1566364 81343405.44 0 81343405.44
Statement of loans and advances funded and non-funded is given below: Serial A B C D E F Table 16:2011 2012 Head Inside Bangladesh Details Rural Credit Weavers Credit Industrial Credit Jute Advances Leather Sector Loans (Taka) 0 0 0 0 0 And Advances Particulars Continuous Loan Demand Loan Term Loan Up to 5 Year Term Loan Over 5 Year Short Term Agro And Micro Credit Staff Loan Total Code No 3101 3102 3103 3104 3105 3106 Funded(Tk) NonFunded(Tk) 1658911 58339493 3299466 18045535.25 81343405.44
Staff Loan Loans(Others) Small And Micro Credit Overdraft Cash Credit Hypo Total Overseas Loan Total
20282838.54 59796728.02 0 105000 4352819.87 84524933.12 0 84524933.12
Statement of loans and advances funded and non-funded is given below: Serial A B C D E F Table 18: 2012 5.10 INTEREST INCOME ON LOANS AND ADVANCES IN DETAILS Interest on Loans and 2012 Advances Interest on leather 0 credit(segregated) Interest on staff loan 729561 Interest on 6291903 loans(Others) Interest on overdraft 0 758147.9 Interest on CC Interest on I.B.P. Group Total 2011 740385 740340 5843165 0 205151 2010 0 998719 4873295 0 752141.4 708 6624863 2011 0 563284 2229942 0 203265 0 2996491 2012 0 281471 1055302 2773 301876 0 1641416 Particulars Continuous Loan Demand Loan Term Loan Up to 5 Year Term Loan Over 5 Year Short Term Agro And Micro Credit Staff Loan Total Code No 3101 3102 3103 3104 3105 3106 Funded(Tk) NonFunded(Tk) 4445366.56 52018650.52 7778077.5 20282838.54 84524933.12
0 0 7779605.9 6788586
Table 19: Interest Income
5.11 STAFF LOAN Staff loan is one of those heads of account that has been dominating the credit division of Farmgate branch for the past several years. Now let us look at the condition of the staff loan in 2008:
total loan sanctioned total loan disbursed total receivable installment
No. 1471 Amount 3283913
total installment paid

No. 1265 Amount 2249904
total installment due

No. 228 Amount 1034009
total installment collected in6 month

No. 135 Amount 2734414
total installment uncollected in 6 month

No. 18 Amount 49783
No. 24
Amount 9971000
No. 24
Amount 9971000
Table 20: Staff loan 5.12 INTEREST RATES OF VARIOUS LOANS AND ADVANCE These are the interest rates charged by the Farmgate branch for the various loans and advance they provide: Name Rate of interest % Cash credit 16 Overdraft 16 Loan against FDR 13 6 month loan 13.5 12 month loan 14 36 month loan 14.5 48 month loan 14.5 60 month loan 14.5 72 month loan 14.5 Loans against DPS 12 Loan against APS 13 Consumer loan 16 General house building 15.5 Staff loan: House building 5 Transport 5 computer 10 Table 21: Interest rate charges
ANALYSIS, FINDINGS &RECOMMENDATIONS

6.1 ANALYSIS
In this section five years data are analyzed to measure the loan recovery performance of that branch. The sample of raw data and parts of less important analysis are presented in the
appendix part. The analysis which directly related to measure the credit-performance of that branch is given below: Year Total Loan Advance Disbursements 17243222.19 42010137 72603638.44 81343405.44 84524933.12 & Loan Repayment Repayment collected as % total of loan 1.43 .0023 1.60 1.57 1.65
2008 2009 2010 2011 2012
248000 100000 1168893 1278000 1400000
Table 22: Expired demand loan (Year wise)

(The relevant data of the yearly repayment are given in the Appended part)
The above table shows that the year 2009 had the least rate of repayment among the years which is only .0023 %. So we can say that this was the worst year in the calendar for Farmgate Branch which explains huge default rate of the loan receivers. And the Bank had to take serious measure to recover these loans. The other yearly rates were between 1.65-1.43% which is also not satisfactory. Now let us look at the percentage of various products of loan and advance section to total loans and advances Head Inside Bangladesh Loans And Advances Rural Credit Weavers Credit Industrial Credit 2008-2012(Taka) 0% 0% 0% 0% 0%
34.81% 71.31%
Jute Advances Leather Sector Staff Loan Loans(Others) Small And Micro Credit Overdraft Cash Credit Hypo Total Outside Bangladesh Overseas Loan Total Table 23: percentage of loans and advances It is shown below:
0
0.17% 3.69%
100% 0% 0%

staff loan loans(others) 0% 3% overdraft

cash credit hypo
32%
65%
Figure 3: Percentage of loans and advances provided during 2008-2012 From the above pie chart, we can see that the head of accounts named loans (others) dominating the loans and advance section of the branch with 71.31%.Loans to others includes general house building loan, consumers loan, loan against DPS and APS and loan against FDR. Secondly, it is staff loan which is 34.81% which includes provident, house building, transport and computer loan. Then comes the cash credit hypo with 3.17% and provided with hypothecation and lastly it is overdraft which covers only .14% and is obviously secured. Farmgate branch do not provide any loans and advances like rural, industrial, leather, weaver, jute or small and micro-credit. It has also not been providing any overseas loans as it is being observed in the branch ledger. Now a comparison between loans and advances and number of loans of Farmgate branch over the last 5 years is given below: & Number of Loans and Advances Rate of increase and decrease N/A 2008 N/A 2009 144% 110% 2010 73% 71% 2011 12% 1% 5% 2012 4% Table 24: comparison between loan rates and number of loans Year Total Loan Advance(taka) Increase/ Decrease It is shown below in the graph:

160% 140% 120% 100% 80% 60% 40% 20% 0% rate of loans and advances rate of change in no. of loans
rate of change
2009 144% 110%
2010 73% 71%
2011 12% 1%
2012 4% 5%
Figure 4: Rate of change of loans and number of loans We can easily observe that the rate of change of increase and decrease of loans and advance in 2009 was the highest so far if we compare last four years and if we compare the number of loans and their rates of change it is also clear that 2009 had the highest percentage of change with 110 %. It is also seen it is consistent in 2010 and 2012. In 2011, the rate of increase in loans and advances was 12% whereas change in increase in number of loans was only 1% e.g. number of loans increased to 395 to 400 only. Now let us have a glimpse at the profitability of Farmgate branch Year Total Loan & Advance Net profit (taka) Disbursements 2008 17243222.19 2009 42010137 2010 72603638.44 2011 81343405.44 2012 84524933.12 Table 25: net profit 37692016 43346599 32063908 45215908 26001515

50000000 45000000 40000000 35000000 30000000 25000000 20000000 15000000 10000000 5000000 0 2008 2009 2010 2011
year net income
2012
Figure 5: Net profit per year We can also look at the percentage of interest income from loans and advance compared to total income. It is shown below:
Year
Total Interest income from Total interest income as income loans and advance % of total income 61019663.43 1641416 2.69% 2008 81953483.64 2996491 3.66% 2009 78552112.72 6624863.38 8.43% 2010 800026141.8 6788586.36 0.85% 2011 69432257 7779605.9 11.20% 2012 Table 26: Interest income as % of total income So it can be observed that interest income from loans and advance has been gradually increasing. Although it contributes only to a small portion of net income of the Farmgate branch. It means the net profitability of this branch does not depend on the operation of the credit division. Rather it mostly depends on the income sources like commission, fees, interest from branch account etc. Regression of total loans and advance and profitability of Farmgate Branch Now let us have a glimpse at the profitability of Farmgate branch Year Total Loan & Advance Net profit (taka) Disbursements 2008 17243222.19 2009 42010137 37692016 43346599
2010 72603638.44 2011 81343405.44 2012 84524933.12 Table 24: net profit
50000000 45000000 40000000 35000000 30000000 25000000 20000000 15000000 10000000 5000000 0 2008 2009 2010
32063908 45215908 26001515
year net income
2011
2012
Figure 5: Net profitability per year Regression analysis describes the nature of the relationship between two or more variables; it is concerned with the problem of describing or estimating the value of the dependent variable on the basis of one or more independent variables. As loan is disbursed according to credit decision after credit risk assessment, here the simple & linear regression analysis is done determining the dependent variable as the net profit of Agrani Bank Limited, Farmgate Branch and the independent variable as the loan disbursement amount.
Where, Y= Profit (dependent variable) X= Loan disbursement (independent variable) a= Constant b= slope By using above information we get the required equation. This is as follows. Y= a + bx Y= 42180868.33-0.089X This indicates that, if Farmgate Branch disburses nothing as loan than the profit will be increased by 42180868.33 taka as it is the intercept of the equation. The slope of the equation is -.089 i.e. if there is 1% increase in the loan disbursement there will be .089% decrease in the profit of Farmgate Branch. In other words, there is a negative relationship between profit and loan disbursements. R (Coefficient of regression) = 0.32 This value indicates there exists a low degree of negative relationship between the two variables, namely loan and profit.
R (Coefficient of determination) =0.10 It indicates that 10% variation in the profit, dependent variable, can be explained by the loan disbursement, independent variable. The result of the ANOVA table indicates that the relationship between profit and loan and advance is not statistically significant. If the Farmgate Branch wants to forecast that, what would be the relationship between these two variables, then the process will be following: Let the amount of loan disbursement of Farmgate branch for the upcoming year is: Year Loan disbursement taka 2013 87845670 2014 88436546 2015 92356787
Table 24: Estimated loan and advances Then the profit will beYear 2013 2014 Loan Disbursement Profit
87845670 34336506 88436546 34283735
2015 92356787 33933625 Table 25: Loan disbursement and estimated profit Regression Line is shown below:
34400000 34300000 profit 34200000 34100000 34000000 33900000 87000000 89000000 loan 91000000 93000000
Figure 6: Regression line
From the above graph it has been observed that the profit is decreasing. It means there is a negative relationship between these two variables and the slop is negative. The amount of loan disbursement and the total profit is directly related with a negative slope. We know that a banks most sensitive part is credit division, but it is not the only factor that affects an institutions financial performance like Net Profit. There are other factors that affect the profit. Here, the amount of loan disbursement doesnt have a greater contribution in the branchs profit. TREND ANALYSIS Trend Analysis is the practice of collecting information and attempting to spot a pattern, or trend, in the information. In other fields of study, the term "trend analysis" has more formally defined meaning. Although trend analysis is often used to predict future events; it could be used to estimate uncertain events in the past. Trend analysis can be done with the help of data collected from the credit section of Farmgate branch. Various accounting data related to credit division and their trend are shown below in the following table:
Year Loan & advance Continuous Loan Term Loan Up to 5 Year Short Term Agro And Micro Credit Staff Loan 2008 17243222.19 5729237 2450555 2676586 2009 42010137 4011695 21583419 1997806 2010 72603638.44 4681603 51167001 2706637 2011 81343405.44 1658911 58339493 3299466 2012 84524933.12 4445366.56 52018650.52 7778077.5 Trend Upward Downwar d Upward Upward
6386847
14417217
14048397
18045535.25
20282838.54
Upward
Table 27: Trend analysis data These numerical figures can be shown in the following graphs and trend analysis can be done easily:
Trend of total loan

90000000 80000000 70000000 Amount taka 60000000 50000000 40000000 30000000 20000000 10000000 0 2008 2009 2010 2011 2012 total loan
Figure 6: Trend of total loan and advance of Farmgate branch It can be easily observed that the trend of total loans and advance of farmgate branch is upward and increasing every year and indicates its ability to provide more credit in the future.
Trend of total loan to continuous loan

100000000 amount taka 80000000 60000000 40000000 20000000 0 2008 2009 2010 2011 2012 total loan continuous loan
Figure 7: Trend of total loan to continuous loan of Farmgate branch Well, compared to the trend of total loan the trend of continuous loan has been downward and also inconsistent with the growth of total loan of Farmgate branch.
Trend of total loan to term loan upto 5 year

90000000 80000000 70000000 60000000 50000000 40000000 30000000 20000000 10000000 0 2008 2009 2010 2011 2012
amount taka
total loan term loan upto 5 year
Figure 8: Trend of total loan to term loan upto 5 year The trend of total loan to term loan upto 5 year of Farmgate branch has been consistent and indicates term loan is being provided at an increasing rate except 2012 has seen a downturn due to cash crunch in the economy.
Trend of total loan to short term agro and micro credit

100000000 80000000 Amount Taka 60000000 40000000 20000000 0 2008 2009 2010 2011 2012 Short term agro and micro credit Total loan
Figure 9: Trend of total loan to short term agro and micro credit. The trend of total loan to short term agro and micro credit is quite similar and has been consistent in the Farmgate branch.
Trend of total loan to staff loan

90000000 80000000 70000000 Amount of taka 60000000 50000000 40000000 30000000 20000000 10000000 0 2008 2009 2010 2011 2012 Total loan Staff loan
Figure 10: Trend of total loan to staff loan Trend of staff loan shown in the graph indicates upward movement consistent with the total loan and will surely at a greater rate in the future. SWOT ANALYSIS SWOT is an important tool to know the present condition of strengths, weaknesses, opportunities and threats of ABL. This analysis also helps to better decide the company management to take relevant measure to make up its weakness and face the competitors. The term SWOT includes the following: S=Strength W=Weakness O=Opportunity T=Threat Now we find the terms related to Agrani Bank Limited mentioned above: STRENGTHS Network Fund and liquidity Largest network among public commercial banks. Strong liquidity and Strong fund sources.
Strong corporate Identity
ABL is the leading provider of financial services nationwide. With the help of its strong corporate image and identity it can better position in the minds of customers. This image has helped ABL grab the personal banking sector of Bangladesh very rapidly.
Strong employee bonding and belongingness
ABL employees are one of the major assets of the company. The employees of ABL have a strong sense of commitment towards organization and also feel proud and a sense of belonging towards ABL. The strong culture of ABL is the main reason behind this strength.
Young Enthusiastic workforce
The selection and recruitment of ABL emphasizes on having the skilled graduates and postgraduates who have little or no previous work experience. The logic behind is that ABL wants to avoid the problem of garbage in and garbage out. This type of young & fresh workforces stimulates the whole working environment of ABL.
Empowered Work force
The human resource of ABL is extremely well thought and perfectly managed. From the very beginning, the top management believed in empowered employees and they refused to put their finger in every part of the pie. This empowered environment makes ABL a better place for the employees. It is true that the employees are not suffocated with authority but are able to grow as the organization matures.
Companionable Environment
All office walls in ABL are only shoulder high partitions and there is no executive dining room. Any of the executives is likely to put down at a table in its cafeteria and join in a lunch chat with whoever is there. Once, one of the employees said, Its exciting to know you may see and talk to the top management at any time. You feel a part of things.
Management By Objectives(MBO)
ABL also has Management by Objectives (MBO) everywhere. Each and every person has multiple objectives in the bank. The employees must have to get the approval of their bosses on what they are going to do. They can review later as how well they have performed their job with their management as well as the peer group.
WEAKNESSES Absence of strong Marketing activities ABL currently dont have any strong marketing activities through mass media e.g. Television. TV advertisements play a vital role in awareness building. ABL has no such TV ads campaign.
Lack of customer confidence
As ABL is fairly new to the banking industry of Bangladesh average customers lack the confidence in ABL and judge the bank as an average new bank.
Not involved in security market
Lack of involvement in Security market.
OPPORTUNITIES Sponsorship ABL is now involved in active participant of many national and international events, sports etc. This will help them to enhance brand image. Public Image Since ABL is the oldest and public commercial bank public has greater confidence in it. The use of IT ABL is widely taking the help if Information technology to better serve their clients and It is also spreading nationwide.
High demand of sectorial loans
ABL gives loan in low-cost housing and real estate management and assists in financing projects in agriculture, transport, education, sports and health sectors. ABL personal banking division can focus on this category of products and grab these segments of customers.
Distinct and quick operating procedures
ABL is noted for its distinct and quick operating procedures specially in general banking activities. Clients are not likely wait to get services.
Countrywide network
The ultimate goal of ABL is to expand its operations to whole Bangladesh. Nurturing this type of vision and mission and to act as required, will not only increase ABLs profitability but also will secure its existence in the long run.
More experienced and managerial know-how
The top management team of ABL is expert and more experienced in banking activities. It is observed that the operating policies established by them are unique & unified. Each member of the team carries out his management roles properly. They equally contributed to ABLs superior leadership, by carrying out their unique roles and duties. They worked together, respecting each others abilities, and arguing openly and without any animosity when they disagree.
THREATS Mandatory Provision To take mandatory provision against loan followed by Bangladesh Bank Difficult to collect Govt. deposit Increase competition to collect government deposit with other private and public commercial bank.
Upcoming Banks
The upcoming private local and multinational banks pose a serious threat to the existing banking networks of ABL. It is
expected that within one year 6 new commercial banks are waiting to enter into market. If that happens the intensity of competition will rise further and banks will have to develop strategies to compete against and win the battle of banks. Moderate levels of Customer Satisfaction ABL should continuously improve its customer service strategies and the overall service quality needs to win the customer satisfaction undoubtedly.
6.2 FINDINGS
Banking sector introduced the credit system early in the 70s in our country. Mainly bank operates its operation based on credit and deposit. Credit activities are one of the major activities of every bank. Agrani bank also focuses these activities for better performance. In this study about Agrani bank limited, I have identified some problems working on credit performance evaluations of Farmgate branch of Agrani bank Limited. This problem is interrelated with Agrani bank and the Farmgate branch. It can be easily said that the total scenario of disbursing and recovering loans and advances is very poor for Agrani Bank Limited like other commercial banks. The amount of classified loans is increasing at a high rate so does the number of defaulters. Loan monitoring and recovery systems that are prevailing presently are not sufficient to cope up with the existing situation. The situation is same for the Farmgate Branch, Agrani Bank where the percentage of classified loan is high. Though the branch officials concerned are trying their levels best to make the defaulters repay the loan, their attempts are always go in futile. There are also some irregularities in disbursing and monitoring loans and advances. Findings: The branch is not the fully-fledged operating branch of Agrani bank. Most of the credit services are not provided by this branch. The net profitability of this branch is not directly related to the amount of loans and advances as interest incomeon credit service compared to total income is very low. This Branch hardly focuses on loans and advances section in order to earn greater profitability. The loans and advances provided by the Farmgate branch only covered a few products. It hardly provides loans on diversified sectors.
Ledgers of loans and advance section is dominated by LOAN(others) head of account with 71.31% of total loans and advances going to that sector in the last 5 year. The loan accounts are not managed electronically. Staff loans repayment rate is quite slow compared to other loans and default rate is high too. Most of the loans are funded loan. Interest income from loans and advance is only a small portion of net profit Total loan and advance has been increasing over the last 5 year except the last two years has seen a slower growth rate due to economic slowdown. The Farmgate Branch expired credit amount has been gradually reducing but in a very slow pace. But in the same time the amount of outstanding is also reducing. If the bank can issue more credit and can recover these credits within the time limit, performance will be quite satisfactory. The Management of that branch and Zonal Monitoring head put emphasis on recovering credit before expired. The bank prefers risk free borrowers and provides them the loan. Because of this the amount of credit are increasing than the previous years but a slower rate. Some people find it difficult to understand account opening form & credit opening process as it is too lengthy and time consuming. Presence of bureaucratic behavior among senior staffs of loans and advance section in providing service. Other: Another finding that concerns is about credit risk analysis. Though Credit Risk Analysis report is done in the branch, it is not given so much importance in case of Loan Disbursement. Sometimes customers argue that (CRA) report is an unnecessary things and Bank should avoid it. They try to argue that although their (CRA) report is not good, they will be good borrowers. CRA report should be done properly in the branch for better assessing the potentiality of the respective borrowers. As we know interest rates for different types of loans and advances vary to different customers. Prospective customer can take credit facilities at a lower interest rate. Again, the interest rate is charged at a higher rate to a customer who is not so prospective. Sometimes, pressure also comes from the Head Office to disburse loan though the party is not capable of getting the loan. This type of pressure also comes from the political and business elites.
Even though the percentage of classified loan in the branch is high, there is absence of proper measures in action to recollect the money. Everything is in papers, but in reality, there is no drastic action against those who have been defaulted. Lack of customer responsive environment. Some customers are not interested or not able to write D.D., Check, pay order voucher. In the present market situation, where the competition among all private commercial banks is very intense and high, the management of Agrani Bank is failing to find out its major weaknesses. The major weakness of Agrani Bank Limited is its unattractive salary package. The salary package that Agrani Bank Limited offers to the employees is relatively poor comparing to other competing banks in the market. ABLs banking strategy is not formulated in a way that provides excellent service to its customers and employees. They have to transfer data from branch to branch and branch to head office by using peon and others.They are yet to be digitalized. Opinion introducer has been one of the problems to open an account according to some clients. Agrani Bank Limited fails to recruit expert and skilled person because of this low salary structure. There are some branches where modern technical equipment such as computer and manpower are not sufficient. As a result banking activities are not done properly. Agrani Bank doesnt emphasize on advertisement about their attractive products and services. Agrani Bank Limited is not able provide A.T.M service to its customers properly.
6.3 RECOMMENDATIONS
Agrani Bank Limited should take the following decisions/actions to overcome the problems or improve its banking operation: The Branch should not only put emphasis on the recovery of the credit within expiration date. Rather it should extend its markets by providing loans and advances various potential sectors of that location. It should provide more flexible interest rates to the customers of loans and advance.
Should try to lessen its default rate by maintaining strict guidelines in case of risky applicants. Achieving the loan targets by operating in an efficient way. Should reduce staff loans as it is provided on lower interest rates. Improving customer service drastically by creating well-trained and expert work force dedicated to render the best service to the customers. Generate projected balance sheets, cash-flows and profit and loss for next five years. Align future annual performance budgets to this planning process. Others: Agrani Bank Limiteds human resources management policy has to identify the right combination of skills, knowledge, behavior and values and utilize them for the welfare of the bank. Inside the bank, if there remains an established online networking system with their branches then it can easily transfer data within short time. If they can cancel the introducer system then they can collect more deposit through new account and it can also satisfy the customer. The whole system should be computerized and modern communication media for example e-mail, fax, Internet should be used or adopted. Its has to adopt the most recent technologies to improve the quality of service. Its working environment has to be excellent for its employees and customers The management has to introduce the overtime facility for the employees who work hard extra hours after their office time. The management of Agrani Bank Limited has to provide their attention to take necessary steps to improve salary structure. The management of Agrani Bank Limited must identify the weaknesses to survive the competition in banking sector. Agrani Bank Limited should activate a data-based analytical accountability oriented Performance Planning and Budgeting System. Agrani Bank Limited should ensure that individual branch profit and loss is correctly assessed by setting up a fair and logical Fund Transfer Price policy. It should set-up a good Market Planning and Control System. It should Regularize Major strategic and policy issues.
APPENDED PART
Glossary
ABL CC DPS APS ABS PF HBL OD DL CLS MIS = = = = = = = = = = = Agrani Bank Limited Cash Credit Deposit Pension Scheme Agrani Pension Scheme Agrani Bank Scheme Provident Fund House Building Loan Overdraft Demand Loan Consumer Loan Scheme Monthly Installment Scheme
BIBLIOGRAPHY
Books: Ahmed, Faruquddin, Banking in Bangladesh-Evolution and present Status, Volume-II, No-3. Debnath, Romini Mohan, Business of Banking, Lutas Publication, First EditionFebruary, 2004.174-227pp. Faser, Donald R, Commercial Banking, 5th Edition, West Publication Company, 2002. Periodicals: Agrani Bank Limited "Annual Report 2008-2012 Agrani Bank newsletter. Miscellaneous: Hoque, SyedaFarzana, Banking With Agrani Bank Limited and its Credit Systems. Agrani Bank journal, A study on the banking activities of Agrani Bank Limited. Miscellaneous Brochures of Agrani bank Limited. Credit Manual: Published by: Head office of Agrani Bank Limited. Managing core risk of financial institutions Industry best practices, 21 July, 2010, Bangladesh Bank. Analytical approach to assessing credit risk, CRISIL, September 2010. Report on Ncbs, The daily ProthomAlo, 10th April 2013. Kashem, M.A., Documentation for Loans and Advances, Talk Synopsis. Web site: www.agranibankltd.com.bd www.bangladesh-bank.com www.wikipedia.org

A Study On The Credit Division of Agrani Bank Limited, Farmgate Branch.

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A Study On The Credit Division of Agrani Bank Limited, Farmgate Branch.

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Prepared by Awadur Rahman Department of Finance University of Dhaka

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