INTRODUCTORY
Preface Now a day present world especially the Asian countries are going through an economic recession. Though the Asian economic crisis began few years back and it is some how tackled today but the 11 September incident aggravated the disorder in the economic infrastructure of our country. Our economy is much dependent on foreign aids. The World Trade Centre incident created a negative impact on our economy as the foreign aids to Bangladesh have been reduced a lot.
Therefore the government is trying to deal the economic crisis by generating revenue internally. In this aspect the importance of the financial sector, particularly banking sector is emphasized. But the banking sector of our country is already overburdened with huge amount of classified loans. Government tries to improve the situation by new regulations and policies to regularize the debts. Newly established private banks are doing well in the banking sector as they don’t have to bear the pressure of classified loans.
Also the challenge and competition between the banks has brought a radical change in banking system. Origin of the Report MBL is operating in the banking sector for last three years. Like all other scheduled banks of the country MBL also contribute to the national economy by offering credits to different segments of the economy. Now a day loan classification has become a burning problem for the overall financial sector. All the big nationalized and other private scheduled banks have to bear the load of huge amount of classified loan.
Being a new entrant in the banking sector MBL is not out of the risk of having stuck up by the trend of overwhelming classified loan. In this turmoil economic scenario management of MBL feels the necessity to analyze the trend of loan classification in the MBL itself. Keeping this consideration in mind the topic “Loan Classification, Provisioning and Debt default trend in MBL” was assigned by management of MBL.
Background of the Study Military Institute of Science and Technology (MIST) conducts MBA program. This institution is affiliated with Dhaka University. Its course curriculum is in line with the Institute of Business Administration of Dhaka University. Selected students from the Armed Forces and general people acquire business knowledge to face the real world of business. As a part of course curriculum students are sent to various organizations under the internship program for practical orientation with the organization. The MBA students acquire practical knowledge in the particular field that the organization operates and relates the same with the theories they learned in the class room.
Preparation of daily account and posting of transferred amount Clearing house procedure including collection of cheque Issuance of DD, MT, TT, PO and SDR including cancellation of the same Lodgment of OBC and IBC Types of loans and deposit schemes Procedures for advances Preparation of different types of proposals for advance Documentation required for loan sanctioning Preparation of Loan Classification Procedure of reservation provisions
The study covers the concept of loan classification and provisioning practices in MBL. The scope of the study paper is as follows: The study will be based on general banking activities of MBL including loan classification and provisioning practices Regulation and policies of Bangladesh Bank regarding loan classification and provisioning will be discussed Sequentially the loan classification of MBL will be compared with Bank Asia Limited.
To gather information and necessary secondary data for the project study purpose various sources have been consulted. They are listed below: Management of MBL Management of Bank Asia Limited Bangladesh Bank Bangladesh Institute of Bank Management Different books and publications .
Limitations Presently loan classification has become a burning question for the overall banking sector. The monitoring of the central bank is also intensified. All the information and data are collected from the bank might not reflect actual figure due to its sensitivity of nature. The loan classification trend is a vast subject requires detail study, which is not carried out due to time constraint of the internship program.
MBL is extremely new in the banking sector, having a negligible amount of classified loan; therefore its debt default trend may not match with the mainstream of classified loan. 1. 8Report Preview This paper discusses mainly the general banking activities and trend of loan classification in MBL. As it is an internship report and for academic purpose first two sections deal with overall banking system and the organization i. e. Mercantile Bank Limited. The project “Loan Classification, Provisioning and Debt default trend in Mercantile Bank Limited” is detail discussed in the following sections.
GENERAL REVIEW OF BANKING SYSTEM IN BANGLADESH
The territories which now constitute Bangladesh were integral part of Mughal Empire and thereafter British India and then Pakistan. That’s why we have the common historical background of banking and banking institutions as that of Pakistan and India. For the beginning of banking in the territory now comprised Bangladesh we must go back to the Calcutta Agency Houses. The important two houses were Ms Alexander and Co. and Ms Fergusson and Co. Both the two were the predecessors of the early joint stock banks in the then India. The Bank of Hindustan was the earliest bank started under the direction of the British ruler in British India. After the partition of British India in to Pakistan and India, Bangladesh became integral part of Pakistan.
Immediately after independence in 1947 an expert committee was appointed to study the issue of banking in the then Pakistan. On the recommendation of the expert committee, the Reserve Bank of India continued its functions in Pakistan up to 30th September 1948 and thereafter the State Bank of Pakistan, having been established on 1st July 1948, started functioning and assumed the full control of banking and currency. By the date Bangladesh proclaimed independence, there were about 14 scheduled banks with about 3042 branches all over the country. Some foreign banks were also functioning in Pakistan on that date.
To face this critical situation government has taken different steps to boost up the activities of financial sectors, particularly the banking sector. To meet up the economic requirements of the country different banking and financial institutions also enhance their activities and improve the quality of services. Up to January 2002, 51 scheduled banks are operating in Bangladesh. These scheduled banks have total 6242 branches located in different parts of the country. There are about 2511 urban branches and rest 3731 branches are rural branches. Among these scheduled banks 5 are nationalized bank and other are local and foreign private banks.
ORGANIZATIONAL PROFILE
“Mercantile Bank Limited- a bank for the 21 Century” with this slogan Mercantile Bank Limited started its operations in 2nd June 1999. The Bank started its Journey with an authorized capital of taka 800 million and a paid up capital of taka 245 millions contributed by the sponsors.
The sponsor directors of the bank are well established businessman and professionals of the country having business in and out Bangladesh. MBL started the journey with 4 branches and at present it has total 15 branches located in different parts of the country both in rural and urban areas. Its head office is located in Dilkusha commercial area.
MBL aims at excellence and have a new vision to fulfill and a new goal to achieve. The bank has following objectives: To provide a wide range of quality products and services comparable with those available with any modern bank in the world To explore the needs of the common people including businessman and professionals Extend credit to private sector of economy To serve with quality at a price competitive to any one in the financial market Contribute to the GDP of the country To develop a youthful and exuberant management team – technologically sound and rich in experience.
Organogram of the MBL is given below. Besides the organogram of the head office, the organogram of the branch office are also separately given. All these branches are directly under control of the Deputy Managing Director (DMD) of the Bank. All the branches have the same type of organogram.
MBL started its functions as a private scheduled bank. The bank is run by a management team of talented professionals, proficient in their individual field and dedicated to the cause of bank. [ The chairman of the bank Mr Md. Abdul Jalil is a renowned businessman besides being an eminent personality of the country. Mr. Lutfar Rahman Sarkar is the chief advisor of the bank , had a vast wealth of experience of managing both the private and public sector banks- as he had been the governor of Bangladesh Bank few years back. Mr. M. Taheruddin is the Managing Director (MD) of MBL. The MD heads the management team of the bank.
This initial training is scheduled for duration of 30 working days. Thereafter the new officers are sent to all the branches of MBL. After joining in to the branch these new officers are sent for foundation course conducted by BIBM. All the new officers have to take this training by turn round the year. HRD division selects the officers periodically. Besides foundation course, HRD division send the officers of different levels to other courses offered by various banking and financial institutions, like Dhaka Chamber of Commerce, Bangladesh Bank, DSE, ICC etc. Some other advanced banking training is also conducted by the MBL itself.
Senior executives/ Branch in charges attend these training. In addition, MBL gives offer to experienced bankers who all are already serving in different banks and other institutions to join the bank. These officials are offered with better facility and handsome salaries, and are adjusted in to upgraded posts. Like SPO of another bank is offered with the post of an AVP in MBL. This bank starts its operation with a working force of 168 in 1999 and by 2002 its manpower state reached 362, among which 41 are executives, 308 are officers and 12 are other staffs.
The legal relationship between a customer and the bank itself in established through the opening of an account. MBL has offered different types of accounts opportunity for its customers namely: Current account Savings account Short term deposit account Convertible taka account Non- Resident taka account All these accounts may be opened individually, jointly, as partnership account; public limited company account or even accounts may be opened as club society or trusts.
