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Loan and Advances of SEBL

CHAPTER -1
INTRODUCTION OF THE RRPORT

ORIGIN OF THE STUDY BACKGROUND OBJECTIVE OF THE STUDY SCOPE OF THE STUDY SOURCES OF INFORMATION METHODOLOGY LIMITATION

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1.1 ORIGIN OF THE STUDY The Applied Research Work program exercise a significant importance as it is undertaken after completion of a vast theoretical course, Organized by the Department of Business Administration, the students study thoroughly about the institutions. At the end of the program, the students are required to place the accomplishment and findings of the work through the writing of report covering the topic assigned to them. During the program each student is supervised and guided by a teacher of the department. It enables the students to develop their analytical skills and scholastic aptitudes. I have conducted a study on Sanctioning and Recovery System of Loan and Advances of Southeast Bank Limited. My supervisor Mr. Md. ShahanShah Molla, Lecturer Department of Business Administration, Leading University, Sylhet, also approved the topic and authorized me to prepare this report as part of the fulfillment of internship requirement. 1.2 BACKGROUND Loan comprises the most important asset as well as the primary source of earning for the financial institutions. On the other hand this loan is also the major source of risk for the bank management. A prudent bank management should always try to make an appropriate balance between its return and risk involved with the loan portfolio. An unregulated banking financial institution might be fraught with unmanageable risk for the purpose of managing its potential return. In such situation, the banking financial institution might find itself in serious financial distress instead of improving its financial health. Consequently, not only the depositors but also the general shareholders will be deprived of their money from the bank. The determination of loan quality will also affect the intermediation efficiency of the institutions and thus the economic growth process of

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Loan and Advances of SEBL the country. This establishes the fact that bank should provide increasing emphasis on various analytical tools and techniques for screening proposal and loan decision taking.

1.3 OBJECTIVE OF THE STUDY The basic objective of this paper is to acquaint with how a banking financial list evaluate individual potential borrower- based on which sanction different credit limit to different customer and charges different interest to different borrower that is what factors determinates decisions. The specific objective are 1. 2. To know more about the credit sanctioning policy of SEBL. To have an adequate knowledge about which factors mostly affects the loan sanctioning decisions, what amount of loan should be sanctioned to a particular loan applicant depending on his credit worthiness.

3.

To furnish the possibilities that the commercial bancs can extend their expertise consultation service to control risk exposures of a loan.

4.

To identify and suggest scopes of improvement in loan and advance portfolio of SEBL

.1.4 SCOPE OF THE STUDY The study would focus on the following areas of Southeast Bank Limited.

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Loan and Advances of SEBL Credit evaluation system of Southeast Bank Limited. Procedure for different loan facilities. Credit portfolio management of Southeast Bank Limited. Organization structures and responsibilities of management. Each of the above areas would be critically analyzed in order to determine the efficiency of SEBLs Credit appraisal and Management system.

1.5 SOURCES OF INFORMATION Information collected to furnish this report is both from primary and secondary in nature. This study is mainly based on the information extracted from various published annual reports, books, documents, study reports and articles. Interviews and discussion with the senior executives of the Bank gave some insights into the problems and issues of the study. The methods of collecting data followed throughout the study may be detailed as under: SEBL credit policy and guidelines Practical Banking experience of the banks officers. Discussion with the officers / executives of the Bank. Annual Reports Journals of existing literature Publications of Bangladesh Bank Different websites.

1.6 METHODOLOGY The following methodology will be followed for the study:

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Loan and Advances of SEBL Both primary and secondary data sources will be used to generate this report. Primary data sources are scheduled survey, and informal discussion with professionals. The secondary data sources are annual reports, manuals, and brochures of Southeast Bank limited and different publications of Bangladesh Bank. To identify the implementation, supervision, monitoring and repayment practice, interview with the employee and extensive study of the existing file was done.

1.7 LIMITATION OF THE REPORT

1. This paper has focused on the most sensitive part of the organization i.e. loan and advance. So the bank authority hesitated to disclose important information to maintain business secrecy. 2. Only three month time is not enough to complete such a study in a lucid manner.

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CHAPTER -2

ORGANIGATIONAL OVERVIEW OF SOUTHEAST BANK

STATUS OF THE BANK VISION OF THE BANK MISSION OF THE BANK CORE VALUES OF THE BANK CLIENT COMITMENT OF THE BANK NATURE OF BUSINESS DEPOSIT SCHEME LOAN SCHEME INTERNATIONAL BUSINESS OTHER PRODUT/SERVICES CORE OBJECTIVE MANAGEMENT STRUCTURE OF SEBL SPECIAL FEATURE OF THE BANK 6

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Loan and Advances of SEBL SOUTHEAST BANK AT A GLANCE

2.0 STATUS OF THE BANK Southeast Bank Limited, a second generation private Bank, emerged in 1995 amid liberalization of global economics. Currently its Authorized Capital TK.3,500 million and its Capital and Reserve reached TK. 2678.87 million as of June 30, 2006. The Bank has a diverse arrangement of carefully adapted products and services to satisfy client needs. The Southeast Bank Limited is pledge-bound to convert the bank into a global modern banking institution dynamic in actions, progressive in ideas, honest in dealings, correct in judgment, futuristic in attitude, fair in approach, polite in behavior and devoted to high quality services to clients. Its aims are for boosting modern management, advanced technology, good profitability, solid growth and excellent image of the bank. Today, Southeast Bank Limited in a responsive organization which promotes innovations, encourages improvements, values sense of urgency and develops people who accept challenges and turned them in to opportunities. "A Bank with Vision" has been precisely an essence of the legend of success in the Asian countries. Southeast Bank Limited is a scheduled commercial bank in the private sector, which is focused on the established and emerging markets of Bangladesh. Southeast Bank Limited has 46 branches throughout Bangladesh and its aim is to be the leading bank in the country's principal markets. The bank by concentrating on the activities in its area of specialization has achieved good market reputation with efficient client service. The Bank is committed to providing continuous training to its staff to keep them up to date with modern practices in their respective fields of work. The Bank also tries to fulfill its share in community responsibilities. By such measures the Bank intends to grow and increase shareholders' earning per share. Southeast Bank Limited has been licensed by the Government of Bangladesh as a Scheduled commercial bank in the private sector in pursuance of the policy of liberalization of banking and financial services and facilities in

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Loan and Advances of SEBL Bangladesh. In view of the above, the Bank within a period of 10 years of its operation achieved a remarkable success and met up capital adequacy requirement of Bangladesh Bank.

2.1 VISION OF THE BANK To stand out as a pioneer banking institution in Bangladesh and contribute significantly to the national economy. 2.2 MISSION OF THE BANK High quality financial services with the help of latest technology. Fast & accurate customer service. Balanced growth strategy. High standard business ethics. Steady return on shareholders' equity. Innovative banking at a competitive price. Deep commitment to the society and the growth of national economy. Attract and retain quality human resource.

2.3. CORE VALUES OF THE BANK Integrity Respect Fairness Harmony Team spirit Courtesy Commitment Service Excellence 8

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2.4 CLIENT COMITMENT OF THE BANK Dispatch of work with high degree of professionalism and use of most suitable banking technology. Founding life-long relationship based on mutual trust and respect. Response to customer needs with quickness and accuracy. Sharing their values and beliefs. Mutual growth. First-rated solutions of the banking problems and issues. Competitive pricing of products and services. Safety and security of their money in trust with Bank.

2.5 NATURE OF BUSINESS As a commercial bank, Southeast Bank does all traditional banking business including the wide range of savings and credit scheme products, retail banking and ancillary services with the support of modern technology and professional excellence. The bank has launched a number of financial products and services since its inception. The types of deposits, loans & advances and international business are as under: 2.6. DEPOSIT SCHEME Besides Fixed Deposits, Savings Bank Deposits and Current Account Deposits, the Bank has introduced the following customer friendly deposit schemes: a) b) Pension Savings Scheme (PSS) Education Savings Scheme (ESS)

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Loan and Advances of SEBL c) d) e) f) Monthly Savings Scheme (MSS) Savers Benefit Deposit Scheme (SBDS) Fixed Deposits ( 1, 2, 3, 6 & 12 months and 2, 3 years) Double Benefit Scheme (DBS)

2.7. LOAN SCHEME The loan portfolio of the Bank is well diversified and covers funding to a wide spectrum of business and industries including readymade garments, textile, edible oil, ship scrapping, steel & engineering, chemical, pharmaceuticals, cement, construction, healthcare, real-estate and loans under consumers credit schemes allowed to the middle-class people of the country for acquiring various household items. a) c) e) f) Agricultural Scheme Working Capital Consumer Credit Scheme Finance to NBFIs b) Commercial Lending d) House Building Loan

g) SME Finance h) Large/Medium Scale Industry i) Loan against Export & Import

2.8. INTERNATIONAL BUSINESS The international business of the bank includes the following: - Import Business - Export Business - Foreign Remittances

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Loan and Advances of SEBL 2.9. OTHER PRODUT/SERVICES The other product / services offered by the bank are as under: - ATM Operation - Real Time On-line any Branch Banking Service - Dual Currency Visa Credit Card - Islamic Banking Services - Merchant Banking Services

2.10 CORE OBJECTIVE The bank's overall objective is to have a higher profitability than that of the weighted average of other banks. As such the main focus of the Bank is on highly profitable business with convincing growth potential. Vision for the future is the characteristic that differentiates Southeast Bank from other competitors. 2.11 MANAGEMENT STRUCTURE OF SEBL Southeast Bank is blessed with a well-designed management structure with clearly defined responsibilities, delegation of authority and proper accountability. Resultantly, there is transparency in decision-making and management activities. The bank has appropriate organizational structure manned with qualified professionals for proper planning, executing, controlling and monitoring functions.

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Loan and Advances of SEBL

ENTRY LEVEL Management Trainee Management Trainee

Managing Director Deputy Managing Director Senior Executive Vice President Executive Vice President Senior Vice President Vice President First Vice President Senior Asstt. Vice President Asstt. Vice President Senior Principal Officer Principal Officer Executive Officer Senior Officer Officer Junior Officer Assistant Officer Computer Operator Cashier
Chart-1: Hierarchy of Southeast Bank Ltd.

ENTRY LEVEL

Probationary Officer

Trainee Asstt. Officer Computer Trainee Cashier Trainee

2.12 SPECIAL FEATURE OF THE BANK g) h) Southeast Bank Limited is engaged in conventional commercial banking. It is the pioneer to introducing and launching different customer friendly deposit scheme to tap saving of the people for channeling the same to the productive sector of the economy. i) The bank is committed to continuous research and development so as to keep phase with modern banking.

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Loan and Advances of SEBL j) k) l) The operation of the bank is computerized to ensure prompt and efficient service to the customers. The bank has introduced camera surveillance system to strengthen the security service inside the bank premises. The bank introduced customer relation management to asses the need of the customers and resolves any problem on the spot. Now I would like to show a feature as the improvement of last five years as bellow: At a Glance improvement of five years

TABLE 1:SOUTHEAST BANK AT A GLANCE

2009 Particulars Taka

2008

2007

2006

2005 Taka in Million 2500.00 1056.37 1180.47 2236.84 38258.15 32551.09 5113.14 29079.30 13511.10 7975.00

in Taka in Taka in Taka in Million Million Million Million 10000.00 3422.64 6504.52 (Capital and 9927.16 96669.05 77497.57 21350.23 69582.92 46724.47 3500.00 2852.20 4804.81 7657.01 3500.00 2500.00

Authorized Capital Paid-up Capital Reserve Fund Equity Reserve) Deposit Advance Investment Import Business Export Business Guarantee Business Fund

22810.76 21120.74 4186.60 6468.36 2828.18 4940.92

68714.67 55474.05 46056.18 60281.26 48164060 41147.28 12299.61 8462.86 6265.55

58019.77 38470.34 35125.12 42178.60 28771.36 25874.61 8656.80

11916.74 15078.99 9008.32

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Loan and Advances of SEBL Total Income Total Expenditure Operating Profit Net Profit after-Tax and Provision Fixed Assets Total Assets Earning per Share (Taka) Dividend Cash (%) Bonus Shares Return on Equity (ROE) Return on Assets (ROA) Non performing Loans as % of Total Loans Capital Adequacy Ratio Number Banks Number of Foreign Correspondents Number Of Shareholders Number of Employees Number of Branches of Correspondent 13704.45 9087.79 4614.66 1870.19 4338.85 10250.13 8670.47 7237.55 3012.58 887.24 2685.56 5754.27 2916.20 1222.97 1708.11 6766.11 4706.45 2062.66 909.88 1300.39 53706.12 59.71 20% 20%(5:1) 17.64% 0.86% 4.37% 6.90% 130 507 5750 759 31 4689.55 3216.11 1473.44 374.20 790.62 43294.81 35.42

112676.92 81181.53 64370 54.64 31.11 15% 40.88 15%

35%(20:7) 20%(5:1) 25%(4:1) 8% (12.5:1) 16.51% 1.66% 3.73% 11.72% 146 589 22152 1254 56 12.06% 1.09% 4.12% 11.12% 145 587 12536 1080 46 19.90% 1.90 % 3.77% 13.00% 140 598 9636 964 38 17.98% 1.66% 3.97% 11.50% 138 536 8855 845 31

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Loan and Advances of SEBL

At the time of incorporation in 1995, the Authorized Capital of the Bank was Tk.500.00 Million. At the end of 2009, the Authorized Capital and of the Bank stood at Tk.10, 000.00 million. The Authorized Capital since inception of SEBL have been increased by 1,900% respectively to maintain sound capital adequacy of the Bank and to make the Bank financially stronger. The growth of Authorized Capital and Shareholders equity of the Bank is shown below:

Authorized Capital

2009 2008 Year 2007 2006 2005 0 5000 Amount 10000

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Loan and Advances of SEBL

Fig 1: Authorized Capital

Shareholders Equity

10000 9000 8000 7000 6000 Amount 5000 4000 3000 2000 1000 0 2005 2006 2007 2008 2009 Year Fig 2: Shareholders Equity

The Bank mobilized total deposits of Tk.96669.05 million as of December, 2009 as compared to Tk.68714.67 million in 2008.Competitive interest rates, attractive deposit products, deposit mobilization efforts of the employees and confidence reposed by the customers in the Bank are the factors that contributed to the notable growth in deposits.

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Loan and Advances of SEBL

Deposit (2005-2009) At a Glance


70000 60000 50000 Taka In 40000 Million 30000 20000 10000 0 2005 2006 2007 2008 2009 Year

Fig 3: Total Deposit At the end of the year 2009, the number of outstanding shares of our Bank stood at 3, 42, 26,373 shares. We had 30, 00,000 shares at the time of listing with Dhaka Stock Exchange and Chittagong Exchange in 2000. We have issued 3, 12, 26,373 shares in the Form of Bonus Shares and Rights Shares after listing with stock exchanges, showing 1040.88% increase in number of Banks outstanding shares. As we have been making Substantial profits for five consecutive years, the harmony between increased numbers of Issued Shares and Earning per Share is being maintained. The Banks positive Earning per Share for the last five years is shown below:

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Loan and Advances of SEBL

Earning Per Share


70

Amount

60 50 40 30 20 10 0 2005

59.71 42.88 35.42 31.11

54.64

2006

2007 Year

2008

2009

Fig 4: Earning Per Share

At the end of the year 2009, the number of outstanding shares of SEBL Bank stood at 34226373 shares. SEBL had 3000000 shares at the time of listing with Dhaka Stock Exchange and Chittagong Exchange in 2000. It have issued 31226373 shares in the form of Bonus Shares and Rights Shares after listing with stock exchanges, showing1040.88% increase in number of Banks outstanding shares. As it has been making Substantial profits for five consecutive years, the harmony between increased numbers of Issued Shares and Earning per Share is being maintained. The Banks positive Earning per Share for the last five years is shown at above& cash dividend and bonus share are shown below.

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Loan and Advances of SEBL

Bonus Share
40.00% 35.00% 30.00% 25.00% 20.00% 20.00% 8.00% 35.00%

25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

2005

2006

2007 Year

2008

2009

Fig 4: Bonus Share

Cash Dividend 25.00% 20.00% 20.00% 15.00% 15.00%

15.00% 10.00% 5.00% 0.00% 0.00% 2005 2006 2007 Year 0.00% 2008 2009

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Loan and Advances of SEBL Fig 5: Cash Dividend

During the year 2009, Return on Equity (ROE) of the Bank was 16.51 percent as against 12.06 percent of the previous year. The percentages of Return of Equity for the last five years are given below:

Return on Equity 25.00% 20.00% 17.64 %

19.90% 16.51% 17.98% 12.06%

15.00% 10.00% 5.00% 0.00% 2005

2006

2007 Year

2008

2009

Fig 6: ROE

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Loan and Advances of SEBL

CHAPTER -3
LITERATURE VIEW OF LOAN AND ADVANCES OF SEBL

LOAN TYPES OF LOANS LOAN CLASSIFICATION ---AN OVERVIEW

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Loan and Advances of SEBL

3.0 LOAN A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower. Or loan is an arrangement in which a lender gives money or property to a borrower, and the borrower agrees to return the property or repay the money, usually along with interest, at some future point(s) in time. Usually, there is a predetermined time for repaying a loan, and generally the lender has to bear the risk that the borrower may not repay a loan (though modern capital markets have developed many ways of managing this risk). According to oxford dictionary of business a specified sum of money but by bank to a customer, usually for a specified rate of interest is called bank loan or bank advance1 Bankers credit means the credit granted by a banker to his customers Prof. Henchmen when a bank makes an advance to a customer whether by overdraft or loan account is called bankers credit From above definition we can say that credit or advance is main function of a commercial bank, which means banker grant credit to his customer for his profit. Bank lends money in different forms.

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Loan and Advances of SEBL In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial repayments; in an annuity, each installment is the same amount. The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent. Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.

3.2 TYPES OF LOANS 3.2.1 Secured A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan. A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security a lien on the title to the house until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it. In some instances, a loan taken out to purchase a new or used car may be secured by the car; in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.

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Loan and Advances of SEBL 3.2.2 Unsecured Unsecured loans are monetary loans that are not secured against the borrower's assets. These may be available from financial institutions under many different guises or marketing packages:

credit card debt personal loans bank overdrafts credit facilities or lines of credit corporate bonds

The interest rates applicable to these different forms may vary depending on the lender and the borrower. These may or may not be regulated by law.. 3.2.3 Demand Demand loans are short term loans that are atypical in that they do not have fixed dates for repayment and carry a floating interest rate which varies according to the prime rate. They can be "called" for repayment by the lending institution at any time. Demand loans may be unsecured or secured.]

3.3 LOAN CLASSIFICATION ---AN OVERVIEW Loan classification attempts to categorize the debt information in a systematic manner. Loan classification is defined in terms of degree of risk associated with loans. Classification of loans include only such assets of the balance sheet of a bank which did not yield interest income and have remained past due for some quarters. The vastness of the loan classification status of Bangladesh can be measured from the figures of total classified loans in the country. Loans are generally categorized in Bangladesh as either unclassified or classified. Loans are classified as substandard, doubtful and bad/loss as per classification guidelines by the Bangladesh Bank.

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Loan and Advances of SEBL

Objectives of Loan Classification: To find out Net Worth or Adjusted Capital of a bank. To help for assessing financial soundness of a bank. To calculate the required provision and the amount of interest suspense. To put the bank on sound footing in order to develop sound banking practice in Bangladesh.

Importance of Loan Classification: Strengthen credit discipline Improve loan recovery positions Make planning for future course of loan.

Table 3:Type of loans to be reported in CLS. Sl No. 1. Type of loans Continuous

Definition These are those advances which do not have any set schedule for drawing or disbursement but usually have a terminal date of full adjustment or repayment, as for example OD, CC. The loans which become payable after serving demand notice by the bank concerned are termed as Demand Loan. For Example- Forced LIM. PAD, FBP, IBBP ETC. These are loans, which is payable on specific repayment schedule and specific period is to treated as term loan.

2.

Demand

Term

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Loan and Advances of SEBL For example- Project Finance, Industrial Finance etc. Term Short term agriculture loan include the short-term credit / mentioned in the circular issued by Annual Agricultural Credit Department (ACD) of Bangladesh Bank under annual credit program. Loan disbursed in agri-sector repayable within 12 months will also be treated under this head. Short term small loan means loan up to Tk.1 lac and micro credit repayable within 12 months.

Short Agricultural Micro

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Loan and Advances of SEBL

CHAPTER-4
LOAN AND ADVANCES AT SOUTHEAST BANK LTD

OVERVIEW TYPES OF LOAN IN SEBL RATE OF INTERAST ON LOAN DOCUMANTATION OF LOAN PROCESS OF DISBURSMENT APPROVAL AUTHORITY PROCEDURE OF RECOVERY

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Loan and Advances of SEBL

4.0 OVERVIEW Bank credit means bank loans and advances. A bank keeps a certain proportion of its deposits as minimum reserve for meeting the demand of the depositors and lends out the remaining excess reserve to earn income. The bank loan is not paid directly to the borrower but is only credited in his account. Every bank loan creates an equivalent deposit in the bank. Thus, credit creation means multiple expansions of bank deposits. The whole structure of banking is based on credit. Credit means getting the purchasing power (i.e., money) now by a promise to pay at some time in future. The making of loans and advances has always been prominent and most profitable function of a bank. Sanctioning advances to clients and others out of the funds at its disposal is one of the principal services of a modern bank. Commercial Banks deal with the money from the depositors repayable on demand. So, they cannot afford to lock up their fund for long periods. They usually grant short term advances which are utilized to meet the working capital requirements of the borrower. Only a small portion of a banks demand and time liabilities is advanced on long term basis where the banker usually insists on a regular repayment by the borrower in installments. While lending fund a banker, therefore, follows a very cautious policy and conducts his business on the basis of well-known principles of sound lending in order to minimize the risk. Loans and advances are the most profitable and the least liquid assets of the bank. Banks provide loans and advances to the businessmen either through overdraft or by discounting of bills of exchange. The difference between loans and advances is that the advances are for short period and loans are for relatively longer period. Loans and advances earn high rate of interest, carry greater risk and are generally non-shiftable. Thus, while and

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Loan and Advances of SEBL advances are mostly preferred by the banks because of their high yields, they are not popular from the consideration of liquidity and safety of the bank.

4.1. TYPES OF LOAN IN SEBL There are different types of loans are offered by the Southeast Bank Limited these are given below 1. Term Loans a. Consumer Credit Scheme b. House Building Loan c. Staff Loan 2. Over Draft 3. Time loan 4. Industrial loan (1) Term Loans: The term loan is determined on the basis of conception period of a project and generation of income by use of the loan. Such loans are provided for agricultural activities, farm, machinery, dairy, and poultry; transport facilities, extension of tea gardens and development of horticulture, fishing etc. Mainly loan has a time period of 3-5 years. a. Consumer Credit Scheme (CCS): This is a special credit scheme provided by Southeast Bank Ltd. to the service holders to buy car, furniture, computer, airconditioner, TV, DVD etc. the interest rate is 13% the customer must have an account is the bank. The customer needs two guarantors. The customer needs a verification certificate form his employer. Mostly this loan has a time period of 2 years to 3 years. b. House building Loan: It is a long term Loan. This Loan is sanctioned for house building purpose & interest rate is 16%. The following documents are required for this type of loan Chowhatta Branch 29

Loan and Advances of SEBL o Valuation certificate of the Bank o Estimated cost for construction of house by the engineer o A copy of permission from DIT c. Staff Loan: This type of loan is only given to the employees or staffs of bank. This type of loan gives some facilities to the staffs of the bank. The interest rate of the loan is 8.00%. The maturity period is 180 months to 15 years.

(2) Over Draft: Advance in the form of overdrafts is allowed on a current account. The customers may be sanctioned a certain limit within which he can withdraw his loan amount for several times within a stipulated period. Here interest will be charged on the withdrawal loan amount, overdraft facility is normally given to the party for the expansion of business and this facility is given for maximum one year. (3) Time loan: It is a short term loan. It is sanctioned for less than a year. Normally this type of loan is sanctioned for 3, 6 or 9 months. (4) Industrial Loan: The bank provides industrial loan to it clients. It is sanctioned for 5 years or above. In order to get loan form the bank, the clients are obliged to fulfill certain requirements provided by the bank. 4.1.1 BANK GUARANTEE: Bank gives guarantee to his valued client on the basis of work order by tender. The client should be deposited his margin amount which is refundable. For the bank guarantee client needs to bear Stamp, Commission, and Vat etc charges. When client will like to close his bank guarantee the bank maintain some procedure.

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Loan and Advances of SEBL Cancellation of Bank Grantee B/G: The amount deposited for margin on B/G bank created liability account. Margin A/C: DR. Part A/C: CR. Than Liability A/C: DR. Asset A/C: CR.

4.1.2 LOAN SYNDICATION A Syndication of loan is a loan given to a party by some banks. There is a leading bank and others are participants. Southeast Bank Limited is involved in this process with many parties. Recent two loan syndication of Southeast Bank Limited is given below: [1] Meer Cement- Loan amount Tk.15.00 crores Lead arranger: Participants: [2] H.P ChemicalsLead arranger: Co-arranger: Participants: Exim Bank Limited Jamuna Bank Limited Southeast Bank Limited Prime Bank Limited Arab Bangladesh Bank Limited Exim Bank Limited Southeast Bank Limited

Loan amount Tk.33.00 crores

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Loan and Advances of SEBL

4.2 RATE OF INTERAST ON LOAN The Bank from time to time circulate the interest rates/pricing of loans, charges , commissions etc. to its Branches with the approval of the competent authority and as per guidance of Bangladesh Bank. As on date the Bank fixes a mid rate for lending based on the Average Cost of fund.
Table-4: Interest Rates of Loan

LENDING CATEGORIES 1. AGRICULTURE. Loan to primary producers

LENDING RATE 9.00%

Loan to Agricultural input Traders and Fertilizer 10.00%

Dealer/ /distributors 2. LARGE AND MEDIUM SCALE INDUSTRIES (TERM LOAN) 3. SMALL & COTTAGE INDUSTRIES (TERM LOAN) 4. WORKING CAPITAL (Industrial) o Jute o Other than jute 5. EXPORT o Jute Goods Export o Other Export 6. COMMERCIAL, LENDING Jute Trading Commercial Lending(Others) 7. HOUSE BUILDING FINANCE Real Estate Developers

16.00% 16.00% 13.50% 13.50% 11.00% Fixed 11.00% Fixed 14.50% 14.50% 16 .00%

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Loan and Advances of SEBL Individual/Housing Finance Comp. 8. CONSUMER CREDIT SCHEME 9. CREDIT CARD 10. FINANCE TO NBFIs 11. OTHER LOANS SME Others (Fixed) 13.50% 16 .00% 16 .00% 16.00 % 16.00% 2.50% per month

4.3 DOCUMANTATION OF LOAN Documentation is obtaining such agreement where all the terms and condition and securities are written and signed by the borrower. It specifies rights and liabilities of both the banker and the borrower. In documentation each type of advances requires a different set of documents. It also differs with the nature of securities. The documents should be stamped according to the stamp Act. There are no hard and fast rules of documentation and it varies from bank to bank. Generally, the documents are taken in the case of a secured advance by SEBL: i. ii. iii. iv. v. vi. Demand promissory note: Here the borrower promises to pay the loan as and when demand by bank to repay the loan. Letter of arrangement. Letter of continuity. Letter of hypothecation of goods and capital machinery. Stock report: This report is used for OD and CC. In this report, information about the quality and quantity of goods hypothecated is furnished. Memorandum of deposit of title deed of property duly signed by the owners of the property with resolution of Board of Directors of the company owning the landed. vii. Personal guarantee of the owners of the property. 33

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Loan and Advances of SEBL viii. ix. x. xi. xii. Guarantee of all the directors of the company. Resolution of the board of directors to borrow fund to execute documents and completes other formalities Form no. XVII/XIX for filling charges with the register of joint stock companies under relevant section. Letter of Revival. Letter of lien for advance against FDR

4.4 PROCESS OF DISBURSMENT 4.4.1Pre-disbursement Compliance: When the credit proposal are approved the credit officer must have to be ensured that the disbursement of the credit facilities must comply with the directions written in the credit policy and circular made by time to time along with checking all the following terms and conditions. The officer of Loan Administration must collect the acceptance of the customers of the terms and conditions on the duplicate copy of the sanctioned advice. They will thoroughly examine and ensure that the subject credit facility does not contradict to any law, rules and regulation of the country, Bangladesh Bank and deed of the Mortgage and power of the Attorney to be drafted and executed under the Supervision of the Banks Legal Advisor. Lawyers certificate to the effect that all the legal formalities (Equitable/ Registered Mortgaged) has been properly created on the land and building in favor of the bank and bank has acquired the effective title of the property. Registered power of attorney has been collected from the borrower (contractor) assigning the work order favoring the bank and the power of attorney has been registered with the work order given agency and they have agreed that they will issue all the cheques favoring bank. The legal documents of the vehicle have been obtained.

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Loan and Advances of SEBL Collection of the satisfaction certificate in respect of all the documents both legal and banking from the lawyer. After being satisfied all the above terms and conditions the credit in-charge will disburse the loan amount to the client.

4.4.2 Mode of Disbursement: After sanctioning of loan under the Scheme, Branch will disburse the loan amounts only when all security documentation is in place, CIB report is obtained, as appropriate, and clean, the loan amount will be disbursed and credited (against Quotation(s) to be produced/submitted by the customers) directly to the respective account of the customers to be maintained with the Branch and payment thereof (sanctioned amount plus clients equity) as per quotation(s) shall be made directly to suppliers/ shopkeepers through Pay order or Demand Draft. Disbursement will be made in all cases after having acknowledgement of receipt of the goods. However for minor purposes disbursement may be made by clients choice at the discretion of banking authority.

4.4.3 Mode of Repayment: Maximum 60 (sixty) Equal Monthly Installments depending on loan amount and items. Residue if any shall be paid along with last installment. 4.4.3.1 Early Repayment The borrower may repay the loan in full before the end of the loan term. In such cases, outstanding principal & accumulated interest as on the date of payment has to be paid. In case of early payment Tk.1000/- will be charged. No partial payment allowed.

4.4.3.2Security /collateral & Documentation: 1) Duly filled in Loan Application Form Terms and conditions signed 2) Demand Promissory Note

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Loan and Advances of SEBL 3) Letter of Continuation 4) Irrevocable Letter of Authority for undated cheque 5) Letter of Introduction from the employer or referee (where applicable) 6) Personal guarantee of two guarantors acceptable to the bank and qualified to borrow under the scheme. 7) Undated cheques for 1.5 times to the loan amount. 8) Post dated cheques as per repayment schedule. 9) Tin Certificates (if any) 10) Personal Net-worth statement 11) Salary Certificate / Pay slip / Bank Statement of 3-12 months 12) Proof of Professional Certificate (when required) 13) Quotations of Items to be purchased 14) Copy of recent Utility bill paid in the name of borrower (for address verification)/ Copy of Passport/Copy of Valid Trade license 15) Letter of Hypothecation 16) Letter of Lien 17) Trust Receipt 18) Cash and/ or collaterals, immovable property, assignment of interest may he accepted if offered by the client. 19) Other (if any) For Car Other Security/ Collateral

a) Hypothecation over the car (lien mark- Hire Purchase raised in the BRTA and blue-book of the car). b) First party comprehensive insurance of the car (Policy must be renewed every year and copy of the policy must be submitted to the bank) For Cur Other Legal Documents

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Loan and Advances of SEBL a) Letter of Set-Off b) Irrevocable Letter of Authority to repossess the vehicle c) Ownership transfer form signed by customer d) Letter of Offer with full terms and conditions stated therein and duly accepted. 4.4.3.3 Other Terms & Condition Prepayment Prepayment penalty will be charged on the outstanding amount and when decided by the bank. Loan Renewal Successive loans depend on track record of previous loan; usually repayment behavior of the borrower is the main considerations for renewal and enhancement of the loan amount. Recovery System If the borrower fails to adjust the loan within validity period or to repay his monthly installment then the responsible loan-monitoring officer of the concerned branch will arrange for adjustment of the overdue installments from the borrowers savings account if there adequate balance. The Officer shall regularly follow up for recovery and necessary measure for recovery. Collection Steps The goal of the collection process is to obtain payments promptly while minimizing collection expense and write-off costs as well as maintaining the customers goodwill by a high standard of service. Collection also protects the assets of the bank. This call be achieved by identifying early signals of delinquency and thus minimizing losses. To identify and manage arrears, the following aging classification is adopted:

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Loan and Advances of SEBL Past (DPD) 1-14 15-29 30-44 Due

Collection Action Letter, Follow up & Persuasion over phone 1st Reminder letter 2nd reminder letter + Single visit 3rd reminder letter Group visit by team member Follow up over phone Letters to Guarantor, Employer, Reference all above effort follows Warning on legal action by next 15 days Call up loan

45-59

60-89

Final Reminder & Serve legal notice Legal proceedings begin Repossession starts Telephone calls/Legal proceedings continue

90 above

and Collection effort continues by officer & agent Letter to different banks/Association

4.5. APPROVAL AUTHORITY The Banks existing policy is to centralize the delegated power to be vested to

Committees. This policy is adopted with the view to minimize the risk by screening the proposal at the approval stage. The sharing of knowledge and experience for taking decisions enables the management to avoid the unnecessary risk. The following guidelines are to be applied in the approval/sanctioning of Loans. The credit approval authority must be delegated in writing from the MD and Board (as appropriate) and records of all delegation to be retained in CRM. Before approving any facility the authority must be ensured that the borrowers CIB report as obtained is updated and clean. Chowhatta Branch 38

Loan and Advances of SEBL Delegated approval authorities should be reviewed annually by MD/CEO/Board. The credit approval function should be separated from the marketing/relationship management (RM) function. Approvals must be evidenced in writing, or by electronic signature. Approval records must be kept on file with the Credit Applications. All credit risks must be authorized by Committee within the authority limit delegated to them by the MD/CEO/Board. The pooling or combining of authority limits should not be permitted. Credit approval should be centralized within the CRM function. Regional credit centers may be established; however, all large loans must be approved by the Head of Credit and Risk Management or Managing Director/CEO/Board or delegated Head Office Credit Executives. The aggregate exposure to any borrower or borrowing group must be used to determine the approval authority required. Any credit proposal that does not comply with Lending Guidelines, regardless of amount, should be referred to Head Office for Approval. MD/Head Office Credit Committee / Head of Credit Risk Management must approve and monitor any cross-border exposure risk. Any breaches of lending authority should be reported to MD/CEO, Head of Internal Control, and Head of CRM. It is essential that executives/members of the Committee charged with approving loans have relevant training and experience to carry out their responsibilities effectively

4.5.1Credit Approval Process Southeast Bank conducts its banking operation under branch banking system. For administrative control and smoothening its day-to-day operation and extension of

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Loan and Advances of SEBL appropriate and quick services, quick credit delivery, all branches have been placed under centralized Credit Operation Department of Head Office. For mitigating the credit risk due to lack assessment or refrain sanction of any credit facility without fulfilling the total requirement for sanctioning a credit by the Head of Branch, Southeast Bank Limited has introduced centralized system of sanctioning any type of credit except credit facility backed by cash collateral. Credit proposals are generally originated at branch. However proposals may also be received at Head Office for syndication and also from big clients, Financial Institutions. At the branch level the officers and executives of credit department must possess full knowledge of the policy & procedures of credit operations. The credit officers and executives after obtaining credit applications through Branch Manager along with all required papers and documents ensures sufficiency and consistency of the papers and documents. They originate credit proposals, prepare detailed credit memorandum after undertaking a thorough credit check and conducting credit risk assessment of the client in light of credit policy Guidelines of the Bank. The fully documented Credit Memorandum (CM) is placed to the Branch Credit Committee by the In-charge credit. Credit committee after thoroughly & critically examining the proposal recommend it to the Branch Manager who approve credit under his delegated authority. When the proposal falls beyond the power of the Head of Branch, it is sent to Head Office, Credit Division. Divisional Head, Credit gets credit and risk assessed by Credit officials. The proposal being found acceptable is placed to Head Office credit committee if the proposal falls under the delegated authority of the Management. When the proposal is under the approval authority of the Executive Committee, the proposal, having been assessed by the credit Officers/Executives is placed to the EC, through Divisional Head, Credit, DMD (credit) and the Managing Director, where the approval are accorded. If a proposal does not meet the basic lending criteria as per Credit guidelines and banking norms, it is declined and Credit Division inform the decision to the branch accordingly. Head office Credit Division keeps credit files under proper control number and its use is restricted to the authorized officials only

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Loan and Advances of SEBL Flow chart for approval Process of Loans & Overdrafts

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

Fig: Flowchart for approval process of loans and advances


Branch Credit Committee

San ctio n/D ecli ne


4.5.2Mandatory Checking CRG has been done. Chowhatta Branch

Head of Branch (HOB)

Head Office, Credit Division

Head Office Credit Committee

Managing Director

Executive Committee/Board of Director

Proposed Credit facilities are compliant of the existing banking regulations.

Other analysis and assessment has been done properly. 41

Loan and Advances of SEBL Competent authority as per Bank's policy approves facilities in writing. Credit approvals are given on a one-obligor basis. Limit is approved as per authority delegated in the rule book. Standard facilities are described using standard language. Large loans are approved within the ceiling advised by Bangladesh Bank. Fresh approvals, renewal, rescheduling, compromise agreement for large loan accounts are placed for approval by the Board as per Bangladesh Bank Guidelines. Proposal incorporates that facilities are subject to banking regulation, which shall be mentioned in the sanction letter also. Approval authorities check that pricing of the facilities are within the Bank's declared band. 4.5.3Appeal Process Any declined credit will be represented to the next higher authority for re-assessment/ approval.

4.5.4 Segregation of Duties The following lending functions should be segregated: 1. Credit Approval/Risk Management. 2. Relationship Management/Marketing. 3. Credit Administration. The purpose of the segregation is to improve the knowledge levels and expertise in each department, to impose controls over the disbursement of authorized loan facilities and obtain an objective and independent judgment of credit proposals. 4.5.5 Preferred organizational structure & responsibilities

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Loan and Advances of SEBL The appropriate organizational structure must be in place to support the adoption of the policies detailed in Section 1 of these guidelines. The key feature is the segregation of the Marketing/Relationship Management function from Approval / Risk Management / Administration functions. Credit approval should be centralized within the CRM function. Regional credit centers may be established, however, all applications must be approved by the Head of Credit and Risk Management or Managing Director /CEO /Board or delegated Head Office credit executive. 4.5.5.1 Preferred Organizational Structure The following chart represents the preferred management structure:

Head of Branch

Credit Department

Credit Administration

Fig 7: Organizational Structure Branch

CEO/Managing Director Deputy Managing Director Credit Division


Chowhatta Branch

Credit Administration Deapartment Law & Recovery Unit


43

Loan and Advances of SEBL

Fig 8: Organizational Structure (Head Office)

4.5.2.2 Key Responsibilities The key responsibilities of the above functions are as follows. Credit Risk Management (CRM) Oversight of the banks credit policies, procedures and controls relating to all credit risks arising from corporate/commercial/institutional banking, personal banking, & treasury operations. Oversight of the banks asset quality. Directly manage all Substandard, Doubtful & Bad and Loss accounts to maximize recovery and ensure that appropriate and timely loan loss provisions have been made. To approve (or decline), within delegated authority, Credit Applications recommended by RM. Where aggregate borrower exposure is in excess of approval limits, to provide recommendation to MD/CEO for approval. To provide advice/assistance regarding all credit matters to line management/ RMs. To ensure that lending executives have adequate experience and/or training in order to carry out job duties effectively.

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Loan and Advances of SEBL Credit Administration: To ensure that all security documentation complies with the terms of approval and is enforceable. To monitor insurance coverage to ensure appropriate coverage is in place over assets pledged as collateral, and is properly assigned to the bank. To control loan disbursements only after all terms and conditions of approval have been met, and all security documentation is in place. To maintain control over all security documentation To monitor borrowers compliance with covenants and agreed terms and conditions, and general monitoring of account conduct/performance. Relationship Management/Marketing (RM) To act as the primary bank contact with borrowers. To maintain thorough knowledge of borrowers business and industry through regular contact, factory/warehouse inspections, etc. RMs should proactively monitor the financial performance and account conduct of borrowers. To be responsible for the timely and accurate submission of Credit Applications for new proposals and annual reviews, taking into account the credit assessment requirements outlined in Section 4. 1.2.1 of these guidelines. To highlight any deterioration in borrowers financial standing and amend the borrowers Risk Grade in a timely manner. Changes in Risk Grades should be advised to and approved by CRM. To seek assistance/advice at the earliest from CRM regarding the structuring of facilities, potential deterioration in accounts or for any credit related issues.

Internal Audit/Control

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Loan and Advances of SEBL Conducts independent inspections annually to ensure compliance with Lending Guidelines, operating procedures, bank policies and Bangladesh Bank directives. Reports directly to MD/CEO or Audit committee of the Board.

4.6 PROCEDURE OF RECOVERY: In whatever form bank advances are, granted, they are repay-able on demand or at the expiry of some fixed period. Sills of exchange discounted are repayable on demand, although the bank seldom exercises the right except in circumstances mentioned below. Loans are repayable on the expiry of the periods for which they are granted. In case the loan is repayable in installments and default occurs in the payment of any installment, the entire loan usually becomes immediately recoverable at the option of the bank. 4.6.1 Recalling of advances Banks conduct a regular scrutiny of all advances and ensure that timely action is taken in each case either for the continuance of the facility on the existing terms, or with such modifications as may be considered necessary, or for the recovery of the amount if it is decided not to continue the facility. Advances are usually recalled under the following circumstances: 1. Death of the borrower or the guarantor. 2. Insolvency of the borrower or the guarantor, or liquidation of the borrowing company. 3. Dissolution of the partnership. 4. Failure to renew the documents sufficiently before the expiry of the period of limitation. The bank cannot afford to wait till the last day when the period of limitation expires. 5. Want of satisfactory turnover, or deterioration of the security. 6. Failure to adhere to the terms and conditions of the sanction in spite of the banks repeated requests.

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Loan and Advances of SEBL 7. Deterioration of the financial position of the party. If it comes to the notice of the bank that the party has committed a fraud or has heavily speculated, it will be an adverse factor and the bank may consider recalling the advance. 8. Failure to maintain adequate margin in spite of reminders to the borrower. 9. Change in the banks policy regarding certain types of advances. The bank may at any time decide advances against certain commodities because of their over production or the fear of an expected slump. There may also be other reasons for withdrawing the facility e.g. the law and order situation at a certain place is such that it may be risky to continue the advance there. In the cases stated above, the bank endeavors to revokes the advance by making a formal demand, and thereafter, if necessary, by putting pressure on the borrower or his legal representatives, as the case may be, with a threat of legal action. If there is a guarantor, he is also called upon to adjust the account or have it adjusted by the principal. The party may come round and make a proposal for repaymentmay be by installmentsand request for time to implement it. He may agree to offer additional security or a respectable guarantor of means. The banker should carefully scrutinize the proposal and if he considers that the debt could be recovered without resorting to litigation, he may agree. Much will, however, depend on the honesty of purpose of the borrower and his financial position at that time. If he is already heading towards insolvency, any indulgence shown to him may further complicate matters for the bank. If the threat of litigation does not have the desired effect, the bank may consider filing a Suit. It must, however, be known that legal proceedings entail a good deal of delay and expense and the results in the long run may not generally be satisfactory. 4.6.2 Notice In case, the borrower does not adjust the account as desired, the only course left open to the bank would be to send a registered, acknowledgement due, notice to him and to the guarantor, if any, preferably through a lawyer. This should normally be done after obtaining the approval of the authorities concerned, unless the case is urgent and there is

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Loan and Advances of SEBL no time to seek their instructions. If the advance is on a pledge basis, the notice should state that in case the advance is not fully and finally adjusted within, say, a fortnight, the pledged goods would be sold by private sale or public auction at the discretion of the bank and the net sale proceeds would be applied in repayment of the advance with interest. The notice should also state that the borrower as well as the guarantor, if any, would be liable for any balance that might remain due, after the security has been sold. If it is an unsecured advance, the borrower and the guarantor, if any, should be threatened with a suit after the period mentioned in the notice has expired. The Post Office receipt/s for sending the registered letter/s and the acknowledgement/s by the addressee should be carefully preserved, as it/these may have to be tendered in the court as documentary evidence. In case the borrower or guarantor refuses to accept the registered notice, the Post Office would return it to the bank in due course with the remark Refused. This is sufficient service in law. It would not be necessary, as such, to tender the evidence of the postman in whose hand the word refused was written. The cover with the remarks of the post office should be kept intact with the other relative documents. The bank should carefully scrutinize the documents before serving legal notice or filing a suit. Any discrepancies in the documents, if noticed, should be tactfully got corrected by the borrower. After the notice has been served, it would be difficult to secure the cooperation of the party. The documents must be kept safely in proper custody, preferably under dual control.

4.6.3 Goods under pledge If the account is by way of pledge and the pledgor makes default in payment of the debt, the bank as a pledgee has two alternatives. It may bring a suit 4 in the sale of the pledged goods is the debtor himself, whose business is to deal in them. Care should, however, be taken that the borrower does not enter into collusive transactions for his, own benefit.

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Loan and Advances of SEBL

4.6.4 Stocks under hypothecation If the charge is by way of hypothecation, the bank, under the relative documents, has a right to take possession of the security and thereafter treat it as a pledge. The bank may take over possession of goods and start selling them after giving reasonable notice to the borrower. There may, however, be practical difficulties in obtaining possession of the hypothecated goods from an un-cooperative borrower, when the bank requires the possession thereof. 4.6.5 Mortgages In both types of mortgage- simple and equitable- a suit will have to be filed against the mortgagor to enforce recovery and sell the mortgaged property. A preliminary decree is passed by the court against the mortgagor in the first instance giving him time to redeem mortgaged property. If the mortgagor (judgment debtor) fails to pay dues to the mortgagee (decree-holder) within the stipulated time, a final decree is passed against him ordering the sale of the mortgaged property through the court.

4.6.6 Life policies If the debtor fails to redeem his indebtedness and the bank holds as security a life policy or life policies which have been assigned by the debtor, the bank will have to consider the action it should take in the circumstances; whether to pay the future premiums to the debit of the borrowers account and maintain the policies in force until they mature, or to surrender them. When an endowment assurance does have a long period to run to maturity, the amount expected on maturity may exceed the cost of maintaining the policy, in which case, if the debt is not fully covered and repayment from some other source is not likely it will obviously be worthwhile to continue payment of the premiums both from the point of view of the gain to be realized eventually and the death-risk cover. If the bank decides

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Loan and Advances of SEBL that it would not be advantageous to maintain the policy, it may surrender the policy and obtain from the insurance company payment of the surrender value. 4.6.7 Unsecured advances It is possible that the security, if any, may not be sufficient to liquidate the entire advance. In certain cases no security may be available. Attempts should, in such cases, be made to secure the advance. If that is not possible and the party does not repay the amount after the period specified in the notice, a suit may have to be filed, after carefully assessing the chance of recovery of the debt. 4.6.8 Compounding with the borrower The borrower may sometimes offer a proposal to the bank to compound the debt, in taka full and final settlement of the debt. In this case, it will have to be considered whether it would be in the interest of the bank to arrive at a compromise with the borrower or to proceed legally against him and get a decree for the amount due from him. The position of the party and the guarantor, if any, and the chances of recovery through Court process will have to be carefully assessed before compounding the debt. It should, however, be noted that if there is a guarantor, the settlement cannot be arrived at without his consent unless there is an express clause to that effect in the agreement of guarantee. 4.6.9 Death 1. Borrowers Death: After a borrowers death (in the case of an individual soul proprietor of a concern), no further withdrawals or debits in his advance account should be permitted. If the borrowers successors and heirs approach the bank for the continuance of the facility, the case, will have to be examined from all angles. In case the bank agrees to the request, the debit balance in the account of the deceased may be transferred to a new account in the name of his heirs or successors along with the securities held in the account. Legal opinion may have to be taken before this is done. If the desired facility is refused or no application is made by the heirs or successors in this behalf, the securities, if any, may have to be sold and the guarantee, if there is one, invoked. For the balance, if any, a suit

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Loan and Advances of SEBL may have to be filed and a decree obtained, if adjustment is not possible out of court. It should be noted that the heirs of the deceased borrower are responsible to pay the debt only to the extent of the assets of the deceased, which come to their hands. They are not personally liable. 2. Death of partner: Unless there is an agreement to the contrary between the partners, a partnership is dissolved by the death of any partner. If the firms account is overdrawn and the banker desires to retain his clime against the estate of the deceased, or if securities belonging to the deceased partner are held for the firms account, the account should be stopped and a new one opened for the future transactions. In case where a guarantee is held from a thud party, the account should also be broken on the death of a partner, until fresh arrangements are made with the firm and with the guarantor. 3. Death of joint customer: In such an eventuality, steps similar to those stated in the previous paragraph will be necessary with suitable modification depending upon the circumstances of the case. 4. Death of guarantor: Similar steps, as stated above, are necessary in this case too.

4.6.10 Insolvency Insolvency of a borrower, whether he is an individual or a partner of a firm, or that of a firm or one or more of the borrowers in a joint account, creates problems of its own and it would be necessary to explain what is insolvency and the steps to be taken in such a contingency. Meanings of insolvency, insolvent: When a person is unable to pay his debts in full and upon his adjudication as an insolvent, his property, in certain circumstances, is taken possession of by the Official Receiver or the Official Assignee, under orders of the Court. He realizes the debtors property and ratably distributes the proceeds among his creditors. Such a proceeding is called insolvency, and the debtor is known as the insolvent.

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Loan and Advances of SEBL The petition to declare a person or a firm insolvent is made by a creditor or the debtor himself, to a court of competent jurisdiction, which appoints an officer, usually the official Assignee or the Official Receiver, to take immediate possession of the assets of the person or the firm concerned. He realizes the assets and makes a ratable distribution of the proceeds (called dividend) amongst the insolvents creditors. Any person or firm capable of entering into a contract can be adjudged an insolvent if he/it is a debtor and has committed an act of insolvency. No insolvency petition can be presented against any corporation, association or company registered under any enactment for the time being in force. They can be wound up in accordance with the procedure laid down by the relative Act. When an order of adjudication has been made, all persons claiming to be creditors of the insolvent in respect of debts provable against him have to tender proof of their respective debts by producing evidence of the amount and particulars thereof, and the Court determines the persons who have proved themselves to be creditors of the insolvent in respect of such debts, and the amount of such debts, respectively, and frames a schedule of such persons and debts. If, in the opinion of the Court, the value of any debt is incapable of being fairly estimated, the Court may make an order to that effect, and thereupon the debt is no included in the schedule. The debt may be proved by delivering, or sending by post in a registered letter, to the Court an affidavit verifying the debt. The affidavit shall contain or refer to a statement of account showing the particulars of the debt, and shall specify the vouchers (if any) by which the same can be substantiated. The Court-may at any time call for the production of the vouchers. In the case of third party security, the banker may for the time being ignore the security and make a claim on the estate of the insolvent for the full amount of the debt. If the dividend or dividends that the banker receives from the estate of the insolvent are not sufficient to clear off the debt, the banker can thereafter fall back on the said security for the balance due to him. 4.6.11 Discharge

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Loan and Advances of SEBL A debtor may, at any time after the order of adjudication but within the period specified by the Court, apply to Court for an order of discharge. The Court may grant or refuse an absolute order of discharge, or suspend the operation of the order for a specified time or grant an order of discharge subject to certain conditions. A person once adjudicated an insolvent continues to remain an undercharged insolvent until he receives his discharge. 4.6.12 Stopping of account On the insolvency of one of the borrowers in a joint account, or of a principal or a guarantor in case of a guaranteed account, the account should be broken and any future payments will reduce the liability of the insolvent to the bank. It would always be advisable to take competent legal advice as

soon as it is known that a petition of insolvency is pending in court or the-borrower has been adjudged as an insolvent. 4.6.13 Suit and decree While recommending institution of legal proceedings in any case, branches are generally required by Head Office to indicate the chances of recovery of the amount involved, the estimated cost of the litigation (court fees, counsels fees and miscellaneous expenses) and the approximate time that would be required for getting a decree. On the basis of the information supplied, Head Office decides whether it would be worthwhile to take legal action or to write off the amount. If it is decided, ultimately to file a suit it has to be done against all parties, the principal or his heirs, successors or assigns and the guarantor or his heirs, etc., if any, a the case may be. After a decree is obtained, it has to be executed through court process by attachment and sale of the judgment debtors property.

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Loan and Advances of SEBL

Chapter -5
ANALYSIS AND FINDINGS

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Loan and Advances of SEBL FINANCIAL PERFORMANCE OF SEBL DEPOSIT OF SEBL ANALYSIS OF GROWTH IN LOAN AND ADVANCES PROBLEMS OF SOUTHEAST BANK

5.0 FINANCIAL PERFORMANCE OF SEBL Southeast Bank's policy was to expand the loan portfolio moderately in consideration of economic and socio-political scenario of the country. The Bank's loans and advances increased by 25.10% in 2008 to Tk.60281.26 million as against Tk. 48,164.60 million in 2007.The Bank emphasized on disbursement of agriculture credit for the farmers in fulfillment of government's socio-economic policy. The Bank extended a considerable amount of agri-credit directly or indirectly via NGOs through rural branches.

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Loan and Advances of SEBL The credit portfolio of the Bank is now very well diversified having a balanced mix covering a wide spectrum of business and industries including readymade garments, textiles and spinning, telecommunication, pharmaceuticals, steel and engineering, ship scraping, cement, edible oil, real estate, education and transport etc. The Bank also expanded its financing to the Small Enterprises and Consumers under SME Credit Scheme and Consumers Credit Scheme. Moreover, in order to help the poor segment of people of the society, the Bank extended its financial assistance to NGOs for onward financing to the poor people. The Bank also got involved in extending facilities in the CNG dedicated buses and CNG filling stations under Dhaka Clean Fuel Project against refinance program of Asian Development Bank (ADB) through Rupantarita Prakritik Gas Co. Ltd. (RPGCL). The Bank has separate units at Credit Division of Head Office working for handling Garments Industry, Syndication Loans, Project Financing, Loans to Small Enterprises and Consumers etc. to ensure due diligence and to expedite the decision making process. Recently, the Bank also introduced House Building Finance Scheme under Refinance Scheme of Bangladesh Bank. The Bank has already given continued efforts to maintain high quality of assets. Besides giving emphasis on the satisfactory business performance of the clients and collateral support, we have geared up loan monitoring and follow up activities to arrest the loans from becoming non-performing. The non-performing loans of the Bank increased to 4.12% as on December 31, 2008 from 3.77% of the year 2007.

5.1 DEPOSIT OF SEBL The bank mobilized total deposits of TK. 68714.67 million as of December 2008 as compared to TK. 55474.05 million in 2007. Competitive interest rate, attractive deposit products, deposit mobilization efforts of the bank employees and confidence reposed by

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Loan and Advances of SEBL the customers in the bank contributed to the notable growth in deposits. The deposit mix of the bank as on December 31, 2008 was as follows:

Growth in deposit (Taka in Million) 80000 70000 60000 50000 40000 30000 20000 10000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year Fig 9: Growth in Deposit

5.1.1Guarantee Business The bank issued guarantees amounting to Tk.15,078.99 million during the year 2008 compared to Tk. 9008.32 recorded in the previous year registering a growth of 67.39 percent. The guarantees were issued in favor of different Govt. authorities, Ministries, autonomous bodies, corporations, private companies, individuals and multinational companies, etc. on behalf of the valued clients of the bank.

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Deposit ( Taka in Million)

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Growth in Gurantee Business


Amount (taka in million) 20000 15000 10000 5000 0 Amount in million 2004 3391.2 2005 4717.8 2006 7975 2007 8656.8 2008 9008.3 2009 15079

Year

Fig 10: Growth in Guarantee Business 5.1.2Corporate Finance Corporate Finance is the broad term given to different facilities that large companies, governments, or other big institutions need in order to meet their long term and shortterm financial requirement. Southeast banks business is focused to a considerable extent on the corporate clients by maintaining the relationship and extending financial assistance based on a deep understanding on the clients business environments, financial needs and internal strategies for growth. 5.1.3 SME Financing The bank introduced SME financing scheme in 2004. Because of mounting, special emphasis, the bank could extend facilities to 2848 small and medium enterprises amounting to Tk.6, 595.21 million as on 31.12.2008 which was Tk,3,023.05 million to 1,513 customers in 2007 registering 118.16 percent growth. 5.1.4 Syndicated Finance Southeast Bank Limited, the pioneer amongst the local private commercial banks, started participation in the syndicated facility since 1996. the has an independent unit for such finance which is enriched with qualified and experienced bank officers. Since then the bank participated in 46 syndications of Tk.25,581.40 million of which Chowhatta Branch 58

Loan and Advances of SEBL Southeast Bank's participation was Tk. 5,048.00 million. Out of total syndication of Tk.25,581.40 million, the bank acted as arranger/agent of 13 syndications for Tk.4,500.00 million and the projects have been successfully running as profitable concerns.

Growth in investments
Amount (taka in million) 15000 10000 5000 0 2004 2005 2006 Year 2007 2008 2009

Fig 11: Growth in Investment 5.2 ANALYSIS OF GROWTH IN LOAN AND ADVANCES The total loans & advances of the bank increased from Tk.3402.21 million in 1999 to Tk.60281.26 million in 2009. The growth rate in loans & advances over the previous year and over the base year (1999) has been analyzed as under:

Table: 3 Analysis of Growth in Loans & Advances

Year 1999 2000 2001 2002 2003 2004 2005 2006 Chowhatta Branch

Loans & Advances 3402.21 5051.88 7061.87 9178.03 13027.13 15548.11 22001.70 32551.09

Growth rate over the previous year --48.49% 39.78% 29.96% 41.93% 19.35% 41.50% 47.95% 59

Loan and Advances of SEBL 2007 2008 2009 41147.28 48164.60 60281.26 26.41% 17.05% 25.16%

The highest growth in loans and advances was in the year 2000 i.e. 48.49%. In the year 2009 growth rate in loans and advances was 25.16% over that of the year 2008. Loans & advances of Southeast Bank over the previous year witnessed a positive growth rate. The growth in loan and advances of Southeast Bank over the past ten years are showed below in a diagram

Southeast Bank, on an average, provided loans & advances of Tk.23401.38 million per year. Like deposit there has been rising trend in loans & advances during the period from 1999 to 2009. This indicates that the average rate of increase of total loans & advances was Tk.23401.38 million per year. This indicates that bank could sustain positive trend of business during the period 1999 - 2009.

Classified Loans (Last 5 Years): Table: 4 Last 5 years classified loan of this branch Figure in 000 Year 2005 2006 2007 2008 2009 Total Amount 33903 33835 24015 26237 29953

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35000 30000 25000 20000 15000 10000 5000 0 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009

Figure 12: Last 5 years classified loan of this branch The amount of classified loan is increasing in the year 2006.From the graph, it has been seen that classified loan was decreased from the period of 2007 to 2008.But in 2009 it was increased. In 2008, the total amount of classified loan was 2 crore 62 lac and in 2009, this amount has been increased which is 2 crore 99 lac.

Total Loan and Advances (5 Years): Table: 5 Last 5 years loan and advance: Figure in 000 Year 2005 2006 2007 2008 2009 Total Amount 797726 845877 678400 617333 960027

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1000000 800000 2005 600000 400000 200000 0 2005 2006 2007 2008 2009 2006 2007 2008 2009

Figure 12: Last 5 years loan and advance: Total loan and advances of this branch was not satisfactory before 2009. In 2008, the total amount of loan and advances was only 61 crore 73 lac. After that the amount of loan and advances was grow which was 96 crore.

Amount of Various kinds of Loan & advances: Table- 6 Amount of Various kinds of Loan & advances( Last 5 years) Figure in 000 Year Time loan Term loan CCS Overdraft Advances (BLC) Advances (LTR) Staff House Building

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Loan and Advances of SEBL 2005 2006 2007 2008 2009 5,18,92 4,12,21 3,69,32 6,00,08 40,34,32 8,12,3 41,11,85 26,97 36,27,72 15,57 32,27,99 32,14 32,64,08 37,97,31 27,21,94 22,49,24 24,54,12 32,64,08 69,41 14,56 34,27 36,82 32,32 10,27 7,60 5,80 7,20 32,82 30,72 27,24 23,77 22,10

6,123,12 33,12,05 34,23

The most popular modes of disbursement of this branch are term loan and overdraft. These two modes of disbursement contribute more than 85% of total disbursement for each financial year. Though the time loan and CCS has the great influence on this specified area. The highest disbursement on term-loan has been occurred in 2006. In that period more than TK. 41.11 Crore has been financed to various economic sectors. Term loan is mainly given for real estate business and other industrial areas. Overdraft is a mid term loan which is mainly financed for the requirement of working capital. Again, in the year 2006, the amount of disbursement on overdraft was highest when more than TK. 37.97 crore has been financed to the professionals. Consumer credit scheme is a type of loan which is mainly given to the professionals or public/private employee. The amount of CCS is decreasing in each year. Advances (BLC) and Advances (LTR) are two modes of disbursement which is issued against the letter of credit. These are the short term loans and the amounts of these two modes are negligible. Staff house building loan is a loan which is issued only to the staffs of the branch at a lower interest rate for the purpose of house building for the staff. The volume of this mode of finance is also very much negligible.

Percentage of Classified Loans: Table: 7 Percentages of Classified Loans:

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Loan and Advances of SEBL Year 2005 2006 2007 2008 2009 Percentage of classified loan (%) 4.25 4.00 3.54 4.25 3.12

In 2008 the percentage of classified loan was very high which was 4.25%. But in 2009, the percentage of classified loan was decreased which was 3.12%.

Perchantage of Classified Loan

2005 2006 2007 2008 2009

Fig 13: Classified Loan of SEBL

Position of Loan and Advances of the branch: Table: 8 Position of Loan and Advances of the branch

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Loan and Advances of SEBL Year Loan(In 000) Classified Loan(In % 000) 2005 2006 2007 2008 2009 797726 845877 678400 617333 960027 33903 33835 24015 26237 29953 of Non

performing Loan 4.25 4.00 3.54 4.25 3.12

In the year 2008, non-performing loan was 4.25% and in one year period of time, it reduced to 3.12%. It happened due to intensive disbursement of Fresh Loan in the year 2009 rather recovery of classified loan. In the year 2009 additional TK.34.26 crore loan was disbursed. Apparently it seems that % of classified loan reduced in 2009. But actually, from the year 2008 to 2009 classified loan was increased by TK37.16 lac. On the other hand we see that in 2006 non-performing loan was 4% and 2007, it was 3.54%. This improvement in 2007 was because of recovery of classified loan. In 2008, classified loan was 2.6 crore and in 2007, classified loan was 2.4 crore which is less than in 2008.So in 2007, non-performing is also improved.

Loan Recovery (Last 5 years): Table: 9 Loan Recovery (Last 5 years) Figure in 000 Year Amount

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Loan and Advances of SEBL 2005 2006 2007 2008 2009 23,60,33 28,00,67 58,47,53 17,10,43 50,33,13

The recovery of loan of this branch was not in a satisfactory level before the period 2007. In 2005, the amount of total recovery loan was only TK.23.60 crore. After that the amount of recovery was increasing in each financial year though the trend was very slow before 2007. In the year 2007, the total recovery of this branch was more than TK. 58.47 crore. In 2008 the amount of total recovery has stood above TK17 crore.In 2009 the amount of recovery is TK 50 crore.

Loan Recovery
700000 600000 500000 400000 300000 200000 100000 0 2005

Amount

2006

2007 Year

2008

2009

Fig 14: Loan Recovery Disbursement and Recovery ratio: Table-10 Disbursement and Recovery Ratio

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Loan and Advances of SEBL Year 2005 2006 2007 2008 2009 Total Loan 797726 845877 678400 617333 960027 Recovery 23,60,33 28,00,67 58,47,53 17,10,43 50,33,13 Ratio 29.59% 33.11% 86.19% 27.71% 52.43%

From the table, we see that the ratio for disbursement and recovery is in an increasing trend. In 2005, the ratio was only 29.59%, but this ratio comes to 86.19%. in 2007. In 2008, the ratio for disbursement and recovery becomes to 27.71%. [Ratio :( Recovery of Loan/Total Loan)*100]

1000000 800000 600000 400000 200000 0 2005 2006 2007 2008 2009 Total Loan Recovery

Fig 15: Disbursement and Recovery

Area of Disbursement

Table: 11 Disbursement n different sectors of this branch Figure in 000

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Loan and Advances of SEBL Year 2005 2006 2007 2008 2009 Business/ Industrial 2,27,05 5,18,92 4,12,21 3,69,32 6,07,91 Real Estate 34,23,3 5 40,34,3 2 41,11,8 5 36,27,7 2 35,77,1 1
business/ industrial real state consumer loan working capital export import Miscellaneo us

Consumer Loan 1,27,19 81,23 26,97 15,57 33,00

Working Capital 25,26,93 32,64,08 37,97,31 27,21,94 21,44,01

Export 21,57 32,32 69,41 14,56 40,65

Import 41,67 13,54 10,27 7,60 7,60

Miscellaneous 33,54 32,82 30,72 27,24 25,79

Disbursement n different sectors of this branch in 2009

Fig 16: Disbursement The SEBL, LDP is financing most of its disbursement on the real estate and working Capital for the business sectors. In these two sectors this branch investing more than 85% of its total loans and advances. In business/ industrial sectors, this branch is also investing which has an influence on its total disbursements. Consumer loan is another important segment where this branch is also keeping a significant role on the total economy. This branch is also financing on export/import sectors though the amount insignificant compare with the others sectors.

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5.3 PROBLEMS OF SOUTHEAST BANK

Although Southeast Bank Limited (SEBL) has been profitable organization in Bangladesh for the last ten years but it has also got some limitations. These limitations exist in the operations, management and etc. of the Bank. Some identified problems are as under:

Credit card service is also provided but for getting this card client must be deposited security more than as how much he/she want. But security should not deposited for credit card holder it should be give to their valued client those who are maintain high transaction

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

Comparatively Southeast Bank takes high service charge from their client for current account Tk.690 and saving account Tk.690 yearly.

Minimum balance required to maintain in account by the client is Tk.5000 for both savings and current account.

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Southeast Bank Limited was started consumer loan but right now it stopped for defaulter. It should be again start and give consumer loan to well known client.

The management should implement job rotation system in the bank. This is the system in which every officer is capable to work in every desk. This system can build up Total Quality Management (TQM).

Credit officers does not properly monitor the loan disbursements No guideline for merchant banking. While taking loan clients sometimes provides false securities, collaterals. The process of loan proceeds takes more than a month which some times makes the borrower helpless to get the loan on due time.

The head office should not centrally control all the decision; branch should have some power to take decision.

Bank should more focus on agricultural and industrial credit and discourage consumer durable finance. Bank should make proper and exhaustive documentation before disbursement and to ensure proper supervision, monitoring and follow up of each credit Southeast Bank is facing shortage of employee in their branches. There is a very few merchant location of ATM card booth. In facts the bank have no its own ATM booth

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CHAPTER 6 SWOT ANALYSIS

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6.0 SWOT ANALYSIS OF SOUTHEAST BANK

SWOT analysis, is a strategic planning tool to evaluate he Strengths, Weaknesses, Opportunities and Threats involved in a project or in a business venture. It involves specifying the objective of the project or business venture and identifying the internal and external factors that are favorable and unfavorable to achieve the objectives. The aim of the SWOT analysis is to identify the key internal and external factors that are important to achieve the objectives

6.1 Strengths

Well-built investment arrangement Having a goodwill in the banking sector Client loyalty is exceptionally high. Improved working situation Training and development facilities Good interior decorations with central air-condition. Minimum waiting time

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Loan and Advances of SEBL Good personal relationship with customers. Southeast Bank has its well-trained employees. Southeast Bank is providing online banking facility to its customers. All the branches are computerized. Good corporate image in the banking sector. Its a good profit making branch of SEBL. Providing loan in corporate sector. Amount of bed debt lower.

6.2 Weaknesses

Worker number is inadequate More up to date banking facilities such as account checking by mobile, Credit card is unavailable. The workforces of the bank are not receiving appropriate validation regarding different type of facilities. Centralized management makes decision-making process more difficult and time overriding There is no 24 hours banking facilities. Binding in rules and regulation. Lack of communication between management.

6.3 Opportunities

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Loan and Advances of SEBL As Chowhatta branch of SEBL is situated most commercial area it has a chance to It has the chance to capture students segment of the market by giving them customized The population of Bangladesh is continuously increasing at a rate of 7.3% per annum.

attract the more businessmen. service for both saving and credit scheme. The countrys growing population is gradually and increasingly learning to adaptation of consumer finance. 6.4 Threats

Current law and order situation is not positive for the investment part. The percentage of credit defaulter is elevated Pessimistic representation to the govt. and to Bangladesh Bank. Some Banks offering more attractable rate on deposits than Southeast Bank. Some foreign Banks are introducing many new, expensive and technological services for customers. Many foreign banks are occupying markets by various attractive advertising and promotional activities but Southeast Bank is still behind them. Number of potential competitors both foreign and domestic private banks is increasing day by day. At present HSBC, Prime Bank, Dutch-Bangla Bank, EXIM Bank, BRAC Bank, Mercantile Bank, Social investment, Islamic Bank are also coming up with very competitive force

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CHAPTER -7

RECOMMENDATIONS

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7.0 RECOMMENDATIONS The following important activities need to be performed by the bank to become more efficient and effective in near future SEBL should establish new/updated financial products to attract potential depositors. Customers credit scheme should ameliorate by various modern banking systems. Current portfolio should be exaggerated. Not to give weight only in working capital financing. They should create other type of deposit to attract more customers. The loan officer must determine that borrower for responsible attitude toward using borrowed funds, is truthful in answering the banks question and will make every effort to repay what is owed. The loan officer must be reviewed all types of loan on a periodic basis

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CHAPTER: 8
CONCLUSION

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8.0 CONCLUSION

In his modern world like all other sectors banking sector is also changing. Southeast bank is operating its business facing various barriers like deregulation, telecommunication and globalization successfully. Southeast bank limited has been trying to operate its business successfully since 1995. The bank has already developed good image and goodwill among its clients by offering excellent services to its customers. Through SEBL is facing both external and internal problems, it can achieve dynamic leadership by taking implementing marketing strategies. Within a few years of its operation, the bank has captured a position in the banking sector and it is looking forward.

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Reference: 1. A Text Book Foreign Exchange by L.R. Chowdhury. 2. A Journal of Banking Finance Volume XXVII Nos. 2 & 3, June & September 2003 3. Annual Report of the Southeast Bank, 2009 4. Credit Manual of the South East Bank Limited 5. Cooper, Donald R. and Schindler, Pamela S. (1999, 6th ed.), Business Research Methods, Tata McGraw-Hill Publishing Company Limited, New Delhi, India. 6. Chowdhury, L. R. (2002, 2nd ed.), A Text Book on Bankers Advances, Dhaka, Bangladesh. 7. Circular: BCD Circular of Bangladesh Bank no. 20 date 27.12.1994 BRCD Circular of Bangladesh Bank no. 16 date 06.12.1998 BRPD Circular of Bangladesh Bank no. 09 date 14.05.2001 8. Bank Management & Financial Services, sixth edition (McGraw-Hill International Edition). 9. www.sebank.bd.com 10. Zikmund, William G (2003, 7th Ed.) Business Research Methods, South-Western, Ohio, the USA.

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Loan and Advances of SEBL Recruit more employees. Southeast Bank may

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