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Chapter: 4

Introduction
The main product of bank is Loans and Advances. The price of a loan is determined by
the cost to make the loan plus a profit or risk premium on it. Lending is the primary
business of a bank and profit is a measure of its success. So the main objective of
lending is/to earn profit on loans for the ongoing viability of a bank.
According to Michael C. Dennis (2001), most of the banks use objective and subjective
data interpretation to evaluate a borrowers financial condition from their financial
statements. Objective analysis involves traditional methods of number and data analysis.
Such as, review of unusual accounting methods used by the client, unusual information in
the notes in the financial statement. Review of CIB (Credit Information Bureau) Report of
client including financial ratios, trend analysis and financial profitability analysis of his
business has been done before disbursement of a loan.

4.1 Evaluation of credit performance of the sample bank


When an advance is made in a lump-sum repayable either in fixed
monthly installments or in lump-sum and no subsequent debit is
ordinarily allowed except by way in interest and incidental charges
etc. is called a loan.
Loan is allowed fir a single purpose where the entire amount may be
required at a time or in a number of installments within a period of
short span.
After disbursement of the entire loan amount, there will be only
repayment by the borrower. A loan once repaid in fill or in part,
cannot be drawn again by the borrower.
Personal Loan
Car Loan
Vacation Loan

Home Loan
Any Purpose Loan
(Described in details in the previous part)
Overdraft
Import Financing
Export Financing
Bank Guarantee
4.1.1 Analyze of credit sector wise

%
Sector Caps
Trade and commerce

45%

SME

10%

Industry- working capital

10%

Project finance- loan term

10%

Retail/ consumer ( CCS )

10%

Agro credit

5%

Work/ supply order ( contractual finance )

5%

Others

5%

Total

100%

4.1. 2 Analysis of credit performance on forms of credit of EBL,


Relevant Data:

Fund collection of EBL for the period (2010-2014)


of 2010(%) 2011(%) 2012(%) 2013(5) 2014(%)

Source
fund
Equity
Borrowings
Deposit
Others

average

9.25
12.25
71.51
6.99

9.54
9.287
74.45
6.723

8.71
8.67
76.47
6.15

12.063
12.644
70.40
4.892

14.726
11.288
68.766
5.28

10.85
10.815
72.319
6.087

total

100

100

100

100

100

100

Comment: - IT is revealed from the table that deposit variable consumes highest
percentage of fund followed by equity, borrowings and others.

4.1.3

Investment to deposit ratio of EBL for the period (2010-2014)


In million BDT

Formula
2010
2011
2012
2013
2014
average
Investment to 9827
8806
5324
3456
5889
deposit=
56425
49190
41573
30092
25734
Investment/tota =17.41
=17.90
=12.81
=11.57% =22.91
=16.52%
l deposit
%
%
%
%
Source: - data have been compiled from annual report of EBL.
Note: - the calculations have been made by the researcher.
Evaluation: - from the table, we see that in 2014 the investment is higher than
other years .EBL constantly invested a little portion of his total deposit.

4.1.4 Total Asset on deposit

Liquid assets to deposit ratio of EBL for the period (2010-2014)


In million BDT

Formula 2010
2011
2012
2013
2014
Liquid
1806
1931
1294
7821
8984
asset to
deposit
56425
49189
41564
29878
25699
=liquid
=32.01% =39.27% =31.15% =26.17% =34.95%
asset
/total
deposit
Source: - data have been compiled from annual report of EBL.

average
=32.71%

Note: - the calculations have been made by the researcher.


Evaluation: - from the table, it is evidenced that the liquid asset to deposit ratio of
EBL during the study period is showing a fluctuating trend. This ratio indicates
that how much portion of deposit is occupied by liquid asset. The better the ratio
the better the liquidity position of a bank.

Credit worthy pay


4.1.5 Classified loans of EBL:
Year

Total outstanding loan

Amount of Classified loans

Ratio (%)

2010

134,659,627

18,38,364

0.7834

2011

189,133,546

1,495,844

0.5943

2012

216,456,284

15,36,048

0.4854

2013

246,864,565

10,77,284

0.3106

2014

294,634,661

960,900

0.2399

From the graph we find a decreasing trend in the ratio of classified loans, which mean the
amount of classified loans of EBL are decreasing over the years. It is possible because of
the provisionary and recovery strategies of the bank. The bank is quite aware to hold the
decreasing trend in the next coming year
(Amount in take`000)
Year

Sub standard

Doubtful

Bad/Loss

Total

2010

1,96,861

85,346

15,56,157

1,838,364

2011

23,972

26,875

1,415,021

1,465,868

2012

183,841

90,782

1,261,425

1,536,048

2013

20,617

4,140

10,52,527

10,77,284

2014

8,570

3,184

9,49,146

9,60,900

Liquidity management refers to the maintenance of adequate degree of liquidity


for all the time it faces obvious difficulties. Liquidity management is a very
important to a bank for its smooth running. The bank must ensure adequate
amount of liquidity in the banks asset so as to meet any claims up it in cash on
demand.

Findings
Financial institutions must ensure that their credit portfolio is properly administered, that
is, loan agreements are duly prepared, renewal notices are sent systematically and credit
files are regularly updated. An institution may allocate its credit administration function
to a separate department or to designated individuals in credit operations, depending on
the size and complexity of its credit portfolio.

Eastern Bank credit administration function should, as a minimum, ensure that:


credit files are neatly organized, cross-indexed, and their removal from the
premises is not permitted;
the borrower has registered the required insurance policy in favor of the bank
and is regularly paying the premiums;

the borrower is making timely repayments of lease rents in respect of charged


leasehold properties;
credit facilities are disbursed only after all the contractual terms and
conditions have been met and all the required documents have been received;
collateral value is regularly monitored;
the borrower is making timely repayments on interest, principal and any
agreed to fees and commissions;
information provided to management is both accurate and timely;
responsibilities within the financial institution are adequately segregated;
funds disbursed under the credit agreement are, in fact, used for the purpose
for which they were granted;
back office operations are properly controlled;
the established policies and procedures as well as relevant laws and
regulations are complied with; and
On-site inspection visits of the borrowers business are regularly conducted
and assessments documented .