brac SME BANKING IN BANGLADESH A STUDY ON BRAC BANK LIMITED’

Page 1

SME Banking In Bangladesh: A Study on Brac Bank Limited

COMPANY PROFILE Short History Brac Bank Ltd (BBL) is a banking company incorporated in the People’s Republic of Bangladesh with limited liability. It was set up at the instance of the Government in 1976 as a joint venture between the Government of Bangladesh and sponsors in the private sector with the objective of working as a finance company within the country and setting up joint venture banks/financial institutions abroad. Bank s Mission Bank’s Mission is to provide service to its clients with the help of a skilled and dedicated workforce whose creative talents, innovative actions and competitive edge make its position unique in giving quality service to all institutions and individuals that it cares for. The bank is committed to the welfare and economic prosperity of the people and the community, for drive from inspiration and drive for onward progress to prosperity. BBL wants to be the leader among banks in Bangladesh and make its indelible mark as an active partner in regional banking operating beyond the national boundary. In an intensely competitive and complex financial and business environment, BBL particularly focus on growth and profitability of all concerned. Milestones in the Development of BBL 1976 Established as an Investment & Finance Company under arrangement of joint venture with the Govt. of Bangladesh. 1980 Commenced operation in Foreign Exchange Business in a limited scale. 1982 Obtained permission from the Govt. to operate as a commercial Bank. 1983 Setup its first overseas joint venture (Bank of Maldives) on the Republic of Maldives. Commenced operation as a full-fledged commercial Bank in Bangladesh. 1985 Set up a joint venture Exchange Company in the Sultanate of Oman. 1987 Set u\\p its first overseas branch in Pakistan at Karachi. 1993 Set up its second overseas branch in Pakistan at Lahore. 1994 Set u\p its first joint venture in Nepal for banking operation. 1999 Set \\up its second joint venture in Nepal tor lease financing. 2003 Ban\k celebrated its 20th founding anniversary. Overseas Branches in Pakistan amalgamated with NDLC, to establish a joint venture Ban\k: NDLC-BBL. Management


The Bank has in its Management a combination of highly skilled and eminent bankers of the country of varied experience and expertise successfully. The thirteen members of the Board of Directors are responsible for the strategic planning and overall policy guidelines of the Bank. Further, there is an Executive Committee of the Board to dispose of urgent business proposals. Besides, there is an Audit Committee in the Board to oversee compliance of major regulatory and operational issues. The CEO and Managing Director, Deputy Managing Director and Head of Divisions are responsible for achieving business goals and overseeing the day to day operation. The CEO and Managing Director are assisted by a Senior Management Group consisting of Deputy Managing Director and Head of Divisions who supervise operation of various Divisions centaury and co-ordinates operation of branches. Key issues are managed by a Management Committee headed by the CEO and Managing Director. This facilitates rapid ‘decisions. There is an Asset Liability Committee comprising member of the Senior Executives headed by CEO and Managing Director to look into all operational functions and Risk Management of the Bank. Network BBL always considers client service the most vital factor to face ever increasing competition and challenge in the Banking sector and as such places on it utmost importance. With that end in view the Bank continued its SMEized approach with speed, precision and accuracy. Presently the number of branches stands at 65 covering almost all the important places of the country, 16 in Nepal and 8 affiliated Branches out side the country. Moreover world - wide international correspondents’ network of the Bank has been continuously expanding covering the important countries in all the continents of the world. Besides, the Bank has arrangement with a number of Exchange house at Singapore, U.A.E. Oman, Qatar and Kuwait to facilitate remittances from expatriate Bangladeshi citizens. Capital and Reserve During the year of 2008, the authorized capital of the bank remained unchanged at Tk 500 million. The Paid-up capital stood at Tk. 406.44 million. The reserve fund of the Bank increased by Tk. 64.39 million from Tk 737.19 million in 2007 as against Tk 672.80 million in the previous year. Deposit The deposit of the bank registered an increase of 9.00 per cent in the year of 2005. At the close of 2004, total deposits stood at Tk 22505.17 million as against Tk 20774.49 million in the previous year. Credit The bank continued its participation in different credit programs for financing new industrial projects, working capital, trade finance international trade etc. The sector wise loan disbursement is shown below:


Staff Loan

Term Loan (Over 5 years)

Term Loan (UP to 5 years)

8000 7000 6000 5000 4000 3000 2000 1000 0

Demand Loan

Figure 1: Sector wise loan disbursement

Continuous Loan

Table 2: Sector Wise Credit Sector Tk in Million Continuous Loan 6873.65 Demand Loan 749.64 Term Loan (UP to 5 1890.1 years) Term Loan (Over 5 1323.28 years) Staff Loan 105.31 Total 10941.98 Foreign Trade

The bank continued its role as a facilitator in promoting countries export business. The export business handled by the bank marked an impressive 12 percent growth during 2008 recoding an increase of Tk. 4185 million from Tk. 29513.90 to Tk. 3369827 million in 2007. Human Resource Development Human Resources Development is focused on recruitment and in-house training for both on the job and off the job Bank staff members through the Bank Academy. BBL Academy — the oldest institution in the private sector — was conceived of as an in-house training center to take care of the training needs of the Bank internally. Academy is fully equipped with a professional library, modem training aids and professional faculty. Library has about 4941 books on banking, economics, accounting, management, marketing and other related subjects. Main training activities consist of in-depth foundation programs for entry level Management Trainees. Specialized training programs in the areas like general banking, advance, foreign exchange, marketing and accounts etc. are also organized by the Academy depending on need. Frequently outreach programs are organized to meet demand for new and specialized skills. During its 23 years of existence, Academy not only conducted courses, workshops and seminars as required by the Bank, but it also organized training programs for the Bank of Maldives, Nepal Bangladesh Bank Limited and Oman International Exchange LLC. In addition, Academy has also the credit of organizing system of Bank of Maldives. In addition to conducting courses internally, The Academy also selects candidates for nomination to various courses conducted by distinguished training organizations in the country including Bangladesh Bank Training Academy and Bangladesh Institute of Bank Management. The Academy also re-designs its courses, programs etc, regularly to need the requirement of new skills arising out of various directives, guidelines of the Central Bank and significant changes in the banking sector from time to time. Performance At the end of December 2005 the Authorized Capital, Paid -up Capital and Reserve Fund of BBL was 500 million; 406 million and 737 million respectively. In the year 2004 the advance of the bank was Tk.21280.28 million. Following table and figures will show us the scenario of BBL from 2003 to December 2005. Table: Over View of the Bank in Recent Years


Sl. Description 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Authorized Capital Paid up Capital Tier-I Capital Tier-II Capital Total Capital Total Deposit Total Loans & Advances Investment Total Asset Import Business Export Business Remittance Guarantee Business Total Income Total Expenditure Operating Profit Credit Deposit Ratio Return on Asset Return on Equity

2009 Taka 500.00

USD 7.14

2008 Taka 500.00

USD 8.14

2007 Taka 500.00

USD 8.47

406.44 1269.18 485.23 1754.41 22505.17 21694.90

5.80 18.13 6.93 25.06 321.50 309.92

406.39 1186.93 421.87 1608.80 20774.49 21280.88

6.61 19.32 6.87 26.18 338.07 346.31

406.39 1,115.02 421.87 1536.89 19799.33 20450.90

6.89 18.90 7.15 26.05 335.58 346.63

2971.47 30201.05 26929.45 33698.27 4744.94 2481.40

42.44 431.44 408.94 528.61 89.03 35.45

2666.29 28575.83 24810.12 29513.90 4297.79 550.56

43.39 465.03 403.74 480.29 69.94 8.96

2406.27 27101.27 25412.20 27557.30 3344.00 2206.43

40.78 459.34 430.72 467.07 56.68 37.40

2672.20 2122.66

38.17 30.32

2687.02 1986.77

43.73 32.33

2543.83 1921.75

43.12 32.57

549.54 96.40%

7.85 -

700.25 102.44%

11.40

622.08 103.29%

10.54 -

0.27% 6.04%

-

0.25% 5.92%

0.24% 5.63%

-



GENERAL BANKING Genera! Banking is the starting point of all the banking operations. it is the department which provides day to day services to the customers. Every day it receives deposits from the customers and meets their demand for cash by honoring cheques. It opens new accounts, remits funds, issues demand draft and pay orders etc. Since bank is confined to provide services every day, general banking is also known as SME banking. General banking is the core department of a commercial bank. General banking department is that department which is mostly exposed to the maximum number of customer. Motijheel Corporate Branch of BBL has all the required sections of general banking and these sections are run by manpower with nigh quality banking knowledge. 1. Sections of General Banking Department General banking department comprises of the following sections: 1. Cash section 2. Account opening section 3. Dispatch section 4. Remittance section 5. Deposit section 6. Accounts section 2. Functions of General Banking Department Functions of different sections of general banking department are enumerated below: a. Cash Section Cash section deals with all types of negotiable instruments, cash and other instrument and treated as a sensitive section of the bank. It is the most vital and sensitive organ of the branch as j deals with all kinds of cash transactions. This section starts the day with cash in vault. Each day some cash that is opening cash balance are transferred to the cash officers from the cash vault. Net figure of this cash receipts and payments are added to the opening cash balance. This figure is called closing balance. This dosing balance is then added to the vault. This is the final case balance figure for the bank at the end of any particular day. The following things are done in the cash section: • Cash payment is made only against cheque • It makes payment only against its printed valid cheque • It receives deposits from the depositors in form of cash • It collects money only its receipts forms b. Account Opening Section All banks are operated on the basis of bank-customer relationship and this relationship is established through opening an account. Opening account is the contract of customer with banks, which is enforceable by law. Now a day all new & existing account holders have to fill up a Know Your Customer (KYC) Form in addition with other required papers. i. Account Opening Procedure


Any person of sound mind can open account in any bank. The person who is interested in opening of any type account goes to the bank and expresses himself/herself to open an account. Then he/she is supplied an account opening form and a specimen signature card. Before opening an account the following formalities must be completed by the customer. 1. 2. 3. 4. 5. 6.

The form is filled up by the applicant himself/herself. Introduction by a valued account holder. Two copies of photographs of account holder attested by the introducer. One copy of photograph of the nominee attested by the account holder. National ID TIN (if necessary)

Account opening procedure is shown in the following flow chart Figure-St Account opening procedure Applicant fills up the Relevant application Form in the Prescribed manner

He/she is required to fill Up the specimen Signature card

Account is opened

After depositing the cash one chequebook is issued

For individual introduction is needed by an account holder

The authorized officer Scrutinizes the introduction and Examines the documents

Issuance of deposit slip and the deposit must be made in cash

Source: Primary ii. Relevant Documents Types of attached documents usually vary with the nature of the A/Cs being opened. Following are the list of documents that should be enclosed with the account opening form. In case of club 1. Certified copy of resolution 2. Certified copy of by-laws and constitutions 3. Copy of Government approval (if registered)


In case of co-operative society • Copy of by-laws duly certified by the co-operative officer • Certified copy of resolution • Certified copy of certificate of registration issued by the Registrar. • In case of minor • Affix the word after the title of the A/C • Special instruction regarding operation of NC • The form is to be filled up and signed by legal guardian In case of Public limited Company • Certified copy of the memorandum and articles of the company • Certificate of incorporation of the company • Certificate from registrar of the joint stock companies that the company is entitled to commence business • Copy of the latest balance sheet • Certified copy of resolution • List of Directors with address • Authorized signature iii Issuance of Cheque Book An account holder can get a fresh cheque book only against requisition on the prescribed requisition slip attached with the cheque book issued earlier, after proper verification of the signature of the account holder. A new cheque book should be delivered to the account holder or his duly authorized representatives. b. Dispatch Section Dispatch section is fully controlled by the Establishment Department. Any kind of letter, DO, IT, MI, cheque and telex are also transferred and received through this section. There are two types of letter they continuously received. These are as follows: Inward letter Outward letter At first recording is required whether it is inward/outward registered/unregistered letters. Then letters are disbursed to their respective destination. inward letters are firstly segmented according to their different sections and thereafter an entry is given to the Inward Register Book. For local letters which area is not far from the branch are delivered through messengers. In such Cases, firstly the entry is to be made in Dispatch Register Book and then a peon is to be maintained which contains only dispatch number and receiver’s address.’ For this, the messenger will get TK.20 as a conveyance d. Remittance Section Remittance means transferring funds from one place to another place. Banks extend these facilities to its customers by means of receiving money from one branch of the bank and


making arrangement for payment to another branch within the country. The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place. Banks take the risk and ensure payment to the beneficiary by charging the customer a commission. Considering the urgency and nature of transaction, the modes of bank remittances may be categorized as under: • • •

Demand Draft (DD) Telegraphic Transfer (TI) Pay Order (P0)

i. Demand Draft (DD) Demand Draft (DD) is a negotiable instrument, payable on issued by the branch of a bank containing an order to another branch of the same bank to pay a certain sum of money to a certain person or order on demand. It is basically used for transferring and payment of money. The difference between PC and OD is in terms of place only. P0 used for remitting money within the city whereas DD is used for within the country. The commission is minimum TK.25.00 or TK.1 .50 per thousand whichever is greater. ii. Issuance of DD When a person wants to purchase a DD from a bank, the bank confirms about the existence of the branch where the DD is to be issued or drawn as asked for by the applicant. Then the party submits application duly filled up on bank’s prescribed form. Thereafter, the applicant will be asked to deposit the amount mentioned in the D along with commission. On receipt of cash, a voucher is passed and scrolled by at least two officers. Then the DD is issued and recorded in the DD issue Register. Test number is affixed on both DD and Advice as per rule. iii. Payment of DD The holder of the DD submits it to the paying bank for payment and in genera!, banks make payments after it receives the corresponding advice from the issuing bank. On receipt of the DD advices from different branches, the paying banker will verify the genuineness of the advices by way of verifying test numbers and signature. iv. Cancellation of DD The purchaser of DD can cancel it by submitting an application stating that the DD is no longer required. In this case, the issuing branch verifies the signature and the purchaser has to pay TI( 40.00 as cancellation charge. v. Issuing of Duplicate DD If the DD is lost, the purchaser may ask the issuing branch to issue a duplicate DD. But before issuing a duplicate 00, the branch observes the following information:


Verify purchasers signature on the DD application slip Take indemnity bond from purchaser Clearance from paying branch whether the DD is already paid or not to be obtained DD cancellation advice to be sent to the paying branch Lastly, the duplicate DD is issued and the word “DUPLICATE” in red ink is stamped in the front side of the DD block. vi. Telegraphic Transfer (TT) Sometimes the remitter requires the funds immediately. In this case, the banker is requested to remit the funds telegraphically. Different modes are telegram, telephone, telex, fax etc Among those, telegraphic transfer is the most rapid and convenient but expensive method. TI is issued against cash, cheque and letter of instruction. vii. Issuance of TT Procedures followed by BBL Naya Paltan Branch regarding issuing of TT are stated below: • The customer deposits money with BBL Naya Paltan Branch to sent • The customer obtains a cash memo containing TI serial Number • Ti serial Number notifying party name is mentioned in the telex message • The telex department confirms transaction of the telex viii. Payment of TT After receiving the telex, it is decoded at first then the TI serial number and test number are verified. TK.50.00 is taken as postal & Telex charge. The minimum commission is TK.50.00 or 0.15% of the amount whichever is higher. ix. Pay Order (PO) PO is an instrument that contains an order for payment to the payee only in case of local payment. P0 s in the form of receipts and issued by joint signature of two officials. It ensures payment to the payee as the money deposited by the purchaser of P0 is kept in the bank’s own NC named P0 NC. It is not transferable and therefore, it can only be paid to the payee, the payee’s banker or the person holding the letter of authority from the payee. x. Issuance of PO Procedures followed by BBL Naya Paltan Branch regarding issuing of PO are stated below: Deposit money by the customer along with application form Give necessary entry in the bills payable Register where payee’s name, date, P0 No. etc are mentioned After scrutinizing and approval of the instrument by the authority, it is delivered to customer Signature of the customer is taken on the counter part xi. Reasons for issuing PO •

Remittance purpose


• • •

Advice to pay Payment against bill submitted to the bank xii. Payment of PO

As the PO issued by the bank is crossed one it is not paid over the counter. On the contrary the amount is transferred to the payee’s account. To transfer the amount the payee must duly stamp the PO. The PO can only be encashed through the branch that has issued the instrument. xiii. Cancellation of PO The following procedures are followed to refund pay order by cancellation: • • • • •

Submit written request to refund the Pa attaching therewith the original PC Verify purchasers signature with the original application form on record Managers prior permission is required before refunding the amount of PO PO should be affixed with a stamp cancelled’ under proper authentication No charge is created for cancellation Record the cancelled PC in the PO issue Register

e. Deposit Section Deposits are the life-blood of a commercial bank. Without deposits there is no business for the commercial bank. Accepting deposits is one of the two classic functions of commercial banks. Bank deposits can be broadly classified as follows: I.

Demand Deposit

These deposits can be withdrawn without any prior notice. IF1C Bank Ltd. accepts demand deposits through the opening of1. Current Account 2. Savings Account ii. Lime Deposit The deposit which is payable at a fixed date or after a period of notice is a time deposit. BBL accepts time deposits through the opening ofFixed Deposit Receipt (FDR) Fixed deposits receipts are the deposits in which an amount of cash is deposited in bank for a fixed period specified in advance. Normally, the money on a fixed deposit is not repayable before the expiry of a fixed period. In case of fixed deposits receipts, the bank needs not to hold a cash reserve to repay money to the customer. Short Term Deposit (STD) Short term deposits are deposits which as deposits for at least 7 days to get interest. The interest offered for STD is less than that of savings account.


Pension Savings Scheme (PSS) Empower for a secure and prosperous future with BBL PSS. Partnership for a prosperous and secure future. Features: Under this Scheme Customer can open a deposit scheme for Tk.500, Tk.i000, 11c2000 and TK.500C) per month tor 3 or 5 years whichever suits you. Customer can make the deposit within 10th of each month (In case of holiday the next working day). Customer can get Loan up to 80% of the deposited amount Customer can receive the entire deposit amount with interest at one go or receive a pension on a monthly basis at a desirable amount of your monthly installments. For a Table of Deposit Scheme and after Maturity Payable Amount is given below: Monthly Installment 3 Years Scheme 5 Years Scheme Tk.500 Tk.20322 Tk.36266 Tk.1000 1k 40645 Tk12532 Tk.2000 Tk.61 290 Tk.145064 Tk5000 Tk.203225 Tk362661 Extra Benefits: If anyone fails to deposit monthly installments continuously for 3 consecutive months his/her account will become automatically inoperative. But, it can be revalidated on the 4th month on receiving all outstanding installments along with a written application. He/She will be given two (2) opportunities during the 3 years scheme and three (3) opportunities during the 5 years scheme to avail this option. Customer can pay installments by transferring from your CD/SB account maintained with the concerned branch. Installments may also be paid in advance. Customer can dose the account at any time by a written application. Monthly installments to P55 will quality as investments in yearly Income Tax return f. Accounts Section Accounts section maintains all records of transactions and all types of statement. At the end of transaction hour all concerned sections send vouchers of transaction to this section. The major functions of this section are stated below: • • • •

It records the profit & loss NC and statement of asset & liabilities It prepares daily, weekly, monthly, half yearly and yearly fund position It records all transactions in the cash book It prepares monthly salary statement, provident fund statement and administrative expenditure statement


Foreign Exchange Department The foreign exchange department deals with import, export, foreign remittance and post import financing. It facilitates international trade through its various modes of services. It bridges between and exporters. It the bank is authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign country. This department mainly deals with foreign currency. Banks play a vital role by minimizing the risk of two parties, namely buyer and salient. In fact without the help of banks we can not think about a congenial international trade environment. Now the question comes how banks help international trade. We know that in a local trade there is a chance to know each other. But in international trade the involved parties stay two distant places. In case of international trade, for a buyer the following risks are involves: • Risk of non-delivery of goods • Risk of receiving sub standard goods • Risk of fraud in goods Again for a seller the following risk is involved: The risk of non-payment Some in Terms Regarding Foreign Exchange Every business has its own terminology. Similarly international trade has some terms also. The following terms are normally used in foreign exchange department a. Letter of Credit (L/C) Letter of credit (L/C) is a payment guarantee to the seller by the buyer’s bank. It is in fact, a credit contract whereby the buyer’s bank is committed to place an agreed amount of money at the seller’s disposal under some conditions. b. Clean Credit If the conditions of the credit do not require for presentation of specified documents, it is called clean credit. c. Documentary Credit If the presentation of specified document is obligatory, the credit is called a documentary credit Documentary credits are issued on behalf of the buyer to cover situation of performance, Le, the issuing bank agrees to make payment to the beneficiary once he surrenders the requisite complying document. d. Revocable Credit In this case the issuing bank can cancel the credit at any time without giving prior notice to the beneficiary. Here the bank enjoys liberty.


e. Irrevocable Credit In this case the issuing bank can not cancel, amend or modify the credit at any way. f. Beneficiary Beneficiary is the party in whose favor the letter of credit is issued. He/she is the seller or buyer. g. Applicant The person who requests the bank to issue L/C can be termed as applicant. The applicant bank open LIC in line with the terms and conditions of sales between seller and buyer. h. Advising Bank Advising bank or the notifying bank advises the credit to the beneficiary thereby authenticating the genuineness of the beneficiary. i. Issuing Bank The issuing bank is one, which issues the credit It undertakes to make payments provided the terms and conditions of the credit have been complied with. Especially the issuing bank should satisfy himself on the credit worthiness of the applicant. j. Confirming Bank The bank which adds its guarantee to the credit opened by another bank and undertakes the responsibility of payment under the credit in addition to that of the issuing bank. k. Negotiating Bank The bank which is nominated or authorized by the issuing bank to pay, to incur deferred payment liability, to accept draft or to negotiate the credit. Normally negotiating bank is the banker of the beneficiary. I. Reimbursing Bank The bank which is authorized to honor the reimbursement claims in settlement. it is normally the bank with which the issuing bank has account from which payment is to be made. Functions of Foreign Exchange Department The foreign exchange department is mainly divided into three wings in accordance with major activities. The wings are shown in the following diagram:


Figure-6: Different sections of foreign exchange department Foreign Exchange Department

Import Section

Export Section

Remittance Section

Source: Primary a. Import Section This section helps LIC opening and post import financing. In case of import, the importers are asked by their exporters to open UC so that their payment against goods is ensured. Hence, import of merchandise essentially involves two things such as bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with its dispatch to the importer. i.

L/C Opening Process

At first, the importer will request banker to open UC along with the following documents. • • • • • • • • • •

L/C application and agreement form duly signed by the importer Indent or pro-forma invoice Import registration certificate Tax payers identification number L/C authorization form properly filled in and signed by the importer One set of import permit form Insurance cover note with money receipt Membership certificate of chamber of commerce Vat registration certificate A bank account in the BBL.

After receiving the L/C authorization form and other documents, the branch officials carefully scrutinize the documents and lodge the same in their respective books and duly verify the signature of the importer put on the LIC authorization form. ii Verification of the Application The branch officials verify all the information given in the application carefully with special emphasis on the following points: • •

Whether the required columns of the application form are duly filled in prescribed manners Whether the LJC application is stamped properly


• • •

Whether the items to be imported are e or not Whether the terms and conditions stipulated in the L/C form are consistent with the Bangladesh Bank’s foreign exchange guidelines Survey report or certificate in case of old machinery

iii. Sanction of L/C The concerned officer verifies the documents and presents the case with a proposal for approval of the competent authority. The authority examines the documents, terms and conditions, and makes correction if necessary and then approves the opening of L/C. After obtaining the approval of the brandi incumbent authority to L/C proposal, the respective officer will pass the vouchers. Thereby, particulars of L/C are entered in the L/C opening register and get L/C number. Then the transmission of L/C is done through airmail to the advising bank. iv. Advising an L/C Generally, the advising bank is situated in the beneficiary county. It becomes customary to advice a documentary credit to the beneficiary through an advising bank. The advising bank verifies the signature or test the officers of the issuing bank while advising and complete this phase. v. Import Procedure The import procedures are as follows: • • • • • •

The buyer and the seller complete a sales contract provided for payment by documentary credit. The buyer instructs his bank to issue a credit in favor of the seller. The issuing bank then sends message to another bank. The advising bank informs the seller through his bank that the credit has been issued. The seller receives the credit and he informs the buyer that he is in the position to lead the goods and dispatch. The seller then sends the documents evidencing the shipment to the bank where the credit is available.

The bank checks the documents against the credit. If they meet the requirements of the credit, the bank then makes payment, accepts or negotiates according to the terms of the credit The bank, if other than the issuing bank, sends the documents to the issuing bank. The issuing bank checks the documents, if they satisfy the terms on condition of the credit, the bank release them to the buyer upon payment of the amount due or other terms agreed between importer and the issuing bank. The buyer sends transport documents to the carrier who will then proceed to deliver the goods. b. Export Section This section deals with export trade financing. Readymade textile garments, jute, jute-made products, frozen shrimps and tea are the main goods that Bangladeshi exporter exports to foreign countries. Garments sector is the largest sector that exports the lion share of the


country export. Most of the exporters who export through BBL Motijheel Corporate Branch are readymade garment exporters. They open L/C in this branch to export their goods, which they open against the import L/C opened by their foreign importers. i. Export Procedure The export trade of the country is regulated by the import and export act, 1950. There are a number of formalities that an exporter has to fulfill before and after shipment of goods. These formalities are enumerated as follows: The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import & Export (CCI & E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI&E and holds valid export registration certificate (ERC). The ERC is required to be renewed every year. The ERC number is to be incorporated on export (EXP) forms and other documents connected with exports. After having the registration, the exporter applies for getting EXP form along with trade license, ERC and certificate from the CCI&E. Upon registration, the exporter may proceed to secure the export order. This can be done by contracting the buyers directly through correspondence. During making contract the exporter has to be mentioned description, quantify & price of the goods and shipment, insurance, inspection, attribution etc. After making the deal and on having the I/c opened in his favor, the exporter starts for procuring or manufacturing the contracted goods. If the goods are raw-jute or jute-made materials then registration of sale certificate is required to export that. After completing the above formalities the goods are sent for shipment c. Remittance Section Remittance means transferring funds from one place to another place. Banks extend these facilities to its customers by means of receiving money from one branch of the bank arid making arrangement for payment to another branch within the country. The remittance facilities of a commercial bank enable its customers to avoid risk arising out of theft or loss in carrying cash money from one place to another or making payment to someone in another place. Banks take the risk and ensure payment to the beneficiary by charging the customer a commission. Modes of Payment of Export The payment of export bills is made in the following ways: a. Sight Payment


When the payment is made immediately after presentation of documents is called payment at sight. b. Deferred Payment If the payment is made on a specified future date or event after presentation of the export docs then it is called as deferred payments. Deferred payments may be at rate of 30-60- go-I 80-360 days. c. Acceptance Credit If exporter presents a bill of exchange payable to him and drawn at the agreed tenor on the bank that is to be accepted. The exporter can then represent it for payment on maturity. Alternatively he can discount it in order to obtain immediate payment. d. Negotiation Credit If the exporter has to present a boil of exchange payable to him in addition to other docs that the bank negotiates then it is called negotiation credit. FUNCTIONAL DIVISIONS OF BBL. The BBL has a centralized banking structure through online banking system that resembles the ABN·AMRO Model. BBL consisted of four major divisions namelyRetail Banking SME Division Corporate Banking Treasury Division. Other important division are Credit Administration, Loan Administration, Trade Fin, IT, HRM, CCU, Internal Control etc, which work to support the major business divisions. RETAIL BANKING: RETAIL Banking is known as general banking where the individual customers get services time to time from the local branches of the larger commercial banks. In BBL retail section has been divided into two parts – Distribution – Serve the acquired customers Sales – Business acquisition. They both are interdependent and work closely with each other. Retail offers different types of competitive banking products to the customers. The retail division of the BBL also offers some special types of deposits and loan scheme for the customer attention. RETAIL DEPOSIT PRODUCTS: Current Account. Saving Account (Maximize and Normal Saving Account). Deposit Premium Scheme (DPS). Short Term Deposit (STD).


FDR. RETAIL LOAN PRODUCTS: • Jibondhara Loan • Utsab Loan • Executive Loan • Education Loan • Fast Loan • Travel Loan • Home Loan • Auto Loan SME DIVISION: The biggest operational division of BBL is the SME (Small & Medium Enterprise) Division. SME is directly related to business of the bank. BBL extends loans to potential small and medium trading, manufacturing and service enterprises. This loan is able to provide quick and quality banking services to targeted business at any places of the country. Potential women entrepreneurs will also get the facilities of SME loan; this initiation is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment. BBL was titled to be the fastest growing bank in 2008 & 2009, and

it had a profit of 250 corer taka. The profitability of the bank came mostly from the SME sector. SME division is enriched with more than 700 staffs and it has almost 80 unit offices all over the country. STRUCTURE OF SME DIVISION: Field Level: In the field level there are three types of designated BBL staff operates. They are Relationship Manager (RM), Relationship Officer (RO) and Assistant Relationship Officer (ARO). CORPORATE DIVISION: Like SME, corporate department has also two different wings - Corporate Banking division & Cash Management. CORPORATE BANKING DIVISION: Corporate Banking is a specialized area of BBL, which addresses the diverse financial needs of Corporate Clients. This division exists to provide banking services and financial partnership with local and foreign business houses (Public and Private Limited Companies), NGO’s, trading houses, joint ventures and various government bodies/corporations etc. As the financial partner of choice for the corporate sector, BBL wants to be distinguished by its: Quality of service • •

Value of innovative solutions Level of trust with clients


• Customer knowledge Corporate clients can access a wide range of financial services offered by corporate banking division including: • • • •

Debt Capital Equity Capital Ongoing relation support Financial Markets

Products: BBL provides a comprehensive range of innovative corporate financial solutions tailored to suit each company’s needs. This range includes both funded and nonfunded facilities. Following are some of the products that BBL offers to its clients: • • • • • • • • • • • • • •

Corporate Finance Loan Syndication Project Finance: Short and Medium term Finance/Credit Extension Overdrafts Demand Finance Working Capital Finance Receivable Discounting Pre and Post Export Financing Short-term loan Trade Letter of credit. Guarantee: Performance, Security, Advance Payment etc. Lease financing.

Target Market: Pharmaceuticals, Toiletries, Chemicals and Pesticides Power Generation, oil exploration, Industrial and household gases (Liquid, Petroleum Gases etc.) Edible oil, Bulk Trading –Essential Commodities, Industrial Raw Materials, Agricultural Inputs, Cement. Garments, Textiles and related backward linkages industries including spinning, Knitting, Yarn, Garment accessories etc. Food Processing and Beverage Industries. Cable and Cable wire, Information Technology. Leasing Companies/Non Banking Financial Institutions. Health service Industry, Non Governmental Organizations. Importers/dealers of machinery, Industrial, Electrical equipment Education Institutions, Bone china, Ceramics, Melamine, plastic products. Manufacturing and Trading of Consumer Durables, Telecommunication, and Contractor Finance. Ship Breaking, Re-rolling Corrugated Iron (CI) Sheet Mfg and related business.


Air Lines, Shipping Lines, Freight Forwarders, Testing Inspection agencies, Footwear and Leather. Target Customers Group: Leading Domestic Corporate and Trading Houses. Local medium and large corporate. Educational Institutions. TRS division also has Priority Service System for their Corporate Customer, which manages their business finance and cash resources very conveniently. Priority Service Banking includes the following special services: Pick-up & Delivery Services Auto fax Report Corporate Help Line Inward Remittance Information Express Payment Liquidity, this division borrows money from other financial institution on the same basis. On the other hand the back office keeps records of the fund position of the bank. KEY ASPECTS RELATED TO THE MARKETING OF SME PRODUCTS IN BBL DEMAND CREATION: The SME division of BBL basically provides micro credit loans to small and medium enterprises. Because of its unique nature, the demand for SME loans is different in nature to the demand for corporate or SME loans. A huge portion of the target market has traditionally been neglected by the banking sector and hence, is ignorant about banking activities. Thus, awareness building has been, and still is, a vital activity of the demand management process of SME loans. The process flow of demand creation is as follows: Market Identification

Customer Needs Identification

Product Development

Relationship Building

Awareness Creation

The RM plays a vital role in all the stages of demand creation apart from market identification and product development. They provide door-to-door services for the clients and at the same time are always in search for potential new clients. Because clients are ignorant about banking products that may satisfy their needs, the RM identify their needs, evaluate their requirements and determine which products are most suitable for them.


The major security of the SME products is building relationship between clients and banks. Demand basically comes from two groups: new customers and repeat customers. Because banks are facing new marketing realities like changing demographics, slow growth economy, more sophisticated competitors etc., BBL cannot afford to lose clients. The key to customer retention is superior value and satisfaction. As BBL recognizes this fact, repeat borrowers of SME products enjoy lots of extra benefits. MARKET SEGMENTATION: The market consists of many types of customers, products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives. BBL segments the market for banking products into three categories based on the nature of the consumer:

TABLE : MARKET SEGMENTATION OF BBL Segment

Target Market

Corporate

Enterprises with loan requirement of Taka 600 lacs or more

Small & Medium Enterprises with loan requirement of Taka 5-500 lacs Enterprise Retail

Individuals with loan requirements for consumer purposes of Taka 50000thousand-10 lacs

By segmenting its consumers into these categories, BBL is trying to serve niche markets where there is ample opportunity for growth. Within SME, the market is further segmented on the basis of the nature of the business as follows:


SME SMEMarket Market

Trading Trading

Manufacturing Manufacturing

Wholesale Wholesale SME SME General General Stores Stores

Agriculture Agriculture

Mills Mills

Food Food

Bakery Bakery

Beverage Beverage

Press Press

Poultry Poultry

Factory Factory

Dairy Dairy

Service Service Pathology Pathology Hospital Hospital Schools Schools& & Colleges Colleges

TARGET CUSTOMERS To succeed in today’s competitive marketplace, organizations must be able to hold on to its customers by delivering greater value. In order to do this, an organization must be able to identify the customers who would be benefited from their products. BBL Bank has targeted the small and medium enterprises that have small loan requirements as the target consumers of their SME products. However, BBL does not finance business startups. The business has to be at least two years old to avail the SME loan facilities offered by BBL. Most of such businesses are sole proprietorships. There are some partnerships as Well, but limited companies are rarely seen in this category. The survey that I had conducted brought up the following results as common characteristics of the respondents: The mean age of the respondents was 38.71 years and mode was 33 years. 71.50% of the respondents did not pursue education after completing their HSC. 44.50% of the respondents did not complete HSC. The average working capital requirement of the respondents per month was almost Tk. 28,000. Thus the target customers can be classified as the entrepreneurs who have little or no formal education, between the age group of 30-40 years and having working capital requirement of around Tk. 30,000. MARKET POSITIONING: Every product must have a unique proposition that will enable it to fulfill the customers’ needs. In case of loans, there are four factors that might influence the clients’ decisions regarding the selection of a loan from a bank: Interest Rate Collateral Time Involved in Acquiring the Loan Repayment Scheme and Tenure


Not all factors influence every segment of the market. In the survey conducted, the following findings were revealed when the respondents were asked about their prime reason for obtaining SME loans from BBL: DEVELOPING THE MARKETING MIX FOR SME LOANS: PRODUCT: In order to serve the market more efficiently, BBL has designed various products that will be able to satisfy the needs of the clients. The summary of all the SME loan products of BBL can be found in Appendix III. However, a few important factors are worth mentioning here. TABLE 2: DIFFERENT SME LOAN PRODUCTS OF BBL Anonno Loan

BIZ loan

Durjoy Loan

Digun Loan

Apurbo Loan

Purpose

To To expand the expand business the business

To To expand expand the the business business

To expand the business

Loan Size

3 -9 lac

3-25 lac

5-50 lac

Repayment Scheme

Single Payment of Principal and Monthly Interest Payment/ Monthly Installment of Full Volume

10-50 lac

10-50 lac

Business Equity Loan To expand the business 10 lac to 3 crore

BBL has various SME products to satisfy the needs of the different types of clients in the Consumer market. The different loan sizes are set to attract enterprises of different sizes. Loans are approved on the basis of inventory and total receivables. Usually, up to 75% of the average inventory and receivables is granted as loan. PRICE: The price of loans is actually the interest paid for it and the charges, fees or commissions associated with it. In case of BBL, the pricing for SME products are as follows: TABLE : PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

Anonno Loan BIZ loan Durjoy Loan

Interest

Loan Processing Fee

17.80% p.a.

2.5% of loan amount plus VAT

17.80% p.a. 18.80% p.a.

1% of the loan amount plus VAT 1.5% of loan amount plus VAT


TABLE : PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL Interest

Loan Processing Fee

Digun Loan

17.8% p.a.

1% of the loan amount plus VAT

Apurbo Loan

17.8% p.a.

1% of loan amount plus VAT

Business Equity Loan

17.8% p.a.

1% of loan amount plus VAT

This differentiated pricing method for different amount of loans is designed to attract clients with various requirements. PLACE (DISTRIBUTION): BBL offers loans to SME clients all over the country. However, loans are processed centrally in the SME Division of the Asset Operations Department. The base unit of the distribution channel of the SME Department is the Unit Office. There are 2-7 LOs in each unit office based on the market potential of that particular unit. The LOs are responsible for the grassroot level distribution of SME loans. At present, there are almost 1050 LOs operating in the country. The distribution channel of SME loans is as follows:

Business development manager

Relationship manager Sales officer

Sales officer

Relationship manager Sales officer

Sales officer

The country is divided into 7 territories. There are 36 branch and 30 Unit Offices in the country. PROMOTION: Due to the nature of clients, direct marketing techniques are very effective for the promotion of SME loans of BBL. BBL has two main types of promotional activities:


Door-to-Door Service: The SOs identifies potential clients and reaches them with loan offerings. Most of these clients are illiterate and do not maintain any financial documents. The SOs helps them prepare documents required by the bank for them and provide them with necessary support in activities like account opening, transaction, etc. Flyers & Brochures: For the more educated clients, BBL provides flyers and brochures in the unit offices as well as in the branches. These flyers contain specific features of the product they advertise. However, as this type of promotion is handled by the Marketing Department, it would not be within the scope of this report to discuss more elaborately on this promotional tool. ANALYSIS OF SME LOAN IN BBL: PRESENT SCENARIO DEFINITION OF SME LOAN: There are a lot of confusions regarding the definition of SME loan within the banking sectors. For example, BBL defines SME loan as enterprises with loan requirements of Tk 3 lac to 50 lac. In Standard Chartered Bank, however, SME loan starts from Tk. 1 lac. Again in the NCBs, SME loan includes even smaller enterprises with loan requirements of Tk. 5 lac. However, for the context of this report, SME loan will be counted as enterprises with loan requirements of Tk. 3 lac50 lac. INVESTMENTS IN THE SME LOAN SECTOR BY THE BANKING INDUSTRY: CATEGORY-WISE MARKET SHARE The market of SME loans is dominated mainly by the BBL with a market share of 53.37%. The total size of the market is Tk. 45.652 billion. Category-wise distribution of SME loans in the banking industry is shown in the following table: TABLE : BANK CATEGORY-WISE DISTRIBUTION OF THE VOLUME OF SME LOANS Figures in '000,000 BDT Volume

Percentage

SCB

23,294

53.37%

BBL

11,125

25.49%

CBL

2,450

5.61%

EBL

6,778

15.53%

Total

43,647

100.00%

The top ten market players in the consumer banking sector and their market share are shown below: REASONS BEHIND THE DOMINANCE OF BBL:


There are various reasons behind the dominance of BBL in the SME loan sector. Unfortunately, BBL, which are supposed to support the SME loan sector, could not make such a dominant presence in the industry. The lowest interest rate is in Agrani Bank which has an average interest rate of 7.50% only. The highest interest rate is in BBL, which is 17.05%. COMPARISON OF THE GROWTH RATE OF THE MAJOR PLAYERS: The trend for the top ten market share holders is as follows: This figure depicts the rather poor condition of the BBL. The BBL have experienced stagnant or negative growth during these three years. BBL and HSBC Bank have grown at a consistent rate during this period. Standard Chartered Bank has also made remarkable progress during this period. Janata Bank and RKUB have experienced negative growth in one year during this period while BSB had a constantly negative growth rate. The growth rate in 2004 and 2005 of the top ten SME loan investing banks are as follows:

TABLE : GROWTH RATE FOR THE TOP TEN SME LOAN INVESTORS Bank

2008

2009

Agrani Bank

5.84%

0.23%

Sonali Bank

38.36%

15.63%

Janata Bank

-15.06%

10.31%

IFIC Bank

38.85%

26.49%

BRAC Bank

81.75%

48.62%

CBL

12.31%

15.85%

SCB

3542.86%

60.13%

RKUB

12.12%

-0.25%

BBL

328.65%

16.83%

BSB

-10.51%

-63.38%

In both 2004 and, the highest growth rate was achieved by Standard Chartered Bank3542.86% and 60.13% respectively. However, as the bank has started SME loan banking only in 2004, this growth rate is expected. Same is the case for Brac Bank Limited, which has experienced a growth of 328.65% in 2003. The growth rates for the BBL are less because of the following reasons: Huge Volume: The NCBs are the market leaders in the SME banking segment. Because of the huge volume of SME loans they have already achieved, it is impossible for them to sustain the same growth rate.


Existence for a Longer Period: The BBL have started consumer banking in the 1990s. It is impossible to maintain a high growth rate for such a long time. The SME loan market has almost reached the maturity stage for the BBL. Aggressive Marketing by the BBL: After their emergence in the SME loan sector in the early 2000s, the BBL have adopted an aggressive strategy in marketing their SME loan products. This has enabled them to snatch away a considerable portion of the SME loan market from the BBL. As they could not compete with the interest rates, they provided other facilities like minimum collateral and shorter processing time. SME LOAN BANKING IN BBL: CONTRIBUTION OF THE MAJOR BUSINESS DIVISIONS: As is shown from Figure 2, BBL is one of the major investors in the SME loan segment of Bangladesh’s economy with a market share of 3.78%. Even within the bank, SME loan consists of a major portion of the total loan portfolio. The bank policy requires that at least 50% of the total loan portfolio should be allocated to SME loan. The contribution of SME loans in BBL’s loan portfolio is shown in Figure 6. The contribution of SME loan in the overall loan portfolio was highest in 2003 at 61.14%. However, in 2005, the contribution has decreased to 42.45%. This is mainly due to the management’s concentration on SME loan products, the share of which has increased from 17.55% in 2002 to 31.19% in 2006. . 100%

Corporate 80%

60%

Corporate

Corporate

Retail Retail

40%

SME

Corporate

Retail Retail

SME

SME SME

20%

0% 2002

2003

2004

2005

Figure : Contribution of the Major Business Divisions in Loan Volume The total loan portfolio of BBL in the years 2002, 2003 and 2004 is shown in the following table: TABLE : DIVISION-WISE LOAN PORTFOLIO OF BBL


Figures in Million BDT 2006

2007

2008

2009

SME

331

1,890

3,435

331

Retail

110

578

1,229

110

Corporate

184

623

1,405

184

Total

625

3,091

6,069

12,027

GROWTH IN THE BUSINESS DIVISIONS OF BBL The growth rate in the business divisions of BBL are as follows: TABLE : GROWTH IN THE BUSINESS DIVISIONS OF BBL 2007

2008

2009

Retail

470.72%

81.76%

48.61%

SME

426.41%

112.72%

205.10%

Corporate

237.95%

125.33%

125.76%

The year 2003 brought about huge growth in all the divisions of BBL. As the bank began its operations in late 2001, this was expected. Although the growth rate declined in the subsequent years, the bank still managed to sustain at least a 100% growth rate in the SME and corporate division. But the growth in the consumer division continued to decline drastically through the years 2005 and 2006. This scenario is clearly depicted in the trend analysis of the loan volumes in the different business divisions of BBL 50 thousand-10 lacs. Figure: Trend of the Volume of Loans (Division-wise) in BBL 6,000 5,000 4,000 3,000 2,000 1,000 0 2006

2007 SME

2008 SME

2009 Corporate


Figure shows that SME has maintained a steady slope over the years, whereas the slope for SME and corporate has begun to become steeper after 2005. This indicates that SME and corporate are experiencing a greater growth than SME from 2004. PRODUCT-WISE BREAKDOWN OF SME LOANS IN BBL: The first product introduced in SME banking by BBL in 2001 was Jibondhara loan, which was an any-purpose loan with a range of Tk. 2-8 lacs. This loan still remains the most dominant product with a share of almost 85% of the SME loan portfolio. After the success of JDL, Utsab was introduced with a range of Tk. 50 thousand-10 lacs. This product also became quite popular and now has a share of 12%. HL and CAR Loan were introduced in 2004 to capture specific segments of the SME market, namely the health-care and education sector. These loans have a combined portfolio share of 2.5%. The most recent loans, Digun Rin and Supplier Finance, have not made significant progress yet, and have a combined portfolio share of 0.5%. 85

0.5

2.5

12

Anonno

BIZ LOAN

Aroggo& Pathshala

Digun Rin & Supplier Finance

Figure : Product-wise Share of SME Portfolio INVESTMENT SECTOR-WISE BREAKDOWN OF SME PRODUCTS OF BBL: Based on investment sector, BBL has segmented the SME market into 4 categories: Trade, Manufacturing, Agriculture and Services. The portfolio share in each of the segments is shown in Figure 9 and 10.


83%

87.43%

4.85%

6.15%

9%

1.57%

7% 1%

agriculture

manufacturing

agriculture

manufacturing

trade

service

trade

service

Figure : Sector-wise Portfolio Share (No. of Loans)

Figure : Sector-wise Portfolio Share (Volume-wise)

Although trading companies have an 87.43% share and service companies 1.57%, numberwise, the volume-wise share is 83.48% and 1.07% respectively. On the other hand, manufacturing and agro-based companies have a larger share in volume than in number of loans. This signifies the fact that the average loan size of trading companies is actually smaller than that of manufacturing and agriculture companies. SECTOR-WISE GROWTH: If we compare the sector-wise trend of SME loans as is shown in Figure 11, we can see that investment in the trading companies has the steepest curve. This indicates the huge increase volume-wise in this sector on a year-to-year basis. Service sector, on the other Hand, has experienced slow increase in volume up to 2005. However, if we take a closer look at Figure 12 which indicates percentage increase on a year-to year basis, we can see that only the service sector has experienced an increasing trend in terms of percentage growth over the period. Investment growth in the manufacturing sector has also begun to increase from 2004. From these figures it can be concluded that although, the trading sector still accounts for the bulk of the portfolio, manufacturing and service sectors have enormous potential for growth


600.00% service

500.00% 400.00% 300.00% 200.00%

agriculture mfg trade

100.00% 0.00% 2002

2003

2004

2005

Figure 6: Percentage Growth in Volume of Personal Loans of EBL

.

4500.00 trade

4000.00

Volume (mil. BDT)

3500.00 3000.00 2500.00 2000.00 1500.00 1000.00 manufacturing

500.00

agriculture service

0.00 2002

2003

2004

2005

Figure : Sectorwise-Trend of Retail Loans of EBL

PERFORMANCE OF SME LOANS OF BBL


The performance of a loan is determined by the repayment status of that loan. A loan has two statuses which determine its performance: Regular Loan: When the repayment of a loan is made on time it is considered to be a regular loan. A loan is performing as long as the installments of that loan are paid on time. Irregular Loan: A loan becomes irregular when the installments are not paid on time or when installments are missed. The number of irregular accounts reflects the overall credit quality of a loan portfolio because it is the point from where loan accounts tend to move towards being defaulted. Therefore the actual recovery efforts by the bank start. FINDINGS & PROBLEMS IDENTIFIED & RECOMMENDATIONS FINDINGS: The scenario in the SME sector is quite complex. The data analyzed did not indicate any specific trend in the market. However, the situation can be termed fairly prospective if the market can be properly exploited. Based on my analysis I have presented my findings below. OPPORTUNITY OF GROWTH: However, their market share has declined gradually in the last three years. The market share of the different categories of banks over the previous three years is shown in the following table. TABLE : CATEGORY-WISE MARKET OF SME LOANS Figures in '000,000 BDT 2007

2008

2009

BBL

54.48%

50.59%

51.03%

PCB

16.11%

20.90%

24.37%

FCB NSB

0.11% 23.96%

3.61% 20.17%

53.67% 14.85%

In 2006, the market share of the BBL in the SME sector was 54.48% which declined to 51.03% in 2008. Again, the market share of PCBs has increased from 16.11% in 2006 to 24.37% in 2008. As the PCBs are penetrating the market in the SME sector, the growth potential for BBL in the SME sector is increasing year by year. Amongst the PCBs investing in the SME sector, BBL has a market share of 45.89%. It is the second largest PCB behind IFIC Bank in this sector. As the PCBs have a market share that is gradually increasing, BBL has a tremendous potential to be the market leaders in the SME sector in the near future. The growth rate of SME loans of BBL from 2006 to 2008 was 172.12%. A comparison of the growth rate of the major banks in the SME sector is shown in the following table:


TABLE : GROWTH RATE OF THE MAJOR BANKS IN THE SME SECTOR Bank

Growth Rate

BBL

16.08%

Sonali Bank

59.98%

IFIC Bank

75.64%

BRAC Bank

172.12%

Loan Range: BBL has defined its SME sector as enterprises with loan requirements of Taka 50thousand-10 lacs. In such a definition, enterprises with lesser loan requirements miss out. In the survey conducted, the required loan amount of the clients was asked. Interest Rate: The interest rate of BBL is the lowest among its competitors. Although BBL provides other facilities to its clients, the lowest interest rate interests many clients to approach the bank for loans. During the survey, 38.50% of the respondents appeared to be neutral about the interest rate of SME loans of BBL. 35% of the respondents were not satisfied with the interest rate while 17.5 to18 were happy with it. This indicates that many more potential clients were put off by the high interest rates. PROBLEMS IDENTIFIED When I was doing my internship at The BBL I identified some problems which are presented below. Lack of variety of services is also a drawback of the SME banking area of CBL. The bank provides only some traditional limited services to its client. As a result the bank falling behind in competition. They are not using data base networking in information technology (IT) department. So they have to transfer data from branch to branch and branch to head office by using pen drive or flash drive and sure it is not a good system. According to some clients opinion introducer is one of the problems to open an account (SME loan account). If a person who is new of the city ones to open account, it is a problem for him/her to arrange an introducer of SB or CD accounts holder. Employees are not so efficient those who are in the SME booth (Relationship Manager). Advertisement about there (SME) present schemes and services are not reaching the entire concern client because of they are not likely to encourage to peruse its marketing executive. Though it is local non-government bank, it has on-line banking system. But most of the executive are not expert to run on-line system. The bank gives SME loan only few sectors like Trade, Manufacturing, Service, & agriculture.


The bank takes long time to process the loan. Lack of proper monitoring of loans. RECOMMENDATIONS On the basis of the above findings, I have made the following recommendations that BBL may take into considerations in order to exploit the potential SME market. New service policy was about a drawback but BBL now introduce 12 new services for the client so that it may make a difference. They should use data base networking in information technology (DBNITD) department so that they transfer data from one branch to another and branch to head office. The problem with account may concern regarding to business purpose only but not for general clients those who maintain only account with the bank. Employees have to be very careful when they process loan proposal. Every relationship manager has to be very fast and responsible for goods proposal. At present BBL has been 16 different schemes available but clients are not concerned about that, have to create the awareness among the client, perfectly advertised about the advantages of the schemes only then clients’ welcome to know. The bank kills enough time of there clients in providing services as it lacks in expert computer operators. To remove this lacking, I think bank should arrange some sorts of training programs in this sector. The bank need to remove there traditional system and expand to the all sector. Now a day, On-line banking system is very much faster and popular in the world. So the bank should appoint some efficient people in this sector. There is an existing recovery team for the SME division to monitor the performance of SME loans, yet, the performance is declining. Therefore, BBL has to be more careful on this issue. In order to improve the performance of SME loans the following steps can be taken. Experienced consultant may be needed to discover new ideas, and student with entrepreneurial sprit may also concern in this matter. As the survey and analysis have revealed, many SME require a smaller loan size. The current loan floor of Taka 5 lacks is actually an excess of funds for them. Thus BBL can consider dropping the floor to Taka 3 lack. This will increase the market size as well as the prospect for faster growth. CONCLUSION Brac Bank Limited is a SME focused bank. The prospects of the SME market are great, and the market size is also huge. Research in this field has only begun recently, and the specifics of the market are still not clearly outlined. At the same time, this market is a risky market, as it involves dealing with entities which are prone to default. However, because of its


tremendous potential, it is worth taking the risk. But in the process, BBL has to take care to minimize the risk involved in investing in this sector. As the SME sector is relatively new, the performance of the loans in this segment cannot be evaluated conclusively yet. A cautious approach to the SME market will enable BBL to exploit the prospects of this segment. BIBLIOGRAPHY: Booklet of BBL. Information from officers of BBL. Annual Report of BBL. Helpful input from internee supervisor.

Policy guideline of BBL. Bangladesh Economics Review 2009. Different types of journals.

URLS www.BBL.com www.bangladeshbank.org www.cp-bangladesh.org http://en.wikipedia.org/wiki/bank List of Abbreviations BBL Brac Bank Limited AOD Assets Operations Department CBL

City bank limited

BSB

Bangladesh Shilpa Bank

BSRB

Bangladesh Shilpa Rin Sangstha

CIB

Central Information Bureau

CRO

Customer Relationship Officers

CSE

Chittagong Stock Exchange

DSE

Dhaka Stock Exchange

FCB

Foreign Commercial Banks

FY

Financial Year

HBFC

House Building Finance Corporation

IAS

International Accounting System

ICB

IFC

International Financing Company

MBS

Millennium Banking System

NCB

National Commercialized Banks

NSB

Nationalized Specialized Banks

PAR

Portfolio At Risk

PCB

Private Commercial Banks

PPG

Product Program Guidelines

RKUB

Rajshahi Krishi Unnayan Bank

SME

Small & Medium Enterprises

HSBC

Hongkong Sanghai Banking Corporation

ZO

Zonal Officers

SCB

Standard Chartered Bank

BIZ loan Investment Corporation of Bangladesh

Business Loan


Millions discover their favorite reads on issuu every month.

Give your content the digital home it deserves. Get it to any device in seconds.