Loan Disbursement Practice: A Study on Dhaka Bank Limited. Sakib Ahmed Chowdhury ID# 13364033 BRAC University May 24, 2016 Loan Disbursement Practice: A Study on Dhaka Bank Limited. Internship Report (Prepared to fulfill the partial requirement of MBA Program) Submitted by Sakib Ahmed Chowdhury ID# 13364033 Supervised by Hasan Maksud Chowdhury Assistant Professor BRAC Business School BRAC University May 24, 2016 LETTER OF TRANSMITTAL 24 May, 2016 To Mr. Hasan Maksud Chowdhury Assistant Professor BRAC Business School BRAC University Subject: Submission of Internship Report. Sir, I am highly delighted to submit my report on, “Loan disbursement Practice of Dhaka Bank Ltd.” to you. I have got the opportunity to work at Dhaka Bank Ltd at Mirpur Branch for my internship program, which is an essential part of my academic program, and it is a great achievement to work under your supervision and guidance. The whole report is prepared based on my academic knowledge from MBA program and also the experience acquired during internship session in the Dhaka Bank Ltd. I have tried my best to represent all the things accurately that I have learned during the internship program in the Dhaka Bank Ltd, Mirpur Branch. Finally, I would like to thank for your valuable guidance and care in preparing this report. I shall gratefully response to any clarification when required. I shall be highly obliged if you are kind enough to give approval to this report. Sincerely yours …………………………. Name: Sakib Ahmed Chowdhury ID# 13364033 Program: MBA in Finance BRAC University I ACKNOWLEDGEMENT Every work accomplished is a pleasure – a sense of satisfaction. However a number of people always motivate, criticize and appreciate a work with their objective ideas and opinions, hence we would like to use his opportunity to thank all, who have directly or indirectly helped us to accomplish this project. Firstly, we would like to thank Almighty Allah for giving us the spirits to accomplish this assignment successfully. Secondly, we would like to thank my careful guidance of my supervisor, “Mr. Hasan Maksud Chowdhury” sir for his motivating inspiration, kind direction, valuable suggestion & advices during my internship period and without his support this report could not be completed. I was placed in Dhaka Bank limited to work as an Intern from 03 January, 2016 to 31 March. The members and management of Dhaka Bank Ltd was very co – operative and helpful. They helped me through providing various data, guidance and direction. I am grateful to Mr. Syed Mohammad Haseeb, Assistant Vice President of DBL, Mirpur Branch for his co – operation and Necessary support. I would also like to thank Mr. Khan Md. Moshiur Rahman (Vice President & Manager-in – Charge), Mr. Sofequl Islam (Sr. Assistant Vice President & Manager Operation), of Dhaka Bank Limited for sparing their valuable time in giving me the information and the opportunity to work with them. I gathered practical knowledge that was needed in order to make this internship program successful. I am also thankful to HR Division of Dhaka Bank Limited for giving me the opportunity to conduct the internship in Mirpur Branch of Dhaka Bank Limited. II Table of Contents SL No. Topic Page No. Letter of Transmittal I Acknowledgement II Executive Summary 01 Chapter One 03 Organizational Profile 1.1 Introduction 04 1.2 Historical Background of Dhaka Bank Limited 05 1.3 Products of DBL 06 1.4 Services of DBL 14 1.5 Other Products and Service 17 1.6 Correspondent Relationship 17 1.7 Departments of DBL 18 1.8 Existing Branches 18 1.9 Organizational Structure of Dhaka bank limited 19 1.10 Mission and Vision of DBL 19 1.11 Values of DBL 20 Chapter Two 21 Job Description 2.1 Nature and Specific responsibilities of the Job 22 2.2 Observation and Recommendation 23 Chapter Three 25 Description Of The Project 3.1 Introduction 26 3.2 Objectives of the Report 26 3.3 Methodology 27 3.4 Limitation of the Report 27 Chapter Four 29 Loan Disbursement Practice 4.1 Credit 30 4.2 Principles of Lending 30 4.4 The importance of Securities in Credit 30 4.4 Classification of Credit Facilities 31 4.4.1 Funded Credit facilities 31 4.4.2 Non Funded Credit Facilities 34 4.5 What does Credit Department do? 35 4.6 Credit Policy of Dhaka Bank Ltd 35 4.7 Procedures for Sanctioning Credit 35 4.8 Interest Rates along with other conditions charged to different 43 categories of loans 4.9 Classification of Loans and advances: 45 4.10 Basis of Loan Classification 45 4.11 Credit Position of Dhaka Bank Ltd. In a bird’s eye view 47 4.12 Financial Performance in Credit Sector of Dhaka Bank Ltd. 47 4.13 Industry Wise Loans including Bills Purchased & Discounted 48 4.14 Geographical Location wise Loans & Advances 49 4.15 Classification of Loans and Advances 50 Chapter Five 51 Analysis 5.1 Analysis of the Credit Position of Dhaka Bank Ltd 52 5.1.1 Total Loans and Advances 52 5.1.2 Interest earned from loans and advances 53 5.1.3 Volume of Non Performing (classified) Loans 55 5.1.4 Non Performing Loans as % of Advances 56 Chapter Six 58 Recommendation and Conclusion 6.1 Recommendations 59 6.2 Conclusion 61 References EXECUTIVE SUMMARY Dhaka Bank Ltd. started its journey in the financial sector of the country as an investment company back in July 5, 1995 with an authorized capital of Tk. 1000 million and paid up capital of Tk. 100 million. The Present authorized capital of the bank is Tk. 10000 million and the paid up capital of the bank stood at Tk. 15,408 million as on December 31, 2015. For collecting primary data personal interview technique has been used through a set of small ranged and unstructured informal way has been used as the instruments. In order to collect the secondary data different related printed materials like Dhaka Bank Annual Report, Dhaka bank website etc has been used. The mission is to mobilize financial resources from within and abroad to contribute in agriculture, industry, and socio-economic development, continuously improve their service quality and productivity. The vision includes, becoming socially responsible financial institution by bringing credit & commerce together for profit and sustainable growth. To gain profit and sustainable growth Dhaka Bank performs some activities for their clients. The activities includes, general banking, loan and advance, capital market operation etc. Dhaka Bank generates profit by performing the activities. The main source of income is interest income that comes from disbursed loan. The loans and advances in the year 2011 is tk. 75,983 millions, and in 2015 it stands at tk. 117,840 million. The loans and advance increases year by year. The bank provides loan in various sector but they provide maximum loan for industry development and lowest in agriculture and storage sector. The loan recovery target of Dhaka Bank is about 95%, but they are able to achieve more than their target. Dhaka Bank provides loan by credit rating, as a result there have a lower chance to be classified loan. They follow a complex but appropriate way to sanction a loan. They measure all risk components before sanctioning loan. When all the formalities complete, then respective officer disburse the loan. After disburse the loan, it is the duty of bank to recover the disbursed loan. To recover the loan Dhaka Bank follows three methods, such as: persuasive recovery, voluntarily recovery and legal recovery. If first two methods fail then bank go legal recovery procedure. The bank monitor loan regularly to protect default of loan. Hypothesis testing in this report is done to compare the quality of the loan across different term loan. The name of sample is house building loan (HBL), Lease finance (LF) and Loan General (LG). The sample size is 12 and the name of test is t-test. The standard deviation 1 of house building loan, lease finance and loan general is calculated. From quality test one we get, the house building loan and lease finance has the same risk level that is default risk of LF is not significantly higher than that of HBL. From quality test two, the lease finance and loan general have not the same risk level. According to the two-tail test it is found that the default risk of loan general is significantly higher than lease finance and from quality test three, the house building loan and loan general has not the same risk level. Every bank has some source from which the profit came and bank continuously invest in new sectors or widen its area of operation to increase its profitability. To find the causal relationship between variables we use regression analysis. From regression analysis it is shown that, among all sources commission & interest income change profitability more because profit is highly sensitive to the change in commission and interest income. From the study we get some findings about Dhaka Bank Ltd. For example, SME loan for women is a new product of Dhaka Bank and it is so popular to the women entrepreneur, the loan sanctioning procedure is Complex, Dhaka Bank provides higher loan in industry development because they think, Industry development is the precondition for the development of a country. On the basis of findings it can be recommend for Dhaka bank by which they can achieve their mission, vision and objective, such as: to improve bank’s financial position, banks have to invest in new area to preserve its market share and to penetrate new market share through diversification of its product range, such as: micro credit loan, travel loan, doctor’s loan, CNG conversation loan, marriage loan, hospitalization loan etc, the bank should give same attention towards all types of loan because it is the main income source of the ban. Finally we can say, the bank is currently doing average. The bank has been able to create a multi components loan portfolio. However non-performing loan are a real challenge to the sound credit management. The bank is trying to increase its loan quality by accelerating its recovery policy. The bank can concentrate on the loan sector where default risk is low and its investments are profitable. The loan procedure has been made more calculative, logical to keep the credit sound. 2 CHAPTER 1: THE ORGANISATION 3