Presentation on The Loan Granting & Recovering Problems of Commercial Banks in Bangladesh

1. Welcome To Our Presentation!
Topic
The Loan Granting and
Recovery Problems of
Commercial Banks in
Bangladesh

2. Group Information
Name Student ID
Hossain Anirban Momin 2104210110218
Nizum Shajrin 2104210110220
Meraz Mahmood 2104210110219
Alifa Bintha Snighdha 2104210110260
Md Eftehaz Efti 2104210110261
Group: “B”
Members:
Course: Business Finance
Course Code: FIN105

3. Introduction
What is a Bank?
Bank is a financial institution whose
purpose is to accept deposits from people
and provide loans and other facilities. It
deals in money and provides other money
related services.

4. Commercial Bank
It Practices Debt
Financing
Collects Deposits
from Publics at a
Lower Rate
Provide Short-term
and Long-term Loans
at a Higher Rate
The Main Objective
is to Earn Profit

5. Loan Granting & Recovery Problem
Default on Loans is a huge
Problem in Bangladesh
Commercial Banks of Bangladesh
are facing a large amount of Non-
Performing Loan (NPL)
The Amount of Default Loans in
the country climbed at Tk1.25 lakh
crore in 2022

6. Literature Review
• Objectives of Commercial Banks
• Definition of Loan
• Categories of Loan
• Definition of Loan Default
• Definition Non-Performing Loans

7. Objectives of Commercial Banks
• Earn Profits or Maximizing Profits
• Collect Savings from Public at a Lower Rate of Interests
• Lend Money at a Higher Rate of Interests
• Motivate People to Invest Money
• Build Up Capital through Savings
• Manage Investments
• Provide Monetary Services to the Customers
• Maintain Economic Stability
• Act as an Advisor to the Government on Economic Issues
• Assist the Government for Trade and Business
Commercial
Banking

8. Definition & Categories of Loan
Loan: A loan is a sum of money that one or more
individuals or companies borrow from banks or
other financial institutions
There are 4 types of loans in Bangladesh. These are-
1. Continuous Loan
2. Demand Loan
3. Fixed Term Loan
4. Short Term Agricultural and Micro-Credit
Loan

9. Loan Default & Non-Performing Loan
Loan Default: Loan default is the failure to
make required interest or principal
repayments on a debt.
Non-Performing Loan: A non-performing loan
(NPL) is a loan that is in default because the
borrower has not made the scheduled
payments for a specified period.
Loan Default

10. World Practice
• Commercial banks help businesses around
the world by providing loan.
• It plays a major role in the world’s economy.
• Worldwide revenue under the commercial
banking sector was $2,140 billion USD in
2021.
• However, commercial banks around the
world face loan granting & recovering
problem too

11. Loan Default Problem Around The World
• Profits will shrink
• Banks will face major loss
• Banks cannot meet its risks and
return targets
• Credit needs of customers will not
be made
Problems of Loan Default Causes of Loan Default
• Weak corporate governance
• Corruption & political
intervention within a bank
• No proper documentation
• GDP growth & Inflation
• Unwillingness to pay or act
of fraud

12. Recovery Measures
Several steps were taken by commercial banks around the world in recovering their loan from the
defaulters. These steps are: -
1. Demand Notice: Commercial banks notify customers by writing or calling to repay his debts. If the
customer fails to respond to the first letter, a reminder may be sent.
2. Realizing The Security: If the banks fail to recover the loan, they minimize any loses by disposing the
collateral.
3. Take legal action: Before taking legal action, the legal department will issue strongly worded demand
to the customer asking for the repayment. If after 14 days, and the debtor fails, then the legal
department can take legal action against the defaulter.

13. Bangladesh Practice
• Economy of Bangladesh is Heavily
Dependent on Commercial Banks
• There are 43 Commercial Banks in
Bangladesh

14. Functions of Commercial Banks in Bangladesh
Functions of
Commercial Bank
General Functions
Public Utility
Functions
Agency Functions

15. Examples of loans in Bangladesh
Business
Loan
Consumer
Loan
Home
Loan
Personal
Loan
Car Loan
Education
Loan
Overseas
Job Loan
SME Loan

16. Non-Performing Loan Problems In Bangladesh
• Commercial banks of Bangladesh are facing a large amount of NPLs
• Total Amount of NPLs from 2010 to 2020 is shown below:
Source: (Siddique Islam, 2021)

17. Non-Performing Loan Problems In Bangladesh
• The gross NPL ratio for private commercial banks from March 2018 to September 2021 is shown below:
Source: (IDLC, 2020)

18. Prospects & Challenges in Bangladesh
Prospects Challenges
• Capital Formation
• Credit Creation
• Trading Functions
• Growth of Entrepreneurship
• Financialization of Savings
• Funds Transfer
• Wealth Creation
• GDP Growth & Inflation
• Higher Interest Rate of Banks
• Rigorous Loan Extension
• No Fixed Interest Rate
• Lack of Proper System & Monitoring
• Unqualified Bank Staff
• Corruptions & Political Intervention in Bank
• Lack of Taking Proper Action
• Unwillingness to Pay
• Fund Alteration
• Frequent Policy Change of Government
• Political Uncertainty
• Growing Crimes

19. Recommendations
• Commercial Banks are one of the Major
Elements of Bangladesh’s Economy
• Loan Granting & Recovering Problem is
one of the Major Concerns within
Commercial Bank
• A well-planned set of process can solve this
problem

20. Recommendations
Strict regulation should be implemented on lending process
Lending process should be monitored by central bank
GDP growth & inflation rate should be considered
Corporate Governance must be strengthened
A fixed & reasonable rate should be charged
Qualified business-background students should be hired
Financial documents must be reviewed

21. Recommendations
Loans should not be provided to unknown individuals & organizations
Loans should not be provided without any collateral
Proper documentation should be created
Corruption within the bank must be controlled
Political influence must be reduced
Action plan should be created for preventing Non-Performing Loan
Legal action must be taken against loan defaulters

22. Thank You!