internship report on mercantile bank ltd

8/11/2019 Internship Report on Mercantile Bank LTD

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CHAPT!-"

#$T!%&'CT#%$

"." #ntro()ction:

Loans comprise the most important asset as well as the primary source of earning for

the banking 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 risks for the purpose of maimi!ing its potential return. "n such a

situation, the banking financial institutions might find itself in serious financial

distress instead of improving its financial health. #onse$uently, not only the

depositors but also the general shareholders will be deprived of their money from the

bank. %he deterioration of loan $uality will also affect the intermediation efficiency of

the financial institutions and thus the economic growth process of the country. %his

establishes the fact that banks should provide increasing emphasis on various

analytical tools and techni$ues for screening proposals and loan decision taking.

#redit &orthiness Analysis is one of the most important activities before sanctioning

any credit to a new borrower as well as eisting borrower to avoid any default risk

and for improving the operational efficiency of nationali!ed and private sector

commercial banks.

".* !ational o+ the st)(,:

%he principal function of the bank is to lend. Lending comprises a very large portion

of a bank's total activities. ound lending practice therefore, is very important for

profitability and success of a bank. Like other financial intermediary, commercial

banks also intermediate between the savers and borrower to mobili!e the financial

surplus of the savers and allocate these savings to the creditworthy borrowers of

different sectors of the economy. "n this way they not only help in financial

development of a country, but also facilitate its economic development. or the sake

of sound lending, it is necessary to develop a sound policy and modern lending

techni$ues to ensure that loans* advances are safe and the money will come back

within the time set for repayment. or this purpose, proper and prior analysis of credit

proposals is re$uired to assess the credit worthiness for avoiding risk. +isk is inherent
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and absolutely unavoidable in banking. Lending itself is risky and the very purpose

of analy!ing the credit worthiness is to determine whether a particular loan applicant

is credit worthy or not. &hile deciding a loan proposal we should judge the degree of

credit worthiness of individual potential borrower, risk in a given situation. Lending is

a judgment which depends upon ones ability to assess the shortcomings in the

proposals and to identify the risk. Ability in taking prior measures to minimi!e the

risk is very much important. "n the background of the above things, the issue Cre(it

orthiness Anal,sishas been undertaken as a comprehensive research topic, which

will serve the Aprogram.

".1 %b2ecti3e o+ the st)(,

%he basic objective of this paper is to be ac$uainted with how a banking financial

institution evaluate individual potential borrower - based on which sanction different

of credit limit to different customer and charges different interest rate to different

borrower. %hat is what factors determine this decision.

%he specific objectives are

. %o fulfill the partial re$uirement of Aprogram

/. %o be ac$uainted with the background of the bank, 0ercantile 1ank Limited

(01L).

2. %o know more about the credit sanctioning policy of 01L.

3. %o have an ade$uate 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.

4. %o furnish the possibilities that the commercial banks can etend their epertise

#onsultation services to control risk eposures of a loan.


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CHAPT!-*

%V!V# %F M!CA$T#4 A$5 4#M#T&

*." #ntro()ction

0ercantile 1ank Limited was incorporated in 1angladesh as a banking company

under the #ompany Act 553 and commenced operation on /nd 6une 555.

7umerically it is just another commercial bank, one of many now operating in

1angladesh, but the founders are committed to make it a little more different and a bit

special $ualitatively. %his bank will have a new vision to fulfill and a new goal to

achieve. "t will try to reach new heights for reali!ing its dream.

0ercantile 1ank Limited, 8A 1ank for the / st#entury8, it is not a mere slogan. %he

1ank has been manned with talented and brilliant personnel, e$uipped with modem

technology so as to make it most efficient to meet the challenges of / stcenturies.

As regard the second slogan of the bank 89fficiency "s Our trength8 is not a mere

pronouncement but a part of their belief, which will inspire and guide them in there

long and arduous journey ahead.

*.* Historical acgro)n( o+ M4

%he declaration of the :overnment;s bold and far sighted decision to allow banks in

the private sectors to play its due role in the economy of 1angladesh, have started the

process of creating new and dynamic financial institutions. 01L is one such

institution. %he emergence of 01L in the private sector is an important event in the

banking arena of 1angladesh. 01L came into eistence as a = crore and paid

up capital /3.4 crore. amous 2= entrepreneurs gave helping hand to set up the bank

at that time. %hen Abdul 6alil was elected as chairman of the 1oard of directors. %he

bank stood 23 branches all over the country upto 2st ?ecember ,/==@.


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*.1 Hea( %++ice an( ranch $et7or:

#urrently 01L is operating with one head office and thirty four branches. %he

locations of the head office and name of the branches are described below-

Mercantile an 4imite(:

ead office

@, ?ilkusha #*A, ?haka-===.

%el >>=-/-5445222, 0obile =B-@B5=/2

a >>=-/-54@/2, %ele @3/4=5 01L"? 16

9-mail mblCbol-online.com

&ebsite www.mblbd.com

0ain branch

?hanmondi 1ranch

Dawran 1a!ar 1ranch

6oypara 1ranch

1anani 1ranch

+ajshahi 1ranch

7aogaon 1ranch

ylhet 1ranch

1oard 1a!ar 1ranch

7ayaba!ar 1ranch

Dhatunganj 1ranch

0ohakhali 1ranch

0irpur 1ranch

Ashulia 1ranch

Ettara 1ranch

6ubilee +oad 1ranch

9lephant +oad 1ranch

0otijheel 1ranch

0adam 1ibir at 1ranch

Dhulna 1ranch

atmasjid +oad 1ranch

6hilongia 1ranch

O+ 7i!am +oad 1ranch.

1ogra 1ranch

#homohoni 1ranch

Donabari 1aranch

*.8 The Corporate 9tr)ct)re o+ Mercantile an 4imite(

%he 1oard of ?irectors, the ape body of the 1ank, formulates policy guidelines,

provides strategic planning and supervises business activities and performance of

management while the 1oard remains accountable to the company and its
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shareholders. %he 1oard is assisted by the 9ecutive #ommittee and Audit

#ommittee.

oar( o+ &irectors

%he board of ?irectors consists of 2 members elected from the sponsors of the bank.

One-third of the members retired every two years.

ec)ti3e Committee

All routine matters beyond delegated powers of management are decided upon by or

routed through the eecutive committee, subject to ratification by the board of

?irectors.

A)(it Committee

All matters relating to the principles, policies, rules and regulations, ethics etc. for

operation and management of the bank are recommended by the committee to the

1oard of ?irectors.


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*.; %rgani


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*.6 Compan, Anal,sis:

*.6." =)antitati3e anal,sis

CAM4 !ating

%he #A09L rating system provides a general frame work for evaluating and

assimilating all significant financial operational and compliance factors in order to

assign a seminary or composite supervisory rating to each regulated commercial bank.

%he purpose of the rating system is to effect in a comprehensive and uniform fashion

on institutions financial condition, compliance with laws and regulations and overall

operating soundness. "n addition it serves as a useful tool for the standard of afinancial institution. "t is the other operator to assess the grade of banks.

Capital A(e>)ac,:

#apital rating is based upon the calculation of the following ratio

#apital and +eserve (Adjusted)

G ==

%otal +isk &eighted Assets

+ating ?escription H

/ atisfactory >H

2 air BH

3 0arginal 4H

4 Ensatisfactory Less %han 4H

Asset =)alit,:

Asset $uality rating is based upon calculation of the following ration

#lassified Loan

G ==

%otal loan

!ating &escription Percentage

trong Ep to 4H

/ atisfactory 4.=H to =H

2 air =.=H to 4H

3 0arginal 4.=H to /=H4 Ensatisfactory above /4H


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Management !ating:

0anagement +ating is an average of the four ratings given to #apital, Assets,

9arnings and Li$uidity ( #IAI9IL) * 3


trong -.35

/ atisfactory .4=-/.35

2 air /.4=-2.35

3 0arginal 2.4=-3.35

4 Ensatisfactory 3.4-4

arning !atio:

9arnings rating is based upon the calculation of the following ratio.

7et "ncome

+eturn of AssetJ

%otal assets)


trong =.>4 and above

/ atisfactory =.@4-=.>3

2 air =.34-=.@3

3 0arginal 1elow =.34

4 Ensatisfactory 7et losses

4i>)i(it, !ating:

Li$uidity rating is based upon the calculation of the following ratio

Li$uid assets

G==

%otal time and demand liabilities


trong 2=H and above

/ atisfactory /=-/=.55

2 air 5-5.55

3 0arginal 4->.55

4 Ensatisfactory 1elow 4H


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Composite !ating:

#omposite rating is the average of all ratings. %his is calculated as follows

#IAI0I9IL

4


trong -.35

/ atisfactory .4=-/.35

2 air /.4=-2.35

3 0arginal 2.4=-3.35

4 Ensatisfactory 3.4=-4

Mercantile an 4imite(

CAM4 !ating

or the year of /==4

arning

7et "ncome %otal Asset +OA +ating

2/4>3/@ /3B=4=34=52 ./BH /

Capital rating

#apital K +eserve

%otal +isk

&eighted Asset

#apital

Ade$uacy +ating

@B>==== 4B523==== =./3H

Asset =)alit,

#lassified Loan %otal Loan +atio +ating

B/@@B=== B@@5/5//B 3.H /

4i>)i(it, !ating

Li$uid Asset

%otal ?emand K

%ime ?eposit +atio +ating

34243=4/@ //2>45===== /=./@H /

Management

.4


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Composite !ating

Average +ating ?escription

.B / atisfactory

rom the $uantitative analysis it is found that the average rating of 01L is .B which

is between .4 to /.3. According to standard rating the rating of those banking

institution having this range is /, i.e., the rating is satisfactory.

*.6.* =)alitati3e anal,sis

9%T Anal,sis:

&O% analysis is an important tools for evaluation the company strengths,

weaknesses, opportunities and threats. "t helps the organi!ation to identify how to

evaluation which in turn would help the organi!ation to navigate in the turbulent

ocean of competition.

Although 01L very much conscious about its activity, there also occurs some

irregular activities in its operation specially, in the lending side.

"nsufficient manpower is another shortcoming for proper functioning of the credit

operation. %here is a policy to conduct lending risk analysis but it is hardly done. %he

main strength of the bank is the attitude of its employees toward organi!ation. %hey

are very much united and motivated and devoted to the bank. %heir morale is very

high.

%he recovery rate (less than =H) of the classified amount is also unsatisfactory,

though it is not worse than the overall position of the countries other banks.

9T!$?TH9:

a. 9perienced, skilled and proficient

top management

b. #reative and effective bank in the

banking industry.

c. trong morale of the employees.

d. 0odern facilities and

computeri!ed banking.

A5$999:

a. #losed +ecruitment


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e. "nteractive corporate culture.

f. ponsors directors belong large

industrial conglomerate of the

banking industry

%PP%!T'$#T#9:

a. "ncreasing demand for

advanced and customi!ed

banking services

b. :oing for other domestic andinternational market.

c.


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"t is the most important side for a bank. 1ank is nothing but a middleman between

lenders (surplus sector) and borrowers (deficit sector). %o provide loan, bank needs a

huge amount of money from the lenders. :eneral banking is the side where bank

offers different options to the clients to deposit (save) and remit their money. %o

invite the clients, bank offers different options in front to their clients. 0ost of these

options are very much similar between the banks, but the customer services and

facilities may not be the same.

&i3isions o+ ?eneral aning in M4:

G Account Opening

G #learing

*+emittance

Acco)nt %pening:

Esually a person needs to open an account with the bank to take services from it.

&ithout opening an account, one can get a few services from the bank. o we can

say that banking begins with the opening of an account with a bank. :enerally, there

are three types of accounts in our country;s banking system.

A. #urrent ?eposit Account (#? Account)

1. avings 1ank Account (1 Account)

#. %ime ?eposit Account

A. C'!!$T&P%9#T:

#urrent account is purely a demand deposit account because the bankers are bound to

pay the amount to the account holder on demand at any time. "t is a running and active

account which may be operated upon any number of times during a working day.

%here is no restriction to the number and the amount of withdrawals from a current

account.

. 9AV#$?9A$5ACC%'$T:


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%his is an account for a student, an employee, a widow and an organi!ation that is not

working for profit. "t pays interest to the client and the service charge of this account

is less than the #? Account.

C. F#&&P%9#TA/C:

A deposit that is received for a specific period of time, paid with interest after the

period is over, is called fied deposit. "t is also called %erm ?eposit.

Clearing:

%here are two type of clearing

Out-ward #learing

"n-ward #learing.

Other banks che$ues which are submitted to 01L for collection is known as Out-

&ard #learing #he$ue. %he bearer of the che$ue has to have an account in 01L to

clear the che$ue. After submission of the che$ue, the bearer has to fill up a deposit

slip against the che$ue, then the in charge of that department entry the information of

the che$ue in the log book and send the deposit slip to the computer section for

computer entry. At the end of the day, the in charge make clearing slip for each

che$ue through computer using a customi!e software (7"DA) supplied by1angladesh 1ank (11). And finally these che$ues are sent to the 11 clearinghouse

then clearing house sends these to the different banks.

!emittance: +emittance refers to sending of money that is the process of sending

money from one place to another is called remittance. 1anks remit funds one place to

another through the network of their branches. %he main instrument for remittance of

funds is drafts, mail transfer, telephone transfer and traveler;s che$ues.

an &ra+t:

A bank draft is an unconditional order issued by one branch of a bank on its branch

to pay a certain sum of money to the named person or order of demand.

Telegraphic Trans+er:

%elegraphic %ransfer, it may branch %elephonic or %9L9M %ransfer means

fund*money transfer from one branch to another branch not in same area. ometimes


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the remitter of the funds re$uires the money to be available to the payee immediately.

"n that case the banker is re$uested by him to remit the funds telegraphically. %he

bank passes %.% by a secret code, which input by the :1 in-charge K branch

0anager.

Pa,ment %r(er BP/%:


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*[email protected] Foreign change

%his department deals with foreign currency and the transaction of it. %he major jobs

of this department are listed below

Letter of #redit (or 9port and "mport).

?ollar*%raveler #he$ue (%#) endorsement,

oreign +emittance.

oreign #urrency Account

a. 4etter o+ Cre(it B4/C

"n case of any foreign trade there must be a L*# procedure. As we know, there is no

guaranteed relationship between importer and eporter. As a result, they use a media

to secure their goods and currency. o, eporter and importer use their respective

bank as a media and L*# is a legal obligation between eporter and importer. "n case

of import the importer have to submit necessary documents to his respective bank (the

issuing bank).

b. &ollar an( Tra3elerDs Che>)e n(orsement:

01L is an authori!ed dealer of American 9press %*#. At the same time, they can

buy and sell %*# and dollar every morning they get a tele from head office, which

carries the rate of foreign currency of that day. 01L do not fi the rate by them, they

use the rate of 6anata 1ank. At the end of each month, they submit all supportive

documents and transaction condition of the whole months and balance to 1angladesh

1ank and their head office.

c. Foreign !emittance:

oreign ?? and paying or receiving any bill from foreign country is known as

foreign remittance. %he amount of foreign remittance is very significant in 01L.

(. Foreign C)rrenc, Acco)nt:

A foreigner a wage earner working in foreign country can open this account. 01L

mainly maintain ?ollar account, but it is possible to open an account in other

recogni!e foreign currency (1ritish pound, ?eutsche 0ark, ranc etc.). %he account


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holder gets a che$ue book against the account. and has to mention the amount m

respective currency.

*.E F#$A$C#A4 P!%&'CT A$&9!V#C9 %F M4

0ercantile 1ank Limited has different types of scheme for a customer. %hese are as

follows as

Financial pro()cts

&eposit 9cheme Cre(it 9cheme

0onthly aving

cheme

?ouble 1enefit

?eposit cheme

pecial aving

cheme

amily 0aintenance

?eposit


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" &o)ble ene+it

&eposit 9cheme

:ive maimum

benefit.

/ elp in meeting

specific needs like

education, marriage

?eposit a fied

amount of money

for B (even) years.

?ouble of the amo

deposited after B yea

0inimum deposit sh

be %k.=,===.== or

multiple.

* 9mall 9a3ing

9cheme

elp in meeting

specific needs like

education, marriage

etc.

?eposit a fied

amount of money

for any period up to

4 (ifteen) years.

%riple of the amo

deposited after

years.

0inimum deposit sh

be %k.4=,===.== or

multiple.

1 Monthl, 9a3ings

9cheme

1uild up habit of

savings.

Attract small savers.

aving for rainy days.

9nsure regular income-

flow

0onthly

installments of

various si!es.

%riple of the amo

deposited after

years.

One person can h

one 0 account

his*her name.

A family can hav

maimum of =3 (o

0 accounts

names of pers

(his*her) in his*

family.

8 Famil,

Maintenance

&eposit

elp the retired

persons for investing

their retirement

benefits.

#reate investment

opportunities for 7on-

+esident 1angladeshi.

?eposit a fied

amount of money

for =4 (ive) years

A fied amount

money in every mo

for =4(ive) years

0inimum amount

re$uired deposit

%D.4=,===.== or

multiple


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9plore investment

opportunities for

school, college,

university etc.

:ive investment

opportunities for %rust

oundation etc.

;Pension an(

Famil, 9)pport

&eposit

elp the retired

persons for investing

their retirement

benefits.

?eposit a fied

amount of money

for = years or 4

years on monthly

installments of

various si!es.

A family can hav

maimum of =/ (%w


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years.

"nterest rate will be charged

$uarterly rest.

outstanding

balances) =.4 H

Application

ee 1?% ==.==

* Car 4oan

9cheme

elp fied-income people for

buying car

or the amount up to %k.

/4,==,=== the period is five

years that is @= monthly

installments

"nterest rate will be charged

$uarterly rest.

"nterest +ate

@.==H

+isk und .==H

upervision #harge

(per year on

outstanding

balances) =.4=H

Application

ee 1?% /4=.==

1?% B.4= Lac for

reconditioned

#ar*6eeps*EFs and

1?% /4.== Lac for

new

#ars*6eeps*EFs.

1 &octorsD

Cre(it 9cheme

"nterest +ate

@.==H

+isk und .==H

or new doctor 4.==

Lac and foreperienced doctor

4 Lac

or ospital, #linic

and ?iagnostic

#enter 4=.== Lac

Application ee 1?

/4=.==8 !)ral

&e3elopment

9cheme

+aise the standard of living of

rural people.

"nitiative to break the vicious

cycle of poverty.

9nhance the purchasing power

of rural people.

#redit limit are as

follows

"nterest +ate

.4=H.

+isk und .==.

ervice #harge

ecurity :roup

guarantee, no

collateral

2= person in a group

group leader


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=./4H per year on

outstanding balances.

+epayment period

years.

; 4ease

Financing

Assist and encourage

entrepreneurs for ac$uiring

capital machinery, medical

e$uipment, automobiles etc..

Lease period up to B

years

Lease rent C

@.==H

+isk und .==H

ervice #harge

=.4=H per year on

outstanding

balances.


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:ive collateral-free credit "nterest +ate @.==H

+isk und .==H

ervice #harge

=.4=H per year on

outstanding balances

Application ee

1?% /4=.==

charged at $uarterly

rest


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*.E.1 %nline aning:

Online 1anking is an optional service to the 01L clients. %he interested clients

should apply for the service. %he service charge for this sort of service is %k. @== per

year.

*.E.8 ATM Cre(it Car(:

M4 is committed to provide A%0 K #redit #ard service for its valuable customers

which adds an etra edge to its competitive strength.

*.G M4 at a glance

Particulars 2000 2001 2002 2003 2004 2005

Authorized Capital 800 800 1200 1200 1200 1200

Paid up capital 245 276.85 319.765 639.53 799.413 799.413

otal Assets 9364.5 13078.93 16383.17 18324.73 24705.05 30014.94

otal !eposits 8896.2 12234.7 15150.42 16285.19 22385.19 24959.5

otal "oans # Ad$ances 3912.97 6707.42 8896.19 10775.95 17669.29 21857.7

%&port 9219.5 12268 15112.5 20380.8 28325.2 33307.7

'(port 6554.4 10457.5 11377.3 15250.6 17411 22039.5

Pro)it 192.13 214.962 256.541 215.913 312.581 569.965

*o o) +ranches 10 14 15 20 25 28

'arnin, per -hare'P-/./ 39.62 77.65 84.24 57.88 39.1 58.50*o o) '&ploees 271 305 363 411 514 576

CHAPT! -1

C!T P!%F#4 %F M4

1." #ntro()ction:


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%he basic functions of bank are deposit etraction and credit etension. #redit is the

hub of banking business. "t helps this kind of organi!ations to earn more than 4=H of

the total revenue. 0anaging credit operation, thus, is the crying need for any bank. "n

case of failure in credit management, a bank may face etinction. "t is, therefore,

necessary that a bank has a proper credit profile that guides the credit operation of the

bank in an effective manner. or proper management of credit each and every bank

follows the profile for smooth approval, direction, monitoring and review of lending

operation.

1.* Cre(it Polic, o+ Mercantile an 4imite(:

A credit policy includes all rules relating to loans and advances made by the bank to

the borrowers. "t includes types of credit etended by banks, method of judging the

credit worthiness of borrowers, the collateral or securities that are accepted by the

banks and so on. %his policy guidelines refer to all credit facilities etended to

customers including placement of funds on the inter bank market or other transactions

with financial institutions. 01L #redit policy contains the views of total macro-

economic development of the country as a whole by way of providing financial

support to the %rade, #ommerce and "ndustry. %hroughout its credit operation 01L

goes to every possible corner corners of the society. %hey are financing large and

medium scale business house and industry. At the same time, they also takes care

entrepreneur through its operation of Lease inance and some 0icro #redit, mall

Loan cheme etc. As a part of its #redit


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rom operational aspects it is observed that as a matter of policyN

. #harging of interest is fleible depending on the proposal and the customer.

/. "t takes care in maintaining proper mi of short medium and long term finance

for a period not eceeding 4 years.

2. 01L puts emphasis on the customers, ie, the man and business not on the

security in selecting borrowers.

3. "t takes care of diversity in credit portfolio.

1.1 9o)n( Principles o+ len(ing:

ound principle of lending is obvious to avoid loan default tendency and risk

elements to safeguard of public money as well as business of a bank. o, there must

be a principle of advance and efforts should be made to make it a sound one for which

in depth study must be made on the following points by this bank.

a) &hen the loan is to be given

b) &hy the loan is to be given

c) ow the loan is to be given

d) &hat may happen after disbursement of the loan

e) :enerally what happen (from past eperience) after disbursement of the loan

f) "s it hopeful that the borrower will repay the loan

g) &hether loan should be given only in private sector or also in government

sector as well.

h) &hether only secured loan will be etended or provision should be kept for

clean loan also

i) &hether only short term and mid term loan will be considered or long term

will also be considered

j) &hom to be financed


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k) &hether loan will be etended to trading sector only or industrial sector will

also be considered.

Fig)re: Tools +or appraisal cre(it

CAMPA!#

. #haracter

/. Amount of

loan

2. 0eans of

repayment

3.


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1esides the above mentioned decision, the managers must ensure materiali!ation of

following safe guards for proper use and timely reali!ation of loans, commission.

"nterest etc and minimi!e the risk and ha!ards

a) 9a+et, o+ F)n( afety means the assurance of repayment of distributed loans.

%his depends mainly on integrity, business behavior, reputation, past

eperience in the particular line of business, financial solvency, $uantum of

own e$uity in business, capability to run business efficiently, capacity and

willingness to repay the loan etc. of the loan.

b) 9ec)rit,:"t must be ensured that repayment of the loan is secured and for this

purpose manager must retain security against loan to fall back upon incase of

borrower's default. %he securities must possess re$uired basic $ualities such as

possession, title deed, parches etc.

c) 4i>)i(it, %he borrower should have li$uid assets so that he can adjust

liability on demand and as much as possible loan itself should be $uasi li$uid

so that it can be reali!ed on demand in case of need.

d) P)rpose


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solvency ratio, profitability ratio and activity ratio. *he also needs to eamine bank

account statement of the applicant very keenly. "n addition to analysis, the manager

should visit the business concern to get a true picture of it.

#n()str, Anal,sis: "n this part, the manager is re$uired to study the business

behavior, which includes market demand, competitors and government barriers.

4en(ing !is Anal,sis "t is a systematic and structural way to assess lending risk,

which covers all the factors described above. ere a form has to be completed by the

lending officer. "f lending risk is found to be low, financing can be done and vice

versa.

inally based on the above information provided by the loan applicant and after

analy!ing all the information and information provided by #redit "nformation 1ureau.

(#"1) a credit committee of a bank takes the lending decision.

1.8 Cre(it Facilities ten(e( b, M4

Lending of money to different kinds of borrowers is one of the most important

functions of 0ercantile 1ank Limited (01L). 0ajor amount of income of this 1ank

comes from its lending. 01L makes advances to different sectors for different

purposes, such as financing in trade and commerce, imports and eports, industries,

transport, house building, agriculture etc.

1.8." ?eneral 4oan:

&hen an advance is made in a lump sum repayable either in fied monthly

installment or in lump sum and no subse$uent debit is ordinarily allowed ecept by

way of interest, incidental charges, etc it is called a loan. %he whole amount of loan

is debited to the customers name on a loan account to be opened in the ledger and is

paid to the borrower either in cash on by way of credit to his current* savings

account. "t is given against


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Terms an( Con(itions:

?isbursement will be made after

1ank reserve the right to cancel or amend the terms and conditions

partly or wholly at its directions without assigning any reason

whatsoever.

&hen the principal debtor fails to fulfill this obligation or promise,

liability bestow on guarantor.

1.8.* Cash Cre(it BCC H,pothecation

#ash credit is another method of lending by 01L. Ender this system, the banker

specifies a limit called the cash credit limit, for each customer is permitted to borrow

against the security of tangible assets or guarantees. #ash credit in its truest sense is

against pledge of goods. #ash credit is sometimes allowed against hypothecation of

goods.

"n case of cash credit hypothecation the ownership a possession of the goods remain

with the borrower. 1y virtue of the hypothecation agreement the bank can take

possession with the borrower defaults

ligibilit,: ypothecation advances are normally allowed by bank to limited

companies and businessmen for their working capital and not for any capital

investment.

#nterest !ate:@H-B.4H which depends on the relationship between the banker

and the client.

!ene7 9,stem: "t can be renewed after one year.


"nsurance policy to be obtained against the stocks to be hypothecated to cover

in fire and +? at the cost of the customer.


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tock report to be submitted on monthly basis.

1ank reserve the right to cancel or call back the sanctioned credit limit.

1.8.1

1.8.8 Pacing Cre(it

= days and has to be li$uidated

by negotiation*purchase of the eport bill covering the particular shipment for which

the packing credit was granted.

ligibilit,:


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ligibilit,:Loan against trust receipt is generally granted to 9porter for eportation

of good.

#nterest !ate: 3.4H-4.4H which depends on relation and fre$uency of taking

loan.

Terms an( Con(ition:

?isbursement will be made after completion of all formalities as per

sanction terms.

upplier credit report to be obtained before opening of L*#s.

9cess drawing over the sanction limit is strictly prohibited.

#ustomer will maintain effective and constant supervision and follow

up to ensure timely adjustment of the loan to avoid overdue.#redit

unded 7on-funded

:eneral Loan

#ash #redit ypothecation

ousing 1uilding Loan


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Fig)re::unded and non -funded loan

1.8.6 PA& BPa,ment against (oc)ment

A loan facility provided by the banks to the customers against document*bills, like,

1ill of Lading, &arehouse keepers #ertificate*receipts, +ailway receipt. ?elivery

order, ?ock &arrant. "n other word, payment made by the 1ank against lodgment of

shipping documents of goods important through L*# falls under this head. "t is an

interim advance connected with import and is generally li$uidated shortly against

payments usually made by the party for retirement of the documents for release of

imported goods from the customer's authority. "f falls under the category

8#ommercial Lending8.

ligibilit,: %his type of credit facilities is given generally 9porter and importer.

#nterest !ate: 4.4H



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"n the of default by the borrower bank has the right to sell the goods.

"nsurance policy to be obtained against the goods covering fire and +?

risk at the cost of customer.

1ank reserve the right to cancel or amend the terms and conditions

partly or wholly at its direction without any reason whatsoever.

1.8.@ 9ec)re( %3er(ra+t B9%&:

"t is a continuous advance facility. 1y this agreement, the banker allows his customer

to overdraft his current account up to his credit limits sanctioned by the bank. %he

interest is charged on the amount, which he withdraws, not on the sanctioned amount.

&hen a current account holder is permitted by the banker to draw more than what

stands to his credit, such an advance is called an overdraft. %he banker may take some

collateral security or may grant such advance on the personal security of the borrower.

01L has given this overdraft facility to clients.

ligibilit,:Overdraft facilities arc generally granted to businessmen for epansion

of their business, against the securities of ?+, 0


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#nterest !ate:9ither ?+ I/.4H

Or ?1?, 0


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%his loan is speciali!ed for contractor and suppliers. 1ank makes finance to the

customers after being awarded of a work order. %he work order is assigned with the

bank so that payment of bill is paid only through the account marinating with the

lending bank. 0aimum /=H value of the work order is paid to the contractor as

loan. %he loan amount is credited to the account of the borrower and from each bill

certain percentage is debited for adjustment of the loan. 0aimum validity period of

the credit facility is up to the validity period of the work order.

1.8.E Car 4oan:

#ar loan is a kind of consumer credit scheme. 1ut the maimum limit on this

specified type is different from others. %he maimum limit is higher than other types

of consumer credit scheme.

ligibilit,:%his is one kind of consumer credit scheme. o the $ualification should

be the same as re$uired for consumer credit scheme.

#nterest !ate: @H

1.8.G 9ta++ 4oan:

0ercantile bank Limited provides advances to the staff for purchasing house building,

anchay


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longer, the article being regarded as the property of the bank until the final payment

has been made

ligibilit,: ire


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01L provides different types of micro-credit programs among the poor*mid-

class*lower mid-class categories person. 0ainly the bank provides micro-credit loan

among the minimum a fied income group of people. #onsumer #redit is a relatively

new field of collateral-free finance of 1ank.


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%eachers of recogni!ed chools and #olleges

#nterest !ate: @H

c Cons)mer Cre(it 9cheme BCC9:

#onsumer credit is a relatively new field of micro-credit activities people with

limited income can avail of this credit facility to buy any household effects including

car, computer and other commercial durable. 0ercantile 1ank Limited plays a vital

role in etending the consumer credit.

ligibilit,: %he borrower must be confirmed official of any of the following

organi!ation-

:overnment Organi!ation

emi-:overnment Organi!ation

0ultinational Organi!ation

1ank and "nsurance companies

+eputed #ommercial Organi!ation


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?octors; #redit cheme is designed to facilitate financing to fresh medical graduates

and established physicians to ac$uire medical e$uipments and set up clinics and

hospitals.

ligibilit,:Only the doctors are financed through this scheme.

1.8."1 4etter o+ Cre(it

Opening or issuing letter of credit is one of the important services provided by 01L.

A letter of credit is a document authori!ing a bank to pay the bearer a specified sum of

money it provides a useful means of settlement for a foreign trade transaction, the

purchase establishing a credit in favor of his credit at a bank. Letters of credit are of

two types

%raveler;s letter of credit issued for the convenience of the traveling

public and

Letter of commercial credit issued for the purpose of facilitating

trade transaction.

ligibilit,: Letter of #redit facilities are given to eporter*manufacturer*producer and

importer for eportation and importation of good.

#nterest !ate: B.4H


"t should stipulate the name of the loan.

"t should bear the name of the designated bank.

"tems mentioned in L#A form must contain with the permissible items.

%he bank officer periodically inspect the goods and verify that they

conform the top $uality and $uantity etc. as mentioned in the particular

letter of credit.

"n case of first class customer , the facility may, however , be granted

against firm's contracts with overseas buyer.

1.8."8 an ?)arantee


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:uarantee has been defined very clearly in various statues of law in various parts of

the world however, the substance of all these definition is same. %he #ontract of

:uarantee has been defined under ection /@ of the #ontract Act which reads

8A contract of guarantee is a contract to perform the promise or discharge the liability

of a third person in case of his default8.

"n the course of normal trading, customer may need guarantee to be given by the

bank to support a trading transaction or bank may take guarantee as security against

advance.-

ligibilit,:%his loan is allowed for the business person.

1.; &isb)rsement 9it)ation o+ &i++erent T,pes o+ 4oan:

Particulars 2000 2001 2002 2003 2004 2005

eneral "oan!isburse&ent 236.86 219.68 819.33 1488.42 4015.73 4532.78

"oan a,ainst rust eceipt 746.46 1600.86 1644.31 1953.53 3092.34 3758.39

Pacin, Credit 155.09 214.07 239.70 220.49 264.24 287.86

"ease inance 67.63 194.15 165.41 131.40 107.94 132.73

ire Purchase 324.80 634.47 975.55 1310.41 1669.66 1734.35

Pa&ents a,ainst

!ocu&ents 205.30 256.33 222.56 293.27 513.87 569.18Cash Credit P/ 483.73 957.55 1304.41 1669.48 2404.98 2658.39

$erdra)t 771.25 1430.35 2260.45 2560.52 3161.80 3429.21

Consu&ers Credit 207.06 215.39 178.83 169.98 138.54 163.45

ouse +uildin, "oan 6.38 22.01 34.29 264.88 962.11 986.25

-ta)) "oan 9.13 15.85 52.47 63.76 71.36 102.63

ther Credit -che&e 37.62 80.73 396.61 176.99 363.74 527.80

?raphs !egar(ing Cre(it &isb)rsement


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41/80



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1.6 $at)re o+ the 4oan

1ank advances loans for short, medium and long terms. %he term of the loan is

determined on the basis of gestation period of a project and generation of income by

use of the loan.

$at)re o+ 4oan at a glance

Loan %ype hort %erm ( up to

year)

0edium %erm (over

year to 4 years)

Long %erm (over 4

years )

7ame of Loan #ash #redit

ypothecation,

L%+,


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A borrower should be legally competent to enter into a contract, as borrowing is a

contract between the lender and the borrower. 0inors, lunatics, drunkards and

insolvents cannot enter into a valid contract and cannot, therefore, be entertained as

borrowers. 1efore entertaining an application for loans and advances, banker should

verily borrowers; capacity to contract and, his power to borrow, so as to effectively

charge the security offered as a cover for the advances.

%here are certain conditions to be fulfilled by the consumer to apply for the loan.

#onsumer should be eligible to apply for a loan. ervice person get loan only when

the retirement date must be after the date of epiry of loan. %he target customer of the

1ank is all people. 1usiness, service, doctors, suppliers, contractors are he customers.7ow it can be classified into four types

T,pes o+ orro7er at a glance

" 7o. 1orrowers 7ame of the Loan H. 1usiness :eneral Loan, #ash #redit (##)

ypothecation,


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At present maimum interest rate of different types of loan which are applied, are

given bellow

4$$? #$T!9T %F M4

".7o. 7ame of Loan "nterest +ate (H)

. :eneral Loan @

/. #ash #redit (##) ypothecation @-B.4

2. ouse 1uilding Loan 4.4=

3.


46/80


ecurity is obtained as a line of last defense to fall back upon. "t is meant to be an

insurance against emergency. 1y taking security, bank ac$uires a claim upon the

assets of the borrower if repayment is not made as planned.

A collateral security is a security belonging to and deposited by borrower himself or

by a third party to secure loans and advances. #ollateral security in a wider sense is

used to denote any type of security that runs parallel to or side by side with the

personal right of action against a debtor in respect of an advance.


47/80


#ollateral securities of different type of loan at a glance

l.7o. 7ame of Loan 7ame of ecurity

. :eneral Loan Land, tock of :oods, 0achinery, urniture, iture etc.

/. #ash #redit (##)

ypothecation

tock of goods

2. ouse 1uilding Loan Land and 1uilding

3.


48/80


1."0 &isb)rsement 9it)ation :

%he bank has many loans from the beginning of the bank. %he total disbursement of loans

within /=== to /==4 from this bank is given below

Iear *000 *00" *00* *001 *008 *00;

Total no

o+ 4oan

54B> 24@> @/42 55B> /=/ //@5

igure 7o of loan disbursement over years

rom the above figure this can be found that loan disbursement is growing gradually.

1."" F)n(e( an( $on-F)n(e( 4oan

0ercantile bank Limited offers more type of funded loan than 7on-funded loan. 1ut

disbursement, non-funded loan more disburse than funded loan.

$ame o+

4oan

*000 *00" *00* *001 *008 *00;

unded 3==3 4>4 B=// >55/ BB2@ 55=/

7on-

funded

44B3 BBB 5/2 =5>@ 2/>4 43/B

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igure %rends of unded and 7on-funded Loan

%he above figure shows that no of non-funded loan which includes letter of credit and

bank guaranty is always more than no of funded loan. %hrough this data it can be said

that the bank is better in performing its foreign echange division as most of the non-

funded loan is comprised of letter of credit.

1."* 4oan !eco3er,

%o lend money is an easy matter. %o be sure of recovery of the loan is not that easy.

"n whatever form bank advances are granted, they are repayable on demand or at the

epiry of some fied period. Overdraft and cash credit are legally repayable on demand.

Loans are repayable on the epiry of the periods for which they are granted. "n case loan

is repayable in installments and default occurs in the payment of any installment, entire

loan usually becomes immediately recoverable at the option of the bank. Letter against

trust receipt, payments against documents, letter of credit are payable on maturity

.1anker has to keep a close watch on the borrower and to take ade$uate follow-up

measures for ensuring that recovery of advances is smooth and timely.

0ost of the loan of this bank is recovered but not ==H. ituation of loan disbursement

and recovery of 01L is given below

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50/80


7ame of Loan %otal

?isbursement

%otal

+ecovery


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depth of risk each and every loan has been eposed to and to bring discipline in financial

sector so far risk elements concerned in credit portfolio of banks.

At present loans and advances are classified under three heads according to degree of risk

element involved these are-

. ub-standard

/. ?oubtful

2. 1ad

".9)bstan(ar(:A loan value of which is impaired by evidence that the borrower is

unable to repay but where there is a reasonable prospect that the loan's condition can be

improved is considered as substandard.

*. &o)bt+)l:A loan is doubtful when its value is impaired by evidence that it is unlikely

to be repaid in full but that special collection efforts might eventually result in partial

recovery.

1. a(:A loan is considered as bad when it is very unlikely that the loan can be

recovered.

:ood loans are classified as un-classified loans. 7aturally depth of risk is more in

doubtful or bad loans than unclassified ones.

)igure. (tatus of #lassified Loan

1."8 Concl)sion



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%he 1anking sector in any country plays an important role in economic activities.

1angladesh is no eception of that. As because it;s financial development and economic

development are closely related. %hat is why the private commercial banks are playing

significant role in this regard. %his report focused on and analy!ed Operational

4B.B

million. ere we observe its deposit figure is not so strong, so the bank should take

necessary action for increasing deposit promptly. 01L attaining offer special deposit

scheme with higher benefits, which is a crying need for long-term position in financial

market. 1ecause of the entrance of more banks in the financial market, deposits will be

spreaded over. o it is high time to hold some permanent customers by offering special

deposit scheme otherwise in future amount of deposit may come down. %o strengthen the

future prospect of branch, it is emergency to collect more deposit. #omparably the 01L;s

local remittance is less than the other banks because of less number of branches. 01L

should etend its branches to become a sustainable financial institution in this country. Tet

last year 01L has obtained second position in #A09L rating. As a new branch 9lephant

+oad 1ranch of 01L has been able to maintain its recovery position in sector-wise credit

financing is up to the satisfactory level. At last it should give more emphasis in this sector

to ac$uire more profit.

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CHAPT!-8

!9A!CH MTH%&%4%?I A$& 9AMP4

8." #ntro()ction:

+esearch is a process with a set of interrelated activities such as the identification of

research problems, choice of research methodology, data collection, sample, data analysis

and recommendations. +esearch problems are the first stage of the secondary research

process. %hese indicate gaps in the scope or the certainty of our knowledge. %hey point

out problematic phenomena, observed events that are pu!!ling in-terms of our currently

accepted ideas or current ideas that are challenged by new $uestions. %his study is based

on research topic R#redit &orthiness AnalysisS. "t has been identified by the eperts and

bankers that risk involved in providing loan to a particular borrower is the main reason

for failing to recover the bank's money and the issue of risk analysis remains as one of

the main factors in determining the status of loan*investment in-terms of recovery. or

this purpose, banks need to determine the credit worthiness of individual loan applicant

before sanctioning any credit.

8.* Metho(olog,:

%he research has been done through regression method in the empirical way. %hese

calculations have done in three ways:

First : "n this case it has assumed that interest rate is a dependent variable or interest rate

is a function of loan type, loan demand, total asset, total liability, district, age, eperience,

personal guaranty, no of installment, loan sanctioned and credit rationing.

9econ( :"n this case it has assumed that credit rationing is a dependent variable or credit

rationing is a function of loan type, loan demand, interest rate, total asset, total liability,

district, age, eperience, personal guaranty, no of installment, loan sanctioned and interest

rate.



54/80


8.1 4iterat)re s)r3e,

%he study has been conducted by etensive review of related literature available in

various libraries and collections such as various books, publications, periodicals and

journals. or this purpose, it has also taken help from the websites containing information

pertinent to my study.

8.8 Pop)lations an( sampling

%his research has been conducted using sampling method. ?ue to time constraint, study

of the whole population has not been possible. ifty clients of 0ercantile 1anks have

been selected with the help of simple random sampling method to test the hypothesis.

8.; &ata Collection: ?ata constitute the foundation of statistical analysis and

interpretation. ence the first step in statistical work is to obtain data. ?ata can be

obtained from three important sources, namely

a Primar, so)rce:


55/80


"nformation is collected from the records of the bank, &eb ites, Annual +eport of 01L .

1efore using secondary data some, some aspects should be considered

?ata should be suitable for the purpose of investigation.

?ata should be tested for ade$uacy

?ata should be reliable

"f the enumeration based on sample, sample should be representative.

or preparing this paper, " have collected suitable, ade$uate, reliable and representative

data. ome information is $ualitative they are organi!ed on the basis of rational judgment

and scores have been given to those $ualitative factors.

8.6 &ata Processing:

?ata was analy!ed both manually and with the aid of computers. +elevant descriptive

and inferential statistical tools have been used.

8.@ Anal,sis o+ &ata:

+egarding data analysis utili!ed techni$ues are-

8.@." Classi+ication o+ (ata: #lassification is the grouping of related facts into different

classes. %he process of classification gives prominence to important information gathered

while dropping unnecessary details facilitates comparison and enables a statistical

treatment of the material collected.

T,pes o+ classi+ication

1roadly, the data can be classified on the following four bases

?eographical: "n geographical classification, data are classified on the basis of

geographical or locational differences between the various items .%hat is area wise, e.g.,

#ities, districts, etc.

Chronological:&hen data are observed over a period of time the type of classification is

known as chronological classification. " have collected data for /==4 upto ?ecember.



56/80


=)alitati3e: "n $ualitative classification, data are classified on the basis of some

attributes or $uality such as se, purpose, types etc. " have collected data based on some

$ualitative factors such as loan type, purpose of the loan of the borrower.

=)antitati3e:Uuantitative classification refers to the classification of data according to

some characteristics that can be measured such as income, net asset etc. "t includes

interest rate, total asset, total liability, personal guaranty, no of installment, loan

sanctioned and credit rationing of the borrower.

8.@.* Tab)lation o+ (ata: One of the simplest and most revealing devices for

summari!ing data and presenting them in meaningful fashion is the statistical table. A

table is a systematic arrangement of statistical data in columns and rows. " have presented

data in the tabulation form highlighting loan type, loan demand, interest rate, total asset,

total liability, district, age, eperience, personal guaranty, no of installment, loan

sanctioned and credit rationing.

[email protected] Charting &ata:One of the most convincing and appealing ways in which data may

be presented is through charts. A chart can take the shape of either a diagram or graphs.

or representing the data " have used many graphs than charts.

8.E 9)mmar, an( concl)sion:

%his chapter has two main objectives one is to introduce the choice of particular research

methodology which have been used in this paper and the other is to provide the

description about the sample that have been used in this study. %he study follows both the

$ualitative and $uantitative research method. %he choice of the both method is influenced

firstly by the research topic of this study, which is subjective and have influenced the

choice of $ualitative research method. On the other hand, details about classification

tabulation and charting have been given here.

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CHAPT! -;

#$T!9T !AT - A$ MP#!#CA4 9T#MAT#%$

;." #ntro()ction:

"t is fundamental precept of banking everywhere that loan is made to customers in return

for interest ."nterest is the price charged by the bank against the loan taken by customers.

ecurity is re$uired by the banker as a protection against unepected default in

repayment by the customer. 1ut bank charges different rate of interest to different

customer based on the purpose of loan, amount of loan demanded, personal guarantee

and the collateral provided the customers. "n addition to these, bank also charges different

interest rate based on the occupation. %hose who are the staff of the bank are normally

charged lower interest rate.

;.* &escripti3e anal,sis o+ +actors )n(er consi(eration:

01L provides different types credit facilities to its customers. ?ifferent types of credit

facilities have different terms and conditions. 01L considers some factors in determining

interest rate that include loan purpose, no of installment, personal guaranty, collateral,

age, eperience, total asset , total liability, income.. %hese factors have relation with

interest rate to different etent. 7ow, through some statistical analysis the effect of these

factors are being described including interest rate-

Table-Fre>)enc, Table o+

#nterest !ate

+ange re$uency

4.4-B

B->.4 2

>.4-= =

=-.4 2

.4-2 2-3.4 B

3.4-@ /4

4=

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"n the above fre$uency table, it is found that most of the clients are in the no of

fre$uency is 2 out of sample si!e 4= and interest rate is 4.4H.%his implies that most of

the customers of our sample are taking the loan which charge 4.4H interest rate .

Table- Fre>)enc, Table o+ $et Asset

+ange re$uency

=====-2===== /=

2=====-4===== >

4=====-B===== 3

B=====-5===== /

5=====-===== 2

=====-2===== /

2===== -4=====

4=

"n the above table, it is found that most of customers have net asset ranging from

tk===== to tk.2=====. "t is observed that customer takes consumer credit scheme,

personal loan scheme that is they normally avail small amount of loan as have small

amount of net asset.

Table- Fre>)enc, table o+ loan p)rpose

+ange re$uency

@-> 2

5-/ 3

//-/3 /

/4-/B 4

/>-2= /

2-22 5

23-2@ 4

4=

ere, different loan purpose has been given different score and thereafter have been

categori!ed. "n the above table it can be observed that most of the customer falls in two

fre$uencies. ere the fre$uencies of both categories are same which is /.

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Table- Fre>)enc, Table o+ Age

+ange re$uency

/3-2= 2

2=-2@ 4

2@-3/ /

3/-3>

3>-43 4

43-@= 2

@=-@@

4=

%he above fre$uency table is based on age category. ere, the sample si!e has been

categori!ed based on age differences of the client. %hat is in what aged people take the

loan most from the bank. ere we can see that people take the loan most that fall in the

age range of 2= years to 2@ years. %he net most fre$uency is /.

Table- Fre>)enc, Table o+ #ncome

+ange re$uency

4===-4=== /

4===-/4=== =

/4===-24=== /

24===-34=== 434===-44=== /

44===-@4=== 3

@4===-B4=== @

4=

rom the above table it is obvious that most of the customers of our sample fall in the

fre$uency of which is /. %he range of income of this category is from tk.4=== to tk.

4===.%his implies that middle income level customer most fre$uent in our sample. %henet most fre$uency is = which indicate the income level from tk.4=== to tk./4===.



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Table- Fre>)enc, Table o+ no o+ ,ears o+ perience

+ange re$uency

=-4 @4-= 3

=-4

4-/= >

/=-/4 4

/4-2= 3

2=-24 /

4=

%he above table is based on the no of years of eperience in job. ere, we can see that

most of the customer belong which is 3 and the range of this category is 4 to = years.

Table- Fre>)enc, Table +or Cre(it !ationing

+ange re$uency

.24-.34 /

.34-.44 /

.44-@4 @

[email protected]

.B4-.>4 @

.>4-.54 /

.54-

4=

#redit rationing is the ratio of amount of loan sanction and amount of loan demand. %he

no of most fre$uency is @. %his implies that most of the loan application the bank

sanctioned B4H to >4H of the total loan demanded. %here are a few customers who get

the total of their demanded amount

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Table- Fre>)enc, Table +or the categor,

ase( on Personal ?)arant,

+ange re$uency

/B-/5 =

/5-2 /2-22 4

22-24 2

24-2B =

2B-25 >

25-3 /

4=

Like the loan purpose, personal guaranty has also been given score based on judgment for

the analysis purpose as it is a $ualitative factor affecting our decision. 1ased on the score,they have been categori!ed. ere, the most fre$uency is >.

;.1 Correlation Anal,sis:

"f two $uantities vary in such a way that movement in one are accompanied by

movements in other, these $uantities are said to be correlated. or eample, there eist

some relationship between interest rate and no of installments. %he statistical tool with

the help of which this relationship is measured is called correlation.

or determining why interest rate differs from customer to customer and thereby for

determining the credit worthiness of individual borrower the correlation between

different two variables has been calculated .Ender this study , the variables that are taken

into consideration are interest rate , loan purpose, personal guaranty, age, eperience, net

asset , income and loan sanction-loan demand ratio.

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Correlations

1.000 .572 .464 .184 .297 .407 .015 .230

. .090 .147 .347 .259 .183 .487 .310

7 7 7 7 7 7 7 7.572 1.000 .425 .528 .644 .378 .757 .452

.090 . .171 .111 .059 .202 .024 .154

7 7 7 7 7 7 7 7

.464 .425 1.000 .181 .399 .689 .757 .412

.147 .171 . .349 .188 .044 .025 .179

7 7 7 7 7 7 7 7

.184 .528 .181 1.000 .616 .725 .414 .240

.347 .111 .349 . .070 .033 .178 .302

7 7 7 7 7 7 7 7

.297 .644 .399 .616 1.000 .350 .401 .207

.259 .059 .188 .070 . .221 .186 .328

7 7 7 7 7 7 7 7

.407 .378 .689 .725 .350 1.000 .637 .141

.183 .202 .044 .033 .221 . .062 .382

7 7 7 7 7 7 7 7

.015 .757 .757 .414 .401 .637 1.000 .575

.487 .024 .025 .178 .186 .062 . .088

7 7 7 7 7 7 7 7

.230 .452 .412 .240 .207 .141 .575 1.000

.310 .154 .179 .302 .328 .382 .088 .7 7 7 7 7 7 7 7

Pearson Correlation

-i,. 1tailed/

*Pearson Correlation

-i,. 1tailed/

*

Pearson Correlation

-i,. 1tailed/

*

Pearson Correlation

-i,. 1tailed/

*

Pearson Correlation-i,. 1tailed/

*

Pearson Correlation

-i,. 1tailed/

*

Pearson Correlation

-i,. 1tailed/

*

Pearson Correlation

-i,. 1tailed/*

"%*''-

"*'A--'

""A*P:

"A'

"%*C;'

"'


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;.8. !egression Anal,sis:

+egression is a statistical tool with the help of which we are in a position to estimate or

predict the unknown values of one variable from known values of another variable. &ith

the help of regression analysis, we are in a position to find out the average probable

change in one variable given a certain amount of change in another. or the research

purpose " have done regression analysis to determine the reason of different interest rate

upon which the credit worthiness analysis for individual borrower can be done by the

bank. or regression analysis purpose it is assumed that interest rate is dependent on loan

purpose, no of installments, personal guaranty, age, eperience, net asset, income, and

loan sanction Ploan demand ratio. " tried to analy!e it through regression analysis using


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A%&VAb

2.143 3 .714 32.846 .009a

6.525'02 3 2.175'02

2.208 6

e,ression

esidual

otal

;odel

1

-u& o)

-uares d) ;ean -uare -i,.

PredictorsB Constant/? "A'? ""A*P:? "*'A--'a.

!ependent @ariableB "%*''-b.

Coe''icientsa

10.988 1.472 7.464 .005

1.257 .151 1.058 8.315 .004

1.703 .214 .874 7.960 .004

.348 .188 .217 1.850 .161

Constant/

"*'A--'

""A*P:

"A'

;odel

1

+ -td. 'rror

:nstandardized

Coe))icients

+eta

-tandardi

zed

Coe))icien

ts

t -i,.

!ependent @ariableB "%*''-a.

Residuals #tatisticsa

.8848 2.4946 1.6117 .5977 7

1.216 1.477 .000 1.000 7

8.016'02 .1347 .1094 2.303'02 7

.9415 2.2433 1.6197 .5280 7

.1536 .1584 1.59'17 .1043 7

1.042 1.074 .000 .707 7

1.399 1.304 .016 1.095 7

.4723 .3536 8.00'03 .2892 7

1.938 1.618 .105 1.404 7

.915 4.151 2.571 1.378 7

.000 2.082 .567 .763 7

.153 .692 .429 .230 7

Predicted @alue

-td. Predicted @alue

-tandard 'rror o)

Predicted @alue

Adusted Predicted @alue

esidual

-td. esidual

-tud. esidual

!eleted esidual

-tud. !eleted esidual

;ahal. !istance

CooDs !istance

Centered "e$era,e @alue

;ini&u& ;a(i&u& ;ean -td. !e$iation *


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C(arts

*or&al PP Plot o) e,ression -tand

!ependent @ariableB "%*''-

bser$ed Cu& Prob

1.00.75.50.250.00

'(p

ectedCu&P

rob

1.00

.75

.50

.25

0.00

Comment

"n model summary + s$uare is approimately e$ual to adjusted + s$uare. o the model is

fit. (5BH)"n the above figure the green colored line is best fit line. %he normal plot of

regression standardi!ed residuals for the dependent variables also indicates a relativenormal distribution as they are not scattered and very close to the best fit line.

b ln(#nterest !ate) J a0I a"ln(Person) I a*ln(perience) Ia1ln(#ncome) I

a8ln(Cre(it !ationing) I

Variables Entered/Reo!edb

"P'-*?

"'


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"odel #uar$b

.745a .556 .333 .7004

;odel1

-uare

Adusted

-uare

-td. 'rror o)

the 'sti&ate

PredictorsB Constant/? "P'-*? "'


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Residuals #tatisticsa

.8769 2.0436 1.6117 .4523 7

1.625 .955 .000 1.000 7

.4775 .6876 .5868 8.387'02 7

.1479 3.0382 1.8498 1.0555 7

.6772 .5485 3.172'17 .4044 7

.967 .783 .000 .577 7

1.414 1.255 .027 .959 7

2.2424 1.8183 .2381 1.4281 7

35.368 1.929 4.699 13.556 7

1.931 4.926 3.429 1.197 7

.003 1.976 .578 .707 7

.322 .821 .571 .200 7

Predicted @alue

-td. Predicted @alue

-tandard 'rror o)

Predicted @alue

Adusted Predicted @alue

esidual

-td. esidual

-tud. esidual

!eleted esidual

-tud. !eleted esidual

;ahal. !istance

CooDs !istance

Centered "e$era,e @alue

;ini&u& ;a(i&u& ;ean -td. !e$iation *


C(arts

*or&al PP Plot o) e,ression -tand

!ependent @ariableB "%*''-

bser$ed Cu& Prob

1.00.75.50.250.00

'(pectedCu&P

rob

1.00

.75

.50

.25

0.00

Comment:

"n model summary + s$uare is not e$ual to adjusted + s$uare. o the model is fit.

(44.@H) "n the above figure the green colored line is best fit line. %he normal plot of

regression standardi!ed residuals for the dependent variables also indicates a relative

normal distribution as they are scattered.

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Anal$sis

All the independent variables have been entered as specified in the regression e$uation.

ere the dependent variable is interest rate. or regression analysis, " have used standard

multiple regression under which " have entered all the independent variables to eamine

the relationship among the whole set of predictors and the dependent variable. 1ut here "

have used my judgment to enter the variables which variables affect the most the interest

rate.

All the variables together eplain 5BH of the variance in interest rate which is significant

as indicated by the -value. An eamination of the t-value indicates that net asset

contributes more to the prediction of interest rate which is also supported by correlation

analysis. Analy!ing the significance level from the above table, only loan purpose, no of

installments and income are important as the determinants of interest rate variation for

determining credit worthiness.

;.; Fin(ings an( Concl)sion:

"nterest rate is an important factor to the entire potential borrower and the bank. "t is the

most important source of income for bank. rom the correlation analysis and regression

analysis it is obvious that net asset is the most important factors in determining interest

rate this means mainly based on net asset among other variables bank charges different

interest rate for different borrower which indicates their credit worthiness. 1ut the factors

that 01L takes into consideration are not sufficient factors. "t should consider some

other factors for determining credit worthiness before sanctioning any loan for more

security and avoid default of customers.

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CHAPT! -6

C!T !AT#%$#$?-&T!M#$A$T

%F C!T %!TH#$99

6." #ntro()ction:

#redit rationing means the amount of loan sanctioned against the amount of loan

demanded. Esually, 1ank does not sanction the whole amount of loan for which it

accepts the application. 1ased on some $uantitative information and judgment, it takes

the decision whether it will accept the loan application or not and if yes then what should

be the sanction limit based on the credit worthiness of individual potential borrower. %his

chapter is about why credit rationing is different for different borrower

6.*Correlation Anal,sis:

#orrelation analysis is an empirical estimation through which it is possible to estimate the

degree of relationship of one variable with another variable other variables. %hrough this

estimation, we are able to determine the degree of relationship between two variables at a

time. Like the interest rate ,as determinants of credit

internship report on mercantile bank ltd

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