INTRODUCTION

Generally by the word "Bank" we can easily understand that the financial institution dealing with money. But there are different types of banks like Central Banks, Commercial Banks, Savings Banks, Investment Banks, Industrial Banks, and Cooperative Banks etc. Banking system occupies an important place in a nations economy because of its intermediary role; it ensures allocation and reallocation of resources and keeps up the momentum of economic activities (Bank Fund Management, by Peter S. Rose). A banking institution is indispensable in a modern society. It plays a pivotal role in the economic development of a country like Bangladesh the Banking system as a whole has a vital role to play in the progress of economic development. The overall purpose of banking is to collect money from surplus unit and transfer it to the deficit unit. Banking sector is expanding its hand in different financial events every day. At the same time the banking process faster, easier and the banking arena is becoming wider. As the demand for better customer service increases day by day, they are coming with different innovative ideas & products. In order to survive in the competitive field of the banking sector, all banking organizations are looking for better customer service opportunities to provide their fellow clients. As a result it has become essential for every person to have some idea on the bank and increase the customer satisfaction level.

Origin of Banking Industry

The history of banking is as old as the history of many. Generally, to the necessity for keeping the money safe, the businesses of banking come in to existence. The evolution if money solved the problem of Barter System. Earlier there are faithful person to keep their surplus money safe and the other group owing to transaction felt the need of some person who could provide money. As a result based on two groups a kind of businessman came in to picture. They used to keep the money as deposit for security and give loans to the needy people. How the banking sector has developed.

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The English word Bank is derived from the Italian word Banco. The Latin word Bancus and the French word Banque which means a bench. They are of the opinion that the medieval. European banker (i.e. moneychanger and moneylenders) transacted their banking activities on the benches in the market place. This money changing and money lending business is known as banking business.

1.3 Development banking in Bangladesh

Bank system was practiced in the Indian subcontinent from the ancient period. In Indian subcontinent merchants, goldsmith moneylenders were the primary bankers. During the Moghal period banking and credit business was enchanted rapidly. Then the agency house of jagth Seth was similar to the merchant house of Lombardy Street.

In 1700 AD Hindustan Bank was established as the first joint stock bank. In 1784 Bengal Bank and in 1786 General bank of India was lunched. Then both the bank absolved respectively in 1793 and 1832.

During the early period of nineteenth century in 1806 Bank of Bengal in 1840 Bank of Bombay and in 1843 Bank of Madras was established. These Banks were called Presidency Bank. Then in 1920 these three banks merged to Imperial Bank of India In 1947 after the separation bank business in our country faced a severe disaster as non Muslim Bankers left to India. Then Reserve bank of India acted as the Central Bank of Pakistan in 1948 to re-build the Bank Business State Bank of Pakistan was established as central bank of Pakistan. In 1971 Bangladesh became independent. After liberation Bangladesh Bank was automated with the assets and liabilities of former State Bank of Pakistan. It is the central bank of Bangladesh. During Pakistan period in our country there were 1090 branches of 12 commercial banks. Three foreign banks were also active with 14 branch offices. Before liberation 80% of banking activities of our country was controlled by 2|Page

Pakistan. Consequently Bangladesh traders and industrialist s didnt get notable help from the Commercial Banks. After liberation reformed the destroyed economy on 26 th March 1972 the banking sector of Bangladesh was nationalized. After nationalization government of Bangladesh changed the entire bank to six banks. Which is Sonali Bank, Rupali Bank, Janata bank, Agrani Bank, Pubali Bank & Uttara bank. But the last two banks have been handed over two private sectors. After liberation all the large industries were nationalized. But in 1962private sector was given priority again in industrial polices the experience of public sector was nor fruitful. Then in 1983 servile private banks were established now satisfactory number of private banks is active in our country and playing their role in development of trade and commerce of Bangladesh as well as in the development of economy.

1.4 Banking structure in Bangladesh

Banking system of Bangladesh comprises of different types of bank and financial institutions. The name of our central bank is Bangladesh Bank it is the director and regulator of banking system of Bangladesh. Banking structure in Bangladesh is briefly described below. Bangladesh Bank is the central bank of Bangladesh. It is director of money market in Bangladesh. It regulates the activities of other banks of Bangladesh through credit control, exchange control etc. Commercial bank both the public and private sectors of commercial bank are active in Bangladesh. There are 4 nationalized commercial bank Sonali Bank, Rupali Bank, Agrani Bank. In 1983 priority gives on private sector of banking business. As a result two nationalize bank was handed over to private sector, which are Pubali and Uttara bank. Now in our country a large number of private banks are doing banking business.

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1.5 Hierarchy Analysis

Banking sector has a vital role to play in the economic activities and development of any country. This sector is much more important in a developing country like Bangladesh. The whole scenario of the economy of a country can be ascertained by examining the condition of the banking sector. In Bangladesh, the banking sector dominates the financial sector and macroeconomic management largely depends on the performance of the banking sector. Banking grew primarily in the public sector with main emphasis on restructuring of the financial system and development needs of the war-torn economy with gradual liberalization in subsequent years. It was increasingly felt that banks should be allowed in the private sector for giving a fillip to development process on the basis of private initiative.

In the 80s for the first time a number of banks in the private sector were allowed. Subsequently in the mid 90s some more banks in private sector also commenced operations. Finally, in 1999, 3rd generation of private sector banks was given permission to operate. As a result while up to 80s public sector banks dominated financial sector, banks in the private sector were given increased responsibility with the passage of time.

At present there are 51 scheduled banks operating all over the country. Out of these, 9 are state-owned (including five specialized banks), 29 are private commercial banks and the rest 13 are foreign commercial banks.

Private commercial banks are divided into three groups according to their beginning of business. They are familiar in the name of 1st generation, 2nd generation and 3rd generation banks.

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1st Generation Banks (Established 1982-1988): National Bank Limited, The City Bank Limited, United Commercial bank Limited, AB Bank Limited, IFIC Bank Limited, Islamic Bank Bangladesh Limited and Al-Baraka Bank Bangladesh Limited.

2nd Generation Banks (Established 1992-1996): Eastern Bank Limited, National Credit & Commerce Bank Limited, Southeast Bank Limited, Dhaka Bank Limited, Al Arafah Islami Bank Limited, National Bank LTD. And Dutch-Bangla Bank Limited. 3rd Generation Banks (Established 1999 to present): Mercantile Bank Limited, Standard Bank Limited, One Bank Limited, EXIM Bank Limited, Premier Bank Limited, Mutual Trust Bank Limited, First Security Bank Limited, Bank Asia Limited, the Trust Bank Limited, Jamuna Bank, and BRAC Bank, and Shahjalal Islami Bank Limited

2.1.1 Historical Background of the National Bank LTD.

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National Bank Limited has its prosperous past, glorious present, prospective future and under processing projects and activities. Established as the first private sector bank fully owned by Bangladeshi entrepreneurs, NBL has been flourishing as the largest private sector Bank with the passage of time after facing many stress and strain. The members of the board of directors are creative businessmen and leading industrialists of the country. To keep pace with time and in harmony with national and international economic activities and for rendering all modern services, NBL, as a financial institution, automated all its branches with computer networks in accordance with the competitive commercial demand of time. Moreover, considering its forth-coming future, the infrastructure of the Bank has been rearranging. The expectation of all class businessmen, entrepreneurs and general public is much more to NBL. At present we have 157 branches under our branch network. In addition, our effective and diversified approach to seize the market opportunities is going on as continuous process to accommodate new customers by developing and expanding rural, SME financing and offshore banking facilities. The emergence of National Bank Limited in the private sector was an important event in the Banking arena of Bangladesh. When the nation was in the grip of severe recession, the government took the farsighted decision to allow the private sector to revive the economy of the country. Several dynamic entrepreneurs came forward for establishing a bank with a motto to revitalize the economy of the country. National Bank Limited was born as the first hundred percent Bangladeshi owned Bank in the private sector. From the very inception, it was the firm determination of National Bank Limited to play a vital role in the national economy. We are determined to bring back the long forgotten taste of banking services and flavors. We want to serve each one promptly and with a sense of dedication and dignity.

2.1.2 Mission of National Bank LTD.:

National Bank LTD. mission statement states: 6|Page

Efforts for expansion of our activities at home and abroad by adding new dimensions to our banking services are being continued unabated. Alongside, we are also putting highest priority in ensuring transparency, account ability, improved clientele service as well as to our commitment to serve the society through which we want to get closer and closer to the people of all strata. Winning an everlasting seat in the hearts of the people as a caring companion in uplifting the national economic standard through continuous up gradation and diversification of our clientele services in line with national and international requirements is the desired goal we want to reach.

2.1.3 Vision of the National Bank LTD.

Ensuring highest standard of clientele services through best application of latest information technology, making due contribution to the national economy and establishing ourselves firmly at home and abroad as a front ranking bank of the country are our cherished vision.

2.1.4 Core Values of the NBL

NBLs Core Values Consist of 6 key elements .these values bind our people together with an emphasis that our people are essential to everything being in the bank.

1. Integrity : Nbl protects and safeguards all customer information Nbl treats everyone in an equitable and consistent manner Nbl creates an environment, which earns customer trust. 2. Open Communication : NBL builds customer relationship with integrity and respect

NBL offers a full line of products amd excellent service. NBL is committed to the prosperity of the customer and shareholder. 3. Performance driven :-

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In NBL, Customers and employees are judged in terms of their performance.

4. Continuous self improvement : Continuous learning, self-challenge and strive make ways for self

improvement of workforce at NBL. 5. Quality:

NBL Offers hassle free better service timely NBL Builds-up quality assets in the portfolio.

6. Teamwork:

Interaction, open communication and maintain a positive attitude reflect NBLs commitment to a supportive environment based on teamwork.

2.1.5 COMMITMENTS

In Serving the Bank

Carrying ourselves at work

Customer-first Total commitment and dedication Integrity Sincerity Caring Excellence through teamwork Creativity

Quality-focus

Credibility and Secrecy

2.1.6 Organizational Development of the National Bank LTD.:

In Serving Customers

Loyalty

Discipline

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In the 1450s and 1960s a new integrated type of training originated knows was organizational development. Organizational development is an intervention strategy that uses group processes to focus on the whole culture of an organization in order to bring about planned change, it seeks to change belief attitudes, values structure and practices so that organization can better adapt to technology and live with the fast pace of change. The general objective of organization development is to change all parts of the organization in order to make humanly responsive, more effective, and more capable of self-renewal. The organizational development process does not preclude the use of conventional training method, which is useful for some purpose. The management of National Bank LTD. is also concern about the training for its development. They believe that if the employees will be trained enough they would contribute more for the development of the banking business that is why; they send some employee in every batch.

2.1.7 Organizational Structure of National Bank LTD.:

The development of on organization depends on the management style of their organizations the same the development if the bank is being occurred only for the good management team. Management of the National Bank LTD. controlling of all the resources of the organization. To achieve the ultimate objective of making National Bank LTD. the finest banking of the country, the workforce will be futuristic in outlook, professional in attitude and honest in reputation. The board of directors wants to repose in the management all executive powers to run this service industry administration and credit portfolio independently without any undue influence from outside. The board formulates policy and gives policy directives to the management. Transparency and accountability are strictly ensured at all leaves of the bank. Bank operate with integrity, competence and farsightedness abiding by all the principals and provisions laid down in the bank company act 1991, 1994 and the guidelines of Bangladesh Bank. The bank is committed to pursue a straight forward, upright legitimate banking business, never be tempted by the abnormal prospect of large returns to do anything. It will only do what may be done under the national policy.

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2.1.8 Board of Directors of National Bank LTD.

Board of Directors of the Bank is a unique combination of both private and Government sector experience. Currently it consists of 13 Directors. Of them eight represent the sponsors and general public and four senior officials in the rank and status of Additional Secretary/Joint Secretary represent the Government. Managing Director is the ex-officio Director of the Board.

Board of Director
Mr. Zainul Haque Sikder Chairman

Ms. Parveen Haque Sikder

Alhaj Khalilur Rahman

Mr. Moazzam Hossain

Mrs. Monowara Sikder

Mr. Zakaria Taher Director

Mr. Rick Haque Sikder

Mr. Ron Haque Sikder

Mr. Mabroor Hossain

Mr. Salim Rahman Director

Mr. Md. Anwar Hussain

Mr. Neaz Ahmed Managing Director

Table: Management position of the executive position of the National Bank Limited.

2.1.9 Products and Services

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The Bank has launched a number of financial products and services since its inception in addition, to the scheme like Consumer Credit, ATM Card, Any branch banking. The following are the main indicators for performance analysis:

2.1.10 Performance of the NBL

Paid up Particulars Balance on 01 January 2011 Net profit for the year Bonus shares for 2010 issued during the year Addition during the year Revaluation of Govt. Treasury Bill, Bond and other Investment Issued during the year Transfer from general reserve Balance at December 31,2011 Capital 4,412,131,30 0 4,191,524,73 0 Statutory Reserve 4,180,253,18 3 General Reserve 497,723,32 7 Other Reserve 4,915334,354 Retained Earnings 5,112,856,189 Total 19,118,298,353

6,112,987,510

6,112,987,510

1,878,388,49 9

(4,191,524,730)

(1,878,388,499)

(3,668,733,726)

(3,668,733,726)

8,603,656,03 0

6,058,641,68 2

497,723,32 7

1,246,600,628

5,155,930,470

21,562,552,137

Balance at December 31,2011

4,412,131,30 0

4,180,253,18 3

497,723,32 7

4,915334,35 4

5,112,856,18 9

19,118,298,353

2.1.11 Customer Services and Automation:

The amazing and dazzling touch of the fastest banking practice of National Bank LTD. is outcome of exciting banking software where I relished the expertise. PC Bank opened up the door of new horizon for the smarter, better and faster banking. The arenas covered by the PC BANK are as follows:

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1. SYSTEM INFORMATION Set up branch code Set up parameter file Set up overdraft limit List of overdraft limit Set up currency file Maintain user password Set up report parameter Group of company information System password 2. ONLINE New Accounts Maintaining existing account Inquirers Instant statement Add or delete stop payment Mark clearing cheque Maintain series Enter instructions Interest on demand Alpa search Standing order Term loan 3. TRANSACTION INPUT

6. STATEMENT

Cyclic On demand Up to date statement

7. PERIOD PROCESS

Month end processing Yearly end processing Debit charge Print interest report Interest report of classified advances

8. GENERAL LEDGER GL parameter GL transaction GL update GL report GL report GL statement GL period process 9. BACK UP AND RESTORE Back up Format Restore 12 | P a g e

Enter transaction List transaction Edit transaction Display transaction Total transaction

4. UPDATE Update all Update transaction Update clearing

Update quick clearing 5. REPORT Daily report Management report Customer advice Quarterly report Optional report

Listing 10.DAY START PROCESS Transfer File GL Transaction File Time Deposit Maturity Scheme Maturity Process Standing order Process Clearing File

2.1.12 Social Commitment

The purpose of the banking business is, obviously, to earn profit, but the promoters and the equity holders of National Bank LTD. are aware of their commitment to the society to which they belong. A chunk of the profit is kept aside and/or spent for socio-economic development through trustee and in patronization of art; culture and sports of the country and the bank want to make a substantive contribution to the society where we operate, to the extent of our separable resources.

2.1.13 Corporate Culture

This bank is one of the most disciplined Banks with a distinctive corporate culture. Here we believe in shared meaning, shared understanding and shared sense making. Our people can see and understand events, objects and situation in a distinctive way. They mould their manners and etiquette, character individually to suit the purpose of the Bank and the needs of the customers who are of paramount importance to us. The people in the Bank see themselves as a tight knit team that believes in working together for growth. The corporate culture they belong has not been imposed; it has rather been achieved through their corporate conduct. The Bank achievement has been possible because of the able leadership; dedicated and committed services provided by all levels of management and staff which all possible because of a good and quality full corporate culture.

2.1.14 Branch Network

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The Dhaka Main Branch of NATIONAL BANK LTD. has been in operations since March 23, 1983. Its is in the at 45, Dilkusha Commercial Area. NBL has a total of 157 branches operating all over the country. Like other Banks, NBL has categorized its branches. The branches had been provided with authorized dealer licensees to handle import, export, and all types of foreign exchanges. The overall branch activities of NBL can be primarily divided into four different divisions. These are: General Banking Department Accounts Department Credit Department Foreign Trade Department

2.1.15 Operation of NBL

All branches of the Bank including the Head Office have a PC Based Local Area Network (LAN) on UNIX platform, which are a multi-user and most reliable and internationally recognized secured Operating System. They use macfree antivirus their security and bank Maintain software named A to Z .

2.1.16 Green banking

Green banking is a part of international initiative by a group of stakeholders to save the environment from environmental hazards. Global warming, climate change greenhouse effect, air pollution, water pollution, waste disposal, adverse weather pattern all these contribute to environmental hazards. Green banking ensures contribution to transition to resource efficient and low carbon industries; green industry. National Bank limited, being environmentally responsible bank do improve its own standards and also contributing to build up socially responsible business. Environmental concerns are the focus point of green banking for NBL. Environmental risk is a facilitating element of credit risk arising from environmental matters. It may be mentioned that environment in Bangladesh is deteriorating due to: 14 | P a g e

Land de-gradation Water pollution & scarcity Air pollution Bio-diversity resources Impact of natural disaster etc.

NBLs Green Banking policy is formal and structured manner in consistence with recognized standards to protect environmental degradation and ensures sustainable banking practices. NBL has taken initiative to implement green banking. A Green Banking Unit [GBU] has been approved by the Board of Directors. The Audit committee of the Board of Directors reviews the green Banking tasks in the Bank. Banks are offering customized and innovative products and services to support activities friendly to environment. Banks are continually supporting in such a way that help overall reduction of carbon foot prints set of green house gas emissions caused by organization, event, product or person. It may be mentioned that Bangladesh Bank instructed all banks to take necessary measures towards launching and implementation of green banking in each bank. The entire implementation cycle is divided into three years sessions as under: January, 2011 to December, 2011 January, 2012 to December, 2012 and January, 2013 to December, 2013. NBL has green products to support the cause and taken tasks for in-house environmental risk management and also taken awareness creation initiatives for strengthening green banking. National Bank Limited is committed to play due role in the implementation of green banking challenges and have taken different steps towards this goal. NBL believes green banking preserves resources for next generations.

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2.1.17 CSR (Corporate social Responsibility):Corporate social responsibility is integral to our business strategy. We need to ensure that we are running our business in a responsible way. We need to demonstrate that we are making a sustained, positive contribution to the economy and to society; by playing our part in the overall economy. This means that the bank recognizes that its activities have an impact on the environments in which NBL and its subsidiaries do business and that society expects the highest standards of when it comes to ethics and corporate responsibility. Our sustainability report is presented along the four major steps as being those are most relevant for the financial sectors and those are: Environment We believe that we have an important role to play in facilitating and financing the transition to a low carbon, resource efficient economy. Our vision is to be recognized by our stakeholders as leading environmentally responsible organization. We have set out our policies and procedures to reduce the environmental impact of our lending activities. Responsibility In the marketplace NBL serves more than 1 million customers approximately across the length and breath of Bangladesh. The Bank has products and services to cover most banking needs of our diverse customer base. The Bank has pioneered many of these products and services in response to indentifying customers unique needs. Responsibility In the workplace NBL has been continuously creating new fields of employment every year by way of expansion of its business activities and branch network. In 2011, created employment for 529 personnel. In addition NBL also consented on human resource development to build up an efficient workforce. The Bank invested a total sum of Tk. 3.13 million on training in 2011 which worked out to an average of Tk. 1399.82 per employee. It is mentionable here that during 2011, a total number of 2236 official took part 46 training and workshop program conducted by NBTI and since establishment of this institute a total of 9354 participants completed training successfully. Apart from this NBL provide

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various short term benefits to its employees like medical services to the employees and their family members. Responsibility in the community National Bank foundation was established in 1989 to fulfill the responsibilities of welfare for the society. National Bank public School and College in Moghbazr, Dhaka has been established where about 1065 students are studying in the school section from class 1 to class 10, while 100 students are at the college section. In 2011, 81 students appeared at the SSC examination and 63 at the H.S.C examination and in both the examinations 100% came out successfully. The bank has been accommodating prospective graduates of recognized universities for completing their internship. NBL also awarded scholarship to the brilliant children of the employees of the Bank and contributed Tk. 31.51 Lac t various educational sectors. Sports and cultural activities National Bank has a tradition of patronizing and sponsoring sports and culture of the country. NBL has contributed Tk. 23.08 Lac to various sports league of the nation. Disaster relief Natural hazards are common phenomenon in Bangladesh. Specially, those people whose life is very challenging living in the coastal and northern area of the country. NBL always extends its helping hands and stands beside the helpless people in times of natural calamities. Some times NBL con tribute through the Prime Ministers Relief found. Contribution to national exchequer National Bank has contributed significantly to the government effort in collection of revenue. In 2011 it has contributed to national exchequer an amount of Tk. 172.39 core as tax in addition to VAT deducted & paid on its earnings. Besides the bank deducted tax, vat, excise duties etc. from various payments and deposited the same to government exchequer. Welfare of freedom fighters NBL family always remembers the sacrifice and contribution of our freedom fighters with great respect. Every year we contribute for the development of freedom fighters and 17 | P a g e

their family members. During the year we contributed Tk.27.15 lac for well fare of freedom fighter. Contribution to martyred army officers killed in BDR carnage Nation bank has contributed significantly and continuously to the government for the Martyred Army officers Killed in BDR carnage. In 2009 NBL has contributed over Tk.76.10 Lac for the BDR carnage martyred army officers and freedom fighters. Additionally we are paying Tk.24.00 lac each year to the family member of martyred army officers. For employees NBL, which has 3, 758 employees provides due importance for the well being of its employees by offering attractive remuneration and other fringe benefits. During the year 2011 NBL has contributed Tk. 141.47 Lac as medical expenses to its employees and their family members.

Performance of the Bank (NBL): A brief review of the activities:

I take this opportunity to place before you the present overall operational of the bank a follows:
(Taka in Million)

SL.NO. 1 2 3 4 5 6 7 8 9 Paid-up capital

Particulars

2011 8,603.66 24,905.03 5,223.79

2010 4,412.13 19,190.79 5,137.42

Total Capital(Tier-l+ll) Capital Surplus/ (Deficit) Total Assets Total Deposits Total Loans and Advances Total Contingent Liabilities and Commitments Advance / Deposit Ratio Percentage of Classified Loans against total Loans

169,037.38 134,732.31 128,215.97 102,471.83 115,388.89 44,392.67 90.00% 2.83% 92,003.56 45,045.10 89.78% 3.96% 18 | P a g e

and Advances 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Profit after Provision & Tax Amount of Classified Loans Provision Kept against Classified Loans Provision Surplus / (Deficit) Cost of Found (Including operating cost) Interest Earning Assets Not-interest Earning Assets Return on Investment(ROI) Return on Assets (ROA) Income from Investment Earnings per share(Taka) Net income per share (Taka) Price Earnings Ratio (Times) Net Assets Value per shares (Taka) Net operating cash flow per share (Taka) 6,085.70 3,264.95 1,166.79 325.41 10.35% 6,860.34 3,642.57 1,086.08 268.79 9.12%

140,198.97 110,401.84 28,838.42 12.00% 4.01% 3,320.22 7.07 7.07 9.45 25.02 8.88 24,330.47 32.78% 6.05% 6,115.41 7.97 7.97 24.03 43.30 7.90

To uphold the continuous growth National Bank Limited always manage Debt equity ratio,Cost and income ratio, Advance ratio and the mirror of organization performance shows by these following graph.

9.31 6.77 6.99 6.05 6.85

Propertyand asset (T in m aka illion)

loan and advance

2007 2008 2009 2010 2011 Debt Equity Ratio (Times)

investment

49.07% 47.85% 41.04% 31.41% 24.73%

89.78% 90.00% 84.18% 84.77% 76.05%

2007 2008 2009 2010 2011 cost to income ratio

2007

2008

2009

2010

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2011

Advance Diposit Ratio

L iabilitiesand Capital (T in m aka illion)

paind up capital reserve and surplus

Incom (T in e aka m illion)

interest

investm ent

Value added is the wealth created by National Bank Ltd through the banking services. Value created from the income from banking services is the excess of cost of service rendered. The Value added statement shows the total wealth created, how it was distributed to meet certain obligations and reward those responsible for its creation, and the portion retained for the continued operation and expansion of the Bank. The comparative value added statement of the bank for the year 2011 and 2010 is given below:

V aluedistributed
2011 2010 Salary & allowance Dividend Govt. tax

Operating Result & Assets Operating Income Operating Profit Total Assets Return on Assets Share Value Earnings Per share

2012 21,932m 9,952m 169,037m 4.01% 2012 7.07

2011 18,511m 8,941m 134,732m 6.05% 2011 7.97

Marker value per share Price Earnings ratio Foreign Trade Import Export Export Remittance

66.80 9.45 2012 104,571m 60,894m 54,469m

191.60 24.04 2011 96,443m 47,812m 49,145

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Staff & Logistic No. of employees Branch & SME centre Foreign Subsidiary

2012 3,785 154 3

2011 3,442 145 2

Operating Income increased by 18.45% due to equal contribution by each sector Operating Profit increased by 7.28% Total assets increased by 25.46% due to increase in advance and govt. securities

Earnings per share has decreased due to more tax provision Market value has decreased due to adverse effect of capital market Eue to decrease in market value of shares

Import increased by 8.43% Export increased by 27.36% Foreign Remittance increased by10.83%

Manpower has increased by 9.18% During the year 9(nine) more branches opened One new subsidiary company formed in Maldives for remittance business

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2.3.1 OVERVIEW OF THE ORGANIZATION

2.3.1.1GENERAL BANKING
General Banking is the starting point and main function of all the banking operations it is the department that provides day-to-day service to the customers. Every day it collects deposit from the customers by allowing broking interest rate, meets their demand for cash by honoring Cheques and lends it to the customers against ending interest rate. Lending interest rate in higher than borrowing interest rate, this is the profit for the bank.

2.3.1.1.1 Functions of this department

This department maintains following functions. Account opening section. Cash section Remittance section. Clearing section. Accounts section. Establishment.

2.3.1.2 ACCOUNT OPENING SECTION

This section opens different types of account for their valued customers. Selection of customer is very important for the bank because banks success and failure largely depends on their customers. If customers are bad they creates fraud and forgery by their account with bank and, this destroys the good will of the banks. So, this section takes extreme caution in selecting its valued customer. There are five category of deposit product in National Bank LTD.

1. Savings Deposit
National Bank Limited offers customers a hassle free and low charges savings account through the branches all over Bangladesh.

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Benefits (Condition Apply) Interest rate of 4.00% on minimum monthly balance. Minimum balance Tk.5000. Maintenance charge yearly Tk. 600. No hidden costs. Standing Instruction Arrangement are available for operating account.

Account Opening Copies of recent photograph of account holder. Nominee's Photograph. Valid photocopy of Voter ID Card.

2. Current Deposit
National Bank Limited offers customers current deposit facility for day-to-day business transaction without any restriction. Benefits (Condition Apply)

Minimum balance Tk.2000. Minimum maintenance charges half yearly Tk.400. No hidden costs. Standing Instruction Arrangement are available for operating account. Easy access to our other facilities.

Account Opening

Copies of recent photograph of account holder. TIN certificate. Nominee's Photograph. Valid photocopy of Voter ID Card.

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3. Monthly Savings
National Bank Limited offers monthly savings scheme for its retail customers. Benefits (Condition Apply) Monthly installments of deposit will be Tk.500/-, Tk.1,000/- , Tk.2,000/- ,Tk.3,000, Tk.4000/- , Tk.5,000/- and Tk. 10,0000 Account may be opened for any installment and term , which is not changeble. A person is allowed to open more than one account for different installment in a Branch/ Bank.

Sl Monthly Installments no 01 02 03 04 05 06 07 (Taka) 500/1,000/2,000/3,000/4,000/5,000/10,000/-

Amount to be paid on completion of Term 3(Three) years @9.00% 20,627/41,255/82,510/1,23,765/1,65,020/2,06,274/4,12,549/5(Five) years @9.25% 37,896/75,791/1,51,583/2,27,374/3,03,166/3,78,957/7,57,914/8(Eight) years @9.50% 70,849/1,41,691/2,83,394/4,25,091/5,66,788/7,08,485/14,16,970/-

Account Opening 1 copy of your recent photograph. Nominee's Photograph.

4. Monthly Income Scheme

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Under this scheme one will deposit a minimum of tk.1,00,000/- or its multiple for three years and will enjoy monthly benefit of Tk.1,000/- for every Tk.1,00,000/-. Benefits(Condition Apply) Deposit of Tk.1,00,000/- and its multiple maximum of Tk 50,00,000/- shall be acceptable under this scheme. The account may be opened either singly or jointly. Account Opening 1 copy of recent photograph of account holder. Nominee's Photograph. Valid photocopy of Voter ID Card.

5. Double Benefit Scheme

Dreams come true. National Bank Limited now offers Double Benefit Scheme for it's customers. The benefits under this scheme shall become double after 6 years. Benefits (Condition Apply) Deposit of Tk.50, 000/- and its multiple maximum of Tk 50, 00,000/- shall be acceptable under this scheme. A person is allowed to open more than one DBS Account. The account may be opened either singly or jointly. All DBS account holder shall be offered with free Life Insurance Policy under this scheme. Account Opening 1 copy of your recent photograph. Nominee's Photograph.

6. Millionaire Income Scheme

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Under this scheme one will deposit a fixed amount on monthly basis for 5, 7 or 10 years and on maturity he/she will be just a millionaire. Benefits (Condition Apply) Deposit of fixed monthly amount for 5, 7 or 10 years. Deposit size will be based on tenure. Upon maturity the depositor will get Tk. 10,00,000/-. A person is allowed to open more than one MIS Account. The account may be opened either singly or jointly.

Installment 12,450/7,870/4,550/-

Tenure 5 7 10

On maturity 10,00,000/10,00,000/10,00,000/-

Account Opening 1 copy of your recent photograph. Nominee's Photograph.

Closing of Account To close an account parties may be request to send an application along with the unused leaves of the cheque book. On receipt of the application the following steps are taken.

The signature of the account holder is verified. The number of the unused cheque leaves shall be noted therefore. Debiting the incidental charges to the account. The account holder is advised to draw the remaining balance.

2.3.1.3 CASH SECTION

Cash department is the most vital and sensitive organ of a branch as it deals with all 26 | P a g e

kinds of cash transactions. This department starts the day with cash in vault. Each day some cash i.e. opening cash balances 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. The figure is called closing balance. This closing balance is then added to the vault. And this is the final cash balance figure for the bank at the end of any particular day.

Functions of cash department

-Cash payment -Cheque cancellation process -Cash receipt

Cash payment Cash payment is made only against cheque. This is the unique function of the backing system, which is known as "payment on demand. It makes payment only against its printed valid cheque.

Cheque cancellation process Receiving cheque by the employee in the cash counter and verification of the following by the cash officer in the computer section:

Date of the cheque. (it is presented within 6 month from issue date) Issued from this branch. An amount in figure and in word does not differ. Cheque is not torn or mutilated. Then gives pay cash seal and sends to the payment counter and payment office makes payment.

Cash receipt
.

Another important function of this department is receipt of cash. Depositors deposit 27 | P a g e

money in the account through this section by deposit slip.

It receives deposit from depositors in the form of cash. So it is the "mobilization unit" of the banking system. It collects money only its receipts from. It receives cash for issuing pay order, DD.

Books maintained by this section:

Vault register: It keeps accounts of cash balance in vault at the bank. Cash receipt register: Cash receipt in whole of the day is recorded here. Cash payment register: Cash payments are made in a day are entries here. Rough vault register: Cash collection for final entry in vault registers done here, as any error and correction is not acceptable. Cash balance book: Balance here is compared with vault register. If no deference is found, indicate no error and omission.

2.3.1.4 LOCAL REMITTANCE

Sending money from one place to another place for the customer is another important service of the bank. This service is an important part of transaction system. In this service system, people, especially businessman can transfer funds from one place to another place easily. There are three kinds of technique for remitting money from one place to another these are:

-Demand draft (DD) -Pay order (PO)

Demand Draft (DD)

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DD is an order of issuing branch on another branch of the same bank to pay specified sum of money to payee on demand. It is generally issued when customer wants to remit money in any place i.e. outside or the clearinghouse area of issuing branch. Payee can be the purchaser himself or another mentioned in the DD. It is safe technique of transferring money from one place to another.

Pay Order (P.O) Pay order gives the right to claim from the issuing bank. A payment is an instrument from one branch to the branch of the bank to pay a specific sum of money. Unlike cheque there is no possibility of dishonoring because before issuing pay order the bank takes money in advance. There are three reasons behind use of P.O:

Remitting Purpose Advice to Pay Payment against bill submitted to the bank.

Pay Order consists of three parties:

Beneficiary Applicant Counter Part.

2.3.1.5 CLEARING SECTION

This section receives all kinds of cheque in favor of the valued client for clearing on the part of their banking services. After receiving cheque it is necessary to endorse it and cross it specially. Clearing of cheque is done through the clearinghouse in Bangladesh Bank.

1st clearing 2nd clearing

Types of cheque for clearing

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There are four types of cheque for clearing:

Inward clearing cheque. Outward clearing cheque. Inward bills for collection.

Outward bills for collection.

2.3.1.6 ACCOUNTS SECTION

This is obviously an independent and unique department, which works as the composition of all the departments of the branch. This section is fully computerized. So the conventional large ledger and journal books are not kept like the some nationalized bank. It receives the vouchers from all departments and prepares the subsidiaries and maintains accounts. ESTABLISHMENT SECTION
This section deals with employees salary, many types of internal expenses such as purchases of stationary, equipment, machinery, payment of labor cost and convince. In case of leave of absence employee collects prescribed form from this section.

ICC (Internal control and compliance department)

Internal control and compliance department, this department checks all the activities as per requirements of Bangladesh Bank.

2.3.1.7 LOANS AND ADVANCES

This is the survival unit of a bank because until and unless the success of this section is a question to every bank. If this section is not properly working, the bank it self may become bankrupt. This is important because this is the earning unit of the bank. Banks are accepting deposits from the depositors in condition of providing interest to them as well as safe keeping their deposits. Now the question may gradually arise how the bank will provide interest to the clients and the simple answer is advance.

We often use loans and advances as an alternative to one another. But academically this 30 | P a g e

concept is incorrect. Advance is the combination of such items where loan is a part only for this credit section of the bank.

TYPES OF ADVANCE
All loan and advance that are provided by this bank can be categorized into there heads according to the nature and characteristics of each product:
ADVANCE

Continuous Loan

Term Loan

Loan General

Figure: Shows the different types of advances.

2.3.1.8 FOREIGN EXCHANGE DEPARTMENT

The Foreign Exchange Department is mainly divided into three sections. Such as1. Import Section 2. Export Section & 3. Remittance Section
The import Section deals with L/C in the perspective of the importers and the Export Section deals with L/C in the perspective of the exporters.

2.4.1 SWOT Analysis of NBL

SWOT analysis refers to analysis of Strengths, Weakness, Opportunities and Threats of the organization. This analysis helps the organization to facilitate improve its future performance in comparison to its competitors. An organization can also study its current

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position through SWOT analysis. For these reason, SWOT analysis is considered as an important tool for making changes in the strategic management of an organization.

2.4.1.1 Strengths

National Bank LTD. has a Reputation all over the country for its excellent service The bank has already achieved a high growth rate of deposit, Loans and advances, Import and Export business. A well-educated and trained workforce is the major strengths of National Bank LTD. The bank has satisfactory IT infrastructure National Bank LTD. has satisfied customers Product Diversification is also a major strength of National Bank LTD. Skilled, creative & committed manpower They have their own training center. The working environment of the bank is very friendly, interactive and informal. There is no barrier or boundary to communicate with the superiors and the employees.

2.4.1.2 Weaknesses

The promotional activities of National Bank LTD. are not adequate to gain market share. Most of the branch does not have any car parking facility. Shortage of spaces. In selecting people for providing services to the customers, the employees personality, manners, attitudes and acceptability are not properly examined. Only few branches have spacious car parking facility, which discourage some customers to deal with National Bank LTD. There are two major categorized employees one group who are from different banks or joined through competitive exams, the other group who joined here from different references. There is a big difference in term of attitude, manner, working style, and

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behavior between the two groups, which has bad impact to the service. Branch management also loves to ignore the problem.

2.3.1.3 Opportunities

National Bank LTD. has diversified product offering for Small and Medium Enterprises (SMEs) Foreign bank penetration may help in technology transfer in our banking system catering the necessity of improving operational efficiency. To increase operational efficiency, National Bank LTD. can adopt technology of foreign bank.

Different types of retail lending products have a great appeal to our middle class people. National Bank LTD. can bring these products for retail lending. They do not look forward to increase their product or service basket. They have a big opportunity if they provide online Banking system.

2.3.1.4 Threats

Increasing competition. More private commercial banks are providing service in the market. Foreign bank penetration is a major threat for banking industry. It is too bad to lose market share. Regulatory restrictions may be a cause of threats. In our country industries are becoming sick at an increasing rate and growth of industrialization is very slow in the country. Therefore, it is very likely that poor industrial growth will affect the potentiality of National Bank LTD.

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3.1 INTRODUCTION OF THE REPORT

Heart business of the bank is to sell their loan products, as well as other activities. One of the most difficult tasks in lending to business firm and other borrowing customers is deciding how to price the loan the emergence of National Bank Limited in the private sector was an important event in the Banking arena of Bangladesh. When the nation was in the grip of severe recession, the government took the farsighted decision to allow the private sector to revive the economy of the country. Several dynamic entrepreneurs came forward for establishing a bank with a motto to revitalize the economy of the country. National Bank Limited was born as the first hundred percent Bangladeshi owned Bank in the private sector. From the very inception, it was the firm determination of National Bank Limited to play a vital role in the national economy. We are determined to bring back the long forgotten taste of banking services and flavors. We want to serve each one promptly and with a sense of dedication and dignity.

3.2 ORIGIN OF THE STUDY

This report will be prepared as a requirement of the internship program of Eastern University Business faculty. The organization attachment has been started on 18 th October 2012 and will be end on approximately 19th January 2012. This report on Loan pricing of National Bank and Compare with competitor was assigned by Mr Oli ahad Thakur, mentor and supervisor, Faculty of Business, Eastern University, Bangladesh, Dhanmondi -5, Dhaka as a part our education program to complete our graduation.

3.3 RATIONALE OF THE STUDY

The study on the Loan pricing of National Bank and Compare with Competitor helps and makes me understand the Importance of loan pricing of different products and its impacts on loan Disbursement of National Bank and other documentation procedures.

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3.4 OBJECTIVES
The main objective of the loan pricing is To Study different types of strategy and methods of loan pricing of the National bank limited and Compare with Competitor.

Specific objective
To Study the last Two years loan pricing strategy of National bank. To Study competitors pricing strategy. Compare loan pricing with competitor.

3.5 SCOPE OF THE REPORT

The study will deal with the Loan Pricing undertaken by NATIONAL BANK LIMITED. This will be a complete loan pricing report that will focus on the specific organization and its competitors, and the study will be based on loan pricing activities of different level of loan operations engaged with this organization. Therefore, it is required to compile a better view of the overall loan pricing system. The scope of the study is limited to organizational setup, functions and performances.

3.6 METHODOLOGY OF THE REPORT

The study requires various types of information on past and present policies, procedures and methods of loan system. All the information incorporated in this report has been collected both from the primary sources and as well as from the secondary sources. Primary as well as secondary information are required because the loan pricing require the customized information for the performance of its progression so primary information is needed and the secondary information for the past comparison with the present condition what is happening in the regular situation. The past performance tells

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the feasibility relationship of the past performance with the present progression in the each month cycle.

3.7 SOURCES OF DATA COLLECTION

Primary sources of information The primary information has been

collected through interview, observation, discussion.

Secondary sources of information The secondary information have been collected through other reports journals, magazines, web sites etc.
Study Approach To prepare the report about the Loan pricing of National Bank and Compare with competitor observation and interview approach, analysis of past and present performances has been chosen because without interviewing any employee it will be really hard to know about the past situation of the organization and without analyzing the present situation a comparison and contrast of the loan pricing of the bank is impossible along with observation as an employee. Study Instruments Analyzing, comparing and evaluating the differences and expected outcomes are helped and taken and supported by the followings. Financial Ratio analysis Accounting calculations. Forecasting software. Graphs Tables Diagrams Charts Statistical

Mechanical Instruments The instruments will be paper, pencil, pen, telephone, mobile, scanner, computer, printer, pen drive, photocopy machine, punching machine etc. Sampling Plan

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Sampling Unit: Onlyselected divisions of National Bank Limited (Motijheel) and the Advance Department, Credit Risk Management. Sampling Size: This study is limited within 2 peoples of different level of Advance department and CRM Department. Sampling Procedure: The sampling procedure will be personally selected. Contract Method: Face to face interview, telephone and mobile.

3.8 LIMITATIONS OF THE STUDY

The major limitations of this study are given as follows: There were some restrictions to have access to the data collection, which is confidential by distress influence. In each portion there are lots of activities and different procedure. It is very difficult to understand each activity within this short period. Three-month is not adequate time to gain practical knowledge and prepare a report. In many cases, up to date information is not published. To protect the organizational loss in regard of maintaining confidentiality, some parts of the report are not in depth.

3.9 TOPIC ANALYSIS AND DESCRIPTION

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One of the most difficult tasks in lending to business firm and other borrowing customers is deciding how to price the loan. The lender wants to charge a high enough rate to ensure that each loan will be profitable and compensate the bank fully for the risks involved. However, the loan rate must also be low enough to accommodate the business customer in such a way that he or she can successfully repay the loan and not be driven away to another lender or into the open market for credit. The more competition the bank faces for a customers loan business, the more it will have to keep the price of that loan at a reasonable level consistent with competition in the financial marketplace. Indeed, in a loan market characterized by intense competition, the lender is price taker, not a price setter. With deregulation of banking under way in many nations, deregulated competition has significantly narrowed the profit margins banks earn from selling deposits making loans. This makes correct pricing of loans even more imperative for bankers today than in the past. Competition in the commercial loan market has increased dramatically over the last decade. This is true for a number of reasons. First, there is more capital in the industry than can be put to good purpose. Therefore, banks have been bidding down existing deals and compressing margins. Second, institutions from other parts of the financial sector have offered product innovations and product alternatives such as private placement as direct competitors to the standard loan product. This, in turn, has caused additional pressure on spreads in the marketplace. Third, given the well-known cycle in credit spreads, we are now facing a market in which credit spreads are exceedingly tight. As a result of the recent contraction in the credit spreads across all credit ratings, individual banks are now facing a pricing grid with an unprecedented and unreasonable compensation for the risk borne. Fourth, competitors and customers have learned more about the value of structure. As a result, banks have been suffering from inappropriate pricing of the imbedded options built into their loan products. The net result is that many bankers are building loan portfolios that do not cover their true costs, i.e., the cost of funding, the level of the risk, and the nature of the imbedded options contained in the loan contract. In order to remedy this situation, the banking industry will have to directly address the issue of appropriate and accurate loan pricing. This is particularly true in the large corporate area where this problem is most serious. It is the case for several reasons. First, it is a market that is highly contested with the investment banking and insurance sectors vying for first class customers. Second, 38 | P a g e

with excess of capital in the industry, the large corporate market has been seen as a place to employ large quantities with little cost. However, such competition has led to the tight spreads being more pronounced in this market area. Loan pricing gives an institution the ability to ensure coverage for the inherent cost of credit risk associated with different risk grades of loans. Thus, risk-adjusted loan pricing leads to better risk management. Once a bank has collected profitability data by loan, it can analyze risk-adjusted profit performance from many points of view--for an officer's portfolio, for a geographic segment, by industry, by loan size, or by credit grade. A consistent pricing methodology avoids numerous questionable practices in loan pricing by lenders. One questionable practice is demonstrated by lenders who typically do not include any costs associated with the risk of the loan in their pricing. This omission encourages bad credits to borrow at the same price that are being used to entice better credits. Another such practice is evident in lenders within the same organization who make a wide variety of assumptions about what it costs the bank to originate and maintain borrowers. Lenders typically don't have good personal knowledge about what it costs to run the commercial banking organization. They may be estimating something, pulling a number out of the air, or using the rules of thumb used at a previous bank-probably just as ill-founded. A third questionable practice occurs when lenders associate too large an earnings credit with corresponding balances. They don't take into account all factors associated with deposit profitability. They know less about deposit profitability than loan profitability--if that's possible!

3.9.1 BANK LOAN POLICY

One of the most important ways a bank can make sure its loans meet regulatory standards & are profitable is to establish a reliable loan policy. Such a policy gives loan offers & the banks management specific guidelines in making individual loan decisions & in shaping the banks overall loan portfolio. The actual make up of a banks loan portfolio should reflect what its loan policy says. Otherwise, the loan policy is not functioning effectively & should be either revised or more strongly enforced by senior management. 39 | P a g e

3.9.2 THE CONTENTS OF BANK LOAN POLICY

The examinations manual, which the Federal Deposit Insurance Corporation gives to new bank examiners, suggests the most important elements of a good bank loan policy. These elements include:

A good statement for the banks loan portfolio (i.e. statement of the characteristics of a good loan portfolio for the bank in terms of types, maturities, sizes & quality of loans. Specification of the lending authority given to each loan officer & loan committee (measuring the maximum amount & types of loan that each person & committee can approve & what signatures are required) Lines of responsibility in making assignments & reporting information within the loan department. Operating procedures for soliciting, reviewing, evaluating & making decisions on customer loan applications. The required documentation that is to accompany each loan application & what must be kept in the banks credit files (required financial statements, security agreements etc.) Lines of authority within the bank, detailing who is responsible for maintaining & reviewing the banks credit files. Guidelines for taking, evaluating & perfecting loan collateral. A presentation of policies & procedures for setting loan interest rates & fees & the terms for repayments of loans. A statement of quality standards applicable to all loans. A statement of the preferred upper limit for total loans outstanding (i.e. the maximum ratio of total loans to total assets allowed)] A description of the banks principal trade area, from which most loans should come. A discussion of the preferred procedures for detecting, analyzing & working out problem loan situation.

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A written loan policy statement carries a number of advantages for the bank adopting it. It communicates to employees working in the loan department what procedures they must follow & what their responsibilities are. It helps the move toward a loan portfolio that can successfully blend multiple objectives, such as promoting the banks profitability, controlling its risk exposure & satisfying regulatory requirements. While any written loan policy must be flexible due to continuing changes in economic conditions & regulations, violations of a banks loan policy should be infrequent events.

3.9.3 WHAT IS LOAN PRICING?

One of the most difficult tasks in lending to business firms and other borrowing customers is deciding how to price the loan. The lender wants to charge a high enough rate to ensure that each loan will be profitable and compensate the bank fully for the risk involved. However, the loan rate must also be low enough to accommodate the business customer in such a way that he or she can successfully repay the loan and not be driven away to another lender or into the open market for credit. Pricing of bank loan means setting the interest rate for sanctioning loan to creditors. Bank's clients must be individual or business firms. With deregulations of banking under way in many nations, deregulated competition has significantly narrowed the profit margins banks earn from selling deposits and making loans. This makes correct pricing of loans even more imperative for bankers today than the past.

3.10 WHAT ARE THE FACTORS OF PRICING THE BANK LOAN?

3.10.1 INTERNAL FACTORS:

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 Supply of loan giving fund: Bank uses a part of deposits as loan which is

the excess after keeping a reserve for liquidity. Increase in the excess amount increases the interest rate and vice versa.
Cost of fund collection: Bank uses a part of deposits as loan. If there are

many available sources from where bank can collect deposits then the cost of collecting the fund will decrease and there by will decrease the interest rate on investment.
Administrative cost: If the expenses of conducting the banking services

increase, the interest rate also increases.

Other overheads: Increase in other overhead (legal fees, advertisement,

donation, depreciation, etc.) will increase the interest rate.

Enquiring and analyzing cost: Enquiry and analysis

about the

applicant's financial condition incurs some expenses which ultimately increases the interest rate.
Loan supervision collection cost: There are some expenses incurred in case of

loan supervision activities for which interest rate increases.

Possibility of income from alternative assets: If the possibility of income

from other sources (low investment requirement, high liquidity, risk free investment such as T-bond) increases then there is a chance for the bank to increase the interest rate.
Opportunity of income from other sources: Bank has many income

sources other than income from investment (Foreign exchange, General banking service). When those income increases, the interest rate decreases.
Bank-customer relationship: If bank knows the applicant very well then

it doesn't have to collect information about the applicant which reduces the cost of information collection and thereby decreases the interest rate.
Anticipated dividend rate of shareholders: In pricing bank loan, bank has to

consider the anticipated dividend rate of shareholders. If it increases, the interest rate increases.

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3.10.2 EXTERNAL FACTORS:

Direction of Bank Regulatory Authority: Central Bank tries to control

the market interest rate on behalf of the Government to control the supply of loan in the market. This activity of Central Bank has an impact on the pricing of loan.
Competitor bank: In pricing of loan, Bank also considers the pricing of

loan of the competitor bank. If the competitor bank charges a low interest rate then bank also charges low interest rate to keep the valuable customers in the bank.
Other sources of loan procurement: There are other sources from which

a borrower can get loan such as Non-banking Financial Institutions, Leasing Company, Share Market (bond), etc. If these sources provide loan at flexible conditions to the borrower then this may affect the pricing of loan of the bank.
Demand for loan: If demand for loan increases, the interest rate charged by the

bank also increases.

Risk of fluctuation in interest rate: Fluctuation of interest rate increases the

risk in banking business. Increases in interest rate decreases demand for loan. Decrease in interest rate (after considering all the costs) increases the demand for loan but decreases the bank profit, which consequently reduces the ability of the bank. So in case of pricing loan, bank has to consider about the risk of fluctuation in interest rate.

3.11 DIFFERENT TYPES OF LOAN PRICING MODELS.

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3.11.1 COST-PLUS LOAN-PRICING MODEL

A very simple loan-pricing model assumes that the rate of interest charged on any loan includes four components: The funding cost incurred by the bank to raise funds to lend, whether such funds are obtained through customer deposits or through various money markets. The operating costs of servicing the loan, which include application and payment processing, and the banks wages, salaries and occupancy expense. A risk premium to compensate the bank for the degree of default risk inherent in the loan request; and A profit margin on each loan that provides the bank with an adequate return on its capital.

Marginal cost of raising loan able funds to lend to the borrower

+

Non-funds bank operating

Loan interest +++ rate

Estimated margin to compensate the Bank for default risk

Banks desired profit margin

Lets consider a practical example: how this loan-pricing model arrives at an interest rate on a loan request of Tk. 10,000. The bank must obtain funds to lend at a cost of 7 percent. Overhead costs for servicing the loan are estimated at 3 percent of the requested loan amount and a premium of 3 percent is added to compensate the bank for default risk, or the risk that the loan will not be paid on time or in full. The bank has determined that all loans will be assessed a 2 percent profit margin over and above the financial, operating and risk-related costs. Adding these four components, the loan request can be extended at a rate of 15 percent (10% loan interest rate = 7% cost of funds + 3% operating costs + 3% premium for default risk + 2% banks targeted profit margin). As 44 | P a g e

long as losses do not exceed the risk premium, the bank can make more money simply by increasing the amount of loans on its books.

3.11.2PRICE-LEADERSHIP MODEL
The problem with the simple cost-plus approach to loan pricing is that it implies a bank can price a loan with little regard to competition from other lenders. Competition affects a banks targeted profit margin on loans. In todays environment of bank deregulation, intense competition for both loans and deposits from other financial service institutions has significantly narrowed the profit margins for all banks. This has resulted in more banks using a form of price leadership in establishing the cost of credit. A prime or base rate is established by major banks and is the rate of interest charged to a banks most creditworthy customers on short-term working capital loans.

Loan Interest rate

Default-risk premium Paid by non-prime rated borrowers Base or prime rate Term-risk premium paid by borrower seeking long term credit

This "price leadership" rate is important because it establishes a benchmark for many other types of loans. To maintain an adequate business return in the price-leadership model, a banker must keep the funding and operating costs and the risk premium as competitive as possible. Banks have devised many ways to decrease funding and operating costs, and those strategies are beyond the scope of this article. But determining the risk premium, which depends on the characteristics of the individual borrower and the loan, is a different process.

3.11.3 CREDIT-SCORING SYSTEMS

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Because a loans risk varies according to its characteristics and its borrower, the assignment of a risk or default premium is one of the most problematic aspects of loan pricing. A wide variety of risk-adjustment methods are currently in use. Credit-scoring systems, which were first developed more than 50 years ago, are sophisticated computer programs used to evaluate potential borrowers and to underwrite all forms of consumer credit, including credit cards, installment loans, residential mortgages, home equity loans and even small business lines of credit. These programs can be developed in-house or purchased from vendors. Credit scoring is a useful tool in setting an appropriate default premium when determining the rate of interest charged to a potential borrower. Setting this default premium and finding optimal rates and cutoff points result in what is commonly referred to as risk-based pricing. Banks that use risk-based pricing can offer competitive prices on the best loans across all borrower groups and reject or price at a premium those loans that represent the highest risks. So, how do credit-scoring models and risk-based pricing benefit the borrower who only wants a loan with reasonable repayment terms and an appropriate interest rate charge? Since a bank is determining a reasonable default premium based on past credit history, borrowers with good credit histories are rewarded for their responsible financial behavior. Using risk-based pricing, the borrower with better credit will get a reduced price on a loan as a reflection of the expected lower losses the bank will incur. As a result, less risky borrowers do not subsidize the cost of credit for more risky borrowers.

3.11.4 RISK-BASED PRICING

Risk-based pricing is a system that evaluates the risk factors of your mortgage application and credit profile and adjusts the interest rate and discount points up or down based on this risk evaluation. 46 | P a g e

3.11.4.1 RISK-BASED PRICING FACTORS

Two other factors also affect the risk premium charged by a bank: the collateral required and the term, or length, of the loan. Generally, when a loan is secured by collateral, the risk of default by the borrower decreases. For example, a loan secured by a car typically has a lower interest rate than an unsecured loan, such as credit card debt. Also, the more valuable the collateral, the lower the risk. So it follows that a loan secured by the borrowers home typically has a lower interest rate than a loan secured by a car. However, there may be other factors to consider. First, the car may be easier to sell, or more liquid, making the risk of the loan lower. Second, the term, or length of a car loan is usually shortthree to five yearsas compared to the 15- to 30-year term of a home loan. As a general rule, the shorter the term, the lower the risk, since the ability of the borrower to repay the loan is less likely to change.

3.12 WHAT FACTORS CAN AFFECT ON LOAN PRICING?

Various factors interact to adjust loan pricing. The major factors include: Credit Profile: A credit report will be obtained that shows the amount of debt one have outstanding and how he or she has historically paid on that debt. The credit report will also contain a "credit score" that ranks credit history. Credit scores look at five main kinds of credit information, namely: payment history; amount owed; length of credit history; new credit; and types of credit in use. Generally, if anyone has had any history of nonpayment or late payments on any loans or debt, this may lower the credit score and increase the interest rate and costs. People with high credit scores consistently: pay their debts on time, keep balances low on credit cards and other revolving loans; and apply for and open new credit accounts as needed. Property: The property that are mortgaging also impacts on loan pricing. For example, investment property, condominiums or multifamily housing are usually considered to have a higher risk to lenders than single-family detached homes. The value of the 47 | P a g e

property (usually determined by an appraisal) as compared to the amount you wish to borrow (the "loan-to-value ratio" or "LTV") also impacts on loan price. The higher the LTV, the higher the interest rate and costs. LTVs over 80% also usually require mortgage insurance. The price of mortgage insurance may vary based on the credit profile.

Income/Debt: The amount of mortgage payments and total debt payments as compared to income, ("debt-to-income ratios") may also impact on loan cost. The higher the debt-to-income ratio, the higher the risk and so the higher the interest rate and fees.

Other Factors: Other factors may also affect lenders risk, and borrowers interest rate and fees. These factors include, but are not limited to: previous bankruptcies, foreclosures or unpaid judgments; and the type of loan product applied for, such as adjustable rate versus fixed rate, or cash out refinance versus rate and term refinance.

3.13 HOW AND WHEN IS THE PRICE OF LOAN DETERMINED?

Evaluating all the risk factors that are involved in your loan and determining where you fit into our risk/price range determine your price. The lender will give an estimate of risk-based pricing after he has done an initial evaluation of a borrowers credit history and a review of his or her proposed property.

One thing to remember, however, that the risk-based pricing may change from this initial estimate if any of the risk factors discussed above change for example, if the appraised value of the property is determined to be different than the value used for the initial estimate or if the credit profile changes between the time of the initial estimate and closing.

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If anyone chooses to "lock" a rate prior to the final risk assessment, it will be locked for the interest rate range available at that time. The actual price will be established based on where the final risk level fits into that particular interest rate range. The final risk level is determined at time of closing, when there are no further changes to the credit profile or loan factors.

Assessing the interplay of credit score, collateral and term to determine the risk premium is one of a lenders most challenging tasks. Whether loan-pricing models are based on a simple cost-plus approach or price leadership, use credit scoring or other risk-based factors; they are valuable tools that allow financial institutions to offer interest rates in a consistent manner. Knowledge of these models can benefit customers as well as banks. Although it cannot help customers make their payments, an awareness of loan-pricing processes can ease the uncertainty that may be involved in applying for a loan.

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3.14 FINDINGS 3.14.1 LOAN-PRICING STRATEGIES OF NATIONAL BANK LTD.

The banks in Bangladesh have been given almost full freedom to determine their own deposit and lending rates till June 2009 but now Bangladesh bank give circular for changing interest rate of loan and deposit. Because now world changing and there are many bank in market and they forget corporate responsibility and charge attractive offer for investor and its occur internal clash with bank to bank. Loan pricing is a critically important function for National Bank Ltd. to continue its operations. Loan-pricing decisions directly affect the safety and soundness of the bank through their impact on earnings, credit risk, and, ultimately, capital adequacy. As such, they must price loans in a manner sufficient to cover costs, provide the capitalization needed to ensure the banks viability, protect the institution against losses, provide for borrower needs, and allow for growth. The bank must have appropriate policy direction, controls, and monitoring and reporting mechanisms to ensure appropriate loan pricing. Determining the effectiveness of loan pricing is a critical element in assessing and rating an institution's capital, asset quality, management, earnings, liquidity, and sensitivity to market risks. Loan-pricing models are used by many institutions to assist in loan pricing. The models are typically spreadsheet programs that take a variety of information and calculate the loan rate needed to meet the institution's goals. Loan-pricing models are often used for pricing individual loans, rather than the entire portfolio, as they work well for differential loan pricing programs. Simpler models use basic information such as projected loan volume, interest rate, fees, and cost of funds, operating expenses, and loan terms to calculate a projected ROA. More complex models can take into consideration a variety of additional factors such as the quality of the loan, the institution's loan able funds position, and projected loan prepayments. Some models require dozens of inputs, and calculate ROA and ROE for multiple periods of time. Loan-pricing models provide the opportunity to analyze a variety of factors and can be designed to meet the needs of the institution. However, they can be complex, and are only as good as the information inputted. Also, these models often do not consider the competition. From the Treasury Department of national bank Ltd. I came to know that, they usually dont follow or use 50 | P a g e

any particular loan-pricing model or method. Their setting price of loan largely depends on market condition, demand of loans, how much deposit they have and other banks interest rates; that is competitors price. Now days Bangladesh bank give to bank a mid-level interest rate bank can update that rate by 1.5% add or cut .national bank do this like same way that other bank do. This negotiable interest make bank to bank more competitive because now bank turn into earning oriented to service oriented. Now bank loan disbursement and recovery system is easier.

3.14.2 COMPETITORS PRICE

For National Bank Ltd. it is the simplest methods for establishing rates on loan products is to match the competition in the loan market. In this scenario, the institution changes its rates to meet market competition and to ensure it maximizes returns in a rising interest rate environment. This practice will also ensure loan pricing practices are commensurate with the market and help insulate the institution from criticism of predatory pricing in its operating environment. Institutions often look to key interest rate indices to track the competitive market. The prime rate, which is the rate theoretically, offered by commercial banks to their best customers, is an example of a rate to which an institution may index its loan rates. Other competitors rate information is obtained from surveys, which are used in determining their price of loan. The major advantage of indexing institution loan rates to national or local indexes is simplicity. The major disadvantage is that it does not ensure the rate charged is sufficient to cover the institution's expenses, risks and profitability needs. Timely knowledge of how competitors price their loan products is a sound business practice that is an essential part of loan-pricing system for National Bank Ltd. The extent of the competitor market surveys may vary depending on the competitive environment in which the institution operates. The best surveys will include rates from various types of lenders in the operating environment for a variety of loan products and should be updated throughout the year.

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Failure to monitor the competitive environment, if it subsequently results in pricing of loans well below prevailing market rates, may indicate pricing deficiencies and unsafe and unsound practices. Adequate surveys are needed to ensure the institution prices loans in a manner that maximizes the return it receives on its loan products. However, a delicate balance must be achieved in pricing loans, as pricing above the market can cause the institution to sacrifice good quality loan volume, which may reduce profitability. Conversely, large increases in the volume of new loans may signal potential concern with loan-pricing practices that may strain the adequacy of capital. Institutions should support loan-pricing decisions with a documented analysis of the competitive environment.

3.14.3 LOAN PRICING COMPARISON YEAR-2012

In the year 2012 from the table it can be understood that in agriculture loan Rupali bank is the market leader with an interest rate of 12% where as all privet bank is same because Bangladesh bank give slickly direction about this loan pricing. Where as national has no charged 13% which is competitive based pricing strategy based on the amount of money inflow into the bank.

In term loan to large & medium scale industries BRAC Bank is the market leader with 15%,all bank are same but BRAC Bank have Varity in this product. Where as, bank asia, ncc, exim bank, Dhaka bank, sibl, and rupali bank are also giving at 15%.on the other side national bank give SME loan in different way named "Festival Small Business Loan. So it can be understood from that the variation is very high that foreign commercial bankis leading the term loan to large & medium scale industries loan market of Bangladesh.

Cash credit loan market is lead by Rupali Bank followed by BRAC Bank 17 % and our National Bank is possessing 18%. Loan general loan is followed by NCC, NBL

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with 18.5%. In house loan bank Asia is the market leader with 16.5% and NBL possessing 18% and other bank is market follower market follower. Secure over draft loan is market leader is National bank 15.5% and bank Asia and Dhaka bank offer 16% interest and other bank is remaining same 17%.

I also try to find out last 10 years records of rate of interest on different loans that are published by head office to branch communicated through circular by which I realized by comparing with other banks that National bank always follow market based loan pricing techniques.

Interest on YEAR - 2012

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Interest on YEAR - 2011

In 2011 all bank loan product interest rate reaming same, but there was some change happened in SME and agriculture loan in Rupali Bank .there also some change happened in cash credit and loan general in all privet bank.

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3.14.4 NEGOTIATED RATES/PRICING EXCEPTIONS

National Bank Ltd. often allows for negotiated rates or pricing exceptions from the established standard interest rates. In most cases, negotiated rates/exceptions are offered on large and/or high quality loans that are highly desired. These borrowers typically have many choices for financing and frequently shop around for the lowest price. Pricing exceptions may also be made to borrowers experiencing financial difficulties. In these cases, the bank's differential pricing mechanism may result in progressively higher rates to compensate for higher risk. If the borrower is still a desirable customer, the institution may provide an exception in order to keep the borrower's business. Another example of an exception is the waiver of loan fees and default interest to retain business that may have higher risk but is still acceptable business. If they find a borrowers CIB (Credit Information Bureau) report is good, he has a very long and strong relation with the bank and good reputation in the market the bank can negotiate with him for price. National Bank Ltd. allows negotiated rates or pricing exceptions and tries to keep appropriate controls to ensure that it contributes to the generation of sufficient earnings. They try to establish and maintain policies and procedures that would help them to negotiate rates or grant exceptions. In addition, negotiated rates/exceptions are monitored, summarized, and reported to the management in a routine and timely manner.

There is another reason for negotiable price that is inspire the good regular loan taker and DE inspire irregular loan taker .for example a regular businessman take loan from low rate ,then national bank get payment clearly and from his deposit national bank get earn. But when a bad loan taker take loan, national bank give him highest interest rate, by these he not inspire to take loan .then when he defaulter by bank need to cut some interest rate for his payment.

3.14.5 LOAN PRICING IMPACT ON LOAN APPROVAL

When Bank go for loan approval first bank think about that company or individual credit report then they check for proper document for loan , but sometime loan interest rate can be factor for loan disbursement .some bank offer low rate but for loan disbursement they charge transaction charge .but some bank offer high interest rate but no transaction cost .

On the other hand bank some bank is popular for their own loan product and easy disbursement system like National credit and commerce bank highest payable advance is secure over draft for their easy disbursement system. BRAC bank highest funded loan product is SME loan because they always think about market need. Rupali bank highest loan paying product is LC loan and agriculture loan because they always connect about profit and always follow govt. rule. SIBL popular for their cash credit loan because most of the branch of SIBL located in Industrial Area.

3.15 RECOMMANDATIONS

Loans must be accurately rated, monitored and tracked through time. This history will prove important, not only for the existing loan, but also for all subsequent loans that can benefit from the migration pattern that is unique to the specific institution which is absent to National Bank Limited at now.

The credit officer must more accurately value the underlying pricing conventions built into the loan market. These are often neglected when loans are priced as bonds. The existence of a re pricing grid, a periodic fee structure and various re pricing techniques are often neglected in favor of the assertion that loans are merely small bonds, which could be a good practice for National Bank Limited.

The officials of the bank shall be honest, sincere and free vices in their deal with borrowers for personal gain should be skillfully detected and exemplary punished to prevent others from indulging such irregularities. Steps should also be taken to arrest growing moral degradation amongst the officials by improving their service benefits, socio-economic condition and a standard of living where the officials shall have no reasons to be allured by the borrowers.

The lenders shall sanction and disburse loan to the borrowers in proper time of investment. They will see that no delay is caused in completing formalities and processes which may create problem to the borrowers to divert funds elsewhere or want of scope for investment and thus the funds become stuck up ultimately. So loans should always be sanctioned & disbursed in proper time of investment to ensure recovery of the loan in time from the borrowers.

Alertness and education amongst the sub-conscious about their obligation to return bank's money in time and utilization of funds of funds only for productive purpose of motivation and education field assistants of the lending bank may play vital role.

The lenders shall take legal action against the incorrigible defaulting borrows who are avoiding payment on weak grounds without bonfires intention to square up their dues without wasting of time. Money suits & criminal cases filed against the bad borrower shall be closely followed up for early decision of the court and immediate steps shall be taken for satisfaction of the decrees against the judgment debtors. Proper vigilance is required to be kept over disposal of court cases & recovery of the decrials dues as per judgment and in default, to file execution suit for attachment & sale of borrower's properties for satisfaction of the decree.

All the loan price of each specific loan has been detected based on competition. Since the market is competitive and intensity of competitiveness is increasing every day so National Bank Limited always follow market-based loan pricing strategy rather than cost based loan pricing strategy. Due to lack of knowledge on loan pricing method and strategy and lack of knowledge on implementing different methods on loan pricing National Bank Limited always market based loan-pricing strategy. So they should follow a particular loan pricing model.

3.16 CONCLUSION

The reports title Loan pricing of National Bank and Compare with competitor. The core and more important department is Credit department, which is responsible to disburse and collect loan amount. To determine the price of each specific loan amount is very difficult and right now Bangladesh Bank is responsible to determine the price of a specific loan. Based on the selected loan price banks can change and set their price of each specific loan based on competition, cost of fund of the bank and other economic factors that cannot be eliminate from loan pricing.

According to our above findings and reasonable recommendations it is easy to say that National Bank Limited use specific loan pricing model and by this they can select a price for their loan amount. Since the market is competitive and so competitive pricing strategy has been predominately followed to determine price of each specific loan.

So, in order to attract the right amount of customers by increasing earning spread, National Bank ltd. needs to go out of their way to introduce a new method of their each loan pricing by which they can earn higher amount of profit without incurring higher amount of cost. It has been proved that without providing extra feature, aggressive marketing and promotional strategy it is almost difficult to increase the spread (income expenses).

Experiences as an Internee

My Experience of Internship in National Bank

I started my internship in National Bank on 18th October, 2012. I understood that internship in National Bank is mainly to learn the National Bank working process. Internship experience in National Bank may be divided into two sects.

- Theoretical Experience - Practical Experience

Theoretical Experience: I attended one of meetings and five discussions about National Bank and its activities. I have known that National Banks working procedures, loan system and repayment system theoretically. National Bank has several kinds of loans as I explained before. National Bank is working for spreading education among the children of National Bank members. National Bank officials have explained everything we need to understand National Bank and we ask. I have known got an understanding about National Bank branch office activities I worked for a shadow staff in branch during my visit to Motijheel Branch, In Dhaka.

Practical Experience:

1st week:In first week national bank (Motijheel Branch ) branch manager told me you spend intern period start with register department in that week I check every internal and outgoing cheque ,advice and mail .

2nd week:-

Then next week I work in accounts opening section ,Mrs. Nahar is head of this section she was very helpful .first day of my internship period she make me understand every account policy regulation and everything. After this she also gives me idea about cheque issue and first bank transaction transfer and clearing and gives me responsibility for fill up KYC from, and CTR.

3rd week to 5th week:-

Next three week I was work with deposit department, this department consist six member .two officer maintain pay order and two officer maintain account transfer and two senior officer do transfer every cheque and clearing every cheque. Actually this department was very busy depart thats why they only give idea how they work.

6th week:-

Next week I go to work in foreign exchange department, I got a good experience about letter of credit and exchange rate.

7th to 11th week:-

Then I go to the advance department and first day I check daily balance sheet .I think this department was friendlier. I got very good experience about loan and related thing, actually they give me lot of responsibility thats make me understand how its work.

Problems Encountered

During internship I have faced many problems before finding internship office and after findings. These are

- As a student of Finance I tried engaged me such an organization which is compatible to my discipline. But I failed to find that because of not having graduation.

- In 12th semester regular class and internship i went on together. It was difficult for me to be regular in bath class and internship. I had to suffer hardship to do both at a time. - According to the National Bank intern schedule motijheel branch office is must.

How internship experience impact on my carrier

Internship in National Bank might impact on my future career although it is not compatible my discipline. I do not have any future plan to work in National Bank. But Banking is now spreading all over the world. International organizational has recognized for loan. It added a new era in Bangladesh business. So I think this experience will help progress in life.

Acknowledgement during Internship

During internship National Bank staffs in Motijheel branch office helped me very much. So I want give them thanks for their kind assistance. During tour to branches I took many interviews of old and new National Bank members. They talked with me frankly about their experience from National Bank. I want to give them thank through my report.