Loan Portfolio Management Analysis of ABL

Loan Portfolio Management of ABL
INTRODUCTION
Development of a countrys economy depends on the growth of its industries. Industries always need funds
to efficiently run their operations. Banks are the major source of funds because they help to create a
connection between savings and investment. Banks collect funds from the surplus group as deposits and
supply funds to the deficit groups as loans and advances. Interest is the cost of funds which banks provide
to the depositors and charged from the debtors. As banks deal with the money of people, they have to
maintain a good portfolio thus the risk is reduced and return is maximized.
Bangladesh, a developing economy, has the potential of becoming one of the leading economies. The
banking sector is well structured and is guided by Bangladesh Bank, which is the central bank of the
economy. Numerous changes taken place in the banking industry because of increasing technological
advance and the number of banks which forced the banks to increase performance and innovate new
services. At present there is total 56 scheduled banks where 5 are state owned commercial banks, 3
specialized banks, 39 private commercial banks (31 conventional and 8 Islamic banks) and 9 foreign
commercial banks. (FINANCIAL SYSTEM. RETRIEVED FROM WWW.BANGLADESH-BANK.ORG/FNANSYS/BANKFI.PHP)
Agrani Bank Limited (ABL) is one of the leading state owned commercial banks and provides a decent
portion of total loans in Bangladesh. ABL has maintained a diversified loan portfolio through various types
of loans and advances products. The total loan provided by ABL is 20,296 crore, which is 4.26% of total
loans and advances of Bangladesh (ANNUAL REPORT OF ABL, 2013). The bank is trying to make its
portfolio more expanded by creating new products and services like Green Banking, SME loan etc.
Loan Portfolio management is a crucial task for banks because loans are delivered from the funds of
depositors and banks must meet their claims. Loans stand also the main source of income for banks.
Soundness and safety of a bank depends on its investment of funds as loans and advances. Well-diversified
portfolio helps banks to reduce loan related risks like liquidity risk, credit risk, etc.
The key focus of this report is to analyze how well ABL has managed its loan portfolio. For this, the study
includes a comparative analysis of ABL and City Bank Ltd. and a statistical analysis of the impact of loan
Portfolio, interest expense and operating expense over net profit. This analysis will help to understand the
idea of loan portfolio management.
Page 1
1.1 ORIGIN OF THE REPORT

The internship program is essential for the successful completion of the BBA program from the Faculty of
Business studies, University of Dhaka. Therefore, each student is required to submit an internship report
after completing the internship program which focuses his/her learning from the program. The internship
program helps a student to gain real life experience. This program gives the perfect platform to bend
theoretical knowledge and practical experience.
The report, titled as Loan Portfolio Management of Agrani Bank Limited, originated under the
supervision of Dr. Prof. Mohammed Rafiqul Islam to fulfill the purpose of the internship program.
1.2 OBJECTIVES OF THE REPORT

PRIMARY OBJECTIVE:
The broad goal of the report is to understand the concept of loan portfolio management and how efficiently
ABL manages its loan portfolio.
SECONDARY OBJECTIVES:
1. To gather ideas about the overall credit policy of the ABL.
2. To understand the overall lending process of ABL.
3. To identify the problems related with the loan portfolio of ABL.
4. To compare the performance of the loan portfolio of ABL with City bank Ltd.
5. To pinpoint the relationship of loan portfolio and profitability.
6. To collect idea about the rules and regulations provided by Bangladesh Bank to manage portfolio
of loans and advances.
1.3 METHODOLOGY
RESEARCH DESIGN
The research is descriptive based on secondary data which all address the every W/H question: who,
what, when, where and how of the objectives of the research.
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POPULATION
The senior management and officers related with credit department formed the population of this study.
SOURCES OF DATA
o PRIMARY SOURCES:
Interviews of the senior management and officers of credit department of ABL.
o SECONDARY SOURCES:
Annual reports of ABL and City Bank Ltd. (FY 2009- FY 2013)
Websites of ABL and City Bank Ltd.
Journal articles, newspaper articles and websites.
DATA ANALYSIS
The report will provide both qualitative and quantitative analyses. AT First theoretical discussion will
be presented to understand the loan portfolio management and the portfolio of ABL. After this,
following methods will be used for quantitative discussion:
Comparison of profitability, liquidity and credit quality ratios related of ABL and City Bank
Ltd
Regression analysis by using SPSS.
Bar Charts and Line Graphs will be used to present graphical analysis of data.
After quantitative analysis, logical arguments will be discussed on the basis of results.
LIMITATION OF THE REPORT

The key limitations of the report are:
The report depends broadly on secondary data.
The sample data is only five years. For this the analysis may not provide significant result.
The lacking of practical knowledge and experience in working credit department.
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1.4 RATIONALE OF THE REPORT
A proper management of loan and advances is vital for banks because banks must consider both liquidity
and earnings. There are several risks associated with loans as credit risk, interest rate risk, liquidity risk,
etc. Therefore to reduce these risks banks have to maintain a well-diversified portfolio according to their
objectives. Depositors provide the funds to bank for safety as well as for return. If a bank fails to fulfill
these expectations, it may face losses which may lead it to bankruptcy. A collapse of a bank can bring a
disastrous impact on the economy. This problem can be solved by appropriate loan portfolio management.
As it is essential for banks, this report is prepared to understand and identify the factors that affects the loan
portfolio management.
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LITERATURE REVIEW
Harry Markowitz is known as the father of modern portfolio theory. In his paper, which is known as
Portfolio Selection (1952), he stated that there are two stages to select a portfolio. One is experience and
observation which will help to estimate future performance and another is relevant beliefs about future
performances which will lead to choice of portfolio. He also discussed about portfolio rule, which is the
motive of diversification to ensure maximum expected return.
Nails (2010) stated that, to manage risk banks use loan portfolio management after originating loans.
According to the author loan review is the critical element for a strong portfolio management. Controlling
credit risk is a crucial part of loan portfolio management, which is identified in the paper.
Biswas and Mondal (2012) have identified four major concerns for managers in order to maintain loan
portfolio. The first is to keep enough liquidity to meet the demand of depositors when deposit outflows
occur. Second, managers have to pursue an acceptable level of low risk by gaining assets with low default
rate and diversifying assets through asset management. The Third consideration is, for liability management
bank should have bonds with low cost. And the fourth is, capital adequacy management, which means the
amount of capital the bank wants to maintain and acquire the needed.
Managers must understand not only the risk of each credit, but also the relation between each loan and the
portfolio (Loan Portfolio Management, 1998). The paper also suggested that risks are interrelated, which
means actions or events that affect one risk can have similar effects on other risks too. Nine risks are
identified in the research, which expose banks earnings and capital by lending. The risks are credit risk,
Interest rate risk, Liquidity risk, Price risk, Foreign Exchange risk, Transaction risk, Compliance risk,
Strategic risk and Reputation risk.
David and Dionne (2005) discussed different diversification strategies that a bank may apply. They are
Geographical diversification, Industry Diversification, Size Diversification, Customer Diversification, Cost
of loan portfolio Diversification. They suggested that for managing the risks of portfolio the risks should
be divided in two categories: individual credit risk and total portfolio credit risk. The authors concluded
that it is difficult for banks to apply portfolio theory because flexible loan evaluation is necessary for banks
to capture the uniqueness of each loan. They also mentioned that diversification of loans can be inapplicable
because of low number of good borrowers which can also lead the bank to diseconomies.
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George et al.(2013) in their study over commercial banks of Kenya found that there is a direct impact of
loan portfolio over profitability. Other factors they took into that have influence over profitability were
interest expense, administrative cost and asset value. Interest expense considered as major factor to reduce
profits. From administrative costs salary reduced profits. To strength the positions of commercial banks the
suggested to use better diversification of loan portfolio through scientific approach, technology up gradation
and use of modern risk management practices.
Boateng (2011) mentioned in his paper that banks loan portfolio can be described on the basis of type,
purpose and maturity of the loans. The author identified some factors that lead to bad loan portfolio
management and they are deferred loan approval, loan diversion by customers, ineffective loan monitoring,
problems related with marketing and poor credit appraisal. He suggested that to manage a good loan
portfolio manager must understand the credit culture of the bank. Effective management information system
is necessary for loan portfolio management because information is necessary to proper credit appraisal. For
effective loan portfolio management the author suggested that to begin with assessment of individual loans
risk because selecting good credit is necessary to reduce risk.
Nakayiza (2013) in her paper described the relationship of interest rates and loan portfolio. She stated that
banks can increase the quality of loan portfolio by regularly reviewing loan portfolio management
objectives, reviewing the interest rate of the portfolio and reviewing the performance of the portfolio. The
interest rate should be managed according to the market situation.
Mileris (2012) has researched the effect of macroeconomic factors over loan portfolio credit risk. As the
numbers of doubtful and non-performing loans were increasing in hard condition of economy, he concluded
that macroeconomic factors have great influence over banks loan portfolio. He suggested that the stability
of banks is highly depended on macroeconomic changes and its necessary to understand the changes of
the economy.
Jahn, Memmel and Pfingsten (2013) conducted a research over Deutsche Bundesbank to analyze effect of
banks concentration and diversification. Their analysis shows that banks which prefer concentration have
sector specific knowledge. There is trade-off between loan diversification and concentration. The banks
which follow loan diversification may increase profit but can reduce stability and through concentration
banks can achieve stability but reduction in profit.
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AGRANI BANK LTD. (ABL)

Agrani Bank was established as a nationalized commercial bank in 1972 by taking over the assets and
liabilities of Habib Bank Ltd. and Commerce Bank Ltd. Later in 17th May, 2007 it was converted into a
public limited company and emerged as Agrani Bank Ltd. The bank took over the business, assets,
liabilities, rights and obligations on a going concern basis from Ministry of Finance in 15 November 2007.
Government is the owner of the 100 percent share of the Bank. In terms of branch the bank is the second
largest bank with 905 branches. In foreign Remittance the bank was in first position among SCBs in 2012
and 2013. The bank has put emphasis on SME and Agriculture financing as it believe these potential sectors
are important for economic growth. The bank has good reputation towards innovation. It tries to provide
new products and services in order to customer needs for example the opening new division for SME in
2005 and for green banking in 2011. The Products and Services provided by the bank are:
Table 1 Products and Services
DEPOSITS
LOAN AND ADVANCES
a. Taka Account
a. Continuous Loan
b. Foreign Account
b. Term Loan
c. Rural and Agro Credit
d. Small and Medium Enterprise Loan
e. Import Finance
f.
TREASURY
Export Finance
OTHERS
a. Money market
a. Cash Service
b. Foreign Exchange Market
b. Fund Transfer
c. Letter of Credit
c. Value Added Service
d. Letter of Guarantee
d. Merchant Banking
e. Other
e. Islamic Banking
Source: Annual Report 2013, ABL
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Some of the important information of ABL are highlighted below.
3.1 At a Glance
Table 2 Highlights of ABL
Legal Status
Public Limited Company
Shareholders
100 percent owned by the Government
Chairman
Khondoker Bazlul Hoque, PhD
Managing Director and CEO
Syed Abdul Hamid, PhD, FCA
Registered office
9/D Dilkusha, Dhaka-1000, Bangladesh
3.2 Organizational Information

Table 3 Organizational Information
Branch
899
Zonal Office
62
Corporate Branch
27
Circle Office
11
Authorized Dealer Branch
40
Foreign Correspondent
39
3.3 Financial Information

Table 4 Financial Information
Authorized Capital
Tk. 2,500 Crore
Paid up Capital
Tk. 2072 Crore
Total Deposits
Tk. 34,867 Crore
Loan and Advances
Tk. 20,296 Crore
Total Equity
Tk. 3,564 Crore
Operating Profit
Tk. 1,063 Crore
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3.4 Credit Rating (By CRISL, 2013)
Table 5 Credit Ratings
Long Term
Short Term
Entity Rating 2012 (as Govt. Guaranteed Bank)
AAA
ST-1
Surveillance Rating 2012 (Stand-alone Basis)
BBB
ST-3
Outlook
Stable

Notes:
1. AAA = Bank has the best quality, offer the highest safety and have highest credit quality. Risk factors are nearest to risk free government
bonds and securities.
2. BBB = Bank provides moderate safety, under-performing in some areas, but capable of overcoming with special care and cautious
operation.
3. ST-1 = Bank has the highest certainty of timely payment and in best liquid position.
4. ST-3 = Bank has good certainty of timely payment and liquidity factors are sound.
Page 9
OVERVIEW OF BANK LOAN, LOAN PORTFOLIO

AND LOAN PORTFOLIO MANAGEMENT
4.1 BANK LOAN
We can simply define loan as one party providing money, property or goods to another party in return for
future repayment with interest. Interest is the reward for risks borne by the provider.
Bank Loan can be stated as an agreement where a bank lends a specific amount of money for specific time,
usually taking collateral as security and the borrower repays the principal with interest. Here the interest is
income for banks and the cost to the borrower. Loans that are backed by collateral are known as secured
loans (ex. Mortgage loan) and loans that are have no collateral are known as unsecured loan (ex. Bank
overdrafts).
4.2 LOAN PORTFOLIO

Loans stand assets for banks. It can be also defined as investments made by banks. In general portfolio
means a group of financial assets where investment is made in expectation of earning returns by taking
consideration of expected risk and time frame. The financial assets are designed in a manner that the
investment is not concentrated in specific assets and the risks are reduced by balancing high risk investment
with low risk investment.
Loan portfolio is the total amount of advance lend by the bank at a given time. Banks collect deposits from
customers and must pay interest. In order to provide the interest cost as well as generating income, banks
invest the funds collected as credit. Banks have to consider several factors like liquidity, risks, etc. before
sanctioning loans. Thus a well-diversified loan portfolio is necessary. Banks maintain loan portfolio by
lending credits to different sectors (ex. Agriculture, SME, Textiles), different maturities (short term,
medium term and long term) and different clients. The risk is reduced in a manner that if one sector faces
any unstable condition or any client defaults, the losses can be offset by the return from other sectors.
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4.3 LOAN PORTFOLIO MANAGEMENT
Loan portfolio management is a process to identify, control and manage the risks and returns of the total
loans in the portfolio. As lending in the primary activity of banks, loan portfolio management can be
considered as supervisory activity.
The risks of each credit and how each loan is interrelated are taken into consideration while managing a
portfolio. Banks credit policy and the rules and regulations set by central banks provide guidelines to the
portfolio managers.
The elements which managers should consider are:
1. Risks associated with the loans
2. Credit Culture
3. Risk Profile
4. Objectives of the portfolio
5. Returns from the portfolio
6. Credit policy
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CREDIT POLICY
5.1 CREDIT POLICY
Every bank in Bangladesh needs to follow rules and guidelines provided by Bangladesh Bank. On the basis
of these rules and guidelines banks prepare their credit policies for every year. The credit policies provide
a formal procedure to appraisal, sanction, and monitor loans.
5.2 KEY POINTS OF CREDIT POLICY OF ABL

Agrani Bank Limited maintains its loan portfolio according to the policies. The main points of Credit policy
of Agrani Bank include:
1. It provides detail and formal guidelines for credit evaluation or appraisal process
2. The procedure of credit origination, administrating credit and proper documentation are described.
3. The formal credit approval process is explained
4. Risks associated with loans are identified, measured, monitored and controlled on the basis of credit
policy.
5. Roles and Responsibilities of management and staffs are clearly defined.
6. Guidelines and restrictions of loan concentration are explained
7. Management of problem loans is described
5.3 OBJECTIVES OF LENDING OPERATIONS

The main objectives of lending operations of Agrani Bank are:
1. To ensure customer satisfaction by providing timely and adequate financial assistance and advice.
2. To increase banks profitability by producing maximum cost-efficient products and services.
3. To compete in the banking industry by delivering products in competitive rates and with highest
quality.
4. To identifying risks associated with loans and complies with the growth objectives.
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5.4 PRINCIPLE GUIDELINES
ELIGIBILITY CRITERIA
There are some criteria according to the credit policy to be eligible for loans. They are:
Table 6 Eligibility Criteria for Loans
For Individual and proprietary entity
1. The borrower must be a citizen of Bangladesh.
For Corporation
1. The corporation must me organized,
2. The borrower must be of legal age.
formed or incorporated under the laws of
3. The borrower must have a sound mind.
Bangladesh.
5. If it is a foreign company, it must have
authorization to borrow from local banks
under the supervision of Bangladesh Bank
and Board of Investment.
2. Foreign companies must be allowed by its
Board of Directors to borrow from local
banks.
Source: Credit Policy 2013, ABL
The individual or corporation must be engaged in a productive enterprise.

The bank will not sanction loans to:
1. A corporation that is declared bankrupt under the law of Bangladesh.
2. Companies that are listed as classified or known as continuing defaulters on CIB.
3. Weapon financing or dealing companies.
4. Ethically or environmentally sensitive corporations like mining.
5. A director of the bank.
6. A stockholder of the bank.
7. Other related interests (wives, children, parents and relatives) according to the Bank Company act.
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LARGE LOAN CONCENTRATION LIMITS:
In order to avoid large loan concentration there are some guidelines provided by Bangladesh Bank. On the
basis of these guidelines Agrani Bank Ltd. follows the bellow rules:
1. The amount of credit must not exceed 15% of the banks total capital to a single client or group.
2. The limits for infrastructural development projects are 25% of Banks total capital
3. To sanction loans exceeding 15% the banks total capital, the bank should go through syndication
with other commercial banks.
4. While buying performing loans, the bank should take approval of Bangladesh Bank.
5.5 LOAN APPLICATION PROCESS

A client has to fill up Credit Application, which will be provided by the bank, with true information. The
form will help the bank to evaluate the customer and the project. There are some steps to be followed before
sanctioning a loan. They are presented below:
COLLECTION OF DATA
To analyze the credit proposal the bank should collect the below information in prescribed format:
Full details of Borrower
Details business in which the borrower is involved
Purpose of the Loan
Credit history with other banks should be collected from up to date CIB report
The financial position of the borrower and his/her business
Valuation of collateral presented by the borrower
Borrowers Relationship with suppliers and customers
INITIAL SITE VISIT

Through initial visit the bank can determine whether the client has provided truthful information about the
nature of the business, business condition, collateral and bank can identify the characteristics of the client.
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VERIFICATION OF DATA
The data can be verified through different documents collected by banks. The documents are:
1. Identity of customer by know your customer form
2. Physically visiting address provided by the borrower
3. Invoice and contract between suppliers and customers can be collected to know the relationship
APPRAISAL ANALYSIS
Appraisal of a loan proposal is necessary to identify risks and measure the profitability. The appraisal should
be done with the latest market information and should be conducted by higher management and should be
reviewed from time to time. Through appraisal analysis the following aspects are measured:
Credit worthiness of the Borrower
The cash flow of the borrowers business
The benefits and cost of the loan
Break even analysis
Environmental issues of the proposed project
The competitiveness of the industry the borrower is doing business
5.6 ACCEPTABLE SECURITIES

ABL keeps collateral against loans as a security against default risk. The security must be taken with written
consent of the owners and concerned government ministries in the case of public property. The most
acceptable securities are:
Buildings
Machinery and Equipment whose economic life should be equal or more than the life of the loan.
Vehicles whose economic life should be equal or more than the life of the loan.
Other acceptable forms of security are:
Raw material or merchandise Inventories
Bank Guarantee
Government Guarantee
Security instruments like treasury bills, Bangladesh bank Bills etc.
Fixed deposits
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5.7 LOAN PRICING
Agrani Bank follows the below formula to price loan:
Table 7 Loan Pricing Method
Cost of Funds (interest paid to depositors, administrative costs, etc.) is determined by the
treasury department
+
Target Yield (the percentage of profit bank wishes to make) is determined by the Asset
Liability Management Committee
= Base Lending rate (The minimum interest rate which bank usually charges to most credit worthy
customers)
+
Risk premium (the reward of bearing risk by the bank)
= Interest rate charged to Customer

Source: Credit Policy 2013, ABL
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LOAN PORTFOLIO MANAGEMENT

As a state owned commercial bank, ABL gives priority to those sectors which government is trying to
improve. In recent years the government is trying to improve the agriculture, shipping, garments and SME
sectors. The bank is trying to fulfill these objectives by allocating a major portion of loans in this sector.
The amount of deposits as well as loans increased annually, but in 2013 the loans and advances was lower
than 2012. This was because some big scandals like Hall-mark; Destiny puts banks to maintain strict
policies to sanction loans. The banks deposit was rising, although some unfair situations created in the
banking industry.
6.1 SECTOR WISE LOANS

In 2013 the bank provided a major portion of its loans and advances as personal loan, wholesale/retail
trading, power and energy and RMG sector. The distribution of total loan of 2013 was:
Graph 1 Sector wise loans and Advances
7,918
LOANS AND ADVANCES
2,128
2,833
638
1,119
380
345
175
550
1,947
115
174
758
972
Loans (BDT in Crore)
Source: Annual Report, 2009-2013
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The Highest loan was provided as wholesale and retailing to encourage SME sector and Garments sector,
as it is the major source of remittance of our country. The personal loans include the loans to staffs. To
ensure infrastructure development as an aim of the government the bank also emphasized the power sectors.
6.2 MAJOR CREDITS

INDUSTRIAL CREDIT
Development of a countrys economy depends on the growth of industries. As a SCB, ABL has put major
importance over this sector. The bank provides term loan and working capital loan to almost all sectors of
industry both individually and jointly with other banks. The trend of providing loans in these sectors is
presented below:
Graph 2 Industrial Credit
INDUSTRIAL CREDIT
8,000
7372
7,000
7482
6136
6,000
5,000
4,000
3,000
2,000
2,304
2873
1,000
0
2009
2010
2011
2012
2013
Industrial credit (BDT in Crore)

Source: Annual Report, 2009- 2013
The amount of loan increased significantly at 2012 and 2013. Its because government was trying to
increase the growth as well as providing incentives to provide loans in this section. There is an increasing
trend of sanctioning loan to industry by ABL.
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LOANS TO POWER SECTOR
Developing power sector is a major concern for the government now. ABL plays a vital role in financing
power sector projects. Up to 2013 the bank has financed nine projects a total of 1173 crore taka.
Graph 3 Loans to Power Sector
POWER SECTOR
Power Sector (BDT in Crore)
1,500
1,000
1120
2012
2013
746
500
195
74
0
1180
2009
2010
2011
Source: Annual report 2009-2013
GREEN BANKING
Bangladesh Bank has provided some incentives to encourage green financing. ABL has provided loans on
easy terms and conditions in order to maintain ecological balance and public health by reducing industry
wastage as well as dropping carbon emission. The bank has provided 48 lac taka in solar energy, 207 lac
taka in Bio-gas plant, and 1288 lac taka to Auto brick fields respectively up to 2013.
Graph 4 Green Financing
Green Financing (BDT in Lac)

48
207
1,288
Solar Panel
Easy Bike
483
Bio Gas
Hybrid Brick field
Source: Annual report 2013
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SME FINANCING
The government has taken the SME sector, as driving force to develop the economy. According to the
guidelines of Bangladesh Bank, Micro industry and Cottage industry is also included in SME financing.
ABL has divided SME financing as three sectors. They are
1. Service Sectors: Hotel, restaurants, tailoring, laundry, hospital, clinic etc.
2. Business Sectors: Grocery shops, cloths shop, medicinal shop, agro-business etc.
3. Industrial Sectors: Cotton industry, jute industry, rice mill, furniture industry etc.
In 2013, the bank has disbursed about 14035 million taka to 15,081 entrepreneurs and 480 million taka
among 1041 women entrepreneurs
As ABL has provided more emphasize on SME sector, the growth was remarkable. The trend of providing
SME loan is presented below:
Graph 5 SME Financing
SME Financing
15,000
12100
10,000
14035
12496
11791
8745
5,000
0
2009
2010
2011
2012
2013
Loans in SME (BDT in Million)
Source: Annual Report 2009-2013
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AGRICULTURE AND RURAL CREDIT
The economy of the rural area depends mostly on agriculture. The Government is trying to boost the
economy by providing different incentives in agriculture, including livestock, fishery and other off-farm
activities. ABL, as a government bank trying to remove poverty by financing in income generating activities
in rural areas. The bank is providing loans in easy conditions ranging from 5000-1,00,000 Taka. Collateral
is not required for loans up to taka 1,00,000 on agriculture and rural sector. Through 54 programs the bank
has provided Tk. 4,626.27 crore up to December 2013. In 2013 the bank has disbursed about 504 crore in
different sectors of agriculture. They are presented below:
Graph 6 Agriculture Credit
Agriculture and Rural areas
Loan Disbursed in Agriculture and Rural areas in 2013 (BDT in Crore)

300
257
250
200
143
150
100
76
50
0
Crops
15
11
Fisheries
Livestock
Poverty Alleviation
Others
Source: Annual Report, 2013
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6.3 MATURITY OF DEPOSITS AND LOANS
Graph 7 Maturity of Deposits and Loans
MATURITY WISE DEPOSITS AND LOANS

Deposits
25,000
Loans
23242
20,000
15,000
10,000
5,000
0
3542
7114
437
172
3696
7425 6807
Repayable on demand Over 3 month but within Over 1 year but within 5 Over 5 years but within
1 year
years
10 years
Source: Annual Report 2013
As Bank have to pay depositors when they claim, it is necessary for banks to keep a balance between the
maturity of Deposits collected and Loans and Advances provided by the bank. If a bank fails to meet the
demand of customers for both depositors and borrowers, it may face huge losses as the customer may switch
to other banks for better services. From the above Graph we can see that the major portion of ABLs deposits
are medium term which means from 1year to 5 years and are long term which means over 5 years to 10
years. The bank has provided its most loans for short term which means for 3 months to 1 year and long
term for 5 years to 10 years. The bank can provide more repayable demand loans as they have large portion
of repayable deposits are in the hand.
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6.7 LOAN CLASSIFICATION
Classified loans refer to those loans which are in danger of default. Interest and principal are outstanding
for some period. Under the guidelines of Bangladesh Bank, banks have to keep provisions for classified
loan. ABL follows the below rules to classify loans:
Table 8 Types of Classified Loans
Type of
Special Mention
Sub Standard
Loan
Overdue Provision
Overdue
Provisio Overdue
Provisio Overdue
Period
Period
Period
50%
9 months
Continuous
loan
Demand
Loan
60 days or
5%
more
60 days or
5%
more
Fixed Term
60 days or
Loan more
more
5%
3 months
20%
Doubtful
Period
6 months
or more
or more
but less
but less
than 6
than 9
months
months
3 months
20%
6 months
or more
or more
but less
but less
than 6
than 9
months
months
3 months
20%
6 months
or more
or more
than 10 lac
but less
but less
taka
than 6
than 9
months
months
Fixed Term
loan up to
60 days or
5%
more
10 Lac taka
Short term
90 days or
agriculture
more
5%
6 months
20%
9 months
or more
or more
but less
but less
than 9
than 12
months
months
12 months
20%
36 months
or more
or more
and Micro
but less
but less
Credit
than 36
than 60
months
months
Bad and Loss

Provision
100%
or more
50%
9 months
100%
or more
50%
9 months
100%
or more
50%
12 months
100%
or more
50%
60 months
100%
or more
Source: Credit Policy, 2013
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ABL has a large amount of classified loans. These are because corruption in sanctioning loan, political
influence, etc. The trend of classified loans is presented below:
Graph 8 Classified Loans
CLASSIFIED LOANS
Classified Loans (BDT in Crore)
5380
6,000
4,000
3580
2374
2102
2149
2009
2010
2011
2,000
0
2012
2013
Source: Annual report 2009-2013
From the above Graph, we can see that the classified loan was decreasing initially, but it dramatically
increased in 2012. It is because the great recession in global economy affected Bangladeshs export, import.
Many big clients of the bank were on the verge of default. But through strong business strategy the bank
has reduced the classified loans. The percentage of classified loans to total loans in 2013 is almost 18%,
which is very high.
6.8 LOAN RECOVERY

ABL follows a systematic way to recover classified loans. First information is collected from branches
through zonal office, circle office, and concerned division of head office. The Recovery and NPA
Management division, which monitors and recover problem loans, acts under the supervision of respective
general manager. Through early identification and timely reporting the bank tries to reduce the possibility
of loans becoming problem loans. To increase the pace of loan recovery the bank provides incentives to
responsible staffs and clients like declaring November 2013 as Classified Loan Recovery month.
Page 24

Graph 9 Target and Recovered Classified Loans
Classified Loan Recovered

Target
3,000
Recovered
2638
2,500
2000
2,000
1,500
1,000
1660
1500
749
1500
957
1500
1033
843
500
-
2009
2010
2011
2012
2013
Source: Annual report, 2009-2013
The loan recovery process for ABL was not good enough as they failed to fulfill their targets except at
2013. The best loan recovery year for ABL was 2013. In 2013 it has surpassed the target by giving more
importance to the task of recovery. As a state owned bank the bank faces many problems to recover this
loans for example political influence, corruption by the employees etc.
Page 25
REGRESSION ANALYSIS
Regression Analysis is a statistical tool to measure the impact of variables, which are known as independent
variables, over a variable, which is known as dependent variable and the strength of the relationship between
the variables. There are two types of regression:
Linear Regression: In linear regression only one independent variable is used.
Multiple Regression: In multiple regression more than one independent variable is used.
In this paper multiple regression is calculated by using SPSS software.
7.1.1 DEPENDENT VARIABLES

Net profit
Net profit refers to a measure of profitability. It is calculated by subtracting expenses and taxes from
revenues.
7.1.2 INDEPENDENT VARIABLE

Loan portfolio: The total loans and advances provided by the bank.
Interest expense: For banks interest expense is the interest paid by banks to depositors and other
borrowed funds.
Operating expense: The expense incurred to perform business operations. This expense is not
directly associated with products or services, but essential to run day to day activities.
7.1.3 MODEL SPECIFICATION

To investigate the impact of Loan portfolio, Interest expense and Operating expense on Net profit and it is
assumed that:
Y1= a+b1 x1 + b2 x2+ b3 x3+ ei
Where Y1= Net profit, a= constant term, b1= Regression coefficient for the independent variable, x1= Loan
portfolio, x2= Interest expense, x3= Operating expense, ei = Standard Error of Estimate.
Here, Y1 (i.e. Net Profit) is the dependent variable, while the x1, x2, and x3 are the independent variables.
This test has been used to find out whether there is a relationship between the dependent variable and the
independent variables. Collected data has been processed and analyzed with the help of SPSS software.
Page 26
ANALYSIS
7.2.1 CORRELATION
A correlation is useful when we want to see the relationship between two variables; express the degree that
two variables change correspondingly. It shows, how well one variable can be explained by another. It can
assume any value from -1.00 to +1.00. A correlation coefficient of -1.00 or +1.00 indicates perfect
correlation, (+) sign for positive relationship and (-) sign for negative relationship. On the other hand, the
coefficient of determination (R2) is the primary way by which we can measure the extent of the association
that exists between two variables
The value of the Correlation Coefficient (R) and Coefficient of Determination (R2 and Adjusted R2) of the
model are shown in appendix table no. 20
CORRELATION COEFFICIENT (R)

Correlation Coefficient (R) shows the positive or negative correlation between dependent and independent
variables. The value of R varies between -1 and 1 where -1 means negative relationship, 1 means positive
relationship and 0 means no correlation. From the Appendix, table no. 20 we can see that the value of R is
0.741 that indicates that the independent variables are positively related with the dependent variable (Net
profit).
COEFFICIENT OF DETERMINATION (R2 AND ADJUSTED R2)

R
SQUARE : It represents the explanation of the variability of dependent variable because of changes in
independent variables which means If the independent variables change by some units then the dependent
variables will be changed too and the measurement of changes are represented by R square. R square takes
value between 0% and 100%. From the appendix, table no. 20, we can see that the value of R square comes
.549 meaning that 54.9% changes in the dependent variable (Net profit) are happening for the changes of
the independent variables. And the least part (1 - .549) = 0.451 is changed by other factors which are not
considered.
ADJUSTED R SQUARE: Adjusted R square explains the changes of dependent variable if a new independent
variable is added in the estimated multiple regression. Form the appendix, table no. 20, we can see that the
value of Adjusted R square is -0.128 which shows that the independent variables didnt fit in the model.
Page 27
STANDARD ERROR OF THE ESTIMATE

It expresses the total amount of error or variability in the dependent variable that cannot be explained by
the independent variables. From the appendix table no. 20 the amount of standard error is 1.014E10 which
cannot be explained by the independent variables.
7.2.2 REGRESSION EQUATION ANALYSIS

The Regression equation (Appendix, Table 23) is:
= 1.987+ (-.545) X1+ (-.353) X2 +13.25X3

From the above equation it is found that
1.987 is constant which represents the value of dependent variable without independent variables.
The Net income seems to be increased in the absence of the independent variables
X1 (Loan portfolio) has negative impact on dependent variable for example one unit change
(increase) in loan portfolio will decrease .545 unit of Net income
X2 (Interest expense) has negative impact on dependent variable which means one unit change
(increase) in interest expense will decrease .353 unit of Net profit.
X3 (Operating Expense) has positive impact on dependent variable which represents that one unit
change (increase) in operating expense will increase net profit by 13.25 units.
7.2.3 HYPOTHESIS OF THE STUDY

NULL HYPOTHESIS
H0: Loan portfolio, Interest expense and Operating expense have no significant impact on Net profit.
ALTERNATIVE HYPOTHESIS
H1: Loan portfolio, interest expense and operating expense have significant impact on Net profit.
Page 28

RESULTS
IMPACT OF LOAN PORTFOLIO ON BANK PROFITABILITY:
The probability of loan portfolio is 0.593 (Appendix, Table no. 22) which is more than 0.05. So we accept
the null hypothesis (H0) that there is no significant impact of loan portfolio, interest expense and operating
expense over Net Profit.
Page 29
FINDINGS
From the statistical analysis the following points are identified:
7.3.1 Loan Portfolio (X1)

From the regression equation it is seemed that if we increase loans and advances the net profit declines. Its
because the loans are not performing well. The percentage of classified loans to total loans for ABL is very
high. The bank is providing loans but these loans are not bringing return as expected. Recovery activity of
the bank is not well enough. These factors influenced the net profit to decrease.
7.3.2 Interest Expense (X2)

According to the regression equation the interest expense has negative relationship with net profit.
The bank has faced a large amount of loss in 2012 which was more than double of the sum of net profits of
previous 3 years. Thats why bank has to borrow from other sources to offset this loss. As the bank has to
pay interest on the borrowed fund, it has negative impact on the net profit.
7.3.3 Operating Expense (X3)

The regression equation presented that operating expenses increase the net profit. The two major operating
expenses for banks are interest paid to the depositors and Salaries to employees.
Depositors put their money in the bank in order to earn interest. As the banking industry in the country is
very competitive, ABL has to provide a standard interest rate to attract deposits. The bank earns profit by
providing loans and advances from this fund. As a SCB, ABL provide good interest rate which helps the
bank to increase the net profit.
ABL is the second largest bank in the country in terms of branch. In recent years the bank is trying to
improve the services by adapting modern technologies and creating new services like green banking. To
increase the recovery of classified loans the bank recently introduced new division. These lead the bank to
recruit more quality manpower. The existing employees have been encouraged through providing standard
scale of salaries. So the performance of the banks employees tends to increase the profit of the bank.
Page 30
COMPARATIVE ANALYSIS OF AGRANI BANK

LTD. AND CITY BANK LTD.
8.1.1 Ratio Analysis
Ratio analysis is used to measure the performance of an organization in several key areas like profitability,
liquidity, efficiency and solvency. The analysis is done on the basis of information provided in the financial
statements like balance sheet and income statement. Comparison of ratios of different firms in the same
industry well indicate quantitative performance comparison.
8.1.2 City Bank Ltd. (CBL)

City Bank Ltd. has started its operation in 1983 and is one of the oldest private commercial banks. The bank
has reputation to follow unique strategies in managing operations. It tries to innovate new products and
services to compete in the industry and provide better customer service. The bank has provided Tk.8990
crore as loans and advances in 2013.
8.1.3 Profitability Ratios

RETURN ON ASSETS (%)
Return on Assets measures how efficiently the assets of a firm are utilized to generate earnings. For banks
it indicates the ability of banks to attract deposit in reasonable cost and investing the fund to earn profit.
ROA represents how much net income is generated by per unit of assets. The higher the ROA, the more the
bank is profitable.
ROA = Net income/Total Assets
Page 31

Graph 10 Return on Assets (ROA)
2.20%
2.04%
2%
1.33%
1.20%
0.63%
0.72%
0.70%
0.06%
2009
2010
2011
2012
2013
-4.92%
Agrani Bank
City Bank
Source: Annual report ABL and CBL, 2009-2013
The graph above shows ROA of ABL and CBL, where CBL had a higher ROA till 2011. ABL has a
fluctuating ROA which dropped to negative in the year 2012 because of global recession effects, which
decreases the return because cost and default rate was increased, but again it reached the highest point in
2013. CBL remains positive in 2012 though financial crisis, but it was struggling to increase returns after
the incident where the performance of Agrani Bank was amazing.
RETURN ON EQUITY
ROE is used to measure a firms ability to use shareholders equity to generate income. Its considered an
important indicator of a banks profitability and growth potential. It can be defined as percentage return on
each unit of equity invested in the bank
ROE = Net profit/Total Equity
Page 32

Graph 11 Return on Equity
25%
2012
City Bank
5%
4%
2011
2013
-260%
10%
22%
2010
Agrani Bank
11%
2009
16%
14%
12%
RETURN ON EQUITY
Source: Annual reports of ABL and CBL 2009-2013
From the above graph, it can be seen that the ROE of ABL is fluctuating including a huge amount of
negative value in 2012. On the other hand the ROE is declining for CBL. ABL has great comeback from
the loss of 2012 in 2013. The global crisis put a great impact on ABL where CBL remained positive. By
taking different strategies ABL is improving the ROE.
NET INTEREST MARGIN (%)

Net Interest Margin or NIM is widely used to measure the profitability of a bank. It reflects the banks
ability to generate interest earning and pay interest to customers relative to the amount of interest earning
assets. It can be also be used to measure the performance of banks investment decisions. NIM lower than
3% indicates that the bank has large volume of no or low interest generating assets.
NIM = (Investment Income Investment Expenses)/ Average Earning Assets
Page 33

Graph 12 Net Interest Margin
8.00%
7.13%
7.00%
6.00%
5.00%
4.61%
5.24%
6.25%
4.77%
4.43%
4.00%
3.00%
3.83%
3.70%
3.43%
2.00%
1.00%
1.61%
0.00%
2009
2010
2011
Agrani Bank
2012
2013
City Bank
Source: Annual Reports of ABL and CBL 2009-2013
The above chart shows that NIM is in declining for both banks. ABL has the more fluctuated NIM than that
of CBL. It is because as the classified loans are higher in ABL bank and thats why the bank has to borrow
more funds in order to pay customers. CBL tried to stabilize NIM as much as possible. ABL has failed to
keep its control and the rate decreases severely from 2010 to 2012. ABL is trying to increase the NIM by
reducing interest expense.
Page 34

8.1.4 Efficiency Ratio
COST TO INCOME RATIO
Cost to income ratio is important to measure the efficiency of a firm. The ratio provides an idea about how
much cost the firm has to bear to generate a unit of income. Lower C/I ratio represents better efficiency.
C/I = Total Cost/Total Income
Graph 13 Cost to Income Ratio
Cost to Income Ratio

74%
72%
61%
48%
2009
55%
55%
44%
2010
46%
2011
Agrani Bank
47%
2012
53%
2013
City Bank
Source: Annual Reports of ABL and CBL, 2009-2013
From the above graph we can see that the C/I ratio of ABL is higher than CBL. The C/I ratio is rising for
both banks, which indicates that both banks costs are increasing to generate profit. The competitive market
of the banking industry is responsible for it. CBL has good effort to minimize the growth of risk but the
ABL has failed to control the growth. The C/I ratio has been dramatically increased in 2012 and 2013 for
ABL. The global recession, political turbulence and increase in classified loans has affected most to ABL.
Page 35

8.1.5 Liquidity Ratio
LOAN TO DEPOSIT RATIO (%)
Loan to deposit ratio or LTD is used to measure liquidity of a bank. The ratio shows how much the bank
has used its deposits as loan and advances. Banks are restricted to use the full amount of funds collected
through deposits to maintain a certain level of liquidity. Higher ratio indicates that bank is less liquid and
Lower ratio directs that earnings of the bank is low.
LTD = Total Loans/Total Deposits
Graph 14 Loan to Deposit Ratio
100%
89%
90%
80%
70%
79%
73%
85%
77%
82%
76%
72%
69%
58%
60%
50%
40%
30%
20%
10%
0%
2009
2010
2011
Agrani Bank
2012
2013
City Bank
Source: Annual Report of ABL and CBL
From the above chart, it can be seen that CBL is more efficient in providing loans from the collected funds
than ABL. For both banks the ratio increased in 2010 but it declines from 2011. ABLs ratio declined more
than City bank Ltd. As a result the earnings of ABL is lower and but it is more liquid than CBL.
Page 36

NET LOAN TO TOTAL ASSET RATIO (NLTA)
NLTA is a liquidity measurement ratio which represents how much of the total assets of a bank is tied up
in loans. In another word the percentage of Net loans to total assets. Higher percentage indicates lower
Liquidity
NLTA = Net Loans/Total Assets
Graph 15 Net Loans to total Assets
Net Loans to Total Assets

64%
55%
64%
61%
55%
58%
50%
48%
45%
40%
2009
2010
2011
ABL
2012
2013
CBL
Source: Annual report of ABL and CBL, 2009-2013
From the above graph it can be seen that ABL is in better liquid position than CBL. The ratio declined for
both banks from 2011 to 2013. Its because depression in economy discourages banks to provide loans and
advances. The number of defaulters was increasing. To keep stabilize the economy Bangladesh Bank
provided restrictions on providing loans. ABL seems to be in more defensive position in providing loans
than CBL.
Page 37

8.1.6 Credit Performance Quality
TOTAL CLASSIFIED LOANS TO TOTAL LOANS
The ratio measures the percentage of total classified loans to total loans. For classified loans banks have to
keep provisions according to the rules set by central bank which reduces the earning of the banks. The
higher the ratio, the lower is banks credit performance.
Graph 16 Total Classified Loans to Total Loans
TOTAL CLASSIFIED LOANS TO TOTAL

LOANS
Agrani bank
City Bank
30%
25%
20%
25%
19%
13%
15%
10%
18%
11%
5%
4%
3%
2009
2010
2011
5%
8%
8%
2012
2013
0%
Source 1 Annual Report of ABL and CBL, 2009-2013
From the above graph it can be seen that the ratio of ABL is very high. The ratio tends to be declined for
both banks from 2009 to 2011 but dramatically increased in 2012. ABL reached its highest ratio in 2012
which is 25%. ABL has significant achievement in reducing the ratio in 2013 where CBL has slight
increase. But the ratio still remains very high for ABL.
Page 38
FINDINGS
Through the ratio analysis, the profitability, efficiency, liquidity and credit performance of ABL and CBL
is measured. The below points are identified in the analysis:
8.2.1 Profitability
ABLs profitability as a SCB is very poor in compared to CBL as PCB. ABL has faced huge losses in
unstable economy but has a great comeback. This indicates that the bank has quality to turn around from
hard situation and increase profitability. Through proper management and strategy ABL has exceeded its
profitability in some extents than CBL.
8.2.2 Efficiency
The gap between ABL and CBL in efficiency was close till 2011. But it dramatically increases in 2012 and
2013. In these two years banking industry was hard hit due to increase in cost of deposit and lending rates.
ABL also recruited excessive employees and lacks to adapt modern technology. These factors influenced
the cost of ABL to generate income.
8.3.3 Liquidity
ABL has better position in liquidity than CBL. But the bank is also loosing income because of not utilizing
more funds. As economic factors and restrictions from Bangladesh Bank influenced the lending of banks,
ABL has put it into more defensive position. CBL has make use of its deposit funds better than ABL and
maintained a standard liquidity position which is in return helping CBL to generate more profit.
8.3.4 Credit Performance

Loans are generated from deposits collected from the customers. The banks have to be cautious in lending
because if any borrower fails to repay in due time, banks loss profit as well as it creates problems to meet
depositors claim and banks have to search for external source to pay the depositors which is very costly and
reduces the profit. The credit performance quality is very poor for ABL. The classified loan is very high
than CBL. ABL fails to recover its loans as targeted in 2012 because of the crisis occurs in the economy
and corruption in lending and the classified loans hit it highest margin. Though the bank has significant
achievement in reducing classified loans in 2013 but it is still very high.
Page 39
CONCLUSION
The objective of every business is to earn profit by maintaining a good investment portfolio. For banks the
investments are loan portfolio. The operation of banks is mostly depended on collecting deposits from
customers and providing loans and advances to those who needs funds. Through credit policy, banks
manage their loan portfolio. So it is necessary for banks to find an optimum combination of high income
and low risk. Liquidity is also a major concern as there is conflict between objectives of liquidity and
profitability. So in todays highly competitive banking industry, managing a good loan portfolio is a major
concern for the banks.
As a SCB, ABL operates its operation on the basis of government objectives. A decent percentage of total
loans and advances are provided by the bank. The bank has also substantial accomplishment in collecting
remittances and spreading banking activities through increasing the number of branches. For maintaining
loan portfolio the bank has provided key highlight on agriculture, SME and garments sector as these three
sectors are identified for development of the countrys economy by government. The bank has problem
related to the recovery of its loans. The amount of classified loan is very high in compare to PCB. It indicates
that the banks management is struggling to recover the loans and rescheduling on political influences.
Management was also failed to keep stability in profitability when economic situation was unsuitable and
lower the cost to generate profits. For better performance the bank may consider the following points:
First, the appraisal of loans and advances should be provided more cautiousness so that the bank can
estimate the possibility of becoming classified loan.
Second, Internal and external political influence and corruption in lending should be reduced.
Third, Loan rescheduling should be strict so that the amount of loan classification is reduced.
Fourth, Loan recovery activity should be provided more importance and legal procedure should be taken
if necessary.
Fifth, Increase the use of deposit funds so that bank generate more profit as well as maintain a standard
liquidity.
Sixth, reduce the cost of generating income by proper use of available resources and adapting modern
technology.
Page 40

Seventh, Increase the number of branches under online banking so that efficiency in operation increased.
Eighth, New services like mobile banking should be introduced to attract more customers.
By giving emphasize on these points, ABL may increase the performance and maintain a good position in
the banking industry. As SCB, ABL needs good banking system as it represents the objectives of
government.
Page 41
REFERENCES
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COMMERCIAL BANKS. A case study of Centenary Bank Entebbe Road Branch (Uganda).
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Page 44
APPENDIX
Table 9 Five year Performance of ABL
2013
2012
2011
2010
2009
Authorized Capital
2,500
2,500
1,000
800
800
Paid-up Capital
2,072
991
901
547
497
Reserves
1,659
1,168
1,168
486
139
58
12
27
90
207
Retained Profit (Loss)
(225)
(1,454)
498
449
74
Total Equity
3,564
717
2,594
1,572
1,144
Total Deposits
34,868
29,243
25,221
20,633
16,628
Core Deposits
10,722
9,932
9,255
8,505
7,357
Particulars
Balance Sheet
Revaluation Reserve on Investment in Govt. Securities
i. Savings Deposit
9,524
8,926
8,532
8,013
6,966
ii. Deposit Pension Scheme
88
127
133
131
125
iii. Agrani Bank Pension Scheme
45
71
68
66
136
iv. Agrani Bank Bishesh Shanchay Scheme

Total Loans and Advances
Interest Suspense and Penal Interest
1,065
808
522
295
130
20,297
21,266
19,409
16,326
12,224
688
735
602
579
691
1,923
3,466
1,235
1,064
1,187
Net Loans and Advances
17,686
17,065
17,572
14,683
10,345
Investments (net)
14,566
8,921
8,376
4,264
4,089
Provision for Loans and Advances
Fixed Assets
1,525
1,138
1,123
544
288
Total Assets
44,416
37,872
34,882
26,485
21,406
6,781
4,823
5,859
5,960
4,798
Net Current Assets

Operating Results
Total Income
Total Expenditure
4,113
3,049
3,700
2,693
3,301
1,827
2,402
1,316
1,636
992
Operating Profit before Amortization, Provision & Tax
1,064
1,007
1,474
1,086
644
Amortization of Valuation Adjustment
133
133
133
Provision during the year
133
133
2,738
607
312
185
(216)
(2)
484
289
190
905
(1,862)
250
352
136
Earnings per Share
91.28
(187.84)
25.22
46.47
24.80
Cost of Fund in percentage
10.41
9.97
7.69
7.42
6.86
Return on Equity in percentage
25.39
(259.94)
9.64
22.38
53.75
Return on Assets in percentage
2.04
(4.92)
0.72
1.33
0.63
Provision for Tax

Net Profit (loss) after Amortization, Provision & Tax
242
Financial Ratios
Net Interest Margin in percentage
3.43
3.83
6.25
Average Yield on Loan in percent (Performing Loan)
14.19
1.61
13.86
11.99
11.19
4.61
11.04
Loans as percentage of Deposit (AD Ratio)
58.21
72.72
76.95
79.13
73.51
Page 45

Total Classified Loans to Total Loans in percentage
Net Classified Loans to Net Loans in percentage
(including staff loan)
17.93
25.30
11.07
12.88
19.42
6.81
8.40
3.44
4.69
4.79
Source: Annual Report of ABL, 2013
Table 10 Sector wise loans

Particulars
Loans (BDT in Crore)
Agriculture and Fishery
972
Jute and Jute Goods
758
Transport
174
Ship Breaking
115
Garments
1947
Food
550
Construction
175
Pharmaceuticals
345
Leather
380
Power
1119
Housing
638
Wholesale
2833
Personal
2128
Other
7918
Source: Annual Report ABL, 2013
Table 11 Industrial Credit

Years
Industrial credit (BDT in Crore)
2009
2,304
2010
2873
2011
6136
2012
7372
2013
7482
Source: Annual Report ABL, 2009-2013
Page 46

Table 12 Loan Provided to Power sector
years
Power Sector (BDT in Crore)
2009
74
2010
195
2011
746
2012
1180
2013
1120
Source: Annual Report of ABL 2009-2013
Table 13 Green Financing

Particulars
Green Financing (BDT in

Lac)
Solar Panel
48
Easy Bike
483
Bio Gas
207
Hybrid Brick field
1288
Table 14 SME Financing

Years
Loans in SME (BDT in Million)
2009
8745
2010
12100
2011
11791
2012
12496
2013
14035
Source: Annual Report of ABL, 2009-2013
Page 47

Table 15 Agriculture and Rural Credit
Particulars
Loan Disbursed in Agriculture and

Rural areas in 2013 (BDT in Crore)
Crops
257
Fisheries
15
Livestock
11
Poverty Alleviation
143
Others
76
Source: Annual Report 2013
Table 16 Maturity of Loans and Deposits

Maturity
Deposits
Loans
Repayable on demand
3542
437
Over 3 month but within 1 year
172
7114
Over 1 year but within 5 years
23242
3696
Over 5 years but within 10 years
7425
6807
Source: Annual Report of ABL, 2013
Table 17 Classified Loans
Table 18 Loans Recovered
Years
Classified Loans (BDT in Crore)
Years
Target
Recovered
2009
2374
2009
1500
749
2010
2102
2010
1660
957
2011
2149
2011
1500
1033
2012
5380
2012
1500
843
2013
3580
2013
2000
2638
Source: Annual report of ABL, 2009-2013
Page 48

Table 19 Ratio Calculations
2013
2012
City bank
2011
2010
2009
352
136
905
-1,862
250
26,485
21,406
44,416
37,872
34,882
2.037554 -4.916561 0.716702 1.329054 0.635336
911
147,472
0.617744385
763
130,186
0.586084525
2,018
115,736
1.743623419
1,849
90,898
2.034148166
819
76,467
1.071050257
905
-1,862
250
352
136
3,564
717
2,594
1,572
1,144
25.39282 -259.6932 9.637625 22.39186 11.88811
911
18,525
4.917678812
763
17,961
4.248093091
2,018
17,856
11.3015233
1,849
11,519
16.0517406
819
5,864
13.96657572
3,049
4,113
74.1308
992
1,636
60.6357
4,749,693,839
8,895,921,395
53.39181438
3,992,865,851
8,560,122,728
46.64496033
17,686
17,065
17,572
14,683
10,345
44,416
37,872
34,882
26,485
21,406
39.81898 45.05967 50.37555 55.43893 48.32757
85,034
147,472
57.66111533
78,753
130,186
60.4926797
2013
Agrani Bank
2012
2011
2010
2009
Return on Assets (ROA)

Net Profit (loss)
Total Assets
Return on Equity (ROE)

Net Profit (loss)
Total Equity
Cost to Income Ratio

Total Expenditure
Total Income
2,693
1,827
1,316
3,700
3,301
2,402
72.78378 55.34686 54.78768
3,559,814,530 3,200,831,687
7,756,141,753 7,301,070,396
45.89671828 43.84058108
2,112,244,711
4,367,880,343
48.35857544
74,306
115,736
64.20301376
41,979
76,467
54.89819138
Net Loans To Total Assets Ratio

Net Loans and Advances
Total Assets
58,317
90,898
64.1565271
Loans to Deposit Ratio

Total Deposits
20,297
21,266
19,409
16,326
12,224
34,868
29,243
25,221
20,633
16,628
58.21097 72.72168 76.95571 79.12567 73.51455
89,879
83,333
107,497
94,099
83.61070542
88.55885822
76,966
60,327
43,486
83,818
67,420
62,384
91.82514496 89.47938297
69.70697615
Total Classified Loans To total Loans

Total Classified Loans
3639
20297
17.92876
5380
21266
25.2986
2149
2103
2374
19409
16326
12224
11.07218 12.88129 19.42081
7251
89879
8.06751299
6231
83333
7.477229909
2644
76966
3.435283112
2669
60327
4.424221327
Source: Annual Reports of ABL and CBL 2009-2013
Page 49
2117
43486
4.868233454

Table 20 Model Summary
Model Summary
Model R
Adjusted
Square R Square
.741a
.549
-.128
Std. Error Change Statistics

of
the R Square F
df1
Estimate
Change
Change
1.014E10
.549
.811
df2
Sig.
Change
3
.593
a. Predictors: (Constant), Operating_cost, Interest_expense,

Loan_portfolio
Table 21 Correlations
Correlations
Profit
Loan_portfoli Interest_expe
Operating_co
nse
st
Pearson
Profit
1.000
-.327
-.258
-.129
Correlation
Loan_portfolio
-.327
1.000
.873
.959
Interest_expense
-.258
.873
1.000
.876
Operating_cost
-.129
.959
.876
1.000
Profit
.263
.311
.404
Loan_portfolio
.263
.012
.001
Interest_expense
.311
.012
.011
Operating_cost
.404
.001
.011
Profit
Loan_portfolio
Interest_expense
Operating_cost
Sig. (1-tailed)
Page 50

Table 22 ANOVA Table
ANOVAb
Model
Sum
of df
Mean Square F
Sig.
.593a
Squares
1
Regression
2.500E20
8.333E19
Residual
2.055E20
1.027E20
Total
4.555E20
.811
a. Predictors: (Constant), Operating_cost, Interest_expense, Loan_portfolio

b. Dependent Variable: Profit
Table 23 Coefficient Correlations
Coefficient Correlationsa
Model
1
Correlations
Covariances
Operating_cost
Interest_expense
Loan_portfolio
Operating_cost
1.000
-.277
-.827
Interest_expense
-.277
1.000
-.243
Loan_portfolio
-.827
-.243
1.000
Operating_cost
90.278
-3.389
-3.061
Interest_expense
-3.389
1.662
-.122
Loan_portfolio
-3.061
-.122
.152
a. Dependent Variable: Profit
Page 51

Coefficientsa
Model
Unstandardized Standar
Coefficients
dized
Si
95%
g.
Confidence
Coeffic
Correlations
Collinearity
Statistics
Interval for B
ients
B
Std.
Beta
Low
Upper Ze
Par
Toler
VI
Erro
er
Boun
ro- tial
ar
ance
Bou
or
.075
13.
nd
de
r
1 (Constant
)
1.987E
2.54
.7
.5
1.293
10
3E1
81
8.95
E11
6E1
0
Loan_por
-.545
.390
-2.424
tfolio
.2
1.
40
1.131
2.22
.3
.70
.6
29
27
0
Interest_e
-.353
xpense
1.28
-.277
.8
.2
74
5.194
5.90
.2
.19
.1
58
.220
4.5
53
0
Operating 13.253
9.50
_cost
2.438
1.
.2
54.13
.70
.6
39
27.6
.1
54
28
29
.074
13.
a. Dependent Variable: Profit
Page 52

Loan Portfolio Management Analysis of ABL

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Loan Portfolio Management of ABL

Loan Portfolio Management of ABL

1.1 ORIGIN OF THE REPORT

1.2 OBJECTIVES OF THE REPORT

Loan Portfolio Management of ABL

Interviews of the senior management and officers of credit department of ABL.

Websites of ABL and City Bank Ltd.

Journal articles, newspaper articles and websites.

LIMITATION OF THE REPORT

Loan Portfolio Management of ABL

Loan Portfolio Management of ABL

Loan Portfolio Management of ABL

Loan Portfolio Management of ABL

AGRANI BANK LTD. (ABL)

LOAN AND ADVANCES

b. Foreign Exchange Market

c. Value Added Service

Source: Annual Report 2013, ABL

Loan Portfolio Management of ABL

Public Limited Company

100 percent owned by the Government

Khondoker Bazlul Hoque, PhD

Managing Director and CEO

Syed Abdul Hamid, PhD, FCA

9/D Dilkusha, Dhaka-1000, Bangladesh

Source: Annual Report 2013, ABL

3.2 Organizational Information

Authorized Dealer Branch

Source: Annual Report 2013, ABL

3.3 Financial Information

Tk. 2,500 Crore

Tk. 2072 Crore

Tk. 34,867 Crore

Loan and Advances

Tk. 20,296 Crore

Tk. 3,564 Crore

Tk. 1,063 Crore

Source: Annual Report 2013, ABL

Loan Portfolio Management of ABL

Entity Rating 2012 (as Govt. Guaranteed Bank)

Surveillance Rating 2012 (Stand-alone Basis)

Source: Annual Report 2013, ABL

Loan Portfolio Management of ABL

OVERVIEW OF BANK LOAN, LOAN PORTFOLIO

4.2 LOAN PORTFOLIO

Loan Portfolio Management of ABL

Loan Portfolio Management of ABL

5.2 KEY POINTS OF CREDIT POLICY OF ABL

5.3 OBJECTIVES OF LENDING OPERATIONS

Loan Portfolio Management of ABL

2. The borrower must be of legal age.

formed or incorporated under the laws of

3. The borrower must have a sound mind.

Source: Credit Policy 2013, ABL

The individual or corporation must be engaged in a productive enterprise.

Loan Portfolio Management of ABL

5.5 LOAN APPLICATION PROCESS

INITIAL SITE VISIT

Loan Portfolio Management of ABL

5.6 ACCEPTABLE SECURITIES

Loan Portfolio Management of ABL

= Interest rate charged to Customer